Myanmar Power Sector Update
Myanmar's new safety laws create obligations and liability for employers
Draft laws released
Draft legislation addressing occupational safety and health (OSH) has been released. The law is expected to be passed in the second half of 2017.
The proposed legislation puts new safety obligations on employers, employees and others in certain industries including "petroleum and natural gas works".
Implications for employers and others
The proposed new laws impose obligations relating to health and safety on employers, employees and those who design, manufacture, import, sell, install or demolish machinery and equipment that may cause risks to safety or health. There are penalties for violations.
Many types of workplaces are covered (eg, government departments, joint ventures, foreign-owned companies) and the law applies to a range of industries, including petroleum, natural gas and mining. The Ministry of Labour, Immigration and Population can extend the application of the OSH law to more industries later.
Companies should assess whether their current OSH measures meet the standards required by the draft law.
Key obligations created
The proposed laws require prior approval (through a business licensing system) of employers and those wanting to build, install, modify or demolish structures, machinery or equipment, by application to the Factory and General Labour Law Inspection Department (Department) 30 days before commencing operations (including details of their proposed OSH system).
Employers in particular will have extensive obligations. They must evaluate the risks associated with their particular workplaces and any machinery or equipment used in their workplaces, and implement protective measures to prevent damage to safety and health from using them. Employers must also implement specific safety measures such as providing appropriate protective clothing and equipment, conducting safety training, forming an OSH committee, displaying safety warnings and instructions and notifying workplace accidents, diseases and poisoning.
The proposed laws give Inspecting Officers from the Department broad powers to inspect, investigate, collect evidence and conduct interviews. They can also issue improvement notices (to rectify a safety/health risk within a set period) and prohibition notices (to stop work until the risk is rectified). The Department can take over and stop operations if employers fail to comply.
Penalties are wide-ranging, though relatively low compared to other ASEAN nations. For example, many employer obligations are subject to a penalty for breach of at least MMK 1,000,000 (about USD 740) to maximum K 5,000,000 (about USD 3,700) fine or maximum 3 months imprisonment or both.
Actions to consider
It is unclear how quickly the Department will begin enforcing compliance after the OSH law is passed.
However, employers (and other duty-holders mentioned above) should consider:
- Assessing the OSH measures in their workplace alongside the law to determine current compliance
- Making efforts to address compliance gaps
- Putting in place policies and procedures regarding safety and health risks, workplace accidents and incident reporting, first aid, etc.
- Engaging OSH consultants and legal advisers to assist in preparing for compliance
While the proposed law is broadly in line with many other ASEAN jurisdictions, it is significant because it creates a comprehensive OSH system in Myanmar for the first time.
We will keep you advised of further developments about the draft OSH law.
Upgrading energy: licensing petroleum products, production and transport
The Petroleum and Petroleum Product Law
The Myanmar Government is currently promoting and incentivising investment in its energy sector, in order to attempt to achieve its goal of connecting every household in Myanmar to reliable and efficient power from the national grid by 2030.
In the petroleum products space, Myanmar Oil and Gas Enterprise (MOGE) has issued three off-shore supply base (OSB) projects and recently announced that it still intends to issue a tender for a fourth OSB.
On 1 August 2017 the Myanmar Government introduced Law No. 20/2017, known as the Petroleum and Petroleum Products Law (Petroleum Law).
The Petroleum Law has a very broad scope ("Petroleum Product" is defined to mean "any materials derived from processing petroleum") and, once subordinate legislation is confirmed, will likely mean that any entity involved in any stage of the petroleum product supply chain will require some form of licence or permit issued under the Petroleum Law.
Objects of the Petroleum Law
The broad regulatory scope of the Petroleum Law is clearly designed to promote (and protect) 5 key objects in relation to the exploitation of petroleum products in Myanmar, specifically:
- Regulation: regulating the conduct of petroleum enterprises within Myanmar.
- Environmental Protection: to ensure petroleum development occurs without impacting the environment.
- Competition: to promote competition within the petroleum market in Myanmar.
- Energy Security: to guarantee the energy requirements of Myanmar.
- Economic Security: to obtain appropriate taxation for the State from the Myanmar petroleum industry.
Forms of licensing
A major step under the structures created by the Petroleum Law is the extensive licensing regime. It requires that a number of enterprises are required to obtain licences for their activities from various Ministries (possibly multiple Ministries, depending on the complexity of the activity), including those involved in:
- Importing or exporting petroleum products (Ministry of Commerce), which are also required to be tested for quality by a further licensed entity
- Processing, transporting, distributing, storing, selling, inspecting and testing petroleum products (when through a pipeline the Ministry of Electricity and Energy, and when not through a pipeline the Ministry of Natural Resource and Environmental Conservation)
- Operating vehicles or transport vessels (anything other than pipelines), as well as ports and waterways for the transport of petroleum products (Ministry of Transport and Communications)
- Installing or utilising underground tanks and warehouses (Ministry of Natural Resources and Environmental Conservation)
Any licence granted may contain whatever further conditions the relevant Ministry considers necessary. There has been no guidance yet as to what standard further conditions are likely to be required on a regular basis by each Ministry.
The relevant Ministry for each licence obligation will also have the ability to inspect compliance with the licensing regime, to develop and maintain quality standards for petroleum products in relation to the relevant licence, and to enforce actions against entities operating in breach of the various licensing requirements. Exemption from the licensing requirements is only permitted where the petroleum products are less than 6 gallons, and are not for a commercial purpose; all other entities are provided to obtain one or more licences.
It is unclear how the Ministries will work together during the licensing process, or whether these licensing processes will be coordinated in one body (eg, the Supervisory Committee). The Petroleum Law does not specifically outline the timeframes or processes that applicants will be required to comply with, but reserves these for either subordinate legislation or for the Supervisory Committee (discussed below). Importantly, an entity which wishes to apply for multiple licences will be able to submit an application for an "integrated permit" (however, there is no information regarding how an integrated permit can be obtained, nor who will be entitled to apply). A similar "integrated permit" system exists under the new Mining Rules, however, it remains to be seen how they shall be determined.
The Supervisory Committee
The Petroleum Law also provides for the formation of the "Supervisory Committee for Petroleum and Petroleum Product Enterprises", which will be comprised of at most 15 committee members from relevant Ministries. The relevant Ministries are not specified under the Petroleum Law, but it will also act to align the relevant State and Region Governments with the energy objectives of the Union Government. The Supervisory Committee will also be responsible for any enforcement activities or compliance audits required under the Petroleum Law.
It is also interesting to note that the Petroleum Law provides the Ministry of Electricity and Energy with the power to establish and operate a State-owned enterprise as a public corporation. It is unclear whether this is intended to be a entity such as the Myanmar Electric Power Enterprise which will be designed to hold stakes in joint ventures with developers, or whether it is more likely to be an industry regulator like Myanma Insurance.
Offences and penalties
Under the Petroleum Law it will be an offence to operate without a relevant licence. It will also be an offence not to assist the relevant Ministry or its inspectors when conducting a valid inspection under the Petroleum Law. Penalties may include:
- Warnings Warnings
- Fines up to MMK 5 million (roughly USD 4,000)
- Temporary or permanent suspension of one or more licences
Further, the Ministry of Planning and Finance can confiscate, execute or otherwise administer unlicensed or improperly licensed petroleum products.
As with the majority of Myanmar laws, there is also individual liability to make sure that individuals are appropriately incentivised to ensure compliance. As such, there is the possibility of personal fines or up to 6 months imprisonment for the managing officer of an entity convicted of an offence.
If a business has a licence issued under the old Petroleum Act 1923 then this will continue in force and will be subject to any conditions set out in the old licence. However, these businesses are required to submit a management plan to the relevant Ministries, outlining its compliance with the Petroleum Law and any subordinate legislation.
All new licences will be issued under the new Petroleum Law.
As energy is a key objective of the Myanmar Government, the Petroleum Law is likely to be an important and strictly applied law, and therefore early compliance will be to the benefit of any entity operating in this sector.
Myanmar works to strengthen bilateral agreements
A significant issue for power and energy companies looking to enter into Myanmar, is investment protection treaties.
Myanmar is continuing its offshore engagement with a new economic agreement underway with one of its closest Asian partners, Singapore. The countries already have a number of ties through ASEAN investment and co-operation treaties, however, this week U Aung Naing Oo (the Director General of Myanmar's Directorate of Investment and Company Administration (DICA)) announced that discussions were progressing for a further investment promotion and protection agreement between the two close countries.
Singapore is already one of the preferred hubs for businesses looking to invest in Myanmar because of the favourable ASEAN cooperation agreements in place between the countries, which effectively increase the ease of doing business in Myanmar. A direct bilateral investment treaty would reinforce this.
For foreign investors, increasing bilateral investment treaties mean an increase in the ease and attractiveness of doing business in Myanmar. Bilateral investment treaties generally mean favourable tax benefits, streamlined application and investment processes, and, traditionally, the loosening of tighter regulations in key markets, leading to greater development and investment opportunities. These are the benefits that foreign investors will continue to observe from Myanmar's current approach to its international relationships.
Currently, Myanmar has agreements with eight nations including:
Myanmar is also in negotiations on a direct investment and protection agreement with the European Union.
Myanmar remains a positive investment opportunity, and with growing international connections adding to its extensive internal capacity building, the country is working to make itself a stable and profitable option for offshore investors.
Data from Investment Policy Hub, available at http://investmentpolicyhub.unctad.org/IIA/CountryBits/144
Establishing an appellate tax regime in Myanmar
In May this year, the Union Government announced changes to the structure of tax appeals by implementing Notification 54/2017 (the Notification), which reformed the appeal tribunal to hear objections from decisions by Government bodies under a number of Myanmar's tax laws (Tax Appellate Tribunal).
The Notification extends the quasi-judicial assistance that the Government is providing for the court system, adding to the Arbitration Law enacted early last year. It seems likely that this development will assist to limit the time taken to address tax disputes, and ensure that companies operating in Myanmar (including foreign investors) will reach resolution of their tax disputes in shorter periods of time.
The Tax Appellate Tribunal (the body created under the Notification) will be able to hear appeals from companies or individuals disputing fact or law under:
- The Income Tax Law;
- The Commercial Tax Law;
- The Special Commodity Tax Law;
- The Union Tax Law;
- The Sea Customs Act and the Land Customs Act; and
- Any subordinate legislation released under those laws.
The Notification implements a number of key changes to the current tax appeal structure. These include:
- First, responsibility for tax decisions is spread across a number of departments, increasing the wealth of experience that the Tax Appellate Tribunal may draw upon, and responsibility is passed to members of Government departments with more time to address tax dispute concerns (rather than requiring Ministers to attend). The Tax Appellate Tribunal will comprise three members, including the independent Director General (who shall sit as Chairman), a Director appointed from the Supreme Court of the Union Office and a Director assigned by the Ministry of Planning and Finance (MOPF) (both of whom shall be ordinary members of the Tax Appellate Tribunal).
- Second, objections to decisions under any of the laws mentioned above are not required to be made directly to Myanmar's judicial system (note that it is not clear from the Notification whether an aggrieved party might be able to apply to the courts directly, or whether the Tax Appellate Tribunal is mandatory). This will assist to ease the caseload burden on Myanmar's court system, which is dealing with a dynamically changing commercial legislative environment, currently including a broad scope of tax law amendments, as well as new Investment Law (2016), Competition Law (in force from 2017), Petroleum and Petroleum Products Law (2017), and soon to be added a brand new Companies Law (expected later in 2017) and a new employment law (also expected later this year).
- Third, a set of forms and directives will be created by MOPF, which will outline the process and timeframes for appealing a tax determination directly to the Tax Appellate Tribunal. This will, most likely, provide objectors with a detailed process for lodging an appeal, hopefully streamlining the steps and making it a more attractive option for local and foreign investors who feel aggrieved by a decision made against them.
- Fourth and importantly, the Notification states that decisions of fact made by the Tax Appellate Tribunal are considered final. This leaves open the opportunity to appeal to a court for any instance where an aggrieved party feels that the Tax Appellate Tribunal erred in law, but it subsequently seems unlikely that the court will permit appeals from the Tax Appellate Tribunal based on errors of fact.
The Notification is another clear step by the Government in respect of improving and streamlining the commercial structures in Myanmar, increasing the ease of doing business and, subsequently, providing confidence to foreign and local investors that there is a robust regulatory regime in respect of tax assessments. Investors should be aware of this development both for the possibility to utilise the system themselves in the case of incorrect tax assessments, and also for any instance where they are required to assist with or appear in any claim made by one of their employees.