Recent press reports suggest that Myanmar is planning to pass a new law to liberalise its telecoms market to both private domestic and foreign operators and investors. Prior to this new law coming into effect, there is also a proposal to firstly allow private domestic companies to provide telecom services.
Myanmar has a population of over 53 million and yet the 2010 statistics of the International Telecommunication Union (ITU) show that the fixed telephone subscription rate, mobile cellular subscription rate and internet penetration rates of Myanmar are 1.26%, 1.24 % and 0.2% respectively. The market is currently dominated by the Myanmar Posts and Telecommunications which has monopoly in all telecom services in Myanmar, including fixed and mobile services.
The Myanmar Government is keen to promote the development of these untapped telecoms markets, and has set the targets of achieving a 50% wireless penetration rate by 2015. To catch up with the demand for new telephone lines, it was estimated back in 2010 that more than 500,000 new telephone lines would need to be installed. This represents a capital investment of around US$600 million, which can only be available if foreign investors are involved.
The new telecommunications law
Against this backdrop, the director-general of Myanmar's Post & Telecommunications Department ("PTD") recently revealed that a new telecoms law had been sent to Myanmar's attorney general for review. Under the proposed new law, four telecoms licences will be granted to both domestic and foreign investors (including potential Japanese investors) to provide telecoms services in Myanmar. This is a breakthrough to the existing regulatory framework as currently the State-owned Economic Enterprises Law (The State Law and Order Restoration Council Law No. 9/89) provides that telecoms services can only be provided by the Myanmar Government.
As it is anticipated that it may take some time for the proposed new law to become effective, the Myanmar Government intends to promulgate notifications and special orders to allow private domestic companies to provide telecoms services. It should be noted that no specific timeline has been provided by PTD.
PTD indicated that domestic and foreign investors would be treated on equal terms under the proposed new law although the approval processes would slightly differ. A domestic operator telecoms licence will be subject to ministerial approval only whereas a foreign operator telecoms licence will be subject to both ministerial and government approvals. A couple of questions however remain unanswered:
- Foreign ownership restrictions: Whilst foreign investors may be able to participate in the Myanmar market, it remains to be seen if they will nonetheless be subject to ownership restrictions.
Myanmar has not made any specific WTO commitments for the telecoms sector. Its existing foreign investment laws (which may also be changed shortly) allow a foreign investor to hold 100% ownership in the form of a sole proprietorship, partnership or a limited company. If a joint venture is to be formed, the foreign investor is required to contribute at least 35% of the total capital requirement.
In addition to equity restrictions, it is unclear at this stage if restrictions in terms of foreign control or the number of telecoms markets which a foreign investor may be allowed to participate in may also be imposed on the foreign investors.
- Foreign investment restrictions: Although press reports have suggested that four licences will be issued, again, it is unclear at this stage whether a foreign investor will be allowed to participate in the more lucrative facility-based telecom market, in particular, the mobile market, or whether foreign investors are only permitted to participate in service- based telecoms market (e.g. provision of VoIP or internet access).
Perhaps the special orders which are intended to facilitate the liberalisation of the market for private domestic companies may shed some light on the potential restrictions which foreign investors may ultimately be subject to.
Risks for Japanese investors in Myanmar generally
For any enterprise operating in Myanmar, extreme care is required with respect to bribery and money-laundering. As well as the risk of damaging international publicity and breach of the OECD Anti-Bribery Convention and related Japanese legislation , such businesses and their parent companies should also consider the Foreign Corrupt Practices Act (US, 1977) and the Bribery Act (UK, 2010).
Legal system and courts
Most Southeast Asian countries have updated their arbitration laws, but Myanmar's Arbitration (Protocol and Convention) Act, which applies to foreign arbitral awards, has not been replaced since 1939.Effective enforcement of arbitral awards in Myanmar is therefore likely to be extremely difficult. Myanmar is not a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1959) or the ICSID Convention (1965), although there have been recent reports that Myanmar is considering becoming a signatory to the New York Convention.
Myanmar is a party to the ASEAN Comprehensive Investment Agreement (2009). Under its predecessor, the ASEAN Investment Protection Agreement (1987), one claim has been brought against Myanmar, albeit unsuccessfully.
Myanmar has concluded very few bilateral investment treaties. Developments in this area will need to be watched to see if investors can gain any additional legal protections by investing via a country which has signed and ratified a bilateral investment treaty with Myanmar. In his visit to Myanmar in December 2011, Japanese Foreign Minister, Koichiro Gemba, reached an agreement with Myanmar's Minister of Foreign Affairs to initiate negotiations on a bilateral investment treaty aimed at promoting cross-border investment and protecting assets and intellectual property, while allowing trade disputes to be settled under international frameworks.
In summary, investors should: (i) try to avoid using Myanmar law where possible; (ii) push hard for disputes to be resolved by an international arbitral tribunal rather than by the Myanmar courts, bearing in mind that enforcement of a foreign arbitral award in Myanmar may be difficult and (iii) try to seek bilateral investment treaty protection. It is also possible that a Myanmar counterparty with links with the government or military might assert its sovereign immunity and seek to override a prior commercial agreement not to assert such immunity.