Year in Review - Myanmar Law in 2016
Transition to new Government: On 30 March 2016, president Htin Kyaw was sworn in and a new civilian government took office. This marked the end of a transitional period of nearly five months following the election in November 2015 which was won by the former opposition party National League for Democracy. In April 2016, Aung San Suu Kyi was appointed to the new position of State Counsellor, with the intention that she would serve a similar role to that of prime minister.
New foreign investment law: On 18 October 2016, the President of Myanmar promulgated the Myanmar Investment Law, which effectively combines the Myanmar Citizens Investment Law and the Foreign Investment Law and repeals the previous Myanmar Citizen Investment Law 2013 and Foreign Investment Law 2012. Changes brought by the new Myanmar Investment Law include reformulation of tax incentives with incentives being given to investment in rural areas, the introduction of a fast-track approval process for simple investment projects and express provisions requiring the Government to treat foreign investors no less favourably than their domestic counterparts.
Until specific implementing rules for the new Myanmar Investment Law are issued, the rules issued under the Foreign Investment Act 2012 will continue to be observed by the Myanmar Investment Commission in so far as they do not conflict with the new law. It is anticipated that these implementing rules will be prepared to align with the Government’s new investment policies. In November 2016, the Directorate of Investment and Company Administration (DICA) and Myanmar Investment Commission (MIC), announced that it is drafting new Myanmar Investment Rules with the help of international partners. It invited all interested persons to comment on its proposals. It is hoped that the rules will be simpler and more predictable than the current approach although the same structure is expected to be adopted whereby it intends to specify types of businesses that are restricted for foreigners or those permitted with participation of local investors. The finalised rules are expected to be announced during 2017.
End of U.S. sanctions: On 7 October 2016, the President of the United States issued Executive Order 13742 terminating the sanctions programme imposed on Burma (Myanmar). Following the termination of the sanctions programme:
- the individuals and entities included on OFAC's SDN list pursuant to the Burmese Sanctions Regulations have been removed from the list (note this does not apply to Myanmar individuals and entities included on the SDN list pursuant to other sanction programmes);
- the import ban on Myanmar-origin jadeite and rubies has been revoked;
- restrictions on banking and financial transactions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) under the programme are no longer effective; and
- compliance with the State Department’s Responsible Investment Reporting Requirements is no longer mandatory.
Separately, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) granted limited “exceptive relief” that will permit covered U.S. financial institutions to once again maintain correspondent accounts for Burmese banks, where certain conditions are met. While FinCEN continues to express concerns regarding Myanmar, the exceptive relief represents a step toward reopening the U.S. financial system to Burmese banks.
Four new foreign bank branch licences: According to the announcement of the second round of bidding for foreign bank branches issued around the end of 2015, the Government further awarded four new foreign bank branch licences, adding up to a total of 13 foreign bank branches operating the permitted scope of banking businesses in Myanmar. The four new foreign banks are BIDV, E.Sun Commercial Bank, Shinhan Bank and State Bank of India.
Financial Institutions Law: In January, the Financial Institutions Law, being one of the long awaited laws in Myanmar given Government activities with respect to the financial sector since 2014, was enacted. It replaces the outdated Financial Institutions of Myanmar Law No. 16/90, dated 4 July 1990. The Financial Institutions Law prescribes the financial institutions to include both domestic banks and the licensed branches of foreign banks. The Central Bank of Myanmar (CBM) is the prescribed regulatory authority to supervise and oversee the financial sector of Myanmar and other non-bank financial institutions which carry out certain permitted activities which should be regulated by the CBM e.g. the finance, leasing, and factoring companies. Currently there are no rules and regulations in place or issued under the Financial Institutions Law.
In August 2016, the CBM also provided detailed guidance on the procedure to apply for registering offshore loans. The guidance details the criteria that the CBM will assess when processing such applications (including equity invested in the borrower, prescribed debt to equity ratio, availability of foreign exchange reserves and debt repayment capacity).
Arbitration law: The new Arbitration Act was enacted on 5 January 2016 to replace the old Arbitration Act of 1944. The Arbitration Law gives effect under domestic legislation to Myanmar’s ratification of the New York Convention on the Recognition and Enforcement of Arbitral Awards and establishes a legal framework for domestic arbitration in Myanmar. A number of the provisions of the Arbitration Law are derived from the UNCITRAL Model Law on International Commercial Arbitration and as such should be familiar to international investors. This law represents an important step forward in providing more certainty to international investors in relation to dispute resolution. Accordingly, we have seen the Myanmar Government encourage the use of Myanmar arbitration in contracts which involve Myanmar parties, even if in the case of private Myanmar parties.
Year to Come - Myanmar Law in 2017
New company law: The Government remained committed to the process of revising Myanmar’s corporate legislation in 2016 and undertook substantial work with the assistance of the Asian Development Bank (ADB) and international consultants. A draft of the new Myanmar Companies Law has been prepared by the Directorate of Investment and Company Administration (DICA) and, according to press sources, the Government has sent a bill to Parliament. It is expected that the final version of this law will be enacted in 2017. The new Companies Law will replace the Myanmar Companies Act 1914 and will allow for modern corporate forms, such as limited liability companies with a sole shareholder, and provide for a streamlined and more transparent incorporation process. Under the current draft of the new Companies Law, it proposes to introduce certain matters which are not currently available under the current but outdated Myanmar Companies Act, e.g. the acquisition by a foreigner of shares in a Myanmar company and an increase in minority shareholder protections/rights.
Major infrastructure projects: The Government has announced its intention to develop a number of major infrastructure projects in the coming months, including:
- LNG import facilities: The Government is seeking to procure LNG import facilities to supply a number of thermal power plants. As part of this process, Myanmar Oil & Gas Enterprise (MOGE) launched, in October 2016, a tender process to develop LNG bulk import and regasification facilities with the help of a private sector partner and issued a call for expressions of interests. The Government has also approached the International Finance Corporation (IFC, a member of the World Bank Group) to act as transaction advisor for this project, and the world bank held a workshop in Nay Pyi Taw November 2016 to discuss a study which was commissioned on the feasibility of LNG import facilities. It is expected that the tender process will continue in 2017 with the issuance of a more formalised request for proposals;
- Hanthawaddy International Airport: The Hanthawaddy international airport is a Design-Build-Operate-Transfer project that was tendered in 2012 by the Directorate of Civil Aviation (DCA), aiming at building a new high-capacity international airport in Bago region, approximately 80 km northeast of Yangon. The project was initially awarded to Incheon International Airport Corporation in 2013, but was subsequently re-awarded to a consortium composed of JGC, Yongnam and Changi Airport Planners in 2014. In December 2016, Vice President Henry Van Thio called for improved transparency and implementation of the project. It is expected that the project will move forward in 2017 and that the Government will continue its efforts to obtain financing for the project from international sources; and
- Yangon-Mandalay Railway: According to a senior official of Myanma Railway, a set of tenders for the upgrade of the Yangon-Mandalay railway will be launched in 2017, with the Japan International Cooperation Agency (JICA) acting as transaction advisor. The estimated cost of the project is approximately USD 1,7 billion.
It is expected that the end of U.S. sanctions will provide further opportunities for sponsors and lenders to participate in these projects. Increased institutional funding is likely to be more readily available to support these, with the ABD and the IFC having announced in 2016 their intention to substantially increase their commitments to Myanmar in 2017. The Asian Infrastructure Investment Bank (AIIB) also approved in 2016 a loan to co-finance the Myingyan power project, for which a Build-Operate-Transfer agreement has recently been signed.
Insurance: The opening up of the insurance sector has been the subject of scrutiny from international insurance companies. The insurance market is currently dominated by state-owned Myanma Insurance, with 12 private, Myanmar-owned firms being licensed to provide insurances services. In 2015, three Japanese insurance companies were allowed to provide insurance services in the Thilawa Special Economic Zone. Several other foreign insurance companies have set up representative offices but are not allowed to provide insurance services. Earlier in 2016, the Government announced, in its economic policy, its intent to liberalise the financial services sector and allow foreign insurers to operate in Myanmar. A senior official also stated that the Government is considering opening up the insurance sector in 2017 by removing restrictions on locally-owned insurance firms’ product lines and pricing, and by allowing foreign investors to enter the market, although the details of this plan are still unclear.
Competition law: Pursuant to a decision of the President (21 December 2015), the Competition Law (enacted on 24 February 2015) is set to come into force on 24 February 2017. There is still some uncertainty as to the exact regime that will be in force and the timing of the law, as the implementing rules (which are expected to bring a number of clarifications to the general regime set out by the law) have yet to be published.
Priority laws identified in 2016: In September 2016, the Myanmar Legal Affairs Commission issued a letter setting out a list of 48 prioritised laws to be enacted in the near future. These include a new Trademark Law, Copyright Law, an Information and Technology Law and Foreign Employment Law. It is expected that some of these laws will be further progressed or enacted in 2017, keeping the pace up in terms of legislative reform and modernisation.
Singapore-Myanmar BIT: During State Counsellor Aung San Suu Kyi’s visit to Singapore in November 2016, Prime Minister Lee Hsien Loong announced that Singapore and Myanmar would be discussing a bilateral investment treaty and revisions to the existing double taxation agreement. It is expected that these discussions will continue in 2017.