THE BURMANET NEWS AUGUST 29, 1995 ------------------------- BurmaNet --------------------------- "Appropriate Information Technologies, Practical Strategies" -------------------------------------------------------------- Noted in Passing: "We hope to get a windfall from the campaign." Hotel and Tourism Minister Lieutenant-General Kyaw Ba on Visit Myanmar Year (quoted in: Bkk Post: Burma Vows to Visa, Forex Flexibility for Tourists) Contents: BKK POST: VITAL TO UNDERSTAND BURMA'S COMPLEX INVESTMENT RULES BKK POST: BURMA-INDIA TALKS BKK POST: EYEING BURMA BKK POST: NO THAILAND'S ROLE IN KHUN SA SUPPRESSION NATION: NO CALL FROM BURMA FOR THAI HELP ON KHUN SA NATION: JAPAN TO SUPPLY OIL TO BURMA BKK POST: BURMA VOWS TO VISA, FOREX FLEXIBILITY FOR TOURISTS *************************************************** The BurmaNet News is an | | electronic newspaper | Iti | covering Burma. 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Burma Issues is a Bangkok-based non-governmental organization that documents human rights conditions in Burma and maintains an archive of Burma-related documents. Views expressed in The BurmaNet News do not necessarily reflect those of either NCGUB or Burma Issues. ********************************** BKK POST: VITAL TO UNDERSTAND BURMA'S COMPLEX INVESTMENT RULES August 29, 1995 Report: Nicolas Copp of Coudert Brothers Bangkok ARE YOU thinking about investment in Burma? Burmese law allows for a variety of foreign investment vehicles but most will require certain government permits. It is therefore essential for a foreign investor to have a grasp of the procedures and requirements for entry to Burma when formulating an investment strategy that work. A foreign investor intending to establish a legal presence in Burma is generally permitted to either establish a branch office or incorporate a separate limited liability company. Other forms of legal presence such as a representative office, bank branch of commission agency may also be established by a foreign investor. The Burmese government has also recently been inviting foreign participations in build- operate-transfer structural projects and interest in the "privatisation" of the state sector. Most foreign investors entering Burma prefer to incorporate a limited liability company rather than to establish a branch office. This is because the potential consolidated tax treatment of branch earnings and unlimited liability of the parent company for branch office activities in Burma are generally perceived as unacceptable risks. A Burmese company with foreign invested capital may either be incorporated as a wholly foreign-owned subsidiary or as a joint venture company in which the foreign party must own at least 35 per cent of the share capital. Most foreign investors, particularly in construction, decide to establish a joint venture with the local partners' contribution in the form of land. Incorporation is a relatively simple process that takes about one month to complete, although preliminary negotiations may take a long time. Once incorporated, the company must then be registered and issued a permit to trade from the Companies' Registry. This requirement also applies to a company with an investment licence issued by the Myanmar Investment Commission. Opinions vary as to whether a company with an investment licence is, in practice, any better off than a company or branch without an investment licence and subject to the ordinary fiscal and administrative regime of the Companies Act. Whatever the view taken, as an application for a Permit to Trade is a relatively less complicated and time-consuming process than an application to the commission for an investment licence, an investor should consider whether it is possible to structure investment in stages and apply for each licence as required. Ideally, the first stage of an entry strategy in Burma would be to apply for a Permit to Trade then, once business develops and working relationships within the commission are established, the company can apply for an investment licence. This step-by-step approach enhances the likelihood that a licence will be issued without loopholes and may be effectively implemented. Foreign investors also need to be aware of the financing and capital structure requirements of Burmese law, as early tax planning and methods to realise profits abroad are crucial to the success of any investment in Burma. In practice, the most significant problem an investor in Burma faces is that kyats are not freely convertible to US dollars and that the official exchange rate of six kyats per dollar is about 20 times more expensive than the black market rate of 100 kyats per dollar. Rarely are surplus dollars for sale in Burma from which profits may be realised. Counter-trade and other unusual arrangements have evolved between the government and businesses for changing kyat earnings to dollars, but these remain more of a stumbling block than a solution to many investment appraisals in Burma. It is vitally important, therefore, for a foreign company to earn or be sufficiently capitalised with dollars to fund its dollar expenditures. Unfortunately, equity capital is usually required to be paid-up in dollars and converted at the official exchange rate which is an expensive way to capitalise a business in Burma. In exceptional circumstances, special permission may be obtained to invoice domestic sales in dollars but most businesses have a significant dollar cash flow problem. The capital structure of a Burmese company should be debt-oriented as interest payments on loan capital are deductible expense and equity capital is an asset that cannot be freely transferred or repatriated upon dissolution of the company. In practice, working-and fixed capital requirements are often funded by offshore loan facilities drawn down by the company when required, but the repatriation of an account balance is severely restricted and subject to approvals. In conclusion, although Burmese authorities have recently relaxed foreign investment laws the perceived lack of long-term political stability and even short term policy objectives have kept investors cautious. Once the decision to invest has been taken, it is vitally important to understand both the legal and practical as pects of making such an investment. Copyright Coudert Brothers 1995. ***************************************************************** BKK POST: BURMA-INDIA TALKS August 29, 1995 BURMESE Deputy Minister for Home Affairs Col Tin Hlaing was a Delhi last week to co-chair the Burma-India border meeting. Issues discussed include security, peace and development along the border, border trade, sports and cultural exchange programmes and eradication of drug trafficking. ***************************************************************** BKK POST: EYEING BURMA August 29, 1995 SOUTH Korean conglomerate Hyundai is seeking investment opportunities in Burma. Hyundai Corp vice-president Chung Il Chung, held talks with Burmese National Planning and Economic Development Minister Brig-Gen David Abel in Burma recently. Hyundai is interested in oil and gas exploration mining and power generation in Burma. ***************************************************************** BKK POST: NO THAILAND'S ROLE IN KHUN SA SUPPRESSION August 29, 1995 THAILAND will not take any part in the Burmese government's suppression of opium warlord Khun Sa, a move the kingdom considers as its neighbour's own internal affair, Foreign Minister M.R. Kasem S. Kasemsri said yesterday. He denied that there had been any official request from the Burmese government for Thailand to help suppress Khun Sa. M.R. Kasem was responding to a Reuters report on Monday which quoted Burma's deputy director of the Directorate of Defence Services Intelligence, Col Kyaw Win, as saying Burmese authorities had asked Thailand and the US to be able "to get to him (Khun Sa) from the Thai side. If they are seriously interested in eradicating the (drug) problem, then they must help us to finish him." He said the request could be seen in two ways: the Burmese authorities don't want Thailand to help Khun Sa's forces or, Burma wants Thailand to help in the suppression drive. "The Thai government and Army do not support Khun Sa; it is widely known that he has problems with the international community regarding narcotics trafficking but we will not interfere because it is Burma's internal affair," he said. M.R. Kasem reiterated Thailand's position, saying if Khun Sa's forces flee onto Thai territory they will be disarmed and sent back to Burma; the Thai authorities will not detain them on charges - of illegal entry. "Sending disarmed Khun Sa fighters back to the Burmese government might be regarded as interfering in their domestic affairs," said the minister *hen asked if the Thai authorities would return the warlord's men to the Burmese authorities. ***************************************************************** NATION: NO CALL FROM BURMA FOR THAI HELP ON KHUN SA August 29, 1995 BURMA has not asked the government to arrest and deport drug warlord Khun Sa or members of his Mong Tai Army in the event they evade Burmese suppression by escaping into Thailand, Foreign Minister Kasem S Kasemsri said yesterday. It was still unclear if Khun Sa and his troops would be returned to Burma if they fled to Thailand and were arrested, Kasem said. He said it would clearly be intervening in other country's internal affairs if Bangkok did so."Burma has never asked this government to arrest him," Kasem said. During the term of the previous Chuan government, Burma was infuriated over reports that the Thai authorities did not deport MTA soldiers who had escaped to a Thai border province. They were disarmed and freed. Kasem reiterated that it is not Thai policy to shelter anti-Burmese government forces. Supreme Command spokesman Vice Adm Kraichit Sirisombat said yesterday he believed Defence Minister Gen Chavalit Yongchaiyudh would be able to resolve all problems in the Thai-Burmese relationship when he visits Burma between September 1-2. Kraichit said the Burmese junta ordered the closure of the Thai-Burmese border checkpoints and suspended the construction of the near-completed bridge across the Moei River out of suspicion Thailand had aided and abetted anti-Rangoon armed ethnic groups. Kraichit said the murders early this month of at least two Burmese fishermen by their Thai crew-mates was a crime which would not affect ties between the two countries. ***************************************************************** NATION: JAPAN TO SUPPLY OIL TO BURMA August 29, 1995 (AP-Dow Jones) TOKYO _ Japan's Mitsui & Co has started an exclusive contract to supply about 10,000 barrels per day (b/d) of crude oil to Burma from August, a Mitsui spokesman said yesterday. Under an agreement signed in June but only disclosed now, Mitsui will supply a total of 4 million barrels, or 0.55 million metric tons, of crude oil in a one-year contract running from August 1995 to July 1996 to the government's Tanlin refinery in suburban Rangoon, the spokesman added. He said Mitsui won the US$70-million contract through international bidding carried out in June by the government-owned MPE Burma Petrochemical Enterprise. Although Burma has several promising oil fields, their development has been far behind that of other countries because the unstable political situation there has deterred foreign investment capital, the spokesman said. "We heard that Burma's oil production currently amounts to 12,000 to 15,000 barrels a day. but the country still needs to import at least 10,000 barrels a day to meet domestic demand," the spokesman noted. With the recent release of opposition leader Aung San Suu Kyi after six years of house arrest, there are hopes of political reform and, eventually, accelerated foreign investment in Burma. However, development of the country's oilfields is still likely to fall behind growing demand for oil, which should spur rapid growth in demand for oil imports in the next few years, the Mitsui spokesman predicted. Burma imported 2.7 million barrels of crude in the year ended July 1995, and will raise that figure by 48 per cent5 to 4.0 million barrels for the year ending July 1996, the spokesman added. Since Burma's government will likely continue making exclusive contracts to secure stable oil imports, Mitsui will attempt to renew the contract for the next years, the spokesman said. Mitsui is currently conducting feasibility studies on four projects in Burma, including one for natural gas for use in petrochemicals production. ***************************************************************** BKK POST: BURMA VOWS TO VISA, FOREX FLEXIBILITY FOR TOURISTS August 29, 1995 by Rajan Moses (Rangoon, Reuters) BURMA has vowed to be more flexible with its rules on the issuance of visas to tourists and on foreign-exchange regulations in the run-up to and during its heavily touted "Visit Burma Year" in 1996. Hotel and Tourism Minister Lieutenant-General Kyaw Ba told Reuters in an interview late last week these relaxations would be part of government efforts to attract more tourists and earn more dollars for one of the poorest countries in the world. Burma was isolated by much of the Western world and cut off from multilateral economic assistance in 1988 when the military brutally suppressed a pro-democracy uprising. The military's ruling State and Law and Order Restoration Council (SLORC) hopes to revive tourist interest in Burma, which has a rich cultural and architectural heritage dating back centuries, through the Visit Burma campaign. "Actually, October 1, 1996, is the official start date for the Visit Burma Year and so we have time to prepare the country to meet more tourist demands," Kyaw Ba said. Getting a visa to visit Burma has in the past been a trying experience for some due to excessive bureaucracy and security concerns. "We have instructed all our embassies to issue tourist visas within 24 hours to promote tourism," the minister said. "However, on arrival visas for tourists may not be possible because drug dealers or criminals may try to enter the country that way" The official exchange rate is six kyats (pronounced chat) to one US dollar. But tourists can either exchange US dollars for foreign-exchange certificates (FEC) at a rate of 100 kyats to one US dollar or get up to 110 kyats on the black market. "We are going to be more relaxed on the issue of exchanging foreign money for kyats by tourists when they are here," Kyaw Ba said, meaning that unofficial money exchanges would not be severely policed and punished. "We hope to get a windfall from the campaign," he added. Burma has drawn up elaborate plans to make Visit Burma Year a success. It has targeted 500,000 tourist arrivals during the campaign, begun the building of new hotels to beat a room shortage and started work on a new airport in Mandalay. Last year, 100,000 tourists visited Burma, according to industry sources. Kyaw Ba said up to $778 million in foreign investments for the building of hotels had been signed, mainly with interests from Singapore, Malaysia, Thailand and Hong Kong. In the capital of Rangoon there are 16 hotel projects under way along with five in the outskirts of the city. The minister said he expected the total number of hotel and guest-house rooms in Rangoon to rise to 5,000 by the time the projects were completed by early or mid-1996 from about 2,000 now. Mandalay, Burma's second largest city, would have 2,000 rooms by next year, he added. The minister also agreed that room rates in Rangoon and other Burmese towns were now relatively high because of a shortage but would come down as the supply of rooms increased by next year. For example, a small hotel with very basic amenities and no frills in Rangoon charges about $45 a night. Japanese, Taiwan, Thai, Malaysian and Singaporean tourists were expected to top the visitors' list, he added. The minister expected an international-standard runway capable of accommodating big airplanes to be ready for the planned Mandalay airport by the end of next year. A make-shift terminal would be set up to process tourists. ***************************************************************** 29