Contractual arrangements for the lucrative Yadana gas project may have been rigged to enable foreign energy giants to make excessive profits at Myanmar’s expense.
This hugely concerning and significant possibility has emerged from an analysis by Justice For Myanmar of leaked financial records centring on the Yadana project.
The leaked financial statements show that Total and its partners have been making unbelievably high profits from a pipeline taking Yadana’s gas to Thailand.
As the pipeline has been in operation for more than two decades, Myanmar’s generals may have allowed foreign investors to walk away with hundreds of millions of dollars in excess profits – money which should have gone to Myanmar’s people.
The leaked financial statements show that from 2017 to 2019, the pipeline company made an enormous US$1.23 billion in profits before tax but only cost US$22.3 million to run.
This means a profit margin of a massive 97 per cent before tax, which is far higher than any company could normally expect to make.
By comparison, Total reported a profit margin of only 13 per cent from running the gas fields which supply the pipeline.
Total and its partners, including Chevron, run the Yadana gas fields and also own the pipeline so that, in effect, they are paying themselves to use the pipeline.
When two parts of a business are owned by the same investors, and one part is vastly more profitable than the other, this can be a warning sign for possible financial manipulation.
Le Monde quoted an oil contracts expert as saying: “When all of the profit is on transport, it is a particularly aggressive tax optimisation. It doesn't have to be corruption. Simply, taxes paid on transport are generally much lower than those paid on production.”
Justice For Myanmar gave Total an opportunity to explain our findings, but Total chose not to respond.
But the French energy giant told journalists at Le Monde that successive governments in Myanmar have been happy to go along with the Yadana contracts which were agreed in the mid-1990s.
What Total omits to say is that for most of this time, Myanmar has been ruled by corrupt generals with a vested interest in keeping gas revenues offshore and out of sight, and little interest in preventing foreign investors from profiteering as long as they help to keep the generals in power.
Secretive offshore transactions
The pipeline fees are just one part of a secretive web of offshore financial transactions between foreign investors and Myanma Oil and Gas Enterprise (MOGE), the state-owned entity firmly under the generals’ control for most of the last two decades.
Extractive industry analysts have estimated that the generals gave away hundreds of millions of dollars a year in tax breaks to foreign oil companies while stashing billions of dollars in opaque “other accounts” at Myanmar’s state banks, much of which has disappeared from public view.
To make things even more opaque, MOGE is both the regulator of the oil industry and an investor in the Yadana field and pipeline, alongside Total and Chevron.
This means that the pipeline could only make its enormous fees for so long with the knowledge and consent of MOGE – which, in effect, has meant Myanmar’s generals.
The original contracts between Total and Myanmar, which date from the mid-1990s, suggest that the more money is paid in pipeline fees, the less Myanmar earns in profits and royalties on gas sales.
The costs of building the pipeline, which was constructed using forced labour under the guns of the Myanmar military, have long since been paid off.
This means the fees from the pipeline represent almost pure profit, a much bigger share of which goes to Total and its foreign partners.
As a result, Myanmar could have lost out on hundreds of millions of dollars in gas sales profits and royalties over the last two decades.
Total claimed to Le Monde that the rate of return on the Yadana project and the pipeline, taken together, was not excessive.
But Total’s claim is impossible to independently verify because only Total and its partners have the relevant data, which is not public.
If MGTC’s accounts had not been leaked, then the super-high profits of the pipeline might never have been known.
Total’s CEO recently claimed the company is continuing business as usual in Myanmar for humanitarian reasons. However, their business conduct in Myanmar and deep ties to the military suggest otherwise.
Justice For Myanmar calls for Total to immediately suspend all payments to the military junta and place funds in a protected account until democracy is restored in Myanmar.