by Ryan Clarke and Sangeet Dalliwall

04-09-08 This article examines Burma's energy market and Sino-Indian competition to gain access to its vast reserves while seeking to highlight continued Indian shortcomings. This article argues that although India may be able to make significant headway with the Junta and obtain a greater stake in the development of Burma's oil and natural gas fields, attempting to undercut and dislodge the Chinese will prove to be an ultimately fruitless task that damages India's long-term interests and ties with ASEAN, other Asian democracies, and the West.
As such, India must re-evaluate its current policy towards the Junta.

Burma's energy market -- few open doors for India
The competition between India and China for influence in Burma reflects a larger jockeying for power between the two Asian giants. Burma's recoverable gas reserves are around 51 tcf due to the discovery of a large offshore field opposite Thailand and another opposite Bangladesh. This gas commands a premium for both India and China, as current crude oil prices consistently rise above $ 120 a barrel with some predicting this figure to possibly even reach $ 200.
China undoubtedly uses its political influence in Burma to swing the Junta in favour of some of its major companies, such as PetroChina, as business and political interests often intersect in this region and the Junta has a monopoly over Burma's natural gas sector as well as nearly all other economic activity. Given India's clear limitations in lobbying for its state-owned firms, it cannot expect major victories over the Chinese in securing natural resources in Burma, especially since India recently lost its "preferential buyer" status on several fields, likely a result of Chinese pressure on the Junta.

Military planners in China fear an embargo in the event of a war or crisis with the United States and are keen to reduce China's dependence on tanker transports through the Malacca Strait and South China Sea. In December 2005, China was awarded rights to natural gas from the biggest fields in Burma, beating out India. Korean-owned Daewood International, the operator of the field, selected PetroChina to extract the natural gas, while state-owned Indian companies control 30 % of the field, which holds as much as 7.7 tcf, or 218 bn cm, of gas.
Further, the China National Offshore Oil Corporation (CNOOC) signed six contracts on production and sharing with the Burma Oil and Gas Enterprise (MOGE) of the Ministry of Energy from October 2004 to January 2005.

The China Petroleum and Chemical Corporation (SINOPEC) and its subsidiary Dian Quiangui Petroleum Exploration also work on inland fields, while the China National Petroleum Corporation (CNPC) and its subsidiary Chinnery Assets also won contracts to upgrade four old oilfields in central Burma.
As of 2006, these projects lead to a total financial commitment of $ 163 mm. However, this figure is expected to grow considerably as China has begun to heavily invest in Burma's oil and natural sector.

China's aim
PetroChina plans to build a gas pipeline from the A-1 block in the highly promising Shwe field off the coast of Rahine state to Yunnan. The Shwe field consists of seven blocks of unconfirmed size with the largest being A-1, estimated to contain between 2.88 tn to 3.56 tcf of gas.
PetroChina has signed a memorandum of understanding with MOGE to buy gas from A-1 for 30 years, commencing 2009. Further, plans for an oil pipeline linking Burma's deep water port of Sittwe with Kunming in Yunnan were approved by China's National Development and Reform Commission in April 2006 and CNOOC has taken a stake in a Bay of Bengal gas field in Burma while CNPC is reportedly looking into building a more extensive pipeline network.

With these deals underwritten by arms sales, unwavering political support, and protection from international pressure to engage in meaningful reforms, China's energy interests in Burma are unlikely to be jeopardized anytime soon. On the contrary, if the Junta continues to become more isolated, China will capitalize upon the development and expand its base in the country.
Chinese enterprises as well as the Chinese government have financed and constructed many infrastructure projects in Burma, especially electric power generation. Between 1996 and 2005, Chinese companies constructed six hydro-power plants and one thermal power station, with these projects accounting for about one-third of the entire national capacity.

Also, as of March 2006, there are 11 major ongoing hydro-power projects in Burma with a total generating capacity of 1,734 MW. Contracts were signed for seven of these projects and all were Chinese enterprises. Further, China has strongly supported the construction of massive state-owned factories such as textile mills, plywood plants, rice mills, pulp and paper mills, sugar mills, agriculture equipment factories, and other light manufacturing facilities in Burma.
These factories would not have been possible without Chinese government financing. However, many of the factories are racked by corruption and inefficiency, thus potentially placing a burden on the Burmese government budget and eventually resulting in bad loans to Chinese stakeholders. These moves made in Burma by the Chinese have undoubtedly contributed to the preferential access to oil and natural gas that China enjoys in Burma.

Through assisting the Junta in the provision of vital services such as electricity generation, China is assisting the Junta in ensuring regime survival. In addition, by demonstrating a willingness to support what are essentially loss-making enterprises in Burma, Beijing has demonstrated that it views its presence in Burma as a long-term one.
Given the lack of accountability in China's authoritarian system, Beijing will continue to invest in high-risk projects in Burma in order to further solidify its presence without sparking a major public outcry domestically. This is a luxury that India does not have.

India's position in Burma
India has recently been posting growth rates of around 7 to 8 % per annum and aims to increase this growth to 10 %. If this is to occur, India will need to secure energy resources quickly, especially since India's population is expected to reach 1.18 bn by 2010, 1.36 bn by 2020, and 1.57 bn by 2030.
India's demand for fuel will rise even faster than its population growth and although much demand is met through the use of coal, India's coal reserves are not adequate to support power development on their own. At present, India only relies on natural gas for 13 % of its power generation, but this is bound to change as India's gas requirements for electricity are predicted to rise to as high as 199 bn cm by 2030 (India currently consumes roughly 34.5 bn cm).

It is also of note that India only produces half of the natural gas it uses and imports 70 % of its crude oil, with most source nations found in the Middle East and North Africa, both regions that suffer from much political instability andviolence. As India still lacks a blue-water navy that is capable of safeguarding far-flung sea lines and the tankers and other vessels that transport these resources, India is keen to exploit reserves closer to home.
Even though bilateral trade between Burma and India has increased significantly in the last decade, these gains have not been witnessed in the strategic energy sector. Some Indian companies, such ONGC Videsh and GAIL, have been exploiting some of these fields under the Daewoo-led consortium, but it appears that Chinese companies have been given bigger slices totalling an area of over 9.58 mm hectares that comprise some of the most promising blocks.

Well-known Indian analyst Bajpaee elaborates on India's dilemma: "Apart from India's poor relations with Pakistan on its western borders, the ongoing violence in India's northeast with sporadic attacks on pipelines and India's poor relations with natural gas-rich Bangladesh and China-friendly Burma have prevented it from fully exploiting its proximity to a region rich in energy resources on its eastern borders."
In some instances, India has even been forced to sign on to a "take or pay" system, where India gives guaranteed earnings to Burma every year, even if India is not able to access the gas.

Nonetheless, India is still seeking to build a pipeline through Burma to supply the impoverished states in East and Northeast India. India is also investing $ 103 mm in the Kaladan multi-modal transport corridor, which seeks to develop Sittwe port and links it to Mizoram along the Kaladan River.
Although India was initially slated to be the sole operator of the Sittwe port, Chinese pressure forced the Junta to withdraw this privilege. Rather than let the deal go, New Delhi signed what is termed a Btu agreement-build, transfer, and use. Under the deal, the Indians will still be able to use Sittwe as an export-import junction for its northeast. But, with the Chinese set to run a gas pipeline beside the port from the nearby offshore Shwe field, Beijing would not want a third country in charge of port operations.

Several other pipeline routes are also being discussed.
-- First: underwater from Shwe to Yechaungbyi village through Rakhine and Chin states; into Mizoram and Tripura states; entering Bangladesh at Brahmanbaria through the Rajshashi border into West Bengal to Kolkata. Estimated cost: $ 1 bn.
-- Second: underwater from Shwe to Palechaung village in Sittwe township; through Rakhine state into the district of southern Bangladesh; entering West Bengal into Kolkata. Estimated cost: $ 1 bn.
-- Third: underwater from Shwe to a liquid natural gas (LNG) terminal; ship the LNG to West Bengal and Kolkatta by LNG tanker. Estimated cost for LNG terminal: $ 3-5 bn.
-- Fourth: similar to the first option but travelling through Northeast India thus bypassing Bangladesh entirely. Estimated cost: $ 3 bn.
-- And fifth: underwater from Shwe to West Bengal into Kolkata. No published estimate.

The first option is the most likely route. However, given Bangladesh's objections, India is now contemplating bypassing a third country altogether, something that would raise costs, as the pipeline would have to go along the seafloor of the Bay of Bengal and would require larger pipeline that could reach depths of 2,000 meters.
If this project moves ahead, it will be fraught with risks, as the Bay of Bengal, no stranger to adverse weather such as hurricanes, will undoubtedly encounter significant technical difficulties and will take years before it is operational, all while India's demand for natural gas continues to grow exponentially. India is also not likely to receive a great share of the natural gas at Shwe and an uninterrupted supply cannot be guaranteed.

Seemingly in response to these concerns, the Indian energy company Essar is to begin exploratory drilling for gas and oil at two Burmese sites. One onshore site is near Sittwe in Arakan State. The other, ironically, in the Shwe field in the Bay of Bengal where two other Indian companies,ONGC and GAIL, have been frustrated by the Chinese.
Arakan State, which has historically been closed to outside influence, is poised to experience increased development in the next few years as India and China scramble for energy and use of the territory as a conduit to their landlocked regions.

Impact on India's ties with ASEAN: Courting one at the expense of the rest?
India's recent pipeline diplomacy with Burma could lead to greater Burmese independence from ASEAN and as Burma diversifies its gas exports to India and China, ASEAN's leverage over Burma will be decreased substantially. China provides Burma with a major global power that will defend its interests in the international arena while providing capital and trade benefits locally.
Further, India, with its credential as the largest democracy on earth, provides Burma with even greater independence from ASEAN. As such, Lall, of the London-based Royal United Services Institute, suggests that ASEAN spare no effort to make sure that Burma remains within its influence and to include both China and India in many of the discussions pertaining to Burma.

However, China is unlikely to support any kind of arrangement that does not grant it preferential access to both ASEAN and Burma as it views itself as the natural leader in Asia. Recent strategic moves made by Beijing in South and Southeast Asia, such as the clandestine construction of a submarine base on Hainan island, the construction of the Gwadar port in Pakistan's restive Balochistan province (which clearly has a strategic dimension despite claims by both Pakistan and China that it is solely a commercial project), and a continued Chinese military build-up along with repeated incursions near the disputed Sino-Indian border region, clearly demonstrate that China feels that there is only room for one Asian giant.
Although it does not appear that China has voiced concerns over India's minor advances in Burma, Beijing will not sit idly by and watch its influence over Burma erode. Chinese moves to counter Indian intentions may include further arms sales, zero-interest loans or grants, and easier market access to the Chinese economy that has been growing at around 8 to 9 % by most accounts since the Deng Xiaoping era.

In addition, China's investment climate is more favourable than India's due to more established legislation that governs the regulation of FDI inflows and a perception, right or wrong, that corruption levels in China are not quite as rampant as they are in India. This is not to say that India will not make headway in Burma, specifically in oil and natural gas.
However, India will have to reconcile with the fact that, barring a meltdown or some other disaster such as a war or prolonged domestic instability, it will play second fiddle to the Chinese in Burma for the foreseeable future. This should be kept in mind before New Delhi agrees to its next arms deal for the Junta or protects it at the United Nations.

Concluding thoughts
India cannot expect a major victory in Burma in either securing substantial energy supplies at the expense of China or in making strategic advances. China has been cultivating an apolitical relationship with Burma for decades, has showered it with cash and weaponry, and is key to the regime's survival.
This has allowed China to establish the necessary infrastructure to fully capitalize upon Burma's expanding oil and natural gas industry and its further investment in other essential infrastructure projects will ensure that Beijing remains the Junta's partner of choice in the future.

India is unable to compete with China, given its democratic system of governance, and will have to learn to cope with a China-leaning state on its eastern flank. This disadvantage can be neutralized through developing stronger ties with regional democracies such as Australia, Japan, and Singapore as well as major powers such as the United States and the more prominent European Union nations.
However, this will prove difficult if New Delhi maintains its current appeasement policy toward Burma and remains at loggerheads with the United States and the European Union, both of whom are attempting to isolate the Junta. As such, a re-evaluation of India's Burma policy is necessary if India is to maintain its freedom of movement in South Asia and its reputation as a champion of democracy.

Ryan Clarke is a PhD candidate at the Centre of International Studies at the University of Cambridge. He has previously resided and conducted research in South and Southeast Asia.
Sangeet Dalliwall is a solicitor in London. She has worked as a consultant in Southeast Asian nations such as Malaysia, Singapore, Burma, Bangladesh, and Indonesia. She has a LLB (Hons), an LLM, and a postgraduate diploma from Oxford University.