State and Oil in Burma: An Introductory Survey 9789814377690

Table of contents :
CONTENTS
INTRODUCTION
I: THE OIL INDUSTRY IN THE BRITISH COLONIAL PERIOD
II: THE OIL COMPANIES AND THE GOVERNMENT (1948–63)
III: THE STATE OIL INDUSTRY (1963 TO THE PRESENT)

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The Institute of Southeast Asian Studies

Established as an autonomous organisation in May, 1968, the Institute of Southeast Asian Studies is a regional research centre fo~: scholars and other specialists concerned with modern Southeast Asia. The Institute's research interest is focused on the many-faceted problems of modernization and development, and political and social change in Southeast Asia. The Institute is governed by a twenty-four-member Board of Trustees on which are represented the University of Singapore and Nanyang University, appointees from the Government, as well as representatives from a broad range of professional and civic organizations and groups. A ten-man Executive Committee oversees day-to-day operations; it is ex officio chaired by the Director, the Institute's chief academic and administrative officer.

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STATE AND OIL IN BURMA: An Introductory Survey

by

Raja Segaran Arumugam

Research Notes and Discussions Series No. 3 Institute of Southeast Asian Studies Price:

S$ 5 .00

Publications Review Committee

Professor Kernial S. Sandhu (Chairman) Dr. Corazon M. Siddayao (Co-ordinator) Dr. Huynh Kim Khanh Mrs. P. Lim Pui Huen Mr. M. Rajaretnam Mrs. Christine Tan

An Introductory Survey is Sta~8 and o~z in B~rma: the third in the Research Notes and Discussions series "?U.'n"'l.i.s\\e.G. 'n':I. 'i:.\\e 1.ns'i:.i'l:.u.'l:..e. ai Sa\l\..\\e.o..s\. 1\sio..-r. S\.\l().i~s.

Raja Segaran Arumugam was Research Officer at the Institute of Southeast Asian Studies from 1972 to 1977. He has written articles on Indonesia and Burma for several issues of the Institute's annual review, SoutheasL Asian Affairs. His most recent contribution is a part chapter, 11 Some Mutual Views and Attitudes: Preliminary Observations of Local Industry, Organized Labour and Foreign Investment," in the Institute's Field Report Noo 13 entitled Foreign Investment in Singapore: Some Broader Economic and Socio-Political Ramifications. The responsibility for facts and opinions expressed in the work that follows rests exclusively with Raja Segaran Arumu.gam and his interpretations do not necessarily reflect the views or the policy of the Institute or its supporters.

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The Institute publishes books and papers from time to time in the following series: BOOKS/MONOGRAPHS: specialized studies on topics relating to Southeast Asia. SOUTHEAST ASIAN AFFAIRS: an annual review of s1gnificant political, economic and social developments in the region, with emphasis on the ASEAN countries. Con·tents include analyses in depth of topics of regional concern and of specific issues on a country-by-country basis. studies err~odying the results of, and FIELD REPORTS: based exclusively on, the Institute 1 s research programme; OCCASIONAL PAPERS: professional papers issued periodically on a variety of topics of regional interest; RESEARCH NOTES contributions which represent the tentative AND DISCUSSIONS: results of ongoing research, and of discussions, printed for the purpose of stimulating further thought on specific subject:s. TRENDS IN SOU'rHEAST ASIA: papers and proceedings of Trends seminars held on individual Southeast Asian countries; INTERNATIONAL CONFERENCES: publications based on proceedings of International Conferences sponsored by the

Institute 1tself or in conjunction with other organizations; CURRENT ISSUES SEMINARS: publications growing out of the Institute's Current Issues series of seminars, the objective of which is to bring together knowledgeable and interested people to discuss topics of current concern and importance to the region. SOUTHEAST ASIAN PERSPECTIVES: aimed at wider circulation of Southeast Asian thinking, these publications are original contributions in English of Southeast Asians or translations of their significant papers and monographs appearing in one of the local or national languages of the region; ORAL HISTORY PROGRAMME: publications based on the oral memoirs of persons who have made notable contribution to, or have first-hand information to impart on, certain aspects of the development of Singapore and Malaysia; LIBRARY BULLETINS: papers on Southeast Asian librarianship and bibliography. 20 April 1977

Director Institute of Southeast Asian Studies

CONTENTS Page

I:

II:

III:

INTRODUCTION

1

THE OIL INDUSTRY IN THE BRITISH COLONIAL PERIOD

3

THE OIL COMPANIES AND THE GOVERNMENT (1948-63)

7

THE STATE OIL INDUSTRY (1963 TO THE PRESENT)

19

INTRODUCTION Burma's crude oil output in September 1976 estimated at 26,000 barrels a day was far below the production levels in Indonesia or Malaysia which were a~out 1,500,000 and 175,000 barrels per day respectively. Yet, up to the Second World War, the oil industry in Burma was only second to rice in the value of its exports. Though Burma became an importer of oil since the war, oil ~t present is the leading industry in the mining sector. The task of this introductory survey is to trace the process of government control over the oil industry. As a background to developments after Independence, the survey will outline the role of the British oil companies, particulary the Burmah Oil Company, in the gro~>Jth of the oil industry in Burma during the British colonial period. It will then examine the policies of Burmese Governments after independence which led initially to a joint oil venture between the state and the British oil companies and later to the nationalization of the oil industry in 1963. Finally, an attempt will be made to examine the progress, problems and recent policy changes relating to the state oil industry. There is a dearth of literature on the oil industry in Burma. Apart from a brief pamphlet produced by the Burmah Oil Company in 1946, there has been no published work in English solely devoted to the oil industry in Burma, either in its colonial setting or after independence. Summary accounts have appeared in various publications on the Burmese economy and, more recently, in private journals dealing with the petroleum industry in Southeast Asia. The bulk of the material used in this survey has been gleaned from English dailies in Burma, The Nation,

1

Petroleum News, Southeast Asia, October 1976, vol. 7, no. 7.

2

Between 1961-62 and 1974-75, the quantity of crude oil production increased by about 109%. In comparison, production of tin, lead and zinc declined by about 20%, 48%, and 51% respectively. (See Table 1, p. 33, of this paper and the Report to the Pyithu Hluttaw

on the Financial, Economic and Social Conditions of the Socialist Republic of the Union of Burma, 19?5-?6 (Rangoon: Ministry of Planning and Finance).

2

The Guardian and The Working People's DaiZy. 3

For data on the oil industry the sources relied upon were annual economic surveys issued by the government of Burma and, to a slight extent, material contained in World Energy Supplies, 196019?4 published by the United Nations.

3

The Guardian and The Working People's Daily are the only English dailies currently in circulation in Burma.

I:

THE OIL INDUSTRY IN THE BRITISH COLONIAL PERIOD

The oil industry in Burma is one of the oldest in Southeast Asia. The first record of it is to be found in the writings of a Chinese traveller who visited Yenangyaung in central Burma in the thirteenth century. At. this time, the oil wells were merely shallow pits dug near seepages but eighteenth-century records note that there were several hundred shallow hand-dug wells, each yielding an average of 10-50 gallons a day.4 Most of the oil was sent down the Irrawaddy in cargo boats or on rafts of timber. Unrefined, the oil was used for preserving the wood of houses and boats. The ownership of the oil wells was vested in a group of about twenty families called twinzas who were said to have been given the exclusive right to dig for oil by the Burmese kings. 5 In 1856, the Burmese king, Mindon Min, while confirming the customary hereditary rights of these families appropriated part of the oil-bearing lands for the Crown. The establishment of a modern oil industry began in 1886, after the annexation of the Burmese kingdom in Upper Burma by the British, brought all of Burma under British rule. In that year, a British company, the Burmah Oil Company, was formed and represented in Bu5ma by its managing agents, Finlay, Fleming and Company. Thi3 company bought up or leased well sites from the twinzas and also obta1ned leases from the colonial government.

4

The Bur·ma Petroleum Industry, Burma Pamphlets no. 10 Longmans, 1946), p, 2.

5

Ibid.' p. 2.

6

Ibid,, p. 3. There is some unce.rtainty as to when the Burmah Oil Company was formed. The source which the writer has used is a brief pamphlet on the Burmese Oil Industry which was sponsored by the Burmah Oil Company. It states that the "first Burmah Oil Company" was formed in 1886 by David Sime Cargill who had earlier bought over a small refinery at Dunnedaw near Rangoon. B. Dasgupta in his study, The Oil Industry in India, noted that the company was formed "as far back as 1871," but was organized on a joint-stock basis in 1886. Most writers on Burma like John L. Christian, Vera Anstey, N,M. Fenger, cite 1886 as the year in which the Company was established or formed.

(Calcutta:

4

The company expanded rapidly and by 1908 had a major refinery in Syrian near Rangoon which was connected to the oil f j eld area in Yenangyaung by a 275-mile long pipeline. 1 In addition, the company by this time was operating a fieet of tankers which carried refinEd products to installation at the principal ports of India. This rapid expansion was possible because of two factors. First, the Burmah Oil Company enjoyed a virtual monopoly of oil production and marketing of oil products in Burma, as it was the policy of the British Indian Government to exclude all non-British companies from exploiting oil resources in Burma and India. Thus in 1902, the applications for a prospecting licence of two subsidiaries of the Standard Oil Trust - the Colonial Oil Company of New Jersey and the Anglo-American Company of Britain - were turned down by the Government of India (Burma was then a province of India) .9 Even Shell was refused the permission to prospect in Burma, as the government feared that Standard Oil might enter through it and destroy the Burmah Oil Com£any's virtual monopoly of production in Burma and India" 0 In Burma, the company was responsible for 75% of crude oil production and 85% of refining.ll Apart from the Burmah Oil Company there were only two other companies, both British, which were of some significance. These were t.he Indo-Burma Petroleum Company, which was responsible for 12.5% of total production and the British Burmah 7

Ibid., p. 3.

8

F,C, Gerretson, History of the Royal Dutch (Leiden: 1958), voL 2, p, 340.

9

B, Dasgupta, The OU lndustr•y 'in India (London:

E. J, Brill,

Frank Cass and

Co. Ltd., 1971), p., 209.

10

Ibid,, p. 209. F.C. Gerretson, op.cit., p. 342. Gerretson noted that "the Indian Government prevented not only Standard but all foreign capital from obtaining concession in Burma, rejected all application from third parties and granted a practical monopoly -co Burmah Oil."

ll

J. Russel Andrus, Burmr:;se Economic Life (Stanford: University Press, 1957), p, 117.

Stanford

5

12 Petroleum Company whose share of production was 9.5%. There was close co-operation and little competition between the major British companies. The Burmah Oil Company was the marketing agent in India for the products of the British Burmah Petroleum Company and Attock Oil Company. The latter, though it did not operate in Burma, was partly owned by the Indo-Burma Petroleum Company, which supported the Burmah Oil Company in its price warf against the American Standard Oil in the Indian market. 3 Another reason for the Burmah Oil Company's rapid expansion was that it was assured a huge market in India, especially in kerosene where Burmah's products enjoyed some degree of tariff protecilon and were the lowest priced in the Indian market. Burma's proximity to India ensured a comparatively low transport cost for its products. From about 1905 to 1942, Burma was the major supplier of India's oil requirements. Burma's share of the total oil consumption in India was 34% in 1904-05, 43% in 1925-26, and 35% in 1938-39. In the Indian trade in kerosene, which made up more than half of the total oil products from Burma's refineries, Burma's share increased from 10% in 1900-0l to 48% in 1905-06 and 53% in 1938-39.15 The profitability of the Burmah Oil Company's operations in Burma enabled the company to extend its interests abroad. The company acquired a substantial interest in oil exploration in Persir and in 1909 formed the Anglo-Persian Oil Company 6 (now known as British Petroleum). In 1921, the Burmah Oil Company 12

Ibid,, p. 118,

13

B. Dasgupta, op.cit., p. 51.

14

In i939, Burma's oil output stood at 275.7 million gallons out of which 204.6 million gallons (or 74.3% of the output) was exported to India. See FinanciaZ and Economic AnnuaZ of Burma~ JuZy 1943 (Rangoon: Ministry of Finance, 1943), pp. 153, 155,

15

B. Dasgupta, op.cit., p, 17, and Table 3, p. 35.

i6

Ibid,~

p. 29. In 1914, the British Government acquired a 51% controlling share in Anglo-Persian, but the Burmah Oil Company still retained a significant share in the ownership.

6

took over the Assam Oil Company which had oil fields and a refinery in Digboi in Assam. Later in 1928, it purchased a large number of shares in the Shell Transport and Trading It had earlier in the year combined with the Company" Asiatic Petroleum Company (later Shell Petroleum Company) to form Burmah-Shell, which took over the marketing of the products of Burmah Oil in all parts of the British Indian Empire, except in Burma, Assam and Chittagong ,17 These developments were of major significance to the It had developed into an international concern company. (even though a minor one) which impl1ed that the company's policies would be formulated not only in terms of its interests and activities in Burma, but also in relation to developments in other countries where it had interests in production, refining and marketing of oil. However, till the Second World War, the company's interests in Burma Its oil fields and refineries in Burma were paramount. were still its greatest asset for they supplied the Indian market §rom which most of the company's profits were derived. 1 The activities of the Britlsh oil companies came to a halt during the Japanese Occupation of Burma (1942-45) and were not resumed until the return of the British in 1945. Just before the Japanese Occupation, the entire industry was destroyed to deny energy supplies to the Refineries were demolished and wells, pumping Japanese. equipment, drilling machinery, power supplies and pipeline pumping stations were all systematically destroyed, leaving almost nothing the Japanese could use. 1 9 17

Ibid., p. 53.

18

The profitability of the Burmah Oil Company 1 s investments and operations in India and Burma is to a large exten~ illustrated in its annual average net profit of 36% (as a percentage of capital employed) during the period 1929-39. According to B. Dasgupta, r:his "was a very good performance" as the general indices of industrial profit in India were lovJ during this period. B, Dasgupta also notes that during the 1930s, the company contributed about E200,000 annually to its reserve fund which by 1935 totalled £9,000,000. At this time its field expenditure equalization reserve amounted to £1,000,000. See B. Dasgupta, op,cit., p, 6L

19

The Burma Petroleum Industry, op,cic,, p. 10.

II:

THE OIL COMPANIES AND THE GOVERNMENT (1948-63)

Burma's independence in 1948 had a major impact on the relations between the oil companies and the government. The former colonial government, whose laissez-faire approach to the economy was altered slightly in the case of the British oil companies to afford them protection against the entry of non-British companies, was replaced by a nationalistic government inclined towards socialism. Economic nationalism was particularly intense in In an address to Parliament on 4 January 1948, early 1948. the President of the Union of Burma declared that the primary policy which will be unremittingly pursued is to establish the Union of Burma as a socialist state which means the elimination of capitalism and the own1rship of undertakings by the people themselves. 0 Later, in May 1948, the government proposed a fifteen-point political and economic programme which sought, among other things, " to nationalise monopolising capitalist undertakings," all foreign trade and "to abolish private ownership of land and to distribute land only among the tillers of the soil." 2 1 The programme was formulated mainly to woo communist support for the government. In June 1948, the British Irrawaddy Flotilla Company and the timber concessions of the Bombay Burmah Trading Corporation and other foreign firms were taken ever by the government. The The attempt to woo the communists failed. subsequent outbreak of communist and Karen insurrection (the latter for an autonomous state) and the resultant decline in the economy tempered the drive towards In December 1948, U Nu nationalization and socialism. 20

Quoted in Ne Win Address de live1•ed by General Ne Win" Chairman of the Burma Socialist Programme Party at the opening session of the Fourth Party Seminar on 11 November, 1969" Rangoon, Burma Socialist Programme Party, 1969.

21

Louis J. Walinsky, Economic Development in Burma (New York: Twentieth Century Fund Inc., 1962), p. 70.

8

declared, "Although we are very keen to transfer the Union into a leftist country, we have a firm conviction that it cannot be done overnight."22 Later in June 1949, he noted that "since we do not possess either the capital or the technical resources necessary for industrialization we must enlist the help of foreign capital and technicians." 23 The government therefore carne to adopt an economic policy which favoured the participation of private enterprise till such time when socialization of the economy would be possible.24 This cautious approach to socialism was due mainly to the strengthening of the position of the moderate group in the government led by Prime Minister U Nu. As the tide of insurrection receded, U Nu was under less pressure to implement a programme of nationalization, By 1952, he could confidently rationalize why major and complex organizations like the British oil companies and the Burma Corporation, a British concern which controlled the valuable s1lver, lead and zinc mines at Bawdin could not be immediately nationalized. Referring to the oil installations and the Narntu-Bawdin mines, U Nu observed in 1952 that they suffered terrific damage during the Second World War. For the rehabilitation of these enterprises we need much essential machinery and equipment which we ourselves cannot procure. Neither have we sufficiency of funds to purchase such machinery and equipment. Again, even if we possessed the necessary funds, it is impossible to purchase and procure whatever you require easily under present-day conditions .... The operation of such enterprises also needs high technical ability which at present we do not adequately possess ... . These enterprises are by nature very complex ... . Those who will manage and control [them] must possess first-rate administrative ability plus a

22

Ibid,, p. 74.

23

Hugh Tinker, The Union of Burma: A Study of the First Year•s of Independence (London: Oxford University Press, 1967), p. 96.

24

Louis J, Walinsky, op.cit., p. 74.

9

great degree of astuteness. We have none with such qualities .... Burma is not the only producer .... These products are abundantly found in many other parts of the world. Consequently these products have to be sold in open competition in the world markets .... It means that you must maintain for such purpose an organization with established reputation in the international market.25 The government, however, was keen on having a share in the mining industry. Since it felt that nationalization was yet not feasible, it came to favour the setting up of joint ventures. In 1951, a joint venture was formed between the Burma Corporation and the government, with the latter controlling 50% of the shares in the new company. On 12 January 1954, another joint venture was formed between the government and the British oil companies with the former controlling one-third of the shares in the new concern, called the Burmah 011 Company (1954) Limited [hereafter, the Burmah Oil Company (1954)]. Since the end of the war, the major British companies in Burma were operating as a combination called the Associated Oil Companies. The Burmah Oil Company owned 76.8% of the assets of the groups, the Indo-Burma Petroleum Com~g.ny 17%, and the British Burmah Petroleum Company 6.2%. The communist insurrection had hindered the rehabilitation of the oil industry. However, crude oil production slowly revived from 514,000 gallons in 1946 to 8.7 million gallons in 1949. 2 7 Production increased more substantially a~ter 1950 and stood at 37.6 million gallons in 1953. 2 Yet, this figure represented less than 14% of the 1939 output of 275.6 million gallons. Progress in the refining sector was even slower, Refining was undertaken through a distillation plant at Chauk until 1954, when a new

25

Quoted in Hugh Tinker, op.cit., p. 116.

26

Ibid., p. 114,

2.7

Economic Sur•vey of Burma,1953, Rangoon, 1953, p. 17.

28

Economic Survey of

Burma~

1955, Rangoon, 1955, p. 18,

10

reflnery with a daily input capacity of 100,000 gallons came into operation. Output of refined products, however, In 1954, fell far short of the country•s requirements. of motor supply total of local production as a percentage spirit, keros2~e and fuel oil was 33%, 68% and 54% It was to rectify this situation and respectively. make Burma self-sufficient in oil that the government. was motivated to make efforts to acquire a share in the oil industry. ~1954

Joint Venture Agreement

Negotiations with the oil companies which began seriously in 1951 proved to be difficult since the government•s objective of attaining self-sufficiency conflicted with the needs of the British companies for For instance, one of the more difficult issues profits. in the negotiations concerned the government•s proposal to expand refinery output with the immediate aim of saving foreign exchange on the import of petroleum products. However, the British companies were disinclined to corruni t themselves to large investments in Burma. They had received no guarantee against nationalization and the rehabilitation of the oil fields in Burma, which was yet incomplete, had proved to be a difficult and costly operation because of the damage caused during the Second ~vorld War and the communist insurrection. Moreover, Burma after the war ceased to be a major supplier of oil to India and the company had begun to rely on the Anglo-Persian Oil CompanJJ•s refinery in Abadan in Iran to supply its market in India. 0 In 1951, as a result of the nationalization of the refinery in Abadan, the Burmah Oil Company had decided to construct a refinery in Bombay jointly with Shell.31 The company hoped to utilize its refinery in India to r~~ine the bulk An expansion of its crude and supply the Burmese market. of refinery output in Burma would have reduced the imports

29

Ibid., p. 18.

30

B. Dasgupta, op.cit., p. 67.

31

Ibid., p. 67.

32

The Na&ion, 1 January 1954.

11

of the Burmah Oil Company's trading subsidiary, the Burmah Oil Company (Burma Trading) which virtually monopolized the import and marketing of oil in Burma. The joint venture agreement which was signed in 1954 was essentially a compromise between the interests of the British oil companies and the objectives of the government. The Burmah Oil Company retained its marketing subsidiary, the Burmah Oil Company (Burma Trading). The agreement, however, allowed the government the right to acquire a share in the marketing concern at any time after the country became approximately self-sufficient in petrol, kerosene and high speed diesel oil, or at any time after it had acquired a majority interest in the joint venture. The agremenet also noted that the main task of the joint venture was to achieve self-sufficiency in oil and oil products with the objective of producing and refining lOfOOO barrels of oil a day to facilitate Burma's revival as an exporter. Yet, the agreement committed the British companies to provide capital " to complete arrangements for the full refining of only 4,500 barrels a day."33 Apart from this, neither the British companies nor the government were under any obligation to provide fresh capital for the joint venture. However, the agreement provided that "in the event of both parties not being willing to put up capital pro rata for any expansion or other development, either of the parties may, if it so desires, put up all the capital and the other party will then be bound to cooperate in achieving the objective for which the capital was required in the same way as if the capital had been put up jointly."3 4 The agreement also obligated the joint venture concern to pursue a policy of "Burmanization", that is, the employment and training of Burmese citizens to fill responsible positions in all fields of the industry.35

33

The Nation, l3 January 1954.

34

Ibid.

35

Ibid,

12

The joint venture agreement succeeded to a certain extent in meeting the basic objectives of the government. With its one-third interest in the Burmah Oil Company (1954), the government had acquired the opportunity to gain valuable experience in the running of the industry. The agreement provided for the training of Burmese citizens and also left the door open for the nationalization of the industry. As for the Burmah Oil Company, it retained its lucrative trading subsidiary, the Burmah Oil Company (Burma Trading), which acted as agents for the joint venture.36 Yet, the prospect of nationalization acted as a disincentive to the British oil companies, who became reluctant to expend vast amounts on oil exploration and in fact were not obligated to do so under the joint venture agreement. The impressive 21% average annual percentage increase in crude oil production between 1954-55 and 1958-59 was due mainly to the speedier rehabilitation of oil wells rather than the discovery of new fields. After 1958, production increased at a much slower rate averaging only 2% annually between 1958-59 and 1960-61 (see Table 1) . Refinery output increased with the open1ng of a new refinery at Syriam in 1957 with a capacity of approximately 3,300 barrels a day. As a result, imports of petroleum products, particularly motor spirit and kerosene declined. By 1960, almost the entire supply of kerosene and 92% of the supply of motor spirit were met by local production, though 40% of other fuel oil requirements were still imported.37

36

As marketing agent of the joint venture, the Burmah Oil Company (Burma Trading) received a 2,5% commission. Commission fees paid increased from Kyat 1.34 million in 1954 to Kyat 4.44 million in 1959. In addition, the joint venture had to pay for selling and distributing charges. Payments for these on behalf of the Burmah Oil Company (Burma Trading) increased from Kyat 15 million in 1954 to Kyat 42.3 million in 1959. The Burmah Oil Company (Burma Trading) also acted as agent for the joint venture in the import of expensive oil and transport equipment. The Nation, 26 September 1960.

37

Economic Survey of Burma, 1961, Rangoon, 1961, p. 23.

13

The 1960 Joint

Vent~~reement

In September 1958, as a result of a major political crisis, U Nu handed over the reins of government to the military. Essentially a caretaker r~gime, the military government was in office for the next eighteen months during which time it initiated proposals for the acqu1sition of a majority interest in the joinc oil venture, Negotiations towards th1s purpose were continued on the resumption of a civilian government in April 1960, led once again by U Nu, It is not certain why the governmenc decided at this juncture to press for a majority control of the jo1nt venture, which had made some progress in increasing crude oil and .cefinery outputo In fact, in April 1960, the government declared that its policy due to the disappointing performance of the public sector "rr,ust be. one of, gradual withdrawal of the state from economic activity."j8 It is likely, that for political reasons, U Nu had little choice but to continue the negotiations which had been initiated by the caretaker governmento In an attempt to rational1ze its demand for the acquisition of up to 51% of the shares of the joint venture, the government in August 1960 complained that oil production and refining were not progressing fast enough and that it vJas its intention to invite other foreign companies with experience in thes.s fields to operate in Burma in co-operation with JOint venture. 39 An editorial in The Gz~ar•dLan on 28 August, 1960 also hinted at the possibility of tbe g·overnment ''following the foot steps of India and l?akista~ to bring in the Russians to explore for oil in Burma." 0 Th1s threat seemed sufficient to compel the British partners to finalize another agreement supplementary to the one signed ln 1954o By th1s agreement. signed in OctobeJ:: 1960, the government increased its share in the B~rma~ Oil Company (1954) to 51%. It was also to take over, on 1 January

j8

Louis J, Wahnsky, op ,ciL, p' 571,

..)9

2"h6 Gua:t•di an , 20 August 1960,

40

Ihe GuaY·d·i a:r; , 28 August 1960,

14

1961, the marketing installations and facilities in Burma of the Bm::mah Oil Company (Burma Trading) and the Indo-Burma Petroleum Company.41 However, the agreement allowed the London office of the Burmah Oil Company (Burma Trading) to continue to act as agents of the joint venture for a period of ten years. It would be responsible for the purchase of equipment and machine parts for the joint venture, as well as the export of surplus oil for which it was to receive a 2.5% commission.42 The agreement also stipulated that the government was to refrain from acquiring further shares in the joint venture for the next fifteen years. The Burmanization of the staff was to be accelerated, though the conditions and ter~~ of employment of the Asian staff were not to be changed. It would seem that the 1960 Agreement had placed the JOint venture on a firmer footing. The British partners had obtained a guarantee against nationalization for the next fifteen years. Though the Burmah Oil Company was ·to wind up the operations of its lucrative subsidiary, the Burmah Oil Company (Burma Trading) , the trade in petroleum products was not. nationalized. As partners in the joint venture, the British oil companies still had a share in the petroleum trade. For these concessions, the government gained a majority interest in the joint venture and the opportunity to formulate policies in the national interest. In this respect, the government set as its major objective, the exploration of new sources of oil in Burma. The 1960 Agreement committed the joint venture to siend Kyat 25-30 million annually on oil exploration. 4 In additioli the government decided to allow other foreign oil companies to invest in oil exploration and production. 41

This dateline was not met and in 1962 the Burmah Oil Company (Burma Trading) was still functioning though the government had appointed a committee to evaluate its assets and was negotiating for the takeover of the marketing concern,

42

The Guardian, 26 October 1960,

43

Ibid., see also The Gua:.."dia:n. 1 November 1960,

44

The Burmah Oil Company (1954) drilled 70,020 feet in exploration in 1961 which was only a little less thc.n the total exploration footage drilled in all the years from 1954-60. The exploration programme cost the Burmah Oil Company about Kyat 20 million in

15

The government lnVitatlOn to foreign oil companies received a poor response. In February 1961, it was reported that the government had granted an exploration licence to the General Exploration Co~~any of California to conduct an onshore geological survey. In September 1961, the government amended the ten-year nonnationalizaticn gurantee in the Union of Burma Investment Act of 1959 to improve conditions for foreign investmento Under the amendment, the government was to specify the period of nonnationalization for each industry according to its magnitude of investment, As an editorial in I'he Natim1 pointed out, the amendment "had not caused much of a stir abroad .... 46 Other than the General Exploration Company of California, another relatively unknown American concern, the K.S.L. Aviation and Trading Company of Seattle, Washington was reported to have entered into a twenty-year: joint venture agreement with a very minor Burmese oil fo~' called the Burmese Oil Industry Cooperative Society. Meanwhile, the exploration programme of the Burmah Oil Company (1954) yielded little result, apart from the discovery of a gas field in Chauk. Production in the old~B fields in Chauk and Lanywa was slowly declinlng. It is against this background that the events leading to the nationalization of the oil industry, after a military coup in 1962 should be viewed.

1960, Kyat 28 million in 1961 and Kyat 31 million in 1962, Mainly as a result of the increase in expenditure on exploration, the profits of the joint venture declined sharply from Kyat 12,1 million in 1960 LO Kyat 6.2 million in 1961. The joint venture declared a dividend of 6% in 1960 compared to 3% in 1961, The Nation, 19 January 1962; Ihe Gu.ardian, 18 January 1962; and FaY' Eastern Economic Review, 14 February 1963.

45

The Guardian, 9 February

46

The Nation,

47

The Guardian, 4 February 1962,

48

'I'he Na-;;icn, 10 May 1962,

196L

21 October 196lo

1.6

Events leading to the Nationalization of the Oil Industry On 2 March 1962, the military in Burma, led by General Ne Win, staged a bloodless coup which overthrew the government of U Nu and brought an end to parliamentary democracy. The coup was the result of the army's disenchantment with the former government's lenient policies towards minority ethnic groups, who were demanding a federal system of government, and a greater autonomy for the states in which they were a majority. The army was also impatient with the inefficiency of government economic enterprises and the general tardiness of economic development. More confident and more determined than its predecessor, the new regime soon came to the conclusion that the only medicine for Burma's economic ills was a greater dose of socialism. Though initially ambivalent about the role of private foreign enterprise in the economy, the government at the end of April 1962 came to a definite decision to ban further foreign investment. Earlier in that month, it had been announced that the government was to modify the Investment Act of 1959 to make it more attractive for foreign investors to invest in Burma. A thirty-year nonnationalization guarantee was to be offered for rubber plantations and a delegation was to visit Malaya, Philippines and Thailand to see how these countries attracted foreign capital.49 But these plans were abandoned. On 30 April, the Revolutionary Council announced its socialist programme. Section 10 of the government statement not.ed: In order to carry out socialist plans such vital means of production as agriculture and industrial production, distribution, transportation, communication, external trade etc., will have to be nationalized. All such national means of production will have to be owned by the state or co-operative societies or collective unions.SO

49

Far Eastern Econom-ic Review, 12 April 1962, p. 101.

50

The Guardian, 30 April 1962,

17

Not long after this policy statement was made; the new government began to take measures preparatory to the nationalization of the oil industry. In accordance with its decision in March to withdraw i~rort licences of foreign companies after six months, the import activities of the Burmah Oil Company (Burma Trading} ceased on l October and were taken over by the state-owned Burma Economic Development Corporation. On 22 October, the government formed the Petroleum and Minerals Development Corporation (PMDC) to exploit and develop petroleum and other minerals as well as to store, sell and distribute their products.52 At the same time the government signed an agreement with Rumania for assistance in oil explorationo 53 In the following two months, discussions were held between the government and the British oil companies, first concerning the nationalization of the import trade of the Burmah Oil Company (Burma Trading) and then on the nationalization of the joint venture o After the government-'s takeover of the import trade in petroleum and petroleum products, the British companies had begun to lose interest in the joint venture and moreover were convinced that nationalization of the industry was inevitable. 54 The government on its part sought. to rationalize its intention to take over the industry by complaining that the joint venture had achieved little. Echoing the views of the government, an editorial in The G~ardian on 21 October noted that "there is no self-sufficiency of oil; let alone surplus for export because of the lack of greater progress in production and the lack of discovery of new fields."55 In discussions with the British oil companies in November, the government asserted that the 1960 supplementary agreement, which provided a fifteen-year

51

The Guardian, 9 March 1962,

52

The Guardian, 23 October 1962,

53

Ibid,

54

The Nation. 13 November 1962,

55

The Guardian, 21 October 1962,

18

ncnnationalization guarar.tee went against the fundamental principles of the 1954 Agreement and was ultra vires of it. The 1954 Agreement had provided the government the right to acquire up to a hundred per cent of the issued capital of the joint venture.56 The government also complained that the Burmanization of the staff in the joint venture had not proceeded fast enough. Though the company had improved facilities for training Burmese apprentice engineers and artisans and was sending Burmese abroad for training in various aspects of the oil industry, the number of Burmese citizens in its executive staff had not changed significantly. In May 1958 out of a total executive staff of sixty, thirty were foreigners and thirty Burmese citizens. In 1962 this position had not changed. Hence one of the first actions of the government, when it took over the joint venture, was to announce that the services of only fift57n of t~e thirty Euroi?ean per~onnel emplo~ed were needed. Desplte these crltlclsms, lt is clear that the shortcomings of the joint venture had little to do with the nationalization of the oil industry, The main factors ·were the government 1 s commitment to socialism and its conviction that it could manage the industry alone. On 2 8 December, it was reported tbat an ag·reemen t had been reached between the oil companies and the government whereby the government was to take over the Burmah Oil Company (1954) on 1 January 1963. It was to pay Kyat 44 million for 49% of the share of the British companles in the Burmah Oil Company (Bunna 'l'rading) and the Indo-Burma Petroleum Company. The total of Kyat 62.5 million was to be paid in sterling in two instalments spread over two years and at an interest rate of 3.5% per annum on outstanding amounts of the purchase pricetal

Daily average

4

154

158

1549.5

565

4

137

141

1251.6

228

Yenangyaung field

11

165

176

3983.1

1454

5

165

170

3845.8

Hyanauna field

12

37

49

3399.6

1241

12

37

49

Pro- field

25

12

37

1975.3

721

22

12

Mann field

42

3

45

94 74.1

3458

46

Ayadaw field

2

29

31

29.4

11

Letpando field

-

-

-

-

Chauk field

Report to the Pyithu Hluttaw, 1975-76.

-

Annual (in thousand)

Pumpina wells

Flowina wells

Source:

Crude-oil production (U.s. barrel}

Oil-wells

-

Daily average

-

2

35

Table 3:

Production of Natural Gas 1950-75

Million cu. metres

Year

2 2

1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 Source:

United Nations,

3

5

s

6

7 6 9 5 21 15 18 16 4

8 11 7

12 17 9 7 1'7

15 20 15 Wor~d

Energy

Supp~ies,

1950-74.

Table 4:

Production of Petroleum Products 1961-62 to 1970-71

Unit

1961-62

1964-65

1965-66

1966-67

1967-68

1968-69

1969-70

1970-71

Gal.

47581

43864

47296

51983

46655

48010

48890

49630

Superior kerosene

"

-

-

44078

49170

59154

62660

74084

76770

Jet fuel oil

"

2530

42674

5284

5549

6473

7210

7860

8451

Diesel oil

"

-

4371

57891

58188

60677

66625

69946

76690

Furnace oil

II

12259

17276

28078

24552

13392

354 70

25229

42620

"

-

-

8137

10235

8879

17780

11112

13485

II

44981

46385

922

850

102

18

17

16

16

18

19

18

18

Motor gasoline

Heavy petroleum oil and earth oil Inferior kerosene Wax

Ton

Naptha

Gal.

-

-

-

-

-

-

4337

17150

Petroleum coke

Ton

-

-

-

-

-

-

11

13

Miscellaneous

GaL

2855

2802

2773

1732

453

707

Source:

6323

3073

Report to the People, 1971-72. w 0\

Table 5:

Domestic Purchases of Petroleum Products by Government Trade Corporation (17) and Total Sales of POI (now called Myanina Oil Corporation) (Value in Kyat in thousand)

Item of Purchase

Candles (case)

1967-68 Quantity Value

1968-69 Quantity Value

1969-lO Quantity Value

1970-71 Quantity Value

12483

453

9952

378

5249

186

60000

2182

Kerosene (gallons)

n.a.

n.a.

21396557

24739

12480861

29698

5542685

55759

Petroleum coke (ton)

n.a.

n.a.

1382

104

n.a.

n.a.

7000

924

Paraffin wax (ton)

n.a.

n.a.

2

38

n.a.

1

10200

5937

Naptha (ton)

n.a.

n.a.

n.a,

n.a.

n.a.

65000

15241

Fuel oils (gallons)

n.a.

n.a.

2252.

1497805

2192

2922243

4033

Lubricating oils and greases (gallons)

n.a.

n.a.

508

n.a.

367

n.a.

2437

17

453

28019

32443

86513

368382

347601

361846

391728

Total purchase of Government Trade Corporation (17) Total domestic sales of POI (now called Myanma Oil Corporation) Source: n,a.

Report to the People, 1971-72. Not available.

n.a.

1546680 n.a.

w -....]

LIST OF PUBLICATIONS

Research Notes and Discussions Series 1

M. Mainguy, Economic Problems Related to Oil and Gas 19 7 6 • 3 9 pp • s $ 6 • 00

2

R. William Liddle, Cultural and Class Politics in New Order Indonesia, 1977. 21 pp. S$4.00

3

Raja Segaram Arumugam, 36 pp. S$ 5.00

Exploration,

State and Oil in Burma, 1977.