3 Things About UPP Holdings Ltd (SGX:U09) by Goh Tee Leng, Value Edge

UPP Holdings Limited is an investment holding company that engages in the manufacturing and sale of paper and paper packaging products in Singapore, Malaysia, Myanmar, rest of Asia, ASEAN countries and internationally. The company is formerly known as United Pulp & Paper Company Limited and was founded in 1967 and is headquartered in Singapore. The company operates through three segments: Paper Mill, Power and Others. Under the Power segment, it operates a 50MW gas-fired electricity generating plant in Ywama, Myanmar.

Here are 3 things about UPP Holdings:

1. Growth in Energy Demand

Myanmar has one of the lowest electrification rate in the world. For now, around 33% of the population has access to electricity in Myanmar. Among the 10.88 million households, more than 7.34 million are yet to be electrified. Ever since Myanmar transitioned into a new government, the country became more opened to businesses from abroad leading to a significant increase in inflow of foreign investments. However, a lack of power threatens the country’s economic transition. Without steady supply of electricity, expansion of infrastructure projects is restricted, industrial development are put on hold and ultimately, slows down GDP growth. Therefore, Myanmar working with World Bank Group is pledged to achieve universal electricity access by 2030.

To meet this growth in demand for energy, a number of plans and programs have been initiated. Under the National Electricity Master Plan, which was prepared by the Japan International Cooperation Agency (JICA), the country will add 23,594 MW of installed capacity and build 41 new power plants. Meanwhile, the National Electrification Plan, which was developed with the help of the World Bank and the UN, lays out a comprehensive upgrade, expansion and overhaul of the system. It is being rolled out in two phases: an immediate phase which targets “quick wins”, and a second phase to tackle long-term targets and capacity building. The World Bank’s role commenced in 2013, with $400m in financing approved in 2015 for 32 years at 0% interest. The first phase is taking place from 2015 to 2019.

Based on a report released by The Asian Development Bank on Myanmar’s energy sector, they showed energy demand doubling from 12,459 million kWh in 2012-2013 to 25,683 kWh in 2018-2019, a compounded rate of growth of 13% a year. Of this output, about 1,700 million kWh will be exported. Looking at the table below, it shows the projected demand and domestic supply of electricity in Myanmar.

UPP Holdings

Projected Demand & Domestic Supply of Electricity (Source: Harvard Kennedy School)

2. Demand for Gas-Fired Power Plants

Myanmar’s current electrical supply is largely dependent on hydro power plants, which is not ideal for base load supply because of the inconsistent power output from seasonal changes. On top of that, coal-fired power plants may be massive in terms of output but they bring about negative environmental impacts. Such environmental pollution concerns have already seen resistance when projects are approved in the recent years. Hence, this leaves the government with the next best alternative, gas-fired power plants. Smaller projects from 50MW to 100MW are quicker to be approved due to the simplicity in financing, therefore, in 2012 and 2013; there were a number of such power plants PPA signed while the higher output power plants were signed only later in 2014 such as Asiatech and Sembcorp Industry’s deals. Going forward, we would expect roughly 22% of electricity to be produced by gas.

3. Singapore Firms Jumping on the Band Wagon

UPP is notably the first Singapore company to have entered the Myanmar electricity generation business; signing the final PPA in February 2014.  Since then, Sembcorp Industry and Asiatech have also announced in late 2014 that they are foraying into the Myanmar power plant business with a much larger power plant capacity of more than 200MW. Such large scale power plant projects usually require a JV with a Myanmar company and also financing arrangement with banks, therefore, these PPA are much more complex than smaller PPA signed like in the case of UPP.