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Why Sembcorp Industries Limited’s Latest Small Agreement In Myanmar May Be A Big Deal

Earlier today, Sembcorp Industries Limited (SGX: U96) announced that it has secured a long-term power purchase agreement (PPA) with Myanma Electric Power Enterprise (MEPE) to supply 225 megawatts of power for 22 years.

The power will be supplied by a 225-megawatt gas-fired power plant that Sembcorp Industries is planning to build in the Myingyan district of Mandalay, Myanmar.

The PPA and the project are relatively tiny in comparison to the entire energy-related business of Sembcorp Industries. To put things into perspective, the company currently has a total of over 10,000 megawatts of power capacity that is operational and under development across all its power plants. The 225-megawatt project in Myanmar is in fact, one of the smallest in Sembcorp Industries’ pipeline.

But, I think the project is still of big significance to the company because it means that Sembcorp Industries has managed to secure a solid step into the Myanmar power market.

According to the Southeast Asia Energy Outlook 2015 report by the International Energy Agency (IEA), electricity demand in Southeast Asia is expected to triple to more than 2,000 TWh (terawatt-hours; 1 terawatt is equivalent to 1 million megawatts) by the year 2040.

The report also stated that in 2013, 68% of Myanmar’s population (that’s 36 million people) had no access to electricity. In comparison, in a country such as Indonesia, only 20% of its population did not have access to electricity in that same year. Thus, the demand for power in Myanmar is very, very likely to increase as the nation grows.

Now that Sembcorp Industries has secured a PPA in Myanmar, the company might be in a better position to tender for future utility projects in the country. Given that Sembcorp Industries has a strong forte in water treatment, on-site logistics, and solid waste management projects as well, it looks to be in a good position to help Myanmar develop its infrastructure.

Foolish Summary

Myanmar may be entering a new era of progress with the recent change in its government. In fact, the country’s new president, Htin Kyaw, was just sworn in today.

With the country eagerly trying to play catch-up with the rest of the world, its demand for infrastructure projects should be high. Thus, Sembcorp Industries’ latest announcement about its small PPA might also mark the beginning of a big long-term opportunity for it in Myanmar.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any companies mentioned.