Churchouse Letter
June 2014               by Peter Churchouse

Can’t Eat. Can’t Drink. Can’t Breathe. Part III

I was recently lucky enough to join some friends on their superyacht for a cruise through the Mergui Archipelago in Burma. These are pristine islands, and for the entire eight days, our only company was a few boats housing sea gypsies and fishing vessels in search of squid and deep-sea fish.

On one day, our mission was to visit a local business. It took up an entire island for its seafood processing, mainly squid, prawns, shrimp and fish. It also has a very large operation breeding soft-shell crabs. The operation also includes a shipyard, a hotel and a shopping mall. There will soon to be residential development across the water in the city of Myeik. It’s a tried and tested strategy. Make a bit of money in manufacturing, and pump it into real estate to get really rich.

One of the shocks was just how much money they were spending on fuel. The electricity supply in Burma is terrible. The generals that ran the country for so long in a military dictatorship may have done a good job of staying in power. But they certainly didn’t make enough of it.

Many parts of Burma don’t have reliable power, particularly outside the capital. As a result, the boss of the seafood plant has to spend around US$1 million every month on diesel fuel to run the company’s generators.

When we got back on the boat, we started thinking about different options. It’s obviously way too expensive for one company to set up a conventional power plant. The sea breeze soon turned our thoughts to wind power. The strong sun in the day made a good case for solar power, too. And one end of the island is virtually empty, a great place to install wind turbines or solar panels.

I have been sceptical about renewable energy in Asia in the past. But I know the Chinese government realizes that swift, concise action is needed to shift away from an overwhelming reliance on filthy coal. A restless public is a threat to any government that isn’t elected by that public. So Beijing has made the issue one of its prime concerns.

Renewable-energy technology in China is not only here to stay, but here to GROW.

In this month’s edition, we pick our top company for a particularly fast growing part of the renewable energy space in China.

Enjoy the issue,

Peter


Wind...

It was George Bernard Shaw who said “those who cannot change their minds cannot change anything”. So it was a recent trip to Burma, or Myanmar if you prefer the term picked by its military junta, that reiterated a shift in my thinking on renewable energy. Wind power in particular.

Burma’s electricity supply is hopeless. The generals may have kept themselves in power for years, but they certainly haven’t been making enough of it. That leaves companies and apartment buildings struggling to make their own electricity on a small scale.

When I say a small scale, that’s relative. On our travels through Burma, we came across a company that is burning through US$1 million in fuel each month to generate the electricity that it needs.

Burma is a new investment frontier, and probably a little too new for investment into hard assets. But I want to tell you how to put that insight to use in Asia’s biggest economy…

Recently, I had the fortune of receiving an extraordinarily generous invitation to join friends on their superyacht for a cruise through the Mergui Archipelago in Burma. This is an area of several hundred pristine islands in the south of the country stretching down to the Thai border.

There are no towns, resorts, or hotels, just one small village of the Moken people on an island in the middle of the archipelago. The beaches are beautiful, the vegetation is lush and there are sea eagles, kites and egrets on the shores. The snorkelling is excellent, and divers can explore totally uncharted sites. The marine charts for the area are largely based on British surveys from as far back as the late 1800s.

For the entire eight days, we saw no other pleasure vessels. Our company was just a few boats housing sea gypsies and some fishing boats on the hunt for for squid and deep-sea species. The only blot on this gorgeous part of the world is the massive piles of plastic rubbish washed up on every beach. My own view is that we should ban polystyrene around the world. It is a curse all through Asia, as I’m sure it is on many coasts.

A Great Business Operating in Very Basic Conditions

Early in the trip we steamed to the city of Myeik on the mainland, at the northern end of the archipelago. Our mission was to visit a local business. It took up an entire island across the harbour from the city. The main business is seafood processing, namely squid, prawns, shrimp and fish. It also has a very large operation breeding soft-shell crabs. These are a highly sought-after delicacy throughout Asia. Most of the production is exported. The operation also includes a ship-yard, as well as a hotel and shopping mall. There will soon to be residential development across the water in the city of Myeik.

The business seems to be repeating a model I have seen throughout the region. Make a bit of money in manufacturing, and pour it into real estate to get really rich.

The seafood operations were truly impressive particularly given the primitive conditions for most business-es in Myanmar. The company has built a school that serves about 1,000 pupils, most of whom had been press-ganged into coming to the school during their school holiday to meet these crazy foreign guests.

Power Point

During our visit, we learned that the company spends approximately US$1 million per month on diesel fuel to run the generators that power all this activity. Myanmar probably needs power more than any other country in Asia. Running huge generators is costly and inefficient, but there is no alternative. There is virtually no public electricity, and anything you can get is highly unreliable. Many places in Myanmar have electricity for only a few hours a day. Large diesel generators litter the streets of Yangon, or Rangoon, occupying great chunks of pavement. Desperate residents of apartment blocks install them. They simply have to make their own electricity.

Beauty, the Eye and the Beholder

Back on the aft deck of the boat that evening, we enjoyed the gentle sea breeze and the customary gin and tonic – still a good way of warding off malaria in afflicted parts of Asia, as I’m sure you are aware! We put our minds to the chairman’s electricity problems and his huge diesel bills. In this isolated, beautiful corner of the world, isn’t there is a better way to get electricity?

It would be way too expensive to run a conventional power plant. The steady coastal breezes turned our thoughts to wind power. Solar power from the strong sun also struck us as an option. One end of the island is virtually empty, and seemed ideal for the installation of wind turbines or solar panels. My friend’s son is particularly enthusiastic about solar power. At the tender age of 19, he established a not-for-profit organisation providing solar-powered computers for schools in developing nations (SolarLEAP).

But we disagreed. One of my friends opposed wind turbines on the grounds that they are ugly, and a blot on the landscape. Another friend said he found them visually quite appealing.

In my mind, given the energy and pollution problems our world faces, a few wind turbines on the landscape is hardly too much to ask!

You can make a similar case for large-scale solar panel installations. They cover wide areas of land. Many people would argue they are highly unsightly. This thought brought me back to a British man that I had recently re-encountered after many years apart. He has recently come to an agreement with an investor to allow the use of many acres of his marginal farmland in the English countryside for the establishment of a large acreage of solar panels. The rental yield he is set to receive is two to three times the yield from using the land for farming. I told him I worried about the pushback from Britain's vocal and influential lobby looking to protect the English countryside. Surprisingly, my friend said there had been no problems. The land is very flat, and there are trees and bushes around the entire site. That makes it virtually impossible to see the solar panels from outside.

There are different kinds of ugly, and there are tradeoffs whenever you make calls like this. But in developing nations like Burma and China, the choking pollution from burning fossil fuels is a central factor in decision making. The lack of reliable electricity forces nearly everyone into alternative solutions. So maybe wind turbines or solar panels are more acceptable than in the English countryside or the rolling hills of Montana.

China has a much better supply of electricity than Burma. But air pollution from coal-fired power is now very dangerous to health in many parts of the country. This is now news to nobody.

The Chinese public is increasingly fed up with some of the worst levels of urban air quality on the planet. So Beijing has put the issue on the national policy agenda.

For many years I have been a touch sceptical about the potential for wind and solar power in larger economies such as China. Now I think I may have been wrong to be so dismissive...



Share This Article

LinkedIn   Facebook   Twitter  

Subscribe to Peter's premium publication, The Churchouse Letter, and get access to decades of winning investment expertise, insight and specific investment recommendations

Get your 1 Year Subscription to The Churchouse Letter for just US$0
 

* Required

BUY YOUR SUBSCRIPTION NOW
E-mail Address: *
Password: *
 
  • 12 Monthly editions of The Churchouse Letter, our flagship investment publication
  • Free Subscription - To the Premium Edition of Peter's free newsletter
  • Unlimited Access to our entire research archive
  • Access to the insight, investment expertise and no-holds-barred opinions of Peter Churchouse, one of Asia's most respected voices in finance
  • Don’t Panic. Just Prepare. - Put yourself in a position to profit with these 5 things you can do to prepare your portfolio for the next bear market.
  • Special Bonus! Peter's Rules for Buying Real Estate – Lessons From The Trenches.... An invaluable guide to how Peter made millions in property investment
  • Your 3 Golden Rules - Peter's top three rules of investing, guaranteed to maximize your gains and minimize your losses
100% Money Back Gaurantee