Myanmar to trim Kyaukphyu cost but drops Annan’s strategic review suggestion

Nay Pyi Taw’s plan to reduce the cost of Kyaukpyu Special Economic Zone, including the proposed deep-sea port, will help cap its external debt load and avoid repeating Sri Lanka’s Hambantota’s precedent, according to London-headquartered research firm BMI Research. At the same time, a government committee has dropped any mentioning of commissioning a Strategic Environmental Assessment in its June progress update.

BMI Research said in its latest report that Myanmar’s move to downsize the scale of Kyaukphyu SEZ is “positive for debt and growth sustainability” and “in line with the government’s intention of diversifying its foreign policy and reducing its reliance on Chinese investment.”

“We believe that Myanmar’s move to rationalise the Chinese-backed Kyaukphyu SEZ mega-project is positive for debt and growth sustainability over the long-run, given that the development has questionable commercial viability.”

The report comes after planning and finance minister U Soe Win said earlier this month that the government is planning to downsize costs related to the Kyaukphyu project amid rising concerns that Myanmar could be taking on too much debt to fund it.

He said Nay Pyi Taw is heeding “lessons that we learned from our neighboring countries, that overinvestment is not good sometimes,” referring to the $1 billion Hambantota port in Sri Lanka, where Colombo borrowed heavily to construct the port, but couldn’t repay the loans and had to give China a 99-year lease for debt relief. The cabinet minister said Myanmar wants to “cut all the unnecessary expenses”, but did not provide any details on how the government wanted to trim the proposal.

The proposed Kyaukphyu SEZ, located in Rakhine State, consists of an industrial park and a deep-sea port. In 2015, a CITIC-led consortium won the bid to develop both components. Discussions under the National League for Democracy-led government have focused on shifting the stake ratio to 70:30. U Thein Sein’s government originally agreed to give the CITIC consortium an 85 percent stake.

Debt trap

Despite U Soe Win’s remarks, Raphael Mok, Asia analyst at BMI Research, warned that Myanmar will likely find it difficult to seek other sources of external financing for Kyaukphyu other than Chinese sources. The domestic capital market is at its infant stage while the government remains reliant on the Central Bank for direct deficit financing.

“Raising capital overseas will also likely be challenging given that foreign investors will likely find it difficult to determine Myanmar’s creditworthiness due to the lack of information.”

Sean Turnell, economic adviser to the State Counsellor, had earlier called the US$7.5 billion estimated price tag for the Kyaukphyu deep-sea port “crazy” and “absurd”. He said Hambantota’s precedent “has been really taken notice of in Myanmar”, arguing that the government should not be asked to borrow $2-3 billion from the Export-Import Bank of China to finance the project.

In response, U Aung Soe, director general from the commerce ministry’s Trade Promotion Department branded those concerns “baseless” because “a decision has not been made whether loans are required” for the port.

U Thaung Tun, Myanmar Investment Commission (MIC) chair, weighed in on the issue during his visit to Hong Kong two weeks ago, dismissing the fear of a “debt trap” and reiterating his confidence that Kyaukphyu would be a “win-win” deal.

Still, MIC has no jurisdiction on SEZs. According to U Tun Tun Naing, permanent secretary of the Ministry of Planning and Finance, negotiations of the Kyaukphyu project are being led by the finance minister and his ministry’s Directorate of Investment and Company Administration (DICA).

SEZ Central Executive Committee chair U Than Myint, who’s also commerce minister, said last week that some agreements on the project have been reached and “the whole SEZ will not be implemented at once” but it will be developed “in parts”.

Strategic Environmental Assessment

Meanwhile, a government committee tasked with implementing the recommendations of an Advisory Commission on Rakhine State appears to have dropped the Strategic Environmental Assessment for the SEZ project as advised by the Commission. Instead, environmental and social impact assessments are being conducted.

There has been confusion whether a Strategic Environmental Assessment is being or will be undertaken.

The former Rakhine Advisory Commission, chaired by Kofi Annan, recommended that the government conducts an SEA and labour market assessment for Kyaukphyu SEZ. According to CITIC Myanmar, Kyaukphyu SEZ Management Committee (KSMC) has already issued a notification on January 16 to authorise an Environmental and Social Impact Assessments (ESIA) and the site geological and topographical survey. This is confirmed by the progress report published in a state-owned paper by the Committee for Implementation of the Recommendations on Rakhine State on June 12, stating that “CITIC and the government designated entity as a counterpart from Myanmar working closely” on the ESIAs and survey. The Myanmar Times has requested to a copy of the January 16 notification but has not seen the document to date.

In February, the implementation committee announced that the KSMC would conduct an SEA prior to ESIA. But the June update omitted the SEA part, only saying that a labour market assessment is in the pipeline with International Labour Organisation (ILO). A SEA prior to ESIA is “a tangible step the NLD can take to avoid another Myitsone scenario”, the International Commission of Jurists (ICJ) previously emphasised.

Source: Myanmar Times

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