Kyaukphyu port: What happens next?

After more than two years of negotiations, the Myanmar government and China’s state-owned CITIC Group signed the framework agreement for the proposed US$1.3 billion deep-sea port in Kyaukphyu on November 8.

At the press conference, CITIC chair Chang Zhenming said this meant “the beginning of further steps”. “Signing this agreement is the starting step for our businesses. There are various activities ahead,” he remarked. U Set Aung, as chair of Kyaukphyu SEZ Management Committee (KSMC), said the project will not amount to debt burden for Myanmar. “Many negotiations were made to make the project sustainable and to avoid a burden for Myanmar both at present and in the future,” he explained, pledging transparency in the process.

The CITIC chair emphasised that it is a Belt and Road Initiative project and will connect Myanmar with the regional networks. The port will be connected to Western China and through China and the Pacific, as well as to the “East-West Economic Corridor”, joining other ASEAN economies.

Deputy commerce minister U Aung Htoo said an Environmental and Social Impact Assessments (ESIA) will commence in a year and the two parties will work to move forward the project based on the framework agreement, which covers the construction of two deep-water berths. New industrial zones will be negotiated and “about three framework agreements will be made.”

The proposed Kyaukphyu SEZ, located in central Rakhine State, originally consisted of an industrial park and a deep-sea port. In 2015, a CITIC-led consortium won the bid to develop both components. The National League for Democracy-led government pushed the stake ratio to 70:30 from 85:15. The US$7.5 billion estimated price tag of the port was subsequently reduced to $1.3 billion, regarding the first phase of the project.

Myanmar is expected to give half of its 30pc to private companies. Currently, 50 local firms expressed an interest to invest in the project. Chang Zhenming added that, in a decade, 90pc of the managerial positions will be filled with Myanmar workers. A total of 100,000 locals are expected to be hired. The project proponents sad the port will bring a total of US$6.5 billion in tax revenue and the industrial zone will bring $7.8 billion over a 50-year period. When the industrial zone is operating at full capacity, an annual $3.2 billion earning is expected.

However, officials in the press conference did not talk about implementing a recommendation from Kofi Annan’s Rakhine Commission: to undertake a Strategic Environmental Assessment (SEA). It is the Myanmar government, not the developers, who decides whether to undertake an SEA. While that is not legally required, unlike EIA Procedures, there is pressure to follow through with the SEA because State Counsellor Daw Aung San Suu Kyi had publicly endorsed all the recommendations and pledged to implement them. In fact, the ESIA/ EIA should be done after the conclusion of the SEA and should be informed by the findings of the SEA.

A labour market assessment is also among the recommendations of the Rakhine Commission. The Myanmar Times understands that the authorities are doing so in collaboration with International Labour Organisation (ILO).

Notably, yesterday’s agreement is just the start of a series of complex negotiations yet to come. Last year, Yuan Shaobin, executive president of CITIC Myanmar, said the framework agreement merely serves as a small step forward for both sides to sign all the transaction documents necessary for the SEZ proposal to commence. The industrial park involves three agreements: an investment, shareholder and lease agreement, while the port requires the same agreements together with a concession agreement.

With the framework agreement secured, there will still be a lot of negotiations in the coming months to hammer out the real deals. Nothing is finalised until those agreements are inked.

A lot is at stake in this project due to its location, size and scale. The Myanmar government has been weak in enforcing contracts and managing the risks and potential conflicts associated with large-scale infrastructure projects. For example, if members of the community are protesting against compulsory land acquisition and authorities in response disperse the protestors by force, local people are likely to put the blame on the developer, which in turn will fuel the tension between the companies and the residents. A grievance mechanism ought to be in place from the very start of the process. Grievance mechanism requirements are now standard in Environmental Compliance Certificates (ECC), which are legally required before any construction work or land acquisition activities are allowed to take place.

Transparency is vital to reduce and mitigate the human rights risks and conflict dimension on this SEZ project, including forced eviction, grievance mechanism and threats to livelihoods. What’s important is to be transparent, so that those whose thought they were losing their land to compulsory acquisition know whether they will or not. Those who were worried that their livelihoods might be affected would also know how that would work out.

With the SEZ, the complicating factor is always “who is responsible for what”. Does the buck stop at the regional authority, the central government, the KSMC or the developer? The local community and the wider public deserve to know what is going on with a project as significant as this. Thilawa SEZ serves as a good lesson why transparency is needed much earlier in the process.

The port is expected to be another key development in Sino-Myanmar cooperation. In September, the two countries signed a Memorandum of Understanding (MoU) on the China-Myanmar Economic Corridor. Meanwhile, the twin Chinese oil and gas pipelines run from Kyaukphyu to Kunming, capital of China’s Yunnan Province, since last year.


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