Chinese and Indian Firms Tipped for Kyaukphyu SEZ Bidding Race

The Burmese government call for international bids to develop a proposed Special Economic Zone around Kyaukphyu on the western coast makes no mention of existing MoUs already signed with Chinese and Japanese companies, and reportedly involving noted crony Burmese businessman Tay Za.

The announcement raises questions over these previous agreements, but an economic expert on Burma said he thinks China remains the frontrunner to develop the SEZ, and might face competition from Indian companies.

China certainly has a head start over anyone else at Kyaukphyu, a town located on the coast of western Burma’s Arakan State. It built and operates the oil port import terminal on Ramree Island where Kyaukphyu is located. Its twin crude oil and natural gas pipelines start there, and the Chinese have signed a MoU to build an 800-kilometer railway linking the SEZ with China’s Yunnan Province — the destination of the pipelines.

The railway MoU awarded China’s Railways Engineering Corporation a long-term Build-Operate-Transfer agreement “under which China will fund and construct the railway and operate it for half a century before handing it over to the Burma authorities,” according to Arakan Oil Watch, a Thailand-based human rights and resources transparency NGO.

Arakan Oil Watch says in a special study that the SEZ planned for Kyaukphyu is one of several being targeted by China’s central planners across Southeast Asia to improve trade with ASEAN, the Association of Southeast Asian Nations, following a free trade agreement between the two.

Arakan Oil Watch claims that two or three large companies are already designated to be the main SEZ developers. It identifies these as CITIC, a state-owned Chinese conglomerate; Nippon Koei Company, a Japanese engineering consultancy; and Burma’s Htoo Trading Company, a subsidiary of the Htoo Group of Companies owned by noted former military junta crony businessman Tay Za.

These companies have previously signed MoUs with various Burmese government ministries to develop the Kyaukphyu SEZ.

It’s unclear whether the Naypyidaw government has abandoned SEZ development proposals for the Kyaukphyu area drawn up by Nippon Koei Company in association with China’s CITIC, or whether they would be incorporated in any new bidding proposals.

The government’s Bid Evaluation and Awarding Committee said bidding development strategy contracts for a Kyaukphyu SEZ must be lodged before November 19, and suggested that initial work could begin in April 2014.

Earlier outline proposals for a central coast SEZ cover an area of 120 square kilometres, embracing all of Ramree Island and rural districts on the adjoining mainland.

Sean Turnell, a prominent economist with a close understanding of Burma, thinks Indian state-owned businesses could be interested in investing in a Kyaukphyu SEZ, as India is “anxious to offset China’s erstwhile dominance in this strategically important area”.

But he told The Irrawaddy he thinks there will be little interest outside of Burma’s two giant neighbours, and warns that it would be a mistake to offer potential investors too many financial incentives otherwise there is a danger that “concession-dependent activities are the only ones attracted”.

“Likewise, it is important that links be established to local suppliers and other businesses, otherwise the danger that they simply become privileged ‘enclaves’ is likely,” said Turnell a professor at Macquarie University in Australia and co-author of the Burma Economic Watch Bulletin.

He added, “SEZs are not a bad idea in Burma, especially as locations for surmounting the country’s many institutional, infrastructure and energy obstacles, and as areas for policy experimentation.”

Arakan Oil Watch has warned, however, that plans revealed to date for a Kyaukphyu SEZ would likely mean the relocation of many thousands of people and a disruption to agricultural activity.

“The construction of the Special Economic Zone will multiply the already unfolding impacts of the Burma-China oil and gas pipelines. Massive industrialization will have devastating consequences for tens of thousands of farmers and fishermen who have been neither informed nor consulted about the plans,” the NGO said in its own assessment.

“According to project maps, the 120 square kilometres zone could lead to the relocation of about 40 villages as well as parts of Kyauk Phyu town. Construction of the Shwe pipelines and associated infrastructure has already led to the confiscation of thousands of acres of valuable farmlands. Most of these confiscations were involuntary.”

Until now, most SEZ activity in Burma has been centered on the plan for Thilawa on the edge of Rangoon, while a third potential major SEZ — at Dawei on the southeast coast — has been at a standstill for lack of investment. Japanese companies are dominating development plans for Thilawa.

However, the Thilawa SEZ, located some 20 kilometers from Burma’s commercial capital Rangoon, has been stalled for nearly one year due to land rights issues, power supply and other infrastructure problems. The project is supposed to be one third complete by 2015.

A recent assessment by the Oxford Business Group, a research company with offices in London and Dubai, thought Thilawa nonetheless offered the best early prospects for an SEZ to help develop Burma’s nascent market economy.

“The Thilawa SEZ’s location, close to [Rangoon] and committed funding by Japanese low-interest loans, makes it a more likely success story for the coming years. Mitsubishi, Marubeni and Sumitomo are all conducting feasibility studies to use the zone, alongside Japan International Cooperation Agency and the Japanese government,” said the Oxford Business Group study.


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