Plenty of political will but no cash for New Yangon project

Large areas west of the Yangon River here look dark and depressed, at least from an airplane taking off or landing from the capital’s airport after sunset.

In stark contrast to the city center, on the east side of the river, where high-rise commercial buildings and shiny condominiums are popping up, the opposite bank gives way to farms and undeveloped land.

Yangon’s regional government has embarked on a project to build a “New Yangon” along this stretch of untapped potential.

In the first phase, Kyimyindaing Township, in western Yangon, will be developed. It extends about 10km east to west and 8km north to south for a total area of 80 sq. km.

The new urban center, with jobs for 2 million people, is to cost $5 billion. It will be expanded southward in the future.

At the end of March, the regional government set up a wholly owned company, New Yangon Development Co., to coordinate the project.

The company will be led by Vice Chairman and CEO Serge Pun, chairman of conglomerate Serge Pun & Associates.

Serge Pun will have to overcome two colossal challenges to accomplish his mission.

The first will be to raise the $5 billion without putting any significant financial strain on the cash-strapped government.

To avoid worsening the government’s fiscal health, the newly established company has adopted a public-private partnership approach.

Serge Pun has said borrowing money to fund the project would only shift the burden to future generations.

He declared that no government debt, not even to a foreign government’s concessional loans, will be incurred to pay for the urban development project.

Instead, the necessary funds will be raised from foreign private-sector businesses that invest in the project with the hope of recouping their investments once the city is up and running, and inhabitants are paying tolls, fares, rates and other fees.

Consequently, NYDC is capitalized at 10 billion kyat ($7.15 million).

The business community remains skeptical about the feasibility of the financing plan, which calls for raising private funds to build bridges and roads with no prospects for profits. “It is doubtful whether the plan is workable, without any government-backed finance”, a construction consultancy executive said.

There are legitimate concerns the project will fall through due to financing difficulty, or that most of the profits will flow into the coffers of the private-sector investors. Negotiations over rights and interests will be grueling.

Serge Pun’s second challenge will be delivering the New Yangon in a short time frame. The first phase is to be completed in 2020, for political reasons.

Myanmar will hold general elections that year, and the ruling National League for Democracy is bent on touting the project as a major political achievement.

The New Yangon project has been led by Yangon Chief Minister Phyo Min Thein, an up and coming leader in the NLD who has strong political motivation to ensure the project succeeds.

In an apparent political gesture, Serge Pun has promised to complete “most of the basic infrastructure work” by 2020.

At the end of April, NYDC signed a framework agreement with China Communications Construction Co., designating the Chinese state-owned enterprise as the initial provider of a detailed project blueprint. The hasty decision provoked a political backlash.

In the project’s first phase, townships, industrial estates, bridges, arterial roads, a power plant as well as water supply and sewerage facilities will be built. Costs are expected to total $1.5 billion.

The project operator has adopted a public procurement method called the Swiss challenge, under which CCCC will have the right to be the first to submit a specific proposal for a project, spelling out technical specifications and financing plans.

CCCC will work with NYDC to hammer out the detailed blueprint. The actual work will be contracted out via a bidding process. Contracts will be awarded to the lowest bidders, but CCCC will have a clear competitive advantage.

The adoption of the Swiss challenge model is to ensure an early submission of project proposals from private-sector businesses. But the development company has been criticized for hastily and nontransparently selecting CCCC as the initial blueprint provider.

If a new 80-sq.-km city really rises in two years under this private-sector initiative, it would be a big policy feat. But the outlook remains up in the air.

Source: NIKKEI ASIAN REVIEW

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