Mar 31, 2013

Myanmar - Race on for ports, pipelines in Myanmar

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Business delegations are flocking to Myanmar in hopes of securing access to previously closed markets and resources. From the construction of economically and geopolitically significant ports and pipelines, to the development of hydroelectric dams and a modern energy infrastructure, Myanmar's transformation promises to have a major impact on the region's economy.

Competition for these contracts and concessions has brought the interplay between Chinese, regional and Western commercial interests into sharp relief. Myanmar's metamorphosis into a potential engine for economic growth is thus inextricably linked to the larger competition between China and the West for influence in the Asia-Pacific.

With its expansive Indian Ocean coastline and strategic location in Southeast Asia, Myanmar is prime for massive port development. The country already boasts three large port development projects: Sittwe on the northern coast and Dawei in the South. These projects represent a microcosm of the battle for influence between China and their regional and global competitors for both economic preeminence in Myanmar and security over critical maritime trade routes.

Financed and constructed by India, the Sittwe port represents one part of the Kaladan Multimodal Transit Transport Project, a sweeping initiative designed to link eastern India with Myanmar and, by extension, the rest of the region via sea, waterways and highways. New Delhi views the megaproject as integral to its “Look East'' policy, which seeks economic growth and political influence through the development of ties with regional neighbors.

Last month's meeting between Myanmar President Thein Sein and India's Lower House Speaker Meira Kumar led to the announcement that the two sides plan to accelerate the implementation of the Kaladan Transit project. The announcement not only underscored warming bilateral ties but also highlighted the project's overall importance in the current economic and political context.

India's US$100 million investment in the Sittwe port could thus be viewed as a linchpin in New Delhi's greater drive to expand its regional influence by helping Myanmar to overcome its economic underdevelopment and chronic mismanagement after decades of military rule.

Like Sittwe for India, the port at Kyaukphyu is a cornerstone in China's strategy in Myanmar and the region more generally. For Beijing, Kyaukphyu, only about 100km south of Sittwe, is of central importance as it forms the foundation for its investments in both energy production and delivery infrastructure in Myanmar. Additionally, the port provides valuable land-based access to the Indian Ocean, something that China has craved for decades, including as an alternative route for its fuel shipments from the Middle East.

Just as in the case of the Chinese-funded (and now controlled and administered) Port of Gwadar in Pakistan, Beijing views deep water ports in South Asia as essential for its economic development and geopolitical ambitions. At the same time, ethnic and political unrest in Myanmar's Rakhine state has illustrated to the world, and China in particular, that instability and security concerns could impact the development of the ports in Myanmar.

Though it shares some similarities with Sittwe and Kyaukphyu, the planned construction of a port at Dawei on Myanmar's southern coast faces bigger obstacles. Originally conceived as a massive joint venture between Thailand and Myanmar to be completed by 2020, the project has encountered major hurdles to implementation, including doubts from potential Japanese investors about the feasibility of the US$58 billion megaproject.

Dawei, initially designed as a special economic zone replete with high-speed railways, modern highways and the region's largest industrial park, aimed at connecting Myanmar with the wider regional economy.

Kyaukphyu represents the entry point of Chinese-funded twin oil and gas pipelines that will run across Myanmar into southwestern China's Yunnan province. Not only will these pipelines become a reliable means of delivering energy imports from the Middle East and Africa directly to China without having to navigate the narrow Strait of Malacca and increasingly volatile South China Sea, they will also provide China a potential direct line to over 20 new offshore oil and gas exploration blocks that will go up for international auction in April.

For China, the pipelines are the focal point of a comprehensive energy and investment strategy in Myanmar. However, these plans, too, have encountered difficulties. The recent renewal of civil war in Kachin State after 17 years of a ceasefire has hampered the development and inauguration of the pipeline. Security has become such a concern for China that the Chinese are paying are reported to be paying Myanmarese soldiers in the north for security for pipeline construction.

A 2008 study by Earth Rights International noted ''At least 16 Chinese multi-national corporations have been involved in 21 onshore and offshore oil and natural gas projects in [Myanmar], including all three major Chinese oil and natural gas companies Sinopec, China National Petroleum Corporation (CNPC), and China National Offshore Oil Corporation (CNOOC).'' The fact that so many Chinese investors are involved in every aspect of Myanmar's energy shows the degree to which Myanmar fits into China's long-term energy security plans.

The Chinese-funded Myitsone Dam, a $3.6 billion hydroelectric power development project on the Irrawaddy River in Kachin State, has also courted controversy. An estimated 90% of the power generated from the dam would be exported to southwestern China at a time when Myanmar still suffers from chronic power shortages. Violence and insecurity, environmental concerns and issues of national pride have all contributed to the project's suspension.

Beijing has served as host to several rounds of peace talks between Kachin rebels and the Myanmar government, so far to little avail. Beijing has taken on the unfamiliar role of peace-maker in an effort to influence the negotiation process, in the hope that a lasting peace will allow the Myitsone dam project to resume.

Ethnic conflicts, though sometimes problematic for investors, have not impeded Myanmar's overall drive towards economic development and progress. Although rapid development financed by foreign capital could, without regulation, destabilize Myanmar's fragile transitional economy, the benefits achieved in poverty reduction alone are expected to outweigh the costs. Perched between China and India as a gateway to Southeast Asia, Myanmar is now well-poised to profit from the geostrategic competition for its resources, contracts and markets.

Eric Draitser

Business & Investment Opportunities
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