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China Set to Confirm 70% Stake in Major Myanmar-based BRI Project

November state visit expected to coincide with signing of MoU on ownership of KyaukPhyu Special Economic Zone.

Photo: The KyaukPhyu Special Economic Zone: Set to be a boon to both Myanmar and China.
The KyaukPhyu Special Economic Zone: Set to be a boon to both Myanmar and China.
Photo: The KyaukPhyu Special Economic Zone: Set to be a boon to both Myanmar and China.
The KyaukPhyu Special Economic Zone: Set to be a boon to both Myanmar and China.

During his state visit to Myanmar in November this year, Xi Jinping, the Chinese President, is expected to sign a Memorandum of Understanding (MoU) that will confirm China as a 70% stakeholder in the KyaukPhyu Special Economic Zone. Of late, this controversial development project, set in the northwestern state of Arakan, one of the country’s poorest regions, has been dogged by environmental concerns as well as complaints that the local population has not been properly consulted about project’s likely impact.

Controversy aside, the project – and, in particular, its proposed deep-water port facilities – is seen as a key component in the Belt and Road Initiative (BRI), China’s ambitious international infrastructure development and trade connectivity programme. The establishment of the SEZ was first approved in December 2015, with the Myanmar government awarding the development contract to a consortium of five Chinese companies and one Thai company, with the Beijing-based China International Trust and Investment Corporation (CITIC) heading operations.

Initially, the project consisted of a deep-water port, an industrial park and a residential zone. Subsequently, its remit was extended, with an oil pipeline and power-generation facilities added into the mix. It is now estimated that the total cost of the project will be at least US$7.3 billion, with the SEZ expected to occupy a 4,289-acre site.

Once completed, the deep-water port is expected to have an annual throughput of 7.8 million tonnes of bulk cargo and 4.9 million TEU containers. The construction of the port alone, though, is expected to take 20 years and be divided across four development phases.

The finished facility will consist of two terminals – the Made Island Terminal (370.7 acres) and the Yabye Island Terminal (237.2 acres). As an additional part of the project, 10 100,000-ton berths, an access road and a bridge will also be constructed. At a later stage, plans are already in place to expand the terminal’s capacity, allowing it to handle an annual throughput of seven million TEU containers. In terms of new jobs, the SEZ’s industrial park alone is expected to provide employment for at least 100,000 local residents.

Both Myanmar and China have clear vested interests in the success of the project. For Myanmar, it forms an essential component in its aspirations to form an integral part of a trade corridor connecting Africa, the Middle East and China.

For China, the project fits very neatly within the BRI framework, with KyaukPhyu sited on the Bay of Bengal and providing strategic access to the Indian Ocean. With China able to access the port via existing land routes, this will streamline and accelerate its access to many of the world’s markets. It will also allow the country to circumvent the need to dispatch marine freight via the Straits of Malacca, cutting down on costs and avoiding the political sensibilities associated with the route.

Another important plus for China is that KyaukPhyu is the entry point for a recently-built gas pipeline. This would allow a supplementary crude-oil pipeline, connecting to the Middle East via the same route, to be built cost-effectively. Managed by the China National Petroleum Company, the existing pipeline has an annual transport capacity of 22 million tons and came online in April this year.

The project has also proven to be a boon for at least one Hong Kong company – VPower, one of Southeast Asia’s leading power-generation businesses. In early 2016, the company signed an agreement with Myanmar Electric Power Enterprise to build and operate two power stations in KyaukPhyu.

The first was more of an upgrade than a new build and saw the output of an existing plant increased from 45 megawatts to 90MW. The second project, however, requires the construction of an entirely new plant, which is intended to both power a state-owned steel mill and feed 230 kilovolts into the national power grid. While the original contract ran for just 20 months, VPower has now announced that it has been granted a five-year extension, which will see it committed to the project until at least 2021.

Geoff de Freitas, Special Correspondent, Naypyitaw

Content provided by Picture: HKTDC Research
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