China pens deal to finance $1.3bn deep water Kyaukphyu port in Myanmar

Myanmar, Slider 12 Nov 2018
China pens deal to finance $1.3bn deep water Kyaukphyu port in Myanmar

A state-owned Chinese investor has agreed to develop a $1.3bn deep sea port in the southwest Myanmar town of Kyauk Pyu, in line with China’s Belt and Road Initiative.

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.

The 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.

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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