Myanmar Opens Up SEZ Project to International Companies

2013-12-02
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myanmar-dawei-sez-may-2012.jpg
The Dawei SEZ in Myanmar's Tanintharyi region, May 15, 2012.
Bangkok Post

Myanmar is allowing international investors to bid for a mammoth project to develop a special economic zone in its southernmost region following the withdrawal of the sole developer, a Thai company, which had been unable to secure partners for the venture, an official said Monday.

Chairman of the Management Committee of Dawei SEZ Han Sein told a press conference in Yangon that developer Italian-Thai Development Pcl ITD.BK—Thailand's largest construction group—had terminated its work on the project in Myanmar’s Tanintharyi region to make way for international bidders.

“Myanmar Port Authorities (MPA) and Italian-Thai had an agreement in place to work on this project previously,” Han Sein, who is also Myanmar’s deputy minister of Transport, said at the MPA office.

“We ended this [agreement] because we want [to open the project up to] international investment,” he said.

Plans for the Dawei SEZ include a deep-sea port, industrial zone, steel plant, fertilizer plant, coal and natural gas-fired power plant and water supply system.

The SEZ will have a motorway linked to Thailand’s Kanchaburi province, as well as a railroad hub, links to oil and gas pipelines, and electrical cable lines.

The initial phase of the project includes a two-lane road, a small wharf which can accommodate 13,000-20,000 tons of vessel, an industrial zone involving labor intensive industries, a power plant, a residential building, a water supply system and communication lines.

China’s Xinhua news agency quoted Han Sein as saying the work Italian-Thai had already completed would be undergoing a due diligence assessment by international consulting firms and that the company would be permitted to re-tender for the initial phase of the project when bidding opens on Dec. 20.

The tender will open on March 31, 2014 and construction is set to begin on May 15. Construction costs for the project are estimated at around U.S. $8.6 billion.

Han Sein also said that the project area had been reduced to 196 square-kilometers (75.6 square-miles) from 204.5 square-kilometers (79 square-miles) and will be implemented in two phases.

The initial phase will cover around 10 percent of the overall project, which is expected to take five years to complete, Xinhua reported.

Myanmar and Thailand—which agreed two years ago to implement the project on a 50-50 basis—had revoked Italian-Thai’s 75-year concession, citing the company’s failure to secure private investment and to agree on a power source for the SEZ, according to news reports.

The two countries signed a memorandum of understanding (MoU) in Bangkok late last month transferring the concession to Dawei SEZ Development Co. (DSEZ), a new 50-50 special-purpose vehicle set up by the neighboring nations to run the project.

Another MOU obliges new investors to reimburse Italian-Thai for the money it has invested in building roads and other facilities at the site following its due diligence assessment, which is expected to be finished in May.

Reuters news agency had quoted former economist and current Myanmar deputy central bank governor Set Aung as saying that the sidelining of Italian-Thai could allow Japanese industrial and hi-tech firms already established in neighboring Thailand to become involved in the project.

He said that Japanese companies, which are eager to take advantage of investment reforms introduced by President Thein Sein since taking power from Myanmar’s former military junta two years ago, would “most likely announce their intentions” in December, when Dawei is due to be discussed on the sidelines of a regional meeting in Tokyo.

dawei-map-400.jpgAttracting investors

Observers said that while the decision to take back the concession might frighten off some potential investors in the SEZ, the move will buoy the confidence of others who were concerned by the lack of transparency involved in the original agreement, which was made between Italian-Thai and Myanmar’s former military government in the 1990’s.

"I believe this is a very positive development. Investors will have more confidence dealing with DSEZ and be more positive about investing in the Dawei SEZ with DSEZ as the regulator," Albert Chandler of Chandler and Thong-ek Law Offices Ltd in Bangkok told the Bangkok Post.

He said Italian-Thai will likely be engaged as a contractor by several projects in Dawei.

John Fotiadis, senior member of Bangkok legal firm Atherton Co., said it seems Italian-Thai is negotiating agreeable terms with both governments.

"Given so, we do not believe this will have negative repercussions for foreign investors considering future investment," he told the Post.

"From what we've observed, it seems there are unique circumstances in this case due to the size of the project, changes in the government, changes in international sanctions and internal factor, and they are not necessarily due to Myanmar rules and regulations."

However, some analysts suggested that if the regulatory framework in Myanmar makes the project expensive, difficult, or complicated to comply with, bidders are more likely to opt out.

Reported by Kyaw Lwin Oo for RFA’s Myanmar Service. Translated by Khet Mar. Written in English by Joshua Lipes.