May 19, 2017

China Seeks Up to 85 Percent Stake in Strategic Port in Myanmar

China is looking to take a stake of up to 85 percent in a strategically important sea port in Myanmar, ac­cording to documents re­viewed by Reuters, in a move that could heighten tensions over China's growing economic clout in the country.

Beijing has been push­ing for preferential ac­cess to the deep sea port of Kyauk Pyu on the Bay of Bengal, as part of its ambitious "One Belt, One Road" infrastructure in­vestment plan to deepen its links with economies throughout Asia and be­yond.

A consortium led by China's CITIC Group has proposed taking a 70-85 percent stake in the $7.3 billion deep sea port, according to negotiat­ing documents seen by Reuters and three people familiar with the talks between the Chinese state-owned conglomer­ate and Myanmar's civil­ian government.

The size of the proposed Chinese stake is sub­stantially larger than the 50/50 joint venture pro­posed by Myanmar late last year, an offer rejected by CITIC, said two people involved in the talks.

Well-placed sources told Reuters last month that China had signalled it was willing to abandon the controversial $3.6 bil­lion Myitsone dam project in Myanmar, but would be looking in return for concessions on other stra­tegic opportunities in the Southeast Asian nation - including the Bay of Ben­gal port.

Kyauk Pyu is important for China because the port is the entry point for a Chinese oil and gas pipe­line which gives it an al­ternative route for energy imports from the Middle East that avoids the Ma­lacca Straits, a shipping chokepoint.

The port is part of two projects, which also in­clude an industrial park, to develop a special economic zone in Myanmar's western Rakhine State. CITIC was awarded the lead role in both initia­tives in 2015.

Beijing-based CITIC, China's biggest and oldest financial conglomerate, did not respond to several requests for comment on Friday. China's Foreign Ministry did not imme­diately respond to a faxed request for comment.


Negotiations between Myanmar and CITIC, which sources said were set to start next week in the country's commercial hub Yangon, come amid a Chinese diplomatic push to forge better ties with its resource-rich neighbour.

Myanmar's leaders have traditionally been wary of domination by China.

But the country last month signed an agree­ment that will see oil pumped through the pipeline from Kyauk Pyu across Myanmar to south­western China, while leader Aung San Suu Kyi is due to visit Beijing for a summit on "One Belt, One Road", President Xi Jin­ping's signature policy, in mid-May.

One of the sources, who declined to be named, said CITIC was in the "driving seat" on the port project, and that Myanmar was unlikely to ask for a stake of more than 30 percent due to opposition from the Chinese firm.

"Some people worry that China would have the power to do anything they want and control the pro­ject if it owns 85 percent," said the person, who is familiar with the thinking of policymakers in Myan­mar.

"But Myanmar doesn't have other options," the person added, citing the Myanmar government's financial constraints. The source did not specifically mention a quid pro quo over the Myitsone dam.

A second source close to Myanmar's policymak­ers corroborated that ac­count, adding that Myan­mar has agreed to choose from one of four options proposed by CITIC, leav­ing it with a stake ranging from 15 to 30 percent.

"Myanmar has no other choice but the four op­tions given by CITIC," said the second person, who is involved in the talks.

Funding would be split between Myanmar and the CITIC-led consortium in proportion to the stake agreed, the two sources said.

Soe Win, who leads the management committee of the special economic zone, confirmed nego­tiations would start next week but declined to com­ment on the deal, citing the confidentiality of the talks.


The nearly $10 billion Kyaukphyu Special Eco­nomic Zone, which My­anmar's government has said would create an eco­nomic hub akin to Singa­pore covering 4,289 acres, is part of Myanmar's plan to boost the economy in one of its poorest regions.

A second consortium led by CITIC has also pro­posed taking a 51 percent stake in the $2.3 billion industrial park, an offer Myanmar has agreed to, said the two people in­volved in the talks.

Soe Win said environ­mental and social impact studies would soon be conducted by Myanmar's environmental ministry, with construction due to start in 2018.

The economic zone faces opposition from activists and residents who criticised the tender process and said the de­velopment would have a negative impact on local people.

Around 20,000 people are at risk of losing their homes and livelihoods due to land acquisition for the zone, according to the International Com­mission of Jurists, a hu­man rights watchdog.

CITIC's consortiums in­clude China Harbor En­gineering Company Ltd, China Merchants Hold­ings, TEDA Investment Holding and Yunnan Construction Engineering Group. The only non-Chi­nese state-owned com­pany involved is Thai­land's Charoen Pokphand Group.

Source: Reuters