Rebalancing the Kyaukphyu Equation

What will be the outcome and credibility of the main feasibility study on the Kyaukphyu-Mandalay railway? These are very important questions. China is ready to pursue its strategy of undermining international criticism of its projects in Myanmar.

By Min Htee 25 Jan 2021

By Min Htee

Kyaukphyu, which is widely considered to be the “second capital” of Arakan State, lies on the northern tip of Ramree Island and has a population of 165,352, according to the 2014 national census. The town is known for the Shwe gas project and Sino-Myanmar oil and gas pipelines initiated in 2009. The greater Kyaukphyu region, in southern Arakan State, is rich in marine resources as it sits adjacent to the Bay of Bengal to the west, with rivers and streams from the mountains of Arakan in the east flowing through it.

Under British colonial rule, pearl production and fisheries were the backbone of Kyaukphyu’s economy. But after independence, the military regime closed down the pearling and fishery businesses in Kyaukphyu, and made Yangon and Ayeyawady the centres for processing fishery products from the Bay of Bengal in Arakan. Today, farming and fisheries are the main sources of livelihoods for Kyaukphyu residents.

There have been frequent disputes between local residents and developers over confiscation of farmlands, human rights violations, and the environmental impacts of the gas and oil pipelines. The Kyaukphyu deep-sea port, despite the concerns of local residents, is moving closer to reality under the current government. The strategic port project will provide China with direct access to the Indian Ocean, allowing some of that country’s oil imports to bypass the crowded Strait of Malacca. It is hoped that the link will also boost development in China’s landlocked Yunnan Province.

A ‘Special’ Place

China International Trust and Investment Corporation (CITIC) won contracts for the deep-sea port and special economic zone (SEZ) projects in 2015. According to the initial agreement signed with the administration of former President U Thein Sein, CITIC took an 85% stake in the port and a 51% stake in the SEZ.

However, amid political sensitivity surrounding Chinese investment in Myanmar and concerns over China’s debt-trap diplomacy, CITIC agreed to drop its ownership stake from 85% to 70%. The deep-sea port project will be constructed in three phases, and was initially valued at around $10 billion.

The deep-sea port will be implemented by Kyaukphyu Special Economic Zone Deep Seaport Co. Ltd — a joint venture between Chinese consortium CITIC Myanmar Port Investment Limited and the Myanmar government-backed Kyaukphyu Special Economic Zone Management Committee. The first phase is valued at $1.5 billion, according to U Hset Aung, chairman of the Kyaukphyu Special Economic Zone Management Committee.

The SEZ will be implemented on a 4,300-acre site spreading across nine village-tracts. According to the Commerce Ministry, the CITIC consortium will own 51% of the industrial zone and the Myanmar government 49%. Construction of the industrial zone will be led by CITIC and a total of 42 private Myanmar companies under the Myanmar Kyaukphyu Special Economic Zone Holding Public Company Limited consortium.

The Myanmar government signed a memorandum of understanding (MoU) with China Railway Eryuan Engineering Group (CREEG), a project proposal company, on January 10 in Nay Pyi Taw to conduct a feasibility study of a railway linking Mandalay with Kyaukphyu. The signing ceremony was also attended by Union Minister for Transport and Communications U Thant Sin Maung and Chinese Ambassador to Myanmar Chen Hai, and Myanmar said the feasibility study would take a year and a half.

Making a Hub of Arakan

If all goes according to plan, Arakan State will one day be a major trading hub in Asia, where world powers will compete. Indian products will enter the ASEAN region through a port in Sittwe that was built as part of the India-backed Kaladan Multi-Modal Transit Transport Project. The Kyaukphyu deep-sea port, meanwhile, is arguably one of the most important components of China’s ambitious Belt and Road Initiative (BRI).

Arakan is the second poorest state in Myanmar, despite possessing a rich endowment of natural resources and ocean access. The gas pipeline from Kyaukphyu to Kunming in Yunnan Province can transport 12 billion cubic metres of gas per year. Experts estimate that Myanmar will receive a total of $30 billion in gas sales and pipeline fees over the next 30 years. This is just one piece of the riches puzzle in Arakan State: The India-backed Kaladan Multi-Modal Transit Transport Project also stands to generate significant revenue, and the 500-mile pipeline from Kyaukphyu to Kunming can transport 22 million tonnes of crude oil a year, with Myanmar getting $1 per barrel in transit fees. 

However, the lives of average Arakanese people have not benefited from these projects; there is still no telephone line and little proper development, from roads and bridges to health clinics and schools, for residents on Maday Island, where the China-backed projects are located.

Corporations and the Union government own everything. One of the main problems in Myanmar is a lack of equal rights for all ethnic groups, a lack of political self-determination for ethnic states as the holders of natural resources, a lack of equitable distribution of natural resources, and the imprisonment of activists, students and politicians under both colonial and post-independence laws. Myanmar also remains host to one of the world’s longest-running armed conflicts.

People in Arakan State’s project zones are still facing losses of land and dignity. Existing land laws allow businesses and governments to operate as they see fit, and traditional land ownership is completely unrecognised. As a result, local residents in the affected areas do not believe that investment projects will improve their well-being. Nowhere is that sentiment expressed more strongly than in regard to the projects at Kyaukphyu, where Chinese projects are often disputed and those disputes are often paid little heed by authorities. In dealing with the Kyaukphyu projects’ damages, the Myanmar government has been weak in quashing the corruption of some departmental staff, and China — notorious for having significant investments in other countries around the world — has a track record of ignoring the concerns of local, affected populations.

Important Questions

What will be the outcome and credibility of the main feasibility study on the Kyaukphyu-Mandalay railway? These are very important questions. China is ready to pursue its strategy of undermining international criticism of its projects in Myanmar. For example, a tripartite dialogue on the issue of Muslims fleeing Arakan State to Bangladesh could do little more than reduce Western criticism of its plans in Myanmar and Bangladesh. The next government will be led by the ruling National League for Democracy (NLD), but the Tatmadaw has so far not fully accepted the November general election results. Civilian-military relations have not been as friendly as some expected.

I believe that implementation of the Kyaukphyu projects must better build trust between the Arakanese people and the Union government, and that peace and resource-sharing in Arakan State are directly proportional. The budget allocated to Arakan State by the Union government is much less than $200 million a year. At present, Arakan State can raise more than $1 billion a year for the country, but only if Myanmar’s leaders can alleviate poverty and achieve the self-determination and peace demanded by the Arakanese people can this move closer to becoming a directly proportional political arrangement.

More than the transparency of the project, its fate will depend on how much the Arakanese people have access to its benefits. The Kyaukphyu-Mandalay railway feasibility study will be a foremost indicator of the government’s intentions in this regard, followed by land, environmental and social impact assessments.

If the Kyaukphyu deep-sea port, SEZ and railway do not bring direct benefits to Arakan State and its people, the projects will be little more than vehicles for Yunnan’s prosperity, and a form of modern-day colonialism.