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Sandhi Governance Institute

PUBLIC PRIVATE PARTNERSHIP MONITOR: Case Study of the Myitkyina Economic

Development Zone Project

NOVEMBER 2019

Address: No.186, Room No.602/ 6th Floor, Ward (1 Nawarat Center, Mahabandoola Road and, 52nd St, Yangon 11171)

Telephone: 09 730 74219

Website: wwww.sandhimyanmar.org

SUPPORTED BY THE CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE (CIPE)

Sandhi Governance Institute was founded by two master in public policy

graduates in 2008 with the purpose of nurturing capable leadership in political

parties and civil society organizations. Sandhi’s vision is to create a society

where social justice and democratic governance prevails. Until now, Sandhi’s

vision and mission are not much different from its past ones. It holds the vision of creating just, democratic and open society and its mission is promoting

democratic governance in Myanmar. In relation to its vision and mission,

Sandhi’s main objectives focus on enhancing capacity of main political parties,

increasing transparency and accountability in public sector and strengthening

participation of all key stakeholders in public affairs and major investments.

TABLE OF CONTENTS

Executive Summary...................................................................................................................................5

I. Introduction..................................................................................................................................................7

II. Risks in the Terms and Conditions of Myitkyina Economic Development

Zone (MEDZ) PPP’s Memorandum of Understanding (MOU)..............................9

MEDZ Project Background...........................................................................................................9

(1) Development and Construction Risk......................................................................10

(2) Operation and Maintenance Risk..............................................................................11

(3) Financial and Economic Risk.........................................................................................12

(4) Legal/Regulatory and Environmental Risk.......................................................13

III. Political Economy of Kachin State and Political Risk........................................15

IV. Transparency of the MEDZ........................................................................................................17

Motivation.................................................................................................................................................. 17

Does the MEDZ Meet Myanmar’s Transparency Framework?.....................18

Recommendations..............................................................................................................................18

V. Conclusion.....................................................................................................................................................19

Annex : Tablie of Risks...........................................................................................21

5Public Private Partnership Monitor: August 2019

EXECUTIVE SUMMARY

In the second of a series of reports monitoring public infrastructure projects

and public private partnerships (PPPs) in Myanmar, the Sandhi Governance

Institute examines the nascent Myitkyina Economic Development Zone

(MEDZ) project. Occupying approximately 2,000 hectares surrounding

the Kachin State capital of Myitkyina, the MEDZ PPP forms part of the

China-Myanmar Economic Corridor (CMEC), and is notable both for its

scale and potential to affect Myanmar-China relations. As a PPP between China’s Yunnan Tengchong Heng Yong Investment Company (YTHIC) and

a Kachin state owned enterprise, the MEDZ could exacerbate already

negative perceptions of Chinese investment because of its location in a

region prone to ethnic conflict and other illicit activities.

The report first provides an overview of the MEDZ, then analyzes the risks of the PPP by examining five risk categories: development and construction, operation and maintenance, financial and economic, legal/regulatory and environmental, and political. The study finds that overall, the MEDZ is prone to a high degree of risk.

The report notes that the MEDZ is exposed to a high degree development

and construction risk because the Chinese investor, YTHIC, lacks a clear

track record and suffers from opaque governance. Operation and maintenance risks are also significant as YTHIC is conflicted in its interests, and because of rampant smuggling along the Chinese border area. While

total costs are publicly known, the MEDZ lacks estimates related to return

on investment and commercial viability—exposing the Kachin government

and locals to a high level of financial risk. Legal and environmental risks are also significant, in part because Myanmar’s Vacant, Fallow and Virgin Land Management Law (VFV Law) does not adequately protect indigenous communities from land seizures. Finally, the MEDZ PPP suffers from political risks stemming from its location in a conflict zone.

6Sandhi Governance Institute

To mitigate the MEDZ’s risks, the Sandhi Governance Institute recommends

that the Myanmar government mandate greater transparency in all

CMEC and Belt and Road Initiative (BRI) projects. While the government’s

Project Bank framework for overseeing PPPs is a positive step towards

transparency, it is not sufficient. The government will need to strengthen other related laws and regulations to enhance transparency and protect

indigenous communities.


I. INTRODUCTION

Developing countries often suffer from aging or nonexistent infrastructure that stymies their economic growth; and Myanmar is certainly no exception.

These countries—host countries—will often seek foreign capital to build

infrastructure, and can find investors that are willing to assume some risk in hopes of reaping financial returns upon completion of such projects.

The most frequently used mechanism to oversee foreign investment in host country infrastructure development efforts is the public private partnership (PPP). PPPs are long-term contracts that define how host country governments work with foreign investors to build infrastructure,

with both parties assuming risks and reaping benefits. However, the drafting of PPP contracts is both art and science, often requiring knowledge and finesse lacking among host country government officials. Should host country contract negotiation skills or project oversight abilities allow for

corruption or malfeasance to emerge, host country taxpayers will bear

long term costs if investments falter. Failed PPPs will also adversely affect the host country’s reputation as an investment destination, and could lead

to falling foreign direct investment (FDI) levels.

In the second of a series of reports monitoring public infrastructure

projects and public private partnerships (PPPs) in Myanmar, the

Sandhi Governance Institute examines the nascent Myitkyina Economic

Development Zone (MEDZ) project. Assessing the MEDZ PPP in its

early days will help identify risks that can be addressed to improve

implementation of the project. Risks can further be shared between the

two parties—private and public sector—in drafting and amending PPP

contracts. This report identifies risks that involve the lifecycle of a PPP, and categorizes them as follows:

1) development and construction;

2) operation and maintenance;

3) financial and economic;

4) legal/regulatory and environmental; and

5) political.


Section II examines the memorandum of understanding (MOU) and

contractual terms of the MEDZ PPP, as well as risks (1) – (4). Given the

complexities related to political risk, the report devotes Section III to

assess the political economy of Chinese investments in Kachin state

before examining risk (5) political risk. Section IV examines project

transparency and discusses the extent to which the MEDZ PPP process has

complied with the rules and regulations of the Project Bank—established

by Myanmar’s Ministry of Planning and Finance and announced in 2018.

Section V concludes with recommendations.


II. RISKS IN THE TERMS

& CONDITIONS OF

MYITKYINA ECONOMIC

DEVELOPMENT

ZONE (MEDZ) PPP’S MEMORANDUM OF

UNDERSTANDING (MOU)

MEDZ PROJECT BACKGROUND

Occupying approximately 2,000 hectares surrounding the Kachin State

capital of Myitkyina, the MEDZ PPP assumes to be part of the China-

Myanmar Economic Corridor (CMEC), and is notable for both its scale

and potential to affect Myanmar-China relations. The MEDZ is a PPP between China’s Yunnan Tengchong Heng Yong Investment Company

(YTHIC) and a Kachin state-owned enterprise. According to the MOU

obtained by the Sandhi Governance Institute, the Kachin state-owned

company—represented by the Kachin state government-formed MEDZ

Committee (MEDZC)—and YTHIC will form a joint venture special

purpose vehicle to implement the MEDZ. The Kachin state government

will swap land for equity in the joint venture, while YTHIC will secure equity through its investment. The Sandhi Governance Institute assesses the risks and contractual terms of the MEDZ using information from the

already-expired MOU, and other secondary and primary data.1

The MEDZ’s scale is enormous, approximately five times bigger than a comparable project being developed in conjunction with

Japanese enterprises. The project area of 2,000 hectares (4,700

acres) dwarfs the 400 hectares occupied by the first phase of the Yangon Thilawa Special Economic Zone (SEZ) project. The Thilawa

SEZ project is being implemented by a joint venture between the

Myanmar government, various enterprises and Japanese companies. 2

1. According to Myanmar law, the MOU has already expired.

2. Hakuto Asano, “Choosing the Japanese Way: Thilawa Special Economic Zone in Myanmar”, LAD Case Study accessed 9 December 2019, https://cddrl.fsi.stanford.edu/publication/choosing-japanese-way-thilawa-special-economic-zone-myanmar


The MEDZ is also a giant compared with the more modest Korea-Myanmar

Industrial Complex project near Yangon. That project consists of a joint

venture between the South Korean government-owned Land and Housing

(LH) and the Myanmar government’s Ministry of Construction. Occupying

242 hectares (nearly 600 acres), the project is expected to take five years to implement, at a cost of US $110 million.3

If previous experience holds true, the MEDZ’s large size could impede its successful implementation. The Dawei SEZ PPP met significant implementation hurdles as its sponsor company, Italian Thai Development

(ITD), could not raise the estimated US $8 – 10 billion necessary to move

the 3,000 hectare4 project forward.5 After long negotiation process, the

concession contract has been amended according to Dawei Economic

Zone Management Committee’s media release on 9 Jan 2020.

3. Thiha Ko Ko, “Prospects Look Bright for South Korean-Backed Industrial Complex

Near Yangon”, Myanmar Times, 24 September 2019,

https://www.mmtimes.com/news/prospects-look-bright-south-korean-

backed-industrial-complex-near-yangon.html

4. See “Overview of Dawei SEZ,” http://www.daweisez.gov.mm/node/261.

The initial phase of the Dawei SEZ is up to 30 square kilometers, equivalent to 3,000

hectares. (1 hectare = 10,000 square meters.)

5. Ei Ei Toe Lwin, “Dawei SEZ sparks concern amid promises,” Myanmar Times,

3 December 2012, http://www.mmtimes.com/national-

news/3450-dawei-sez-sparks-concern-amid-promises.html

Lacking an annual report, accessible information regarding balance sheets,

the project financing structure, and a record of previous projects,

YTHIC brings much development and construction risk to the MEDZ PPP.

(1) DEVELOPMENT AND CONSTRUCTION RISK

The MEDZ PPP presents a high degree of development and construction

risk, primarily due to the opacity of its private partner, YTHIC. The only

publicly available information about YTHIC comes from local news reports

related to the signing of the MEDZ’s MOU. According to The Irrawaddy,

YTHIC is owned by the Yunnan Baoshan Hengyi Group and Tengchong

Border Economic Cooperation Zone.5 Lacking an annual report, accessible

information regarding balance sheets, the project financing structure, and a record of previous projects, YTHIC brings much development and

construction risk to the MEDZ PPP.

While having credible experience and a public profile does not completely mitigate development and construction risk, the existence of public

information about financial performance helps outside analysts assess the reputation of private sector partners. In contrast to the opacity of YTHIC,


the sponsors of the Muse-Mandalay railway and Kyaukphyu SEZ, China

Railway Eryuan Engineering Group (CREEG) and CITIC Group, respectively,

have strong reputations. Both CREEG and CITIC are listed on major stock

exchanges, and are among the top 500 global companies in the world.

Profiles of both companies can also be found on the Shanghai and Hong Kong stock exchange websites. Furthermore, the credibility of CREEG and

CITIC gives them access to lower risk premiums that would not be available

to the relatively unproven YTHIC.

(2) OPERATION AND MAINTENANCE RISK

The MEDZ PPP is also fraught with operation and maintenance risks

stemming from unknown corporate governance structures of its constituent

partners, conflicts of interest, and the potential for smuggling along the China-Myanmar frontier. The MOU for the MEDZ stipulates that the Kachin

state-owned company and YTHIC will form a joint venture to operate the

MEDZ. However, little is known about the corporate governance structure

of the Kachin state-owned entity—the Myitkyina Economic Development

Zone Committee (MEDZC).7 As the MEDZC will play an important role

in coordinating with YTHIC to conduct the MEDZ’s feasibility study and

develop its master plan, a corporate governance structure for the MEDZ

company should exist to prevent corruption and other financial abuses. This is especially important since the MEDZ is not a bilateral government-

to-government project covered by other agreements between Myanmar

and China.8

One clause in the MOU raises a red-flag in that it appears to allow YTHIC to engage in self-dealing, or a “tied supply chain” in project finance terms. The MOU indicates that YTHIC is solely responsible for attracting foreign

investors, referred to as “third-party economic partners.” However, for

performing this service, the MEDZ joint venture company will have to

compensate YTHIC for such services, even though YTHIC is already partner

to the joint venture. To avoid a conflict of interest, the entire joint venture operation should be responsible for attracting investments.

The MEDZ could also exacerbate smuggling of goods through the entry

of many Chinese laborers that are slated for construction work. The

Myanmar-China border in the Kachin state already witnesses a high

level of illegal logging, smuggling of jade and gems from Myanmar to

China, and the illegal importation of Chinese products into Myanmar. As

7. Contrast this structure with the Thilawa SEZ PPP, where Myanmar’s experienced Deputy Minister of Planning and Finance leads a management committee to negotiate with the Japanese partner, and to manage the Myanmar Japan Thilawa Development Company Limited (MJTD).

8. While the Chinese and Myanmar Commerce Ministries signed an MOU to develop border economic cooperation zones in May 2017, that MOU is not relevant to the MEDZ, which is not a bilateral government-to-government project. See: Project data sheet, 49310-002: Yunnan Lincang Border Economic Cooperation Zone Development Project, Asian Development Bank, accessed 9 December 2019, https://www.adb.org/projects/49310-002/main#project-pds.


the MEDZ project implementation period will be at least 50 years, there

is the potential for illegal entry of goods hidden in the duty-free entry of

construction equipment and materials. Therefore, specific arrangements are needed to control the entry of Chinese workers, vehicles, equipment, and construction materials. In addition, the final concession agreement should clearly state the number of Chinese workers allowed in the MEDZ.

Specific arrangements are needed to control the entry of Chinese workers, vehicles,

equipment, and construction materials. In addition, the final concession agreement

should clearly state the number of Chinese workers allowed in the MEDZ.

Before forming the joint venture, the Kachin state government should

ensure that the MEDZC, as well as the entire joint venture, have strong

corporate governance structures. The Kachin state government will also

need to strengthen its own capacity to manage and oversee the MEDZ

PPP.

(3) FINANCIAL AND ECONOMIC RISK

The MEDZ PPP exposes the Kachin state government, as well as the entire

joint-venture, to a high level of financial and economic risk. Although the MEDZ’s MOU discloses the estimated total project cost of US $400 million,

it does not provide any information regarding the PPP’s financing structure or rates of return. It is possible that the MEDZ PPP could be extremely

profitable; yet it is also feasible for the entire project to become insolvent.

Government bodies and private enterprises enter into PPP contracts,

forming joint ventures with the expectation that eventual returns on

investment will be positive. Accordingly, estimates regarding rates of

return must be integrated with a project financing structure that promises to deliver a commercially viable and sustainable project. Absent rigorously

calculated rates of return, parties are taking a serious gamble when

investing in the project.


The MEDZ’s financial risks are particularly alarming because it exposes the Kachin state to a long-term loss of land. The MEDZ is to be implemented

by a special purpose vehicle (SPV), also referred to as the joint-venture, formed by the MEDZC and YTHIC. Because the Kachin state government

is to swap land for equity in the SPV, lack of financial returns and project profitability could expose the MEDZC and the Kachin state government to contingent liability risk.9 In this case, the Kachin state could wind up owing

the SPV additional funds, or losing control of the land for time period longer than originally agreed upon. The case of the China-Myanmar Oil

Pipeline Project and the Myanmar Oil and Gas Enterprise, where the state

owes more than US $1.6 billion to Chinese policy banks,10 should serve as a

reminder to Kachin state authorities regarding the risks of insolvent PPPs.

Kachin state government authorities should also be wary of financial risks given that Chinese investment entities have had a poor track record

of inflating project costs in order to benefit Chinese contractors and investors.11 For example, a closed-door presentation on the Kyaukphyu

deep sea port project stated that the capital cost is three to five times more than average capital cost for the construction of deep sea ports

in the region.12 Therefore, an independent third party should conduct a

quality and cost survey of the MEDZ.

Although the MEDZ’s MOU discloses the estimated

total project cost of US 400$ million, it does not

provide any information regarding the PPP’s financing structure or rates of return. It is possible that the

MEDZ PPP could be extremely profitable; yet it is also feasible for the entire project to become insolvent.

(4) LEGAL/REGULATORY AND ENVIRONMENTAL RISK

To implement the MEDZ, the Kachin state government will need to acquire land, which will in turn be exchanged for an equity stake in the joint venture. As it currently stands, Myanmar lacks adequate legal protections for landowners and occupants, presenting legal risks for the MEDZ’s

implementation. Myanmar’s Vacant, Fallow and Virgin Land Management Law (VFV Law), enacted in 2012 and amended in 2018, has caused a lot of controversy, particularly over violations of indigenous land rights. The

9. The Kachin state government and MEDZC may have to guarantee any loans the SPV takes on during the project, further increasing financial risks if the rates of return are not known.

10. Chan Mya Thwe, “MOGE Owes More Than US$1.6B Even as Domestic Demand Rises”, 26 September 2019, Myanmar Times. https://www.mmtimes.com/news/moge-owes-more-us16b-even-domestic-demand-rises.html

11. U Myint, “Myanmar: Going from Pause to Fast Forward with China’s Belt and Road Initiative,” UMFCCI Centennial Magazine, 30 July 2019, https://www.today-myanmar.com/myanmar-going-pause-fast-forward-chinas-belt-road-initiative-bri

12. Average cost for constructing one container terminal in the region is US $130 million.


12. ‘A Declaration of War On Us’: The 2018 VFV Law Amendment & Its Impact

On Ethnic Nationalities”, 13 December 2018, Transnational Institute,

https://www.tni.org/en/article/a-declaration-of-war-on-us

14. “Selling the Silk Road Spirit: China’s Belt and Road Initiative in Myanmar”,

Transnational Institute, Nov 2019, https://www.tni.org/en/selling-the-silk-

road-spirit

Netherlands-based think-tank Transnational Institute (TNI) 13 highlights

that most indigenous communities do not have the legal documents

pertaining to land ownership or occupancy required in the VFV Law. The TNI also notes that most indigenous communities have limited knowledge

about land registration procedures, and criticized the draft land acquisition bill for not adhering to international standards—such as the United Nations

Declaration on the Rights of Indigenous Peoples. Furthermore, the 2018

VFV Law amendment further weakens the rights of indigenous peoples as it fails to recognize communal ownership, thus penalizing communities who have been living and working on ancestral lands for generations.

Adding to the legal risk surrounding the MEDZ’s land acquisition is the poor reputation that Chinese investments bring to any projects that

involve land swaps or purchases. The TNI reports that compensation paid

to land owners for land seizures related to Chinese investments have been highly problematic.14 Furthermore, the processes for compensating

landowners have often been inconsistent and opaque, adding to the stress and uncertainty faced by landowners.

The legal risks surrounding the MEDZ’s land acquisition relate to social, environmental and political risks as well. Given that social and environmental

impact assessments of the MEDZ have yet to completed, this report is not

in a position to comment on such risks. Section III assesses political risks

of the project as they related to land acquisition matters, and how land issues impact the current ethnic conflict in Kachin state—an area already with thousands of internally displaced persons.


III. POLITICAL ECONOMY

OF KACHIN STATE &

POLITICAL RISK

Located in Kachin state, the MEDZ is prone to political risks stemming from

negative perceptions of Chinese investments, illicit commercial activity,

and ethnic conflict. The overhang of these political factors weighs on other risks already affecting the MEDZ, imposing additional hurdles for the PPP’s successful completion.

The MEDZ is prone to political risks stemming from negative perceptions of Chinese investments, illicit commercial

activity, and ethnic conflict.

Chinese enterprises have invested heavily in Myanmar, particularly

in Kachin. Yet, most Myanmar and Kachin residents have a negative

perception of Chinese investment, presenting a challenge to the MEDZ.

The controversial Myitsone Dam, to be constructed in Kachin state, was

suspended by former President Thein Sein in 2011 after news emerged

that residents in Yunnan, China, were to benefit most from its electricity generation. The Chinese government’s intense pressure on the Myanmar

government and civil society to resume the Myitsone Dam project15 has

further sullied the reputation of Chinese capital in general.16

Kachin state borders China’s Yunnan province, and is teeming with illicit

trade and smuggling. Combined with ceasefire agreements to ongoing ethnic conflicts that often benefit well-connected interest groups to the detriment of average citizens, “ceasefire capitalism” is thriving in Kachin

15. Cardinal Charles Bo, Archbishop of Yangon, has requested that both Myanmar and Chinese leaders scrap the Myitsone Dam in response to the Chinese government’s intense pressure on the Myanmar government and civil society for the resumption of the project. See Nan Lwin, “Cardinal Charles Bo Asks Myanmar, Chinese Leaders to Scrap Myitsone Dam”, The Irrawaddy, 18 April 2019, https://www.irrawaddy.com/news/burma/cardinal-charles-bo-asks-myanmar-chinese-leaders-scrap-myitsone-dam.html

16. Professor David Dapice of Harvard University’s Ash Center has written a paper titled “Hydropower in Myanmar: Moving Electricity Contracts from Colonial to Commercial,” in which he explains the one-sidedness of the hydropower projects in Myanmar, including Myitsone Dam, and the need to address this problem when signing concession contracts with Chinese investors. His paper reflects the sentiment of the Kachin people and the general public of Myanmar. See: David Dapice, “Hydropower in Myanmar: Moving Electricity Contracts from Colonial to Commercial”, Harvard University Ash Center for Democratic Governance and Innovation, December 2015, https://ash.harvard.edu/links/hydropower-myanmar-moving-electricity-contracts-colonial-commercial. Also, veteran journalist Aung Zaw notes that resumption of the Myitsone Dam project could be “political suicide” for the ruling government.


state.17 The beneficiaries of ceasefire capitalism may include members of the military, rebel leaders, and business persons on both sides of the

border. These ceasefire capitalists have close business relationships with China, especially with authorities and businesspeople in Yunnan province.

Given Kachin’s abundance of natural resources and jade, illegal logging,

jade mining and drug smuggling/trading have been thriving.18 Such illicit

activities also heighten the MEDZ’s political risks.

Ethnic conflict in Kachin state, involving the Kachin Independence Army (KIA) as well as other actors, has caused more than 100,000 people to

become internally displaced persons (IDPs).19 Land formerly belong to the

IDPs have allegedly been taken over by Chinese enterprises for banana

plantations that have also caused significant environmental damage. The IDPs, in turn, have lost their livelihoods, and have had to seek shelter in

refugee camps.

The combination of illicit trade, drug smuggling, ethnic conflict and refugees have reduced overall stability in Kachin state, and tarnished the

reputation of Chinese capital. Myanmar people view Chinese interests as

exploiting Kachin state’s natural resources. To mitigate the political risk

that will come from implementing the MEDZ PPP, MEDZ leadership should

ensure that project details remain transparent, and consult with various

stakeholders at all project stages. The MEDZ leadership and Myanmar

Union government should also amend project terms and conditions until

the Kachin people are reasonably convinced of its benefits to the Kachin state.

17. See Francis Wade, “Ceasefire Capitalism,” Foreign Policy, 29 November

2013, https://foreignpolicy.com/2013/11/29/

ceasefire-capitalism/

18. Global Witness estimates that the actual value of jade production could amount to half of Myanmar’s annual

GDP, or US $30 billion. See Global Witness, “Jade: Myanmar’s ‘Big State

Secret’”, October 2015, https://www.globalwitness.org/en/

campaigns/oil-gas-and-mining/myanmarjade

19. Chan Thar, “Aid Workers Warned Against Helping Refugees in KIA Areas”,

Myanmar Times, 18 June 2018, https://www.mmtimes.com/news/

aid-workers-warned-against-helping-refugees-kia-areas.html


IV. TRANSPARENCY

OF THE MEDZ

MOTIVATION

The National League for Democracy (NLD) government has promised

that the public will get access to information on PPP projects through

its interactive Project Bank online portal.20 With Chinese capital set to

increase under the Belt and Road Initiative (BRI) and China-Myanmar

Economic Corridor (CMEC) frameworks, many have also called for greater

transparency in PPP infrastructure projects. In particular, prominent

economist and former economic advisor to the president, U Myint, in his

paper “Myanmar: Going from Pause to Fast Forward with China’s Belt

and Road Initiative,”21 urges the government to promote transparency on

China’s Belt and Road Initiative (BRI) projects:

Lack of transparency and accountability on the part of our leaders with

respect to BRI is a major problem confronting us. More openness and

transparency are clearly required to restore trust and confidence. Hence I have suggested that all officials down the line and common folks as well as our experts and specialists must be kept informed; to make them feel

they are consulted; their views are sought and taken into consideration;

and that they are playing an active part and are stakeholders with tangible

benefits to come from BRI in order to move this China’s initiative forward in Myanmar.

Both government and private investors need to be more transparent with

project details and consult with all the stakeholders to minimize political, as well as other risks, and to maximize the odds of project success.

20. Office of the President, Republic of the Union of Myanmar, “Project Bank Notification,” Notification 2/2018, 30 Nov 2018. https://www.amchammyanmar.com/asp/view_doc.asp?DocCID=5377; see also: Jo Daniels, Chadd Concepcion and Rowan Kendall, “Myanmar: The President Office Issues Project Bank Notification Aiming to Stimulate Public Private Partnerships (PPPs) in Line With National Development Objectives in Myanmar,” Global Compliance News, Baker McKenzie, 18 Dec 2018, https://globalcompliancenews.com/myanmar-president-office-issues-project-bank-notification-public-private-partnerships-20181212/. The Project Bank can be considered a clear and comprehensive regulatory framework for implementing PPPs in Myanmar. Guidance in the notification document 2/2018 supports such a framework. For example, sections 4 to 10 cover the establishment of the PPP center, PPP units with standards and processes to implement PPPs, address unsolicited PPP proposals, sources of funds for PPPs, environmental and social dimensions of PPPs, contractual requirements for PPPs, monitoring and supervision of PPPs, and transferring of state-owned economic enterprises (SEEs) to the private sector through equitization of PPP mechanisms.

21. U Myint, “Myanmar: Going from Pause to Fast Forward with China’s Belt and Road Initiative,” UMFCCI Centennial Magazine, 30 July 2019, https://www.today-myanmar.com/myanmar-going-pause-fast-forward-chinas-belt-road-initiative-bri


DOES THE MEDZ MEET MYANMAR’S TRANSPARENCY FRAMEWORK?

While the NLD government is taking a cautious approach by laying a

sound regulatory framework consistent with the ASEAN Principles for PPP,

it appears that the MEDZ PPP has somehow escaped the Project Bank

mechanism and the spirit of the NLD government’s cautious approach.

The MEDZ PPP does not meet the standards for transparency outlined

in the Project Bank Notification of 2018. According to the one clause in the MEDZ’s MOU, all terms and conditions of the project must be kept

confidential during negotiations. That is problematic, as the government should publicly disclose the details and progress of the project throughout

its negotiations. According to the MOU, the government need not reveal any

information until the agreement is signed prior to project implementation.

Furthermore, the MOU does not disclose the project finance structure or estimated rate of return.

RECOMMENDATIONS

In accordance with the government’s commitment to transparency, the

Project Bank Notification and ASEAN Principles for PPP, the Kachin state government and other Myanmar government departments responsible

for PPPs, should disclose as much information about the MEDZ as possible.

By keeping the MEDZ PPP transparent, and engaging with stakeholders

and civil society organizations, there is a higher likelihood for the project to succeed.


V. CONCLUSION

The Myanmar Union government is aware of the risks Chinese investments

bring to infrastructure projects and PPPs. CMEC projects have already

caused problems for Myanmar in ways similarly experienced by other

recipients of Chinese capital. These problems include: 1) land seizures; 2) inflated capital costs, lack of commercial viability, and debt traps for the host country; 3) contract terms and conditions where investors reap benefits but assume little risk, while the host government assumes most to all of

the risk; 4) the sponsor company’s questionable capacity and experience in development and construction; and, 5) negative environmental and

social impacts of the project.

To address the above problems and risks associated with not only Chinese

investments but also other PPPs, the Union government issued the Project

Bank Notification (2/2018), establishing the Project Bank mechanism to ensure transparency and accountability. While this is a positive step to

strengthening the integrity of PPPs, other laws need to be modified. For example, the 2018 amendment to the VFV Law does not protect indigenous communities. The Union government also needs to improve implementing

regulations and enforcement of the principles of transparency.

The opaqueness of the MEDZ MOU highlights the need to for disclosure. Both the Kachin state government and relevant Union institutions should

increase transparency and provide detailed information about the

MEDZ project, including its financial structure, and create a broad-based consultation process. Disclosing project details while consulting with civil

society and the public will help increase the accuracy of the MEDZ’s risk

assessment. If the costs associated with risks are higher than the benefits, decision-makers will have to reconsider the project. If the benefits accrued are higher than the costs, the Kachin state and Union government must

ensure that any adversely-affected groups are properly compensated.

As it stands, the MEDZ PPP is a risky project that stands on an opaque MOU and secretive negotiation process. In Myanmar, Chinese investments

already come with a poor reputation. The Union government should

be particularly concerned about the risks identified in this paper as the MEDZ has the potential to exacerbate the conflict-prone Kachin state and northern Myanmar.


ANNEX : TABLIE OF RISKS

PROBLEMS IDENTIFIEDRISK CATEGORIES

• YTHIC track record unclear,

weak credentials, public

annual report unavailable.

Project financing structure absent.

Development & Construction

Risk

• Conflict of interest: YTHIC will be compensated for

its work to attract foreign

investors.

• Smuggling is rampant in

the border areas. Entry

of Chinese workers,

vehicles, equipment, and construction materials

should be.

Operation & Maintenance Risk

• Financial and commercial

viability of the project

unknown. Thus, financial liability for the Kachin

government and the

taxpayers not clear.

• Total cost of the project

is public. But return

on investment or an

independent third party

quality and cost analysis absent.

Financial & Economic Risk


PROBLEMS IDENTIFIEDRISK CATEGORIES

• VFV law fails to protect indigenous community’s

property rights by

not being on par with

international best practices.

• Negative image of Chinese

investors and are perceived

as perpetrators of land

seizures.

• Social and environment

impact assessment should

be done when developing

a feasibility study and

master plan.

Legal Regulatory and

Environment Risk

• Kachin state is subject to

conflicts.

• Illegal activities such as

timber logging, jade mining,

and illicit drug trade are

performed by businesses

who have close ties with

Yunnan’s authorities and

business communities.

Political Risk

Sandhi Governance Institute

Address: No.186, Room No.602/ 6th Floor, Ward (1 Nawarat Center, Mahabandoola Road and, 52nd St, Yangon 11171)

Telephone: 09 730 74219

Website: wwww.sandhimyanmar.org

public private partnership monitor · public private partnership monitor: august 2019 executive...

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