Yangon’s ‘new city’ plan raises a billion-dollar question
With the New Yangon City project, the government needs to learn the lessons of Myitsone and Kyaukphyu.
By SITHU AUNG MYINT | FRONTIER
ON JANUARY 12, the Chinese embassy in Yangon issued a statement that mentioned the US$.3.6 billion Myitsone dam project, suspended by the government since 2011, in a manner that aroused indignation in political circles and among the public. The statement, issued after a visit to Myitkyina by Chinese ambassador Mr Hong Liang, attributed Hong as having told Kachin leaders, "If this issue fails to be resolved after a long delay, it will seriously hurt the confidence of Chinese entrepreneurs in investing in Myanmar."
However, at an event in mid February to discuss the building of a "New City" across the river from downtown Yangon, it was revealed that China's state-owned China Communications Construction Co Ltd had proposed spending $1.68 billion on infrastructure for the project. This seems to contradict the ambassador's statement about Chinese investors holding back. It's time to take a closer look at the New Yangon City project led by the Yangon Region government and discuss its partnership with CCCC.
The New Yangon City is intended to cover an area twice the size of Singapore. The first phase, which has been approved by the Yangon Region parliament, would be implemented on an area covering 20,000 acres (about 8,000 hectares) west of the Yangon River, opposite Kyimyindaing Township. The vehicle established in March last year by the regional government to implement the ambitious plan is the New Yangon Development Co, with prominent businessman Mr Serge Pun, also known as U Theim Wai, as CEO.
Amid criticism over a lack of transparency, NYDC signed an agreement with CCCC last May to prepare a detailed infrastructure proposal. However, a final decision will be based on what's known as a "Swiss challenge", rebranded as "NYDC challenge", under which other companies are able to submit counter proposals for the infrastructure work, and would be required to refund CCCC's costs if its counter proposal succeeds. The winning company and the NYDC will form a joint venture to implement the plan and it will sell land to investors for building factories, hotels and housing to earn back the infrastructure costs.
The $1.68 billion proposal by CCCC includes building two bridges to connect the new city with downtown Yangon, 26 kilometres of roads, and a water treatment, supply network and sewage system for five townships and an industrial zone. CCCC says it has the funds to invest in the project.
Myanmar's contribution to the project is land valued at $144 million. The valuation was based on the rate at which the government sold the land for the Thilawa Special Economic Zone, of $5 per square metre. The investment ratio for the new city project is for CCCC to foot 92 percent and NYDC eight percent. When the project begins to generate revenue, CCCC will take 95 percent and NYDC the rest. Once CCCC has recovered its investment, it will take 75 percent of earnings and NYDC will take 25 percent.
Critics say that price at which the land has been valued is too low and the 13 percent internal rate of return sought on CCCC's investment is too high. There is concern that Myanmar may drown in Chinese debt as a result.
It's worth considering other China-backed projects, such as the Myitsone dam and the deep sea port and SEZ in Kyaukphyu, Rakhine State. The Chinese company that was building the dam said in 2015 that it had spent $800 million and the interest on its investment was adding $50 million a year to the cost of the project. If Myanmar had to pay compensation for suspending the dam, it would be a significant amount. Meanwhile, hard negotiating by the government saw the cost of the Kyaukphyu port project reduced from more than $7 billion to $1.3 billion, with the Chinese stake being reduced from 85 to 70 percent.
With the New Yangon City project, the government needs to learn the lessons of Myitsone and Kyaukphyu, and be extremely wary of indebting the nation too heavily, and souring its relationship with China, through a mega project that may fail midway through.