​Shareholders hope to break deadlock over Kyaukphyu by March


Source: The Myanmar Times

Date: 26 January, 2018

CITIC has clarified local media reports claiming that negotiations to raise Myanmar's share of a proposed Special Economic Zone (SEZ) in Kyaukphyu, Rakhine State, from 15 percent to 30pc had been agreed upon.

"We note some newspapers have recently reported that [a] preliminary agreement to raise Myanmar's stake in the Kyaukphyu SEZ to 30pc [was] reached. 

Actually, on this issue, the parties are undertaking negotiations about their respective duties and obligations on the basis of a 30:70 shareholding ratio. The negotiation is still under progress and the relevant agreements have not yet been finalised," U Kyaw Htin from CITIC Myanmar told The Myanmar Times.

On Monday, local media reported that a "preliminary agreement" regarding the shareholding structure for Kyaukphyu SEZ had been reached with the CITIC-led consortium controlling 70pc and Myanmar holding 30pc.

"Having reached the preliminary agreement [for Kyaukphyu SEZ], the Ministry of Resources and Environmental Conservation and CITIC will conduct environmental impact assessment [EIA] and social impact assessment [SIA]," U Kyaw Aye Thein, Rakhine State Minister for Planning and Finance, was quoted as saying.

Still tentative

Myanmar and a CITIC-led consortium are currently negotiating a new shareholding structure under which, if agreed upon, could see Myanmar's stake in a proposed deep-sea port at Kyaukphyu SEZ raised from 15pc to 30pc. Negotiations are expected to conclude by March after a year in deadlock.

U Soe Win, chair of Kyaukphyu SEZ management committee, reaffirmed that the central SEZ body has only tentatively agreed to the 30:70 ratio.

"That ratio depends on whether Myanmar's private consortium can afford the level of investment. For the bid price of $300 million, the Myanmar private sector has to put in $45 million, as well as the capital equity of $74 million," the chair told The Myanmar Times yesterday.

"The Kyaukphyu SEZ management body went to Kyaukphyu to meet the local community last week. The CITIC-led consortium and the Myanmar private consortium have to choose a third party company to undertake the EIA/SIA process after providing information to the community," he explained.

Stake ratio under fire

The proposed SEZ in Kyaukphyu consists of a deep-sea port and a separate industrial park. The project is seen as a key priority for China's ambitious Belt and Road Initiative.

In 2015, the CITIC-led consortium won the bid to develop both the port and industrial park. The consortium includes China Harbor Engineering, China Merchants, TEDA Investment, Yunnan Construction Engineering Group and Thailand's Charoen Pokphand Group.

Under the shareholder structure permitted by the government under U Thein Sein, the consortium was to hold an 85pc stake in the deep-sea port, with its Myanmar counterpart holding the remaining 15pc. The industrial park has a separate shareholding framework.

The request for proposal (RFP) for the SEZ was first drafted in 2014, when the former government instructed that "the bidder shall hold a stake of not more than 85pc, while the Myanmar government and government designated entity shall hold a stake of not less than 15pc."

But in recent years, the port stake-ratio has come under fire from local businesses and international analysts. Simon Tay, chair of the Singapore Institute of International Affairs, said in June 2017 that the difference in foreign ownership between Thilawa and Kyaukphyu is "stark" and "noticeable."

Thilawa SEZ is a Japan-led SEZ in southern Yangon, and the only one in operating in the country to date. Myanmar holds a 51pc stake in Thilawa, while the Japanese own 49pc.

Furthermore, since the current government took charge, the Myanmar consortium has made new demands to raise its stake to 30pc as well as receive dividends, but does not what to shoulder any financing responsibility. That is the major factor for the delays.

"The Myanmar consortium just wants more shares but they don't want to take more financing responsibility," Yuan Shaobin, executive president of CITIC Myanmar, said in October last year.

"We have agreed that Myanmar's side can have 30pc shares. But the additional shares – the shift from 15pc – means that they should take on some of the financing responsibilities from CITIC proportionately."

"Myanmar should take the same risk as us. We should have Myanmar partners who would be willing to take on the same risk with us. It's business." 

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