New projects set to improve transport connectivity in Myanmar

 

The slow and steady improvement of transport infrastructure has been one of Myanmar’s less celebrated successes. Nothing illustrates this achievement better than Yangon, the country’s commercial capital. Yangon International Airport, for instance, has undergone significant upgrades and now has an annual capacity of 20m passengers. Upgrades are also being made to the Yangon Circular Railway. Older buses that once contributed heavily to air pollution have mostly been replaced, and a modern bus service is in operation. The city is also served by 50,000 taxis and a catamaran water bus service. Ports are being modernised as well, with work on a 400-metre wharf near the Thilawa Special Economic Zone (SEZ) completed in December 2018. A new $290m container terminal on the Yangon River has received in-principle approval and a deepwater port at Kyaukphyu in Rakhine State is in the pipeline as part of China’s Belt and Road Initiative (BRI). However, much of the transport infrastructure development has been seen only in Yangon, Mandalay and Naypyidaw, while in the countryside it remains below standard.

Myanmar scores low in terms of the overall quality of transport infrastructure. In 2018 the country scored 1.99 out of 5 in the World Bank’s Logistics Performance Index, placing 152nd out of 160 countries globally. Myanmar spends just 1-1.5% of its GDP on the transport sector; the Asian Development Bank (ADB) recommends that it double this figure. Some 20m people live in areas with no basic road access. Furthermore, about 60% of highways and most rail lines are in need of repair, and at least 103,000 km of roads are needed to connect villages. The ADB estimates that Myanmar will need to invest $60bn on transport infrastructure in order to fix these deficiencies by 2030, but according to the National Transport Master Plan spending will be closer to $20bn. Finding viable sources of funding to make up the deficit is a key challenge facing political leaders.

Structure & Oversight

Myanmar’s transport sector is overseen by the Ministry of Transport and Communications (MoTC). Key departments governing the sector under the MoTC include the Department of Civil Aviation (DCA); the Directorate of Water Resources and Improvement of River Systems; the Department of Marine Administration (DMA); and the Road Transport Administration Department. Other transit authorities include Myanmar National Airlines (MNA), which is the national flag carrier; the Myanma Port Authority, which comes under the jurisdiction of the DMA and is responsible for running key national ports; and Myanma Railways (MR), which is the national rail operator. Meanwhile, the Ministry of Agriculture, Livestock and Irrigation is in charge of rural roads and bridges, while roads in the border regions are the responsibility of the Ministry of Border Affairs. The Yangon Region Transport Authority (YRTA) is in charge of the transport network in and around the city. Other important stakeholders in Yangon include the Yangon Regional Government and the Yangon City Development Committee.

Roads

The total road length across the country is approximately 141,000 km, of which almost 40,000 km is paved. As of November 2016, the most recent year for which figures are available, some 5.8m registered vehicles were on the road, carrying 90% of freight and approximately 86% of passengers. Myanmar has one expressway, which stretches 666 km and connects Mandalay with Yangon.

The primary road artery in the country is the Asian Highway 1 (AH1), which crosses from the border with India to the border with Thailand. The AH1 encompasses the Yangon-Mandalay Expressway (YME), a $1.5bn public-private partnership (PPP) project inaugurated in 2010. The YME also connects to the capital Naypyidaw and thus links all three main cities. The expansion of the YME is seen as an important bellwether for foreign direct investment (FDI).

A total of 10 bidders pre-qualified for the construction of the 47.5-km, four-lane Yangon Elevated Expressway (YEX), which will eventually link Yangon Port and the Thilawa SEZ directly to the YME. The bidders for this project include Japan’s Marubeni, France’s Vinci and state-run China Communications Construction Company. The winner of the tender was expected to be announced in October 2019, but no update was given as of November that year. The $400m project, which is anticipated to take three years to complete, should significantly ease traffic congestion in Yangon. The first phase of the YEX project includes a 20.5-km elevated road that will connect the Dawbon Bridge in Pazundaung township, Mingaladon Industrial Park and Yangon International Airport. The project is considered timely, as the number of vehicles on Myanmar’s roads is projected to double every five to seven years.

As of 2019 Yangon had a population of just over 5.2m, and is expected to grow to 7.7m by 2035. The total road length in the city, some 9945 km, is mostly made up of one-lane roads. The six-lane, four-lane or two-lane roads in the city total 126 km, 429 km and 9255 km, respectively. The share of the overall road area to the total urban area is about 4.5%, lower than many other large cities globally. Although the main urban areas in Yangon are served by major roads, railways and waterways, they are not usually connected to each other. Without expansion and development, Yangon risks the high levels of gridlock experienced by many other cities across the region.

Neighbor Initiatives

Myanmar is ideally situated between India and China, two of the world’s most populous and fast-growing economies, affording it a number of strategic benefits. China has been eager to get access to the Bay of Bengal and India considers Myanmar a crucial component of its Act East policy, which aims to continue bolstering economic and strategic connections with South-east Asia. China is advancing its objectives by improving road and rail access to the Kyaukphyu deepwater port it is developing in Rakhine State. China is also helping construct the 19-km-long road between Nawnghkio and Gote Hteik in Shan State. The $100m project is expected to be completed by 2022. Furthermore, the two countries have signed a memorandum of understanding to replace the old Kunlong bridge over the Thanlwin River as part of Shan State’s 4. 2-km Theinni-Kunlong-Chinshwehaw road project. The link is expected to improve cross-border trade between the two countries. Myanmar remains a crucial component of the BRI, a multibillion-dollar plan to connect China with the rest of the world through a network of road, rail and sea links. In November 2018 the government of Myanmar formed a steering committee, chaired by State Counsellor Daw Aung San Suu Kyi, to commence implementation of a series of China-backed transport projects, though the speed of uptake has been slow.

Meanwhile, India is developing the $500m Kaladan Multi-Modal Transit Transport Project, which includes the construction of a 109-km road connecting the north-eastern state of Mizoram to Myanmar’s Chin State. Once complete, the project will open a second road link between India and Myanmar. While a short road bridge already connects the Indian town of Moreh with Tamu in north-east Myanmar, a plan to extend this link into the 3200-km India-Myanmar-Thailand Trilateral Highway, of which 1360 km will run through Myanmar, is set for completion in 2020. The project received $500m in financing from the Indian government in 2012 and a loan from the ADB in 2013, but it has seen numerous delays.

Regional Connectivity

Road connection with Thailand is also improving. The second Thai-Myanmar Friendship Bridge, which links the border towns of Mae Sot and Myawaddy, opened in 2019. Funded by Thailand at a cost of BT4.28bn ($132.3bn), the project includes border-crossing facilities. The first Thai-Myanmar Friendship Bridge opened in 1997 and until recently was the only road transit point for trade between the two countries.

As of the end of 2019 there was no direct road link between Myanmar and Bangladesh. However, that may change if the Bangladesh-Myanmar Maitree Road project comes to fruition. It is part of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation Road Corridor 11 plan, which aims in the near term to connect Maungdaw in Myanmar to the Bangladeshi port city of Chittagong.

Further investments are being made to improve seven local highways that will eventually connect Myanmar with neighbouring countries, including the Kyaukphyu-Magway route, which is being upgraded to support growth of the China-backed SEZ at Kyaukphyu. The 196-km Western Union Highway, which runs between Yangon and Pathein, is being upgraded under a build-operate-transfer model.

In August 2018 the New Thaketa Bridge opened in Yangon, constructed using grant aid from Japan. Elsewhere, ground was broken for the Dala Bridge project in December of that year. Also known as the Myanmar-Korea Friendship Bridge, the $168m cable-supported structure will connect Yangon with Dala, a township that lies on the southern bank of the Yangon River. Upon completion in 2022 the 1.87-km, four-lane bridge will ease the commute between Yangon and the Dala, Twante and Kawhmu townships. It is funded by a $137.8m soft loan from South Korea and a $30.3m investment by Myanmar.

ADB-Backed Projects

Meanwhile, the ADB has proposed the development of a 70-km arterial highway between Bago and Kyaikto as part of the Second Greater Mekong Subregion (GMS) Highway Modernisation Project, formerly the GMS East-West Economic Corridor Highway Development Project, using a $455.6m concessional loan. The infrastructure project aims to address capacity constraints on the road from Bago to Kyaikto. No tenders had been put out as of early December 2019.

Another PPP road project in the pipeline is the upgrade of the Kawkareik-Mawlamyine-Thaton Road, which also runs along the East-West Economic Corridor. The ADB has extended a $150m concessional lending programme as part of the Second Mandalay Urban Services Improvement Project.

The ADB is also supporting a government initiative aimed at providing 80% of the country’s villages with all-weather roads by 2030. The $44.3m Rural Roads and Access Project is looking to pave 152 km of unsealed roads in Ayeyarwady and Magway, two of Myanmar’s underdeveloped regions. The programme complements work being carried out by the World Bank, which is helping to build and upgrade approximately 8800 km of rural roads under the auspices of a $4.5bn community-driven national programme.

Railway

Myanmar’s national rail network is one of the oldest in Asia. State-owned MR once carried almost 44% of all passenger traffic in the country, but as of late 2019 this had shrunk to less than 10%. The total length of track is estimated at close to 7950 km. The urban rail network encompasses a total of 149 km and has 59 stations, including the Yangon Circular Railway, which runs between Yangon Central and Danyingone (26 km); the Pyay line, which starts north of Danyingone and runs to Hmawbi (27 km); a section of the Yangon-Mandalay line; the Thilawa line that links Yangon to the Thilawa SEZ (27 km); and a freight line for Yangon Port.

Works to upgrade the Yangon-Pyay railway are expected to commence in 2021 and could take up to three years to complete. Yangon-Pyay is one of the busiest railway links in Myanmar, serving almost 75% of total rail passengers between the commercial capital and Bago. The $200m project is funded by the ADB and the European Investment Bank. When the upgrade is complete, trains will travel at 120 km per hour on the 259-km route, reducing travel time from eight hours to just below five.

Furthermore, MR is upgrading the 46-km Yangon Circular Railway, which serves as a crucial commuter link. Financed by a $2.5bn loan from the Japan International Cooperation Agency (JICA), the project is intended to cut travel time on the 39-station loop from three hours to under two. The project began in 2018 and is set to be completed in 2022. The plan is being carried out by Japan’s Sumitomo, which has already begun redeveloping the Yangon Central Railway Station. Sumitomo is also the chief contractor for the first construction phase of the Yangon-Mandalay project. Two Japanese firms, Tekken-RN and Tokyu, are the main contractors for phases two and three, respectively. The project is split into two parts: one runs from Yangon to Toungoo, with a track length of 267 km; the other runs from Yangon, through Toungoo to Mandalay via a 353-km track.

Meanwhile, two privately built and operated dry ports were launched in Yangon in November 2018, marking a milestone for MR. The $24.3m Ywarthagyi dry port, built by Resources Group Logistics, as well as the $55m Yangon dry port, built by KM Terminal and Logistics, allow freight to be moved efficiently between the Thilawa SEZ and Myitnge. An additional seven sites have been identified for future dry ports.

Air

Myanmar is served by over 32 international airlines and five domestic ones – the latter figure down from eight in 2018. In 2019 the Chinese carriers Spring Airlines and Xiamen Air began flying to Yangon, further strengthening air connectivity between the two countries. There are 69 airports spread across the country, of which only 32 are operational. The Yangon, Mandalay and Naypyidaw airports are designated as international.

In August 2019 the DCA invited a request for proposals for the upgrade of Kawthaung Airport in Tanintharyi Region after local firm Golden Myanmar Airlines pulled out of the $36m project. The airline previously had a 65% stake in the joint venture with Singapore’s KMA Resources. The scope of work covers the construction of new runways, terminals, a control tower and parking. The terms of agreement will allow private firms to upgrade, operate and maintain the airport under a 30-year contract. Meanwhile, construction on the long-delayed Hanthawaddy International Airport in Bago may begin in 2020. The airport is located 80 km south of Yangon and is expected to have an annual capacity of 30m passengers. The project is worth an estimated $1.5bn. Japan had previously offered official development assistance (ODA), provided Japanese firms build and operate the airport. Myanmar and Japan revived negotiations in 2019 to form a joint venture for the construction of the airport.

Myanmar’s aviation industry sees as many as 8m passengers per year. In 2018 official figures recorded 2.7m domestic air passengers and 4.5m international arrivals. Therefore, the success of the airline industry depends on international tourism. Myanmar has a plan to attract 7.5m tourists by 2020, up from 3.5m in 2018 (See Tourism chapter). In a bid to increase tourist numbers, the country has started to roll out attractive visa terms. Since it granted visas on arrival for Chinese and Indian visitors, and permitted visafree entry until September 30, 2020 for Japanese, South Korean, Hong Kong and Macau visitors, the number of tourists has increased, with arrivals reaching 1.1m in the first three months of 2019, up 22.4% from the same period in 2018. State-run MNA is the domestic market leader, with a fleet of 17 planes, including four Boeing 737-800s. Since 2017 it has added five ATR 72s and a Boeing 737-800 to its fleet. The largest private airline, Air KBZ, has a fleet of 10 ATR 72s and plans to expand its fleet by 50%.

The domestic airline industry went through a period of consolidation between 2018 and 2020, with three domestic carriers folding after struggling to stay afloat. A combination of intense competition, high fuel costs, low fares and light load factors led to their closure. The precarious state of domestic private carriers could make them attractive takeover targets; however, Myanmar restricts foreign investment in the airline industry to 49%. To play within these rules, Japanese airline ANA has attempted to establish a joint venture airline in Myanmar, though it has failed twice in this endeavour.

Moves aimed at boosting the aviation sector, however, are well under way, with the jet fuel market set to open up to competition. In November 2019 local media reported that negotiations between the Department of Civil Aviation and Golden Myanmar Airlines to lease land for the purpose of refuelling aircraft are coming to a close. This is expected to lead to increased competition and a lowering of fuel prices, which will in turn lower airfares for customers.

Waterways

Myanmar’s 2228-km coastline stretches from Bangladesh to Thailand, and has nine coastal ports and a number of rudimentary inland river ports that serve 6650 km of navigable waterways. The busiest inland commercial waterway route, spanning around 2170 km, is along the Ayeyarwady River, which starts in Kachin State and runs down the Ayeyarwady Delta. There are also three major water transport routes in Yangon connecting the city to towns on the opposite side of the river, and Yangon Port is served by a short-distance ferry service.

In an effort to reduce ongoing traffic congestion, the YRTA has initiated a programme to run high-speed water taxis on the Hlaing River and Nga Moe Yeik Creek. In October 2017 the Yangon Water Bus commenced operation between Insein and Botahtaung. There are plans to establish similar services between Botahtaung and North Dagon Township, and between Botahtaung and Thanlyin.

Special Economic Zones

The development of SEZs in Myanmar is acting as a catalyst for the ongoing development of road and port infrastructure. Plans to establish economic corridors within the GMS will underpin the improvement of cross-border transport networks. The Japan-backed Thilawa SEZ was the first its kind to become operational and has since become a template for success, now home to over 90 firms. An additional two zones, the Dawei SEZ and the Kyaukphyu SEZ, are currently in development, although progress has been slow and questions remain about their viability.

The $8bn Dawei SEZ project was planned to begin with the construction of a 138-km highway between Dawei and Thailand’s Kanchanaburi Province, but work stalled as the Thai firm that won the tender was unable to secure adequate financing. In October 2019 both sides met in Naypyidaw and reaffirmed their commitment to the SEZ, and construction is now set to begin in 2020. A $1.3bn deal was also signed in 2018 for a port and SEZ in Kyaukphyu. The project’s development is led the a Chinese consortium as part of the BRI. However, it has been met by local opposition, notably due to displacements.

Financing

Myanmar received almost $11bn of FDI commitments to the transport and communications sector under the Myanmar Investment Law in the first eight months of 2019, representing a year-onyear increase of 13%. However, there is a risk that the general elections planned for 2020 could lead to significant delays in approvals for major projects.

The World Bank predicts GDP growth will reach 6.8% in FY 2021/22, driven partly by growth in the infrastructure sector. JICA, for its part, has listed a total of 101 projects with a price tag of $34.7bn in its 2019 proposal for urban transport development in the greater Yangon region. This includes a $2bn project for road development in the so-called new urban area; six new bridges ($1bn); a new outer ring road ($4bn); five inter-city expressways connecting Yangon with Bago, Pyay, Thilawa, Hlegu and Pathein ($6bn); an elevated expressway and tunnel ($4bn); the Circular Railway ($1.5bn) ; suburban rail ($5.4bn); two new urban mass transit lines ($7.2bn); and an inland water transport system ($91m). The objective is to mobilise 30% of the financing from the private sector. With much of the financing coming from Japan, and backed by risk guarantees from the government, these projects provide attractive opportunities for investors, and bids submitted for the YEX project demonstrate strong interest from investors.

As local finance is limited, infrastructure projects are likely to be structured as PPPs. With 57 projects in the planning and construction stage as of September 2019, Myanmar’s infrastructure project pipeline is valued at approximately $14bn. However, 63% of these developments are in the transport sector.

In an effort to fast-track the clearance of strategic projects, the government introduced the concept of the Project Bank in its 2019/20 budget (see Trade & Investment chapter). The Project Bank’s primary purpose is to prioritise those projects the government considers to be of high value, or those worth more than MMK2bn ($1.3m). Bankable projects will be considered for PPP financing. As such, the Project Bank is expected to be of substantial support to the development of transport infrastructure, as local banks lack the capital to bankroll large projects.

Outlook

Despite challenges, Myanmar can expect to see continued investments in the transport and infrastructure sectors between 2020 and 2030, backed mostly by ODA and concessional loans. These capital injections will be supplemented by FDI channelled into projects working with the Project Bank or developed under refined PPP frameworks. Meanwhile, according to the ADB, increased public spending on transport infrastructure over the next decade starting in 2020 will help to mobilise investments from the private sector, reduce logistics costs by about 30% and increase annual GDP by up to $40bn.

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The Report: Myanmar 2020

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