The drawing board rationale for a Thai company to develop a $50bn deep-water port and industrial complex in neighbouring Myanmar is astonishingly simple. The 250-sq-km development would reduce sea transport time between Thailand and India or Europe by more than a week, avoid the overcrowded sea lanes of the Strait of Malacca and at the same time establish a steel mill and petrochemicals plant to supply industry in Thailand and other countries in the region.
Italian-Thai Development, the largest construction company in Thailand by market value, obtained a concession from the Myanmar government to find investors to develop the project at Dawei, about 350 km west of Bangkok. The port is designed to handle 14m twenty-foot equivalent units (TEUs) annually by 2037, almost double the capacity of the second-phase expansion of Thailand’s main port at Laem Chabang.
The port alone is projected to cost $2.5bn, but its viability, irrespective of the cost, depends on the industrial complex planned alongside it. As Ruth Banomyong, a faculty member in the Department of International Business, Logistics and Transport at Thammasat University, told OBG, “You need the hinterland, industrial compound and logistics backup. The area has to develop a need for a port, which cannot exist in isolation.” The first phase of the port is scheduled for operations in 2018, but the date must be regarded as notional until backers are found for the rest of the project.
POLITICAL BACKING: Myanmar President Thein Sein signed several memoranda of understanding (MoUs) during a visit to Thailand in July 2012 concerning the Dawei port and energy projects. At a joint press conference, Thai Prime Minister Yingluck Shinawatra said both countries endorsed the project and “both sides agreed to build connectivity between Dawei and Laem Chabang.” That “connectivity” comprises the construction of new road and rail links to serve the Dawei port. According to the minister of transport, Jarupong Ruangsuwan, these links will be completed “within five to seven years”. He added that around 100 Thai firms have shown interest in the Dawei development project. Narong Pomlaktong, the research director of transport and logistics at the Thailand Development Research Institute, is another enthusiastic supporter of the new logistics links, adding that they should go even further. As well as reaching 100 km east of Bangkok to Laem Chabang, they should be extended by another 877 km to connect with Ho Chi Minh City in Vietnam, he was quoted in the Thai press as saying.
ENVIRONMENT: Dawei would be suitable for a steel plant because there is a source of iron ore at Malamang, just 30 km away. As Ruth pointed out to OBG, a steel plant has little chance of being approved for development in Thailand because of severe opposition from environmentalists. However, there are signs that environmental concerns are surfacing in Myanmar as well, despite its track record of ignoring such concerns for decades. The president of Italian-Thai Development, Premchai Karnasuta, was quoted by international news agency Reuters saying that he was talking with Japanese companies about building gas, coal-fired and hydropower plants after Myanmar’s government vetoed a 4000-MW coal-fired plant on environmental grounds.
There is backing from the Japanese government and private sector for the Dawei project as part of a concerted effort to shift heavy industries away from Japan. This helps to explain the Dawei developer’s confidence in securing finance for the project from Japan.
FUNDING: Somchet Thinaphone, a managing director at Dawei Development, a subsidiary of Italian-Thai Development, said that the company plans to raise three-quarters of the $8.6bn infrastructure cost in yen, with the rest made up of Thailand and US loans, and as The Reportwent to press Premchai was visiting Tokyo to try to firm up that arrangement.
However, some in the region think that moving ahead on the project is premature. The Asian Development Bank (ABD) has recommended that the Dawei Special Economic Zone, including the port, should be folded into the Mekong River Subregion Economic Corridor. According to Arjun Goswami, the ABD’s director of regional cooperation and operations coordination in South-east Asia, to be a success, the project needs more careful planning and funding guarantees, as well as additional preparation time. Dawei’s viability has also put into question by the development of other port and economic zone projects in Myanmar such as that at Kyaukpyu in the Bay of Bengal at Thilawa.
Chula Sukmanop, director-general of the Office of Transport and Traffic Policy and Planning, told OBG, “Many people are showing an interest in Dawei, but I am not sure if they have real cash to put into it. It is a private project not related to the Thai government. I don’t see any investment in a deep-sea port without a commitment to investment in heavy industry.”
LEGAL BASIS: The Dawei Special Economic Zone Law, the Myanmar legislation underpinning the development, was published in January 2011. Its 48 pages give the outlines of the project but many of the clauses may need specific regulations added before they become the basis on which investors would sign up. In addition to references to the port and industrial area, the law mentions constructing roads and railroads; extending electrical distribution lines, gas and petrol pipelines; and building residential areas and resort centres.
It initially describes the goal of the project as being to create Dawei as the “pivotal place for trade and transportation in the South East Asian Region”, mentioning the creation of zones for high tech, communications and scientific research. Only much later does the law refer to a steel plant, chemical fertiliser manufacture, an oil refinery and a petrochemicals plant.
FINANCIAL INCENTIVES: Among the incentives offered are up to 15 years’ exemption or subsidy on corporate tax. There would be none payable for the first five years, a 50% reduction for the next five and, if profits were reinvested in the company, the possibility of applying for a further five years of a 50% reduction. While there is complete tax relief on raw materials imported and used for export finished products, the appropriate tax has first to be paid and later claimed back on proof of its use. The law envisages leases for land use. For large projects this would initially be for 30 years, extendable for another 30 and after that a further 15 years. The same principle applies to medium-sized projects with the one difference being that the second period would be for 15 years, not 30. For small operations, these figures stand at 30, five and five years.
But the biggest surprise is perhaps the number of times it mentions environmental concerns. Apart from stating that the zone should create businesses “that promote the economic development of the state” and create job opportunities, it speaks in places of the need to “conserve and protect the natural environment”. Towards the end it spells out that message clearly by saying, “The developer or investor shall take responsibility in order not to cause environmental pollution and air pollution.” Being able to avoid such restrictions in their own countries by setting up heavy industries in Myanmar may not be as straightforward as the supporters of the Dawei Special Economic Zones believe.
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