Myanmar scales back Kyauk Pyu deepwater port fearing debt trap

Myanmar seems to have learned the lessons of China-back projects in Sri Lanka and Pakistan. Avoids walking into a debt trap.

According to a top government official from Myanmar, the government is scaling back plans for a port project funded by China, due to concerns that Myanmar will be unable to service that heavy debt.

The Kyauk Pyu deepwater port, on the western tip of Myanmar’s conflict-torn Rakhine state was initially priced at $7.3 billion, but with reports streaming in on how Beijing muscled its way to gain control over projects that it funded in Pakistan and Sri Lanka, alarm bells started ringing, said officials and advisors.

According to Set Aung, Myanmar’s Deputy Finance Minister, who was appointed to lead negotiations for the project in May, the “project size has been tremendously scaled down”; it is now “around $1.3 billion, something that’s much more plausible for Myanmar’s use”, said Sean Turnell, economic advisor to Myanmar’s civilian leader, Aung San Suu Kyi.

The main developer of the project, China’s state-run CITIC Group, said negotiations were on and that the $1.3 billion was to be spent on the “initial phase” of the port; it did not elaborate on plans for subsequent stages.

On Monday, Chinese foreign ministry spokesman, Geng Shuang, stated “according to what I understand, at present both sides are having commercial negotiations” on the Kyauk Pyu project. “The talks are progressing,”

While the original plans was to develop 10 berths at the 25-metre deep sea port so as to accommodate big oil tankers, this has now been revised to 2 berths, said Set Aung while declining to elaborate on other specifics citing ongoing technical discussions.

For China, this port is strategically important since it forms part of its strategy to project its image and culture globally through its Belt and Road initiative.

Although China has projected the Belt and Road initiative as being mutually beneficial to participants, countries are now waking up to the fears of an indirect Chinese takeover through the back-door due to their taking on mountains of debt.

According to analysts, the Myanmarese government faces the delicate balancing act in renegotiating the project with Beijing.

While the country is increasingly reliant on diplomatic support from China to face criticism on its handling of the Rohingya ethnic conflict, it is also wary of becoming too dependent on Beijing.

“There is a strong current of opinion that is nervous about becoming over reliant on China,” said Richard Horsey, a former U.N. diplomat and a Yangon-based political analyst. “That debate is playing out within the government.”

China’s economic muscles

Although China has been forced to abandon a hydroelectric project in the country midst widespread local opposition in 2017, it has relentlessly pushed for strategic opportunities in Myanmar, including preferential access to the Kyauk Pyu port since it is the entry point for a 480 mile (770-kilometre) pipeline which delivers oil and natural gas to China’s Yunnan province.

The Kyauk Pyu port provides China an alternative route for energy imports from the Middle East which avoids the strategic choke point of the Malacca Strait.

Construction of the port along with an accompanying special economic zone which in combination was to cost up to $10 billion was expected to start in 2018. But having witnessed how China treated Sri Lanka, where Beijing forced the Sri Lankan government to hand over the lease of a strategic port built with Chinese-backed funds for 99 years, Myanmar’s officials grew wary of walking into a debt trap.

According to Set Aung, the deputy finance minister, “The new deal ensures that any loans financing this project will not lead back to the Myanmar government but rather they will all be private. At the moment, my priority is to ensure there is no debt burden for the Myanmar government and these concerns are now quite limited.”

When asked about the accompanying special economic zone, both Turnell and Set Aung said any expansion plans would depend on the port’s viability.

“Each stage has to demonstrate feasibility before the next phase can be rolled out,” said Turnell.

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