In Person

New, Improved Deal on China-Backed Kyaukphyu SEZ Due Soon: Deputy Minister

By Nan Lwin 23 July 2018

YANGON — Since the 2015 elections that swept the National League for Democracy (NLD) to power, the government has been negotiating with the China International Trust and Investment Corporation (CITIC) to raise Myanmar’s stake in the Kyaukphyu SEZ in Rakhine State.

The shareholders agreement CITIC struck with the previous government, under President Thein Sein, just before the election gives the Chinese developer an 85 percent stake in the project and Myanmar the rest. Critics of the project have raised concerns that the deal could land Myanmar in a debt trap with China.

The new chairman of the SEZ’s management committee, Deputy Planning and Finance Minister U Set Aung, has gained relevant experience managing Myanmar’s first SEZ in Thilawa, in Yangon Region. He spoke with The Irrawaddy’s Nan Lwin about what the ongoing negotiations with CITIC have achieved so far and the government’s ongoing efforts to grow and reform the economy overall.

You have been managing the Thilawa SEZ as chairman. Now you are responsible for the Kyaukphyu SEZ as well. What would you like to say to people who are worried about a debt trap?

I have experience drawing up special economic zone master plans in some ASEAN countries. I have done an SEZ demand survey in seven countries. Based on my experience, I have tried to make the Thilawa SEZ a success. I can’t say it’s perfect; there is still more to be done.

There are many reasons and difficulties on both sides that explain why negotiations on the Kyaukphyu Special Economic Zone have been slow. When I took responsibility for the Kyaukphyu SEZ, I decided to start at the beginning. Before we started the official discussion, we compromised based on five principles. First, renegotiation must be flexible and not put any burden on the Myanmar government. Second, the renegotiation process must be based on international standards. Third, if we need to alter the previous agreement, China must agree to the changes. Fourth, to follow the rules and regulations for tender requests for proposals. And fifth, to follow the laws in Myanmar.

After I had agreement to follow all five principles, I started the negotiations with China.

We have already agreed that the Myanmar government will not fall into a debt trap over the Kyaukphyu SEZ. We have agreed to start on a smaller scale and that expansion will be based entirely on demand. It was also agreed that it will be a demand-based rather than a supply-based project. Moreover, we agreed not to expand the project unless we have enough demand. Based on the final agreement, we don’t need to worry about the debt trap that people are concerned about.

The Kyaukphyu SEZ is a controversial project. Do you have any concerns since becoming chairman?

Yes, I have concerns too. It is a big responsibility. However, I have been very cautious in the negotiation process, mindful of what happened in other countries and to follow international standards. So far in the negotiations we discussed that the project will absolutely not put a burden on the government.

What have been the main topics and agreements during the discussions?

We have discussed three key agreements. We agreed that the project will start out at the appropriate scale, so the project is no longer $9 billion or $10 billion as agreed by the previous government. The first phase of the project will start small or medium. Moreover, if we need to expand to a second phase or a third phase, we must be operating at full capacity in phase one and we must earn enough to cover all the operating costs of phase one. After we have achieved these two factors, we will allow expansion to a second phase or a third phase. Finally, we also agreed that the loans must be private loans, not government loans, and we won’t take loans as a government and won’t give any sovereign guarantees to China.

Can you estimate when the final agreement will be officially announced?  

We have been negotiating the agreement at both formal and informal meetings. There is already what is called a framework agreement. We will sign that framework agreement officially. At that time, we will announce it to the public.

We learned that the NLD government has been demanding that its share in the Kyaukphyu project be increased from 15 percent to 30 percent. Does China agree to that? 

When the [previous] government invited tenders, it announced that the winner would get 85 percent of the shares. So the rest, 15 percent, would be for the government. But now China has agreed to give Myanmar 30 percent of the shares.

I also want to ask you a question in your role as deputy finance and planning minister. The business community says the economy is growing very slowly. Yet according to the World Bank and IMF, GDP and other economic indicators are improving. So why do businesses say the economy is struggling?

Macroeconomic conditions may not be the same as the conditions for individual businesses. In the Burmese language, the meaning of economics looks similar to the meaning of business. Literally, there is a big difference between economic aspects and business aspects. For example, when businesses are doing well, the national economy develops rapidly. As a result, it causes economic overheating and leads to economic instability. In that situation, business is good but the macroeconomics will be unstable. In some situations, some facts [data] are right when we look at them from a business perspective but some facts are wrong when we look at them from an economic perspective.

What reforms is the government pursuing to grow Myanmar’s economy?

Business confidence is the most important factor for economic improvement. To improve business confidence, we need an explicit policy that shows investors a clear-cut vision. We need transparency about what the government will do and which way it is heading to grow the economy.

Now we have drawn up a roughly 250-point action plan that includes a strategic plan to work with related departments in each sector. It has been named the Myanmar Sustainable Development Plan. We will announce the plan as soon as we can.

We need transparency for all national projects, including national budget projects, international loan projects and government-private partnership projects. We have been planning a new system called a project bank or project information bank that will provide project information to the public.

At the same time, we have been preparing a standard operating procedure to deal with complicated rules and regulations that businesses face. I think that as a government we need to focus more on long-term plans than on short-term problem solving to achieve economic development.

Myanmar is strategically situated for China’s Belt and Road Initiative. We have learned that the Myanmar-China Economic Corridor MoU will be signed this year. We are very small economically and financially compared with China. What sort of strategic plan should Myanmar prepare for China’s Belt and Road Initiative, since we have an ongoing civil war and are not financially strong?

If we take advantage of the Belt and Road Initiative carefully, we will profit with basic infrastructure for our country. But we need to examine the details of each project, whether it is necessary for our country. If we can develop infrastructure projects in cost-efficient ways, the two countries can have a win-win situation. On the other hand, we have been developing infrastructure projects with our allies such as the Asian Development Bank, World Bank, JICA and other agencies.