YANGON (Financial Times) -- Myanmar’s government is reviewing a $9bn deepwater port project backed by China over concerns it is too expensive and could ultimately fall under Beijing’s control if Myanmar were to default on its debt.
Two people with direct knowledge of the discussions within Aung San Suu Kyi’s government said that economic officials were looking for ways to negotiate down costs for the planned port at Kyaukpyu in Myanmar’s western Rakhine state.
The port is set to give China’s south-west a direct trading corridor to the Indian Ocean via Myanmar, allowing companies to avoid the Malacca Straits if needed. As such, it is part of Beijing’s $1tn push to shore up transport and energy supply routes across Eurasia under its so-called Belt and Road Initiative. The port at Kyaukpyu will be one of the biggest infrastructure projects in Myanmar’s history.
The project “should be welcomed as a useful addition to the country’s stock of infrastructure,” said Sean Turnell, an Australian academic who advises Myanmar’s government on economic policy, However, he added: “It would seem at first glance also to be a project that comes at excessive financial cost and, with this, poses grave risks for Myanmar it may require the country to take on to participate.”
The current estimated costs of the port, which sits at the terminus of recently built oil and gas pipelines that run to southern China’s Yunnan province, are about $7.5bn, with another $2bn envisaged for an adjoining economic zone.
The project is due to be built by a consortium led by Citic Group, one of China’s largest and most powerful state-backed conglomerates. Citic won a tender in 2015, with the Chinese side taking 70 per cent and Myanmar’s government and local companies taking 30 per cent.
“A port of [that] scale that could be usefully employed by Myanmar, under any plausible scenario, should cost just a fraction of this,” said Mr Turnell, an economics adviser who is on secondment from Australia’s Macquarie University as a close adviser to Myanmar’s government. He noted that his comments were his “personal assessment” but also confirmed that officials were looking at ways to negotiate the project’s cost down.
A second foreign official in Myanmar briefed on the discussions inside the government was blunter, saying the project was giving policymakers “nightmares”, amid fears the port could come under Chinese control if Myanmar failed to service its debt.
“If the project doesn’t do well, there is the risk of defaulting and becoming a Chinese-owned port,” said the official, who asked not to be quoted by name because of the sensitivity of the project.
Similar problems have already arisen elsewhere in Asia. Sri Lanka last year handed control of its port at Hambantota to China on a 99-year lease after failing to pay the project’s debts.
Mr Turnell estimated that the amount of debt Myanmar would need to take on for its share of the project would be about $2bn, or about 3 per cent of GDP, representing what he called “a substantial addition to the country’s debt stock”.
Citic Construction did not respond to an emailed request for comment, and Myanmar’s government did not respond to requests for comment.
Myanmar’s review of the project comes at a delicate time for the country, as it faces condemnation from western countries over its recent military crackdown on Rohingya Muslims, which some analysts believe could push the country into China’s orbit.
The country’s previous government angered China in 2011 by suspending the $1.5bn Myitsone dam project in northern Myanmar, which it shelved because of its environmental and social impact.