Myanmar turns to Japan, Thailand to kick-start stalled Dawei

Jared Ferrie
To match story MYANMAR-DAWEI/
A motorcyclist rides past a dirt road at a site for a billion dollar industrial estate in Dawei district, Myanmar, May 10 , 2012. REUTERS/Khettiya Jittapong

By Jared Ferrie

YANGON (Reuters) - Myanmar is set to wrest control of its Dawei industrial complex from Thai company Italian Thai Development over its failure to attract investors to a strategically located, multi-billion dollar project tipped as a game-changer for regional trade.

According to two sources involved in the Dawei Special Economic Zone (SEZ), plans have been overhauled to inject foreign capital and expertise to revive what is arguably Southeast Asia's most ambitious industrial zone - a 250 sq km (100 sq mile) deep-sea port, petrochemical and heavy industry hub on the slim peninsular separating the Pacific and Indian Oceans.

The project's leader, ITD, and firms it had agreed contracts with, have been told to cease activities at Dawei to undergo due diligence by international auditors to create "better modality", said a senior Myanmar government official.

The review of a project that was for years stuck in a quagmire could be a significant boost to swelling Japanese industrial interests in the region, which include numerous deals with Myanmar's pro-business, quasi-civilian government and long established automobile and high-tech manufacturing plants in neighboring Thailand, led by firms like Honda, Toyota, Canon Inc and Toshiba.

The planned complex, which will include a steel mill, refinery and power plant, will be linked by highway to Bangkok and Thailand's eastern seaboard industrial zone.

That will mean Dawei could serve as an industry and trade gateway to Southeast Asia's markets, bypassing the Malacca Straits, the world's busiest shipping lane.

Myanmar would ask for Japanese and Thai government support to appoint companies to carry out a revised plan for the first stage of Dawei, including a small port and access roads, setting up a water supply system and small gas-fired power plant "as quickly as possible", the government source said, adding it had yet to be agreed which firms would be involved.

The second stage would involve international tenders for the bigger projects, including the deep-sea port, and the building of a bigger power plant, which could be coal-fired.


It had also yet to be determined what role ITD, Thailand's biggest construction company, would play in a project for which it was granted a 75-year concession under a deal struck in the 1990s with Myanmar's then military government, which ceded power in 2011.

"We're trying to figure out a different model where ITD is going to be involved as well as other investors. We're talking about billions of dollars, how can one company be able to develop all these projects?", the source said.

A Myanmar delegation was due to meet Thai and Japanese government officials in Bangkok from Wednesday. Thailand's commerce minister said the gathering would see ITD relieved of its lead role and reimbursed for costs incurred.

"The meeting's agenda also includes termination of ITD's contract in terms of the company's role as Dawei project manager," the minister, Niwatthamrong Boonsongpaisan, told reporters.

"Myanmar wants to open up this project to other parties and involve international companies and governments in the other phases of Dawei's construction and wants to ensure the project's transparency."

Myanmar's move on Dawei comes amid a series of liberal economic reforms to attract jobs and investment to one of Asia's poorest states. A year ago, it asked for Thai support for the project and the government pledged financing from Thai banks, including Bangkok Bank and Siam Commercial Bank.

Investors have expressed reluctance to commit to Dawei because of reservations over the leadership of ITD, which was dealt a blow last year when Max Myanmar, owned by local construction and banking tycoon Zaw Zaw, announced it would divest its 20 percent stake. Myanmar's government has until now had a hands-off approach to Dawei and ITD has struggled to find private investors.

Despite being hailed by ITD as "the new global gateway of Indochina", with an estimated $50 billion value within the next decade, the project has been fraught with difficulties from the outset, including finding a power source amid concern about pollution from a proposed 4,000 megawatt coal-fired plant that Myanmar's government rejected.

A finance industry source in Bangkok with close knowledge of the deal told Reuters ITD would most likely back out of the broader Dawei plan due to a lack of funds but would stay on as the main contractor for infrastructure. ITD officials did not respond to requests for information.

Myanmar's decision to overhaul the plan follows rapid progress with its 2,400-hectare (5,900-acre) Thilawa economic zone near the biggest city, Yangon, to be run by a Myanmar-Japan joint venture involving Mitsubishi Corp, Marubeni Corp and Sumitomo Corp, with Japanese government support.

Edwin Vanderbruggen, a Yangon-based business lawyer with the law firm of VDB Loi, said the new approach to Dawei would be more efficient and financially secure as big players would be involved, especially those from Japan.

"It's too large to be a single-purpose, Thailand-oriented project. This is on a Southeast Asia scale so its better to broaden the base," he said.

"There's been a lot of progress made. The regulatory framework has changed, the perception of the country has changed. It has improved. Maybe that's why they want to reboot it."

(Additional reporting by Antoni Slodkowski in Tokyo, Khettiya Jittapong and Amy Sawitta Lefevre in Bangkok; Writing by Martin Petty; Editing by Jason Szep and Robert Birsel)