China’s Belt and Road is another debt trap! Awoken by Sri Lanka’s experience, Myanmar scales down China-backed port to avoid financial tragedy

Aug 26, 2018 News

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A lesson taught by  the Turkish proverb—“No matter how far you have gone on the wrong road, you can still turn back”—characterizes Myanmar’s decision to scale down a major project backed by China under the Belt and Road Initiative (BRI).

Earlier this month, Reuters reported that Myanmar down-scaled plans for a Chinese-backed Kyauk Pyu Port on its western coast, sharply reducing the cost of the project. Quoting a Myanmar Government Official, Reuters said that the decision was made based on concerns that the project could leave Myanmar heavily indebted.

Myanmar is a Southeast Asian nation of more than 100 ethnic groups, bordering India, Bangladesh, China, Laos and Thailand.

The Kyauk Pyu port is a key part of China’s ambitious Belt and Road Initiative, aimed at expanding trade links across the world. While China says Belt and Road is mutually beneficial to both partners, questions have been raised about countries taking on excessive debt to build projects.

Reuters reported the Myanmar government saying that the initial $7.3 billion price tag on the Kyauk Pyu deepwater port, on the western tip of Myanmar’s conflict-torn Rakhine state, set off alarm bells due to reports of troubled Chinese-backed projects in Sri Lanka, Pakistan and Malaysia.

The revised cost would be around $1.3B, “something that’s much more plausible for Myanmar’s use”, said Sean Turnell, economic advisor to Myanmar’s civilian leader, Aung San Suu Kyi.

However, China’s state-run CITIC Group, the main developer of the project, was quoted as saying that negotiations were ongoing and that the $1.3 billion was to be spent on the “initial phase” of the port, adding the project was divided into four phases. But, it did not elaborate on cost or plans for subsequent stages.

Myanmar is increasingly reliant on diplomatic support from China.

China has pushed for strategic opportunities in Myanmar, including preferential access to the Kyauk Pyu port.

Kyauk Pyu is an entry point for a 770-kilometre (480-mile) pipeline delivering oil and natural gas to China’s Yunnan province. That gives China an alternative route for energy imports from the Middle East that avoids the strategic chokepoint of the Malacca Strait.

Under the original plan, China told Myanmar that the Kyauk Pyu Port would have had a container capacity to rival that of ports such as Manila or Valencia in Spain. This is similar to a scheme China presented to Sri Lanka, but the country fell into a debt trap and later had to sign over the port to China.

Construction of the Myanmar port, and an accompanying special economic zone, which together were supposed to cost up to $10B, were expected to start this year. A 4,200-acre industrial park worth $2.3B was also planned to attract textile and oil refining industries.

But Myanmar officials said the experience of Sri Lanka, where the government signed over to China the lease on a strategic port to pay off Chinese-backed loans used to finance it, had raised concerns the country could be walking into a debt trap.

The new deal “reduces the financial risk dramatically” and shows that “concerns about indebtedness and sovereignty have been and can be addressed”, said Turnell, an Australian economist.  He said too that “this really could become a constructive model for countries that don’t have much leverage over a giant like China.”

The Deputy Finance Minister of Myanmar was quoted saying that Myanmar would give no sovereign guarantees for any loans financing the project. He added that the project’s timeline was likely to be delayed several months as Myanmar was looking to hire an international consulting firm to review costs.

The Deputy Finance Minister also said that his priority is to ensure there is no debt burden for the Myanmar government and its people.

The government official also noted that disagreements emerged over terms and conditions after the initial tender had been awarded to the China-owned company—CITIC. He said, “The previous government wanted to go big, whereas we want to start small and expand only if there is demand for it.”

Also, the Deputy Finance Minister 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,” Turnell said.

ENVIRONMENTAL IMPACT

Overall, Myanmar is regretting signing on to the Belt and Road Initiative. The port project is not the only one that the people are concerned about. Last year, China was forced to abandon a hydroelectric project in the country amid widespread opposition from Myanmas.

Early last year, Myanmar Times wrote that Belt and Road corridors put half of the country’s population at risk

The newspaper reported, “The Belt and Road Initiative puts Myanmar’s natural capital and the lives and livelihoods of 24 million people – half of the country’s population – at risk, according to a report from World Wide Fund for Nature in Myanmar.”

Road projects proposed as part of the initiative would provide transport infrastructure to areas of the Ayeyarwady River Basin and surrounding mountain areas, which are home to approximately 24 million people. These people rely on natural capital, including forests, rivers, land and biodiversity, for a range of benefits, such as potable water and natural disaster mitigation.

The outrage about this was widespread. The people are convinced that the disadvantages of the China project far outweigh the few benefits.  They noted the possible environmental damage through deforestation, landslides and pollution; the fact that many could be put out of jobs and the impact the project can have on wildlife.

Vicky Bowman, Director of Myanmar Centre for Responsible Business, said that issues could be avoided if infrastructure projects are planned and designed in line with Myanmar’s Environmental Impact assessment framework, with assessments carried out to international standards.

Many of the issues Myanmar is facing now with the Belt and Road Initiative are nothing new about relations with China. Several other countries like Pakistan, Sri Lanka and Malaysia have had similar experiences or worse.

China’s relations with Guyana have been getting sticky since under the rule of the People’s Progressive Party/Civic Government.

Guyana took hundreds of millions in loans to modernize the Cheddi Jagan International Airport (CJIA), the Skeldon Sugar Factory Plant etc.  Those loans are now on the backs of Guyanese.  But the nation got no use of the Skeldon plant.  And while China and the PPP said that CJIA would have been used as a hub for aircraft going to Africa and Asia, it is yet to be realized. In fact, plans to make that happen are not even in the pipeline.

However, recently, under the ruling coalition government, Guyana signed an MOU with China that paves the way for the Belt and Road Initiative to eventually come here.

Foreign Affairs Minister, Carl Greenidge has touted the virtues of the initiative and of Guyana relations with China. In fact, Greenidge recently said that with careful planning, Guyana will be able to avoid the “mistakes” of many other countries that led to the initiative not being a success.

 

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