News / Asia

    Burma Turns to Japan, Thailand to Kick-start Stalled Dawei Project

    FILE - Dawei Development Company's Managing Director Somjet Thinaphong discusses a model of the economic zone.
    FILE - Dawei Development Company's Managing Director Somjet Thinaphong discusses a model of the economic zone.
    Reuters
    Burma is set to wrest control of its Dawei industrial complex from a Thai company, Italian Thai Development (ITD), 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 100 sq mile deep-sea port, petrochemical and heavy industry hub on the slim peninsula separating the Pacific and Indian Oceans.
     
    The project's leader, ITD, and firms it had made contracts with, have been told to cease activities at Dawei to undergo due diligence by international auditors to create “better modality”, according to a senior Burmese 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 Burma's pro-business, quasi-civilian government and long established automobile and high-tech manufacturing plants in neighboring Thailand, where firms like Honda, Toyota, Canon and Toshiba operate.
     
    The planned complex, which will include a steel mill, a refinery and a 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.
     
    Burma would ask for Japanese and Thai government support to appoint companies to carry out a revised plan for the first stage of Dawei. This stage would include the development of a small port and access roads and setting up a water supply system and small gas-fired power plant “as quickly as possible”, the government source said, adding that 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.
     
    Junta’s Deal Ditched?
     
    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 Burma'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 asked.
     
    A Burmese delegation was due to meet Thai and Japanese government officials in Bangkok starting on 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.
     
    “[Burma] 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,” Niwatthamrong continued.
     
    Burma's move on Dawei comes amid a series of liberal economic reforms to attract jobs and investment to one of Asia's poorest states. One year ago, the country 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 regarding the leadership of ITD, which was dealt a blow last year when Max Myanmar, a company owned by local construction and banking tycoon Zaw Zaw, announced it would divest its 20 percent stake. Burma's government has until now had a hands-off approach to Dawei, but 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 issues finding a power source amid concerns about pollution from a proposed 4,000 megawatt coal-fired plant, which Burma's government rejected.
     
    A finance industry source in Bangkok with close knowledge of the deal said ITD would most likely back out of the broader Dawei plan due to a lack of funds, but would be likely to stay on as the main contractor for infrastructure. ITD officials did not respond to requests for information.
     
    Burma's decision to overhaul the plan follows rapid progress on its 5,900-acre Thilawa economic zone, near the biggest city, Rangoon, which is to be run by a Burma-Japan joint venture involving Mitsubishi, Marubeni and Sumitomo, plus support from the Japanese government.
     
    Edwin Vanderbruggen, a Rangoon-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,” Vanderbruggen continued.

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