China’s state-owned energy firms have entwined themselves in Myanmar’s internal struggles. Yang Meng finds out more on a visit to the stalled Myitsone dam.

We approached the Myitsone construction site along a new concrete road, laid over the local government’s old, rough track by China Power Investment Corporation (CPI). This Chinese state-owned power company is the investor behind this multibillion-dollar hydropower scheme in northern Myanmar, also known as Burma, and its Yunnan-based staff told me I was the first reporter to be granted permission to visit.

A cascade of seven dams is planned for the Irrawaddy River, of which the Myitsone scheme – located 30 kilometres north of the Kachin state capital Myitkyina – is just one. At a total cost of 160 billion yuan (US$25 billion) and with power-generating capacity of 20 gigawatts, this string of dams is set to be China’s largest overseas hydropower investment to date. Once the dams are complete, experts say, Myanmar’s government will receive tax revenues, free electricity and shares and dividends worth US$54 billion (340 billion yuan). That’s more than Myanmar’s entire GDP for 2010, which was US$42.9 billion (270 billion yuan).

At least that was the plan. On September 30 last year, events took an unexpected turn. Myanmar’s new, nominally civilian president, Thein Sein, believed to be responding to increasingly widespread opposition to the dam across Burmese society, suddenly announced the suspension of the project for at least the term of the current parliament.

Myanmar stands on the brink of great change. The military government that has ruled for half a century is in decline. Aung San Suu Kyi’s National League for Democracy is again a political player [editor’s note: on Sunday, April 2, the party claimed a landslide victory in by-elections, setting Aung San Suu Kyi on course for a seat in parliament for the first time] while ethnic militias control swaths of the north. Nobody has the upper hand. China is Myanmar’s biggest investor, and the big state-owned enterprises that have charged into the country now find themselves caught up in its power struggles.

The situation is comparable to that in Africa, where many Chinese companies have struggled to adapt to changing conditions in the swell of democracy movements. Strategy consulting firm Roland Berger has warned that existing practices and guidance from the Chinese government are unable to keep up with the constantly shifting circumstances, or to track and evaluate both international and tribal disputes.

As of the end of July last year, 31 different nations had investments in Myanmar totalling US$36 billion (227 billion yuan) across 12 different sectors, according to the country’s Directorate of Investment and Company Administration. China is the largest single investor, accounting for almost US$16 billion (101 billion yuan). China is also Myanmar’s largest trading partner – annual trade between the two countries is now worth around US$3.6 billion (23 billion yuan). China’s Myanmar-bound exports are largely destined for its investment projects, comprising raw materials and equipment worth over US$2 billion (13 billion yuan). Myanmar meanwhile sends minerals and agricultural products worth US$1.6 billion to China.

These figures are strikingly higher than just 18 months earlier. In January 2010, official statistics put China’s investments in Myanmar at no more than US$1.8 billion. The leap is mostly thanks to the arrival of huge state-owned enterprises such as the China National Petroleum Corporation (CNPC) and CPI. Previously, investments came from small and medium-sized firms (SMEs) based over the border in Yunnan. Deals already inked by Chinese firms and the Burmese government will see investment continue to boom in the near future, mostly in hydropower, oil and gas. But those who arrive first will also be the first to hit problems.

Myanmar is rich in water. Three major river systems – including the Irrawaddy – run down the country, from north to south. But the country has never had the infrastructure to exploit these resources. Before travelling to Myanmar, I visited CPI’s offices in Kunming, where I watched as CPI Yunnan’s president, Li Guanghua, unfolded a map of Myanmar with the course of the Irrawaddy closely annotated. “There are over a dozen Chinese firms, including CPI, working on hydropower in Myanmar,” he explained. “We may be based in China, but we compete in Myanmar – almost always with other Chinese firms, and fiercely.”

Li Guanghua is a veteran of the power industry and its government regulators. He moved to CPI Yunnan in 2008, by which time the company’s Burmese projects had already been under way for two years. In 2006, with the military government in need of relief from international sanctions, Myanmar Power visited CPI in search of investment, and CPI became the first Chinese firm to work on hydropower in Myanmar. But the honeymoon period was brief. Soon, other Chinese firms were flocking to compete for the same projects. The Burmese government realised it could impose harsher conditions and still have a range of partners to choose from.

CPI operates a build-operate-transfer (BOT) model in Myanmar, meaning it will build a hydropower plant, operate it for 50 years and then transfer the whole project to the Burmese. Its cascade of seven dams is tabled to generate a similar amount of power to the Three Gorges Dam.

Under the contract, Myanmar will receive a tenth of the electricity generated for free, while the remainder will be sold to China. There is no need for CPI to obtain the land rights – Myanmar will provide those at no cost. Myanmar will also hold a 15% stake in the project. Li estimates that the project will provide an 8% return on investment, which is normal for hydropower schemes. And, as the project is near the border with Yunnan and the Burmese are waiving export taxes on the electricity, he said it is pretty much the same as building a hydropower dam in Yunnan.

The sudden arrival of 2,000 CPI employees in Myitkyina caused temporary shortages of supplies and price spikes. The situation only calmed down when goods were shipped in from Tengchong, over the Chinese border. The Chinese workers have laid telephone and optical fibre lines running back home, and you can now call the dam site with a Tengchong area code.

An unknown party countered the Chinese advance with a terrorist attack. At 4am on April 17, 2010, a series of bombs exploded at four points within the Chinese camp. In the panic, a Chinese worker was injured as he fell from a building. Chen Kerui, a CPI project officer, pointed to a spot less than five metres from our meeting room. “Part of the roof was blown off. It looked like it was homemade bombs, about the size of a tin of paint,” he said. The Burmese military has not solved the case, but soldiers are now stationed around the camp. As we drove towards the dam, we saw soldiers armed with grenades and rocket launchers changing shift.

CPI’s Irrawaddy projects are in Kachin state (where the majority of inhabitants belong to the Kachin ethnic group), considered the territory of the anti-government Kachin Independence Army (KIA). A ceasefire signed between the two sides 17 years ago forbade either from entering the other’s territory. But, in May 2011, the Burmese army moved to protect a dam being built by China’s Datang Corporation on the Tarpein River. Fighting with the KIA broke out, and continues today.

Fifty-six-year-old Nuoleidan is a former KIA platoon leader who now manages the army base. He opened his belt and showed us three gunshot scars, acquired during battle with the Burmese army: “The Burmese government and the Kachin have been at loggerheads for 60 years. Their army wants to wipe out the Kachin, and we’re fighting for complete independence. So the war has to go on.”

In January this year, at a hotel in Ruili just over the Chinese border, the Burmese government and the KIA held their second round of talks, to no avail. This was not good news for Chinese companies.

The clock has stopped on the Myitsone dam. Nationalist sentiment is on the rise in this traumatised country and has become more important than the struggle between the government and the ethnic militias. On September 10 and 11 last year, Li Guanghua attended two press conferences held by the Burmese parliament and answered questions from members on the dam. Seven government ministers were present, and were firm that the dam would go ahead. But a public backlash followed and, on September 17, anti-dam protestors gathered in front of the Chinese embassy. Sensing that this could lead to larger protests, the Burmese government had no choice but to call a halt to the dam, catching the CPI by surprise.

“They’re all saying we’ve taken Myanmar’s resources, but that’s not the case,” complained Li Guanghua. “The 10% of electricity we’re giving to Myanmar is equivalent to two gigawatts, and the entire country only has three gigawatts of generating capacity. And if that isn’t enough, we’ll give priority to meeting Myanmar’s needs. China’s installing massive amounts of capacity every year, this is small change for us. It’s not a major resource, we’re just doing business and it’s nothing but good news for Myanmar. Over a century, there’ll be one trillion yuan of profit for Myanmar.”

Not everyone in Myanmar agrees. Nairg and Maiparn, two young members of the Ta’ang ethnic group (who number 60,000 according to official statistics) on the Burmese border with Yunnan, both strongly oppose the dam. They are members of the Ta’ang Youth and Students Organization (TYSO). Founded in 1998 and based in Thailand, the TYSO is active on Myanmar’s borders with China and Thailand.

“The Chinese companies should listen to what we, the people of Myanmar, say. When their bosses go to Naypyidaw, everyone I know is sure they are carrying suitcases of cash for bribes,” said Maiparn.

Nairg concurs. The Irrawaddy basin is heavily populated and much of the country’s agricultural land lies on the river’s banks, and so many like Nairg worry that the dam will affect harvests. “It’s true that Myanmar lacks electricity, but the arrival of the Chinese changes our lives, while most of the benefits go to the government and the Chinese companies,” he said. “The army takes the land and fields, and then drives away the people. The people get all the pain.”

There are people in China who disagree with Li Guanghua too. Yu Xiaogang, founder of environmental NGO Green Watershed, said that China’s six large state-owned power companies have already fully exploited their own country’s rivers – and that’s why they are looking to Myanmar.

Myanmar is rich in resources – and provides an excellent example of what economists call the “resource curse”: countries that rely on the export of resources, in particular oil, diamonds and metals, are likely to suffer low growth, high levels of corruption, a lack of political freedom and frequent conflict.

In September last year, Yu and representatives of two other NGOs went on an investigative trip to Myitsone. In the report  they wrote on their return, they said: “China’s large state-owned firms have significant resources and huge amounts of capital, and restrict the development of private enterprise. They set policy, control the market and do not need to worry about environmental and social impacts. Profits are not made public, while public resources are often transferred to the companies.”

But Li Guanghua has no time for environmental NGOs. “The environmentalists are all well-fed and clothed; they’re not the ones who need to improve their circumstances. There’s no need to talk to them.”

Yang Meng is a reporter at Bloomberg Businessweek’s Chinese edition, where this article was first published.

NEXT: temptations on the border

Homepage image by Rebecca W

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