Dawei: Money Still The Root Of All Uncertainties
The leaders of Thailand and Myanmar have firmed up details on the US$50bn Dawei port and special economic zone (SEZ) project in Myanmar, with an environmental impact assessment (EIA) of the project to be completed by early 2013. BMI believes that these announcements are positive for the development of the Dawei project, but warn that delays are on the horizon due to the uncertainties surrounding financing and new environmental standards.
On November 27 2012, Tin Maung Swe, chairwoman of the support group for the development of the Dawei project, announced (cited from the Nation) that the draft and field surveys for the project were completed. This includes the implementation of the environmental management plan and the finalisation of the EIA, with Thai companies - Team Engineering Group, Environmental Research Group and Pamya Consultant - hired to carry out the EIA. Two public hearings are expected to be held and completed by February 2013. This announcement comes after Myanmar President Thein Sein and Thai Prime Minister Yingluck Shinawatra reached an agreement to complete the Dawei project by 2015 during the ASEAN Summit in Cambodia held last week.
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We believe these announcements are positive for the development of the Dawei project. The government has stepped up support for the project in recent months, with several joint-governmental committees formed to develop plans surrounding key aspects of the project ( see our online service, October 10 2012, 'Dawei: To Be Or Not To Be'). These efforts have already led to significant progress on the project. For example, both countries have agreed that Myanmar would be responsible for the defense, security and administration for the project, while Thailand would provide technical assistance, cooperate in construction tasks, take charge of monetary movements, and assist in launching businesses in the Dawei region. The renewed government support would also allow Italian-Thai Development (ITD), the Thai company spearheading the project, to secure the financing for the project by laying out a detailed investment plan that is attractive to foreign investors.
Meanwhile, the EIA study might also be able to alleviate concerns about environmental pollution and assure the local populace of the merits of the project. Although an environmental impact study had previously been reported to have been completed, it appears to have failed to convince the local populace. Residents in the area continue to oppose moves to relocate them from land required by the project and remain very reluctant to move. We do highlight that their reluctance to relocate also stems from the level of compensation received, which is believed to be unsatisfactory for most of the affected residents.
….But Financing Still A Question
However, we believe these developments on the Dawei project suggest that major construction works on the project could be delayed till next year. The EIA study will only be completed in 2013, and these developments fail to address a key reason for the delays in the project - namely the lack of financing for the project. Since ITD was first awarded the concession for the Dawei project in November 2010, it has been unsuccessful in securing the US$8.5bn needed for the first phase of the project. Although there have been announcements that Japan would provide loans of up to US$3.2bn for the project, no agreement has been signed yet. There are also growing concerns over the keen interests that leading international heavy industry players are displaying in the Thilawa special economic zone project, which is more likely to secure financing from the Japan government than the Dawei project - Japan had recently formed a consortium with Myanmar to develop the Thilawa project in August 2012 ( see our online service, November 5 2012, 'Thilawa's Growing Prominence And Energy Needs'). At present, the majority of early investors in the Dawei SEZ are light industry players such as Thai small and medium-sized enterprises in the rubber processing and frozen seafood industries.
There have been calls by ITD for the Thai government to directly invest in the project, but the Thai government remains reluctant. In our opinion, it would be difficult for the Thai government to provide significant financing to the Dawei project even if it wants to. The Thai government has very ambitious spending plans over the coming years and does not have sufficient funds to meet these spending plans ( see our online service, November 7 2012, 'Construction Sector: Firmly In Recovery').
|Room For Improvement|
|Myanmar - BMI Overall Business Environment Rankings, out of 100|
The latest announcement of plans to increase government borrowing - besides seeking funds for infrastructure investment, the Thai government plans to borrow funds for its rice pledging scheme - means that Thailand's total outstanding debt is set to head towards 40% of GDP by 2014, compared to around 24% of GDP in 2008. Although we acknowledge that Thailand's fiscal position remains relatively benign in comparison to the wider region, we believe that the government's failure to implement a long-term plan to address this imbalance could eventually result in a loss of investor confidence in the country's debt markets, leading to higher borrowing costs in the future.
|Capping Infrastructure Spending|
|Thailand - Total Public Debt, THBbn (LHS) & % of GDP (RHS)|
Regulatory Framework Still Immature
We also highlight the lack of maturity in Myanmar's regulatory framework. Although Myanmar's regulatory framework is becoming increasingly robust due to the launch of a new investment law in October 2012, there is still significant room for improvement in several aspects of Myanmar's regulatory framework, especially since legal and financial institutions in the country remain extremely weak ( see our online service, November 7 2012, 'Construction Sector: Firmly In Recovery'). For example, Myanmar is launching new environmental standards in 2013 - the Environmental Conservation Act - and it remains to be seen if the EIA study will meet these standards. At present, there are no concrete environmental standards in Myanmar, and companies currently conducting EIAs for projects in Myanmar do so in accordance with requirements from their home country.
Overall, we still believe in the fundamentals of the project (namely, its ideal geographical location as a transshipment hub), but the factors highlighted above lead us to believe there is still significant scope for delays in the Dawei project ( see our online service, October 10 2012, 'Dawei: To Be Or Not To Be').