Dawei: Progress Made, But Delays Continue
BMI View: The outlook for the Dawei port and special economic zone (SEZ) project appears to have improved, with the Thai and Myanmar governments agreeing to form a special purpose vehicle (SPV) by the end of 2013 to manage the project. However, we believe that the biggest hurdle to the Dawei project, namely financing, is still unresolved. As such, this creates significant scope for delays even though we believe in the fundamentals of the project - in particular, its ideal geographical location as a trans-shipment hub.
In early-March, the Thai and Myanmar governments agreed to form a special purpose vehicle (SPV) by the end of 2013 to take over management of the Dawei project from Italian-Thai Development (ITD) , the Thai company originally in char ge of spearheading the project.
This development signals greater government involvement in the Dawei project, which we believe could increase its attractiveness to investors . Under the agreement, both governments will own a 30% stake each in the SPV, with the remaining 40% opened for other interested investors - possibly from Japan, South Korea and China. The SPV, based in Thailand, would secure the concessions to develop the various infrastructure of the Dawei project and establish eight joint-ventures (JV) to manage these concessions. These JVs would be registered in Myanmar, making them eligible for special investment privileges. ITD's existing investment in the Dawei pro ject would entitle the company to hold a minimum 25% stake in each of these JVs, with its original SPV for the Dawei project, Dawei Development , to become one of the eight JVs.
|Dawei Remains Ideal For Region|
|Myanmar - Location Of Key Maritime Hub Projects|
However, this development also suggests that major construction works will not start till 2014 as large-scale financing for the project will not be secured until the SPV is formed at the end of 2013. At present, ITD has already invested US$250mn in the Dawei project and is planning to invest another THB20bn (US$680mn) in the project from now till 2014, with about US$300mn to be spent in 2013 to relocate the local populace and develop infrastructure and utilities, including roads and a port for the project. This investment from ITD is only a fraction of the funds needed for the entire Dawei project. Estimates from the Thailand National Economic and Social Development Board (NESDB) in January 2013 place the total cost of the project at THB325bn (US$11.0bn), 62.5% higher than the THB200bn estimated by ITD in 2011. According to the NESDB, the first phase (2013-2015) and second phase (2016-2020) of the Dawei project will require THB205bn and THB120bn respectively.
|Value, THBbn (US$bn)|
|Source: BMI, Bangkok Post, National Economic and Social Development Board|
|Deep-sea port (southern part)||45 (1.5)|
|Four-lane road link (Dawei-Ban Phu Nam Ron border checkpoint)||35 (1.2)|
|Telecommunications network||5 (0.2)|
|Industrial estates||20 (0.7)|
|Gas-fired power plants (include an initial 33MW plant and a 180MW cogeneration plant)||32 (1.1)|
|Motorway (Bang Yai district-Kanchanaburi province)||45.5 (1.5)|
|Motorway (Kanchanaburi-Ban Phu Nam Ron border checkpoint)||9.87 (0.3)|
|Double-track railway link (Dawei-Ban Phu Nam Ron border checkpoint-Map Ta Phut)||85 (2.9)|
|280MW LNG terminal||na|
Furthermore, we believe it is still unclear if Japan, the preferred investor for the Dawei project, would provide the level of financing desired by the Thai and Myanmar governments. This is despite strong verbal commitment from the Japanese government during an official visit to Thailand in January 2013, and a statement from ITD President Premchai Karnsasuta (cited from the Bangkok Post). In March 2013, Karnsasuta said that Japanese financial institutions (such as the JICA and JBIC) are ready to finance projects supported by Japanese investors - namely the road link, deep-sea port and coal-fired power plants.
The reasons for our view are:
Plans Still In Flux: The plans for the Dawei project are still in a state of flux. We believe the Myanmar government is still thinking of reducing the total land area of the SEZ from 204.5 to 150 sq km, while pre-construction activities (such as feasibility, design and environmental studies as well a s land acquisition) are still incomplete for the Dawei project. The total amount of power generation capacity to be developed in Dawei is also uncertain. There are currently plans to develop 1 , 000MW of gas-based capacity and up to 7 , 200MW of coal-based capacity, but it remains to be seen if they will be carried out given that the Myanmar government had previously rejected the use of coal-fired generation at the Dawei site in January 2012 ( see our online service, January 12 2012, 'Dawei Power Plant Suspension Justifies Cautious Outlook' ).
Disagreements: There have also been reports of disagreements about the design of the Dawei project between the Thai and Japanese government. According to a statement made by Thailand Transport Minister Chadchat Sittipunt in February 2013 (cited from the Bangkok Post), the Japanese government does not agree with Thailand's proposed location for the Dawei port and wants a separation of the industrial and container terminals to avoid congestion.
Thilawa: Japan had previously stated a preference to prioritise financing for the Thilawa SEZ over the Dawei project due to the former's proximity to Yangon and project delays in the latter ( see our online service, November 5 2012, 'Thilawa's Growing Prominence And Energy Needs' ).
Domestic Preference: Japanese companies could prefer to invest most of their funds domestically. The aggressive pro-economic policy stance that Prime Minister Shinzo Abe has adopted has led to optimism that his policies will help to revive the Japanese economy ( see our online service, March 8 2013, '2013 Growth Upgraded At Expense Of Fiscal Stability' ). Not only are his polices creating greater investment opportunities in Japan, but they have also lead to a sharp depreciation in the Japanese yen in recent months. This has made Japanese assets cheaper and made overseas assets more expensive for Japanese companies.