China and Myanmar are planning to construct a railway line to connect China's southwestern city of Kunming, the capital of the Yunnan province, to the Kyaukphyu deep sea port in Myanmar's western Rakhine State. BMI believes that this project highlights the opportunities for Chinese companies in Myanmar as China seeks to secure its long-term energy supply with the help of its neighbour.
The 1,215km rail project, which also includes the construction of an expressway parallel to the railway line, will give China access to the Indian ocean. The project will be constructed in phases and has been categorised into sections - Kyaukphyu-Eann-Minbu, Minbu-Magway-Mandalay-Lashio-Muse and the Muse-Jiegao trans-border railroad. The first phase of construction will see China link the Chinese border town of Jiegao - which is already part of the existing Chinese rail network - to the Myanmar's border town of Muse. Construction work on the Kunming-Kyaukphyu railroad project is expected to start in 2012 and is scheduled to be completed in 2015.
This project is the second major project linking China to the Kyaukphyu port (see 'Pipeline Project Gets Boost From Development Loan', December 14 2010) and highlights China and Myanmar's strategic relationship. China is keen to secure its long-term supply for energy and natural resources, while Myanmar, one of the largest natural gas exporters in Asia, with access to key shipping routes in the Bay of Bengal, is in need of infrastructure investment to exploit its natural resources.
This mutually beneficial relationship therefore presents numerous greenfield opportunities for construction companies, particularly Chinese companies. We expect Chinese companies to be in pole position to win the contract for the Kunming-Kyaukphyu project, as the Chinese government is likely to finance the project. This would then be similar to the Myanmar-China oil and gas pipeline agreement, where, in December 2010, the China Development Bank agreed to a US$2.4bn loan that should ensure sufficient financing is in place for Myanmar to finish its section of the gas pipeline by the expected start-up date of 2013.
Furthermore, the strong relationship between both governments could negate any of the inherent difficulties that are all too obvious when operating in Myanmar's opaque business environment - another enticing factor for Chinese companies. Besides the US$13bn Dawei port project (see 'Dawei Development Project Key To Long-Term Economic Growth', November 24 2010), Chinese companies have snapped up the majority of the contracts in Myanmar. In January 2011, Chinese firms Yunnan Construction Engineering Group and Yuzana Group won a contract to build a key section (312km) of the 1,079km Stilwell Road in Myanmar, beating Indian competitors. Looking back slightly further, the recently completed Yeywa hydropower plant, the largest hydropower project in Myanmar at 790MW, was undertaken by Chinese companies CGGC International and Sinohydro.