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Shwe Gas Project Developments

Drilling for oil and gas in Shwe gas field blocks A1 and A3 has begun off the coast of Arakan State, Burma, according to a report issued by the state-controlled newspaper New Light of Myanmar on February 20, 2011.  According to a feasibility study, blocks A1 and A3 are reported to contain 5.35 trillion cubic feet of gas (151.5 billion cubic meters), making the fields one of the largest gas reserves in Southeast Asia.

Daewoo International, the South Korean lead consortium partner of the Shwe gas project, held a launch ceremony on February 20th aboard offshore drilling rig Hakuryu-5, which has arrived at block A3.  At the ceremony, which was attended by Burma’s Minister of Energy Lun Thi, Daewoo senior vice president of exploration and production in Burma, Si-Bo Joo, reported on preparations for drilling.

According to Pohang Iron and Steel Company (POSCO), which acquired Daewoo in August 2010 and is the world’s third largest steel maker, production and sale of the gas from block A1 (Shwe and Shwe Phyu fields) and block A3 (Mya field) is expected to begin as early as May 2013.  All of the gas will be sold to the China National United Oil Corporation, an affiliate of the China National Petroleum Corporation (CNPC).  Once gas production is brought online and related gas and oil pipelines are also completed in 2013, 400 billion cubic feet of the offshore gas and close to half a million barrels of oil imported from Africa and the Middle East are expected to flow to China each day.  The gas fields are expected to be operational for 30 years.

Despite an area rich in natural resources, such as oil and gas, Burmese citizens in Arakan State are receiving little to none of the benefits of development projects occurring in their area, with residents of the Arakan capital of Site-tway receiving only about three hours of electricity each day.  “I accept the fact that our area will be developed under these projects but there will be more disadvantages than benefits,” said a lawyer from Kyauk Phyu, in Arakan State. “China will extract natural resources from our area for about 30 years, so after the completion of those projects we will be left with nothing but empty buildings.”

According to a statement released in January 2011 by POSCO, Daewoo International is currently investing $4.7 to $4.8 billion in Burma.  In January, China surpassed Thailand as the largest foreign investor in Burma, with total Chinese investment reaching $9.6 billion since 1988, when Burma reopened to foreign investment after decades of isolation, compared to Thailand’s $9.56 billion.

(Myanmar starts gas development project off Rakhine coast, China Daily, February, 20, 2011; Daewoo starts drilling on Shwe gas project, Mizzima, February 21, 2011; Daewoo Int`l plans to start development of Myanmar gas project as early as 2013, POSCO Press Release, January 6, 2011; Maday Island Deep-Sea Port No Boon to Locals, The Irrawaddy, March 1, 2011; China tops Thailand as biggest investor in Myanmar, BusinessWeek, February 21, 2011.)

Kyauk Phyu Economic and Technological Development Zone Developments

On February 16th, China and Burma signed a supplementary contract to a Memorandum of Understanding on the Kyauk Phyu Economic and Technological Development Zone and related port and railroad development projects.  Details of the contract have not been released.  The contract between CITIC Group of China and the Myanmar Ministry of National Planning and Economic Development was signed in Nay Pyi Taw, and was witnessed by Chinese Vice Minister of Commerce Zhong Shan and Burmese Deputy Minister of National Planning and Economic Development U Thurein Zaw.

Full text of the new Myanmar Special Economic Zone Law enacted on January 27, 2011 has now been made public.  According to the regulations of the law, foreign investors operating in Burma’s new special economic zones (SEZs) will be required to employ a minimum percentage of Burmese citizens in development projects.  Currently, special economic zones are being constructed in Burma at Kyauk Phyu deep-sea port in Arakan State and at Dawei deep-sea port in Tenasserim Division.

According to the SEZ law, investors are required to employ Burmese citizens in non-technical jobs within the SEZ, as well as a minimum percentage of Burmese citizens as skilled workers and as technicians and staff for expert work, a percentage which is required to increase over time.

“According to article C, provision 51, section 11 of the Myanmar Special Economic Zone Law, foreign investors are required to hire locals for non-technical posts,” said an official from the Union of Myanmar Federation of Chamber of Commerce and Industry to the Burmese Eleven News.  “Moreover, under article A of the section they are also required to employ local technicians, experts and staff in at least 25 percent of all technical posts by the end of the first five-year period, 50 percent by the end of the second five-year period and 75 percent by the end of the third five-year period of their operations.”  Under article B, provision 51 of section 11, foreign investors are also required to provide training to improve the skills of Burmese citizens hired as employees and staff under article A.

Furthermore, developers and investors are required to “bear the expenses of transferring and compensation of houses, buildings, farms and gardens, orchards/fields, plantation on land” if these are required to be moved away, and that the developers or investors “shall carry out to fulfill fundamental needs of persons who transfer so as not to lower their original standard,” according to section 7, “Land Use”, provision 36, of the law.

Full text of the Myanmar Special Economic Zone Law can be found and downloaded from the Burmese Embassy in Tokyo’s website, at www.myanmar-embassy-tokyo.net/news/myanmarsez.pdf.

(China, Myanmar sign new cooperation accord, Xinhua, February 16, 2011; Job opportunities for Myanmar citizens in SEZ, Weekly Eleven News; Burma passes special economic zone law for investors, Mizzima, February 17, 2011; Myanmar law assures non-nationalization of foreign investment business in SEZ, China Daily, February 25, 2011.)

Kyauk Phyu Deep-sea Port Developments

Despite the aim of the new Myanmar Special Economic Zone Law to create jobs for local Burmese and provide compensation to those affected by projects in Burma’s new SEZs, local Burmese citizens on Maday Island and in the city of Kyauk Phyu on Ramree Island, located about 13 km from Maday Island, have already been experiencing the opposite, in connection to the development of the Kyauk Phyu deep-sea port and Kyauk Phyu SEZ in Arakan State.

Locals have reported that farmlands are being confiscated on Maday Island in order to build the deep-sea port and gas refinery that will be located on the island, while additional areas in Kyauk Phyu have been confiscated to build an international airport, hotels, golf courses and hospitals as a part of the SEZ.  About 500 acres of farmland near Gangawtaw Pagoda in Kyauk Phyu have been confiscated for the construction of a gas refinery there.   In Ywarma Village on Maday Island, a resident has reported that five mountains on the island have been demolished and that many plots of garden land have been confiscated and cleared.

Despite the provisions of the law for investors to “bear the expenses of transferring and compensation of houses, buildings, farms and gardens, orchards/fields, plantation on land” and to “fulfill fundamental needs of persons who transfer so as not to lower their original standard,” in reality, these provisions are being followed or enforced.  According to U Ohn, a prominent Burmese environmentalist and vice-chairman of the Forest Resource Environment Development and Conservation Association, those who lost their farmland on Maday Island were only compensated 200,000-700,000 kyat [$230-805] per acre, compared to the minimum market value of at least one million kyat per acre [$1,150].  A local resident of the village of Kyauk Tan on Maday Island also reported, “We only received about one third of the compensation given by foreign companies because local authorities took some.”

Locals have also been denied the opportunity for employment by the projects.  The China National Petroleum Corporation (CNPC) and its subsidiaries reportedly do not allow local people to work on their projects and have appointed Chinese workers to many positions.  Residents in Kyauk Phyu have estimated that approximately 2,000 Chinese are currently working in the Kyauk Phyu area.

According to Arakan Oil Watch, CNPC began construction of the deep-sea port and an oil reservoir on Maday Island in October 2010, and will finish the projects by 2013.  Additional Chinese companies and South Korea’s Daewoo International have also already begun related construction projects on the island.

(Maday Island Deep-Sea Port No Boon to Locals, The Irrawaddy, March 1, 2011.)

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