Opportunities for British companies in Burma s Infrastructure sector

Transcription

1 Opportunities for British companies in Burma s Infrastructure sector

2 2 Opportunities for British companies in Burma s Infrastructure sector

3 Opportunities for British companies in Burma s Infrastructure sector 3 Contents Executive summary p. 4 Company profile p. 5 Macroeconomic and business environment in Burma p. 6 Aviation sector p. 14 Road p. 22 Rail p. 31 Ports p. 39 Industrial p. 46 Energy P. 54

4 4 Opportunities for British companies in Burma s Infrastructure sector Executive Summary There are few countries in today s world that are changing as rapidly as Burma. Its economy is expanding by some of the highest rates in the world, while politically the country has undergone a bold transition towards democracy in just a few years. New businesses are opening, and incomes are rising. The population is young and dynamic, and Burma is strategically located between China, India and ASEAN, three important centres of growth in the 21st century. Yet there is still much to do. The backbone of continued progress will be infrastructure. Burma s transport and energy sectors have fallen behind, and investment is required. There are significant plans being developed to help the country catch up, and opportunity abounds for UK companies in a wide range of Burma infrastructure-related businesses. Burma s aviation market is growing rapidly. The number of air passengers has tripled in a decade, to 2.2 million by , yet services and facilities are lagging. Three international airports have now been built, though they require further upgrades, while there are 66 other airports around the country. Higher incomes and relaxed rules have led to a surge in car and motorbike ownership, with over five million vehicles now registered. The road network is being quickly built up to handle the increase in vehicle numbers, and neighbouring countries are keen to extend international highways through Burma to improve regional transportation. The domestic railway network is the longest among the ten Southeast Asian countries. It currently covers most of the major population centres, though the quality of the lines need upgrading and there are currently no international rail links. There are significant plans to upgrade both Rangoon s commuter lines and the longer-haul rail lines in the years ahead. The successor to the Irrawaddy Flotilla Company first set up in 1865 still travels Burma s rivers and ports. The country has three main rivers open to cargo and passenger transit, and numerous smaller ones, though areas such as navigation and river ports need improvements. Burma also has nine ocean ports, with the busiest at Rangoon, though there are plans to add new deep sea ports and upgrade the existing facilities. Industrial production is becoming an important economic driver, as Burma s political transition inspires renewed confidence in its economic production. Development of industrial zones and special economic zones will continue to be important as companies look for locations for their businesses. Powering Burma is a major challenge. Officials have stated an aim to move from roughly 35% electrification at present, to 100% electrification by 2030, which will require large investment in energy infrastructure. Offshore gas reserves are also drawing significant international interest. Sustaining Burma s present pace of progress will require huge investment in infrastructure. There are significant plans in a host of industries, with major projects under way and in planning. UK companies are highly prized in Burma for their expertise and resources, and will be important partners for the country as it continues with its exciting progress and change.

5 Opportunities for British companies in Burma s Infrastructure sector 5 Company Profile Frontier Myanmar Research provides on-the-ground business research and advisory services for companies and organisations operating in Myanmar, one of the world s most exciting economies. We offer in-depth research into particular sectors or issues, helping clients better understand their business environment, and also publish subscription services and reports focusing on specific industries. Currently this includes the Myanmar Real Estate and Construction Monitor and the Myanmar Energy Monitor, with our Myanmar Transport Monitor coming soon. FMR was established in 2014 and has since worked on a range of projects for local and international clients, in sectors such as real estate, transport, telecoms and energy. Its parent company is Frontier MEA Ltd, a privately-owned UK firm established in 2009 which specialises in business and investment research in frontier markets.

6 6 Opportunities for British companies in Burma s Infrastructure sector MACROECONOMIC AND BUSINESS ENVIRONMENT IN BURMA Introduction and Background Burma has become one of Asia s fastest-growing and most promising countries nearly overnight. A transition to civilian rule in 2011 and subsequent wide-ranging, marketbased reforms have opened up significant opportunities to domestic and foreign business alike. A more recent milestone is the November 2015 election, which was overwhelmingly won by the National League for Democracy party, led by Daw Aung San Suu Kyi. The party subsequently took office in April 2016, with U Htin Kyaw as President and Daw Aung San Suu Kyi as State Counsellor. While many challenges clearly remain, the overall portents are positive for Burma s future. It has a strategic location, bordering two of the world s most important economies with India to its west and China to the north-east. It also touches Thailand and Laos to the east, and Bangladesh to the southwest. To the south is the Indian Ocean. It is one of the region s least-densely populated countries, with the long Ayeyarwady River running north to south through its heartland. It begins in the Himalayas to the north, flowing south through Mandalay city, the former capital, then near to the present capital of Naypyitaw before emptying into the Indian Ocean at a delta, of which the eastern branch flows through the commercial capital and largest city of Rangoon. Burma was seen a country with strong potential upon its independence from the UK in A complicated period for the country followed, however, and the economy stagnated under the subsequent military regime. The 2011 transition to civilian rule and the market-based reforms this entailed has led to significant growth in Burma. The World Bank said economic growth slowed somewhat to 7% in 2015/16 due to floods in July 2015, though this was still one of the highest rates in the world. Medium-term growth is projected to average an even higher rate of 8.2% per year. Its GDP was pegged at $65bn the same year. Inflation previously a major concern has also slowed dramatically. Most outside observers have a figure of around 6% for the most recent year, while the government has pegged it at 5.9% in , a far cry from rates as high as 32% a decade earlier. Other fundamentals are strong. Burma has a dynamic, young population of 54 million people, about the same as South Korea, Spain or South Africa. It enjoys rich endowments of resources, notably natural gas and hydropower potential, but also commodities such as timber, jade and minerals. Farmland currently forms the backbone of employment in Burma, though this is also shifting as the country becomes increasingly urbanised. Export-oriented industry and domestically-focused production are both growing rapidly in tandem with the rise of the country s industrial zones and special economic zones. Nonetheless, significant hurdles remain. The economy is not as diversified as it could be, and is still reliant on resource exports. An underdeveloped financial sector and limited government and private sector resources have held back growth. The legal infrastructure has been improved but still requires further work, while human resource skills lag many neighbouring countries. Politically, too, Burma has moved into uncertain territory. Daw Aung San Suu Kyi s NLD won a resounding victory in November 2015, and

7 Opportunities for British companies in Burma s Infrastructure sector INFLATION CHART Avg Change in CPI (%) in the country, but its economic importance is falling as industry in particular rises despite the predictions of some, the handover to her government so far been largely smooth. A diverse political and social landscape will remain a challenge for key players to navigate, and while the signs have been promising so far, risks remain. People arriving to Rangoon for the first time will be met straight away by the opportunities and challenges. Central to Burma s economic story in the years ahead will be growth of infrastructure. Touching down at the Rangoon s international airport likely means walking through a brand-new terminal opened in 2016, located beside another terminal now under construction to meet growing demand. The drive in to the city center is much slower than it was several years ago, as car numbers have increased much faster than the roads for them to use. Industry, driven by an influx of manufacturing, is also picking up, though improvements to the industrial zones and special economic zones is needed to provide business a location to work from. The energy situation is also challenging, though, as in many areas, Burma is well endowed with the resources it needs to generate electricity. Macroeconomic overview, including key drivers with relevance to transport and infrastructure Burma s growth pattern has already begun to follow the path well-trodden by the Asian tiger economies. Many started as agrarian societies, before shifting into simple and then more complex manufacturing, and finally now developing the service components in their economies. The trajectory in Burma is similar. Agriculture is still the main employer Garment and textile production is already taking off in Burma, partly due to price competitiveness but also the lower tariffs given to local producers exporting to more developed economies. Eventually, the economy is ripe for moving up the value chain to more sophisticated manufacturing goods, though of course the process will not be easy. Key infrastructure needs to be put in place to encourage future growth. Part of the impetus behind the Special Economic Zones (SEZs) of Thilawa, Dawei and Kyaukpyu covered more extensively later in this report is to create production nodes that can serve as catalysts for future growth. Similarly, transport and energy infrastructure must be improved. The World Bank s 2014 first Burma Investment Climate Assessment surveyed the business climate. The top four most-mentioned obstacles for firms were access to finance, access to land, access to electricity, and access to skilled workers. Work on these and a range of other issues is underway, though access to land and access to electricity is dealt with directly in this report in the sections

8 8 Opportunities for British companies in Burma s Infrastructure sector on Industrial and Economic Zones, and on Energy. Trade has grown significantly, with the total of $29.2bn essentially double the value in However, imports have rapidly outpaced exports in the last two years. Officials have explained this as companies importing means of production, such as machines for factories and tractors for farming, though it is also obvious that there has been a surge in demand of items such as automobiles that previously were difficult to obtain. Trade is likely to continue to grow, particularly as the Asean Economic Community began at the end of It allows for significant linkages to regional countries, including important trading partners Thailand and Singapore. There is also agreement to open up the services sector, which may help this develop in the future. Transport and Infrastructure Issues, including Geography and Demographics Burma is one of the diverse countries in Southeast Asia. While the majority of people are ethnic Burmese, there is a large minority of people from a range of different ethnic groups. 1.2 GDP BY SECTOR TRADE CHART Share of GDP from sector Agriculture Industry Services Transportation Trade ($ millions) Export The country itself is divided up into seven regions and seven states, along with the capital area of Naypyitaw. The regions are largely though not exclusively geographically closer to the center of the country, with Import flatter land and larger proportions of Burmese people. The states tend to be mountainous and more sparsely populated areas on the outskirts of Burma, with more people from the different ethnic groups.

9 Opportunities for British companies in Burma s Infrastructure sector POPULATION 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Chin Kachin Kayah Kayin States Mon Shan Rakhine The regions of Burma tend to have more developed infrastructure than the states, though this is beginning to change. A clear goal of previous governments was to improve infrastructure links to the more remote areas in an effort to foster national unity. Role of government in transport and Infrastructure Government in Burma is central to the development of infrastructure and transport. Its various bodies control and approve planning and implementation of large projects. The recent election of the National League for Democracy government has led to a shift in the structure of ministries, though the basic functions undertaken are so far largely unchanged. Population Ayeyarwady Bago Magway Mandalay Sagaing Tanintharyi Yangon Regions Nay Pyi Taw Capital The government is also currently conducting wide-ranging planning that will affect transport and infrastructure in the years ahead. Notably, a Transport Master Plan is under development, though as of July 2016 it was still in draft form. It remains to be seen the degree to which the plan draws on previous studies conducted by organisations such as JICA and KOICA. JICA announced a Transport Master Plan in 2014, while KOICA has reportedly entered into agreements to form master plans for Dala township and Bago region in 2015, and for the arterial road network and expressway the same year. While nearly all government ministries are involved in infrastructure and transportation to a degree, a few of the key ministries are listed below and expanded on later in the report. Ministry of Transport and Communications Formed by the new NLD government by combining the former Ministry of Transport, Ministry of Railways and Ministry of Communications and Information Technology, it has numerous responsibilities in facilitating the country s transportation infrastructure. Ministry of Planning and Finance Formed in 2016 from the former Ministry of National Planning and Economic Development and the former Ministry of Finance, it oversees Burma s budgeting process Ministry of Electricity and Energy The Ministry of Electricity and Energy is the lead ministry in Burma for power and energy. It was only recently formed following the April change in government, and is a merger of the former Ministry of Energy and the Ministry of Electric Power.

10 10 Opportunities for British companies in Burma s Infrastructure sector TIBETO-BURMAN Ministry of Mineral Resource and Environmental Conservation Burman Chin Kachin India 1 China Another Ministry formed in 2016 from two predecessors, specifically the Ministry of Mines and the Ministry of Environmental Conservation and Forestry. Rakhine 9 Ministry of Industry Other 1. Naga 2. Lahu 3. Akhu BURMA and MON-KHMER Has a number of responsibilities with regards to work such as industrial zones and economic zones, as well as operating its own businesses Karen 5. Pao 6. Kayan 7. Karenni Laos Overview on presence and role of foreign companies and foreign investment in Burma KAREN and BURMAN TAI Shan MON-KHMER 8. Mon 9. Wa 10. Palaung BURMA and SHAN SHAN and WA Thailand Foreign investment into the country has grown rapidly. Manufacturing in particular is a popular draw, and has accounted for the majority of the volume of investment approvals since the 2011 transition. However, due to the opportunities in Burma as well as the capital-intensive nature of investment, oil and gas has historically been the largest destination for FDI flows. Based on: Martin Smith: Burma - Insurgency and the Politics of Ethnicity Source: The Border Consortium Programme Report, 2013

11 Opportunities for British companies in Burma s Infrastructure sector MIC APPROVALS BY SECTOR 1.6 FDI BY COUNTRY Foreign Investment (by sector, %) Oil and Gas Transport and Communcations Hotel and Tourism Industrial Estate Power Mining Agriculture Other Services Manufacturing Real Estate Livestock and Fisheries Sources of FDI, 1988-present China Singapore Hong Kong UK South Korea Thailand Malaysia The Netherlands India Vietnam France Japan Other Foreign investment in non-resource based sectors has grown rapidly on the back of the Foreign Investment Law, which was passed in It outlined much of the regulatory framework required for a successful investment. Uniquely, it is currently separate from the Myanmar Citizens Investment Law which governs investment by domestic companies. However, a planned combined investment law called the Myanmar Investment Law has been drafted with support from the International Finance Corporation (IFC), and at the time of writing, was expected to be passed shortly. Foreign investment has been strongest from regional countries such as China and Japan. The outsized investment from the UK is due in part to companies routing investment through certain of its jurisdictions, and if this is accounted for it is likely that UK investment figures are closer to the of European counterparts such as Germany or France. It is also important to note the statistics cover only foreign investment approvals granted since The opportunities offered in Burma has resonated among businesses in many countries, and the UK is no different. Some examples of UK businesses with Myanmar presence include: - Standard Chartered, which operates a representative office - Aggreko, which has successfully completed a 95MW fast-track power project - Prudential, an insurance company - Royal Dutch Shell holds interest in seven offshore blocks, as well as plans for LNG and existing business in downstream products. It expanded its local presence with its merger with BG - Unilever, a leading FMCG company

12 12 Opportunities for British companies in Burma s Infrastructure sector Urban Planning in Rangoon Rangoon is Burma s largest city, and lies at an interesting crossroads. It is bursting at the seams, with commuters keen for more transit and residents hoping for more housing. Yet the city has a unique heritage, with some of the best colonial era architecture in Southeast Asia, as well as fascinating religious sites. Yangon City Development Committee (YCDC) is ultimately responsible for urban planning in Rangoon, although its role overlaps with a range of organisations including the Myanma Port Authority, the Ministry of Construction and the Yangon Regional Government. In 2011, YCDC set up the Department of City Planning and Land Administration, which works in collaboration with several organisations on a longer-term plan for Rangoon s development. The Rangoon 2040 report is the first comprehensive study, forecast and urban development plan for Rangoon. It was drafted by a consortium including the Yangon Regional Government, YCDC, Japan International Cooperation Agency and a team consisting of representatives from Nippon Koei, NJS Consultants, Yachiyo Engineering, International Development Centre of Japan, Asia Air Survey and ALMEC Corporation. Provisionally titled Rangoon A peaceful and beloved Rangoon, a city of green and gold, the report was submitted in March 2013 and is still pending full approval. In planning terms, the vision for Rangoon is focused on decentralising the current city centre. The study estimated that by 2040, the population of Greater Rangoon will be 11.7 million, growing at an annual rate of 2.6%. The proposed hubs outside of the heavily congested downtown area have obvious benefits for some developers who are already investing heavily in residential, retail, commercial and hospitality properties there. Future outlook Burma is only beginning a remarkable transformation. The government of Daw Aung San Suu Kyi and the NLD was swept in with a wide range of support in the November election, though Burmese citizens are eager for improvements. Attitudes and rules are broadly welcoming of foreign investment, particularly when compared with some regional peers, and further deregulation is promised. Some analysts have spoken of a second wave of investment in Burma with the change in government, following the first wave after the 2011 transition to democracy. Interest will only continue to build, and the Burmese economy is slated to be one of the world s bright spots for years to come. Whilst the characteristics of each area are yet to be determined, it is likely that a significant amount of real estate development will be needed to support residents and businesses.

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14 14 Opportunities for British companies in Burma s Infrastructure sector AVIATION SECTOR Introduction Burma s great distances, challenging terrain and limited ground infrastructure create fertile conditions for a successful aviation industry, but one which requires significant investment to reach its potential in the coming years. Aviation has been one of the most visible beneficiaries of the openingup of the country in the past five years, and unprecedented numbers of passengers are now taking to the skies. The influx has been so quick that, in some cases, infrastructure has not kept pace. Expect this to change in future, with rising private and public-sector investment likely to transform the industry in the next decade. Although this rapid growth has been relatively recent, it builds on a strong aviation heritage. Although Burma had been a stop on the pre-world War II air travel circuit, it was the war itself that brought aviation into its own. The country s airfields became staging grounds for Allied planes flying to supply China during the war, after which Rangoon s international airport was built. It was completed in 1947, just months before Burma s independence from the UK. and Naypyitaw have received increasing traffic in the past few years and there are plans to expand and upgrade an array of regional airports to accommodate growth. The aviation sector s flagship infrastructure project, a major new hub at Hanthawaddy, north-east of Rangoon, is currently in planning. While some projects are progressing more quickly than others, it is clear the industry is primed for take-off in the coming years and can present a range of infrastructure opportunities for UK firms. Fast Facts There are 69 airports in Burma, comprising 42 year-round facilities and 27 fair-weather strips Rangoon,Mandalay and Naypyitaw are the only international airports. Over 2.2 million passengers flew in , almost triple the 873,000 in AIR PASSENGERS Passengers (thousands) Arrivals at Rangoon airport tripled between 2011 and 2015, reaching 1.2 million in 2015 Air freight traffic remains small at just 3,289 freight ton-miles in , though is expected to grow significantly as infrastructure develops Burma currently has 11 domestic airlines, all 100% locally-owned. Several international airlines, including Emirates and KLM, are launching flights to Rangoon later in 2016 Overview Opportunities for aviation infrastructure have been underpinned by the easing of restrictions brought by political change in the past few years. These have vastly improved the market size for foreign tourists and business people, while rising incomes and a proliferation of airlines have brought air travel to within reach of more and more people. Rangoon remains the country s main international hub, but Mandalay Private Airlines Public Airlines Total, private and public

15 Opportunities for British companies in Burma s Infrastructure sector 15 Total passenger numbers have virtually doubled in the past five years, and although the pace of growth slowed in 2015 due to uncertainty around the electoral process, there is significant potential for future increases if infrastructure can keep pace. 2.2 AIR FREIGHT Freight Traffic by Air (Freight ton-miles) Burma now has 11 airlines, with a 12th approved in June 2016 by the Myanmar Investment Commission (MIC). The majority of these companies have only one or two aircraft, however, and consolidation is expected in the coming years. Some, notably state carrier Myanmar National Airways, have put considerable effort into modernisation. MNA signed an aircraft lease agreement with GE Capital Aviation Services in 2014, and is currently the largest carrier in the market. International airlines are also expanding routes. Emirates will launch a daily Dubai-Rangoon flight in August 2016, making it the latest long-haul carrier to service the stop, with other overseas carriers already present in the market including Qatar Airways, Air China, Bangkok Airways, Dragonair, Thai Airways, AirAsia and ANA Private Airlines The number of foreign visitors arriving by air to Burma quadrupled from just 334,278 in to 1.1 million in Despite the surge, these numbers remain minimal by regional standards Thailand welcomes around double the number of visitors per month than Burma does in a year and further significant growth is expected. Air freight volumes have also grown rapidly in the past five years, albeit from a very low base. As the overall economy grows, and development and investment spreads further to outlying areas, the air cargo sector is expected to present opportunities for business. Changes are also afoot in the services business. Puma Energy started operating a joint venture with state-owned Myanma Petroleum Public Airlines Total Products Enterprise in 2015 after winning a tender to distribute and sell aviation fuel. Similarly, dedicated service providers such as Myanmar Aviation Centre have also opened in the country to provide more options in areas such as staff training and catering. GOVERNMENT BODIES, POLICIES AND DEVELOPMENT PARTNERS Ministry of Transport and Communications Formed in April 2016 by the new government, incorporating what was previously the Ministry of Transport and the Ministry of Communications and Information Technology. Responsible for planning, developing and regulating all aspects of the transport sector including air, road, rail and sea.

16 16 Opportunities for British companies in Burma s Infrastructure sector Department of Civil Aviation (DCA) Falls under the Ministry of Transport and Communications, with a specific remit for air traffic services and infrastructure. The DCA is currently drawing up new guidelines for the industry, which are expected to include new policies on licensing and taxation. Transport Master Plan A new National Transport Master Plan, set for release later this year, is likely to set out more detailed government plans for the aviation sector. The Japan International Cooperation Agency (JICA) has previously worked on a transport sector master plan, which estimated aviation investment needs of Ks1.2trn (around $1bn) from 2016 to 2020, and Ks922bn (around $800m) from 2021 to Asean Open Skies Agreement The Asean Open Skies Agreement officially came into effect on 1 January It allows airlines from any Asean Member State to operate passenger and cargo services between the home country and a point another member state, and then carry on to a third member state. Theoretically it is part of a larger Asean Single Aviation Market, though with a wide difference between the sophisticated air operations of some countries and nascent stages of others, the envisaged common aviation market may take time to become fully effective. Key Projects While Burma s airport infrastructure varies widely in terms of capacity and quality, the next decade is likely to see major improvement programmes across the board. Private-sector involvement in operations and upgrades at the three main international airports has already been cemented in recent years, while plans have also been announced to privatise and upgrade the smaller and medium-sized regional airports.

17 Opportunities for British companies in Burma s Infrastructure sector Yangon International Airport upgrade Yangon International Airport is the main point of entry to Burma. It is a single-runway facility located in Mingaladon township, about 15km north of downtown Rangoon. A total of 1.2 million visitors arrived by air to Rangoon in 2015, about ten times the combined total of the country s other two international airports, Mandalay and Naypyitaw. Rangoon currently has a capacity of 2.3 million passengers per year, but with that ceiling fast approaching, an expansion is under way to raise capacity to six million. Local conglomerate Asia World, through its subsidiary Pioneer Aerodrome Services, won a high-profile tender in 2013 to expand and run the airport in conjunction with several regional companies. In March 2016, two floors of the new terminal building were formally opened, with further work ongoing at the site over the summer. Improvements and expansions on other elements of the airport are expected in the future. Yangon International Airport upgrade Location Key companies involved Mingaladon Township, Rangoon Yangon Aerodrome, subsidiary of Asia World Value $660m Summary Structure Extension of domestic departure and arrival buildings, $660m new terminal building Public-Private Partnership (PPP) Agreement signed in January 2015 Completion date New terminal officially opened in March 2016

18 18 Opportunities for British companies in Burma s Infrastructure sector 2. Hanthawaddy International Airport The newly-expanded Yangon International Airport will be able to handle the influx of passengers in the medium-term, but longerterm demand has prompted the government to plan a major new aviation hub, Hanthawaddy, located around 80km north of the city. Situated on some 9,000 acres, it will have an initial capacity of 12 million passengers per year, potentially rising to 30 million in later stages. The airport aims to position itself as a regional gateway, connecting local and domestic destinations to improve the currently limited air connectivity in the country. The project has been at least two decades in the making, but was given recent impetus with a January 2016 agreement between the Burma government and a Japanese- Singapore consortium. Negotiations are continuing in areas such as demand forecasts, financing, government guarantees and traffic allocation, with more progress expected before the end of Hanthawaddy International Airport Location Bago Region, 80km north of Rangoon Key companies involved Consortium of Yongham Holdings (25%), Changi Airport Planners and Engineers (20%) and JGC Corporation (55%) Value Structure Current status Estimated completion date Finances $1.4bn Public-Private Partnership (PPP) Negotiations ongoing, concession agreement expected in Q Loans from Japanese Official Development Assistance (ODA) ($706m), Japanese International Cooperation Agency (JICA) ($517m)

19 Opportunities for British companies in Burma s Infrastructure sector Mandalay and Naypyitaw Rangoon may be the country s main international gateway, but other airports, notably Naypyitaw and Mandalay, are growing in importance and likely to see further growth. A contract to renovate, upgrade and operate Mandalay airport for 30 years was awarded in 2013 to Mitsubishi, JALUX and Burma s SPA Project Management. Serving the country s second largest city, the airport has an annual capacity of three million passengers, although has so far handles much lower numbers. However the facility has strong potential as a logistics hub thanks to its position in the centre of Burma, and further projects are likely. Naypyitaw airport opened in December 2011 with a capacity of five million passengers per year. Built by local conglomerate Asia World with assistance from Singapore s CPG Consultant, it is generally regarded as being underused and traffic remains limited. However, FMI, one of Burma s newest airlines, now uses the city as its base, and international flights to the airport have also begun. Mandalay International Airport Location Tada-U, Mandalay Region Main companies involved JALUX (45.5%), Mitsubishi (45.5%), SPA (9%) Value N/A Structure Concession agreement Current status Commenced operation and upgrade of the airport in April 2016

20 20 Opportunities for British companies in Burma s Infrastructure sector 4. Regional airport plans Seven planned airport improvements for Upgrades and improvements are also required at the medium and smallersized airports in the country, many of which are dilapidated and underused. Burma has 69 airports, of which 42 are year-round and 27 are fairweather strips. They vary widely in quality and usage, with some having no regularly scheduled flights. Myanmar National Airways, which has by far the largest domestic network, only flies regularly to 27 destinations in the country. A tender to upgrade 30 regional airports was announced in 2013, but then postponed in 2015 to allow international airports to be prioritized. In the meantime, a series of smaller-scale projects have been completed, including a new passenger terminal at Myitkyina, the capital of Kachin State, which opened in June While the new government s transport plan and budget is not expected to be finalized until later in 2016, officials have said that seven regional airports will be prioritised in the fiscal year: Location Naungmoon Airport, Kachin State Myitkyina Airport, Kachin State Sittwe Airport, Rakhine State Man Aung Airport, Rakhine State Falam Airport, Chin State Loikaw Airport, Kayah State Lashio Airport, Shan State Outlook and Opportunies The rapid expansion of air travel, fostered by rising domestic incomes and increased international tourist and business interest in Burma, has breathed new life to the industry. Significant new aviation infrastructure will be vital in the coming years if Burma is to achieve its ambitious economic and tourism growth plants. Among the challenges will include funding gaps, with the Burma government unable to finance largescale projects using its own resources. Other uncertainties surround new government policy on the aviation sector, the capacity of state bodies to manage multiple large-scale aviation projects, and the ability of overseas Project New runway New building and asphalt runway Expansion of buildings Runway extension Runway extension Runway extension New terminal building companies to compete with local players in the market. Nonetheless, Key areas of opportunity for UK companies include: Engineering, design and consultancy opportunities on airport infrastructure projects PPP opportunities, particularly on regional airports Financing and investment opportunities arising from privatization initiatives Ancillary opportunities, e.g. ground services, air traffic control, supporting infrastructure Supply of aviation equipment and components

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22 22 Opportunities for British companies in Burma s Infrastructure sector Road Introduction It would be hard to locate a country in a better place than Burma. It is sandwiched between two of the most important global economies, China and India, as well as bordering Thailand, one of the key Southeast Asian economies, along with growing Bangladesh and Laos. Officials from all sides speak optimistically about the future of Burma as a crossroads of commerce. Chinese state press have urged the rebuilding of the Ledo Road, a now-legendary track that linked northeast India with southern China via Burma during the Second World War. Similarly, roads planned to connect India with Thailand across Burma have also begun, potentially opening important trade corridors. It is not only the large highway projects that are planned for Burma. The country s internal road network is presently insufficient to service a country of 676,578 sq km, particularly as demand grows quickly. Vehicle registration has more than tripled in a decade, while the internal road network is up only 50% in the same period. Authorities are keenly aware of the challenge, and planning to extend the network to meet the growing number of vehicles on the road. Plans are afoot to vastly improve the country s road network. Burma will one-day be a linchpin on the Asian highways, and its internal road network is already taking shape. Fast Facts There are over five million vehicles registered in Burma, of which 4.2 million are motorbikes Burma has 151,298km of roads, though only 39,076km is paved New types of public transport are being trialled, with the Yangon Bus Rapid Transit (BRT) launched in February 2016 There are five main overland crossings with Thailand, and one each with China and India Over 300 bridges longer than 180 feet have been built since There are also 14 bridges over the Ayeyarwaddy River, seven over the Thanlwin, two over the Chindwin and five over the Sittaung Current Trends Once famous for some of the quietest roads in Southeast Asia, traffic has rapidly picked up as Burma liberalises, driven by newlyexpanded imports of foreign cars and motorbikes. There are about 40% more passenger cars on the road now as compared to five years ago, while the number of motorbikes has more than doubled in the same timeframe.

23 Opportunities for British companies in Burma s Infrastructure sector HEAVY VEHICLE NUMBERS 3.2 TWO WHEEL VEHICLES Large vehicles on the road Two wheelers 500,000 5 million motorbikes 450, million motorbikes 400, , , ,000 4 million motorbikes 3.5 million motorbikes 4 million motorbikes 200, million motorbikes 150,000 2 million motorbikes 100, million motorbikes 50,000 1 million motorbikes million motorbikes Passenger Trucks While motorbikes currently dominate by almost a ten-to-margin, passenger cars are increasingly popular. A bevy of well-known foreign brands have opened showrooms in Burma in the last five years, including Mercedes-Benz, BMW, Ford, Chrysler, Great Wall, Mitsubishi, Nissan and Toyota. Motorbikes are banned from Rangoon s urban townships, meaning cars and buses predominate, while the first international brands are now opening their first dealerships in the smaller cities, such as Ford s Mandalay showroom. The cars are coming, though road infrastructure projects, with their longer lead-times, have not kept up. The total length of arterial highways has increased from 22,307 miles in to 25,212 miles in , a slight 13% increase, given the number of vehicles more than doubled in the same period from 2.3 million to 5.1 million. Put another way, there were 64.7 vehicles for every kilometre of highway in , and vehicles for every kilometre only five years later. Authorities aim to catch up. Major highway and road expansions and improvements are underway, though experts are pushing for greater investment. The ADB has estimated Burma needs to raise its annual investment in the transport sector from 1% to 3-4% of GDP to meet investment plans, an ambitious level of financing but comparable to what other countries invested during periods of high growth. Burma s road network is not small compared to many of its Asean peers, though much of it requires significant improvement. In 2012, the latest year for which Asean has released full statistics for Burma, the country had nearly five times the length of unpaved roads as paved roads.

24 24 Opportunities for British companies in Burma s Infrastructure sector 3.3 ROAD LENGTH Artery road network 30,000 25,000 20,000 15,000 10,000 5, Arterial Highways (miles) Topography and demographics have been prime determinants when laying out Burma s road network. With the largest cities of Mandalay, Naypyitaw and Rangoon lying on a north-south axis, about 800km apart, flanked by the Bago mountain range on the west and the Shan highlands to the east, roads have traditionally tended to follow a similar axis. A case in point is the Rangoon-Mandalay Expressway, now Burma s main highway. The north-south emphasis is gradually changing, however, and east-west roads are increasingly being added. 3.4 ARTERIAL ROAD BY TYPE Arterial Road by Type (KM) Burma is also a lynchpin on the planned Asian and Asean Highways. Already it is crossed by these significant links, though in many cases the roads require further improvement Bituminous Metalled Surface Earth

25 Opportunities for British companies in Burma s Infrastructure sector 25 With the Mandalay-Rangoon Expressway in place, Burma is working to expand its domestic highway network. Part of this is driven by the need to link up with neighbouring countries, which is covered below, but other highways are directed at connecting some of the more remote areas of the country. Spending on road maintenance is an estimated two to three times below need, with up to 60% of major roads requiring significant maintenance. Source: ADB July 2016 working paper, Burma Transport Sector Policy Note: Trunk Roads

26 26 Opportunities for British companies in Burma s Infrastructure sector 3.5 ROAD BY STATE AND REGION 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Kachin Kayah Kayin Chin Sagaing Tanintharyi Bago The previous USDP government held numerous tenders to improve or build roads, appearing to gradually move away from the government internally constructing roads. It seems likely that the current NLD government will continue the trend, though details on their policies are only gradually becoming clear. As of 2015, most highways except for the main links were operating below capacity, meaning Burma is in position choose selectively which roads should be prioritised. Many highways also have build-operatetransfer terms. Safety is also a concern. The number of accidents in Burma has risen with the growth in the number of vehicles, with 4,420 deaths in 2015 from Arterial Road (Miles) Magwe Mandalay Mon Rakhine Yangon Shan Ayeyarwady 1,283 deaths in The new NLD government has pledged to cut the number in half by Local roads Many of the country s roads are underutilised at present, but this is not true of Rangoon. Burma s largest city and commercial capital has seen commuting times shoot up as car ownership takes off. A number of organisations are working on the problem. JICA released a report titled the Comprehensive Urban Transport Plan of Greater Rangoon. Its data shows the majority of people either take the bus or walk, though car ridership is on the rise. Rangoon is one of the few cities where the bus network is almost entirely run by private companies. The different lines compete against each other, and are often accused of recklessness in an effort get to the stop first and win fares. However, Yangon Bus Public Company started a bus service called BRT Lite, which charges modestly higher ticket fares but provides a comfier, safer ride for commuters. Downtown Rangoon is also off-limits to non-official motorbikes. The largest change made to Rangoon s streetscape in recent years is the introduction of flyovers. Intended to decongest key intersections, they have been controversial, and in some instances may need to be knocked down to make way for elevated roads. To date, seven flyovers have been built in Rangoon, at Hledan, Bayintnaung, Shwegonedaing, Myayingone, Tarmwe, 8 Mile and Kokkine. Others have been planned, though have encountered some resistance and budgetary pressure, meaning it is as yet not certain if they will go ahead. A traffic control system tender was won by China Railway and local partner Myanmar Shwe Yin Company, which will help cut

27 Opportunities for British companies in Burma s Infrastructure sector 27 commuting time once complete. New effort is also being put into improved parking capacity, as with a lack of lots, cars are now frequently parked on the road. In the medium term, several elevated highway proposals have been made to connect with central Rangoon, while ring roads around the city are also on the cards. Government Bodies, Policies, and Development Partners A number of bodies have authority in Burma s road infrastructure. The new government has made the first steps toward rationalising the bureaucracy governing road transportation in Burma, though work still needs to be done. Ministry of Transport and Communications The Ministry of Transport, Ministry of Rail Transport and Ministry of Communications and Information Technology have all been merged into one body, the Ministry of Transport and Communications, in April It is led by U Thant Zin Maung, a retired railways official and NLD politician. Road Transport Administration Department Responsible for road safety, drivers licences, vehicle registration, and other associated activities. It is under the Ministry of Transport and Communications. Transport Planning Department Responsibly for coordinating plans and budgets for the Ministry of Transportation and Communication, as well as issuing commercial licences, overseeing passenger and freight logistics, and heading up international relations Ministry of Construction International Highways, Union Highways and Arterial highways are under the control of Ministry of Construction, meaning the ministry arranges for construction and maintenance, forms joint ventures, obtains land and imports construction equipment. Department of Highways Responsible for planning arterial roads, has also traditionally designed, implemented and maintained the roads. Some of its processes are in need of modernisation. Department of Bridges Formerly part of the Department of Public Works, in March 2015 it was reformed into its own entity, along with the Department of Highways Public Private Partnerships About 14% of roads are under BOT schemes with Public Works Department, or 28 companies with 64 roads totalling 3,408 miles. Common terms for local companies has been 40 years from the start of operations until the end of the transfer period, while 60 years is the term for international companies, for instance Italian-Thai Development in Dawei. Tolls must be approved by authorities upon obtaining the Final Completion Certificate. Yangon City Development Committee / Mandalay City Development Committee In charge of local roads as well as urban planning

28 28 Opportunities for British companies in Burma s Infrastructure sector Japan International Cooperation Agency (JICA) JICA has been active across many areas of transport infrastructure in Burma, though particularly so in Rangoon. It has formulated a document called the Comprehensive Urban Transport Plan of Greater Rangoon in 2014, as well as the National Transport Master Plan. Asian Development Bank (ADB) The ADB along with many international partners began dramatic re-engagement with the country in 2012, working to clear off arrears so it could again begin lending in Burma. It has extended some road loans, such as for an important 66km stretch of highway in Kayin State., a missing link on the East-West Economic Corridor, which is to link Rangoon with Bangkok and then on to Vietnam. Korea International Cooperation Agency (KOICA) KOICA has provided technical assistance for a Master Plan for Arterial Road Network Development Key Projects The World Bank, based on work by JICA, has identified four road transport corridors as appearing critical to Burma s medium-term development and to unlock latent trade: Rangoon-Naypyitaw-Mandalay (AH1) / Rangoon-Pyay- Magway- Mandalay; Mandalay-Lashio-Muse (AH14); Mandalay-Kalay-Tamu (AH1) and Mandalay-Monywa-Kalay- Htotla-Tiddim-Rih (two branches of the same corridor); and Rangoon-Bago-Hpa an- Myawaddy (AH1) In addition, expect significant work to take place aimed at congestion in Rangoon. Mooted plans so far have included ring roads, an elevated highway, better parking space, added bridges across the city s main rivers, and even a transport management system. Outlook and Opportunities There is a growing realisation that key road links must be improved given the rapid growth in vehicle traffic on Burma s roads. Experts are urging the country to rapidly increase its budget for transportation, taking advantage of concessionary lending now available from a number of institutions, as well as making better use of public-private partnerships. The new government has already moved to streamline the ministries overseeing road transport, though there is still more to do in this area. Road transport has become a key topic particularly in Rangoon, as the influx of cars is growing congestion, as well as closer to the China, India and Thai borders, where businesspeople are keen to grow trade. There is still much to do in improving Burma s roads, and there are a range of opportunities for UK companies: An expected increase in tenders for both local and national-level projects PPP opportunities in road construction Contracts for various aspects of road construction, including engineering and design Financing Add-on industries, including but not limited to parking garages, highway rest stops, traffic management systems

29 Opportunities for British companies in Burma s Infrastructure sector 29 Rangoon-Naypyitaw-Mandalay (AH1) / Rangoon-Pyay-Magway-Mandalay The country s main highway artery is the Rangoon-Mandalay Expressway. Completed in 2010, it is four-lane, separated road. It is credited with cutting the travel time between the country s two largest cities from 15 hours to 8 hours, as well as passing near other main cities such as Bago, Taungoo, Naypyitaw and Meiktila, which lay adjacent to the current route. The corridor is by far the heaviest in terms of freight delivery, with a World Bank estimate claiming that of the main transport corridors, this one received over 50% of total traffic. Further improvement plans were announced in 2015, when a tender was called to improve it to modern standards, including improving safety features such as rest stops every 50km and fences on either side of the road to keep out motorbikes or the odd cow. Mandalay-Lashio-Muse (AH14) The Mandalay-Lashio-Muse road connects Upper Burma s main city, Mandalay, with the key Muse-Ruili border crossing to China. China is by far Burma s largest overland trading partner, with an estimated 86% of Burma s border trade taking place with the country. The majority of that trade travels on this road. While improved on previous conditions, the road favours twists and turns over bridges and tunnels when travelling through the Shan Mountains. Transport speeds often slow to 20 to 25 km/h, and repairs are often inadequate. The exchange of traffic is limited by a municipal agreement between Muse and Ruili, where trucks may cross only a few kilometres to the trading posts in either country. Gradual liberalisation of these measure will likely also increase traffic flows. Mandalay-Kalay-Tamu (AH1) and Mandalay- Monywa-Kalay-Htotla-Tiddim-Rih The Mandalay-Tamu road is part of the Tri-lateral Highway, a 3,200km link connecting Moreh in India with Mae Sot in Thailand, by way of Mandalay. Although it runs largely through Burma, the link has received significant Indian and Thai investment, with India upgrading parts of the Tamu- Mandalay road to an all-weather route. India under Prime Minister Narendra Modi has prioritised closer ties with Burma. Overland trade links are small but growing from $15m in to $60m in , according to a World Bank report. Tamu is the main gateway, though there is a second crossing at Rih that also serves commerce. Rangoon-Bago-Hpa an-myawaddy Connecting Rangoon with Myawaddy on the Thai border, the road has been much improved since It has formally been upgraded from being a one-way road that alternated directions on different days of the week, to a proper two-lane road. Tender winners were also announced in July 2016 to upgrade a 66km stretch of the road in Kayin State, which represents the missing link on the East-West Economic Corridor. The upgrades are funded by a loan from the ADB.

30 30 Opportunities for British companies in Burma s Infrastructure sector

31 Opportunities for British companies in Burma s Infrastructure sector 31 RAIL Tourist guidebooks covering Burma often include the Circle Train as a highlight of Rangoon. It winds its way, as the name suggests, in a large circle around the city, taking three hours to complete. While the guidebooks recommend the train as a way to see parts of the city that may otherwise remain hidden, it also provides a glimpse into the opportunities of rail transportation in Burma. Burma has the longest network of rail line among Southeast Asia s ten nations. The first line, the Irrawaddy Valley State Railway, opened in 1877 connecting Rangoon with Pyay, some 262km to the north. The lines gradually extended, until the country s three railway companies combined into the Burma Railway Co in Burma Railway still exists, though is now state-owned Myanma Railways. The priority has clearly been on expansion of the rail network in recent years, though this has been expensive. With the low-hanging fruit already plucked, much of the recent network expansion has been in mountainous areas such as Shan State. Still, the network now totals 5,844km, longer than Indonesia s at 4,861km or Thailand s at 4,034km. While there has been significant growth already, there is still much to do. Burma s rail network is currently isolated inside the country, and there are plans afoot to connect lines to India, Thailand and China. There are also significant domestic improvements that need to be taken, which is obvious to those following the guidebook s advice and finding themselves chugging along the Circle Line at less than 20km/h. The business case facing Burma s stateowned railways is also squeezed, as road takes a larger share of transport, and Myanma Railway s revenues do not current meet expenses. Rail may be facing increased pressure from road transport, but it can play an important part of Burma s future transport mix. Fast Facts 412 locomotives, 960 stations, 1375 passenger coaches, 3384 wagons Track length of 5,844km in 2013, the most in Southeast Asia 4.1 ASEAN RAIL LENGTH 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Brunei Cambodia Indonesia Lao Malaysia Rail Length (km) Myanmar Myanma Railways carried 54.8 million passengers in ,000 mm gauge is standard in Burma Burma is to provide an important link on the 14,080km TransAsian Railway network Current Trends Burma s planners previously saw rail as more than simply a transportation method, but as a way of connecting the nation. While endowed with a rail network on independence, it has grown significantly since, adding thousands of bridges, at least a dozen tunnels and extending the network by at least 70%. The rapid build has made the domestic railways the largest in the region, an impressive achievement given the relatively underdeveloped state of Burma. Philippines Singapore Thailand Vietnam

32 32 Opportunities for British companies in Burma s Infrastructure sector 4.2 RAIL ROUTE MILE INSIDE BURMA Route mile During the period of expansion, some lines were added that have a less than compelling economic case. There are still important expansion plans, though a more balanced approach is now likely, also including upgrades and improvements to the existing lines. Improved roads are providing significant competition to rail. Travel between Rangoon and Naypyitaw takes four to five hours by road, and eight to nine by rail. Falling bus prices and growing car ownership rates also pressure passenger rail, while improved road logistics systems and internal railway challenges have slowed freight delivery. Ayeyarwady Bago Chin Kachin Kayin Kayah Magwe mandalay Mon Rakhine Sagaing Shan Tanintharyi Yangon 800, , , , , , , , High-volume goods predominate. Timber at 35,634 tonnes, highvalue petroleum products at 23,956 tonnes, and stone at 42,998 tonnes were among the main products shipped by rail in Government orders are also crucial, providing a guaranteed level of business for Myanma Railways. Reform is also needed on the process of selling cargo space. 4.3 RAIL ROUTE-TON MILE Passenger patterns are also different from other regional countries. While countries such as Singapore, Malaysia and Thailand have smaller networks, they have much greater ridership levels. This is because of the urban transit systems in the major cities, which funnel Freight ton-miles large quantities of passengers on a daily basis. Burma s equivalent is the Circle Line in Rangoon, though it is far from the crowded urban rail systems of Bangkok or Singapore. Burma s rail passenger rates have also taken a hit from growing competition particularly from road and air for longer trips. However, Burma people are still far more likely to take a train trip on a per capita basis than people in its closest economic peers, Vietnam, Laos and Cambodia. Indonesia also has five times the amount of people as Burma, but its people take only three times the amount of trips.

33 Opportunities for British companies in Burma s Infrastructure sector PASSENGER KM (ASEAN) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Brunei Cambodia Indonesia The number of passengers taking Myanma Railways peaked in the 2007 fiscal year, and has since been in decline. A July 2016 ADB policy note said that 35% of all trips are currently on the Rangoon-Mandalay line, while six of the 34 total Myanma Railway routes carry 74% of the passengers. Burma s train trips are cheap, but they are also often uncomfortable, slow, crowded, and frequently delayed. Rail infrastructure also requires significant improvement. Wooden sleepers still predominate, despite other materials being more suited for the tropical climate. Myanma Railway s trains are ageing rapidly, with about half of locomotives over 30 years old. Little of the existing track is also twinned. Myanma Railways officials have said the railway targets an average of 48km/h for freight and 68km/h for passenger trips. Achieving a modern railway in Burma is possible, though will require extensive upgrades. Lao Malaysia Pasenger - kilometres (million) Myanmar Philippines Singapore Thailand Vietnam Central to future plans is greater international connectivity. Burma s current rail network, while extensive, is cut off from its five neighbours. There are plans to connect directly with at least three of these five neighbours, namely India, Thailand and China, though the three routes are at different stages of development. There are an array of plans to improve various lines as well as the overall network. Japanese firms Mitsubishi and Hitachi inked a 2.4bn yen ($20m) contract with Myanma Railways to supply and install signaling systems in May The contract is covered by grant aid from JICA, with completion schedules for June JICA has also discussed upgrading Rangoon s Circle Line. The line is managed and operated by Burma Railways, with 38 stations on its 46 kilometer route, with about 122 trains per day. It is planning a tender announcement of an initial procurement package for international bidding on project construction in October 2016, with a goal of finishing the upgrades by Myanma Railways has a range of other ongoing projects. It is a largescale land owner, and has an ongoing, high-profile tender underway for redeveloping Rangoon s historical main station. It also is said to be planning to develop new dry ports, in the Ywarthargyi area of Rangoon Region and the Myitnge area of Mandalay Region. It has also not been averse to experimenting with new services. In 2016 the former Ministry of Rail Transportation signed a deal with Japan s West Corporation to build a tram line on Strand Road in the downtown core. Noting that Rangoon has previous had a tram line from 1906 to 1921, there were plans to gradually expand on the initial 455 million yen ($3.9m) line. However, it ultimately proved unsuccessful, stopping in mid Burma s railways have a promising start, but there is still much that needs to be done. The quality of domestic tracks need to be improved, urban connections developed, and international lines built, before Burma can take full advantage of rail travel.

34 34 Opportunities for British companies in Burma s Infrastructure sector Main government agencies and development partners Ministry of Transport and Communications Railways previously had their own Ministry, the Ministry of Rail Transport. However, this was merged into the Ministry of Transport and Communications by the new National League for Democracy government in April 2016, shortly after taking office. The new Ministry covers not only the former Rail Transport ministry, but also the former Ministry of Transportation and Ministry of Communications and Information Technology. Minister U Thant Zin Maung worked at Myanma Railways before starting as a politician. Myanma Railways The only rail operator in the country, Myanma Railways traces its history to It operates the country s 5,844km, 1,000 mm gauge rail network, including the Rangoon Circle Line. Its revenues are currently not enough to meet operating costs. Source: ADB 2016 report: Burma Transport Sector Policy Note: Railways On an average day it operates 439 trains, of which 196 are inter-city, 215 are suburban and 28 are freight trains. It has recently been a lossmaking institution. It also plans

35 Opportunities for British companies in Burma s Infrastructure sector 35 and organizes future rail projects. It has two major diesel locomotive workshops, Ywataung near Mandalay and Insein near Rangoon. The firm s record-keeping and ticketing services are paper-based and outdated. Japan International Cooperation Agency (JICA) In September 2014 JICA signed a deal to provide low-interest loans to Burma for four projects with a total of up to billion yen ($594m)., including improving Burma s most important rail lines Asian Infrastructure Investment Bank (AIIB) The possibility of the AIIB investing in large-scale rail projects has been discussed by senior officials on both sides, though so far no deal has gone ahead Key future projects International Singapore-Kunming Rail Line (part of the Trans-Asia Railway Network) Much of the potential future rail build in Burma fits into the context of broader regional connections. A line from Singapore to Kunming, in Yunnan, a province in Southern China, has been discussed for years, after first being proposed at a 1995 ASEAN Summit as part of the 14,080km Trans-Asia Railway Network. The line is intended largely for freight. Broadly, there are three main routes such a line could follow. Each potential path has its own advantages and disadvantages. West through Burma Middle north from Bangkok, through Laos East through Cambodia and Vietnam For Burma s portion, there is a 153 kilometre missing link with Thailand, commonly planned for the Three Pagoda Pass, as well as a shorter missing portion with China. Burma s tracks would also likely need significant upgrade to assist the route with becoming viable. Kunming (China) to Kyaukpyu Rail Line The Kunming to Kyaukphyu line would run for 868km largely through Burma. It would connect inland Kunming with the Indian Ocean at Kyaukpyu, which is the future site of one of Burma s three main Special Economic Zones. The line would expedite Chinese inland commerce with different countries, though it has proven controversial. A Memorandum of Understanding between China and Burma was signed in April 2011 in Naypyitaw. The line would run for 4.2km through China, before entering Burma at Muse and travelling through Lashio, Mandalay, Magwe, Minbu and Ann before reaching Kyaukpyu, a distance of 809km. A joint China-Burma team conducted a survey, geological investigation and checked for infringement by buildings along the proposed site, before submitting a feasibility study in In 2014 Burma announced it had annulled the agreement, but there is still some interest in pushing forward with previous plans.

36 36 Opportunities for British companies in Burma s Infrastructure sector Link with India One day, there could be a direct rail link between India and China passing through Burma. There is an estimated missing link of 135km in Burmese territory for a line from Kalay to Tamu, which is on the Indian border. There is a further stretch inside India that would also need to be built. A feasibility study had been conducted for the line in 2004, though returned with the result that the line was not economically viable. A decade later, though, the plan was picked up again, with the first meeting of the Joint Working Group on Railways between India and Burma being held in Naypyitaw on 16 and 17 January Both sides have agreed to cooperate in preparing a detailed report for the line. Thailand There was once a rail link between Thailand and Burma, though it was not a happy story. The so-called Death Railway was built by the Empire of Japan in 1943 to support its war aims in Burma during the Second World War. Although it imposed significant costs, the line closed shortly after the war in Re-connecting Burma with Thailand has been mooted, with the most likely route being the Three Pagoda Pass. A feasibility study into the route was conducted by the Korea International Cooperation Agency from 2005 to However, the addition of a dam on the Thai side flooded some of the potential path, while the route overall is mountainous, steep, expensive and likely to receive low freight and passenger business, at least at first. Both countries agreed to put it off in Subsequently, a new line has been proposed that would link Burma s planned special economic zone, Dawei, with Kanchanaburi and the rest of Thailand. Domestic Bago to Dawei In conjunction with the proposed Thailand to Dawei line, Burma has discussed upgrading the 507km rail line linking Dawei with Bago, a city north of Rangoon. Myanma Railways previously estimated the cost at $29.6m, though other reports have said costs could be higher. The project period was anticipated to end by 2020, though its current status in unclear. Rangoon to Mandalay Japan has completed a feasibility study on a proposed $1.7bn modernisation of the crucial Rangoon to Mandalay rail link. In May 2016, plans were revealed to call a tender for upgrading the link by the end of the year. The goal is to cut travel time on the 622km line from its current 16 hours to just eight. Government officials had previously said this would mean trains travelling at up to 100km/h on some stretches. Rangoon Circle Line JICA, Yangon Region and the Yangon City Development Committee have looked at improving Rangoon s commuter rail line to assist with easing congestion in the city. Officials have said the aim is to increase the number of people riding rails from 3% of Rangoon s journeys at present to 30% over the next three decades.

37 Opportunities for British companies in Burma s Infrastructure sector 37 It is also likely that a spur line will be developed to connect with the Thilawa Special Economic Zone located to the Southeast of Rangoon. Development on railway land Two of Rangoon s most prominent proposed developments are slated for Myanma Railways land. The former headquarters of Myanma Railways on Bogyoke Aung San Street is to be restored as a fivestar hotel by a group of companies including Peninsula Hotels, local firms Yoma Strategic Holding and First Myanmar Investment, the ADB, IFC and Mitsubishi, while a modern mixed-use development will be built in the vicinity. saving time and improving reliability. Urban centres, particularly Rangoon, will also benefit, as urban rail grows as an alternative to the increasingly busy streets. There are significant opportunities in Burma s expanding rail network. These include, but are not limited to, Line expansion and improvement Opportunities to supply rolling stock Service-based upgrades Consultancy, engineering, project management and design work Opportunities in property development To the north, a tender contest is ongoing to upgrade the historic Yangon Central Railway Station and build a mixed-use project nearby. Outlook and Opportunities Burma may have a large rail network already, but there are even bigger plans. International links are likely to be established in the years ahead, particularly affecting freight shipments though also a boon to passengers. Likewise, the domestic network will be upgraded with newer technology and better practices,

38 38 Opportunities for British companies in Burma s Infrastructure sector

39 Opportunities for British companies in Burma s Infrastructure sector 39 Ports Introduction Burma s waters have historically been important conduits for the shipment of goods and travel of passengers. Long before a strong road network was established, its rivers served as highways and its ocean border provided connections with the world. There are three main rivers running general north-south through Burma. The largest of them all is the Ayeyarwady (Irrawaddy), one of Southeast Asia s great waterways. Fed by the Himalaya snows in the north, it winds its way 2,170km to the sea. Along the way, it passes many of the country s largest population centres, including Myitkyina, Bhamo, Mandalay and Pakkoku before emptying into the Andaman Sea. The heartland area it winds its way through has been at the centre of Burma s history, as it also flows by many of the ancient capitals such as Bagan, Inwa and Amarapura. In the west is the Chindwin river, which travels from near the border with India before joining the Ayeyarwady between Pakokku and Mandalay. In the east is the Salween (Thanlwin) river, which starts in China, travels through the Shan highlands, and eventually meets the Andaman Sea at Mawlamyine, the country s fourth-biggest city.

40 40 Opportunities for British companies in Burma s Infrastructure sector A number of smaller rivers such as the Sittang and Myitnge has also traditionally played a role in the country s river travel. Burma also has a long coast wedged between Thailand and India. It runs for 1,930km, more than Taiwan or Portugal, but less than Germany or Egypt. Rangoon has become a significant port on the Andaman Sea, part of the Indian Ocean, and plans call for expansion or creation of a number of other large ocean ports. FAST FACTS Burma has an estimated 1,930km of ocean coastline Has three main rivers, the 2,170km Irrawaddy, the 2,400km Salween (Thanlwin) river, and the 1,200km Chindwin Rangoon port handled 29.2 million tonnes in , with exports predominating over mports Excluding Rangoon, Burma has eight other ocean ports, including Sittwe, Kyaukypyu, Thandwe, Pathein, Mawlamyine, Dawei, Myeik and Kawthaung. Kyaukypu and Dawei, along with Thilawa near Rangoon, are slated for large-scale Special Economic Zones including port facilities Overview Prospects are strong to increase volumes of goods moved by ship, though challenges remain. Rangoon Port is the main international gateway to Burma, though volumes are catching up to capacity and expansion is on the cards. 5.1 BURMA PORT The site of Rangoon Port at the doorstep of the city itself goes a long way to explaining its popularity. Rangoon is Burma s commercial capital and one of the main hubs in the country s road and rail network. Major businesses in the country generally have a Rangoon presence if they are not based there. As Burma s economy takes off, it has shouldered much of the growing import and export burden. Capacity of vessels arriving at Myanmar Ports While there are nine official ocean ports in Burma, they generally require significant expansion before they will attract large volumes. Rangoon has recently been the arrive destination of upwards of 80% of Burma s sea-based trade Yangon Sittwe Pathein Mawlamyine Other Ports The number of international shipping lines with service to Rangoon has rapidly increased. In 2014, Shipping Corporation of India announced a fortnightly service connecting the city with Colombo and Chennai. In January 2015, China Shipping began a direct service connecting the city with Shanghai. However, most Burma international shipping still comes by way of Singapore and Port Klang (Malaysia).

41 Opportunities for British companies in Burma s Infrastructure sector 41 Burma had a fleet of 109 seagoing vessels as of December 2015, defined as merchant vessels of 100 gross tonnes or larger, according to a report by Nederland Maritiem Land. The fleet was composed of 45 bulk carriers, 12 container ships, 11 ferries, five tankers and 36 seagoing tugs, with an average of 27.6 years and average size of 3176 gross tonnes. It is expected to expand further with the additions to the container fleet, though is still small at the 74th largest in the world. Rangoon may predominate, but given its location on a river, it cannot be developed into a deepwater port. Nonetheless, plans are in place to add substantial capacity to other ports. Dawei and Kyaukpyu are two of the most exciting prospective locations, give the large-scale Special Economic Zones they are to connect with. Authorities have discussed expanding other ocean ports as well. Rangoon Port The main port is on the Rangoon River, the eastern-most branch of the Ayeyarwady River as divides into a delta and enters Andaman Sea. The port itself is about 32km from the ocean. Rangoon River is generally shallow, limiting ships to around 10,000 to 12,000 deadweight tonnes. The berths themselves are located along the southern edge of Rangoon at Strand (Kanna) Road, in Bo Aung Gyaw, Myanmar Industrial Port and Asia World Port. In addition, a new port has been established at Thilawa SEZ, about 16km downstream from Rangoon. Thilawa is a joint government and private sector project with Japanese and Burmese owners, while the port itself is developed and operated by Hong Kong s Hutchinson Port Holdings. 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 Cargo handled by Yangon Port (tons) Use of Rangoon Port has increased rapidly on the back of economic growth. However, imports have recently outpaced exports, which has resulted in logistical changes at the ports themselves. River Transport Away from the ocean, Burma s rivers have historically played an import part in transportation, and continue to do so. After road, the rivers carry the highest volumes of freight among different forms of transportation. River transport is ideal for moving bulky, non-time sensitive goods from Burma s heartland out to the sea. A number of private operators compete with the state-owned services of the Ministry of Transport and Communications on Burma s inland rivers. The Ayeyarwady is the main avenue for river transport, though is a challenging river to navigate and in need of engineering support, specifically to build and maintain a channel for traffic. Running northsouth, it is broadly parallel to main road and rail links. The Chindwin is another often-used river, functioning as the main mode of transport along

42 42 Opportunities for British companies in Burma s Infrastructure sector some of its stretch. The Salween on the other hand is not navigable for much of its length, only in general use for a stretch north of Mawlamyine, where it meets the ocean. Key to improving water transport is the improvement of river port facilities, such as terminals for passengers and cargo and warehouses, improvements to the river, and also links to other forms of transport such as road and rail. Rivers, particularly the Ayeyarwady, must have navigation depths improved and modern aids added. Government Bodies, Policies, and Development Partners Ministry of Transport and Communications Formed in April 2016 by the new government, incorporating what was previously the Ministry of Transport, Ministry of Railways, and the Ministry of Communications and Information Technology. Responsible for planning, developing and regulating all aspects of the transport sector including air, road, rail and sea. Department of Marine Administration Responsible for marine safety, internally send externally. Oversees maritime legislation and rules. Myanmar Port Authority Responsible for administering nine of Burma s publicly-owned coastal ports, including Rangoon. It also must regularly dredge the Rangoon river, and is responsible for issuing permits. Myanma Shipyards Myanma Shipyards is a stateowned enterprise. It has built a few vessels for export, though most are used domestically. In January 2015 the firm signed a joint venture agreement with Dong A Shipbuilding Industry Joint Stock Company, claiming $175.4 million will be invested. Myanma Shipyards is to hold 51%, it was reported. It has a dockyard in Kamayut township, Rangoon, to the northest of the main port area. IWT also has dockyards for small vessels. Inland Water Transport (IWT) Department A direct successor to the Irrawaddy Flotilla Company set up in 1865, which was nationalised shortly after independence. The department has gone through several name changes before adopting its current name in It operates a fleet of 339 vessels, including passenger vessels, barges and pusher tugs, while transporting about 15 million passengers and 2 million tonnes of cargo annually. Much of its fleet is in need of upgrading. This fleet operates in competition with private operators. Statistics show IWT has about 10% of the total number of licensed inland ships, and has declined in standing since It also now largely concentrating on freight, and carries few long-distance river passengers.

43 Opportunities for British companies in Burma s Infrastructure sector 43 Myanma Five Star Line The state flag carrier of Burma, founded as a state-owned enterprise under the Ministry of Transport in 1972, though has since been privatised. It owns a terminal in Rangoon s Thaketa township, and connects different parts of Burma as well Singapore, as well as owning several ferries. Directorate of Water Resources and Improvement of River Systems Responsible for improving navigation channels in Burma s rivers as well as stabilising inland river ports and preventing bank erosion. Operates under the Ministry of Transport and Communications. World Bank / International Finance Corporation In April 2016 the International Finance Corporation, an arm of the World Bank, announced a $40m load to Myanmar Industrial Port. The $40m in mezzanine financing was the first phase of a planned $200m financing packing, which is also to include $160m in long-term loans provided by IFC and other foreign lenders KEY PROJECTS Expanded capacity for watertransport is urgently required. There are several plans in place and underway to improve ocean port facilities, both in Rangoon and in other parts of the country. Thilawa SEZ is expanding, and deep sea projects in Dawei and Kyaukpyu are planned. They are covered in the Special Economic Zone section of this report. Other port projects are also at various stages of planning and development. 1. Kaladan Multi-Modal Transport Project In 2008, Burma and India signed a Memorandum of Understanding to develop the Kaladan Multimodal Transit Transport Project. It would create a new logistics transit way. Beginning in Kolkutta, goods would be shipped by sea to Sittwe port in Rakhine State, then either up the Kaladan River or by road to landlocked Northeast India. However, work on this project has been slow. 2. Offshore supply base for oil and gas Burma has an extensive offshore gas industry, though the lone domestic facility is inadequate and often the offshore facilities are supplied from bases in other countries. In mid-2015, Myanma Oil and Gas Enterprise held consultations with 52 companies to discuss building a base in Burma. While it appears a project is still planned, it is unclear when or where it will go ahead. 3. Development of ocean ports While there are plans for Dawei and Kyaukypu, and Rangoon is seeing significant improvements, progress has been slower at Burma s smaller ports. It remains unclear how they will eventually be developed, though private companies have expressed interest in expanding some of the ports, such as improving Pathein as an agricultural centre or Mawlamyine partly due to its connections with the Salween. Other options are specialist terminals, such as for petroleumbased products.

44 44 Opportunities for British companies in Burma s Infrastructure sector Other deep sea ports have been mooted including Kalagauk near Mawlamyine in Mon State, or Ngayoke Bay in Ayeyarwady Region. However, they are still at the proposal stage. MoUs for both projects were signed in 2013, though both are at the feasibility study stage. 4. Development of inland ports Improving inland river ports is feasible, and increasingly likely as commerce improves. Many are simply now convenient stretches of river bank, but proper facilities would make river transit more attractive. For instance, a JICA plan from 2014 proposed 2 x 90 m jetties with a quay depth of 2 m for Mandalay, the country s second largest city. Potential improvements are extensive. There is a need to develop Mandalay s port facilities, as well as introduce machine-based cargo handling and improve maintenance offerings. The route between Mandalay and Rangoon also requires improving the navigation channel before it can reach its full potential. 5. Dredging and improvements of the Ayeyarwady and Chindwin rivers Burma s rivers may be generally slow moving, but navigation is presently difficult. Rivers need to be dredged and deepened, and navigation aids improved, which will be particularly helpful during the dry season. OUTLOOK AND OPPORTUNITIES Rangoon Port, including nearby Thilawa, has shouldered the vast majority of Burma s shipping burden. It will continue to play an essential role in the years to come, though capacity is quickly being squeezed, given constraints such as small areas for containers and a location along the Rangoon river. Development of ports outside of Rangoon are a clear opportunity. Dawei and Kyaukpyu are slated to receive large-scale SEZs with attached ports, but there are also a number of other current and potential oceans ports that have the potential to develop into regionally important trading centres. Inland waterways are also ripe for expansion. Industry is currently clustered mainly around Rangoon, though successive governments would clearly like to see more business outside of the city. As commerce expands, particularly along the Ayeyarwady river to places such as Mandalay, the need for bulk transport will also grow. Some potential opportunities for Burma ports include: Terminal building, including warehousing Inland transport, improving ship building and design Ships for tourism, search and rescue, supply, harbour tugs Port and stevedoring capacity Other transport infrastructure links, such as roads and rail Improved navigation of waterways, including nighttime transport Human resources for oceangoing vessels

45 Opportunities for British companies in Burma s Infrastructure sector 45

46 46 Opportunities for British companies in Burma s Infrastructure sector INDUSTRIAL Introduction Burma has traditionally relied on exports of natural resources, though the pendulum is beginning to swing to manufactured products. A rapidly growing, large, young population provides an ample potential labour forcev for business to tap in to. Moreover, strong connections with more developed neighbours such as Thailand and Singapore through the ASEAN Economic Community have helped to ease trade and sourcing linkages. Burma also enjoy preferential trade terms with many of the world s largest economies, including the European Union. The World Bank s 2014 survey on Burma s business climate found that access to land is the secondlargest constraint reported by local companies. It is more likely to affect smaller firms, but has the potential to disrupt growth. The country s industrial and economic zones are an effort to tackle this constraint. There are a range of choices for locating businesses to best take advantage of the company s advantages. About 20 industrial zones dot the country, with many clustered around the commercial capital of Rangoon, but others located in places with specific opportunities. They also tend to be private-sector driven, and at least five more are planned. An alternative to the industrial zones are the three large Special Economic Zones planned for the country. Thilawa SEZ is about 16 kilometres from Rangoon and has already opened, while two even more ambitious projects are planned, including Dawei SEZ in the southern Tanintharyi Region near Bangkok, and the Kyaukpyu SEZ in western Rakhine State. Locating business at these SEZs comes with significant incentives in the form of tax breaks and cut red tape. These projects are already underway or operating, but it is likely there will be many more industrial projects as Burma continues to grow. FAST FACTS Exports in were more than three times larger than a decade earlier, at $12.5 billion, while imports have also grown to $16.6 billion Manufactured goods are increasingly large share of Burma s export mix, with garments alone worth $1.02 billion in , from $379 million a decade earlier Three main Special Economic Zones in Burma, including at Thilawa, Kyaukpyu and Dawei A total of 20 industrial zones operating in the country, with five more planned and numerous others proposed OVERVIEW Burma has recently stood out among regional countries for its economic reliance on export of natural resources, notably natural gas, jade and timber. This may be due partly to a large domestic resource endowment, but decision leaders would clearly prefer a more diversified economy. Development of industry was slowed by the sanctions formerly imposed on Burma, but in the five years of the country s democratic transition, nearly all have been removed, setting the stage for Burma industry to flourish once again. Burma is increasingly showing up on the international scene, as world industry looks beyond China to set up export-oriented manufacturing industries, while businesses area also keen on tapping the large domestic market of 54 million people. As shown in the chart below, manufacturing approvals skyrocketed as the economy opened following the 2011 reforms.

47 Opportunities for British companies in Burma s Infrastructure sector MANUFACTURING FDI APPROVALS 2,000 1,500 1, The country s industrial zones are a diverse bunch. They allow businesses to locate in specially-designed sites with transportation and infrastructure links ready-made for business, while easing the difficulties of setting up shop. The first industrial zones started in Burma in the 1990s, meaning procedures and methods in many are already established. Not all are created equal however, and important facilities such as transport links, power and water supply vary Value of Approved Manufacturing FDI (US$m) among different zones. In many, land parcels have also been acquired, though various bodies are attempting to put idle land to work. Environmental and social concerns around industrial zones have arisen in the past, though Burma is improving in these areas. Many of the industrial zones around Rangoon are now receiving dedicated worker housing, and a central committee under Vice President Henry Van Thio is looking in to land ownership issues. Many industrial zones, such as Shwe Pyi Thar, Mingalardon Industrial Park and Hlaing Thar Yar, have received significant investment, while others are only getting started. Existing industrial zones tend to be located near the major cities, notably Rangoon and Mandalay but also smaller regional cities like Pyay and Shwebo. Some of the proposed zones are further away from urban centres, but located on important trade routes and near international crossings. There is also opportunity for foreign companies to take part in setting up industrial zones. Japanese conglomerate Mitsui & Co partnered with a department of the Ministry of Construction when setting up the Mingalardon Industrial Park in Local companies have also played crucial rules in setting up most of the other industrial parks in the country.

48 48 Opportunities for British companies in Burma s Infrastructure sector Source: Burma Industries Association website

49 Opportunities for British companies in Burma s Infrastructure sector 49 Existing Industrial Zones Mandalay Region (3) - Mandalay - Meiktila - Myingyan Sagaing Region (3) - Monywa - Shwebo - Kalay Shan State (1) - Taung Gyi Magway Region (2) - Yananchaung - Pakokku Annex 1: Industrial Zones and Special Economic Zones Population Per Square Person Mile Person Per Square Kilometer Planned Industrial Zones Nantoon (Shan State) Yadanapone (Mandalay Region) Nay Pyi Taw (Nay Pyi Taw Region) Special Economic Zones meanwhile take the concept of industrial zones even further. They became possible with the passage of the 2014 Special Economic Zone Law, and can provide an opportunity to promote manufacturing capacity by lowering trade costs. Locating on an SEZ comes with numerous advantages under the 2014 Law. Commercial holidays are granted for five or seven years, with 50% reductions continuing for another five years, and further extensions are possible. Bago Region (1) - Pyay Ayeyawady Region (3) - Hinthada - Myaungmya - Pathein Yangon Region (4) - Eastern Township - Western Township - Northern Township - Southern Township Mon State (1) - Mawlamyaing Taninthayi Region (1) - Myeik Special Economic Zones in Development Kyaukpyu (Rahkine State) Thilawa (Yangon State) Dawei (Tanintharyi State) Source: Chapter (3), Myanmar Investment Guide, Directorate of Investment and Company Administration, Ministry of National Planing and Economic Development of Myanmar Source: UNESCAP, A policy framework for Burma s SME, No.142, February, 2014 Ponnakyun (Rhakhine State) Phaan (Kayin State) Maywaddy (Tanintharyi Region) Phayar Thone Zu (Mon State) One Stop Service Centers are also to be established at SEZ, with one already in place for Thilawa. These are aimed at reducing the number of bureaucrats with whom investors must engage. The SEZs have also committed to specific turnaround times such as investment approvals and company incorporation, and have the ability to grant long-term land leases of 50 years plus a possible 25- year extension, as well as guarding against expropriation. The SEZs were championed by the previous Union Solidarity and Development Party government. Officials from the new National League for Democracy government have been quoted in the local press

50 50 Opportunities for British companies in Burma s Infrastructure sector as particularly supporting Thilawa, the most-developed, while wanting to take a closer look at Dawei and Kyaukpyu. Thilawa has been open since 2015, and has attracted a long list of investors already, including at least 73 companies. Japanese companies are the largest source of investment so far, perhaps no surprise given 49% of the SEZ is owned by Japanese companies and the Japan International Cooperation Agency. The other two SEZs, Dawei and Kyaukpyu, are not as advanced, though they are likely to play an important role in future development. While Thilawa is geared toward light manufacturing wanting to be located near Rangoon, Dawei and Kyaukpyu target different sets of industries. Government Bodies, Policies and Development Partners Special Economic Zone Law The Special Economic Zone law was enacted in 2014, with the implementing rules published a year later in The law has paved the way for Burma s SEZs, establishing the administrative and supervisory oversight necessary for SEZs to move forward. The law requires the government set up a central body. The central body requires approval from the government to establish an SEZ, and also must set up management committees for SEZs. The management committees are to provide services including investment permits, registering companies, tax collection and visa and work permits. The SEZs themselves are set up by private developers, with developers, whether local or foreign, selected through a tendering process. Ministry of Planning and Finance Formed in 2016 by merging the previous Ministry of National Planning and Economic Development, and the Ministry of Finance. It is led by U Kyaw Win. Ministry of Industry Formed in 2011 by merging together the Ministry of Industry (1) and Ministry of Industry (2). It focuses on industrial production, and owns a number of its own facilities in goods such as vehicles, rubber, ceramics, paper, pharmaceuticals, to name a few. It is led by U Khin Maung Cho. Directorate of Investment and Company Administration The Directorate of Investment and Company Administration (DICA) handles registrations for local and foreign business under the Companies Act, as well as serving as the secretary for the Myanmar Investment Commission. It was formed under the Ministry of National Planning and Economic Development in October Burma Investment Commission Responsible body for investment applications, it is made up primarily of serving and former government officials, plus one private sector representative at present Special Economic Zone Department Located under the Directorate of Investment and Corporate Administration, the Special Economic Zone department forms the Central Work Group of Burma s SEZs KEY PROJECTS Thilawa The Thilawa project had been discussed for at least a decade before

51 Opportunities for British companies in Burma s Infrastructure sector 51 construction began in It is currently Burma s most successful Special Economic Zone, becoming operational in September It is located about 16 kilometres from Rangoon city and about 25km from the airport. A significant advantage derives from its proximity to Burma s commercial capital and most populous city, as a ready market, transport node and labour force is nearby. Thilawa has drawn about $760m in investment since the spring of 2014, equal to about 30% of what manufacturers invested in Burma during the period, according to press reports. The project is a Burma-Japan joint venture. Burma owns 51%, of which 41% is owned by Burma Thilawa SEZ Holdings, a public company that is traded on the Rangoon Stock Exchange but has significant investments from some large local companies. Japan owns 49%, including 10% by JICA and 39% by a consortium including Sumitomo, Marubeni and Mitsubishi Corporations. The site is adjacent to the Myanmar International Terminals Thilawa (MITT) port, a multi-purpose container port on the Rangoon River. Thilawa management has focused on attracting foreign and local investors. A number of well-known international companies such as Suzuki and Ball Corporation have set up on the zone, along with many distribution and labour-intensive industries. One strength of Thilawa is the range of infrastructure available for investors. Electricity, telecoms and water are easily connected, while waste management services is available. The number of local businesses on the SEZ also make logistics easier. Moreover, the management committee has established a One Stop Service Center, the idea being to cut government red-tape. It also pledges specific turnaround times for some requests. A number of incentives are also available. Investors receive corporate tax exemptions for the first seven or five years, following which they get another five years at 50%, with one more extension possible, under the 2014 Burma Special Economic Zone law. Locating at Thilawa also means an exemption from customs duties and other taxes for import of capital goods. Exports are also exempt from customs duties and commercial tax for imports of raw materials as well. Kyaukhyu Kyaukphyu is a large SEZ planned for Rakhine State. A long-running tender was decided in December 2015 when the Burmese parliament gave the goahead to the first phase of Kyaukpyu SEZ, awarded to a consortium of largely Chinese companies including CITIC group. The zone has been estimated at over $10bn in its entirety. It is located near the existing oil and gas pipelines that have been completed in the past few years. The gas pipeline connects with Shwe Gas, one of Burma s four offshore sites, while the oil pipeline is intended for tankers to offload crude from the Middle East and Africa to be pumped to western China, removing the necessity to travel by tanker south around Singapore and the Straits of Malacca. Much of the Kyaukphyu project is expected to be driven by China. Officials from the Kyaukphyu bid evaluation committee have said in the local press that they expect Burma will invite the Asian Infrastructure Investment Bank to build 800km of roads connecting the SEZ with the Chinese border.

52 52 Opportunities for British companies in Burma s Infrastructure sector It is eventually to sit on 4,289 acres some 12km south of Kyaukphyu town itself. The project is to eventually include a deep water port, residential housing and an industrial zone once it is built. It offers significant opportunity in chemical and gas production, export oriented industries and local logistics, among other areas. Dawei Dawei is another large SEZ project that could have a potentially transformative impact. Its potential has long been eyed, partly due to its proximity to Bangkok. A deep sea port and road and rail connections through the Bangkok could remove the need for Thai products to ship around Singapore to reach the Indian Ocean. In August 2015, the Burma government s Dawei Special Economic Zone Management Committee, and a consortium of companies including Italian-Thai Development Public Company, Rojana Industrial Park and LNG Plus International signed a concession agreement regarding the initial phase. The initial phase is to include the development of a small port, power plants, a two-lane road to Thailand, an LNG terminal, an initial township, a telecom land and a smaller industrial estate. Work on much of this is already ongoing, or in the case of the small port and some of the other infrastructure, now complete. Eventually, backers hope it will be one of the world s major SEZs. Initially it will focus on labour-intensive industries such as garments and food processing, its long-term plan includes more higher-value industries such as automotive, steel, electronics, agricultural processing and other industrial production. The full site is a large 48,432 acres, located about 30km north of Dawei town in Tanintharyi Region. Japan has signalled its intention to participate, signing on in December Outlook and opportunities Burma is fast becoming the next hub for export-oriented manufacturing industries, while its sizeable and growing domestic market is drawing increased interest. The flood of interest has strained existing capacity, and government and private-sector actors are keen to expand offerings. The three Special Economic Zones of Thilawa, Kyaukpyu and Dawei are on track to grow into significant centres of commerce in Southeast Asia. The benefits of Thilawa are already being felt as over 70 companies have received permission to set up, while plans for the other two zones are well underway. The country s smaller regional industrial zones are also popular locations for locating business. While a handful located in Rangoon s periphery are the most popular at present, increasingly businesses are looking at other areas for the opportunities they provide. Burma s industrial potential is set to grow along with its industrial potential. Key future opportunities on Burma s industrial zones and SEZs include: Location for industry, particularly labour-intensive, as well as distribution, logistics, service and transport companies Construction and maintenance on the zones, including transport, energy and water infrastructure Design, engineering, architecture solutions Human resources

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54 54 Opportunities for British companies in Burma s Infrastructure sector ENERGY Introduction Burma is starting from a low base for electricity generation, but it has set ambitious targets. It has announced plans to move from roughly 35% electrification at present, to 100% in 2030 less than 15 years away. The challenge is compounded by the rapid growth expected for consumption on a per capita basis, which means generation capacity must grow that much more quickly. Fortunately, Burma is rich in the necessary resources. It has identified extensive hydropower potential, and has had growing success with its offshore natural gas sites. Burma has three major rivers, the Ayeyarwady, Chindwin and Thanlwin, along with dozens of medium-sized rivers suitable for hydropower. In all, some estimates say total hydropower capacity potential is over 100,000MW. Proven reserves of natural gas now total 11.8 trillion cubic feet, with significant potential for further discovery. Gas exports, to Thailand and China, have been the country s most significant export in recent years. Changes have also arrived on the policy front. The government s approach to energy development has shifted recently, along with its approach to the sector s administration. The new fifteen years will undoubtedly be exciting for energy and electricity, which has the potential to completely change how people live. The days of generating electricity off biomass such as timber or diesel generators are nearly over, and a new experience will soon begin. Fast Fact About 3.7 million households, or 34% of the country s total, have grid connections Current installed electricity capacity is 5,235MW, though to achieve 100% electrification by 2030 Burma will need 23,594MW Some 189,000 households per year are currently being connected to the grid, but the rate will need to double to 440,000 per year to meet the 2030 goal Burma has four offshore gas fields in production Yadanar, Yetagun, Shwe Gas and Zawtika which produce about 1.8mmcfd of gas along with 5,500 bopd Government Agencies, Policies and Development Partners The Ministry of Electricity and Energy The Ministry of Electricity and Energy is the lead ministry in Burma for power and energy. It was only recently formed following the April change in government, and is a merger of the former Ministry of Energy and the Ministry of Electric Power. The Ministry of Electric Power itself was two separate ministries before a 2012 rationalisation of government ministries.

55 Opportunities for British companies in Burma s Infrastructure sector LAYOUT OF ENERGY MINISTERIES Ministry of Electricity and Energy Coal production may be the purview of the ministry s companies, though in practice tends to happen under licence by private companies. Ministry of Education Myanma Petroleum Products Enterprise Energy Myanma Oil and Gas Enterprise (drilling, production, CNG) Myanma Petrochemical Enterprice (refineries, LPG) Dept of Electric Power Planning Electricity Electric Power Generation Enterprise Dept of Electric Power Transmission and System Control Yangon Electricity Supply Corporation Dept of Hydropower Mandalay Electricity Supply Corporation Electricity Supply Enterprice (distribution outside of Yangon, Mandalay While having some input into renewables, it also has a hand in civilian nuclear energy. Burma has no nuclear energy at present, and is years from adding any, though has formed working groups and signed initial agreements with countries such as Russia on nuclear power. Ministry of Agriculture, Livestock and Irrigation The Ministry of Electricity and Energy is specifically responsible for oil and gas production, as well as electricity. Under the energy side of the Ministry of Electricity and Energy, there are three important state-owned entities: Myanma Petrochemical Enterprise (MPE), which operates refineries, five fertilizer plans, three liquefied petroleum gas plants and a methanol plant Myanma Petroleum Products Enterprise (MPPE), which is responsible for the marketing and distribution of petroleum products Myanma Oil and Gas Enterprise (MOGE), which oversees production and transportation of oil and natural gas Ministry of Mineral Resource and Environmental Conservation Another ministry formed in 2016 from two predecessors, specifically the Ministry of Mines and the Ministry of Environmental Conservation and Forestry. It is currently responsible for coal production as well as having input into renewable rules, including hydropower, solar, wind, biomass and biofuels. Responsible for biofuels and smallscale hydro used for irrigation Asian Development Bank The first loan the ADB gave after re-engaging in Burma was in 2013 for electricity, totalling some $60m to help connect 480,000 people in four regions. The ADB has also conducted study into the power sector

56 56 Opportunities for British companies in Burma s Infrastructure sector CURRENT TRENDS IN OIL AND GAS Upstream Burma has a long history in upstream production. The British envoys sent in the 19th century from India to treat with the last Burma kings in Mandalay were required to traverse the Ayeyarwady river, bringing them past the oil production centre at what is now Yenangyaung in Magwe Region. Though Burma may first have made its name in energy production with crude oil, it is now natural gas that predominates. Reserves are estimated at 11.8 trillion cubic feet, with more potentially waiting to be discovered. This is enough to put Burma in 34th position globally, though is a much more important player regionally, with production that World Energy Council puts at 10.2 million tonnes of oil equivalent per year. Burma s official data shows million tonnes of gas exports worth $5.18bn in Reflecting declining domestic output, however, Burma is a net importer of oil. Oil and gas has had a tumultuous history over the past fifty years. The industry was nationalized in the wake of the 1962 coup, with the state energy company undergoing several name changes before emerging as Myanma Oil and Gas Enterprise (MOGE). It had the exclusive rights to explore, develop and produce until 1989, when other related agencies were established and foreign bids for offshore rights began. A number of well-known foreign companies have entered, including Total, Petronas, PTTEP and CNOOC. Burma s 2011 opening ushered in another wave of foreign investment into the energy sector. Gas is now Burma s largest source of export earnings, with four major offshore sites, including Yadana, Yetagun, Shwe and Zawtika. Yadana is Burma s largest offshore area and is operated by Total. It began production in 1998 Yetagun is operated by Petronas and came online in Yetagun, Yadana and Zawtika are all in the Moattma offshore area south of Rangoon and Ayeyarwady Region Shwe Gas is operated by Daewoo and began operations in It is in the Rakhine offshore area further west from the other three Zawtika is Burma s newest offshore area and is operated by PTTEP In total there are 51 offshore blocks and 53 onshore blocks. Of the latter, 28 have been awarded. The most recent bidding round was launched in 2013, with 20 blocks awarded to some of the biggest names in energy, including Statoil, Chevron, Total, Royal Dutch Shell and ConocoPhillips in Further bidding rounds are to be launched, and were previously slated to take place in Oil and gas is also by far the largest source of approved foreign investment in Burma. As of June 2016, 40% of total approved investment since 1988, worth a total of $21.5bn, have been in oil and gas. Next is power at 26% or $13.7bn, followed by manufacturing at $5.3bn or 10%. Offshore success has spawned interest in servicing these industries. An improved offshore supply base has been discussed to bring more of the services to Burma, while local people are increasingly taking part in offshore work.

57 Opportunities for British companies in Burma s Infrastructure sector 57 Downstream The last two decades have seen major growth in Burma s downstream industry, though there is still much to do. Thailand is still the main destination for Burma s natural gas production, with Yadana, Yetagun and Zawtika all oriented east. Production from Shwe Gas, meanwhile, is largely shipped north to China. The export orientation for Burmese natural gas is beginning to change, however. In June 2010, MOGE completed a new pipeline from the Yadana field to Rangoon, aiming to help ease power shortages to meet government pledges to supply a significant quantity of gas to Burma power plants. Burma has three refineries at present, all of which require upgrade. The Ministry of Energy announced it would hold a new tender for refurbishing and upgrading the No 1 Refinery at Thanlyin near Rangoon, in September last year. Progress on other refineries has also been mixed.