Lessons from the Irrawaddy

Though painful for China’s investors, the suspension of a multibillion-dollar dam in Myanmar could teach those wanting to do business abroad an important lesson in political risk, writes Liao Ruo.

After more than a year of construction, the government of Myanmar, also known as Burma, has suddenly called a halt to work on a Chinese-funded dam. With the energy firm behind the project expressing shock and confusion at the decision, it’s a move that risks wounding the relationship between the two nations. But rather than complain about the Myanmar government reneging on a deal, China should take a crucial lesson from this episode: when working abroad, it is no longer enough to communicate with governments alone.

On September 30, Myanmese president Thein Sein told parliament that he was suspending development of the Myitsone dam for the term of the current government – until 2015.

The Myitsone dam lies on the Irrawaddy River, Myanmar’s most important waterway, and is the largest of seven dams China Power Investment Corporation (CPI) has invested in here. Work on the six-gigawatt scheme, which has an expected final price tag of US$3.6 billion (23 billion yuan), started at the end of 2009.

Spokesperson for China’s Ministry of Foreign Affairs, Hong Lei, said on October 1 that China “urges the respective national governments to protect the legal and legitimate rights of Chinese companies.” CPI president and party secretary Lu Qizhou said in an interview with Xinhua on October 3 that the Myanmese government had not contacted the company about the suspension, and had even recently asked for construction to be accelerated. He said he was “shocked” and “unable to understand” the decision.

Lu carefully explained how the company had followed due legal process in both nations, how it had given full consideration to project safety, environmental impact and resettlement of displaced communities and how the economies of both nations would have benefited greatly from the dam. From this account, it seems clear that the Chinese are in the right, while Myanmar has gone back on its word and failed to protect investor interests.

But then you listen to the Myanmese explanation. In his statement of September 30, Thein Sein said that his government "is democratically elected” and, therefore, “must pay attention to the will of the people and has a duty to focus on resolving their worries and concerns”. 

The Chinese stress the fact they have a contract with the Myanmar government. The Myanmese meanwhile emphasise the strength of public opinion against the project. The crux of the issue is: does “legal” automatically mean “legitimate”

Myanmar’s political context is an important part of the story: the country has seen a change of government since the dam contract was first signed. After decades of military dictatorship, the new regime, which was elected last November and took office in March, is working for change. A string of actions, including the release of political activist Aung San Suu Kyi from house arrest, has led to international recognition that the reforms are genuine.

An outside developer dealing with a military government can get away with ignoring other factors – the government has the power to deal with those. But when there is a change of regime to one that has even the slightest public support, ignoring public opinion risks landing foreign investors in trouble.

It is also notable that, in the days leading up to Thein Sein’s announcement, Aung San Suu Kyi’s National League for Democracy held a public meeting in the city of Yangon (Rangoon) to call for the dam to be halted. Aung San Suu Kyi herself wrote a letter in August urging both China and Myanmar to reconsider the project. The facts show that these opposition voices are having an ever-greater influence in Myanmar.

“CPI cannot claim to be unaware of the feeling about this project by the people of Burma,”
the Burma Rivers Network (BRN), a Thailand-based organisation of NGOs focused on dam-building in Myanmar, said in a October 4 statement responding to Lu Qizhou’s comments.

BRN also said that “The villagers at the dam site, numerous political and community organisations, international human rights organisations have attempted to contact CPI and discuss the concerns about the impacts and process of the project,” but “CPI never responded to these attempts at dialogue.”
In spite of this lack of communication, CPI is not ignorant of the dam’s ecological impact. Although not necessary under Myanmar law, in the first half of 2009 the company commissioned Myanmar NGO the Biodiversity and Nature Conservation Association (BANCA) and the Changjiang Institute of Survey, Planning, Design and Research (CISPDR) to carry out a joint environmental impact assessment.

The report, published in October 2009, can be found on the BRN website. It concluded that there was no need for such a large dam on the Irrawaddy and, in the interests of sustainable development, two slightly smaller dams generating the same amount of electricity could instead be built upstream. The value of respecting Kachin culture (the Kachin are an ethnic group living largely in northern Myanmar) would outweigh any extra construction costs, it said. 

The branch of CPI responsible for the construction and operation of Myitsone, Yunnan International Power Investment (CPIYN) also published the conclusions of an environmental impact assesment on its website. But unlike the version on the BRN website, it gave the project a positive evaluation in the areas of economic contribution, carbon emissions, biodiversity conversation and environmental impact.

Lu Qizhou said in an interview that there are only five villages in the Myitsone dam area, which are home to 2,146 people. These figures also differ from those in the report published by BANCA, which says 47 villages and 18,000 mu of arable land, forest and natural resources would be flooded as a result of the dam – and the heart of Kachin culture would be destroyed.

These disparities will not be cleared up until CPI is willing to be more transparent and talk with its Myanmese opponents. In current circumstances, the Myanmese public is likely to assume the impact of the dam will be negative.

The Chinese view is that the huge economic benefits for both nations provide reason enough to build the dam. Lu Qizhou said that the project would bring the Myanmese government an extra US$54 billion (343 billion yuan) in tax revenue, as well as indirect benefits such as dam-building experience, jobs and better ability to prevent floods and control river flows.

But 90% of the electricity generated would be exported to China – and it’s hard to convince the locals that that’s a fair deal.

Many in Myanmar believe that letting this project go ahead was simply a case of the military junta sacrificing the environment, local ecology and Kachin culture for the sake of the profits, with the people gaining nothing. While much of Myanmar’s population remains in abject poverty, it has watched the junta make billions of dollars from gas exports to Thailand. Decades of dictatorship have left Myanmar’s people with a deep mistrust of government. And any foreign company that deals only with the government and ignores the voices of the people risks being deemed guilty by association.

Although the suspension of the project caught the Chinese investors unawares, it’s hard to believe the company was completely unprepared for setbacks: after all, this is a war zone. Ethnic conflict is the thorn in Myanmar’s side, and the Myitsone dam area is in Kachin State, a separatist rebel stronghold. In June this year, civil war broke out, with the Kachin Independence Army breaking a 17-year ceasefire and attacking government forces.

Chinese-funded projects would likely have been targets anyway, given their size – but more importantly, Chinese investment is a source of tension between the ethnic minority and central government. Even if worries about the destruction of the environment, ecology and culture are ignored, the Myitsone dam is in a KIO-controlled area – meaning that the dam will flood KIO territory. KIO opposition can hardly be a surprise.

On March 16, the KIO wrote to Chinese president Hu Jintao, saying that it had already informed the military junta that the KIO could not be blamed if the Myitsone dam led to civil war.

On May 27, on the eve of a visit to China by Thein Sein, KIO joint-secretary La San told the media that, if China helped the Myanmar government suppress the KIO, then would need to watch out for its investments in dams, jade and mining in the Kachin State.

On April 17 last year, Xinhua reported that a CPI dam-construction site near Myitkyina, the capital of Kachin State, had been hit by three small explosions. And last March, Chinese workers were among the victims of a number of bombings near the Myitsone dam site, according to a January report in the UK’s Financial Times.

“Without national reconciliation and peace, all investments in Burma face these types of risks,” warned BRN in its October 4 statement.

In the wake of the Myitsone case, the political risks for dozens of Chinese dam projects, including the six other schemes it is building on the Irrawaddy, as well as the equally controversial China-Myanmar gas pipeline must also be reassessed.

Liao Ruo is a journalist based in Beijing

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