Skies clear over Dawei

Construction News Myanmar

New strategy agreed on by Thai and Myanmar governments secures the future of industrial and logistics megaproject, with contractor ITD still playing a leading role
After two years struggling to get the Dawei deep-sea port and industrial site in Myanmar off the ground, Italian-Thai Development Plc (ITD) has faced up to the reality that it will need to share the pie with other investors.

Though it held the original concession to develop the massive complex worth tens of billions of dollars, ITD saw that a change of approach was needed, said a source at the Bangkok-based contractor. It was simply waiting a clearer picture of what the Myanmar government wanted the company to be: either a developer or contractor.

Today, the picture is quite clear. And progress under the new strategic direction is expected to put an end to rumours that Dawei may fail to go ahead.

ITD managing director Premchai Karnasuta said recently that the new structure finalised by the Thai and Myanmar governments was the best way forward. It wasn’t the company’s idea, but he has no regrets about agreeing to changes.

“The project is huge. It’s hard for ITD to complete it alone. The latest structure makes it easier for us. At least we’re still the major contractor,” he said.

Dawei for the past two years had proved a hard sell because prospective investors and potential lenders questioned the degree of commitment by the governments of the two countries. The fact that both China and Japan favoured other locations that might draw business away from Dawei was also a major stumbling block.

Thailand was seen as the only country seriously committed to Dawei, as the government needs to shift large-scale industrial development away from the congested Eastern Seaboard and also open a new logistics and trade route to the west.

The Thai and Myanmar governments finally announced their solution this month. They will set up special purpose vehicle (SPV) in Thailand to handle all project management instead of ITD. All investments in Dawei will be transferred to the SPV, in which the Thai and Myanmar governments would hold equal shares, expected to be 30% each. The rest would be invested by other governments.

Special purpose companies (SPC) will be set up to invest in each sub-project at Dawei, including coal- and gas-fired power plants, industrial estate development, oil and gas industries and a petrochemical complex.

The SPV is expected to set up by the end of this year, followed by the SPCs. Dawei Development Co (DDC), the investment arm that ITD set up earlier, will be an investor in all eight SPCs, with a minimum of 25% in each.

“After the SPCs are set up, ITD is no longer the developer of the Dawei project. We will be an investor instead. The Myanmar government will calculate all the money ITD has invested in the project and then convert it to shares in each SPC. As a result, we will hold shares in all SPC,” explained Mr Premchai.

He said the new investment structure would help speed construction faster and also make fundraising in each project easier as some countries including Japan can take part in financing. The Japan International Cooperation Agency (JICA) will support the infrastructure investment, while the Japan Bank for International Cooperation (JBIC) could lend for commercial activities in Dawei.

“Our financial burden will ease as well,” he added.

Among the eight SPCs, Mr Premchai said he was confident that ITD would secure the construction of the deep-sea port and road link to Thailand as work in these two areas had already made a lot of progresses.

Even while uncertainty ran high and the governments of Myanmar and Thailand were attempting to negotiate a solution, ITD never stopped doing preparatory work, he pointed out. The port and roads were the top priorities for Thailand’s largest contractor, which was granted a 75-year concession for the project by the previous military junta.

A small port is needed to allow ships to bring in building materials before the main port is completed. All materials now are loaded at a temporary port located in the creek near the Andaman coast.

Without any new construction, all ships would have to wait for the flood tide before they could load building materials. This way it will be possible to carry out construction at the same time. ITD is dredging the sands by about seven to 10 metres from the base tidal elevation so that vessels can be berthed all the time to serve the increasing demand for building materials.

The small port should be ready by May to accommodaate ships making the one- to two-week journey from Thailand’s Phuket or Trang ports to Dawei.

Together with the small port, ITD is reclaiming the area for constructing the main port worth US$1.5 billion.

The next step is to prepare 5,000 rai worth of saleable sites for early-stage industries. ITD has already reclaimed some old oil palm plantations to pave the way for building manufacturing plants, retail and residential zones. The township zone covers 200 rai of land with an investment of between 4 billion and 5 billion baht.

The 132-kilometre road link to Phu Nam Ron in Kanchanaburi is being constructed to smooth land transport between the two countries. Once the road link is completed, it will take only two or three hours from Dawei to Thailand.

Mr Premchai said many investors would like ITD to accelerate the early-stage industrial site construction. Some Thai manufacturers will soon lose preferential import tariffs under the Generalised System of Preferences (GSP) in the US and EU, so they need to find new locations for their production plants. ITD has brought ahead the construction of early-stage industries and the township, commercial and residential zones for workers who have to move in, and will try to finish it by 2014.

The next task is to construct a steel mill, a 33-megawatt gas-fired power plant and a coal-fired power plant. Villagers in Mudu, who live in the area where the steel mill will be constructed, will be the first group to be relocated to a new area called Bawah, starting this month.

Mr Premchai said many investors had now declared their intentions to take part in each project. To construct the gas-fired power plant, more than 20 investors are interested in addition to Ratchaburi Electricity Generating Holding Plc, ITD’s partner in the power plants.

“We have no worries about the investors in each project. There are a lot,” he said.

He is also confident that ITD has an advantage to get construction contracts for each project since it has stayed with the project since day one.

Many observers had said that Dawei could end up losing out to the Thilawa Industrial Special Economic Zone (SEZ), located just 25 kilometres south of Yangon and said to be heavily favoured by major Japanese investors. But Mr Premchai said Dawei had made more progress, and current conditions dictated that the Myanmar government needed to be serious about keeping Dawei on track.

“Progress on the Dawei project is two years ahead of that in Thilawa. The Myanmar government has yet to sign any contracts with developers of the project,” he said.



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