Myanmar Buoyed by $8.6 Billion Port as Sanctions Abate: Freight

Myanmar is developing an $8.6 billion port and industrial complex in the nation’s south intended to feed Asian demand as the U.S. and Europe lay out a path to ease sanctions in place for more than 20 years.

Italian-Thai Development Co. (ITD), the largest construction company in Thailand, completed an access road last year from the Thai border to Dawei, about 250 kilometers (155 miles) west of Bangkok. The company plans to complete financing this year for the harbor, which with the industrial zone will cover an area 16 times bigger than Thailand’s largest manufacturing park.

“What makes Dawei interesting is Myanmar itself,” said Thanet Sorat, who heads a trade facilitation body at the Federation of Thai Industries, the country’s biggest industry group. “It was closed for so long and now the government is more open. Thai companies see many opportunities there due to cheap labor costs and many natural resources.”

The Dawei initiative highlights Myanmar’s efforts to connect one of Asia’s poorest nations to a region driving global growth. Myanmar has freed political prisoners and signed a peace agreement with rebels, seeking to prompt the U.S. and the European Union to lift economic sanctions.

Italian-Thai shares, which fell 22 percent last year, are poised to recover as the Dawei project advances, Athaporn Arayasantiparb, an analyst with UOB-Kay Hian Securities (Thailand) Pcl, wrote in a report yesterday. PTT Pcl (PTT), PTT Exploration & Production Pcl (PTTEP), Hemaraj Land & Development Pcl (HEMRAJ) and Ratchaburi Electricity Generating Holding Pcl (RATCH) are among other listed Thai companies set to benefit, he said.

‘Opening Up’

Siam Cement Pcl (SCC), Thailand’s fifth-biggest company by market value, also probably will gain assuming the project proceeds as planned, said Adithep Vanabriksha, who oversees about $4.5 billion of Thai assets for Aberdeen Asset Management.

“Myanmar’s on the verge of opening up and Thai companies are likely to benefit given our proximity,” said Bangkok-based Adithep. “They’re going to need a lot of construction materials, a lot of cement.”

Myanmar President Thein Sein discussed the Dawei project at a December meeting with Thai Prime Minister Yingluck Shinawatra, who sent several cabinet ministers to inspect the site on Jan. 7. Bangkok-based Italian-Thai signed a 60-year concession to develop Dawei 14 months ago.

Industrial Hub?

Executives from Bangkok Bank Pcl (BBL), Krung Thai Bank Pcl (KTB) and Siam Commercial Bank Pcl (SCB) joined the ministers on the visit to Dawei this month, according to Somchet Thinaphong, managing director of the Dawei Development Co., an Italian-Thai unit. Among the potential investors he listed were Malaysia’s Petroliam Nasional Bhd., known as Petronas, and Japanese companies Mitsubishi Corp. (8058), Mitsui & Co. (8031) and Sumitomo Corp. (8053)

“All our experts and all the technical people from Thailand and Myanmar believe Dawei can be a new industrial hub,” Foreign Minister Surapong Tovichakchaikul, who was on the trip, told reporters on Dec. 21.

Japanese manufacturers are interested in using Dawei to make parts that can supply factories in Thailand, which automakers Toyota Motor Corp. (7203) and Honda Motor Co. (7267) use as a production base, said Somchet, who is overseeing the project.

Japan will try to help finance the Dawei port if it can reach a deal on the former military dictatorship’s “huge” outstanding debt, Kimihiro Ishikane, a foreign ministry official, told reporters in Bali on Nov. 16. Myanmar is a “crucially important” part of Japan’s plans to try and reduce costs for its companies operating in the region, he said.

ASEAN Landscape

“This is a project that will help change the ASEAN landscape,” Somchet said, referring to the 10-member Association of Southeast Asian Nations, which has a market of almost 600 million people. “We are establishing an industrial hub where raw materials will flow” to China, India and Japan.

To be sure, Myanmar has recently put two electricity projects on hold due to opposition from environmentalists. One of them is a 4,000-megawatt coal-fired power project in Dawei that Italian-Thai agreed to build with Ratchaburi. In September, Thein Sein halted construction of a Chinese-backed $3.6 billion hydropower station.

The moves underscored the investment risks stemming from Myanmar’s 14-month-old transition toward democracy, a process on which the lifting of sanctions is conditioned. The country is viewed as the most corrupt after North Korea and Somalia in Transparency International’s Corruption Perceptions Index.

The Dawei project is “still far from reality,” DBS Vickers Securities (Thailand) Co. said in a Jan. 16 report. “Despite potential to bring economic prosperity to Burma, the project is still in its infancy and clouded with risks.”

Steel Mill

Italian-Thai is wooing banks to lend $12.5 billion for the development as well as to invest in an integrated steel mill, an oil, gas and petrochemical complex and fertilizer plants. It expects to gain income from selling land and acting as the main contractor on the project’s infrastructure, including a more than 100-kilometer road from Dawei to the Thai border.

Thein Sein took power last year after a general election in 2010 that ended half of a century of military rule. In addition to releasing hundreds of political prisoners and signing the cease-fire with the country’s largest armed rebel group, he has sought dialogue with democracy advocate Aung San Suu Kyi.

The U.S. and U.K. have pledged to ease sanctions if he takes additional steps to reduce political repression and demonstrates the changes will last. Standard Chartered Plc (STAN) and General Electric Co. (GE) are among those seeking to invest in Myanmar after Secretary of State Hillary Clinton last month completed the highest-level U.S. visit to the nation in more than five decades.

‘Strategic Location’

China and India share more than 3,600 kilometers of border with Myanmar, whose 64 million people earn an average of just $2.25 per day, according to International Monetary Fund estimates. Both nations have sought increased access to the resource-rich nation’s reserves of natural gas.

“Myanmar can become a regional hub for some sectors,” Nay Zin Latt, an adviser to Thein Sein, said in an e-mail. “Our strategic location will attract investors. Goods and commodities will move in and out more conveniently with a lower cost, making us more competitive.”

Gas sales and better freight links with China, India and the rest of Southeast Asia may enable Myanmar to boost gross domestic product growth, which IMF data shows averaged 4.9 percent per year during 2008 through 2011.

Gas Rich

Natural gas production in Myanmar has almost quadrupled in the past decade to 12.1 billion cubic meters in 2010. That is equivalent to about one-eighth the output of China, Asia-Pacific’s biggest producer, according to the BP Statistical Review. Gas sales to neighboring Thailand have made it Myanmar’s top trading partner.

“The Dawei port will focus on petrochemicals, not containers,” said Ruth Banomyong, an assistant professor at Bangkok’s Thammasat University who has studied logistics in the region for the Asian Development Bank. “It will be more of an industrial port, with gas and petroleum products.”

Maersk Line Ltd. will look to do more business in Myanmar if the nation opens up to the international community, said Thomas Knudsen, chief executive officer of Asian operations at Maersk Line, a unit of Copenhagen-based A.P. Moeller-Maersk A/S (MAERSKB), the world’s biggest container shipper.

The deep-sea port will be able to handle more than 200 million tons of cargo when completed, according to Italian-Thai. That compares with 47 million tons of cargo that passed through Laem Chabang, Thailand’s biggest port, in 2009, Port Authority statistics show.

“Clearly the port could start to grow,” Maersk’s Knudsen said, referring to Dawei. “We’ve seen that in other parts of the world when you’ve got the combination of a deepwater port and zones for manufacturing.”

To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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