Kyaukphyu Special Economic Zone (KP SEZ)

Vessels docked at a port of a Chinese-owned oil refinery plant on Made Island off Kyaukphyu, Rakhine State - Photo from Getty Images

Kyaukphyu Special Economic Zone (KP SEZ)

This research reflects information available up until January 2021, it may not reflect developments after the date of the assessment.

The Kyaukphyu Special Economic Zone (KP SEZ) is one of three special economic zones (SEZs) in development in Myanmar. Located on the Bay of Bengal in Kyaukphyu, Ramree Island, Rakhine State, it is planned to contain a deepwater port facility, an industrial zone, and a high-end housing project across a total of 4,300 acres. A primary goal of the SEZ is to use foreign direct investment to create jobs and generate tax revenues that will raise the standard of living for the Rakhine people in the area.

Project Background

Plans for the KP SEZ project were first announced in 2013. Its development follows the enactment of the legal framework for SEZs, the Myanmar Special Economic Zone Law, in 2014, and the publication of the law’s implementing rules in 2015. The law allows for tax exemptions and other financial incentives to attract investment and encourage production targeting both export and domestic markets. In December 2015, Chinese state-owned enterprise CITIC Group was announced as the winning bidder for the project. The first phase is scheduled to begin construction following a concession agreement and shareholders’ agreement concerning the deep seaport signed between China and Myanmar in 2020.

The KP SEZ project is receiving support from the Chinese and Myanmar governments. The KP SEZ project, specifically the deep seaport, is strategically and economically important for the China-Myanmar Economic Corridor (CMEC), a key component of the Chinese infrastructure-focused Belt and Road Initiative. Paired with the planned 1,400-km high-speed Kunming-Muse-Mandalay-Kyaukphyu railroad linking the KP SEZ with China, the deepwater port will allow China to access the Indian Ocean through Myanmar, making it the shortest and most economical path between China and India.

China International Trust and Investment Corporation (CITIC) Consortium is leading project development of the deep seaport and the industrial zone, both of which are scheduled to occur in phases. The CITIC-led consortium includes China Harbour Engineering Company Ltd., China Merchants Holdings, TEDA Investment Holding and Yunnan Construction Engineering Group, and Thailand’s Charoen Pokphand Group. The consortium holds a 70 percent stake in the deep seaport and 51 percent of the industrial zone, while the Government of Myanmar owns the remaining shares. In August 2020, a joint venture company, the Kyaukphyu Special Economic Zone Deep Seaport Co. Limited, was approved to implement the port project with 70–30 percent ownership split between CITIC Myanmar Port Investment Limited (a CITIC subsidiary) and the Kyaukphyu Special Economic Zone Management Committee, with CITIC committing US$1.3 billion of investments in the initial phase.

Governance and Transparency

Kyaukphyu is unique in that it was the only one of Myanmar’s three SEZs to follow a “business-to-business” model at its conception. However, since that time, it has been reorganized as a government-to-government arrangement. The Kyaukphyu SEZ project seems to have been carried out following the regulations governing Public-Private Partnerships (PPP) in Myanmar. Bidding was competitive and open and followed international best practices. All tender documents were published online. A Singapore-based firm was hired to carry out a market survey and develop a regional master plan before the selection of CITIC.

There were, however, shortcomings in the process. The environmental and social impact assessments were not completed before bidding, and it is not clear whether technical specifications in the tender process included environmental standards. Moreover, government contracts with the CITIC group are not publicly available.

 

Civil Society Complaints

Despite local communities having raised environmental and social impact concerns from the outset of the project, the government failed to address these concerns in a timely or effective fashion. The area residents had previously suffered land confiscation and economic hardship when a gas pipeline was constructed under the military regime and were naturally suspicious of the new administration’s pledge to conduct the new megaproject fairly and equitably. Kyaukphyu also suffered in the sectarian violence that wracked the Rakhine State, and the SEZ threatens to exacerbate lingering ethnic tensions. The government has pledged compensation for any land appropriation made as part of the Kyaukphyu SEZ, following the precedent set with the Thilawa SEZ. However, over 10,000 villagers in the SEZ area reported having received no clear information about land relocation or compensation, and the rate of payment has not been set.

Average Transparency Score:
2.84/6

To capture different practices, quality and level of transparency, researchers are asked to answer six related questions for each data point. 1 point is assigned for each question to which the answer is “yes.” Each data point therefore has a total score between 0 and 6, where “0” means no information was publicly available at the time of research (not transparent) and “6” means full transparency.

  • Not Transparent
  • Transparent
Project & Contract Phase Project Information Score Response Link to Information
Project Identification Project owner Kyaukphyu SEZ Management Committee http://kpsez.org/wp-content/uploads/2014/07/Multi-stakeholder-Engagement-sg-roadshow.pdf
Sector, subsector logistics, transport, manufacturing, housing, food processing, marine supply, service http://kpsez.org/wp-content/uploads/2014/07/KPSEZ-Road-Show1.pdf
Project name Kyaukphyu Special Economic Zone http://kpsez.org/
Project Location 370 acres on Madae island and 237 acres on Ramree island, Rakhine which is located along the central western coast of Myanmar  https://www.mizzima.com/news-domestic/rakhine-group-calls-suspension-kyaukphyu-sez-project
Purpose The development of a deep sea port that will unlock the potential of the hinterland and fulfill Myanmar’s potential as a trade corridor for Africa/Middle East and China. It will provide employment opportunities through the creation of industrial and fishery parks as well as integrated residential areas. The development will be environmentally sustainable and bring significant socio-economic benefits to the Kyaukphyu region and beyond. http://kpsez.org/
Project description This project composed of Deep-Sea Port Project (DSP), Industrial Park Project (IP) and Integrated Residential Area (IRA). http://kpsez.org/wp-content/uploads/2014/07/KPSEZ-Road-Show1.pdf
Project Preparation Project Scope (main output) 2 berths for deep-sea port project, Industrial Park, Integrated Residential Area http://kpsez.org/wp-content/uploads/2014/07/KPSEZ-Road-Show1.pdf
Environmental impact Hired Hatch Consultancy for scope of work and just announced for EIA/SIA consultancy in the beginning of 2021 https://www.icj.org/wp-content/uploads/2017/02/Myanmar-SEZ-assessment-Publications-Reports-Thematic-reports-2017-ENG.pdf
Land and settlement impact 246 hectares of land (detailed information related to impacts is not available yet.) – There are also plans to acquire land in the Doma Taung area, outside the SEZ, to provide replacement land to some persons who would be resettled from within the SEZ. https://www.icj.org/wp-content/uploads/2017/02/Myanmar-SEZ-assessment-Publications-Reports-Thematic-reports-2017-ENG.pdf
Contact details BEAC Office,
Kyaukphyu SEZ Management Committee,
Ministry of Rail Transportation,
Building No. (29),
Nay Pyi Taw, Myanmar.
Phone: (+95 67 405032)
Email: [email protected], [email protected]
kpsez.org
Funding sources CITIC Consortium kpsez.org
Project Budget Total of USD 2.3 Billion for Industrial Park (IP) covering the three phases from 2015 to 2038. Total of USD 7.2 Billion for Deep Sea Port (DSP) which covers the four phases from 2016 to 2036. USD 300 million of land value for DSP and USD 30 million for IP as well USD 5.8 million for Integrated Residential Area (IRA). USD 2.4 million for Consultant of Tender Process Management. USD 4-5 million of first five-year operation cost plan to incur from the fund generated from tender process and developers. http://kpsez.org/
Project budget approval date Concession agreement on January 18, 2020 http://www.citicmyanmar.com/index.php?m=content&c=index&a=lists&catid=41
Project Completion Project status (current) Preparation https://www.irrawaddy.com/news/burma/chinese-firm-opens-assessment-tender-strategic-deep-sea-port-western-myanmar.html
Completion cost (projected) Estimated USD 10 Billion originally (altogether DSP, IP and IRA) http://kpsez.org/
Completion date (projected) Not confirmed yet http://kpsez.org/
Scope at completion Key outputs have been disclosed, but full details unreleased http://kpsez.org/
Reasons for project changes Before U Thein Sein’s government stepped down, project agreement was signed in December 2015. However, because of public pressure, politicians within the ruling government, as well as Hluttaw’s fear of China debt trap, they tried to renegotiate the project agreement. Thus, new framework agreement was signed in November 2018. Shareholders agreement was signed in February 2020 when President Xi visited Myanmar. Original planned timeline could not be started and delayed. https://www.irrawaddy.com/news/burma/construction-chinas-bri-deep-sea-port-start-soon-myanmars-rakhine-state-govt.html
Reference to audit and evaluation reports Not relevant
Procurement Procuring entity CITIC SPV (Special Purpose
Vehicle formed between KPSEZ
and CITIC)
https://web.archive.org/web/20210221142752/http://kpsez.org/about-kp-sez
Procuring entity contact details No.(B-02-01), Golden City Business Centre, CMA old Building, Yankin Road, Yankin Township, Yangon, Myanmar
Tel: +95 19 376065 Fax: +95 19 376067 Email: [email protected]
http://www.citicmyanmar.com/index.php?m=content&c=index&a=lists&catid=169
Procurement process International Competitive Bidding (Conceptual Plan Development, Formation of Bid Evaluation & Awarding Committee, Selection of International Consulting Firm, Feasibility Study and Regional Master Plan Development, Expression of Interest (EOI), Request for Proposal, Selection & Award tender to China government owned SOE – CITIC Consortium for Deep Seaport & Industrial Park Project. Framework Agreement and Shareholders’ Agreement signed, Concession Agreement. kpsez.org
Contract type Design, Build, Finance, Operate and Transfer (DBFOT) of a Deep-Sea Port Project (DSP) Design, financing, infrastructure provision, marketing, lease/sale and operation/management (DBFL) for Industrial Park (IP) and Integrated Residential Area (IRA) kpsez.org
Contract status (current) Active kpsez.org
Number of firms tendering EOI – 19 (Registered), 5 (Sub) – Deep Seaport, 12 (Reg.) (3 Sub) – Industrial Park, 13 (Reg.) 2 Sub. Residential Project RFP – 5 (paid), 3 (sub) – DSP, 3 (paid), 1 (Sub) – IP, 2 (paid), 1 (sub) – RP kpsez.org
Cost estimate USD 7.3 billion (DSP), 2.39 billion Industrial Park kpsez.org
Contract administration entity Kyaukphyu SEZ Management Committee kpsez.org
Contract title Kyaukphyu SEZ Deep Sea Port Project kpsez.org
Contract firm(s) China International Trust Investment Corporation (CITIC) http://www.citicmyanmar.com/index.php?m=content&c=index&a=lists&catid=169
 USD 7.3 Billion (DSP) (under U Thein Sein administration in 2010) https://www.youtube.com/watch?v=uOhmvb9YKxk
Contract scope of work During the website’s latest update, no information was available publicly.
Contract start date and duration During the website’s latest update, no information was available publicly.
Implementation Variation to contract price Under Thein Sein administration, the agreement was worth of nearly USD 7.3 billion (DSP) although the newly negotiated agreement reduced the amount of investment to USD 1.3 billion for DSP. https://www.irrawaddy.com/in-person/new-improved-deal-on-china-backed-kyaukphyu-sez-due-soon-deputy-minister.html
Escalation of contract price During the website’s latest update, no information was available publicly.
Variation to contract duration The current project timeline is not updated after the project was renegotiated in 2018 and it has been delayed and has not come into the construction stage for DSP. https://www.irrawaddy.com/news/burma/construction-chinas-bri-deep-sea-port-start-soon-myanmars-rakhine-state-govt.html
Variation to contract scope Changes: – The project will start out on a small or medium-sized scale at the first phase and further expansion will be based entirely on demand. In that first phase of DSP, it will involve the construction of two jetties with a total investment of not more than USD 1.3 billion. https://www.irrawaddy.com/news/burma/govt-inks-agreement-chinese-firm-develop-kyaukphyu-sez.html
Reasons for price changes The agreement under President Thein Sein administration posed the risks for debt burden/trap for host government since it gave the Chinese developer an 85 percent stake and other 15 percent to Myanmar in the project. https://www.irrawaddy.com/news/burma/govt-inks-agreement-chinese-firm-develop-kyaukphyu-sez.html
Reasons for scope & duration changes The project raised its viability for host government and its risk for debt burden on the host, therefore the public pressured the government which led to renegotiation of the deal with Chinese investors. This negotiation resulted to start out on a small or medium-sized scale and delayed the project to move forward to the further stages. https://www.irrawaddy.com/in-person/new-improved-deal-on-china-backed-kyaukphyu-sez-due-soon-deputy-minister.html

Kyaukphyu Special Economic Zone