If we were to take a look back at the New Yangon City Development Master Plan (hereinafter referred to as the Yangon City Project), one will find that it is directly linked to China’s mega-infrastructure project that is the One Belt One Road (OBOR).
Since the “new city” will be built at a location able to easily access the sea, it is one of the most important routes for OBOR.
Since the conception of the Yangon City Project, there has been pointed remarks as to prevent possible money laundering, to drown in debts owed to China as well as not to generally be the sacrificial candle that will give light to other nations except ours.
Despite criticisms, the project had went ahead with rights given to China Communications and Construction Company (CCCC) with Myanmar gaining extremely slim margins of only 5 percent and China 95.
Only after a long while will Myanmar grow to a 25 percent status but only after having to invest around 20,000 acres of land in the very first phase alone with initial projections showing that Myanmar will earn in total about 450 million dollars. The situation of essentially giving up wholesale to China the Yangon City Project is a rather disappointing situation for the people of Myanmar.
Arguments arising from the management and distribution of land for the Yangon City Project also seem inevitable as CEO Theim Wei (aka Serge Pun) of the New Yangon Development Company (NYDC) had, with agreement from the government, had set the price of land marked for the Yangon City Project at a rate of five dollars per square meter, similar to the rate Japanese enjoyed for the Thilawa SEZ Project.
In an acre there is 4046.861 square meter, bringing the cost per acre of land to US$20,234. That amount the Chinese had to pay amounts to, after calculations using February 15 reference rate of the Central Bank at 1532 Kyat per dollar, Kyat 310 Lakhs per acre of land.
Due to the prospect of the Yangon City Project, a total of 168,000 acres of land that goes for billions of Kyats at current market rates will be given to China which means that original land owners that was supposed to earn just 20:80 ratio (has to own 10 acres to receive 2 acres worth of returns) will be compensated for very poorly until a certain lengthy period of time when it eventually becomes an urban area.
NYDC’s CEO Theim Wai explained the profit sharing at the event on February 15 discussing the final phase of the master plan for the Yangon City Project.
“We’ve given CCCC six types of operation. There will be two bridges, 26 Kilometres-long road, five rural towns, 23 and 13 Square Kilometres large industrial zones as well as sewage, waste water treatment and disposal. Those six in total bring up the amount of money required to 1.680 billion dollars.
They (CCCC) will have to fork out that amount 100 pc and take full responsibility for it. We will not be paying a single cent but we will have to give the land they need in exchange. As to the cost of the land, it is at a similar rate to the joint venture we’ve had with Japan for Thilawa with government permission, at five dollars per square meter. If we calculate base on that amount, the cost equal to the amount of land we will have to submit is only at 144 million dollars.
They will have to use 1.680 billion dollars. Even though it is not cash that we are providing but land, we will be investing 8 percent while they invest a 92 -pc stake. They have the money, we have the land. When the joint venture goes through, we will receive 8 pc and they 92 pc but 8 is not enough for the government. We are the ones that will provide the market.
We want 25 pc. So CCCC will invest 92 pc with only 75 percent revenue. It isn’t fair so we tried to adjust. So the plan is that out of the six operations, money will come from three. So we’d agree that before they make back the amount of their investment and internal return rate (IRR) of 13 pc, we will get 5 percent profit.
So when they finally make back their 1.6 billion dollars, we would already have gained back our land worth of 144 million dollars. We will then start to earn 25 pc at this point while they earn 75. They’ve agreed to this.
I think we come out on top rather than losing in this deal. Since we do neither want to give the money nor has the money, we only have the land. So the price of the land was set and invested. We will be earning three times the value of our land at 25 pc.
What’s even more important is that the JV with CCCC will mean that the concessions such as water management, wastewater treatment amongst others will last for 30 years. During 30 years, half is to make back the initial investments and the other 15 years is purely profit.
We will own 25 pc, which is 450 million dollars. Those millions will go to the Yangon Region Government. There will be expenses to keep the New Yangon City maintained in the future and we are working on it. What I want to explain is that it is not a case where we give them everything wholesale and they take everything and then go home,” said Theim Wai.
If we were to look at what Theim Wai had said, CCCC or whoever the winner of NYDC Challenge will enter into Joint Venture with the government. The company will fork out 1.680 billion dollars. The interest rate of 13 pc will be the rate at which interest rate gets calculated and the total term will last for 30 years. In 30 years, CCCC will be taking 92 pc profits up until the point where their lump investment of 1.680 billion dollars plus 13 IRR gets even. Only then will Myanmar gain 25 pc of profits. There were also many things that were unclear with what Theim Wai had said.
The other thing we must consider is that the first phase of the Yangon City Project will be developed upon 20,000 acres while phase 2 will be on 148,000 acres with an initial estimated total cost projection of 5 billion dollars.
The amount of 1.68 billion dollars, which NYDC’s CEO spoke of, seem to be the cost injected by the CCCC in order to operate the six operations they will be managing. While it is unclear, if we were to judge on a 5 billion dollar amount as basis for completion of the entire project, the 1.680 billion dollars to be invested by the CCCC plus the 144 million dollars’ worth of land from Myanmar still falls far short of the 5 billion dollars mark.
Will the joint venture and the CCCC conduct the same agreement as told by Theim Wei for the entirety of 5 billion dollars? If it would be so, it will be a substantially long time that China will continue to receive the lion’s share of the profits, almost akin to a wholesale ownership of the entire project.
China’s OBOR comes under the similar criticism that majority of benefits will go to China in whichever country it passes through which had even led to some countries breaking off their agreements. Myanmar’s fate, especially of the Kyaukphyu Deep-sea Port, had also come under predictions similar to that of Sri Lanka, a nation that got trapped in their debt and had to give up their Hambantota Port. There is also a “New City” project in Sri Lanka, similarly helmed and lorded over by China.
What’s more striking is that the project is Sri Lanka in managed by none other than the CCCC. The project is to build the Colombo Port City together with China Harbor Engineering Company (CHEC), a subsidiary of the CCCC, via a company (hereinafter referred to as PC) formed to make the project happen.
The CHECH will be forking out money to carry out land reclamation from the Indian Ocean in order to expand up to 233 hectares of land from the Sri Lanka coast. Of the 233 hectares, the PC will be getting marketable land amount of 108 hectares, of which 20 will be freehold, while Sri Lanka will receive other not-so favourable plots of land.
The contract that will see the PC owning over 50 pc of the port city will bind for a total of 134 years. This Colombo Port City is a part of the initial phase of the BRI proposed by China. It began in 2014 and had since finished with the bare minimum infrastructure. It is expected to take at least 25 years for full completion with the total estimated cost of 15 billion dollars.
Needless to say, Sri Lankans are worried that this will turn out the same as the Hambantota Port since the CHEC and by extension the CCCC is closely related with the Chinese government, which poses a threat to Sri Lanka’s sovereignty as a nation.
As it stands, Myanmar looks to be losing out more so than Sri Lanka because even though Sri Lanka is getting back close to 50 pc of the land, it is still in a disadvantageous position. Myanmar will be giving those lands to the Chinese at a much lower rates of return.
NYDC CEO Theim Wai had compared prices with the Thilawa project but in reality the projects are incomparable to each other. Japan is only taking 49 pc with nine public companies from Myanmar earning 51 pc which means that giving away plots of land for a mere Kyat 300 Lakhs can be considered a fair and beneficial deal for both sides. The resulting Thilawa SEZ is being sold to international companies for about Ks 3000 Lakhs per acre so it could be called a win-win situation for Japan and Myanmar.
The Yangon City Project, on the other hand, looks to be heavily slanted proposition of per acre Kyat 310 Lakh deal. While CCCC will be controlling in actuality close to 134400 acres out of total 168000 acres after compensating original land owners via a 20:80 ratio, it will still be at a rate 10 times lower than current market prices. If we were to put that amounts of land into the Thilawa SEZ numbers, Myanmar is already looking at a loss of around three trillion six hundred fifteen billion Kyats.
A look at NYDC’s CEO Theim Wai performance, someone that had vouched 450 million dollars in profit in this Yangon City Project deal, will show that he had failed to bring up FMI’s share prices up. A share from FMI used to fetch 41,000 Kyats at the Yangon Stock Exchange but had now fallen quintuple in prices at 8800 Kyats. It seems rather off that a person that had not been performing well in their own company is claiming how much the country will earn by depositing state-owned lands to China.
Who will take responsibility if this project escalates into Sri Lanka’s situation? How much responsibility will Theim Wai bear?
Authorities should and must reconsider the current deal and its details such as profit sharing as it is now pose a risk to sovereignty of the nation on top of a project that will see losses.