CDB lends £1.04 billion for Phases 2, 2A, and 3 of the Myingyan No. 1 Steel Mill Construction Project (Linked to Project ID#98030, 98031)

On July 14, 2010, China Development Bank (CDB), Myanmar Economic Corporation (MEC), and Myanmar Foreign Trade Bank (MFTB) signed a loan agreement for Phase 2 of the Myingyan No. 1 Steel Mill Construction Project. The borrowing terms of this loan were as follows: a 20 year maturity, a 5 year grace period, and a 4.5% interest rate. Then, on June 14, 2011, China Development Bank, Myanmar Economic Corporation (MEC), and Myanmar Foreign Trade Bank (MFTB) signed a loan agreement for Phase 2A and 3 of the Myingyan No. 1 Steel Mill Construction Project. The borrowing terms of this loan were as follows: a 21 year maturity, a 6 year grace period, and a 5% interest rate. The precise face values of the 2010 and 2011 loans are unknown. However, according to a Government of Myanmar General Statistical Report and a Mandalay Regional Auditor General's Report (covering the period April 2018 to September 2018), total CDB disbursements for the project amounted to EUR 1,042,340,000 (EUR 566.97 million euros when the steel mill was under MEC ownership and EUR 475.37 million during the period when Myanmar’s Ministry of Industry was responsible for the steel mill). The CDB loan repayment period for Phase 2 of the project runs from FY2015-16 to 2030-31. The CDB loan repayment period for Phase 2A and Phase 3 of the project is FY2017-18 to 2032-33. The total principal and interest outstanding under the two CDB loans was EUR 1.615 billion as of 2020. The purpose of the project was to construct a steel mill — with the capacity to produce 400,000 tons per year of steel, steel products, construction materials, and machinery materials — near Sar Khar Village within Myingyan Township and the Mandalay Region (approximately 3.3 miles west of milepost 450/0 on the Yangon Myingyan Highway). The project was implemented in three phases. Phase 1 commenced operations in March 2010 and it reportedly reached completion. However, it does not appear that Phase 2 or 3 (which were designed to produce value added products) ever reached completion. Responsibility for the steel mill was transferred from MEC to Myanmar’s Minstry of Industry on October 1, 2012. There are some indications that the CDB loans for Myingyan No. 1 Steel Mill Construction Project financially underperformed vis-a-vis the original expectations of the lender. The mill was shuttered on February 17, 2017 because it was consistently losing money. Then, in 2020, the Acting Mandalay Chief Minister stated that the total project debt including interest exceeded EUR 1.615 billion. Consequently, the Government of Myanmar found itself in the position of having to pay 500 million kyats ($345,000) a day to CDB to service a loan contracted by a military-backed conglomerate (MEC) for a steel mill that was no longer operational. In 2020, CDB and the Government of Myanmar signed a debt suspension agreement as part of the G-20 Debt Service Suspension Initiative (DSSI). Under the terms of the agreement, the lender agreed to suspend principal and interest payments due between May 1, 2020 and December 31, 2020 under 5 loan agreements (as captured via Project ID#98030). Debt service payments under these loan agreements were again deferred in 2021 (as captured via Project ID#98031). On August 16, 2021, the military junta-appointed Minister of Industry, Dr. Charlie Than, visited the project site and announced that work at the steel mill would commence 'as soon as possible' (at the instruction of coup leader Min Aung Hlaing). A Yangon-based observer monitoring investment projects in the country noted at the time that the military regime was rapidly resuming Chinese-financed projects -- paused by the [National League for Democracy (NLD) government] -- to prove that it could make the initiatives profitable: 'They are doing that intentionally and for political purposes. They want to say that they are able to do it even though the previous civilian government suspended it,' the observer said.

Additional details

1. This project is also known as the 200,000 Tons Per Year Special Steel Factory Equipment Export Project or the Myanmar Steel Corporation (No.4) (Myingyan). The Chinese project title is 缅甸敏建钢铁厂的建设 or 敏建钢厂 or 缅甸年产20万吨特种钢厂设备出口项目. The Burmese project title is အမှတ် (၁)သæမဏိစက်ရâæ (ြမင်းြခæ) တိâးချဲ ့စီမæကိန်း။ အမ ှတ်(၁) or သံမဏိစက္႐ုံ တည္ေဆာက္ေရး or မြင်းခြံသံမဏိစက်ရုံ. 2. Given that AidData does not know the face values of the 2010 CDB loan and the 2011 CDB loan, it has estimated borrowing terms by simply calculating the average borrowing terms across the two loans. 3. Neither of the CDB loans that supported this project are included in the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020. 4. MEC is one of two major conglomerates and holding companies operated by the Myanmar military, providing it with a major revenue stream. MEC runs numerous businesses in fields such as banking and finance, information technology, tobacco, communications, construction, entertainment/tourism, food and beverage products, health and beauty products, health services, industrial estates, international trade, manufacturing, media, retail and transport. MEC is on the United States’ list of sanctioned companies due to its affiliation with the military. MEC was considered to be a state-owned enterprise during military rule. However, during the Thein Sein administration (2011-2016), MEC was privatized and responsibility for the Myingyan No. 1 Steel Mill was transferred to Myanmar’s Ministry of Industry.

Number of official sources

7

Number of total sources

24