China Eximbank pledges loan to Government of Myanmar to finance its acquisition of 15% equity stake in Kyaukpyu Deepwater Port Project

In 2009, Xi Jinping, as the Vice President of China, witnessed the signing of an MoU on the Kyauk Phyu Economic and Technological Development Zone, Deep Sea Port, Railway Projects in Myanmar. Then, on September 29, 2014, the Government of Myanmar issued an international tender for the development of the Kyauk Phyu Special Economic Zone (KPSEZ). On November 24, 2014, CITIC Group submitted tender documents for the Deep Sea Port (DSP) and the Industry Park (IP) Project of KPSEZ, respectively, to the Government of Myanmar. On December 30, 2015, the Government of Myanmar identify CITIC Group as the bid-winner of both the DSP Project and IP Project of KPSEZ. On April 10, 2017, Myanmar's then President U Htin Kyaw and Chinese President Xi Jinping signed an exchange of letters regarding the implementation of the KPSEZ DSP Project and KPSEZ IP Project in KPSEZ. Then, on November 8, 2018, CITIC Group — on behalf of a larger consortium led by CITIC — and the KPSEZ Management Committee signed a $1.3 billion Framework Agreement of KPSEZ DSP Project. The Framework Agreement signing ceremony was held in Naypyidaw. [Note: In Chinese, the agreement is known as 缅甸皎漂经济特区深水港项目框架协议). According to the framework agreement, the deepwater port project was to be financed with 70% debt and 30% equity. Myanmar's Government would hold a 15% equity (ownership) stake in the project company (special purpose vehicle). Funding for Myanmar's equity contribution to the project (company) was expected come from a loan from Export-Import Bank of China. Overall, 95% of the financing for the project was expected to come from China Eximbank, while 5% was expected to come from the Government of Myanmar. Then, on the occasion of Chinese President Xi Jinping's state visit to Myanmar on January 18, 2020, a set of transaction agreements — including the Shareholder Agreement and the Concession Agreement -- for the KPSEZ DSP Project were signed in the presence of Myanmar's State Counsellor Daw Aung San Suu Kyi and Chinese President Xi Jinping. According to the agreements, the two sides agreed incorporate a Joint Venture (JV) to carry out the construction and operation of the KPSEZ DSP Project. Eight months later, on August 6, 2020, Myanmar’s Directorate of Investment and Company Administration approved the registration of the project company (joint venture/special purpose vehicle), which is known as Kyaukphyu Special Economic Zone Deep Seaport Co. Ltd (ရေနက်ဆိပ်ကမ်းစီမံကိန်းဖက်စပ်ကုမ္ပဏီကို). Several months later, in November 2020, the KPSEZ Management Committee and the Kyaukphyu Special Economic Zone Deep Seaport Co. Ltd — a joint venture of CITIC Myanmar Port Investment Limited (70% equity stake) and the Government of Myanmar’s KPSEZ Management Committee (KP SEZ Management Committee) (30% equity stake) — signed a Concession Agreement. Under the terms of the Concession Agreement, Kyaukphyu Special Economic Zone Deep Seaport Co. Ltd agreed to undertake the project according to a design-build-finance-operate-maintain-transfer (DBFOMT) model. A coup d'état in Myanmar began on the morning of February 1, 2021, when democratically elected members of the country's ruling party, the National League for Democracy (NLD), were deposed by the Tatmadaw—Myanmar's military—which then vested power in a military junta. Acting president Myint Swe proclaimed a year-long state of emergency and declared power had been transferred to Commander-in-Chief of Defence Services Min Aung Hlaing. It declared the results of the November 2020 general election invalid and stated its intent to hold a new election at the end of the state of emergency. Then. on May 3, 2021, Myanmar’s Military Council reconstituted the KP SEZ Management Committee. The Committee was chaired by U Myint Thein, retired Deputy Minister of the Ministry of Railways. U San Shwe Maung, a member of the Rakhine State Planning and Administration Council, joined the Department of Urban and Housing Development as the vice chairman. Ministry of Economy and Commerce Ministry of Planning and Finance Kyauk Phyu District General Administration Department officials, Including officials from Myanmar Port Authority (Rakhain State). Nearly three months later, on July 29, 2021, a tender was announced to hire a company to provide legal advice to the KP SEZ Management Committee (the Government of Myanmar’s representative on the Kyaukphyu Special Economic Zone Deep Seaport Co. Ltd). CITIC Myanmar Company subsequently announced that CITIC Construction and CCCC FHDI, a joint venture team, won the bid to carry out the preliminary field investigation and consultancy work required for the construction process of the project. CCCC FHDI is a subsidiary of China Communications Construction Company (CCCC). The signing ceremony of the agreement to carry out the work was held in Beijing on September 15, 2021. Then, on January 24, 2022, Daw Aye Nu Sein, a member of the Military Council, visited the Kyauk Phyu Deep Sea Port and Special Economic Zone Project site. In addition, during the meeting of the Military Council's Central Working Group on the Myanmar Economic Zone, the Chairman of the Economic Zone, Dr. Pwong San, said that the Kyauk Phyu DSP Project need to be implemented quickly because local residents would get employment opportunities and other economic benefits. In February 2022, after a year-long international public tendering and evaluation process, the consortium led by CITIC selected MSR Consortium as the Environmental and Social Impact Assessments (ESIA) service consultant. Then, on June 29, 2022, the Central Bank of Myanmar (“CBM”) issued the Letter No. FE-1/643 for exemption of the foreign currency conversion requirements under the CBM Notification No. 12/2022 to exclude the following entities from the foreign currency conversion requirement: Kyaukphyu Special Economic Zone Project Development Company Ltd. and yaukphyu Special Economic Zone Deep Seaport Co. Ltd. The purpose of the project is to design, build, finance, operate, maintain and transfer a deep sea port facility — consisting of the Yanby lsland terminal, the Made Island terminal, a bridge connecting the two islands and an approximately 15km access road to the Kyaukphyu Special Economic Zone Industrial Park — in Kyaukphyu District, Rakhine State. Once completed, the deep sea port facility is expected to allow China to gain direct access to the Indian Ocean, bypassing the congested Strait of Malacca. The deep-sea port is also expected to boost development in China's landlocked Yunnan province that borders Myanmar.

Additional details

1. This project is also known as the Kyauk Phyu Special Economic Zone (KPSEZ) Deep Sea Port (DSP) Project, the Kyauk Phyu SEZ Deep Sea Port Project, the Kyauk Phyu Special Economic Zone Deep Sea Port Project, Kyaukpyu Port Project, the Kyauk Pyu Port Project, and the KPSEZ DSP Project. The Chinese project title is 缅甸漂经济特区深水港项目 or 皎漂港项目 or 皎漂经济特区深水港项目 or 缅甸皎漂特别经济区深水港和工业园项目 2. According to DICA's records, Kyaukphyu Special Economic Zone Deep Seaport Co. Ltd is composed of 6 directors, 2 Myanmar government officials and 4 from the Chinese company. On the Myanmar side, Kyauk Phyu Special Economic Zone Management Committee Chairman, project, U Set Aung, Deputy Minister of the Ministry of Finance and Industry, and U Min Min, Director General of the Department of Trade under the Ministry of Economy and Commerce, will serve as directors of the joint venture company. From China, CITIC Group (Myanmar) Managing Director Yuan Shaobin and Deputy Managing Director Liu Qing; Shan Liming Ma Chuanfu and Sun Tiejun will serve as directors. 3. The CITIC-led consortium (CITIC Myanmar Port Investment Limited) responsible for project implementation includes China Harbour Engineering Company Ltd., China Merchants Holdings, TEDA Investment Holding and Yunnan Construction Engineering Group, and Thailand’s Charoen Pokphand Group. 

Number of official sources

16

Number of total sources

39