China Ostensibly Cancels Myitsone Dam Project in Myanmar in Favour of Access to Kyaukpyu Port

12 April 2017 Caleb Gorton, Research Assistant, Global Food and Water Crises Research Programme

Background

President U Htin Kyaw completed a six-day visit to Beijing on 11 April. During his first visit to China as the Burmese head of state, President Kyaw met with Chinese officials to discuss opportunities for collaboration in future development projects. The future of the Chinese-financed, US$3.6 billion ($4.77 billion) Myitsone hydropower dam project, in northern Myanmar, however, remains a potentially troublesome issue. After construction was postponed in 2011 following widespread domestic opposition in Myanmar, Beijing pushed Naypyidaw to reopen the project. In the last six months, China has shifted its position and shown willingness to abandon the project. Cancelling the project could force Myanmar to repay the US$800 million ($1.06 billion) already invested by China. Alternatively, in return for cancelling the project, Beijing has proposed the development of several smaller hydropower dams and preferential access to the strategic Kyaukpyu port on the Bay of Bengal.

Comment

President Kyaw’s approach to the dam project must ensure the continuation of positive relations with China, as this is essential to addressing Myanmar’s extensive challenges. At the same time, public opinion in Myanmar is overwhelmingly against the dam. The original proposal to send 90 per cent of the electricity it produces to Yunnan, a province in southern China, as well as issues regarding displaced villagers and environmental damage, caused widespread opposition to the project in Myanmar. Importantly, Aung San Suu Kyi, who is the de facto leader of Myanmar, openly condemned the dam. If the project is restarted, it could damage Suu Kyi’s government and personal reputation.

Myanmar requires a strong relationship with China for its economic development and strategic assistance to end the internal conflicts that have existed since its independence in 1948. In August 2016, Suu Kyi’s visit to Beijing resulted in an agreement to strengthen bilateral relations. China confirmed its commitment to strengthening security in the conflict-ridden border areas and agreed to provide economic and social development assistance to Myanmar. As a fragile state, Myanmar requires foreign assistance to achieve long-lasting peace with its ethnic insurgent groups.

Myanmar is geopolitically important for the Chinese “One Belt, One Road” policy. Through this initiative, Beijing aims to further its land and maritime connections with Central Asia and Europe. The “21st Century Maritime Silk Road,” the maritime component of the policy, aims to connect China to the Middle East, East Africa and Europe via a sea trade route from the Bay of Bengal. Gaining preferential access to the strategic deep port at Kyaukpyu is crucial for this policy. The port is the entry point of a pipeline that, once it is operational, is expected to carry oil from the Bay of Bengal to refineries in Yunnan. The pipeline is believed to be capable of transporting six per cent of Chinese crude oil imports. China’s offer to exchange the Myitsone Dam project for preferential access to the port would secure Beijing’s strategic access to vital Middle Eastern resources. The pipeline flows through Myanmar’s Shan state, an insurgent stronghold, and therefore Beijing has additional interests in assisting with conflict resolution. According to the Chinese Global Times, a crude oil transmission agreement between the two countries was signed during the meeting and “consensus” was reached on the Myitsone Dam, but neither government has articulated what this entails. With the signing of the oil transmission agreement and preferential access to Kyaukpyu port, however, it is unlikely that the dam project will restart.

Myanmar’s fragility and its priority to end its years of internal conflict means that the construction of any of the proposed hydropower dams will risk domestic stability. For China, the Myitsone Dam has lost its strategic and economic value because Yunnan has recently become oversupplied with electricity. Through its apparent willingness to cancel the project, Beijing has shown its relative strategic interests have shifted in favour of securing preferential access to the port. Time will tell, however, whether the Myitsone Dam project has truly been cancelled.

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