Further details emerge on $2.6bn Dawei refinery

Further details have emerged on the last-minute approval of the Chinese-led joint venture developing the $2.6bn oil refinery in Dawei near the Thai-Japanese developed Dawei Special Economic Zone (SEZ).
 
The registered name of the JV is listed as Longwin Global Petrochemical, which was approved as a foreign-local joint investment in the 18 March meeting (10/2016) of the Myanmar Investment Commission (MIC), according to records from the Directorate of Investment and Company Administration (DICA).
 
The joint venture was approved for 'oil refinery, production and sale of petroleum products and semi-manufactured products related to the refinery plant, establishment of related jetty, storage and logistics facilities.'
 
An 11 April Chinese-language news article featured on JV partner Guangdong Zhenrong Energy’s (GDZR) website stated that the joint venture is aiming to begin operations in 2019, according to a translation by the Myanmar Energy Monitor.
 
The release states that the facility’s production is targeted for the domestic Myanmar market, and will also include liquified petroleum gas (LPG) production equipment.
 
GDZR’s largest shareholder (44.3%), Zhuhai Zhenrong, is among China's top four state-owned petroleum traders and China’s largest importer of Middle Eastern oil.
 
The refinery position on the Andaman Sea is a strategic placement for the Chinese government, which lacks refining capabilities and storage ports on the Indian Ocean.
 
In view of Myanmar's flagging oil production in recent years, it is possible that the refinery could be an import hub for Middle Eastern crude, with refined products targeted either for domestic distribution or for re-export.
 
According to a 22 August 2012 report by Eleven Myanmar on an early version of the deal, the project will be built near the Dawei Special Economic Zone (SEZ) on a 1,636-acre site, which is currently a palm oil plantation that was purchased by Myanmar Economic Holdings (UMEHL) for a reported Ks2.6bn ($2.2m), with jetties to be built at nearby Tesit and Sanhlan beaches.
 
A more recent 24 April 2016 report from Deal Street Asia cited the plot at 733-acres from a 'source familiar with the development'.
 
Longwin Global JV
 
The joint venture, which was announced on 4 April, is comprised of China’s state-owned GDZR, which holds 70% ownership, and three Myanmar firms holding the remaining 30% – UMEHL, 'Myanmar Petrochemical Corporation' and the Yangon Engineering Group.
 
It is thought that the 'Myanmar Petrochemical Corporation' cited in the press is the Myanma Petrochemical Enterprise (MPE), which is a state-owned company controlled by the Ministry of Energy (MoE).
 
A previous iteration of the deal had UMEHL holding 20% ownership and Yangon Engineering group with the remaining 10% of the project, as reported in local media in 2012, however, the April announcement included MPE with an unspecified ownership stake.
 
UMEHL is a large conglomerate owned by the Myanmar military with significant holdings in the financial and light industrial sectors.
 
Yangon Engineering Group is owned by Myanmar’s HTOO Group.
 
Tay Za, HTOO Group's founder and CEO, is listed on the US Treasury Department and EU's sanctions list.
 
The JV received a license for investment in a 5 million tonne refinery, as well as rights for the import, storage and distribution of petrochemicals on 29 March, the final day of the outgoing government.
 
The same day, the JV signed agreements for the project with the Ministry of Energy (MoE) in Naypyitaw, according to a 4 April Chinese-language news release on GDZR’s website.
 
The last-minute approval has prompted criticism of the deal, and speculation as to how the new National League for Democracy (NLD) led government will handle the project.
 
Xiong Shaohui, Guangdong GDZR’s chairman, has stated that the company will likely seek additional funding from China’s state policy banks – China Development Bank and China Export & Import Bank – under the One Belt, One Road (OBOR) initiative, which has been marked as a funding priority by the Chinese government.
 
GDZR received official approval for the investment in the refining facility from the Chinese government in 2014.
 
When the MoU for the project was originally signed between GDZR and UMEHL in 2011, the announcement was met with protests by the local community due to the environmental impact of the proposed refinery.
 
China in Dawei SEZ
 
The news report from GDZR cited the approval China’s large investment into the refinery as a surprise for the investors in the Dawei SEZ, which is currently dominated by Japanese and Thai firms.
 
Chinese investment has previously been focussed on the Kyaukphyu SEZ in Rakhine State, which began development in February and is linked by a controversial oil and gas pipeline built by the China National Petroleum Corporation (CNPC) from the Kyaukphyu port overland to China's Yunnan Province.
 
The 11 April Chinese-language report described China’s entrance into Dawei over recent months using the Chinese idiom ‘a thunderbolt on a clear day,’ and that the other international firms will have to ‘adjust their plans’ for the development of the SEZ in light of the Chinese-led refinery and infrastructure.
 
In August 2015, the Myanmar government signed a concession agreement for the first phase of the Dawei SEZ with a consortium of private-sector companies. 
 
The consortium of developers includes Italian-Thai Development Public Company (ITD), Rojana Industrial Park Public Company and LNG Plus International, according to a press release from Roland Berger Strategy Consultants, a firm advising on the SEZ.
 
No breakdown on the value of the contracts was published, but the first phase is expected to cost some $8.6bn and take eight years to build.
 
Funding for the project from the Japanese and Thai investors was lacking as global fuel prices continued to decline. 
 
In March 2016, ITD announced that it had partnered with a consortium of Chinese firms in a proposal to build infrastructure for the SEZ, including King Trillion Investment and state-owned China Railway Engineering Corp (CREC), according to a 7 March article in Thai newspaper the Nation.
 
There is little information available on the Hong Kong registered King Trillion, which was incorporated on 26 March 2015 according to the Hong Kong companies registry.
 
The consortium plans to construct a 132-kilometre, four-lane road connecting Dawei to Thailand’s Kanchanaburi across the isthmus at a cost of $386m, as well as three deep-water ports near the SEZ costing $400m.
 
The project would likely also receive funding from the Chinese government under the OBOR initiative.
 
The new NLD-led government has not yet given approval for the new Chinese-led approval to proceed, and the Japanese International Cooperation Agency (JICA) has also reportedly begun the process for a competing bid for the road construction.
 
The first phase will include the construction of public utilities, LNG facilities, a power plant, an industrial estate, a residential zone, a Myanmar-Thailand cross-border motorway and a communication network on 5,000 acres of land.
 
In August, Shell signed a Joint Development Agreement with Italian-Thai Development and LNG Plus International to develop a liquefied natural gas (LNG) terminal in the zone.
 
The terminal construction was planned to begin in early 2014 and be operational by mid-2015, but delays to the wider project have now pushed the timelines out.
 
According to Roland Berger, the initial phase will focus on labour-intensive industries including textiles, garments and food processing, while the later phase will target other industries including steel, chemicals, refining, plastics and pharmaceuticals.