Premchai Karnasuta first started thinking about doing business in Myanmar 18 years ago. He had the go-ahead from the government for a small project in a sleepy port town called Dawei when Thailand’s financial crisis erupted and put an end to the plan. As Myanmar’s political conditions deteriorated and its isolation grew, dreams of doing business there receded.
The Dawei Special Economic Zone development will include a $50-billion deep-sea port and industrial complex in southern Myanmar.
Now the company founded by Mr Premchai’s family, Italian-Thai Development Plc (ITD), has returned to Dawei in a big way as the lead contractor on a seaport and industrial complex worth tens of billions of dollars.
ITD holds a 75-year concession to develop the megaproject. However, its path in Myanmar has been anything but smooth since it signed the contract in 2010. The military junta that ran the country for decades is gone, replaced by a quasi-civilian government that has been reforming at a rapid pace.
Regime change should have been good news for ITD, but questions arose about whether the new government would embrace Dawei as enthusiastically as its predecessor had. Investors were skeptical and ITD struggled to attract financing to begin the initial phase.
It became clear that only a firm commitment from the governments of Thailand and Myanmar would allow the project to go ahead. The reason was that Dawei would not be viable without a transport route and other infrastructure linking it with major industrial sites in Thailand’s Eastern Seaboard.
The two governments last Wednesday reaffirmed their commitment during the visit of Myanmar Vice President Nyan Tan to Bangkok. They now expect to finalise details in three or four months so that construction can begin next April.
“The challenge in Dawei lies ahead,” says Mr Premchai, the managing director of ITD. “For me, the only concern is how ITD can complete the major infrastructure within three years. It is very tough. We’ve already won the project, but the next challenge is to implement it.”
As recently as the second quarter of this year, Mr Premchai was unable to give details about the financing or partners in the giant project. That concern was eased after the Thai government decided to take part by setting up a special-purpose entity.
The result was the formation of Dawei Development Co (DDC), in which ITD will hold a 25% stake and lenders the rest. DCC has to put up 5 billion baht for the stake, and the Thai government will play a role in helping complete the project.
Mr Premchai said this was a good sign for the project as the Thai and Myanmar governments had shown their willingness to make the 270-billion-baht project materialise.
ITD has to finish the first-phase infrastructure construction by the end of 2015, including a port, roads, utilities and electricity, logistics system, power plants and an industrial estate. DDC has divided the construction activities among seven separate companies, which will sign agreements with the Myanmar government, starting with port and road construction contracts this month.
“I feel better than I have in the past several months,” says Mr Premchai. “The direction is clear now.
“The big job, which is the relocation of residents in the project area, has been almost done. The next task is the construction, which is not that easy to complete all within three years. It is a challenge.”
Once things start to go more smoothly at Dawei, Mr Premchai can devote his attention to other projects in Thailand, including mass transit and flood protection infrastructure, in which ITD is keen to take part.
“The Thai government will soon open bidding for many electrical train systems and flood protection facilities. We want those jobs too. So, how can we balance the workforce for projects in both countries, and how we can be sure that our financing is strong enough to smooth the projects without any harm?”
ITD needs partners for many of its large ventures. Mr Premchai still has to fly to Japan from time to time to negotiate with banks such as the Japan Bank for International Cooperation (JBIC). It has Ratchaburi Electricity Generating Holding as a partner for developing a gas-fired power plant, and Amata Corporation to develop industrial estates in Dawei. It expects the Thai government will help co-develop road and deep sea-port construction.
Thai Finance Minister Kittiratt Na-Ranong said that because the Dawei project is so huge, development will be done in phases starting with light and labour-intensive industries before heavy industries are built later.
“The confidence of international investors is the key, and so far several international organisations have expressed their interest in supporting the project. The more participation the better,” he said last week.
Prime Minister Yingluck Shinawatra said the two countries would like to make a further announcement of progress at the Asean Summit in Cambodia next month in order to encourage potential investors.
“In developing countries, governments play vital roles in development, but it has not been the case in Myanmar. We have had a chance to explain [our plan] to the Myanmar government and to be given the opportunity to develop the project at the right time,” says Mr Premchai.
He added that Dawei was a good location for export both to Thailand and the world market. The Myanmar government is negotiating for Generalised System of Preferences (GSP) tariff breaks with European Union countries. The negotiations are anticipated to complete next year. The location benefits manufacturers who want to export to China as well.
“I do believe that this is an opportunity and the future for exporters,” he says. “There are many that want to buy land in the industrial estate. Now, it’s our job to complete it within three years, and we will make it.”
About the author
Writer: Nalin Viboonch