A fourth option for Myitsone: China’s view

There has been a mixed reaction in China to a proposal for resolving the dispute over the Myitsone dam, in which a key issue will be the recovery of millions of dollars in investment.


DISCUSSION about a fourth option for the Myitsone dam project has generated great interest in Myanmar and China since late June. The fourth option – outlined in a commentary by Mr Joern Kristensen in the June 30 issue of Frontier – calls for the cancellation of the controversial project and for China and Myanmar to move ahead, and cooperate on other, mutually agreed hydropower projects.

An editorial supporting the fourth option was published in state-run daily Kyemon (The Mirror) on July 24 and was widely seen as indicating government support for the proposal. That the editorial was published on the same day that Foreign Minister Daw Aung San Suu Kyi held talks with her Chinese counterpart, Mr Wang Yi, during the ASEAN Foreign Ministers’ meeting in Vientiane, was also believed to be a subtle message from the Myanmar authorities to China over the fate of the controversial mega project in Kachin State.

In his commentary, Kristensen, the executive director of the Myanmar Institute for Integrated Development, cited columnist Sithu Aung Myint’s account (Frontier, June 16) of the June visit to Kachin by China’s ambassador to Myanmar, Mr Hong Liang. During the visit, Hong reportedly said Myanmar had three options for the project: cancel it and be liable for $800 million in compensation; resume work and earn $500 million a year in revenue when the dam is operating; and do nothing and pay $50 million in interest a year for as long as the project is suspended. As all of these choices are unappealing to Myanmar and China, Kristensen proposed the fourth option: Cancel the Myitsone dam project permanently and move ahead with other mutually agreed dam projects.

Reaction to the fourth option from investors and policy makers in China has been mixed. On the positive side, the Chinese are pleased to see movement, any movement, on the Myitsone dam. It will be five years next month since former President U Thein Sein suspended work on the project for his term in office. In that time there has been no clear statement by the government on the project’s destiny. With the future of the dam unresolved after the National League for Democracy government took office, it became even more imperative for China to push for a clear answer and a clean resolution of the issue.

This is not only because of the financial implications for China’s State Power Investment Corporation, the main investor in the project, but also for Beijing, because the Myitsone dam has become a thorn in bilateral relations.

From China’s perspective, the fourth option is based on a much more realistic assessment about Myanmar’s need for electric power. The assessment is in line with what China has been trying to convince the Myanmar government and people for a long time: the necessity and desirability of hydropower in a country that has power shortages but is richly endowed with water resources.

Meanwhile, China’s hydropower companies are seeking new projects. China’s Yunnan Province faces a surplus of electricity and selling it to Myanmar and other energy-hungry Southeast Asian countries has been a question many Chinese power companies are trying to address.

From China’s perspective the fourth option has two fundamental problems. One is procedural and the other is financial. In terms of procedure, how Myanmar reaches the decision to permanently cancel the Myitsone dam is important. If such a decision was made unilaterally by the government without proper investigation or disclosure, it would be as procedurally problematic as the unexpected decision in 2011 to suspend work on the dam. Some in China have suggested that the NLD government should appoint a commission to consider the merits and weaknesses of big infrastructure projects — similar to the panel appointed by the previous government and headed by Aung San Suu Kyi that examined the Letpadaung copper mine. Those who have suggested the idea have stressed that the activities and findings of any such panel must be transparent and open to be questioned by the public, investors and civil society groups.

The new commission formed on August 12 by President U Htin Kyaw to evaluate all proposed hydropower projects on the Ayeyarwady River, including the Myitsone project, will most likely address this procedural question. Assuming that the commission follows the example of the Letpadaung case, it will present a much clearer picture about the pros and cons of the project and offer a definitive answer on its future.

The procedural question, if addressed, will also need to answer the larger question of the project’s status and incurred costs. In China’s view, the biggest concern about the fourth option is that it conveniently omits the critical issues of compensation and reimbursement. China wants to know what will happen to the amount spent on the project so far and the interest payments that have accumulated since work began.

For China’s investors and government, covering incurred costs is shaping up as a bigger issue than cancellation. The previous government and SPIC had investigated and confirmed the dam for the last two years of Thein Sein’s administration, so the two sides should already have a mutually agreed figure. Therefore, from the Chinese perspective, the next step should be talks about covering or recovering costs, rather than simply cancelling the Myitsone dam and moving on.

Talks have begun between the Chinese side and Myanmar’s government and industrialists over a plan to cover the cost of disbursed amounts totaling about $800 million. Possible options include an ownership/assets arrangement for new hydropower projects and/or a payment installment plan based on the revenue they generate. Everything is negotiable, except pretending the issue does not exist.

With the newly formed commission, the Chinese have reignited their hope about the destiny of Myitsone. One thing is clear: if the project does turn out to be problematic, the NLD government will not want an unpopular liability to taint its reputation and Beijing will not want the thorny issue to continue festering between the two countries. New hydropower projects will be negotiated and built, under terms that both countries are comfortable with. The fourth option correctly identifies the potential for such opportunities. But unless the issue of recovering disbursed investment is resolved, any hope of moving on from Myitsone may be as unrealistic as hoping for its resumption.

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