No taxpayer money for private gains in Dawei

In deeply divided Thailand, few policy initiatives enjoy as much consensual support as the multi-billion-dollar development of the Dawei deep-sea port megaproject in southern Myanmar.


The government of Prime Minister Yingluck Shinawatra has thrown its full weight behind the port. Ms Yingluck's predecessor Abhisit Vejjajiva conceded on television in 2010 that some industries have to be set up there because they "are not suitable to be located in Thailand", reacting to environmental and public health activism at Map Ta Phut industrial estate on Thailand's eastern seaboard.

Notwithstanding valid health and environmental concerns over Dawei, hard political economy questions are being ignored. The Yingluck government's decision to effectively shoulder the Dawei development project places burdens on Thai taxpayers to the benefit of the private sector construction conglomerate, Italian-Thai Development (ITD).

Prior to the onset of Myanmar's budding transformation, ITD was an early mover, In 2008, it was awarded a concession to develop 250 sq km centring on Dawei. Myanmar's opaque business world at the time was run by its repressive military under the State Peace and Development Council (SPDC) in cahoots with crony tycoons. A few key contacts in high and right places were all it took to secure lucrative businesses in Myanmar.

ITD expended limited start-up capital during the initial design phase on the premise that other investors would follow suit. Its local partner of choice was Max Myanmar, a crony conglomerate connected to the military regime, headed by Zaw Zaw, who is still on a United States Treasury Department blacklist. The manager chosen for the ITD-Max Myanmar joint venture in the Dawei Development Corporation was Somchet Thinapong, an insider who managed the early phases of the construction of Suvarnabhumi airport during its scandal-plagued early years.

Max Myanmar, in turn, was connected to Gen Tin Aung Myint Oo, who was appointed to the SPDC in 2007 in place of Gen Thein Sein. Both generals later donned civilian clothes, won parliamentary seats, and became vice president and president, respectively, after the November 2010 polls.

But as Myanmar's democratisation took on a life of its own, underpinned by Thein Sein's reformist government and his close working relationship with opposition leader Aung San Suu Kyi, Tin Aung Myint Oo's star waned. He resigned in May this year. Around the same time, the 4,000 megawatt coal-fired power plant to motor Dawei was suspended over environmental concerns. Within two months, Max Myanmar announced its withdrawal from the megaproject.

For ITD, what looked like easy baht on the back of political connections quickly became unfeasible. As the initial phase of ITD's US$8.5 billion languished, its share price wobbled. Interested investors were spooked. But then the Yingluck government's virtual bailout arrived to save ITD's day. The Yingluck government has deployed much Thai diplomacy and economic muscle to secure a clutch of MoUs to resuscitate and revive what ITD started. Crucial MoUs were signed during Thein Sein's official visit to Bangkok in July and again in New York last month when the two leaders met on the sidelines of United Nations General Assembly meetings. A high-level joint committee headed by Myanmar's vice president and Thailand's deputy prime minister now oversees the legwork of offshoot committees.

With the Thai government's enthusiastic backing, the Dawei project appears back on track. But ITD's stake in the revamped venture remains unaddressed.

If the Thai government is to assume liabilities for Dawei's development, ITD would be the main preferential beneficiary. The government's investment policy would then be in support of one single company over its peers. Such preferential treatment of ITD would raise moral questions and an assortment of conflict-of-interest suspicions. ITD should not be coddled and cushioned by taxpayer money. The construction giant made cost-benefit and investment calculus on its own, which became myopic and unwise. If it had become successful, ITD surely would not have shared its profits with the Thai government and public. If all had gone well, its share price upswings would not have reached the Thai public beyond a small number of ITD shareholders.

Moreover, the government's blanket bailout of ITD would set a bad precedent and send a wrong signal. It would set up an uneven playing field for other Thai multinational flagbearers that competitively contend in the rough-and-tumble global arena.

Leaner and meaner Thai multinationals, such as Thai Union Frozen Products (TUF) and Indorama Ventures, take risks and reap rewards on their own merits without burdening taxpayers. For example, as the world's largest canned tuna exporter, TUF has overcome ordeals involving pirates off the Somali coast. Thai multinationals that are not out in the world for a quick baht should not be indirectly punished by the government's bailout of ITD.

With historical familiarity dating back to Siamese years, Dawei's geo-economics are as compelling as its geopolitics are complicated. At varying intervals, Dawei was under the competing suzerainty of Burma (Myanmar's former name) and Siam until the mid-19th century, when much of the southern Tenasserim area fell under Burmese control. As the staging ground for Burma's southern army in its famous north-south pincer invasion and sacking of Ayutthaya in 1765-67, Dawei is closer to Bangkok than Phitsanulok, the old northern outpost of Siam.

To be sure, the Dawei megaproject is potentially Thailand's biggest lifeline from the Thai-Myanmar relationship. Alongside Dawei, Thai dependence on Myanmar already ranges from migrant labour and natural gas import to drugs suppression. On the other hand, Myanmar can also benefit from remittances, foreign currency income, investment, and capacity-building assistance from Thailand.

Together, Thailand and Myanmar form the strategic corridor of mainland Southeast Asia, a pivot between China and India on the one hand and China and Japan on the other. By the mid-21st century, mainland Southeast Asia could connect northeast Asia with the Indian subcontinent and maritime Southeast Asia for greater prosperity and stability to keep old and recurrent geopolitical rivalries at bay. In this vast Asian zone of 3 billion people that will either see more conflict or cooperation over the next three decades, mainland Southeast Asia is its centre of gravity and Myanmar and Thailand are potentially its pivotal geographical axis.

A straight line from Dawei through Bangkok would end up around Tuy Hoa in southern Vietnam, a long-coveted Asian land route that bypasses the limited and congested Strait of Malacca. If fully realised, Dawei's development and expansion and connection under the broader Greater Mekong Subregion could become the fabled Kra Isthmus passageway by other means. It would be a geo-economic game-changer for East Asia and the equivalent of another eastern seaboard for Thailand.

For these reasons, the Yingluck government may be in the right strategic mode in its efforts over Dawei. But, first and foremost, the government would be better off laying out the enabling conditions for local and international private interests to invest by reducing transaction costs, creating a level playing field and clear rules, providing basic infrastructure. It must have some foresight and avoid short-term pollute-thy-neighbour expediencies.

Thailand should minimise direct state intervention and assumption of contingent liabilities in a transparent fashion. Above all, it should not provide preferential benefits to any particular firm. In other words, no Thai taxpayer resources should be committed until ITD's status is clarified at its own expense.

Pavida Pananond is an associate professor at Thammasat Business School, Thammasat University. Thitinan Pongsudhirak is director of the Institute of Security and International Studies, Faculty of Political Science, Chulalongkorn University.