China faces tougher laws in Myanmar

In the wake of the controversial Myitsone dam, Aung San Suu Kyi is demanding more from investors involved in high risk projects, writes Vicky Bowman
<p>Bridge over the Irrawaddy. Aung San Suu Kyi has created a special commission to evaluate the controversial Myitsone dam (Image by Sean Ryan)</p>

Bridge over the Irrawaddy. Aung San Suu Kyi has created a special commission to evaluate the controversial Myitsone dam (Image by Sean Ryan)

A new government took power in Myanmar on March 31, 2016, led in practice, if not on paper, by Daw Aung San Suu Kyi.  Governments and businesses around the world are keenly waiting for indications of the new ministry’s priorities and attitudes, none more so than China.  

To date, Aung San Suu Kyi has reiterated her desire to see investment from all sources, providing it is responsible. She has also issued clear instructions to her team on corruption, and tightened up rules around the receipt of gifts. A temporary ban on logging has been imposed, and the merger of the mines and environment ministry. as well as subsequent missions to damaged mining sites, including Hpakant’s jade mines and gold mines in Upper Myanmar, show that the new government will prioritise reducing damage by mining.

Many of these destructive activities have involved Chinese businesspeople, mostly working cross-border and with a variety of Myanmar armed groups. Although these businesses are by no means representative of China, they are, unfortunately, the lens through which many Myanmar people see Chinese business.  

But there is also recognition that China is Myanmar’s most important partner, whether political, economic or security. Responsible Chinese investment, in infrastructure, logistics, and manufacturing, is essential for Myanmar’s development.

Hanging over the China-Myanmar relationship, and dominating every press conference, is the question of the Myitsone dam, the largest of a seven dam cascade on the Irrawaddy River to be built and financed by China. In 2011, President Thein Sein suspended this project, which had been heavily promoted by his predecessor Senior General Than Shwe, in the face of countrywide protest. This was the first action taken by a new civilian government, which allowed Myanmar’s people to believe that perhaps his government would be different from the previous decades of authoritarian rule.   

Unfortunately this dumped the problem in Aung San Suu Kyi’s lap, five years later. Shortly before her recent visit to China, she announced the creation of a new commission to examine the dam. The remit of the commission is to consider: whether the technology meets international standards and local laws; the positive and negative social and environmental impacts, including on water resources, waterways and the longer term sustainability of the Irrawaddy River, as well as the electricity generation and commercial aspects; and to make proposals for the mutual benefit for Myanmar and the Chinese investor. The commission is due to report by November 11, 2016.

It is difficult to see how a body can conduct such a wide-ranging review in three months. The agenda would be better addressed by experts with a full environmental impact assessment (EIA). An EIA would probably take several years to complete, be fully disclosed and subject to public debate. Unfortunately, such a requirement was not in place when the MoU was signed with China Power Investment Corporation (CPI) in 2006.

However, it is now. In 2012, Myanmar established an environment ministry for the first time, and adopted its Environmental Conservation Law. This, in turn, led to the adoption on 29 December 2015 of Environmental Impact Assessment Procedures.  This regulation makes explicit the need for international standards, such as those of the International Finance Corporation (IFC) and Asian Development Bank (ADB), to be adhered to in the absence of Myanmar national law on issues such as the rights of indigenous peoples and resettlement.

CPI did conduct an EIA on the Myitsone dam complex in 2008 at the request of the Power Ministry, but it was only disclosed after the 2011 protests. It has been widely criticised for lacking an “alternatives analysis”, proper consideration of downstream impacts, the cumulative impacts of the seven dams, and the near absence of social impact assessment. Undertaken without meaningful baseline data, it would anyway have needed revisiting in the light of upstream changes and water and silt flows due to excessive logging, and climate change, as well as lessons learned from dams elsewhere.  

A new EIA for Myitsone would also need to take into account that project proponents are now liable for the costs of all upstream and downstream impacts. Were the project to be taken forward, changes would doubtless be required. Even leaving aside widespread opposition to the dam, its commercial prospects, though never compelling, will be further damaged. The Myitsone Commission may short-circuit the need for a new EIA. In the end, an orderly cancellation according to the contract and negotiation of compensation must be a foregone conclusion in the face of so much uncertainty and opposition.

Lessons from the dam

While Myitsone is unique, the lessons it raises are relevant for other investors, particularly those companies – mostly Chinese – who are more inclined to invest in high risk projects such as dams, mines and roads than their Japanese or Western counterparts.  

The first lesson is that there is now a legal framework for environmental and social protection in Myanmar. Poorly articulated, poorly understood and poorly implemented and enforced, it nonetheless creates legal obligations. Since the framework refers to World Bank/IFC Performance Standards where Myanmar law is lacking, any major investment would be advised to plan to operate to those standards, even if the Myanmar law is currently unclear.

The second is that the public’s voice can now be heard – which was not the case prior to 2011 – and it has power. It needs to be engaged, honestly, and listened to.

The third lesson is that although the real cause of the problem is a poorly considered and executed government decision, the investor company will be blamed. The new EIA procedure (Article 123) allows for government to conduct a Strategic Environmental Assessment (SEA). SEAs allow for a more holistic review of a project or policy, going beyond the impacts of a single company or installation, and can also offer the opportunity for forward-looking public debate. To date, no SEAs have been done in Myanmar. Indeed the Myanmar government would be unlikely to find enough money for professional international experts to conduct an SEA. But Myanmar’s development partners might be able to do so. Economic development – including the existing pipeline to China in the area of the Kyaukphyu Special Economic Zone, where a CITIC led consortium has won the tender for the port and industrial complex – cries out for an SEA led by the government. This process should consider the cumulative impacts over time and establish specific guidelines for investors in the zone.    

The proposed dams on the Thanlwin (Salween, or Nu) River are another candidate for strategic environmental assessment. They face strong opposition. The cumulative impacts are of particular concern, as has been seen in the Mekong. Since these dam projects are at an earlier stage than Myitsone, and in areas of active conflict, it would be wiser to hold back on these until there is more progress both on the peace process, and a strategic environmental assessment of the impacts of multiple dams on the river. The IFC is working with the Myanmar government to build their capacity to promote sustainable hydropower, and have also establish a “developers group” for companies, which any company with an interest in Myanmar hydropower would be advised to join.

Transparency remains key

What was lacking in the past was communication and transparency by investors. The political landscape has changed. A vibrant public debate now takes place in Myanmar, in the official media and on social media. Companies need to be transparent, or others will set the agenda. They should proactively respond to and disclose information, and map and engage with stakeholders at local and national level, including the media and critical Myanmar civil society groups.   The answer is not to try to buy support with highly publicised charitable donations.  In the end, communities want their rights respected, by culturally sensitive and transparent companies, not handouts.    

Legal requirements for transparency and engagement remain minimal. The new EIA process requires disclosure and public consultation. It can be a communication and engagement opportunity if done properly, rather than the tick-box exercise which most companies have done. But EIA-related consultation is not a replacement for ongoing contact with stakeholders and local communities. It is also vital – even if not a legal requirement – for companies to establish an “operational grievance mechanism”, an accessible point for communities to raise concerns and complaints direct with the company, in line with the UN Guiding Principles on Business and Human Rights.

Another essential step companies need to take to reduce their risk is due diligence. This means due diligence on their business partners, where old partners with military connections who might once have brought added value now bring trouble. But it also means due diligence on human rights impacts, with a particular focus on land where legacies of land grabs are difficult to disentangle.

Legal compliance in Myanmar is a challenge. New and inconsistent laws emerge suddenly without warning and available only in Burmese. The Myanmar Centre for Responsible Business has been advocating for better law-making and also acts as a sounding board for companies trying to navigate new legislation. But in the end, during this uncertain transition, if a company operates transparently according to international standards it will both achieve compliance and fulfil what the Myanmar people now expect, and demand, of investors.