Burma’s rocky path to democracy – the role of natural resources

Much of Myanmar’s natural resource wealth is located in ethnic areas. There are deep-rooted ethnic grievances, many of which related to the – justified – claim that past military governments have plundered what is perceived as the minorities’ own resources.

A few months ago a German MP visited us in Yangon. While the South-East-Asian region does not attract too much of the Bundestag’s attention, Myanmar used to be a special case. Its long history of political isolation was reason for concern, critique but also interest. However, once Thein Sein’s civil-military government opened up the country after the 2010 elections, this MP claimed, German politicians ticked a box. Everything fine – the country is on its way to democracy. Interest vanished.

When early results of last year’s first free and fair election in more than a quarter of a century trickled in, and it became clear that Nobel Peace Prize Laureate and global freedom and democracy icon Aung San Suu Kyi (ASSK) and her National League for Democracy (NLD) had won by a landslide, the international community celebrated: mission accomplished. Tick another box. Yet, life is much more complicated in Myanmar. ASSK has a long and rocky path ahead of her and it is by no means clear that she will succeed.

The success of ASSK and her NLD government will be judged mainly by two questions: a) whether she can bring peace to a country that has seen armed ethnic resistance for most of the past 70 years. And b) whether she can develop the economy in a more sustainable and equitable way than the army did in the past. Myanmar’s wealth in natural resources – oil, gas, mining, water, timber, land – will play a key role. So far, Myanmar’s natural resources have been the classical case of curse rather than blessing. Interests continue to be diametrically opposed. And ASSK will have to balance these powerful interests in her Realpolitik of the coming years.

Opposing interests

First, Myanmar’s Army (“Tatmadaw”) is still calling many shots – the country is far from being a fully-fledged democracy. By constitution, the Tatmadaw holds 25 percent of seats at all levels of parliament (wielding a blocking minority with regard to constitutional change). It nominates one of the two Vice Presidents and effectively controls the National Defense and Security Council. The commander-in-chief nominates all security-relevant ministers: Home Affairs; Defense; and Border Affairs. The constitution gives them the right to dissolve the parliament in case of political turbulence. And, as cherry on the cake, the Army is owner of a number of major companies, and former generals as well as businessmen close to the Tatmadaw (the so-called “cronies”) control many of Myanmar’s natural resources. For them, jade alone constitutes a bonanza possibly worth a hundred billion USD or more.

Second, in stark contrast stand interests of ethnic minorities. Myanmar is one of the ethnically most diverse countries in the world. The government claims there are 135 ethnic nationalities which constitute ca. one third of Myanmar’s 52 Million inhabitants. Much of Myanmar’s natural resource wealth is located in ethnic areas. There are deep-rooted ethnic grievances, many of which related to the – justified – claim that past military governments have plundered what is perceived as the minorities’ own resources.

The International Crisis Group has counted 17 major Ethnic Armed Organizations (EAO)[i]. On 15 October 2015 eight EAO singed a National Ceasefire Agreement (NCA). However, some of the signatories are minute outfits with as few as 100 soldiers, while major players – such as the United Wa State Army with supposedly 20,000 soldiers; the Shan State Army or the Kachin Independence Army with about 8,000 fighters each – so far stayed out of the process.[ii] While issues of ethnic identity, cultural heritage and decision-making powers over one’s own fate currently dominate the discourse, economic benefit sharing is one of six negotiation areas identified for the Union Peace Conference (UPC). I believe that, when push comes to shove, economics will decide if a lasting peace accord can be struck or not.

Third, observers can witness in Myanmar these days a modern version of “the Great Game”. Sandwiched in between the world’s two most populous countries, China and India, Myanmar has become a geopolitical cornerstone for these Asian giants as well as for the United States. China in particular holds great interests in Myanmar, which is a key element of its “one belt, one road” initiative. Myanmar offers China a unique direct access to the Indian Ocean, avoiding dangerous and expensive trade routes through the Malacca Strait. China, once Myanmar’s “brotherly” friend, is by far the largest foreign investor, accounting together with Hong Kong for about 38% of FDI since 1988[iii]. Energy- and resource-hungry China has high stakes in hydropower, a gas pipeline, mining, and large infrastructure projects.

A major blow for Myanmar-Chinese relations was thus the suspension of the construction of the 6,000 MW Myitsone Dam project by President Thein Sein in September 2011, amidst great public resistance. This giant dam in Kachin State on Irrawaddy River– the country’s aorta – was for many Burmese no less than a sell-out of their national heritage. Chinese FDI has picked up again but diplomatic relationships remain somewhat sour. Yet, no Burmese leader can afford to ignore China for too long.

A legacy of bad governance

ASSK has to confront a legacy of badly designed, negotiated and implemented natural resources mega-projects – mines; large hydropower projects; plantations, etc. Over years, the military government has made dodgy backroom and under-the-table deals with their foreign partners. What these projects have in common is:

• An almost complete lack of contract transparency. It is still virtually impossible to get any relevant information on most of the contracts signed, although Myanmar’s application to be a member of the Extractive Industries Transparency Initiative (MEITI), provides a potential opening contracts have not been disclosed.
• No or no meaningful Environmental and Social Impact Assessments, not to speak of Human Rights or Conflict Impact Assessments.
• Lack of any meaningful public participation. The principle of free, prior, informed consent (FPIC) has been completely neglected in all projects.
• Forced expropriation and eviction of farmers from their lands without appropriate compensation, and other human rights violations.

In most cases, ethnic minorities were victims of these measures. A major cause of conflict is rooted in the 2008 Constitution, commissioned by the Army after the revoked 1990 elections. The Tatmadaw very much sees itself as custodian of this constitution. Article 37 (a) reads: “The Union: (a) is the ultimate owner of all lands and all natural resources above and below the ground, above and below the water and in the atmosphere in the Union”[iv]. The text of Article 18 of the 1974 Constitution is practically identical. Such language is not unique to Myanmar. Other than in a few, mostly industrialized countries, natural resources in many countries belong to the central state. However, the old military establishment has used this provision for years to sell Myanmar’s natural resources at its own discretion (and benefit), forcing local populations to leave their territories whenever necessary.

Ethnic leaders, on the other hand, argue that Article 26 of the UN Declaration of the Rights of Indigenous Peoples give them rights and decision-making powers over “the lands, territories and resources which they have traditionally owned, occupied or otherwise used or acquired”[v].[1] They call for federalism, a promise which ironically was given to them by ASSK’s father and independence hero General Aung San. It was he, who – at the historic Panglong Conference in February 1947 – convinced the independence-minded ethnic minorities to stay in the Union, promising their leaders in principle full autonomy within their territories. This never became reality, but explains ethnic minorities’ strong desire to own their lands.

The big open question remains: who ultimately owns Myanmar’s natural resources? The Natural Resource Governance Institute (NRGI) recently published a report on revenue sharing in natural resources.[vi] Revenue sharing between national and sub-national entities could be a solution, which does not necessarily require constitutional change and solving the ownership issue. But are the vested interests ready for compromise?

Myanmar’s “Big State Secret”

According to a MEITI scoping study, the country is the world’s 10^th largest producer of natural gas, the largest producer of ruby and the world’s “single source of Jade”[vii]. It also holds deposits of oil, sapphires, copper, lead, silver, zinc, tin, gold and coal. The first EITI report lists 3,011,283 Million Kyat in fiscal and non-fiscal revenues for the fiscal year 2013/14[2]. 85% of revenues are derived from oil and gas, 13% from jade and other gem stones and about 2% from other mining commodities.[viii] Extractive industries thereby accounted for 23.6% of the government’s revenue in 2013/14. While this sounds a lot, it is very questionable that Myanmar’s people get a fair deal from its commodity wealth.

Due to its capital-intensive nature, the oil and gas sector is dominated by transnational corporations such as Total, Petronas, and Daewoo, with recent new arrivals from Europe, US and Australia such as Shell and Woodside starting to explore. While governed by strict contract confidentiality, there is still some transparency in the sub-sector. Individual stakes are known, including of state-owned Myanmar Oil & Gas Enterprise (MOGE). What seems mind-boggling, however, is the budgeting process of Myanmar’s government. More than half of the revenues do not end up “on-budget” in a central government account, but are diverted to so-called “other accounts” of state-owned enterprises and ministries. It is completely opaque what these institutions actually do with the funds. But clearly, they are not a part of Myanmar’s ‘fiscus’.

Even murkier is what Global Witness called Myanmar’s “Big State Secret”[ix]: the jade trade. Officially a 3-Billion-USD business, UN trade data puts the import figures to China in 2014 at 12.3 Billion USD[x], and Global Witness estimates the gross jade production in 2014 at roughly 31 Billion USD![xi] Myanmar’s government received only about 1% of this amount as revenue in the form of taxes and royalties. At first glance, this figure seems hard to believe. But in a recent meeting a government official called it “plausible”.

Global Witness also identified the beneficiaries of this opaque (and in parts illicit) trade: from former dictator Than Shwe, former Agriculture Minister Ohn Myint to drug lord Wei Hsueh-Kang (with a 2 Million USD US government bounty on his head!), it reads like the “who’s who” of the old military and crony establishment. No matter the real production value of jade, one thing is clear: Myanmar’s state, its people, and in particular the Kachin – where almost all of the jade is found – have been deprived of massive income and thus their future.

Suu Kyi’s Dam Dilemma

A recent cover of the weekly magazine Mizzima read: “Suu Kyi’s Dam Dilemma”.[xii] The NLD will soon have to take position on a number of large-scale hydropower deals that include its powerful neighbor China. As the Myitsone case has shown, there are enormous risks and conflicting interests involved. No question: the country needs energy. According to the IFC about two third of Myanmar’s population has no access to regular electricity[xiii]. In regional comparison, the per capita use is minute – e.g. only one third that of Lao.[xiv] The ADB has estimated the gap in installed capacity until 2030 in between 13.3 and 17.5 GW. It celebrates Myanmar as a potential future regional energy giant of about 100 GW possible hydropower capacity, including for export.[xv]

The government itself has identified 92 large dam projects with a total capacity of about 46 GW. Mong Ton Dam on the Than Lwin River, a joint Chinese-Thai-Myanmar project, would have a capacity of 7,110 MW, larger even than Myitsone Dam. With a height of 241m it would be one of the world’s biggest dams, its reservoir effectively splitting conflict prone Shan State into two parts.[xvi] A total of 13 dam projects of more than 1 GW capacity have been planned in Myanmar’s fragile border zones. In addition to the above mentioned characteristics of bad governance, most of these large hydropower projects have major flaws:

• No energy benefits for local populations but primarily export-orientation: as Myitsone Dam, also the Mong Ton project would produce 90% of its energy for export to China and Thailand;
• Many of the projects are located in zones of active armed conflict and likely to amplify these conflicts;
• Major risks involved as some dams would be constructed on a geological fault line.

In particular, the dams on Than Lwin River (Salween in Thailand or Nujiang in China) are reason for concern. The planned hydropower projects would not only destroy what is considered the last pristine river basin in the region, but possibly also the livelihoods of hundreds of thousand people of ethnic minorities. A major reason for concern is the geological risk: already in 2004 Chinese Premier Wen Jiabao suspended the construction of 13 dams planned on Nujiang River.[xvii] To our information, this decision has recently been confirmed by the Yunnan regional government: most likely no dams will be built on Nujiang River. But will China and Thailand be successfully exporting their environmental externalities and risks to Myanmar?

The “Dam Dilemma” is part of the greater problem of Myanmar’s energy policy. With the help of Japanese development agency JICA, a masterplan has been drafted that foresees a change in the energy mix from what is now 65% hydro, 33% gas, 2% coal (no renewables) at an installed capacity of 4.84 GW, to 38% hydro, 20% gas, 33% coal and 9% renewables at 23.6 GW installed capacity.[xviii] This would mean an increase in installed capacity of (large) hydro by ca. 5 GW and of coal by ca. 7.6 GW, locking the country for the coming decades into grid-based dinosaur technologies. IFC is currently analyzing on behalf of the government the sustainability of planned large dam projects; many of which may go ahead.[xix] The World Bank has recently approved a 400 Million USD project in support of the National Electrification Project, out of which only 80 Million are earmarked for off-grid and mini-grid solutions.[xx] In a country where many people live in very remote areas, this seems not sufficient.

Prof. U Aung Myint, Director of the Renewable Energy Association Myanmar (REAM) and member of the national Energy Commission, criticized the masterplan for its a) overblown demand expectations, b) lack of decentralized renewable energy and c) focus on grid-based solutions.[xxi] Climate impacts of coal fired power plants are well accepted. But a global coalition of about 500 CSOs has presented scientific evidence at last year’s Climate Conference in Paris that large dams, particularly in tropical countries, cannot be regarded as “clean and green”.[xxii] They claim that methane emissions from large hydropower reservoirs have similar or worse climate effects as coal-fired power plants. On top, most of the dam projects are financially not viable and costs overruns of large hydro projects are on average at 96%.[xxiii]

Land and livelihoods for grab

Land grabbing has a long history in Myanmar; some cases date back to the 1970s or 1980s. But the problem accelerated “to an unprecedented scale” in the past years[xxiv]. The Asian Legal Resource Center (ALRC) reported in 2012 that a majority of 1,700 complaints received by the National Human Rights Commission were land grabbing cases.[xxv] The Food Security Working Group says that more than 2 Million acres (ca. 800,000 ha) of land have been confiscated between 1988 and 2010 by the military government.[xxvi] In 2013, a Land Utilization Management Central Committee was established, which in 699 cases (474,000 acres) agreed to return land or pay compensation.[xxvii] By July 2014, however, only 150,000 acres had been returned.[xxviii] Taking away land is taking away peasants’ livelihoods – an alternative way of making a living is seldom possible. This is why resistance to land grabbing and conflicts are increasing.

Two laws have exacerbated the problem in the past years. The “Vacant Fallow and Virgin (VFV) Land Management Law of 2012” aims at maximizing the return from so-called wastelands. This is in line with the Ministry of Agriculture’s plan “to convert ten million acres of wasteland into private industrial agricultural production, with rubber, palm oil, paddy, pulses, and sugarcane for export” until 2030.[xxix] Equally, it is used to occupy “wasteland” for industrial, extractive, infrastructure or other purposes. The “Farmland Law of 2012” makes rights to farmland freely transferable for those who actually have legal land titles.[xxx] It thus introduces individual private property rights to a context which was previously characterized predominantly by smallholder agriculture in shifting cultivation and community-managed resources. Most land in question therefore was never “wasteland”, but cultivated under customary or communal rights. The new laws do not recognize such rights, thereby “excluding the vast majority of occupants”.[xxxi]

The road ahead

All of these issues are highly explosive and have the potential to alienate either one of the major competing interests mentioned above. The case of the Letpadaung Copper Mine, where ASSK made the tactical mistake of accepting the chairpersonship of a parliamentary Commission to resolve fierce local resistance, may serve as an example of her future approach. The Commission decided in principle to let the mine continue while recommending changes to Myanmar’s share and to improve environmental and social performance, arguing that international investment contracts have to be honored.

ASSK has repeatedly said that she wants to attract FDI. She needs to avoid having the image of a government in breach of contracts, even if these contracts were concluded by an illegitimate government. At the same time she is aware of the expectations of her people in general and ethnic minorities in particular. The NLD will probably look at the projects one by one and then decide whether compromise is possible, projects can be re-negotiated, proper ESIA and meaningful participation introduced, or whether it must risk upsetting either one of the powerful interests – by going ahead or by shutting down a particular project. Quick access to the relevant information is needed as well as top notch technical and legal assistance – the EU could play an important role in this respect.

Mirco Kreibich is a trained biologist and environmental economist. He became first hbs Myanmar Country Director in July 2015. Before joining the Foundation, he was working for 15 years with the German Government and the World Bank as development expert, inter alia in Afghanistan, Peru and Mali.