Muse-Mandalay Railway Project

Infrastructure development was named as a key part of the NLD government’s twelve-point economic policy announced in 2016, with a preference for the PPP model as a means to meeting the country’s massive infrastructure investment needs. This push for infrastructure investment led to the development of the CMEC framework under the NLD in 2018. Daw Aung San Suu Kyi stated at the 2017 BRI Forum that BRI projects would be in accordance with Myanmar’s national development plan and that they must be national priorities linked to its Myanmar Sustainable Development Plan (2018-30). In addition, each project must pass through a competitive tender process, and financing will be multilateralized. However, it is not as yet clear whether the Muse-Mandalay Railway project will be implemented under CMEC as a bilateral cooperation PPP project or if it must pass through an open tender process.

The key entities involved are Myanmar Railway (MR) and China Railway Eryuan Engineering Group Company Limited (CREEC), both of which are state-owned enterprises. The financing structure of Muse-Mandalay appears to be undetermined at the time of writing, but it is most likely a joint venture between the two government SOEs, set up through a special purpose vehicle (SPV) to be implemented under the PPP model—specifically, a Build-Operate-Transfer (BOT) model—under which CREEC would pay for construction and operate the rail for a set period of time before returning to MR.

Poor governance

Though the Muse-Mandalay Railway project was initiated by CREEC in 2011, it remains in an early phase of the project cycle. This delay could be attributed to the governance deficits and lack of proper project planning and implementation plan during President Thein Sein’s administration, and the previous period of military rule. In addition, implementing government agencies (IGAs) have limited capacity with respect to the systematic use of PPP for infrastructure development. On the factors of strategic investment plans, financial risk management, institutional capacity and line ministries’ current practices, Myanmar ranked poorly and requires significant work in capacity building. Moreover, Myanmar Railway (MR), a Myanmar government state-owned enterprise (SOE) under the control of the Ministry of Transport and Communication, lacks the capacity to properly govern this mega infrastructure PPP project, and needs to address many issues, including shortfalls against operational costs, misguided investment priorities, financial restructuring, governance reforms, setting up regulatory institutions, and the commercialization of MR.

Political instability

The proposed route for Muse-Mandalay Railway would run through conflict-afflicted Northeast Myanmar. Since the military coup, there has been an increase in drug trafficking activity in these areas coinciding with the increased conflict and deterioration of security and governance. The construction and operation of Muse-Mandalay Railway would most likely require increased security from the military junta or its border guard forces, and with the increased armed presence, tensions between the military junta and ethnic armed groups and ethnic populations would likely increase. However, the SAC has removed the public consultation clause from the BRI Working Committee’s guidelines in order to facilitate faster implementation of BRI projects for the sake of political expediency and official recognition by the Chinese government. With the increased tension, the project should be postponed until it is possible to conduct proper consultation with affected communities and undertake a transparent land acquisition process.

No access to feasibility studies

None of the three feasibility studies conducted for this project appear to be available, making it difficult to judge the true costs and benefits of the project. Furthermore, all feasibility studies have been conducted by MR and CREEC, the same entities that would implement the project, creating a conflict of interest that throws the reliability of these studies into doubt. Besides, risks are rising since the military takeover, thus the previous risk assessment needs to be reassessed.

To capture different practices, quality and level of transparency, researchers are asked to answer six related questions for each data point. 1 point is assigned for each question to which the answer is “yes.” Each data point therefore has a total score between 0 and 6, where “0” means no information was publicly available at the time of research (not transparent) and “6” means full transparency.