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Kyauk Phyu Special Economic Zone

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Aman Ullah
RB Analysis
January 4, 2015

“The compensation did not equal the real value of the land. We can’t buy another plot of land with that money. No one wants to lose their land. What they did to us is sinking our life. We made our living with this land and now we don’t know how to continue our life anymore.” A victim village

China’s CITIC Group Corporation has won two contracts related to a special economic zone in western Myanmar including building a deep sea port on the Bay of Bengal on December 31. CITIC’s consortia (including China Harbor Engineering Company Ltd., China Merchants Holdings, TEDA Investment Holding, and Yunnan Construction Engineering Group) will lead projects to build the port as well as an industrial area at the Kyaukpyu Special Economic Zone in western Myanmar’s Rakhine State, which borders Bangladesh to the north and the Bay of Bengal to the west.

Kyauk Phyu Special Economic Zone is located on Kyauk Phyu Township of Burma’s Arakan State. Over 200,000 people live in the township. Farming and fishing are the main livelihoods in this quiet and rural area, which has numerous tidal channels and creeks. However, in the last few years the Shwe gas and oil pipelines project has disrupted local communities, with confiscation of farm lands and loss of fishing areas leading to migration from the area.

Myanmar's parliament approved it on December 29 despite opposition from activists and lawmakers who criticized the tender process and said the development would have a negative impact on the people.

Kyaukpyu is of particular interest to China because overland links between Myanmar and southern China can reduce reliance on the potential chokepoint of the Strait of Malacca. By eliminating the need to travel via the Strait of Malacca, Kyaukpyu Port would save about 5,000 kilometers in sailing distance for shipments traveling to China from India and points beyond. The drive to diversify its shipping routes – and to increase economic clout in neighboring countries – is a major impetus behind the new “Belt and Road” initiative, which envisions infrastructure and trade networks linking China with every part of the Eurasian continent.

Why does China want the Kyauk Phyu Special Economic Zone?

In 2006, China’s president Hu Jintao outlined a new “going global” strategy, which included an increase in the number of Chinese Special Economic Zones globally. The main stated reasons were to find new markets for Chinese goods and services, build up Chinese brand names and increase China’s foreign investments.

A Free Trade Agreement between China and the ASEAN nations signed in 2010 created further incentives for trade between the nations. The Kyauk Phyu project will be China’s largest SEZ project in Southeast Asia and according to the feasibility study, the ASEAN market will be targeted through “export-oriented” manufacturing and processing industries.

In December 2009 and February 2011, China and Burma signed Memoranda of Understanding (MOUs) for the construction of the Kyauk Phyu Economic and Technological Development Zone. Under the MOU with Burma’s Ministry of Planning and Economic Development and CITIC Group will construct a Special Economic Zone, including expansion of a deep sea port, railway, airport and industrial areas. Its subsidiary CITIC Construction Company Limited has made further agreements to cooperate on this project with the Htoo Company, owned by military crony Tay Za.

According to a feasibility study1 by CITIC Construction Company, the zone will require an initial investment of US$ 8.3 billion and a total US$ 89.2 billion over 35 years, using 120 Km² (30,000 acres) of land as well as 70 Km² of waterways.

The Zone will be included with the following three clusters: -

1. City Cluster (28 km²)

· 2,000 MW power plant (unspecified fuel source),
· Industrial water and sewage plants
· Residential areas, business centres, hospitals, schools and tourist areas.

2. Logistics Cluster (24 km²)

· Airport expansion
· 250 million-ton capacity wharfs to accommodate 300,000-ton freighters.
· Sea port
· Railway and logistics park to store 10 million tons of goods.

3. Industrial Cluster (40 km²)
Oil refinery and petrochemical industries (12 km²)

- Refined oil, 10 million tons/year
- Ethylene, 800,000 tons/year
- Other petrolchemical products, 1.5 million tons/year
- Fertilizer, LNG etc, 3 million tons/year

• Metal Industries (14 km²)

- Iron and steel, 5 million tons/year
- Other refined metals, 300,000 tons/year

• Marine Service Industry (3 km²)

- Two marine docks to service regional shipping traffic and dismantle old ships for sale of materials.

• Processing and manufacturing industries (11 km²)

- Agricultural and aquatic products, gems and wood.
- Textiles, metal, plastics, car parts and electrical appliances.

The Impacts of the Zone and Devastation of Livelihoods

The construction of the Special Economic Zone will multiply the already unfolding impacts of the Burma-China oil and gas pipelines. Massive industrialization will have devastating consequences for tens of thousands of farmers and fishermen who have been neither informed nor consulted about the plans.

Land confiscation and relocation of villages

According to project maps, the 120 km² zone could lead to the relocation of about 40 villages as well as parts of Kyauk Phyu town. This, in addition to the loss of large areas of farmlands, will directly affect tens of thousands of people. Neither of these communities nor local government officials have been informed or consulted about the project. Construction of the Shwe pipelines and associated infrastructure has already led to the confiscation of thousands of acres of valuable farmlands. Most of these confiscations were involuntary.

Impact on Jobs 

CITIC’s feasibility study claims that the SEZ will bring over 100,000 new jobs to the area in the first phase. However, the skill levels required for the industries in the zone and the hiring patterns of Chinese companies globally will mean that most of the labour pool is likely to come from outside Kyauk Phyu. The construction of China’s oil and gas pipelines already illustrates this: local people were able to obtain only low wage and temporary work clearing land and constructing roads while skilled jobs were given to workers from China, India and central Burma. In addition, due to the loss of farmlands, many villagers were forced to migrate to work in neighboring countries.

Impact on fisheries

The construction of wharfs and coastland industries for the zone will directly impact a minimum of 70 Km² of coastal waterways. The frequent traffic of up to 300,000-ton freighters and deep sea fishing in the corridor leading into the deep sea port will likely destroy the local small-scale fishing industries. Toxic wastes and pollution from shipping and industries will threaten fish stocks and the local ecology. Exploration of the Shwe gas fields and construction of an undersea pipeline, which involved dynamiting coral reefs, have already depleted fish populations and restricted access to fishing grounds for local fisher folk.

Exacerbating water scarcity

Communities in Kyuk Phyu face chronic water shortages at the end of every dry season. This particularly impacts women as they are the traditional gatherers of water. Industrial complexes such as those planned in Kyauk Phyu use huge amounts of water. It is estimated that the SEZ would use approximately 3.6 million cubic metres of fresh water per day, or 1,314 million cubic metres per year. This would affect the surrounding farmlands and put critical strain on the daily lives of local communities.

Impact on Mangrove Forest 

The zone threatens to devastate Burma’s second largest mangrove forest, which lines the coastal areas of Kyauk Phyu and neighbouring Ramree Township. The mangroves provide a crucial habitat for a large number of marine species as well as protection from natural disasters such as cyclones and tsunamis. There is a high risk that toxic waste from petrochemical and other industries will cause irreparable damage to the sensitive mangrove ecosystem.

Toxic petrochemical and metal industries

CITIC Group’s feasibility study provides no detailed information about planned processing stages in the production of petroleum products, ethylene, and related petrochemical products as well as production of iron and steel. Despite the threat of toxic waste, pollution and accidents, neither CITIC nor the government has conducted any of the following impact assessments: -

Petrochemical products, such as refined oil, ethylene and chemical fertilizer

· Air pollution from smoke stacks, including
· sulphur dioxide, nitrogen oxide, carbon monoxide;
· waste water, including ammonia, cyanide and
· heavy metals, contamination of ground water;
· fire and explosions of flammable toxic chemicals;
· oil spills

Iron and steel

· Air pollution from smoke stacks, including
· sulphur dioxide, nitrogen oxide and carbon monoxide;
· waste water, including ammonia and cyanide,
· contamination of ground water;
· large amounts of slag waste and dust, which can
· Contaminate ground water.

Lessons from Other Industrial Zones

The Kyauk Phyu Special Economic Zone will be five times larger than the controversial Map Ta Phut Industrial Estate in Thailand’s eastern province of Rayong. Built in 1988, Map Ta Phut includes a deep sea port and the largest centre of petrochemical industries in Thailand.

Environmental organizations and local communities have fought to close down the factories due to extremely high cancer-related deaths - 2,000 since 1990 -serious pollution of shallow well water, water shortages and air pollution.

Numerous accidents have taken place in Map Ta Phut over the last decades, most recently in May 2012 when explosions and a fire broke out in a petrochemical factory, killing 12 and injuring 129 people. The next day a chemical leakage in another nearby factory hospitalized 138 workers.

Due to public pressure, petrochemical industries cannot further expand in Thailand, which has led to relocating these harmful industries to Burma through the development of the Dawei Special Economic Zone. 

Industrial zones in China are causing high levels of pollution, posing risks to the environment and surrounding communities, stated a report by the China Environment Federation. These negative impacts are increasingly causing public protests by affected people.

In 1994 the CITIC Group developed the Da Xie Special Economic Zone, including Port facilities as well as petro chemical industries similar to those planned in Kyauk Phyu. The controversial project caused damage to the environment and livelihoods of surrounding communities.

A major issue was that the Da Xie industries required much more water than originally planned, leading to serious local water shortages.

In 2005, nearby villagers staged a protest outside the SEZ in response to flooding of the surrounding areas, and blamed the companies for poor drainage systems. A year later, over 100 kg of liquid chlorine leaked into the surrounding farmland and communities, destroying crops up to a kilometer away. Within five days of the accident, 678 villagers from the surrounding area had visited hospital reporting dizziness, coughing and skin irritations as a result of the leakage.

Complaints were also made that the Da Xie SEZ management had withheld information about the leakage and continued production for three days as if nothing had happened. Following an investigation in 2007, an Environmental Impact Tracking Evaluation report stated risks further chemical leakage and oil spills had still not been mitigated.

CITIC claims in its feasibility study that it will follow the laws and standards of Burma, including its environmental laws. However, an environmental law passed by Burma’s parliament in March 2012 lacks many crucial provisions for protection of people and the environment, including specific standards for how Environmental and Social Impact Assessments should be carried out.

It also does not include any mechanisms for public disclosure, Health or Human Rights Impact Assessments, Strategic Environmental Assessments or clear waste management procedures.

Moreover, Burma does not have laws that force government or foreign investors to publicly disclose contractual details of development plans, nor does it have adequate mechanisms to ensure that revenues are managed accountably and transparently. This would fuel corrupt practices.

Important provisions for community protection

· Before any development project commences, the affected communities must be given full information about project plans and impacts on their lives, which is called Free Prior and Informed Consent (FPIC). They can then analyze and discuss, without coercion, whether to give consent to the project, and to demand any necessary changes or conditions to the plan. FPIC has been adopted by the UN Declaration on the Rights of Indigenous Peoples (UNDRIP) as well as the International Finance Corporation (IFC).

· There must be a comprehensive Strategic Environmental Assessment (SEA) which can include economic and social issues. It links to national policies, examines alternatives and stresses sustainability. It should precede an EIA.

· Environmental, Social, Health and Human Rights Impact Assessments (EIA, SIA, HIA, and HRIA) are separate assessments analyzing different impacts of a planned project. These assessments should be completed and disclosed to affected communities for input before projects are approved, in order to prevent or minimize any negative impacts.

No adequate standards or mechanisms

According to the Arakan Oil Watch (AOW), an independent non-governmental community based organization, in light of massive increased interest of foreign investors in Burma, we must prioritize sustainable and healthy development that puts the people of Burma and its environment first. Projects such as the Kyauk Phyu Special Economic Zone threaten the lives of impacted communities and the environment, setting a dangerous precedent for other similar development projects in Burma.

Arakan Oil Watch therefore believes that the project should be suspended until the following recommendations have been fulfilled:

· CITIC and the government of Burma must disclose detailed project information to the public, in particular to affected communities as well as related political parties and civil society organisations.

· Affected communities must give Free Prior and Informed Consent (FPIC) before project commencement.

· Thorough Strategic Environment Assessments (SEA) as well as Environment, Social, Health and Human Rights Impact Assessments (EIA, SIA, HIA and HRIA) must be implemented and disclosed to the public before project commencement.

· Local affected people must have a choice to decide whether to give up their homes and land for agreed upon compensation, without coercion or threats.

· Protection of environment, human rights and livelihoods must follow international standards and allow independent monitoring by civil society organizations, including testing of pollution and waste in affected communities.

· There must be a plan detailing how the use of local labour will be prioritized and local personnel trained to benefit from job creation.

· Financial streams must be transparent and publicly disclosed.

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