RANGOON — The Burma government has agreed to seek a concessional loan worth as much as US$750 million to go toward the cost of a new airport to serve Rangoon, officials said Monday.
The government in August selected a consortium led by South Korea’s Incheon International Airport Corporation as the preferred bidder to develop the Hathawaddy International Airport, to be built in Pegu Division about 95 kilometers (60 miles) from the fast-growing commercial capital.
But talks with Incheon collapsed due to problems relating to how the project would be funded, and the government is now also in talks with three other consortiums that want to build the airport—led by Singapore and Japan’s Yongnam, Japan’s Taisei Corporation and France’s Vinci.
The setback means the airport—which will soon be needed as passenger numbers outgrow the capacity of Rangoon’s existing Mingalardon Airport—will likely not be ready by the original completion date of 2018.
On Monday, at the opening of the Myanmar Civil Aviation Development Conference 2014 in Rangoon, officials from the Department of Civil Aviation (DCA) spoke on the record for the first time about the complications in the deal.
Khin Maung Myint, a DCA adviser, said that a snag in the process had been finding funding for the project, which he estimated will cost in total between $1.4 billion and $1.5 billion.
“The financial people want some guarantee. That a difficulty,” he told The Irrawaddy, explaining that Burma’s initial intention was for the developer wholly to fund the project. “Our government position [was]: when that financing is being done, it’s a private undertaking. So the government cannot give a guarantee.”
However, the government has now agreed to apply for official development assistance (ODA)—discount-rate loans from developed countries to developing countries like Burma—for the project, he said.
“Now the government decided 50 percent of the project loan can come from ODA,” Khin Maung Myint said. “The government will guarantee that they get the loan, but the payment of the interest…the company has to take that responsibility.”
The developer would be responsible for funding the remaining 50 percent of the project cost from private sources.
It is so far unclear whether any countries are interested in funding the airport, but Burma’s reforming government has received large amounts of ODA, with Japan the biggest source of development loans and aid.
Tin Naing Tun, the DCA’s director general, told a press conference at the aviation event that developers preferred to fund the project with an ODA loan since interest rates can be as low as 0.01 percent.
Tin Naing Tun also gave a brief outline of the government’s aviation sector “master plan,” which he said would help to restore Burma’s former status as a hub for flights in Asia.
“For the future of the Myanmar civil aviation sector, we have a set vision. We have a dream. Our dream is making Myanmar become a major logistics hub in Asia,” he said.
He gave few specifics of the plan, but said it included liberalizing regulation of the aviation sector, helping local airlines to compete in the region and connecting Burma directly with more countries outside of Southeast Asia.
“The present situation is now we have the air link with India, China, [South] Korea and Japan only. We’d like to extend the air link to the European countries, the United States of America and Australia also,” Tin Naing Tun said.
“We need to have more and more infrastructure for the airports, airlines and human resources development,” he added.
The government has invited private companies to come forward to operate 30 domestic airports, and tenders to expand and operate the Rangoon and Mandalay airports were awarded alongside the Hanthawaddy tender in August.
Pioneer Aerodrome Services, a subsidiary of Burmese firm Asia World Group, led the winning consortium for the Rangoon airport, and Japan’s Mitsubishu and Jalux, with Serge Pun’s SPA Project Management Ltd., won the tender to run Mandalay’s airport.
Khin Maung Myint said those contracts were still being drawn up, but had not faced the financing difficulties of the Hanthawaddy project because the capital investment required is much smaller.
“The contract negotiation is nearly completed,” he said.