Myitsone: The Incoming NLD Govt’s First Big Test

By Yun Sun 11 March 2016

As the inauguration date of the new Myanmar government draws close, one of the most urgent questions that the incoming National League for Democracy (NLD) administration will have to answer concerns the fate of the suspended Myitsone dam project in Kachin State. The issue touches upon some of the most sensitive nerves in Myanmar’s domestic politics and has major implications for the country’s delicate relations with its big neighbor to the north China.

While the temptation might be strong to postpone the decision until much later, a significant delay in fact will prove costly, both politically and economically. Its handling of the Myitsone issue will be one of the first major tests for the NLD government and its leader Aung San Suu Kyi. This week, the Chinese foreign minister expressed confidence that the Myitsone impasse would be resolved “appropriately,” according to Reuters, which reported that Beijing also had “full faith in Myanmar’s future” under the leadership of Suu Kyi’s NLD.

The truth is this: The Myitsone dam conundrum has dragged on for too long. Since its suspension by outgoing President Thein Sein in September 2011, the issue has remained a sore spot for Burmese society and Sino-Myanmar relations. The Myanmar general public continues to hold a profound grudge about the project as a symbol of Chinese exploitation during the military government that ceded power five years ago. Many have remained on alert, vigilantly opposed to any potential push for the project’s resumption.

China, on the other hand, feels a victim of Myanmar’s political transition and grieves for the suspension of such a large investment project. Indeed, Myitsone has become the negative example for the Chinese foreign investment community and is often singled out in discussions about the ambitious, Beijing-led “One Belt, One Road” initiative as an expensive lesson learned.

The Myitsone dam has festered as an ulcer for the bilateral relationship between China and Myanmar that can neither be forgotten nor ignored. The key reason is that Thein Sein only suspended, rather than completely canceled, the project. While his decision was perhaps motivated by concern over China’s feelings and reaction, it also left the door open for China to hold out hope for its resumption one day.

The urgency of the issue for Suu Kyi and the NLD government precisely lies in the timing. Because Thein Sein only sanctioned the suspension of the Myitsone dam during his term, the deferral logically would expire on the last day of his term at the end of March. Beyond that date, the status of the project becomes a question. Without the new government’s decision and/or a negotiated resolution, China will have more ground to push for the project’s resumption, or at minimum raise the issue.

Watchers who know Myanmar well understand that the Myitsone dam has become so toxic in the Southeast Asian nation that its resumption at this stage is rather unthinkable. Even with major revisions to its design and construction, a restart would provoke tremendous nationalistic backlash among the Myanmar people, raising questions about the nascent NLD government’s credibility, capability, or even more problematically, its patriotism and political standing.

The Chinese investor, China Power Investment (now renamed State Power Investment), has been actively lobbying for Myitsone’s resumption, citing Myanmar’s dire electrification needs and “experts’ opinions” on the soundness of the project. However, given the emotional and political factors involved, as well as the debatable cost-benefit analysis associated with the dam, any normal, sensible conversations about the pros and cons of the project itself can be safely ruled out. In fact, even if it is offered the opportunity to have a public debate about the project’s merits, China most likely will reject the invitation for fear of public humiliation.

The Myanmar people are watching to see whether Suu Kyi and the NLD government will “stand up” to China, especially on such a symbolic and toxic issue. Under the circumstances, if the new government is to make a decision in favor of resumption, it will cost dearly in terms of public opinion and domestic political capital.

Even if they understand the risks and proceed with scrapping Myitsone, Suu Kyi and her government have to also understand that time is not necessarily on their side. In 2015, the Thein Sein government and CPI engaged in conversations about the abandonment scenario and dissolution of the agreement. The key question is not about whether it will happen but about the financial consequences.

Specifically, it is about how much investment has been disbursed and how much compensation the Myanmar government will have to pay for revoking a legitimate commercial contract. The Thein Sein government is believed to have committed to a compensation scheme that would see the amount of money disbursed on the project paid back, with interest. That would presumably mean that for the Chinese, there is no urgency to push for anything—the interest on the disbursed capital will simply keep accruing as long as the Myanmar government does not make a final call.

If Myitsone’s ultimate fate is the dustbin, it will be best for Suu Kyi to make this important decision sooner rather than later. China is more than eager to establish a good relationship with the NLD chairwoman at the beginning of her government’s term and cancelling the project now runs the least risk of retaliation from China. On the other hand, if Suu Kyi and the NLD government decide the drag the issue further into the future, fearing the prospect of angering China early in its term, the inescapable Myitsone problem will continue to haunt them and could potentially bring more damage when the government eventually decides to give it up.

Making the decision early is not the same as treating the issue lightly. If Suu Kyi and the NLD government are to cancel the project, delicate handling and diplomacy will be in order. They will need to present convincing evidence in terms of the project’s negative economic, environmental and social impacts to support their decision. They will need to convey the message to China that the decision is merit-based and that Myitsone is a problem they inherited from the Thein Sein government. Most importantly, they will need to clearly state that their decision is based on principle matters, but does not in any way indicate an overarching anti-China policy course into the future.

Suu Kyi’s government will face many competing priorities—from national reconciliation to spurring economic development; from the Rakhine issue to civilian-military relations, everything will seemingly demand immediate attention. While the Myitsone project might easily be put on the backburner, such a decision would be unwise. After all, not many issues are so clearly pegged to the calendar as Myitsone is; nor do other concerns continue to generate a potentially astronomical interest payment with each passing day.

As the incoming government tries to start with a clean slate on China and put its relationship with the Asian giant on the right path, the NLD has to get Myitsone right.

Yun Sun is a senior associate with the East Asia program at the Henry L. Stimson Center and a non-resident fellow with the Brookings Institution.