China trumps India in Myanmar gas
stakes By Gideon Lundholm
Recent developments in the gas-field
projects of Myanmar have highlighted the intense
resource diplomacy in the region. The military
government of Myanmar recently denied the Gas
Authority of India Ltd's (GAIL's) status of
"preferential buyer" on the A1 and A3 blocks of
its offshore natural-gas fields in favor of
selling the gas to PetroChina.
The
offshore gas fields of the Shwe project in the Bay
of Bengal are estimated to contain deposits of 4.8
trillion cubic feet. The
controlling interests in the
two blocks are Daewoo International (60%), ONGC
Videsh Ltd (20%), GAIL (10%) and Korea Gas Corp
(10%). The most viable of the proposed pipeline
routes for moving the gas to India would have gone
through Myanmar's Arakan state before entering
India's Mizoram and Assam states and terminating
in West Bengal at a proposed Jagdishpur-Haldia
distribution line.
India has clearly lost
an important diplomatic initiative in the attempt
to counter Chinese influence in Myanmar. Even
after the deal was sweetened with US$20 million in
"soft credit" and the proposed construction of a
power plant in Myanmar, it appeared that Indian
influence was quietly denied by the inevitability
of China's international support for Myanmar.
Beijing's use of its veto to keep Myanmar's
human-rights record off of the United Nations
Security Council agenda this year turned out to be
more important to the junta than the economic
incentives.
Despite support from pro-India
voices within Myanmar's upper echelon, such as
that of Vice Senior General Maung Aye, the sharp
turn in the sales decision serves to illustrate
the depth of the relationship currently enjoyed by
China and Myanmar. Maung Aye signaled as much as
early as January when he refused to provide
guarantees that India would gain access to the
gas.
The economic implications of the snub
are significant for India. Recent reductions in
the estimates of offshore gas in their own eastern
blocks have increased demand to find sources
outside of India's borders. The Myanmar fields
offered a strong possibility to replace these
sources. In particular, the pipeline was destined
for the northeastern states of India, which are
among the most power-starved in the country.
If the gas was destined for domestic use,
the development-security nexus suggests that the
power and resulting development, along with
greater cooperation on cross-border
counterinsurgency efforts, may have had a strong
chance of success in defusing the secessionist
movements in the northeastern Indian states.
The pipeline seemed set to heighten
attempts for greater integration and further
military and economic cooperation along the
Myanmar-India border. Trade initiatives have so
far failed in India's northeastern border regions,
while security initiatives have occurred in a
stovepipe fashion with only communication between
the two countries, rather than any truly
cooperative exercises. India will likely make more
overt efforts in the future to establish a
stronger presence in the face of Chinese
diplomatic successes in Myanmar.
It is
also likely that joint military initiatives in the
border region will be initiated and more direct
military aid like the proposed sales of light
attack helicopters by India to Myanmar will
continue. Transfers of military equipment have
increased significantly in the past two years
between India and Myanmar, while joint
counterinsurgency operations have been proposed
that result in much higher counterinsurgency
activities between the two countries. These
efforts would have had a far greater chance of
success if they had been combined with the
pipeline development.
On the diplomatic
front, Myanmar's junta has signaled where its
strength lies. The military government has had a
long history of a strong relationship with China,
which it would not risk in this scenario. It is
likely that the junta recognizes the desire for
India to play a stronger role in the region, thus
giving it a stronger position in its dealings with
New Delhi. Myanmar's resources have allowed it to
bypass international sanctions in the past and
will now allow it to negotiate with its Asian
neighbors to win necessary international support
and recognition.
The risk of angering
India to the point of withdrawal of support was
minimal; indeed, GAIL was criticized by India's
External Affairs Ministry for not pursuing the
agreement more strongly. However, the junta must
continue to walk a fine line among alienating
neighbors, already suspicious of China's growing
influence in the region, undermining its own
sovereignty and losing the support of its largest
strategic partner, China, by playing it off
against other regional interests.
Additionally, recent efforts by the
Association of Southeast Asian Nations (ASEAN) to
condemn the slow progress of national
reconciliation inside Myanmar may have refocused
efforts within the junta to place diplomatic
pressure via China on certain ASEAN members. China
has recently been increasing its influence within
ASEAN and is more active than India as one of the
peripheral players in ASEAN's orbit. By using its
resources as a bargaining chip, Myanmar may have
gained promises from China to use its influence to
dampen ASEAN members' concerns over the
reconciliation process.
The strength of
Myanmar's position also lies in the strong
economic demand for resources by all of its
neighbors. Bids for the sale of the gas were
competitive, and Myanmar will not lose much in
economic terms for the decision to sell to
PetroChina. While the decision may be deemed
shortsighted for its apparent slight to India's
recent diplomatic advances, it does little to
reduce the reality that India, Thailand and China
are all in need of energy to pursue economic
development.
Another facet of the
agreement is a proposed oil pipeline that would be
built in conjunction with the necessary gas
pipeline. This oil pipeline would be constructed
by PetroChina as an alternative route to the
Strait of Malacca. Its origin would be at a
deepwater port at Ramree Island, Myanmar, built to
accommodate large crude-oil tankers, and would
cross the country to an undisclosed point on the
China-Myanmar border (likely the Muse-Ruli border
crossing point). The economic advantage for
Myanmar would be an additional sale point for its
onshore and offshore oil blocks, along with the
economic spinoff of a major transshipment point.
China's current reliance on the Strait of Malacca
may well have driven the junta's decision to
rescind India's preferential buyer status.
The recent price hikes in domestic fuel
that sparked protests first in Yangon and later
across Myanmar and resulted in the arrest of a
number of former student leaders from the 1988
uprising demonstrate the thin line of economic
vulnerability upon which the junta balances. The
1988 uprising that resulted in the suspension of
the constitution was also sparked by a troubled
economy.
The junta will need to balance
its need for foreign currency, gained through
resource rents, with the demands of a population
that has not accrued much benefit from current
economic policies. Much of the gas being exported
to date and in the future would, arguably, be
better used in domestic electric-power generation
- something that the Indian offer would have
included.
On the security front,
agreements that have been developing alongside the
gas-sale agreement with India will likely not be
disturbed by the decision to sell to China. The
pipeline route from Shwe would have brought fewer
security implications for Myanmar than for India.
However, the pipeline's route to the western
region of Myanmar would have brought with it a
larger military presence in an area with poor
infrastructure on both sides of the border. What
may have been lost is a considerable chance to
improve the infrastructure and access to an area
that has been historically nearly inaccessible.
In addition, the Myanmar military's ties
to the considerable narcotics and arms trade that
uses the porous border between Myanmar and India
may have produced a conflict of interest between
parties within the junta that forced the
withdrawal of the pipeline project. The junta
insisted that the gas decision was not political
but simply business as usual in offering the sale
to the highest bidder.
India's loss will
likely not lead to a decrease in its attempts to
win greater cooperation from Myanmar over
counterinsurgency efforts, but it does reveal the
deep connections between China and Myanmar. This
relationship will prove hard for India to compete
with in the long run, especially as long as the
decision-making process within the junta follows
the familiar route of political considerations at
the expense of sound domestic economic policy.
An important consideration, unexamined
here, is that India will not likely rock the
diplomatic boat as long as its companies continue
to enjoy privileged access to a country that is
closed to US and European competition.
Exploration, after all, is still ongoing in the
offshore blocks, while Myanmar's onshore basins
remain largely untapped.
Published with
permission of thePower and Interest News
Report, an analysis-based
publication that seeks to provide insight into
various conflicts, regions and points of interest
around the globe. All comments should be directed
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