BURMA'S SHWE GAS GOES TO CHINA, MAYBE

UNCLAS SECTION 01 OF 02 RANGOON 000600

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SENSITIVE
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STATE FOR EAP/MLS;
PACOM FOR FPA
TREASURY FOR OASIA:SCHUN

E.O. 12958: N/A
TAGS: ENRG ECON PGOV BM
SUBJECT: BURMA'S SHWE GAS GOES TO CHINA, MAYBE

REF: A. RANGOON 0313

B. 06 RANGOON 1704

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1. (U) Summary: During his recent visit to China,
Lt.Gen.Thein Sein, State Peace and Development Council (SPDC)
Secretary-1, said arrangements were made for the export of

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natural gas from Burma to China. The GOB has not officially
confirmed the decision, but Thein Sein's remarks were carried
in the government press. This information, if accurate,
would signal that China has won the international competition
for rights to natural gas from Burma's promising offshore
Shwe fields. China's growing investment and involvement in
infrastructure projects in Burma were also highlighted during
Thein Sein's visit. End summary.

HAS CHINA WON THE SHWE FIELDS GAS CONTEST?
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2. (U) On June 5-10, Lt. Gen. Thein Sein, Secretary-1 of the
State Peace and Development Council and acting Prime
Minister, led a large delegation of ministers, officials, and
business cronies to Beijing and Yunnan Province, China on a
"goodwill visit." Government press described meetings with
representatives from China's National People's Congress,
Yunnan People's Congress, Chinese officials and
entrepreneurs. On June 6, at a meeting attended by Thein Sein
and the Vice Chairman of a Chinese National People's Congress
committee, SPDC Director General Col. Kyaw Kyaw Win and
Petrochina Company Vice Chairman, Liao Yongyuan signed one
MoU on Burma-China Natural Gas Cooperation, and another on a
Feasibility Study of Joint Development of a Crude Oil
Pipeline in Burma.


3. (U) At a June 8 meeting, Thein Sein announced that the two
countries would continue to explore cooperation in mining,
hydroelectric power, and tourism, then said arrangements were
made to export natural gas from Burma. The quote is buried
mid-paragraph in the Burmese press, but international media
have picked up the story, and trumpeted China's win in the
hotly contested bid to win the supply of natural gas from
Burma's Shwe fields, located off the Rakhine coast. Other
contenders included India, Thailand, South Korea and Japan
(ref B). Press reports stated that the GOB recently rejected
India's offer to match the price proposed by China. The GOB
has not officially confirmed the decision.


4. (U) China plans to build a $1 billion gas pipeline from
Kyauk Phyu on the Rakhine coast, to Kunming in Yunnan
Province (ref B). In January 2007, China National Petroleum
Corp. (CNPC) and the Myanmar Oil and Gas Enterprise began a
feasibility study for a shipping terminal and a gas pipeline
(ref A). In March 2007, the GOB signed an MoU with the
President of PetroChina to sell gas from the Shwe fields via
pipeline, though the press reports that Burmese officials
later said the agreement was only in principle.


5. (U) The MoU signed during Thein Sein's visit would cover
the addition of an oil pipeline from the deepwater port of
Sittwe, also on the Rakhine coast, to Kunming, where Chinese
officials have stated the intent to build an oil refinery.
China will provide an $83 million loan to Burma to develop
the oil sector. On June 19, CNPC proposed an extension of
the oil pipeline from Kunming to Chongqing.


6. (U) During Thein Sein's visit, Chinese and Burmese
officials also highlighted infrastructure projects that link
the countries, including a road under construction (the old
Burma Road built by U.S. General Stilwell),from Yunnan

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Province to Myitkyina, source of the Ayeyarawady River in
northern central Burma, and a potential railroad link. Thein
Sein said that combining Chinese technology with Burmese
natural resources would benefit both countries.

ENERGY - THE ONLY VIABLE SECTOR
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7. (SBU) Cumulative approvals for Chinese investment in Burma
jumped from a total of $194 million in October 2006 to $475
million by March 2007, according to the most recent
statistics that the government gathers, but does not publish.
With the increase, China moved from the eleventh to the
sixth position in investment approvals. Over the same time
period, the number of oil and gas projects approved by the
GOB rose from 73 to 82, and added $400 million to the overall
planned investment in the sector. Thailand is in first
position, bolstered by the $6 billion approval for hydro
power projects on the Salween River. Most approved projects
are never realized, though some of the recent investment
proposals to explore offshore gas reserves have resulted in
concrete investment.


8. (SBU) Currently, the oil and gas industry is the only
profitable sector in the Burmese economy, confirmed an
embassy source and former PriceWaterhouseCooper
representative (PROTECT). He noted that most foreign
companies are leaving, and his only new clients, from Korea
and India, are in the natural gas business. He described the
process used by the GOB to grant rights to explore potential
new offshore fields. He said that companies approach the GOB
with offers first for rights to conduct feasibility studies,
then for exploration, and then for production and profit
sharing. The regime grants rights for each phase separately.
The GOB imposes conditions on the projects, including the
amount of money that investors must spend, the number of
Burmese they must hire and a strict time limitation.
Investors must pay substantial "government fees" all along
the way, he said. The final decision on customer and price
is negotiated with the producers, but ultimately decided by
the GOB.


9. (SBU) Until recently, he said, projects were first
approved by the Ministry of Energy, then by the Investment
Commission and, finally by the Trade Policy Council (TPC).
Now, he said, the TPC under Vice Senior General Maung Aye has
lost some of its authority, and that Senior General Than Shwe
personally approves all oil and gas decisions.


10. (SBU) Comment: The regime has not officially committed
to sell the gas to China, but it has taken numerous steps in
that direction, leading most believe the decision has been
made. The Indians have let us know of their extreme
irritation, since they were willing to pay more than the
Chinese. The delays and lack of clarity may be an effort to
squeeze as much cash up front from the project before making
the final announcement. Most observers believe this deal was
a quid pro quo for China's veto of the UNSC Resolution on
Burma last January. Thus it signals ever closer Burma -
China relations through political, economic and
infrastructure ties. End comment.
VILLAROSA