SANCTIONING STATE-OWNED ENTERPRISES

C O N F I D E N T I A L SECTION 01 OF 04 RANGOON 000765 SIPDIS STATE FOR EAP/MLS, INR/EAP, EEB/TFS PACOM FOR FPA TREASURY FOR OASIA, OFAC E.O. 12958: DECL: 09/29/2018 TAGS: ECON EFIN PREL PGOV BM SUBJECT: SANCTIONING STATE-OWNED ENTERPRISES REF: A. RANGOON 604 ¶B. RANGOON 046 ¶C. SCHEIBE-VAJDA EMAILS (09/23/2008) RANGOON 00000765 001.2 OF 004 Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4 (b and d). Summary -------------- ¶1. (C) The Burmese Government dominates the country's economy, using its 46 state-owned enterprises (SOEs) to capture profits from the sale of timber, gems, oil and gas, and minerals. In 2007, according to Burmese consultants Business Investment Group, SOEs earned more than USD 3 billion in profits. Because the Managing Directors and General Managers of these SOEs implement the GOB's policies, providing substantial economic and political support for the regime, Embassy Rangoon recommends that the Department of the Treasury's Office of Foreign Assets Control (OFAC) add them, in addition to the SOEs themselves, to the targeted financial sanctions list. End Summary. Targeting State-owned Enterprises -------------- ¶2. (SBU) The Burmese regime controls almost all sectors of the economy through its 46 state-owned enterprises (SOEs). According to Burmese law, the following activities may only be undertaken by SOEs: --Extraction of teak and sale of the same in country and abroad; --Cultivation and conservation of forest plantations, with the exception of village-owned firewood plantations cultivated by the villagers for their personal use; --Exploration, extraction, sale, and production of petroleum and natural gas; --Exploration, extraction, and export of pearls, jade, and precious stones; --Exploration, extraction, and exports of metals; --Breeding and production of fish and prawns in fisheries that have been reserved for research by the government; --Postal and telecommunications services; --Air transport and railway transport services; --Banking and insurance services; --Broadcasting and television services; --Electricity generating services, other than those permitted by law to private and cooperative electricity generating services; and --Manufacturing of products related to security and defense. ¶3. (SBU) Foreign or Burmese companies interested in operating in these sectors must work with an SOE, either informally or via a joint venture. By requiring cooperation with SOEs such as the Union of Myanmar Economic Holdings Ltd.(MEHL),the regime is able to monitor the activities of foreign and domestic companies easily, while also reaping the rewards of those investments. ¶4. (SBU) According to the FY08/09 budget published in the Burma Gazette, the government expects SOEs to garner more than four trillion kyat (USD 3.4 billion) in revenues in FY08/09 (April 1-March 31) - roughly 98 percent of total predicted GDP for the entire fiscal year. Not all 46 SOEs are profit-making ventures, however. The most profitable of the SOEs are those in the extractive sectors - mining, oil and gas, and timber - such as MEHL, Myanmar Economic Corporation (both owned by the military),Myanmar Timber RANGOON 00000765 002.2 OF 004 Enterprise, Myanmar Oil and Gas Enterprise, and Myanmar Gems Enterprise, which together raised more than USD 3 billion for the regime in 2007 (Ref A). ¶5. (C) Many SOEs oversee smaller state-owned businesses, including factories, mills, and subsidiaries. Please see Ref B, which details MEHL's operations, for an example. State-owned New Light of Myanmar reported in April that the GOB would privatize up to 200 state-owned businesses in 2008, purportedly demonstrating the government's commitment to economic liberalization. Embassy economic contacts surmise that the GOB's claimed privatization strategy is more an effort to raise revenue by selling off unprofitable businesses. In the past, the GOB has used revenues from privatization to balance its unwieldy budget. Sanctioning Top SOE Managers -------------- ¶6. (C) Burma's state-owned enterprises employ hundreds of thousands of workers throughout the country; most earn less than USD 2/day. Although many of these employees are civil servants and/or Union Solidarity Development Agency (USDA) members, their government employment is rooted in economic necessity, not political choice. In comparison, most top managers of SOEs - Managing Directors and General Managers - are retired military appointed by the government. They receive substantially higher salaries, often earning an additional share of the SOE's profits. These top managers wield substantial power (depending on which SOE they run), implementing economic decisions that have lasting effects on Burma's society. For example, Myanmar Timber Enterprise's management, yielding to GOB wishes, will cut down more trees than allowed by the Forestry Department in order to maximize revenues. This affects the sustainability of Burma's forests in the long term. The SOE senior managers are empowered to establish joint ventures with foreign and private companies to bring in outside expertise that enables the SOEs to develop and exploit Burma's natural resources and industry. By running SOEs, these top managers provide substantial political and economic support for the regime by developing key sectors of the economy and earning billions of U.S. dollars in revenues for the regime annually. ¶7. (C) Many Managing Directors and General Managers also use regime connections to establish lucrative personal side businesses. According to Economic Consultant Soe Win, owner of consulting firm Myanmar Vigor, many SOE top managers have strong relationships with regime cronies, such as Tay Za and Steven Law, and enter into side businesses, usually import/export companies, with them. Managing Directors and General Managers also have the ears of their respective Ministers, and often petition them for import/export permits, he elaborated. ¶8. (SBU) The following lists Burma's SOEs and the respective Ministries they report to: -------------- -------------- Burma's State-Owned Enterprises -------------- -------------- Name Ministry -------------- -------------- -Cooperative Export-Import Commerce Enterprise -Directorate of Procurement Economic Planning -Livestock Feedstuff and Livestock Milk Products Enterprise -Inland Water Transport Transport RANGOON 00000765 003.2 OF 004 -Mining Enterprise-1 Mines -Mining Enterprise-2 Mines -Mining Enterprise-3 Mines -Myanmar Agricultural Agriculture Development Bank -Myanmar Agricultural Industry-2 Machinery Industries -Myanmar Airways Transport -Myanmar Automobile and Industry-1 Diesel Engine Industries -Myanmar Ceramic Industries Industry-2 -Myanmar Economic Bank Finance -Myanmar Economic Corporation Defense -Myanmar Electric Power Electric Power-1 Enterprise -Myanmar Five Star Lines Transport -Myanmar Foodstuff Industries Industry-2 -Myanmar Foreign Trade Bank Finance -Myanmar Gems Enterprise Mining -Myanmar General and Industry-1 Maintenance Industries -Myanmar Hotel and Tourism Hotels and Tourism Services -Myanmar Industrial Industry-1 Construction Services -Myanmar Industrial Crops Agriculture Development Enterprise -Myanmar Insurance Economic Planning -Myanmar Investment and Finance Commercial Bank -Myanmar Machine Tool Industry-1 and Electrical Industries -Myanmar Motion Picture Culture Enterprise -Myanmar Oil and Gas Enterprise Energy -Myanmar Pearl Enterprise Mines -Myanmar Petrochemical Energy Enterprise -Myanmar Petroleum Products Energy Enterprise -Myanmar Pharmaceutical Industry-2 Industries -Myanmar Port Authority Transport -Myanmar Posts and Telecommunications Telecommunications -Myanmar Power and Chemical Industry-1 Industries -Myanmar Railways Rail Transport -Myanmar Salt and Marine Industry-2 Chemical Enterprise -Myanmar Shipyard Transport -Myanmar Small Loan Enterprise Finance -Myanmar Textile Industries Industry-2 -Myanmar Timber Enterprise Forestry -Myanmar Tire and Rubber Industry-2 Industries -News and Periodicals Information Enterprise -Printing and Publishing Information Enterprise -Public Works Planning -Road Transport Transport -Union of Myanmar Economic Defense Holdings Ltd. -------------- -------------- Comment -------------- RANGOON 00000765 004.2 OF 004 ¶9. (C) Close examination of Burma's state-owned enterprise system reveals the reach and breadth of the regime's domination over Burma's economy. State-owned enterprises are key components of the elaborate system of patronage the regime uses to secure wealth and maintain power. Embassy Rangoon recommends that OFAC include the 46 SOEs on the financial sanctions list. Embassy Rangoon further recommends that the Managing Directors and General Managers of SOEs be added to the financial sanctions list automatically - even in the absence of specific information concerning their personal activities and regime connections - since in our view it is clear they provide substantial economic and political support for the regime by virtue of their positions in running these state-owned firms. Post should be able to identify these top company officials by name - though it will be a much greater challenge, and likely impossible in some cases, to secure biographic data such as date of birth. DINGER