BURMA: TAY ZA EXPANDS HIS EMPIRE

C O N F I D E N T I A L SECTION 01 OF 03 RANGOON 000134 SIPDIS STATE FOR EAP/MLS, INR/EAP, EEB/TFS PACOM FOR FPA TREASURY FOR OASIA, OFAC E.O. 12958: DECL: 03/04/2019 TAGS: ECON EFIN EAIR ETRD PREL PINR BM SUBJECT: BURMA: TAY ZA EXPANDS HIS EMPIRE REF: A. RANGOON 54 ¶B. 08 RANGOON 717 RANGOON 00000134 001.2 OF 003 Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4 (b and d). Summary -------------- ¶1. (C) Tay Za, the regime's favored crony, continues to expand his empire in Burma. Over the past three months he has purchased three large hotels, expanded his airline business, and entered the telecommunications industry. Embassy Rangoon recommends OFAC add Tay Za's newest companies and key management personnel (listed in paragraph 8) to the targeted sanctions list. End Summary. Tay Za's Buying -------------- ¶2. (C) Over the past three months, Tay Za, through his existing hospitality companies, has acquired three additional hotels in Burma -- the Malikha Lodge in Putao, the Kandawgyi Palace in Pyin Oo Lwin, and the Mt. Popa Lodge near Bagan. All three are luxury properties located in prime tourist destinations. ¶3. (C) Tay Za exploited the market share of his airline, Air Bagan, to acquire the Malikha Lodge in Putao (northern Kachin State). The previous owner, Brett Melzer, told us that Tay Za had long coveted the Malikha Lodge and approached him in 2006 with an offer to purchase it. When Melzer refused, Air Bagan, allegedly following Tay Za's orders, reduced flight frequency to the city and often suspended flights for weeks with no explanation. Melzer believes Tay Za was purposefully seeking to run him out of business by denying clients' access to his hotel. Still, the Malikha Lodge managed to break even in 2007. Officials from Htoo Trading and Amata Trading, two of Tay Za's companies, continued to pressure Melzer in 2008, informing him that Air Bagan would resume service to Putao but would reserve the right to refuse service for Malikha Lodge customers. According to Melzer, Tay Za came to Melzer's office in September 2008, reiterating his interest in the lodge and threatening to stop air service again to Putao if Melzer did not sell. Indeed, Air Bagan cancelled all flights to Putao in October, costing the hotel an estimated USD 50,000 in revenue. In November, Melzer agreed to sell the Lodge to Tay Za, and the sale was finalized January 6, 2009. ¶4. (C) According to anecdotal reports, Tay Za took advantage of a dispute between a hotel operator and the GOB to acquire the other two hotels. According to Sedona Hotel General Manager Saman Sarathchandra, the Woodlands Group, which had contracts with the Ministry of Forestry to operate the Mt. Popa Lodge and Kandawgyi Palace hotel in the protected reserves of both Mt. Popa and Pyin Oo Lwin, faced pressure from the Ministry of Forestry to take on a particular local partner or risk losing its concessions. Woodlands Group Director Frankie Chew refused, arguing that the local partner did not bring any capital to the deal. Melzer commented that Tay Za, taking advantage of the Woodlands Group's precarious situation with the Minister of Forestry (a close Tay Za contact),offered to purchase the concessions from Chew for below-market value (estimated at RANGOON 00000134 002.2 OF 003 USD 3 million). Chew recognized he was unable to fight the Ministry of Forestry and agreed to the sale. According to Melzer, Chew believed that once stories of Tay Za's interest in the hotels were made public, there would be no other prospective buyers. Dominating the Aviation Sector -------------- ¶5. (C) Despite low levels of tourism in 2008 (Ref A),Air Bagan has increased the frequency of flights during the past six months. In September 2008, Air Bagan only serviced six domestic destinations (Ref B); by February 2009, it had added an additional four destinations. U Zaw Win, Aviation Specialist at Air Bagan, informed us that Air Bagan has a 70 percent share of the domestic market, up from 60 percent in early 2008. To expand service to additional locations, Air Bagan in October leased an ATR-72 from rival Air Mandalay, which is also facing heavy financial losses. According to U Zaw Win, Air Bagan expects to renew the lease in March for an additional year. ¶6. (C) Air Bagan is also looking to resume international service, U Aung Gyi of Myanmar Airways International (MAI), Burma's only international carrier, told us. According to George Yin Soon, owner of Regent Air and MAI partner, high-level GOB officials have tried, thus far unsuccessfully, to force MAI to sell shares to Air Bagan at an artificially low price. Soon also told us that Air Bagan, which took over all domestic ground handling services in September 2008 -- earning up to USD 6 million annually (Ref B) -- allegedly has requested to take on ground handling for Thai Airways, another lucrative contract. Entering the Telecom Industry -------------- ¶7. (C) In December, Tay Za's businesses entered the telecommunications market, selling prepaid GSM SIM cards in select locations in Rangoon and Mandalay. Central Marketing Company, a subsidiary of Tay Za's Htoo Trading, is the sole authorized dealer of these cards, which cost between 10-20 FEC (Foreign Exchange Currency, equivalent to the USD), Central Marketing General Manager U Sai Khin Maung Aye told us. To date, Central Marketing Company has sold more than 20,000 SIM cards. Additional Tay Za Companies -------------- ¶8. (SBU) Below is information on Tay Za's newest companies, including the hotels and telecom company as well as an oil and gas company and several retail businesses: -- Amata Trading Co., Ltd., 54 Shwe Taung Gyar Rd., Bahan Township, Rangoon; -- Central Marketing Company, Myanmar Shopping Mall, Floor 2, 143-149 Sule Pagoda Road, Rangoon; -- Espace Coffee Shop, Domestic Terminal, Rangoon International Airport; -- Kandawgyi Lodge, Lan Thar Yar St., Pyin Oo Lwin; RANGOON 00000134 003.2 OF 003 -- Malikha Lodge, Mulashede Village, Putao; -- Mt. Popa Resort, Mt. Popa, Bagan; -- Myanmar Shopping Mall, 143-146 Sule Pagoda Road, Rangoon; and -- Silverwave Energy, 7th Floor Traders Hotel, Sule Pagoda Road, Rangoon. Embassy Recommendation -------------- ¶9. (C) Tay Za is one of the regime's foremost cronies, relying on his connections and clout to quash competing companies for personal gain. Several of our business contacts believe Tay Za is bankrupt and speculate he may be acting as a broker to secure assets for senior regime officials before the 2010 elections. We have no way to corroborate this speculation. Either way, Embassy Rangoon recommends the above-mentioned companies and key managing staff be added to OFAC's targeted sanctions list. VAJDA