UPDATE ON MYANMAR ECONOMIC HOLDINGS' ACTIVITIES

C O N F I D E N T I A L SECTION 01 OF 05 RANGOON 000077

SIPDIS

STATE FOR EAP/MLS, INR/EAP, EEB/TBA
PACOM FOR FPA
TREASURY FOR OASIA, OFAC

E.O. 12958: DECL: 02/06/2019
TAGS: PGOV ECON EINV ETRD PREL PINR BM
SUBJECT: UPDATE ON MYANMAR ECONOMIC HOLDINGS' ACTIVITIES

REF: 08 RANGOON 765

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Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4
(b and d).

Summary
--------------


1. (C) Myanmar Economic Holdings Ltd. (MEHL),one of 46
state-owned enterprises (SOEs) in Burma, is among the largest
and most powerful commercial entities in the country.
Established in 1990 by the Ministry of Defense, active and
retired military officers appear to control 70 percent of
MEHL, and the Ministry of Defense owns the remaining 30
percent. MEHL has a 100 percent stake in 38 businesses in a
range of sectors -- including gems/jade, consumer products,
tourism, and banking -- and has shares in nine joint ventures
with foreign companies. Although MEHL has no direct role in
granting licenses or import/export permits, foreign and local
companies looking to invest in Burma are often "encouraged"
to form a relationship with MEHL in order to secure regime
support and, in many cases, guarantee a profit. Embassy
Rangoon recommends that all MEHL subsidiaries and their top
officials be added to the U.S. targeted sanctions list. End
Summary.

What is MEHL?
--------------


2. (SBU) Myanmar Economic Holdings Ltd. is one of the
largest of Burma's 46 state-owned enterprises (reftel).
Established as a public company on April 27, 1990 by the
Ministry of Defense, its official objectives are "to provide
for the economic welfare for soldiers, war veterans, and the
Burmese people, as well as support the economic development
of the state." While it is difficult to pinpoint who exactly
owns what in MEHL, Burma analyst Andrew Selth reports that
approximately 70 percent of the company is controlled by
high-ranking active and retired military officers, with the
remaining 30 percent owned by the Ministry of Defense.


3. (C) According to MEHL's FY07-08 Annual Report, 10
military officials sit on the Board of Directors and report
to the Adjutant General, Major General Thura Myint Aung. All
but one member is on active duty in the military. According
to our contacts, the senior generals appoint the board
members for one-year terms. In actuality, however, board
members serve until the senior generals decide to replace
them. In June 2008, the military added an additional member
to the MEHL Board and replaced two others. Current board
membership is as follows:

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Members of MEHL Board of Directors
As of June 30, 2008
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Name Position
-------------- --------------
Lt. General Tin Aye Chairman
Major General Win Than Managing Director
Major General Hla Shwe Member
Lt. General Khin Maung Tun Member
Major General Thein Htike Member
Major General Nyan Tun (Navy) Member
Maj. Gen. Khin Aung Myint (AF) Member
Major General Tin Ngwe (Rtd.) Member
Major General Hlaing Myint Member
Colonel Thein Htay Member
-------------- --------------

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4. (C) Of the above-mentioned board members, eight are
known to the Embassy. Lt. General Tin Aye is the Chief of
Military Industry; Major General Win Than is the Director of
Defense Procurement in the Ministry of Defense; Major General
Hla Shwe is the Deputy Adjutant General; Lt. General Khin
Maung Tun is the Vice Quartermaster General; Maj. Gen. Thein
Htike is Defense Services Inspector General; Major General
Nyan Tun is the Chief of Staff for the Navy; Maj. Gen. Khin
Aung Myint is Chief of Staff Air; and Maj. Gen. Hlaing Myint
is Director of the Auditing Directorate.

Business Ventures
--------------


5. (C) In recent years, MEHL has expanded its mandate,
shifting its business interests from strictly manufacturing
and including trade and services. Currently, MEHL owns a
total of 38 businesses -- 21 manufacturing companies, five
trade companies, and 12 service companies -- and maintains
interest in nine joint ventures with foreign companies. Many
of the 38 businesses have sub-businesses (listed below),
bringing the total number of MEHL-affiliated firms to 74.
Additionally, MEHL has joint ventures with seven additional
Burmese and foreign companies that are either under
liquidation or temporarily closed. As of June 20, 2008, the
various MEHL enterprises directly employed 9,616 staff. An
additional 1,000 staff worked with MEHL joint venture
projects, although their salaries were paid by the partner
company rather than MEHL.

-------------- --------------
MEHL Business Interests
As of June 30, 2008
-------------- --------------
MEHL-Owned Manufacturing Companies
--Myanmar Ruby Enterprise
--Myanmar Imperial Jade Co. Ltd.
--Myanmar Rubber Wood Co. Ltd.
--Myawaddy Drinking Water Co.
--No. 1-2 Sin Min Cement Factories
--Ngwe Pin Le Livestock Breeding and Marine Products
--Granite Tiles Factory
--Padonma Soap Factory
--Kanpauk Palm Oil Plantation
--Kanpauk Raw Palm Oil Production Plant
--Okkan Sugar Factory and Sugarcane Plantation
--Okkan Sugarcane Plantation
--In Nga Kwa Sugar Factory and Sha Pyin Sugarcane Plantation
--Sharpyin Sugarcane Plantation
--Burger Paints Manufacturing Co.
--Moe Gyo Sulphuric Acid Factory
--Plastic Consumer Goods Factory
--Taw Win Plastic Bag Factory
--Taninthayi Bird's Nest Collection and Manufacturing
--Inn Taw Kaw Industrial Zone
--Be'lin Granite Tiles Factory

MEHL-Owned Trading Companies
--Myawaddy Trading Ltd.
--Pyithaya Export-crops Plantation and Trading
--Doe Ya Myay Export-crops Plantation and Trading
--Military Welfare Shops
--Shweli Supermarket

MEHL-Owned Services Companies
--Myawaddy Bank
--Bandoola Transportation Ltd.
--Myawaddy Travel and Tour Co. Ltd.

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--Nawaday Hotel and Tourism
--Myawaddy Agricultural Services Co. Ltd.
--Myawaddy Trading Ltd. (Foreign Currencies Exchange)
--Myanma Land and Development Co. Ltd.
--Attaran Hotel and leasing service
--Taninthayi Guest House
--X-Ray Scanning Equipment Services
--Leasing Land to International Language and
Business Center (ILBC)
--Lanpi Maritime Co., Ltd.

MEHL Joint Ventures
--Myanmar Segal International Ltd.
--Myanmar Daewoo International Ltd.
--Rothmans of Pall Mall Myanmar Private Ltd.
--Myanmar Brewery Ltd.
--Myanmar Posco Steel Co. Lt.
--Myanmar Noeveau Steel Co. Ltd.
--The First Automotive Co. Ltd.
--Hanthawaddy Golf Club and City Club Ltd.
--National Development Corporation
-------------- --------------
Source: MEHL FY07-08 Annual Report


6. (C) While the number of MEHL's active joint ventures has
fallen significantly from more than 50 contracts in 2002 to
just nine today, Embassy contacts Anwar Hussain and Wael
Elmawie confirm that many other foreign companies involved in
the manufacturing sector must still negotiate with MEHL for
their contracts, licenses, and permits. Before a company can
build a factory or move its operations to a new location, the
owner reportedly must meet with someone on the MEHL board to
request MEHL support. More often than not, Hussain said,
companies pay a bribe to MEHL officials to ensure that the
paperwork and official requests are not "lost or delayed."
These payments can range from 100,000 kyat ($80) to five
million kyat ($4000),depending on the type of request,
Hussain said. Several trading companies, such as
Burmese-owned Diamond Dragon Company, owned by U Tin Aung
(who is listed on the EU sanctions list) and Tay Zaw's Htoo
Trading, work with MEHL to secure export and import licenses.
Having a relation
ship with MEHL, even if it is not an official joint venture,
is essential if a company wants to make a profit, he
explained.


7. (C) According to its last annual report, in FY07-08 MEHL
earned approximately 49.8 billion kyat (USD 41.5 million at
the current street market exchange rate) in total sales from
its enterprises, most of it from annual gems and jade
emporiums. Overall profits totaled 23 billion kyat (USD 19
million). MEHL also earned more than USD 5 million by
leasing land to seven Burmese-owned companies. Like other
state-owned enterprises, MEHL does not pay taxes to the
Burmese Government. Instead, MEHL gives a portion of its
income to its shareholders, which currently number 45,316
active and retired military personnel. According to its
annual report, MEHL's shareholders in FY07-08 divided
approximately USD 10 million, receiving an average of USD 200
each for the year. Hussain estimated MEHL's profits to be
substantially higher, at closer to USD 70 million, and noted
that the more senior officials, including those on the Board
of Directors, likely received several hundred thousand
dollars for their work. We are
unable, however, to confirm this estimate.

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FY07-08 Total Sales of MEHL-Owned Businesses
In thousands of USD

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-------------- --------------
Company Product Value
-------------- --------------
Myanmar Ruby Enterprise
--Mogoke Gems Gems 4,989

--Mineshu Gems Gems 755
--Nantyar Gems Gems 8,788
--Gold Exploration Gold 607
--Mawchi Mining Lead 4,100
Myanmar Imperial Jade Co.
--Shal Family Co. Jade Bracelets 223
--Imperial Jade Production Jade 4,290
Myanmar Rubber Wood Co. Rubber 10
Myawaddy Drinking Water Water 20
Sin Min Cement Factories Cement 1,030
Burger Paints Paint 163
Ngwe Pin Le Co.
--Fisheries Fish 162
--Export of Marine Products Fish 690
--Marine Finished Products Fish 64
--Aquaculture Fish - 26
--Marine Industrial Zone Land Plots 702
--Breeding Industry Livestock 562
--Heavy Machinery Machines 90
--Diesel Trading Petrol Sales 140
--Sein Pin Le Factory Food Prod. 11
--Marine Products Auction Fish - 13
--Mayan Zwe Ba Pond Prawns - 8
--Mee Pya Prawn Pond Prawns 14
--Myawaddy Ice Factory Ice 120
--Shwe Pyi Tha Ice Facotry Ice 550
--Ngwe Pin Le Co. Livestock 500
Granite Tiles Factory Tiles 25
Be'Lin Granite Tiles Tiles 11
Padonma Soap Factory Soap 120
Okkan Sugar Factory Sugar - 291
Inn Nga Kwa Sugar Factory Sugar 118
Moe Gyo Factory Acid 97
Taw Win Factory Plastic Bags 28
Plastic Consumer Goods Plastic 43
Kan Pauk Oil Plantation Palm Oil 4
Inn Ta Kaw Industrial Zone Land Plots - 139
Taininthayi Bird's Nest Manufacturing 100
Myawaddy Trading Ltd. Trade 11,000
Pyithaya Export Crops Trade 110
Doe Yamyay Export Crops Trade 55
Myawaddy Bank Bank Services 75
Bandoola Transport 6 Transport Cos. 555
Myawaddy Travel and Tours Tourism 16
Nawaday Tourism Co.
--Central Hotel Tourism 713
--Ngwe Saung Beach Hotel Lease 1,000
--Mogok Motel Tourism 750
--Nawady Hotel Tourism 250
Myawaddy Agricultural Svcs. 4 Farms 69
Myanmar Land Dev. Corp. Land 2,008
Attaran Hotel Tourism 12
Taninthayi Guest House Tourism 9
X-Ray Scanning Med. Equip. 107
ILBC Land Lease Land 484
Lanpi Maritime Co. Shipping 0
Myanmar Segal Textiles 750
Myanmar Daewoo Textiles 23
Rothmans of Pall Mall Cigarettes 1,145
Myanmar Brewery Beer 1,887
Myanmar Posco Steel Steel 114
Myanmar Noveau Steel Steel 36
First Automotive Co. Isuzu Cars - 90

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Hanthawaddy Golf Course Golf - 31
National Dev. Corp. Housing 615
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Total 49,811
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Source: MEHL FY07-08 Annual Report

Comment
--------------


8. (C) MEHL epitomizes the reach and breadth of the
military's domination over Burma's economy. Its influence
and holdings are key components of the elaborate system of
patronage the regime uses to maintain power. While several
of MEHL's companies are listed on the OFAC targeted sanctions
list, Embassy Rangoon recommends the Department of Treasury
include all of MEHL's wholly-owned subsidiaries, as they
clearly provide significant economic and political support to
the regime.


9. (C) Embassy Rangoon further recommends that the members
of the MEHL Board of Directors, listed in para 3, as well as
the Managing Directors and General Managers of MEHL-owned and
operated enterprises, be added to the targeted financial
sanctions list, as 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.
VAJDA