BURMA: STATE-OWNED ENTERPRISE DEMONSTRATES

C O N F I D E N T I A L SECTION 01 OF 05 RANGOON 000083 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: BURMA: STATE-OWNED ENTERPRISE DEMONSTRATES MILITARY'S HOLD ON ECONOMY REF: 08 RANGOON 765 RANGOON 00000083 001.2 OF 005 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: -------------- -------------- Members of MEHL Board of Directors As of June 30, 2008 -------------- -------------- 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 RANGOON 00000083 002.2 OF 005 -------------- -------------- ¶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 RANGOON 00000083 003.2 OF 005 --Bandoola Transportation Ltd. --Myawaddy Travel and Tour Co. Ltd. --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. RANGOON 00000083 004.2 OF 005 -------------- -------------- FY07-08 Total Sales of MEHL-Owned Businesses In thousands of USD -------------- -------------- 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 RANGOON 00000083 005.2 OF 005 Myanmar Brewery Beer 1,887 Myanmar Posco Steel Steel 114 Myanmar Noveau Steel Steel 36 First Automotive Co. Isuzu Cars - 90 Hanthawaddy Golf Course Golf - 31 National Dev. Corp. Housing 615 -------------- -------------- Total 49,811 -------------- -------------- 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