In Myanmar, China's Scramble for Energy Threatens Livelihoods of Villagers

OIL MOUNTAIN, Myanmar—The mood at a ramshackle bar in this village on Ramree Island, in western Myanmar's Rakhine State, is one of fatalism punctuated by the occasional comic trope.

As dusk falls, Nyint Shwe, a one-man oil driller, knocks back a warm can of Chang beer and laments the recent boom in natural gas drilling, driven by China's growing appetite for energy.

"The Chinese are getting huge profits from here," he says. "The local people don't get anything. To get a big fish, [China] needs little bait."

Nyint Shwe's bamboo oil rig, which doubles as his home, will soon be cleared to make space for a free-trade zone and a vast transport node, a crucial part of China's plans to diversify its global energy and its trade security.

Ramree Island now serves as the western terminus of parallel 770-mile (1,240-kilometer) oil and gas pipelines linking the Indian Ocean with China's southern Yunnan Province, a route that bypasses the narrow, U.S.-patrolled Strait of Malacca.

With over 1.3 billion citizens and a fast-growing economy, China's thirst for energy is rapacious. China has become the world's largest energy consumer and producer and will shortly overtake the U.S. as the largest importer of oil on the planet, according to the U.S. Energy Information Administration.

The recently completed pipelines have already begun transforming the northern part of this remote island into a 6.5-square-mile (17-square-kilometer) center of trade and commerce—a kind of little Singapore on Myanmar's impoverished western coast.

During the past year an offshore gas facility pumped 66.5 billion cubic feet (1.88 billion cubic meters) of gas to China. The oil pipeline will come online later this year and is expected to carry 440,000 barrels of Middle Eastern and African crude a day.

The first phase of the "special economic zone" involves building, over the next ten years, a 2,471-acre (thousand-hectare) industrial park, a 12,355-acre (5,000-hectare) residential area, and a deep-sea port on the eastern side of Ramree Island.

Oil drilling by Nyint Shwe and other villagers on Ramree—a centuries-old tradition—is in jeopardy.

Nyint Shwe's plight is emblematic of concerns that some transparency groups, such as the New York-based Natural Resource Governance Institute, harbor about Myanmar today: That amid the scramble for the country's resources, local people will continue to suffer exploitation, oppression, and penury.

For many Burmese, it's not yet clear if recent political reforms, such as releasing opposition leader Aung San Suu Kyi and engaging in peace talks with militant ethnic minority groups, are window dressing aimed at convincing foreign powers to completely lift economic sanctions, or if they're substantive efforts to end an oppressive and grim chapter in Myanmar's history.

Nyint Shwe, for his part, sees the government's obsession with economic development as a new form of despotism, fearing that developments on Ramree Island will leave him unemployed and homeless.

"There are a lot of resources in Rakhine State," he says. "We want to own those resources."

From Artisanal Wells to Offshore Drills

Oil Mountain (Yenan Taung, as it's known locally) is a jumble of steeply roofed huts, like thatched pyramids scattered across a hillside. Each of the dozens of dwellings shelters an artisanal well up to hundreds of feet deep.

Every day, well owners like Nyint Shwe toil to extract some eight gallons (30 liters) of bronze-colored liquid from the ground.

The Ramree oil, which looks and smells like gasoline, was once distilled in makeshift refineries in the nearby town of Kyaukphyu. The fuel was sold to power motorbikes and cars, but the refining process was dangerous, and more reliable supplies of gasoline are now trucked in from Myanmar's commercial capital, Yangon.

Nyint Shwe says he makes 14,000 kyats (U.S. $14) a day for his oil, which is used in lanterns as a cheaper alternative to kerosene. He sends most of the money to his wife, who lives in a village an hour away by foot, a trek he rarely has time to make.

Workers extract the oil using techniques passed down from the period when Myanmar, then Burma, was colonized by the British. A torpedo-shaped capsule, often made from bamboo or blue plastic piping, is lowered into the borehole. The capsule fills with oil and is drawn back to the surface with a rope, either manually or using a winch system attached to the apex of the wooden frame of the hut.

But modern oil exploration and extraction is moving in on a vast scale. The Myanmar government is planning to build a port and marine depot to support the exploration of 20 offshore oil blocks it auctioned in April this year, most to Western-backed consortiums, including Shell*, ENI, Total, and Chevron.

Oil companies from China were conspicuously absent from the process, despite its being the world's second largest oil consumer—a telltale sign that Myanmar is hedging its international allies.

China isn't out of the picture. Beijing still sees Myanmar, and Ramree Island in particular, as the key to faster and safer trade.

There are plans to build rail and road links along the same route as the oil and gas pipelines, establishing an economic artery that shortens transport times, avoids pirate-infested waters, and is, crucially, insurance against any future standoff with the U.S. over use of the Strait of Malacca.

Chinese economists revealed such fears ten years ago when they proposed the pipelines.

"Most of China's oil imports come from the Middle East and Africa," Li Chengyang, a co-author of the proposal, told the Straits Times in 2004. "Given the current situation in the Malacca Strait, we feel that we should come up with a suitable alternative. For China to fall under American control is a very risky thing."

Reforms: Real-or Window Dressing?

A 40-minute boat ride from Kyaukphyu takes you past clusters of gray warships moored in the calm lee of Ramree Island and into the port that marks the western terminus of the pipelines.

As we coast alongside the towering yellow pipes that will soon be used to suck oil from the holds of tankers, Soe Shwe, a campaigner with the Shwe Gas Movement, a local civil society group, expresses a commonly held view in Myanmar.

"The old military government and the new are the same—they just changed their clothes," he says, referring to the rise of a quasi-civilian administration in the 2010 election, which Western diplomats widely considered a sham.

Despite the costume change, he worries the same cast of characters will continue to plunder the country's resources with the same disregard for Myanmar's people.

The new government is overwhelmingly populated by retired generals with strong ties to the old regime.

At independence, in 1948, Burma was the world's largest exporter of rice and boasted one of the best universities in Asia. Half a century of tyranny and economic mismanagement have left the country splintered and impoverished.

The new government's efforts at reform have earned muted applause from the U.S. and the EU, as investors line up to claim the country's underground treasures—oil, gas, gold, timber, rare earth minerals, gemstones—and benefit from its cheap workforce.

But Billy Kyte of the Natural Resource Governance Institute says that Myanmar runs the risk of perpetuating the same kind of murky political economy as in the past, a system that enriches the few and sees little trickle-down effect. The rush to liberalize the economy and encourage joint ventures between international companies and domestic partners has placed the insiders in a privileged position, he says.

"[There's] a danger that the hidden owners of the oil- and gas-related businesses are the same cronies who are adept at avoiding tax, avoiding prosecution for human rights abuses, and generally ignoring the plight of local communities," Kyte says.

Promising Signs

The Chinese-backed development of Ramree Island serves as something of a test of the government's real intentions. Undoubtedly, there are positive signs.

The government established a committee to inform locals about the plans and respond to their concerns, and hired a Singaporean firm, CPG Consultants, to develop the master plan and help choose investors. The plan includes an environmental impact assessment.

The first phase of development will focus on manufacturing, particularly construction materials and textiles, and fisheries, CPG Consultants wrote in an email. "All efforts will be made to engage the local community as the key labor force in these industries."

In July, Myanmar was granted candidate status in the Extractive Industries Transparency Initiative (EITI), a global transparency standard, administered in Norway.

Under EITI, the country has 18 months to prepare a report that demonstrates progress on a range of resource governance issues. This represents significant progress toward lifting the veil on hitherto secretive extractive industries in Myanmar.

As Emma Irwin, EITI adviser for the World Bank, puts it: This is "a golden opportunity for Myanmar to address transparency and promote public dialogue around issues including revenue transparency, license allocation procedures, beneficial ownership, and contract disclosure."

In accordance with EITI, President Thein Sein pledged to ensure that oil and gas receipts will be made public. "The most important thing is to have completely transparent financial accounting to ensure everyone knows where the revenues from these extractive industries are going," Thein Sein says.

Seeds of Discontent

Such assurances only go so far. The fears of villagers like Nyint Shwe have been wrought in bitter experience: In the past, exploitation of Myanmar's natural abundance has not translated into wealth for ordinary citizens, and Chinese-backed megaprojects have sparked outrage in local communities that claim they've been victims of land-grabbing.

In 2012 a crackdown on demonstrators protesting the expansion of the Letpadaung copper mine, in the Sagaing region, turned violent. Police used white phosphorus to quell the crowd, and dozens, including many Buddhist monks, were taken to the hospital with burns.

Earlier this year, protestors walked across the country, some 800 miles (1,287 kilometers), from Yangon to the proposed site of the $3.6 billion Myitsone hydroelectric dam, where construction was suspended in 2011, much to China's chagrin. A year earlier a Chinese worker was among a handful of people reportedly killed near the dam site in fighting between the army and rebels.

The trekking demonstrators were concerned that work on the dam, which would have sent 90 percent of the electricity it generated to China, may resume after the next elections, in 2015.

Ramree Island hasn't seen violence yet, but discontent bubbles under the surface. In 2012 authorities confiscated Maung Win Naing's two acres (0.8 hectares) of land to clear a passage for the gas pipeline.

The government paid the subsistence farmer $4,500 as compensation, but the money quickly ran out. Now he has no way to earn a living. "I built a house, and a year later all the money is gone," he says mournfully.

Attempts by villagers to bring complaints to the China National Petroleum Corporation and to local authorities about land confiscation over the pipelines have been answered with numerous arrests by police and, only later, meager compensation.

Fishermen on Ramree estimate that stocks have plummeted by about two-thirds since the corporation started work on the oil pipeline, in 2010.

At his rickety trading station nestled in a mangrove thicket, U Tin Kyi buys fish caught near the pipeline terminus, then sells the catch in Kyaukphyu.

He says no one was consulted about the oil pipeline project. During construction, large boulders were strewn along the riverbed, which snared nets, making it impossible to fish.

Even more troubling to him, fishing is now banned in the deeper waters of the shipping lane, supposedly because fishing vessels might obstruct tanker traffic.

U Tin Kyi claims he used to make a yearly profit of 10 million kyats ($10,500). Those profits have dwindled to nothing. So he joined other local people protesting at the oil pipeline terminus but was seized by police and jailed for two months.

"Now I don't make any profit, just living costs for my family," he says. "The government should try to solve the problem. Instead they arrest us."

At the national level, old opaque habits die hard. In the past two years the government has auctioned off 16 onshore and 20 offshore oil and gas blocks. Global Witness, an extractive industry watchdog, says that despite the talk of transparency, the vast majority of the ultimate beneficiaries of the oil consortiums remain anonymous, raising the specter of graft.

"Anonymous companies are the global getaway cars for corrupt politicians, gangsters, and tax evaders," Global Witness's Juman Kubba says.

"They can allow powerful individuals to hide who they are and what they're doing, creating the risk that they could award themselves oil and gas riches at knock-down prices."

Additionally, company secrecy could help divert money toward old-guard members of the regime, helping them continue to obstruct reforms.

The Song of Oil

Three generations of Maung Aye's family have listened for the "song" of oil in the seaside paddies of Lake Aye, a village on Ramree's west coast.

The song, Maung Aye explains, is the noise made when the canister is dropped down the well. "When the vessel hits the oil, I hear a soft sound, and when it hits water, it makes a louder, harder noise," he says.

Special economic zone committee maps show that his land, which steps gently down to the surf, will be developed into a residential resort, or maybe a hotel.

Beyond silhouetted palms and white-capped breakers lie the unexplored oil blocks that will, if they prove as petroleum-rich as anticipated, speed the transformation of Ramree Island—and Myanmar itself—during the coming decade.

Resource-hungry China filled the vacuum of foreign investment in Myanmar during the years of stringent Western economic sanctions, from the late 1990s until 2012, when most were lifted. At that time Myanmar officials, worried that their country could become a vassal state to China, began courting European and American interests as a way to balance foreign influence.

"Governments of oil-rich countries usually try to diversify the oil companies they sell licenses to in order to maximize political leverage and the geopolitical clout of their state," says Jill Shankelman, a U.K.-based international extractive industry consultant.

"So I'm not at all surprised that Myanmar has diversified away from China and has a mix of European, North American, and Asian investors."

For the people of Ramree Island, though, it will make little difference which foreign power gets the spoils, unless Myanmar adopts transparent governance and returns some of the new wealth to its citizenry.

"I love this land," says Maung Aye, carefully pouring oil into a jerrican. "The government in Nay Pyi Taw doesn't care about the people who live around here."

*Shell is the sponsor of National Geographic's Great Energy Challenge initiative. National Geographic maintains autonomy over content.