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Burmese Crossroads: Oil & Gas Rush Stokes Civil War

by Matthew F SmithSpecial to CorpWatch
July 26th, 2011

Photo: Earth Rights International. Collage: CorpWatch

On a typical sunny day in 2010, Burmese authorities and their corporate partners from China confiscated Khaing Khaing’s small family plot on Maday island in the Bay of Bengal. The remote and mountainous Southeast Asian island, scorched during equatorial hot seasons and drenched in tropical monsoons, sits in the path of proposed oil and gas pipelines to China.

In 1980, “when we were married,” said Khaing Khaing, a resolute 52-year old farmer in Burma’s Arakan state, “we inherited about four acres of paddy field and two oxen from both sides of our families,” in accordance with Arakanese custom. The plot, with its rich and fertile soil, supported her and her husband’s family of two children for three decades.

Unfortunately, their traditional values and small farm were no match for the $2.5 billion mega-projects. The military rulers of Burma – also called Myanmar – cut deals in 2009 with South Korean and Chinese companies for the lucrative cross-country pipelines, which will stretch from Burma’s western shore to the restive border with Yunnan province, China.

The dictatorship has since been replaced by a military-dominated parliament, but for the pipelines it is still business as usual: the companies and the military are forging through allegations of human rights abuses on one hand and a civil war on the other.

New Oil and Gas Investments


The energy mega-deal actually involves several separate projects: offshore gas development, a deep-sea port, gas and oil terminals, roads, and other infrastructure.

The pipelines, however, are the vital element. Operated by the state-owned Chinese National Petroleum Corporation (CNPC), in collaboration with the Myanmar Oil and Gas Enterprise (MOGE), the oil pipeline will enable China’s crude shipments from the Middle East to circumvent the vulnerable Strait of Malacca, a narrow shipping chokepoint controlled by the U.S. It will also conveniently avoid the South China Sea, where China and its neighbor Vietnam are feuding over oil-rich territories claimed by both countries. The gas line will likewise follow the same overland route as the oil pipeline, under the control of CNPC and South Korea’s Daweoo International, together with the Gas Authority of India, Korea Gas Corporation and ONGC Videsh (India).

All told, more than $10 billion in new oil and gas investments poured into Burma last year alone, according to the country’s official figures. EarthRights International (ERI), a human rights and environmental watchdog with offices in Washington D.C. and northern Thailand, estimates that Burma’s controversial Yadana pipeline to Thailand generated over U.S. $5 billion in profits for the previous junta, from 1999-2010. These figures will increase considerably when the China pipelines come online.

Yet the military rulers have invested little in raising the living standards of people like Khaing Khaing and her family. The United Nations Development Programme continues to rank Burma last in the region according to nearly every indicator in its annual Human Development Index, measuring poverty, health, and education; and it ranks Burma 132 out of 169 globally.

Big Business in a War Zone


The controversial oil and gas pipelines are set to span 500 miles of rugged mountains and dense jungle in Burma, passing rushing rivers, expansive rice paddies, and several population centers, including areas of escalating armed conflict in the country’s mountainous northern Shan state. It is there that scores of non-governmental organizations, the United Nations, Harvard Law School, and others have reported some of Burma’s most urgent human rights violations.

According to Sai Kheunsai Jaiyen, editor of the Shan Herald Agency for News, the Burmese army has attacked the ethnic Shan State Army (SSA) every day for the last two months. The epicenter of the attacks has been near Hsipaw, a remote valley town and a key location on the proposed pipeline route.

The Shan Women’s Action Network (SWAN) and the Shan Human Rights Foundation have in recent months documented rape as a weapon of war in the conflict areas of Shan state, committed by Burmese soldiers against ethnic women and girls. Survivors were aged 12-50, the groups say, and at least one girl was raped in front of her parents.

“Business as usual means ongoing rape for women and girls in our communities,” SWAN’s Charm Tong told the Bangkok Post on July 24. “[Investors and Governments] can’t hide behind ‘We didn't know’.”

Intense fighting has also recently erupted between the Burmese army and the Kachin Independence Army (KIA), the country’s second largest ethnic force, ending a 17-year-long ceasefire agreement. Like the SSA, the KIA has a key battalion stationed in the proposed path of the pipelines in northern Shan state.

Dr. La Ja, a senior representative of the Kachin Independence Organization, the political wing of the KIA, told CorpWatch on June 26 that that the pipelines are not yet under construction in the northernmost reaches of Shan state, but that the war in the region is intensifying. “We want stable peace along the border [with China],” he said, “but the fighting is escalating.”

The Kachin were “very surprised” by the renewed conflict when it began on June 9, and had “no option” but to take a defensive posture after a series of advances by the Burmese army, according to Dr. La Ja. State media reported that the Burmese army advanced on the Kachin to protect the central government’s interests in Kachin state, including two Chinese-led hydropower dams, but Dr. La Ja claims the projects in question were never under threat.

Since the fighting began in June, the Kachin Women’s Association of Thailand has documented 32 cases of rape; thirteen ended in death, according to the organization.

China’s foreign ministry has called for the conflict to stop, but has not elaborated on its plans for the pipelines or China’s other energy projects in Burma.

CorpWatch spoke to a Daewoo International company vice president in charge of the company’s energy investments in Burma, and asked him about the risks of running multi-billion dollar pipelines through a war zone and how the company would deal with imminent human rights problems. “That’s a very difficult question,” he said, requesting anonymity because he is unauthorized to speak to the media. “We are not quite sure what could happen in that area [in northern Shan state].”

“The issue is whether foreign companies doing business in that country can advance democracy or not,” the Daewoo vice president said. “If Daewoo in Myanmar eventually helps democracy in Myanmar [by strengthening the economy], then we should not be blamed [for being in Myanmar now].”  

What if instead Daewoo’s presence is contributing to human rights abuses and authoritarianism? “I have no idea,” he replied.

Local Discontent and Opposition

Back on the western front of the projects,  Khaing Khaing is less ambivalent. In January 2010, she and others from her Maday island community were given an ominous summons to attend a mandatory meeting with oil workers.

“There were about seven Burman men from the Asia World company and about five Chinese men from CNPC,” said Khaing Khaing.

Asia World is an influential Burmese company hired by CNPC to work on project-related construction and, evidently, land acquisition. The Daewoo vice president told CorpWatch that his company had not signed a contract with Asia World, but confirmed that Asia World is involved in the pipeline projects through CNPC.

Villagers in Arakan state said Asia World and CNPC handed down a non-negotiable demand for land to accommodate the pipelines, but promised fair financial compensation.

A year later, some of the dispossessed have still not been paid, according to ERI, which released a 24-page report on the issue in March 2011. Others received compensation from the companies above market value, according to ERI, but the villagers remained worried as to how they would survive given that farming was their sole skill set as well as the cultural and economic foundation of their lives.

“Now we have no paddy fields to survive,” Khaing Khaing said. “We value our traditions very much,” she said, including the vital custom of bequeathing land from one generation to the next.

EarthRights International’s Paul Donowitz told CorpWatch that he met with Daewoo’s senior executives in April and explained to the company that it shared responsibility for any abuses connected to the gas pipeline. “The company said they are advising their partner CNPC to observe human rights,” said Donowitz. “We’re watching the situation on the ground very closely and still see many troubling project impacts.”

Villagers in the pipeline’s westernmost path say that they are very worried. “If the companies and the authorities order us to move, we can’t deny their orders,” said one dispossessed villager in Arakan state. The oil companies and the authorities “can do whatever they want,” added another young farmer. Both, fearing reprisals by the state, requested anonymity.

After the ERI report was released, CNPC posted a Chinese-language statement on its website saying it spent $810,000 to compensate all affected Maday islanders. The company also said it is contributing positively to local employment and local livelihoods: “CNPC staff have brought loving care to Myanmar people.”

CorpWatch’s repeated emails requesting comments from CNPC either bounced or went unanswered. Several calls to its local contractor Asia World Ltd. were disconnected after CorpWatch raised questions about the pipelines.

Daewoo was more forthcoming. Its vice president told CorpWatch that his company had devoted scrupulous attention to land and crop compensation on Kyauk Phu island in Arakan state, a small corner of the project route where Daewoo is the sole operator. CorpWatch asked the Daewoo representative about villagers beyond Kyauk Phu who say they have still not received compensation for confiscated land. “We’re not quite sure if that instance is linked to our company,” the representative said.

In an official June 28 email to CorpWatch, the company’s communications team said it “is not relevant for Daewoo to make a comment over [non-governmental organizations’] views or objectives.”

Histories of Controversy

All three companies - Asia World Ltd., CNPC, and Daewoo – are politically and economically powerful and each has been linked to wrongdoing in recent years.

Asia World Ltd. is one of Burma’s largest conglomerates with numerous ventures in construction, hydropower, ports, retail and other businesses. Asia World CEO Lo Hsing-han and his son Steven Law are ethnic Kokang of Chinese ancestry, hailing from the general region where the pipelines will pass into China.

“Asia World is the best-connected and best suited to do that work,” says to Bertil Lintner, a noted author who has written widely on Burma, referring to the company’s involvement in the pipeline projects in Shan state. “They’d know the terrain up there,” he added.

Lo is one of the world’s best-known opium smugglers, according to the U.S. government, which has put both him and his son on a U.S. government blacklist. The duo’s company has been sanctioned by the U.S. since 2008 on suspicion of money laundering and drug trafficking, as well as for its close links to Burma’s ruling elite.

CNPC is China’s largest oil company with assets and interests in 27 countries worldwide, according to its website.

A 580-page report in 2003 by Human Rights Watch, a New York-based watchdog group, exposed CNPC’s large interests in Sudan’s oil sector, where the state and its militias violently displaced whole communities from their homelands around CNPC-controlled oil fields.

Human rights groups also allege that revenues from CNPC’s oil payments to Khartoum financed widespread human rights violations in the country. In 2009, Global Witness, a London-based human rights group, released a report claiming much of CNPC’s payments were not reflected in the Sudanese government’s published figures, implying massive corruption of monies that should have otherwise been shared with the recently independent South Sudan.

Daewoo (the company name means “Great Universe” in Korean) describes itself on its website as a “world top class trader investor, developer [whose] pioneering spirit guarantees plenty of progress for everyone.” With 1,767 staff and 6,000 clients in 180 nations around the world, according to the site, Daewoo “plays the roles [sic] as the driving force for the trade and overseas investment of Korea.”

The Axle Project: Guns for Gas?

From 2002-2006, executives from Daewoo International and other companies sold military equipment as well as blueprints for weapons technology to Burma in violation of Korean trade law, which restricts the export of strategic materials to countries deemed a potential obstruction “to world peace and regional security.” In 2004, the law was amended to label Burma a “limited export area.”

Senior Daewoo executives and their associates code-named their weapons supply scheme the “Axle Project” because they considered it the key lever to keep the gas wheel turning with Burma’s notorious difficult military leaders, according to prosecutors in the case.

Fourteen Korean executives, including six from Daewoo, were ultimately convicted in trial court, appellate court, and then again at the Supreme Court on charges of conspiracy and failure to obtain government approval for exporting strategic materials.

The prosecution argued that the company used various ploys to obscure the initiative: The Burmese Directorate of Defense Industries was code-named the “landlord’s house”; a weapons factory constructed by the group in Burma was the “rice bowl”; and financial exchanges between the parties were conducted through personal bank accounts.

Daewoo’s Executive Director Lee Tae-yong was alleged to have personally overseen the export of 480 different types of military equipment worth hundreds of millions of dollars.

One 55-year old employee of the Korean government-affiliated Agency for Defense Development was charged with stealing more than 850 pages of blueprints for weapons technologies, and providing them for use in Axle. A Daewoo-led secret team also quietly trained Burmese officials in weapons manufacturing in Burma and Korea, court documents show.

The ultimate goal of the Axle Project was to help the military junta construct a fully functioning weapons factory in central Burma, according to facts recognized by the trial court. The now complete factory was designed to produce tens of thousands of six different artillery shells annually, including 120mm artillery shells and 105mm howitzer high-explosive shells.

“The 120mm mortar is the standard heavy mortar shell that the Burma army has used for years in attacking the resistance and villagers,” wrote David Eubank, director of the Free Burma Rangers in an email to CorpWatch. Eubank is a former U.S. Army Ranger and Special Forces officer. “The 105 is also used against some ethnic groups,” Eubank added.

According to Inhong Kim, a member of the Korea University international human rights clinic, sentences for the 14 executives varied from suspended jail time to fines. Daewoo’s Executive Director Lee Tae-yong was fined just $54,550.

In an email response to CorpWatch dated June 28, Daewoo noted that “only certain individual employees of the Company were sentenced to punishment…for violation of Korea laws” and that “the violation of the individuals was irrelevant to the Company.”

That “force” has been less than subtle at times. In 2009, the company was implicated in a military-backed coup in Madagascar after acquiring a 99-year lease from the government there for more than one million hectares, nearly half the country’s arable land. “We want to plant corn there to ensure our food security,” Hong Jong-wan, a manager at Daewoo, told the Financial Times in 2008. “Food can be a weapon in this world,” he added.

In March the following year, a military-backed coup ousted Madagascar’s democratically elected president, Marc Ravalomanana. Scrapping the widely unpopular deal with Daewoo was a primary reason for the coup, according to public statements by the self-appointed transitional president, 33-year old Andy Rajoelina, who abruptly cancelled Daewoo’s contract.

Moreover, in 2006, 14 executives from six companies, including the former executive director of Daewoo, were indicted in Seoul central district court for illegally and secretly exporting military technology and hardware to Burma’s military rulers. (See box)

Given the increased attacks along the northern pipeline route, those weapons may prove as useful as bulldozers in assuring that energy and profits flow as planned --with gas sales slated to begin in 2013.

Military Controls Profits

European governments, the U.S. and other nations have long-restricted trade and investment in Burma because of persistent human rights violations and political repression. Just last week, the U.S. Congress unanimously passed a resolution to extend sanctions against Burma for another year, citing a lack of progress in democracy and human rights.

While the sanctions are a considerable economic thorn in the regime’s side, they have not stopped private and state-owned companies from Asia from descending on the country’s natural resources.

The investors in the new gas pipeline to China are hoping to cash in on some $29 billion in potential natural gas exports alone, according to estimates by the Shwe Gas Movement (SGM), an underground coalition of democracy and human rights activists who are documenting the impacts of the pipelines in Burma. Wong Aung, coordinator of SGM, doubts that people like Khaing Khaing will ever share in the prosperity and progress the pipeline is supposed to bring.

“The gas revenues need to fuel economic growth to combat poverty and improve the well-being of local communities,” he said, “but the industry’s revenues are still entirely controlled by the military.”

In 2011, prior to Burma’s first national elections in over 20 years, a “Special Funds” law was passed, authorizing the military commander-in-chief to use public money “to safeguard national sovereignty and protect the disintegration of the union.” The law says the military chief “shall not be subject to questioning, explanation, or auditing by any individual or organization” regarding use of the funds.  

With a legal basis for impunity in revenue mismanagement and the prospect of multi-billion dollar profits from gas sales, it is no wonder why the military rulers fail to seek lasting peace or a more genuinely democratic federal union with the country’s ethnic nationalities.

“We call for political dialogue and negotiated settlement,” wrote Dr. Lian Sakhong, an ethnic leader who recently compiled his writings on Burma’s community struggles in a new book titled In Defence of Identity, “but the responses are always violent confrontations.”

Matthew F. Smith is an independent human rights and environmental researcher and former senior consultant with EarthRights International (www.earthrights.org) based in Southeast Asia. Follow him on twitter @matthewfsmith. EarthRights International provided CorpWatch with transcripts of interviews of directly affected villagers in Burma for this article, which were coordinated and collected by Naing Htoo and Zaw Zaw. Names of interviewees have been changed or withheld to protect them.