Myanmar junta’s growing reliance on extractives for cash raises concerns

  • Following the military coup on Feb. 1 and a forceful crackdown on protesters, activists are calling on companies that operate in Myanmar to sever links with the military junta.
  • As the U.S., U.K., EU and Canada impose increasingly tough sanctions on the junta, future sanctions targeting revenues from the oil and gas sector are likely to have the greatest impact.
  • Alongside the humanitarian crisis, advocates say they fear a return to direct military rule could also lead to a backslide in environmental protections.
  • Further concerns include a surge in illegal rare earth mining in northern regions and the potential for the military to resume issuing permits for gemstone mining.

CHIANG MAI, Thailand — As the military regime entrenches itself in Myanmar following its Feb. 1 coup and forceful crackdown on protesters, activists are calling on companies that operate in the country to sever links with the military junta and its wide-ranging business interests. Extractive industries are a key concern since they provide the bulk of the junta’s income.

During the five months since the junta overthrew Aung San Suu Kyi’s National League for Democracy administration, more than 850 people have been killed and around 6,000 imprisoned. The situation continues to escalate. In spite of an internet blackout across the country, reports reveal violent clashes between military security forces and pro-democracy protesters, and arrests of civilian officials, journalists and protest leaders. According to Human Rights Watch, at least 175,000 people in ethnic minority areas have been forced to flee their homes.

The U.N. has warned that the combination of the coup and the COVID-19 pandemic could leave almost half of Myanmar’s 54 million people living below the poverty line by 2022.

“In the space of 12 years, from 2005 to 2017, Myanmar managed to nearly halve the number of people living in poverty. However, the challenges of the past 12 months have put all of these hard-won development gains at risk,” Achim Steiner, the UNDP administrator, said in a statement. “Without functioning democratic institutions, Myanmar faces a tragic and avoidable backslide towards levels of poverty not seen in a generation.”

Alongside the humanitarian crisis, advocates fear that a return to direct military rule could also lead to an unraveling of environmental protections, as the regime and its allies seek to fund themselves via resource extraction.

As the U.S., U.K., EU and Canada impose increasingly tough sanctions on the junta’s leadership and military-owned companies and industries, advocates say future sanctions should target revenues from the oil and gas sector, which forms the military’s main sources of income.

“If governments effectively sanction or suspend the natural gas revenue generated for the military junta, it will lose $1 billion a year being used to hurt Myanmar’s people,” John Sifton, Asia advocacy director for Human Rights Watch, one of several groups that has campaigned to stop gas payments to the junta, said in a statement. “That kind of economic impact could put real pressure on the military to stop its brutal repression and return the country to a democratic path.”

However, industry responses have been mixed: some companies have suspended cash dividends to junta-controlled enterprises, while others remain indifferent. Furthermore, reports from northern Kachin state indicate a surge in illegal rare earth mining since the coup, suggesting unscrupulous operators are exploiting the unrest and lack of international oversight as an opportunity for resource exploitation.

Protests in Myanmar
Anti-coup protesters in Myanmar during widespread demonstrations in February. Image by MgHla via Creative Commons (CC BY-SA 4.0)

Natural resources at risk

Decades of overexploitation of Myanmar’s natural resources have put the country’s ecosystems under tremendous pressure. Extensive mining and illegal logging linked to armed groups have led to landslides, biodiversity loss, habitat fragmentation, and polluted waterways. Experts are now concerned that the junta will turn to exploitation of the country’s remaining natural resources to fund itself and buy political allies, as it has done in the past.

A spate of reckless exploitation of finite resources would also limit the possibilities of more equitable and sustainable use to support economic growth in the future. In the short term, it allows the military regime to remain solvent even if the rest of the country starves.

One rising concern is gemstone mining in northern Kachin state close to the border with China. In 2016, Myanmar’s government suspended the issuance of new licenses for jade mining but planned to restart in 2021, prior to the coup.

“As far as we are aware, licensing has not restarted yet,” Keel Dietz, Myanmar policy adviser for Global Witness, told Mongabay. “There is a huge risk that the military will start issuing jade and gemstone [mining] permits, which they can sell or give away to their political allies to both buy patronage and to acquire direct funds to support and maintain their rule.”

Political support from neighbors including China has helped the military regime remain in power in the past. A 2008 report from Earthrights International said China’s veto of a U.N. Security Council resolution in January 2007 prevented action that might have helped prevent brutal military crackdowns later that year. Following the veto, China was awarded exploration contracts by the state-owned Myanma Oil and Gas Enterprise (MOGE).

Issuing of jade mining permits could be disastrous for the country, not only because it could provide significant funding for the military regime, but also due to the junta’s disregard for the environment, particularly in ethnic minority areas, Dietz said. Since the military took control of jade mining through peace deals with the Kachin Independence Army in the mid-1990s, environmental impacts have skyrocketed.

“What had once been a relatively artisanal sector, which had some environmental impacts but was much smaller in scale, over the past 30 years turned into this heavily mechanized, highly environmentally destructive strip mining that leveled mountains,” Dietz said. “It dug up forests, it poisoned waterways around mining regions and it was a disaster environmentally.”

Irrawaddy river
The mainstream Irrawaddy river supports millions of people. The water quality has been declining in recent years as waste from extractive industries pollute its tributaries. Image by Carolyn Cowan/Mongabay

Stopping the money flow

In response to activists’ concerns, energy groups Total and Chevron last month suspended cash dividends to Myanmar’s state-owned oil and gas company. This action shows recognition by some companies that payments to the junta are ethically problematic and create reputational risks.

Total and Chevron, based in France and the U.S. respectively, are the largest stakeholders in the Yadana offshore gas field and pipeline infrastructure. Other shareholders are Thailand’s majority state-owned PTT and MOGE.

But advocates say curbing dividends falls short of what is needed to significantly restrict military coffers, whose natural gas revenue amounts to approximately $1 billion in duties, taxes, royalties, fees, tariffs and other profits. The suspended dividends are but a small part of these payments.

“Chevron and Total’s recent decision is a step in the right direction, but it affects less than 5 percent of the natural gas revenue the Myanmar junta receives,” said Sifton of Human Rights Watch. “To have real impact, governments and companies need to go further to stop the junta from receiving funds or accessing bank accounts that receive payments.”

In May, a Human Rights Watch report called on additional entities to cut ties with the regime. Among those cited are Thailand’s PTT and South Korea’s POSCO, both of which operate in Myanmar’s major gas fields.

“Total, Chevron, PTT, and POSCO should signal support to authorities in the US, EU, Thailand, and other jurisdictions for sanctions or other measures to block royalties, share dividends, tariffs, and tax payments to Myanmar military-controlled accounts,” the report says.

Meanwhile, the Beijing-based Asian Infrastructure Investment Bank (AIIB) says it will not rule out funding projects in Myanmar, even if there is no return to democracy, reports the Financial Times. The AIIB was launched in 2016 by Chinese President Xi Jinping and was viewed as a component of the country’s Belt and Road infrastructure plan. In 2016, the AIIB provided $20 million for a private-sector gas power plant in Myanmar, although it does not currently have any active projects in the country. As Western groups disengage and institute sanctions against the military and its leaders, experts expect Chinese investors and companies to step in and fill the void.

Rare earth mining
A rare earth mine in China, chemicals such as ammonium sulfate are used to extract the metals, producing hazardous byproducts which leach into the environment. Image by Kevnmh via Creative Commons (CC BY-SA 4.0)

Rare earth mining ramps up

While ethical issues around investment in Myanmar have caused some companies to act, others have seized the opportunity to take control of poorly regulated mining areas in Kachin state. Rare earth mining has reportedly ramped up significantly following the coup, causing widespread environmental devastation.

Despite tighter border controls between Myanmar and China due to COVID-19, trucks carrying mining commodities, such as ammonium sulfate used to extract the metals, are reportedly passing through relatively unchecked.

An activist from the Transparency and Accountability Network Kachin (TANK) told the Irrawaddy, “Currently, vehicles carrying heavy rare earth leave day and night.” The group estimates that around 10 rare earth mines have opened near the border in Zam Nau, which is controlled by the military-affiliated New Democratic Army Kachin (NDAK). Moreover, local environmental groups estimate there are more than 100 rare earth mines in Pangwa and Chipwe townships controlled by junta-sponsored militia and Chinese investors.

Myanmar has rich deposits of rare earth elements. These metals are in high demand but short supply because of their irreplicable magnetic properties and consequent role in high-tech products, such as electric cars and wind turbines, and in modern missile technology. The U.S. Department of Energy has identified dysprosium as the single most critical element among rare earths, and warned that bottlenecks in the rare earth supply chain could harm the clean energy industry.

“Rare earth mining is incredibly environmentally destructive,” said Dietz of Global Witness. “It maybe doesn’t require the same leveling of mountains as jade mining, but the by-products are really environmentally damaging, which is part of the reason why rare earth mining is so uncommon in the U.S. and Western countries, because it is very difficult to do cleanly.”

Over the past five years, China has cracked down on rare earth mining in its southern provinces due to environmental problems. With those curbs in place, Myanmar now accounts for more than half of China’s rare earth supplies and has been China’s main source since 2018.

The surge in illegal rare earth mining “is just another example of how the environment suffers when there’s this breakdown of the rule of law,” Dietz said. “And we can unfortunately expect to see that continue.”

A test of the regime’s pull

The junta recently launched its first major public tender since its coup. The announcement, part of an ambitious scheme to build 320 megawatts of solar farms at 12 sites across the central regions, will test the regime’s pull on local and foreign investment.

Given the recent sanctions from international authorities and suspension of payments from foreign companies, most U.S., European and Japanese investors are expected to stay away. Myanmar’s previous solar tender cycle in 2020 awarded the majority of contracts to Chinese companies and local partners.

During a pandemic and escalating unrest, the solar tender does not address Myanmar’s immediate needs, such as food, medication and basic civil liberties, a former adviser to the NLD government told Nikkei Asia. “What it does try to do is legitimize the State Administration Council [junta] and could provide foreign exchange to the military, which they need to finance the aircraft, ammunition and other equipment they are using to attack their own people around the country.”

Banner image: An active jade mine in Hpakant township in Kachin state, northern Myanmar. Image by Arezarni via Creative Commons (CC BY 3.0)