India PM seeks to heal bad blood on Myanmar visit

SITTWE, Myanmar (Reuters) - In northwest Myanmar, where the Kaladan River flows out into the Bay of Bengal, the two giant arms of a half-built wharf enfold the estuarine mud with steel and concrete.

Their embrace is fraternal - Myanmar's giant neighbor India is funding the new port in Sittwe, the capital of Rakhine State - but also strategic.

The port is part of a $214-million river and road network that will carve a trade route into India's landlocked northeast and underscore New Delhi's determination to capitalise on Myanmar's growing importance at Asia's crossroads.

Manmohan Singh will seek to bolster ties this week during the first visit by an Indian prime minister to Myanmar in 25 years. His official agenda includes road, rail, waterways and air links, says India's foreign ministry.

Unofficially, he must also overcome a history of bad blood with Myanmar, where Indian investments are already dwarfed by regional rival China.

The visit follows a year of dramatic reforms in which Myanmar has pulled back from China's powerful economic and political orbit and won a suspension of U.S. and European sanctions. With change has come a series of high profile visits, including stops by the leaders of Britain and South Korea, as well as U.S. Secretary of State Hillary Clinton.

President Thein Sein's government has held peace talks with ethnic minority rebels, relaxed strict media censorship, allowed trade unions and protests and held a by-election dominated by Nobel Peace Prize laureate Aung San Suu Kyi's opposition party.

As Myanmar emerges from decades of isolation, trade with its neighbour is already swelling. Myanmar's government expects two-way trade with India to nearly double in two years to $2 billion, from $1.4 billion in the year to March 30, a figure that was nearly 30 percent higher from the previous year, according to Myanmar's Ministry of Commerce.

"Stronger trade and investment links, development of border areas, improving connectivity between our two countries and building capacity and human resources are areas that I hope to focus on during my visit," Singh said in a statement released before his arrival in the capital Naypyitaw on Sunday evening.

India should be a natural partner, with ties stretching back to the ancient Buddhist emperor Ashoka and, more recently, a shared experience of British colonialism and World War Two.

But its business interests in the former Burma have been "few and far between" since the mass expulsion of Indian merchants after the military seized power in 1962, says Thant Myint-U, author of "Where China Meets India: Burma and the New Crossroads of Asia".

"Many in India remember all too well that this was the country that nationalized Indian businesses and expelled hundreds of thousands of ethnic Indians with literally nothing more than the shirts on their backs," he said.

One hopeful symbol of improved ties is Sittwe.

The two countries formally agreed on the so-called Kaladan Multimodal Transit Transport Project in April 2008, just seven months after Myanmar's military junta crushed nationwide pro-democracy protests led by Buddhist monks.

Work began on Sittwe port in September 2010, shortly before the former military junta held a rigged election that brought to power a quasi-civilian but surprisingly reformist government.

Indian conglomerate Essar Group is building the port on 70,000 square metres (753,000 sq ft) of landfill in Sittwe's centre. It should be ready in two years, says Myanmar's Commerce Ministry, accommodating ships from the Indian city of Kolkata, a 539-km (334 mile) voyage away across the Bay of Bengal, and handling up to 500,000 metric tons a year.

From Sittwe, ships will sail up the Kaladan River to the town of Paletwa, where Essar will build a second, smaller port. A 122-km (76-mile) highway will connect Paletwa to the Indian state of Mizoram. The two ports and dredge work will cost $74 million. The highway will cost $140 million.

STRATEGIC SIGNIFICANCE

India is already Myanmar's third-biggest export market after Thailand and China. But Thant Myint-U plays down Myanmar's economic importance to India. "Myanmar is extremely important for India's northeast, but because the northeast itself rarely gets Delhi's attention, that in itself doesn't count for much."

However, New Delhi is acutely aware of Myanmar's strategic significance "because of China's increasing economic presence and anxiety about a possible future Chinese presence on the Bay of Bengal", he says.

Not far south of Sittwe, Chinese money is funding a bigger port and special economic zone in Kyaukphyu, a coastal town where Myanmar-China pipelines reach the Bay of Bengal, creating a passage from western China to South and Southeast Asia and allowing shipments of fuel and natural resources to avoid the Malacca Strait.

An Essar company official said "communication problems" had been a headache during the project, with Myanmar officials slow to provide information and language issues also a hurdle. The company, however, would consider further projects in the country, given they had already worked there.

"Business is all about relationships, and we have been meeting the right people," the official said.

A delegation of Indian business officials will join the prime minister on his visit, said an Indian Foreign Ministry official, adding that India was looking at setting up a special economic zone.

Indian companies are showing interest too.

Tata Motors, which makes the ultra-cheap Nano and owns Jaguar Land Rover, is looking to expand operations in Myanmar by assembling and selling buses and light commercial vehicles there, its India head said in January. Tata already operates a truck assembly plant in Myanmar.

State-run explorer Oil and Natural Gas Corporation Ltd, which has two gas blocks in Myanmar with production due to start in 2013, and tractor maker Escorts Ltd have also said they are looking to expand operations there.

Myanmar opposition leader Aung San Suu Kyi was once lionised by New Delhi, which gave her the prestigious Jawaharlal Nehru Award in 1993 and Myanmar's dictatorship the cold shoulder. Singh will meet Suu Kyi in the biggest city Yangon on Tuesday.

But with growing investment in Myanmar by regional rival China, the world's biggest democracy has forged closer ties, inviting former dictator Senior General Than Shwe on an official state visit to India in 2004.

Three years later, after he presided over a violent crackdown on pro-democracy protests led by Buddhist monks, India was widely criticized for its muted response amid international outrage.

"Manmohan Singh has to do more than offer ports, bridges and roads, as the Chinese do," says Thant Myint-U. "Instead, he has to ... delve deeply into the very long history of cultural ties between the two countries and come up with a new vision for Indo-Burmese relations.

"The problem is that no one in Burma thinks of India when they think of the future."

Still, Myanmar expects to benefit from the Sittwe project, partly from jobs. Essar employs 600 local people on the Sittwe site, although it brought in most of its skilled workers and specialist construction equipment from India.

"This project is good for the northeast part of India and for Myanmar," Myanmar Industry Minister Soe Thein said in an interview with Reuters in Naypyitaw. "We can't do it ourselves due to the lack of budget and problems in our financial sector."

(Additional reporting by Satarupa Bhattacharjya, Anurag Kotoky and Frank Jack Daniel in New Delhi and Jason Szep in Naypyitaw; Editing by Robert Birsel and Jeremy Laurence)

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