An Australian Company’s Hot Potato

Downer
EDI abruptly abandons a Burma project after the press asks questions

One
of Australia's largest engineering companies is abruptly
pulling out of Burma after an investigation by Asia Sentinel
revealed that a subsidiary was working on the construction of a
lavish new airport for the repressive junta in Naypyidaw, the
generals' reclusive capital.

Downer
EDI's Singaporean consultancy arm, CPG Corporation, was
contracted to design the revamped airport at Naypyidaw, working
alongside Asia World, the shady Burmese conglomerate whose management
are targeted by sanctions in Australia, the US and Europe.

The
revelation that it has been doing business in Burma is highly
embarrassing for a company that has donated thousands of dollars to
Australia's ruling Labor Party and has won billions of dollars
in Australian government contracts. Prime Minister and Labor leader
Kevin Rudd has been vociferous in his condemnation of the Burmese
regime and last year his government ratcheted up sanctions against
the generals and their cronies.

The
Sydney-based Downer claimed that it had been unaware that its
wholly-owned subsidiary was working on the Naypyidaw project until it
was contacted by Asia Sentinel last week. The Australian
parent company also said it had been unaware of CPG's
involvement as a design consultant for the upgrading of the
international airport in Rangoon in 2003.

"As
soon as this matter was brought to the attention of the chief
executive, enquiries were made immediately and a decision followed to
withdraw from the contract in an appropriate manner," said
Maryanne Graham, a spokeswoman for Downer.

The
company admitted that its "zero harm" policy had "not
been applied at a sub-divisional level" and said that it was
launching a "rigorous" review of all its contracts and
beefing up its governance procedures to ensure better oversight of
future operations.

In
2005, the Burmese military government suddenly announced that it was
moving its administrative capital from Rangoon to a new site near the
town of Pyinmana in the heart of a malaria-infested jungle in central
Burma. The government, which calls itself the State Peace and
Development Council, claimed that Rangoon had become overcrowded but
most observers believe the move to Naypyidaw was the result of
superstition and a paranoid desire to build a city that was better
protected from both internal and external ‘enemies'.

Human
rights groups claim that much of Naypyidaw, where the generals hide
away in luxuriant palaces, was constructed using forced labor,
including children, and that many local residents had their land
seized without adequate compensation. Such gross human rights abuses
are common practice in large development projects in Burma, which
usually directly benefit the regime and its cronies while doing
little to alleviate the extreme poverty and hardship faced by many
Burmese people.

Downer,
which is a constituent of Australia's benchmark ASX 200 share
index and has a market capitalization of around A$1.7bn (US$1.3bn),
is actively involved in a variety of infrastructure, rail and mining
projects in Australia, New Zealand and the wider Asia Pacific region.

A
report in the New Light of Myanmar, the mouthpiece of the
military junta, dated 25 April claimed that the expansion of
Naypyidaw airport was intended to increase international travel to
the city, even though most foreigners are banned from visiting except
on official visits.

The
insecure generals, who regularly talk up the threat of internal and
external enemies, have been careful to ensure that most of the
country's civilian airports can be easily adapted to military
use at short notice. The New Light of Myanmar noted rather
ominously that the new runway at Naypyidaw airport will be big enough
to ensure that "10 aircrafts can land simultaneously" –
an exercise not commonly undertaken by passenger airliners.

The
newspaper added that while CPG had produced the designs for the
airport, the construction work was being carried out by Asia World,
the Burmese conglomerate owned and run by two of the junta's
key henchmen Steven Law (Tun Myint Naing) and his father, Lo Hsing
Han.

Last
year, the US Treasury implemented economic sanctions against both men
as well as Law's wife, Cecilia Ng, and the string of companies
they control in Burma and Singapore.

In
a statement released in February 2008, the Treasury noted that both
men had a history of involvement in the illegal drugs trade. "Lo
Hsing Han, known as the ‘Godfather of Heroin', has been
one of the world's key heroin traffickers dating back to the early
1970s," the Treasury claimed. "Steven Law joined his
father's drug empire in the 1990s and has since become one of the
wealthiest individuals in Burma."

While
Canberra does not have any financial sanctions against Burmese
companies, both Law and his father are the subject of individual
sanctions in Australia. That means that any transactions involving
"the transfer of funds or payments to, by the order of, or on
behalf of" Law and his father are prohibited without prior
approval from the Reserve Bank of Australia.

Graham
confirmed that CPG was "contracted by a Singapore-based entity
to undertake a design assignment for the Naypyidaw Airport".
She added that while CPG was not doing business directly with Asia
World, Downer believed that "the Singapore-based entity may be
a subsidiary of Asia World".

"We
take zero harm very seriously and while not insinuating anything
against our direct client in Singapore, we are taking action to
withdraw from this assignment in an appropriate manner," Graham
said. "We are also working to ensure that we meet all of our
reporting obligations to the relevant authorities in light of this
unintentional oversight."

CPG
started life as the Singapore government's public works
department before it was corporatized and eventually sold off by
sovereign wealth fund Temasek to Downer for S$131m (US$90) in 2003.
While many Australian companies refuse to do business in Burma, there
are fewer qualms in Singapore, which is one of the biggest investors
in its Southeast Asian neighbor.

But
although CPG has been active in the country for some time, it was
initially reluctant to talk about its Burmese operations, with a
Singapore-based spokeswoman telling Asia Sentinel that "we
cannot discuss any details of this project due to client
confidentiality". However, alarm bells went off in Downer's
Sydney headquarters when the company was contacted by Asia
Sentinel
and the chief executive, Geoff Knox, was forced to act
quickly to prevent further reputational damage.

Questions
still remain about how a large publicly-listed company such as Downer
could have allowed a subsidiary to operate with such a free hand and
how its audit and governance procedures failed to pick up on the fact
that CPG had consistently been doing business in such a controversial
location.

Downer
has faced a series of mounting problems in recent years, including a
string of profit warnings and contractual disputes. But a new
management team was appointed last year and it has only recently
completed a lengthy restructuring process.

Downer
is likely to face some sort of financial penalty as it seeks to
withdraw from the Naypyidaw airport contract but Graham said that the
company's main focus was on its "strong value-based
system". "Any financial ramifications aren't our
greatest concern," she explained, adding that, as a
publicly-listed company, Downer would update the market if there was
any material impact to its financial position.

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