SAC-M: Myanmar junta’s steel industry aided by secretive Italian firm Danieli

June 16th, 2023  •  Category News
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SAC-M quoted by Myanmar Now

Myanmar junta’s steel industry aided by secretive Italian firm Danieli

By Sally Kantar and Htoo Aung

June 16, 2023

During a recent visit to a newly recommissioned military-controlled steel mill in Mandalay’s Myingyan Township, junta chief Min Aung Hlaing confirmed the long-suspected involvement of Italy’s Danieli Co., Ltd. in the regime’s burgeoning domestic metals industry.

The coup leader was described in military-controlled media on June 2 as having “presented a fruit basket for foreign experts serving at the plant,” and was pictured on May 31 holding the gift alongside three men wearing protective gear and uniforms bearing the logo of Danieli—also formally known as Danieli & C. S.p.A.—which claims to be one of the top three plant and machine manufacturers in the steel industry globally.

The company—which does not publicly list Myanmar among its countries of operation despite having an office there—was condemned earlier this year by the grassroots network Shan State Frontline Investment Monitor (SSFIM) for its alleged collaboration in the junta’s Myingyan project, and for “a history of working with successive Burmese military regimes.”

The May 31 photo was taken in front of a wall identifying the location as the No. 1 Steel Mill under the military council’s Ministry of Industry, located in Myingyan’s Sar Khar village. There, in late March, the site’s Melt Shop 1—a facility where iron and scrap metal is melted and cast into steel—was again declared partially operational after being shuttered in 2017 by the now ousted National League for Democracy (NLD) government, which had declared it unprofitable.

According to the junta, the reopened mill recently produced its first 9-metre steel billets—semi-finished bars made from melted iron ore which can be further manufactured into a range of products.

Myingyan’s iron feedstock will come by rail from the No. 2 Steel Mill in Pinpet, located outside Taunggyi in southern Shan State, next to one of Myanmar’s largest iron deposits.

Pinpet is jointly operated by the junta’s Ministry of Industry and VO Tyazhpromexport, a subsidiary of Russia’s state-owned Rostec conglomerate, which is a major supplier of arms to the Myanmar junta. It is overseeing the Russian “romelt” process, which allows the site to produce pig iron, a crude form of metal that can be used to make lower-cost steel billets. It requires coal mined from thousands of acres of seized land in Shan State’s Ke See (Kyethi) Township by local military-linked companies, SSFIM reported in February.

The network pointed to a 2009 report by the Pa-O Youth Organisation that named Danieli as reportedly helping set up the Pinpet plant—a project long opposed by locals for its widespread environmental degradation and land confiscation.

Danieli has not publicly responded to the SSFIM report, nor did the company return Myanmar Now’s requests for comment for this article concerning its activities in the country.

When asked about the firm, a representative of Italy’s embassy in Yangon explained that Italian companies operating in Myanmar were not required to register with its office and that it was “not in direct contact with Danieli.”

Concern about weapons manufacturing

Once fully operational, the junta has declared that the Myingyan and Pinpet plants will play a major role in meeting Myanmar’s iron and steel needs—which it cited on June 2 as amounting to 2 million tonnes annually.

The timing for the military council’s enthusiastic investment in steel, allegedly for infrastructure, raises questions, given the rampant and unchecked destruction its forces have perpetrated on the country during the more than two years since Myanmar’s coup in February 2021. Schools, clinics, community halls, religious sites, and tens of thousands of homes have been targeted in the junta’s airstrikes, artillery fire, and arson attacks.

There is widespread concern that steel produced in Myanmar under the coup regime could feed an established domestic arms manufacturing industry that currently relies largely on imports of such raw materials.

A May report on military-related trade by the UN Special Rapporteur on the situation of human rights in Myanmar listed steel products—including bars, sheets, wire and tubing—among the US$160m in raw materials, machinery and equipment purchased since the coup by the junta’s Office of the Chief of Defence Industries (OCDI). The entity, which oversees domestic weapons manufacturing, was formerly known as the Directorate of Defence Industries.

These transactions were situated by the Special Rapporteur within a “billion dollar death trade” by the military in procuring and producing arms.

The investigation follows a January report by the Special Advisory Council for Myanmar (SAC-M)—an independent group of international experts—on the OCDI’s 25 “robust” weapons facilities. SAC-M highlighted foreign involvement in providing supplies and support to the sites, which have produced arms used against civilians in the post-coup crackdown on dissent, as well as those deployed in prior Myanmar army offensives largely against ethnic populations.

Danieli was not among the international entities identified in the SAC-M report as supporting the country’s weapons industry. When asked about the company, a SAC-M representative said that they were “aware that Danieli remains involved in the steel industry in Myanmar and in ongoing efforts to strengthen the in-country production of quality steel.”

“This involvement raises questions about whether Danieli’s activities in Myanmar could also result in [OCDI] production of steel for weapons manufacturing.”

The representative also noted that the OCDI was looking to strengthen its production of “military-grade steel.”

A leaked and highly confidential Ministry of Defence document from January 2017 seen by Myanmar Now outlined the military’s intentions to “produce arms of a higher quality” using what they referred to as “special steel,” or steel strengthened by the addition of specific ferroalloys to reduce corrosion. A ferroalloy is iron that also has an additional element added, in this case, chrome, titanium or tungsten, the latter of which has significant deposits in southeastern Myanmar.

These ferroalloys, among others, were listed “to be tested” in army factories to make arms and ammunition, as well as tank, vehicle and artillery parts, the report from the military’s department of science and technology stated.

“Myanmar lacks the technology to create ferroalloys, so we must import it from other nations,” it said. “If we can use raw materials from the domestic market to make ferroalloys for the production of ‘special steel,’ we can lessen our reliance on imported goods.”

It is not known if the military has since gained the ability to produce these ferroalloys, but in the November 2022 update on the Myingyan plant by the industry ministry, it noted that the junta was monitoring processes involving ferroalloys already underway at the site.

Three military regimes

In its overview of Danieli’s involvement in Myanmar, SSFIM traced the company’s presence back to the establishment of the first steel and iron plant in Anisakharn, Pyin Oo Lwin, in 1979, under Gen Ne Win’s military regime. The company also reportedly installed machinery in what was once Myanmar’s largest steel facility in Kyauk Swae Kyo, in Magway Region’s Aunglan Township, which opened in 1998 during the rule of another army chief, Than Shwe, and his State Peace and Development Council (SPDC).

The Kyauk Swae Kyo plant was operated by the military’s Myanmar Economic Corporation (MEC)—a holding company that at the time was controlled by the Ministry of Defence. MEC was started by the Than Shwe regime in 1997 and became one of the military’s major sources of revenue; the Myanmar army later claimed the conglomerate was privatised, but it continues to be owned by the Office of the Quartermaster General. MEC was one of the first entities to be targeted with sanctions by the US, EU, UK and Australia following the 2021 coup; sanctions pre-dating the coup were already in place against MEC in Canada.

According to the MEC website, Danieli was involved in upgrading another steel plant in Ywama, in Yangon’s Insein Township, in 2004. Construction of the Myingyan steel mill by MEC also began that same year with a loan of 1.1b euros ($1.176b) to the conglomerate from the China Development Bank.

Suggesting significant early support for the Myingyan facility, a November 2021 junta factsheet on industry ministry factories and obtained by Myanmar Now described the plant as having been “established with the cooperation of Danieli Company (utilizing Italian technology) in order to produce steel billets and steel slabs.”

The MEC’s Myingyan factory was unveiled in 2010—two years later, it was passed to the Ministry of Industry, which inherited MEC’s sizable debt undertaken for the project. Notably present at the site’s opening ceremony was Giacomo Mareschi Danieli, the great-grandson of Danieli’s founder and now the CEO of the company, which is listed on the Milan stock exchange and has an annual revenue of around $3 billion.

Not unlike the “foreign experts” photographed with Min Aung Hlaing’s fruit basket in Myingyan on May 31, Mareschi Danieli was identified in Myanmar state media as accepting a gift from SPDC secretary Gen Thiha Thura Tin Aung Myint Oo at the unveiling of the same plant some 13 years ago. Then, as now, his company’s role in the steel mill’s development was not specified.

At the time of reporting, Mareschi Danieli was also listed as one of six directors of Danieli’s Myanmar branch, according to their registry with the country’s Directorate of Investment and Company Administration (DICA).

Their entry was updated in September 2021 when the company dissolved its previous unit and re-registered a new local branch in Myanmar under the same management. Its primary place of operations was identified as “near Sar Khar village” in Mandalay’s Myingyan Township—the location of the steel mill.

The timing of the re-registration curiously followed a junta announcement in August—six months after the coup—that the military council was restarting operations at the Myingyan plant, sending its minister of industry Dr Charlie Than to the site to declare its opening “as soon as possible.”

When Min Aung Hlaing himself visited the site in January 2022, he declared the Myingyan mill to be “the main driver for the development of iron and steel wares in Myanmar and the improvement of Myanmar industries.”

In November of that year, the military council’s industry ministry identified Italy-based ex-Danieli executive Damir Mezulic as a consulting advisor for the Myingyan plant, noting that he met with the director of the factory at the site in late October and advised on the reopening of Melt Shop 1, the hiring of workers, and the acquisition of raw materials.

Five years before his coup attempt, Min Aung Hlaing, in his capacity as head of the Myanmar military, had visited Danieli’s Italian headquarters during a trip to Europe in late 2016, where he and his delegation were, according to Myanmar state media, “briefed […] on the operational activities of their company.”

Min Aung Hlaing toured a plant called ABS Steelworks on November 10 and was photographed there alongside an unnamed man who appeared to be Danieli chairperson Gianpetro Benedetti. Perhaps of interest to the armed forces chief was how the site in question was once deemed economically unviable—a failing venture reportedly purchased by Danieli for one euro—but transformed, under Benedetti’s leadership, into one of Europe’s top steel-producing sites, fortifying Danieli’s self-proclaimed place in the industry as both a “plantmaker and steelmaker.”

Months after Min Aung Hlaing’s visit to ABS Steelworks, the NLD administration declared Myingyan to be a “debt trap” whose interest on the initial Chinese loan taken out by MEC but inherited by the government totalled $127m per year. It reportedly failed to reach even the first targeted phase of its operations and, along with 23 other state-owned industrial projects including the Pinpet plant, was suspended.

A Yangon-based investment monitor told Myanmar Now in August 2021 that the coup regime was resuming projects suspended by the NLD to prove that they could make the same initiatives profitable where the previous government failed.

“They are doing that intentionally and for political purposes. They want to say that they are able to do it even though the previous civilian government suspended it,” the observer said.

‘From the raw material to the final product’

After the mills closed, Danieli hosted several seminars on Myanmar’s emerging market for steel and iron during the second half of the NLD’s administration. At one such event in Mandalay in May 2019, a Danieli executive described the company’s approach as “follow[ing] all phases” of projects in which it is involved and promising technical support to “assure easy plant startup and maintenance.”

“We cover the full process, from the raw material to the final product,” he said in his presentation, which was streamed on social media.

Chinese state-owned Xinhua’s Italian language news service reported in 2019 that Danieli was setting up a national steel project for the NLD government—an 800m euro (then nearly $896m) investment. Further details, such as whether such an initiative would involve the Myingyan site, were not provided.

However, a contract between the NLD administration and Danieli involving the Myingyan steel mill was confirmed in a letter from the director-general of the No. 1 Heavy Industries Enterprise, and addressed to the then Ministry of Planning, Finance and Industry (MoPFI), under which it operated during the 2018-2019 fiscal year in question. The memo, seen by Myanmar Now, requested additional funds be dispersed by the ministry to ensure that a contractual obligation was met to pay Danieli 4.95m euro ($5.54m) that year. Due to a gap created by the nearly 20 percent devaluation of the kyat during the period in question, the director-general asked that an additional 1.564b kyat be allocated to the project budget, then equivalent to more than 830,000 euro (more than $930,000).

In early 2020, the same ministry announced a call for expressions of interest from the private sector to make the Myingyan plant operational again, noting that it would consider a “range of proposals for different types of public-private partnerships,” with a budget of 225b kyat ($107.4m).

It had shortlisted five companies for the task by July; Danieli was not among them. It is not known if the company made a bid, or if it was involved in the process.

The second wave of the Covid-19 pandemic hit soon after the shortlist was announced and it is not known which, if any, of the five companies were granted the winning bid before the government was ousted six months later.

As Europe and the US initially contemplated—and later imposed—targeted sanctions against Myanmar’s junta, international firms were pressured by the public and human rights advocates to end business with the regime amid grave human rights violations committed by the military.

Around one month after the coup, on March 20, 2021, during the height of the junta’s violent crackdown on peaceful protesters, Italian news outlet Avvenire quoted a Danieli representative who said that the company remained “concerned and attentive to developments in the situation” in Myanmar. The individual noted that they had “no significant orders” in the country and were maintaining minimum personnel requirements.

The very next day—March 21—a local Danieli staff member shared a job announcement on employment platform LinkedIn recruiting a mid-career Yangon-based general manager to oversee the “daily operations” of the company’s Myanmar branch and carry out “marketing for Danieli products,” suggesting ongoing activity even as the coup unfolded.

A financial statement from Danieli’s Myanmar outfit for the fiscal year ending on September 30, 2021, was obtained by non-profit whistleblower site Distributed Denial of Secrets and seen by Myanmar Now. Of note was the company’s involvement in an unidentified melt shop in Ywama, where Danieli claimed to have spent $32,955 on “revamping expenses.” Myanmar Now was unable to independently verify whether the site in question was connected with the Ywama steel mill still operated by MEC, and which Danieli reportedly upgraded in 2004.

Danieli’s significant contributions to the Myingyan plant were on full display less than two years later. On April 26, following the mill’s March reopening, little seen footage uploaded to YouTube documented the process of the Myingan Melt Shop 1’s “first heat,” melting scrap metal to forge steel billets. Several machines were featured in the 13-minute video, including a scrap charging bucket, electric arc and ladle refining furnaces, and a continuous casting machine—all conspicuously branded as Danieli.

Just one month later, the company’s staff were photographed at the site accepting a gift from Min Aung Hlaing, whose goal to make domestic steel had come to fruition.

‘Far beyond sanctions’

Rights advocates have pointed out that the question of whether conducting business in Myanmar is ethical is often conflated with that of whether the activities violate sanctions, emphasising that existing measures have been inadequate in cutting off the regime’s access to raw materials, financial resources, and arms.

“EU sanctions on Myanmar are unfortunately not nearly sufficient to prevent all business activities that support the junta,” Yadanar Maung, spokesperson for the activist group Justice for Myanmar (JFM), said. “The steel industry is a source of revenue for the junta and steel is needed for their arms manufacturing. The junta’s Ministry of Industry should be urgently sanctioned to help cut international support for the junta’s steel and other critical industries. Danieli must end its support for the junta, which helps provide the materials needed to sustain the junta’s campaign of terror.”

Only the junta’s industry minister Charlie Than—and not the junta body he leads—has been on the sanctions list since February 2022; he is subject to a travel ban and barred from receiving funds from EU member states.

While some 165  junta-linked entities were sanctioned by the US, EU and UK since the coup, according to the UN Special Rapporteur’s May report, two-thirds of these entities were targeted by only one of these international bodies, creating gaps that have been exploited by the junta.

“Sanctions have been easily circumvented, drastically limiting their effectiveness,” the report said, noting that the restrictions have not been applied to entire networks, rely on the private sector for enforcement, and have been uncoordinated.

It is not known if the EU or the Italian government has investigated Danieli for sanctions violations in Myanmar.

However, Ukraine’s Ministry of Defence accused the company of such a breach in Russia last June. From its official account, the ministry tweeted that Danieli had violated “lawful and moral considerations” by allegedly collaborating with Russian plants to “suppl[y] equipment to produce nuclear submarines and tank armor” while the country is at war with Ukraine.

Danieli vice chairperson and chief financial officer Alessandro Brussi—who, along with Mareschi Danieli—is also one of the directors of the company’s Myanmar branch—responded in an interview with Italian newspaper Corriere della Sera, stating that the company had “respected the rules” put forward by the EU concerning Russia. Pointing out that Danieli had “drastically reduced” its presence in the country, he denied any engagement with sanctioned entities but also claimed that the end-use of its steel was out of the company’s control.

“Our machines process steel which can then be used for an infinite number of things, from car bodies to tanks,” Brussi said. “We certainly can’t control what changes of hands they make once they’re sold. What we can guarantee is that our customers do not belong to the lists of interlocutors banned by sanctions.”

The answer raised questions about the extent of the company’s due diligence, about which it did not return comment for this article.

In Myanmar, JFM’s Yadanar Maung said that these practices “must go far beyond sanctions” and consider international law, the UN Guiding Principles on Business and Human Rights and the guidelines provided by the Organisation for Economic Co-operation and Development.

In accordance with these standards, the representative from SAC-M explained that a company is “expected to identify any potential risk that its activities could contribute, directly or indirectly, to weapon manufacturing in Myanmar.”

The individual noted that it was “not clear what type of end-use due diligence Danieli has done, or whether it has communicated such expectations to its Myanmar business partners.”

The EU’s delegation to Myanmar referred a question about Danieli to the Italian embassy, noting that member states are responsible for addressing potential breaches of the body’s sanctions regime.

While claiming to not be in direct contact with the firm, the Italian mission also told Myanmar Now that it had “repeatedly informed all Italian companies to perform due diligence on their possible activities in Myanmar and comply with EU sanctions and regulations.”

Rome-based advocacy group Italia-Birmania Insieme has called on Italy’s Senate and Ministry of Foreign Affairs to look into Danieli’s activities in Myanmar, which it has been monitoring for years.

“Italy knows very well of Danieli’s presence and role in Myanmar. They want to avoid having a problem with a huge company,” the organisation’s general secretary, Cecilia Brighi, said.

She echoed grassroots network SSFIM’s calls for Danieli to “stop collaborating” with the junta and “immediately pull out of [Myanmar].”

“The Italian government should convene Danieli’s management and inform them that they must leave the country,” she said. “[They] can act quickly if there is the political will.”