Natural Resources and Subnational Governments in Myanmar: Key considerations for wealth sharing Thet Aung Lynn and Mari Oye JUNE 2014 Subnational Governance in Myanmar Discussion Series Thet Aung Lynn is a Research Associate at the Myanmar Development Resource Institute's Centre for Economic and Social Development (MDRI-CESD). Mari Oye is an economist with the International Growth Centre (IGC) Myanmar country office. Martin Cosier of Vermont Law School contributed a section on Myanmar’s environmental law. The authors would like to express gratitude to the civil society actors, political party representatives, state government officials, and Union ministry representatives who gave their time to share thoughts and ideas. Much appreciation is also owed for the comments and guidance of Zaw Oo, Tin Maung Than, Win Min and Paul Minoletti from MDRI- CESD; Hamish Nixon and Matthew Arnold of TAF; Robert Conrad of IGC/Duke University; Joseph Bell of the International Senior Lawyers Project; Lorenzo Delesgues of the Natural Resource Governance Institute; Vicky Bowman of the Myanmar Centre for Responsible Business; Jill Kavanaugh of PeaceNexus; and Nigel Gould-Davies of the ICOE at Yangon University. The authors would also like to thank Ann Bishop for her editing skill and colleagues Joanne Lai, Helen Sims, Andrea Smurra, and Win Po Po Aung for their able assistance. The Subnational Governance in Myanmar Discussion Paper Series is a collaborative research initiative between the Myanmar Development Resource Institute’s Centre for Economic and Social Development and The Asia Foundation. The paper series aims to provide Myanmar policy-makers at national and local levels, civil society organizations, the business community, development partners, and other interested stakeholders with timely research on subnational governance issues that directly inform policy and reform processes. This volume of the series is presented in partnership with the International Growth Centre. The research behind the series incorporates the perspectives of a range of government, political, non-governmental, civil society, and community stakeholders in subnational governance, while also bringing to bear the most relevant policy analysis and international experience. The sponsoring organizations welcome inputs and suggestions on published, ongoing, or future research. The Myanmar Development Resource Institute's Centre for Economic and Social Development is an independent think-tank dedicated to the economic and social transformation of Myanmar. The Centre undertakes participatory policy research studies related to economic reform, poverty- reduction, sustainable development, and good governance in Myanmar. It also provides training and education services for key institutions and organizations contributing to the ongoing process of reform. The International Growth Centre is directed by the London School of Economics and Political Science and the University of Oxford. It consists of an international network of country offices, policy stakeholders and researchers. IGC’s mission is to promote sustainable growth in developing countries by providing demand-led policy advice based on frontier research. Research focuses on four core areas: state effectiveness, firm capabilities, cities, and energy. Examples of IGC’s high impact work include policy advice on managing natural resources and rethinking the role of taxation and public spending. The Asia Foundation is a nonprofit international development organization committed to improving lives across a dynamic and developing Asia. Informed by six decades of experience and deep local expertise, the Foundation works through a network of 18 country offices in Asia on programs that address critical issues affecting the region in the 21st century—governance and law, economic development, women's empowerment, environment, and regional cooperation. Subnational Governance in Myanmar Discussion Series Preface The Myanmar Development Resource Institute's Centre for Economic and Social Development (MDRI-CESD), the International Growth Centre, and The Asia Foundation are pleased to present this fourth volume in the Subnational Governance in Myanmar Discussion Paper Series. The pace of change in Myanmar is rapid and constantly evolving, and decentralization and local governance are issues of critical importance to the country’s long-term development and priorities in the government’s reform agenda. As such, there is a real need for timely research and analysis on key reform areas related to decentralization and local governance. This series of discussion papers aims to provide Myanmar’s policy-makers at national and local levels, civil society organizations, the business community, development partners, and other interested stakeholders with research findings on subnational governance issues that directly inform policy and reform processes. The research presented in this discussion paper by Thet Aung Lynn and Mari Oye provides an overview of the current role of subnational government in natural resource management and revenue collection in Myanmar. Natural resources provide a large share of government revenue, and there is potential for growth in these sectors in coming years. The government under President Thein Sein has made reform of the natural resource management system a priority, and the topic remains the subject of great interest among the wider public and civil society. In addition, natural resource management and revenue collection has long been a contentious issue in the country’s numerous ethnic conflicts and will need to be fully considered in the political dialogue. As discussion of potential future reforms takes place, an overview of the current laws, systems, and practices surrounding these areas is intended to lay the groundwork for future research and inform policy debate. This report was generously funded by the United Kingdom’s Department for International Development (DFID). The opinions expressed in this report are solely those of the authors and do not necessarily reflect those of DFID, MDRI-CESD, IGC, or The Asia Foundation. Dr. Zaw Oo Dr. Shang-Jin Wei Dr. Kim Ninh Executive Director Lead Academic Country Representative MDRI-CESD IGC Myanmar The Asia Foundation Subnational Governance in Myanmar Discussion Series Table of Contents Acronyms ................................................................................................................................................. i Executive Summary ................................................................................................................................. ii ONE: Introduction ................................................................................................................................... 1 1.1 Research methods and scope ....................................................................................................... 2 1.2 Framing the debate ....................................................................................................................... 3 TWO: Mapping Resources, Revenues and Responsibilities .................................................................... 6 2.1 Background ................................................................................................................................... 6 2.2 Sources of uncertainty .................................................................................................................. 8 2.3 Significance of natural resource revenues .................................................................................... 9 2.4 Overview by sector ..................................................................................................................... 13 2.5 Environmental Law ..................................................................................................................... 21 THREE: Subnational Government Roles ................................................................................................ 23 3.1 Fiscal decentralization ................................................................................................................. 24 3.2 Administrative structures ........................................................................................................... 27 3.3 Recent changes and proposed reforms ...................................................................................... 30 3.4 Civil society engagement ............................................................................................................ 32 FOUR: Stakeholders and Debates ......................................................................................................... 34 4.1 Economic restructuring ............................................................................................................... 34 4.2 Constitutional reforms ................................................................................................................ 35 4.3 Peace processes and ethnic political actors................................................................................ 36 FIVE: Considerations for Myanmar ....................................................................................................... 39 5.1 What are the goals? .................................................................................................................... 39 5.2 Mechanisms and evidence from other countries ....................................................................... 40 5.3