YANGON (Reuters) - Aung San Suu Kyi’s first major infrastructure project could hardly be more visible - hundreds of new yellow buses now plying the streets of Yangon in what her ruling party hopes will be a potent symbol of how it is transforming peoples’ lives.

Yangon Chief Minister Phyo Min Thein (L) and Myanmar State Counselor Aung San Suu Kyi attend an event marking the 70th anniversary of Martyrs' Day at the Martyrs' Mausoleum in Yangon, Myanmar July 19, 2017. REUTERS/Soe Zeya Tun

But two deals to import 2,000 buses from China estimated at more than $100 million have caused an unusual rift within her National League for Democracy (NLD), with regional lawmakers accusing Yangon’s chief minister Phyo Min Thein, a Suu Kyi protégé, of doing a deal with a businessman he’s close to and showing a lack of transparency.

Yangon Bus Public Company (YBPC), a public-private joint venture majority-owned by the city government, bought 1,000 buses from two Chinese suppliers picked by Beijing’s ambassador to Myanmar, Hong Liang. Another 1,000 buses were bought from a third Chinese company in a private deal by businessman Kyaw Ne Win, a grandson of former junta leader Ne Win.

There was no public tender or debate in the regional legislature before the deals were agreed. Parliamentary records show the planning and finance minister in the Yangon region government, Myint Thaung, told the chamber in April that “Yangon region government has arranged to buy brand new city buses,” from two Chinese suppliers “prearranged by the Chinese ambassador to Myanmar through a government-to-government agreement.”

This led to the signing of a memorandum of understanding between the two sides on March 16, the minister said.

Several NLD MPs and an executive member of the party, Nyan Win, told Reuters that Phyo Min Thein’s handling of the bus deal had confused the public. Nyan Win said that while he understood that in some cases a tender was not required, in his view all deals concerning the public interest should have an open bidding process. When regional MPs approved 70 billion kyat ($51.5 million) for the project in December, they could only vote for “money for transportation” rather than anything more specific.

“It needs to be transparent,” Nyan Win said. “We need to work according to due process, meaning that we have to work systematically according to rules and regulations.”

Kyaw Zay Ya, a Yangon NLD lawmaker who also expressed concerns about the opaque nature of the bus deal, said that “the image of the government will be damaged if he (Phyo Min Thein) doesn’t change.”

Phyo Min Thein declined several interview requests from Reuters. He and other ministers have previously defended the deal, saying the agreement between the two governments offered a discount price and express delivery.

Myint Thaung declined to provide more details to Reuters on how the deal was financed.

“Yes, people can say that there’s no transparency,” said Yangon Bus Public Corporation (YBPC) chairman Maung Aung. “But calling a tender is not necessarily better. The deal was struck to maintain good relations between the two countries.”

QUESTIONS ABOUT BUS REFORM

In late April, about two weeks after the contracts with Chinese suppliers had been signed, members of the Yangon legislature debated bus reform.

During the session, some MPs questioned the government’s handling of the $70 billion kyat budgeted for the project - some of which was originally ascribed for infrastructure, such as new bus stops.

“The government should be transparent on the tender process of these bus stops,” said Kyi Pyar, an NLD Yangon lawmaker, according to April 24 debate records. She added that the government needs to clarify which company is responsible for the project and on what terms.

The chief minister on Sunday lodged a complaint related to Reuters’ reporting on the bus deal, saying that his administration was “no more than a shareholder” in public companies that picked suppliers “according to their preferences.” He did not name those companies.

But according to a statement to the Yangon parliament in April by minister Myint Thaung, Phyo Min Thein’s administration formed a “bus buying committee” to purchase the vehicles.

COMPETITION CONCERNS

When Suu Kyi swept to power in an electoral landslide in 2015, analysts predicted Western companies, whose governments had cheered on the transition to democracy in the Southeast Asian nation that began in 2011, would flock to the country.

But the Yangon bus deal, struck with Chinese companies and a businessman with ties to the junta that ruled Myanmar for decades, could help sour relations with the West, according to diplomats. They privately questioned whether, given lack of clarity around this and other deals, Western companies would be able to compete.

Roland Kobia, the EU ambassador to Myanmar, complained in a private letter to Myanmar Commerce Minister Than Myint of a lack of transparency in public procurement.

“Currently, the domestic economy remains dominated by a small number of domestic and regional actors whose long-standing practices prevent fair competition,” Kobia wrote in the June dated letter, reviewed by Reuters. The letter did not detail the practices and did not specifically refer to the bus deal.

EU ambassador Kobia said in a statement in response to Reuters’ questions that “many European actors stand ready to work in Myanmar, but more needs to be done to give them a fair chance to compete for contracts”. He was referring to the broader issue of transparency in public procurement, the EU said.

Myanmar’s commerce ministry spokesman Khin Maung Lwin declined to comment.

A presidential procurement directive specifying that a tender should be launched if the value of a construction or service contract exceeds 10 million kyat ($7,342) was enacted on April 10, a day before the contract for the YBPC buses was signed. The new directive did not apply to the deal because it was negotiated when previous, vaguer regulations were in place, Myanmar-based corporate lawyers said.

Some large public projects, like the granting of Myanmar’s first private telecom operator licenses, were awarded through a tender process in 2013. At the time, it was seen as transparent and sent a positive signal to foreign investors, analysts said.

IN A HURRY

Phyo Min Thein, a charismatic 48-year-old who spent about 15 years behind bars for opposing the junta, likes to tell people he has no more time to waste.

His bid to overhaul Yangon’s antiquated transit system offers Suu Kyi’s party one of its first opportunities to tangibly improve the lives of more than 2 million commuters in a city that overwhelmingly voted for the NLD at the last election.

Initial talks with potential French and Dutch suppliers also came to nothing, because they could not deliver the number of buses with the speed the chief minister was demanding, diplomats and lobbyists involved said.

Yangon officials last year rejected a proposal to improve the transit network from the World Bank’s investment arm, the International Finance Corporation, due to differences over the plan, which required detailed traffic monitoring and an open tender process, according to an official familiar with the matter.

Under Suu Kyi - whose status as darling of the West has been tarnished over allegations of atrocities by security forces against the Rohingya Muslim minority - China and Myanmar have sought to repair ties strained when a previous semi-civilian government blocked a China-backed dam project in 2011.

On a trip to China in September, Suu Kyi and Chinese President Xi Jinping discussed how Myanmar could take advantage of China’s “Belt and Road” infrastructure investment program, according to a senior official in Myanmar’s President’s office.

Suu Kyi said there were some concerns in Myanmar about the quality of Chinese products, prompting Xi to propose the Chinese embassy could help find the best suppliers, said a senior official from a Chinese company involved in the bus deal.

The cost of the vehicles was set at $56,000 each and the deal was signed on April 11. Two months later the chosen firms, state-run Anhui Ankai Automobil Co Ltd and Zhengzhou Yutong Bus Co, had each delivered 500 yellow buses.

Privately-owned Zhengzhou Yutong is led by Yuxiang Tang, a member of China’s National People’s Congress.

The criteria under which the two firms were selected is not known, although Maung Aung said provincial Chinese governments where the two firms are based had given guarantees of quality.

Ankai and Yutong did not respond to requests for comments.

Such arrangements were “very rare”, said the manager at one of the selected Chinese manufacturers, because “in other countries, there usually is a tender process and we need to follow related regulations.”

The Chinese embassy in Yangon did not respond to requests for comment.

VALUE FOR MONEY?

While an improvement on the 40-year-old non-airconditioned vehicles in which Yangon commuters have sweltered for years, Soe Aung, an engineer who inspected the Chinese buses for Myanmar before purchase, acknowledged they were of lower quality than European or Japanese alternatives, which he estimated would have cost around twice as much.

“This project is only for five years,” said Soe Aung, adding that the vehicles would be worn out with daily use over that time frame.

Officials say after that they will be replaced with electric vehicles, but some critics regard that as unrealistic in a country with an acute shortage of power that is not expected to be solved for at least a decade.

Western experts in public transport procurement say the average lifespan of buses would typically be more than twice that.

“It seems inefficient to me to be introducing a new technology, while planning a replacement technology in such a short time period,” said Robert Marshall, global director of planning and landscape at consulting firm B+H Architects.

A CLOSED-DOOR MEETING

The criticism by NLD MPs related to the bus deal and other issues prompted one of the party leaders, Win Htein, to organize a closed-door meeting with lawmakers at the end of May in Yangon aimed at bridging the divide. In the meeting, attended by Phyo Min Thein, the MPs repeated their concerns that the chief minister does not consult them on the reform of public transport and other key projects, people involved said.

Party officials agreed to meet on a regular basis to resolve the differences.

The involvement of Kyaw Ne Win, whose grandfather led Myanmar’s ruling junta until 1988, has particularly incensed some NLD lawmakers. Some opponents say it risks repeating cronyism under the junta, when lucrative contracts were routinely doled out to a small group of well-connected businessmen without transparency.

Three Yangon NLD MPs expressed their concern to Reuters about what they described as a close relationship between Phyo Min Thein and Kyaw Ne Win, who was allowed to import 1,000 buses for Yangon in a separate deal. The MPs declined to be identified, due to a ban established by party leaders on airing criticism to the press.

Kyaw Ne Win bought the buses from Beiqi Foton Motor Co Ltd – another Chinese state-owned company, but declined to discuss the details of the deal. Beiqi Foton did not respond to a request for comment.

Kyaw Ne Win denied having a special relationship with Phyo Min Thein and said he participated in bus reforms fairly as one of the operators.

He said that the deal, which will make Kyaw Ne Win the city’s largest bus operator, was “simple and straightforward”, he said, adding he wanted to “provide good service for the people of Yangon”.

($1 = 1,360.0000 kyat)