* Yangon transit overhauled with import of 2,000 buses from China
* Chief minister who struck deal a protege of Aung San Suu Kyi
* Critics in ruling NLD party say deal lacked transparency
* Involvement of grandson of former junta leader irks some MPs
* EU complained in letter its companies cannot compete in Myanmar
YANGON, Aug 6 (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.
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 questioning its cost and accusing Yangon's chief minister Phyo Min Thein, a Suu Kyi protégé, of cronyism and a lack of accountability.
"Phyo Min Thein's government lacks transparency," said Kyaw Zay Ya, a Yangon NLD lawmaker. "The image of the government will be damaged if he doesn't change."
The deal, struck with Chinese companies and a businessman with ties to the junta that ruled Myanmar for decades, has also soured relations with the West, according to diplomats.
While there is no evidence that any laws were broken in the awarding of the contracts, Roland Kobia, the EU ambassador to Myanmar, complained in a private letter to Commerce Minister Than Myint of a lack of transparency in public procurements.
"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, seen by Reuters. The letter did not specifically refer to the bus deal.
Although the Chinese buses were about half the price of international rivals, engineers who inspected them for Myanmar predict that they will wear out and need to be replaced far sooner than the international standard.
Phyo Min Thein declined several interview requests from Reuters. He and other ministers have previously defended the deal, saying the government-to-government agreement with China offered a discount price and express delivery.
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 procurements, the EU said.
Myanmar's commerce ministry spokesman Khin Maung Lwin declined to comment.
When Suu Kyi swept to power in an electoral landslide in 2015, analysts predicted Western companies, whose government's 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 underscores that Suu Kyi's backers in the West have grown disillusioned as Myanmar increasingly prefers to do business with China.
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.
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 details of the plan, which required detailed traffic monitoring and an open tender process.
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.
Instead 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.
"Yes, people can say that there's no transparency," said YBPC chairman Maung Aung. "But calling a tender is not necessarily better. The deal was struck to maintain good relations between the two countries."
CHINA THE DEALMAKER
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 programme, 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 deal.
The cost of the vehicles was set at $56,000 each and 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.
Both Ankai and Yutong did not respond to requests for comments.
Such arrangements were "very rare", said the manager at one of the selected Chinese makers, 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 unairconditioned vehicles in which long-suffering 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 timeframe.
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.
When regional MPs approved 70 billion kyat ($51.5 million)for the project in December, they could only vote for "money for transportation".
After the contract was signed in April, some lawmakers complained that questions on financing, the business plan and how the buses were chosen were dodged or went unanswered.
Myint Thaung, Yangon region's minister of planning and finance, declined to provide more details to Reuters on how the deal was financed.
The involvement of Kyaw Ne Win, whose grandfather led Myanmar's ruling junta until 1988, has particularly incensed some NLD lawmakers.
Opponents say it smacks of the cronyism under the junta, when lucrative contracts were routinely doled out to a small group of well-connected businessmen.
The junta leader scion 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 to comment.
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) (Reporting by Antoni Slodkowski, Yimou Lee and Wa Lone; Additional reporting by Simon Lewis and Shoon Naing; Editing by Alex Richardson)