Page 4 of
5 Brunei's
fund of wealth and scandal By
Geoffrey C Gunn
Commission account, Global
Evergreen acquired such former Amadeo assets as
the Empire Hotel and Country Club, the Berakas
power station, DST Corporate Tower, and the
Jerudong Marina, [20] suggesting that the state
had adroitly maneuvered to reassert control of
Amadeo in new form outside of the reach of the
rogue brother.
Pehin Aziz is reported to
have said that some of Amadeo’s unfinished
projects would be completed. This is important as
construction is the nation’s second-largest
industry after oil and gas. It is also the
lifeblood of many bumiputra (Bruneian) contractors
hard hit by the construction slowdown.
Still, many questions remain over the
disposal of "trophy" assets
around the world
including Plaza Athenee in Paris, the New York
Palace Hotel, the Dorchester in London, and the
Bel-Air in Los Angeles. These are the high profile
and tangible assets but, beyond that, the recovery
of the other billions seems unlikely.
It
was not until 2007 that the penny dropped on the
Prince Jefri story. In that year the Sultan won a
key victory when the Privy Council ruled that the
prince - who had stonewalled the courts for seven
years - was required to abide by the agreement of
2000 to return nearly all of his remaining
holdings. Finally, in March 2008, the Prince lost
control of his most valuable remaining asset, the
opulent New York Palace Hotel, which returned to
Brunei government control. Even so, to strike a
skeptical note, Jefri still remains in control of
prime assets to the tune of more than US$1.5
billion, apparently as a bargaining chip in his
ongoing negotiations with the Brunei government.
[21]
The rebound in oil prices beginning
in the latter half of 1999 from its historic low
of US$10 a barrel to over US$30 by mid-2000,
brought a reprieve to Brunei, en route to historic
highs by 2007-08 (surpassing US$100 a barrel).
While such a windfall has no doubt more than
replenished the missing billions, the new wealth
will be as easily squandered as the old if Brunei
fails to chart a far more managerial and
technocratic playing field and above all, a
developmental agenda to translate oil wealth into
manufacturing, agricultural, tourism or other
potentially self-sustaining resources.
If
international agencies were in a position to offer
advice to Brunei, then they would urge better
financial governance. But, just as the charge of
"corruption, collusion and nepotism" brought down
the Indonesian New Order regime of President
Suharto of Indonesia and became the slogan of
reformists throughout the region, in the absence
of a broader developmental vision and approach,
economic rebound in Brunei has its limits, just as
its oil reserves are finite. [22] Nevertheless, a
first essential step surely will be overcoming the
current dynasty’s signature extravagance on a
grand scale; indeed, survival in its present form
may well call for self-effacement and restraint.
Beginning in late 2001 and early 2002 the
government launched a range of measures to
stimulate the local economy. Notable was the
release of the National Development Plan
(2001-2005), just as development funds for B$1
billion were released for year 2002, representing
an increase of 82% over 2001. The funds were to
stimulate the private sector, especially SMEs, and
to reduce high local unemployment.
In
November 2001, the government established the
Brunei Economic Development Board designed to
attract and assist foreign capital investments.
One of its major tasks was to oversee the
development of a large island (Pulau Muara Besar)
as industrial estate. In response to complaints
from Prince Mohamed about government red tape, in
October 2001 an Investment Incentive Order
simplified application procedures for investors.
An Income Tax Amendment Order did the same on tax
incentives for investors. There was also tax
relief for pioneer industries and emphasis on
bringing new technologies to Brunei. Pioneer and
export industries were exempted from customs
duties for import of raw materials. Since 2001 the
government has also privatized a number of
government agencies (telecommunications and
electricity) and the operation of the Muara
container port, and cut back subsidies. A cap was
also placed upon government hiring.
The
push to stimulate SMEs was no doubt genuine. But,
traditionally, the retailing sector has been
dominated by Chinese. Citizenship issues and the
closure of government opportunities to the Chinese
community has long reinforced Chinese business
strength in SMEs. In fact, however, it is
politically essential and often a legal
requirement for Chinese to enter into "Ali-Baba"
partnerships, with the former guaranteeing all the
right connections. But such cosy arrangements for
the Brunei Malay partner offer little incentive to
go it alone.
Unlike Malaysia, for example,
where under government patronage a class of Malay
entrepreneurs has emerged, a genuine Brunei Malay
business class remains embryonic. Such lack of
commercial traditions in Brunei would even set it
apart from Middle Eastern rentier states. But the
unwillingness of Bruneians to enter into
commercial ventures, with the possible exception
of import agencies, fits the rentier model where
the state sector becomes unduly bloated and career
expectations look to the state as employer.
The oil
sector/PetroBRUNEI Another post-crisis
development was the establishment of a national
oil company, PetroleumBRUNEI, also known as the
Brunei National Petroleum Company Sendirian
Berhad. Registered as a "private limited company"
in January 2002, PetroleumBRUNEI is described on
the official website as wholly owned by the
government of His Majesty the Sultan through "the
Prime Minister Corporation." [23] It supersedes
the former Brunei Oil and Gas Board and the
Petroleum Unit. No less significant, the
PetroleumBRUNEI model, a first in Brunei, is based
upon issuing Production Sharing Contracts (that
is, free of tax and royalties).
In
creating a national oil company, Brunei was
following the lead of Indonesia, Malaysia, and
most other oil exporting countries. In fact,
PetroleumBRUNEI declared that its trading pattern
would explicitly follow Malaysia’s Petronas. It
might also be seen as a means to lessen dependence
upon Shell in exploration and refining. This
development is one to watch, especially if
PetroleumBRUNEI moves out of the domestic
environment into the Southeast Asian arena. But
management prospects are daunting, even as the new
national oil company takes its first steps,
initially restricted to local activities. As a
"private limited company" under the control of the
government of His Majesty the Sultan, it remains
to be seen whether PetroleumBRUNEI upholds
"accountability and transparency" such as it
claims, especially as accounts do not appear to
enter the public domain.
The Sultanate
also released a number of new blocks for oil and
gas exploration. These included a 10,000 square
kilometers deep water concession extending up to
150 kilometers offshore. Moreover, the new blocks
have been offered under production sharing
agreements as opposed to the prevailing concession
and royalty tax system, suggesting a more
competitive environment for potential bidders.
Australia’s BHP won one of the bids, France's
Total/Final/Elf another, and Japan’s Mitsubishi
another, in partnership with Shell.
Current oil prices are far higher than
those calculated by the 8th and 9th National
Development Plans. Obviously how Brunei parlays
higher oil revenues earned on the spot market into
energizing the economy depends upon many factors
including good management, transparency, and the
ability of the economy to absorb inputs.
The rebound in oil prices beginning in the
latter half of 1999 from its historic low of US$10
a barrel to over US$30 by mid-2000, (rising to
historic highs of more than $100 a barrel in early
2008) also brought a reprieve to Brunei. Combined
with the weakening of the Brunei dollar, if these
levels are maintained, this could translate into
earnings of more than US$4 billion in oil and gas
exports a year. Current oil price hikes also play
to Brunei’s advantage. Since 1999, presumably in
part because of the high prices, Brunei appears to
have backed away from its conservation policy by
increasing production by 50,000 bpd.
International investment
centre? In 1999 Brunei began to prepare
laws to create a tax haven for foreign companies,
virtually starting from zero in a crowded field of
players. For starters, Brunei has no listed
companies, no stock exchange and no central bank.
It also lacks appropriate enabling legislation.
Brunei is, moreover, some 10 years behind the
initiative taken by Malaysia on nearby Labuan
island, which has apparently had at best mixed
results.
In July 2000, Brunei formally
launched the Brunei International Financial
Centre, which includes an electronic bourse, or
interactive web site to encourage futures trading
and an offshore haven for Islamic banking.
Since January 2002, Brunei has emerged as
one of the largest stakeholders in the
Jeddah-based Islamic Development Bank (IDB)
infrastructure development fund. According to IDB
literature, the fund, established in Bahrain in
1998 with a capital of US$1.5 billion, "encourages
private investments in infrastructure projects
such as energy, telecommunications and
transportation." [24]
The IDB also
advertises its Islamic banking ethos. Essentially
Islam forbids riba (interest) but Ju’alal
or stipulated price for performing any services
also applies. So the IDB can charge a fee for a
loan, but not in excess of expenditure, which
would be deemed usurious. Locally, a branch of the
IDB in Brunei offers banking and financial
services on Islamic principles, alongside two
other Islamic banking entities and some eight
foreign banks. Notably, in 2008, the IDB
Development Fund returned some US$420 million in
cash to its subscribers, namely the Saudi Arabia
Pension Fund,, a trust fund managed by Bahrain, a
Malaysian consortium, and the Government of His
Majesty, the Sultan of Brunei. [25] Brunei is also
a growing subscriber to Sukuk or "Islamic
bonds" issued by the IDB. [26] Notwithstanding
Brunei’s attempts to parlay itself as an
international financial center, the IDB counter in
Brunei operates at low profile.
Obviously,
many supplicants appear in the Court of Brunei
Darussalam, some more successful than others.
Actually the Sultanate supports a special
foundation that distributes the Sultan’s gifts to
his subjects, such as dates imported from the
Middle East and civil service salary hikes.
Notoriously, in a muddled deal involving
Oliver North, Ronald
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