BY DAVID A. ANDELMAN
Brunei, the tiny sultanate perched on the South China Sea off the northwestern corner of Borneo, derives more of its gross national production each year from oil and natural gas than any other Asian nation. In this respect it outranks Qatar, Iran and Russia and approaches Saudi Arabia. But with oil prices plummeting over the last two years, the tsunami of cash that has fueled a remarkable expansion is shrinking instead. So the 420,000 citizens and guest laborers are pulling in their belts and output is being revamped.
The Sultan of Brunei–ruler for 49 years, whose crown’s worth was estimated by FORBES in 2009 at $20 billion–has placed at the heart of this effort Haji Mohammad Yasmin bin Haji Umar, adding industry to the energy portfolio the minister has handled since 2010. Prior to that he was deputy defense minister (the Sultan is minister of defense).
Minister Umar’s immediate goal is to wean the ASEAN nation from the huge subsidies that have been sapping innovation and discouraging outside investors. But he is equally focused on security. This Sunni-dominated nation has been flirting with a version of sharia law that’s being implemented gently–in Brunei style–and has fended off all threats to order. Our March interview, as edited below, took place in his government office.
FORBES ASIA: What are your priorities, particularly for foreign investment, especially in the petroleum sector?
I just took over this portfolio last October. The way I look at it, in some ways we’ve been too bureaucratic for too many years. If you look at our way of doing business, last year we were number 84, this year or next year we are confident we will be in the top 50 countries, maybe the top tenth in ease of doing business [a World Bank measure]. When you privatize some things it becomes easier. Government tends to be bureaucratic. That has to go.
Say I have a company that would like to open a manufacturing operation in Brunei. Do I need a Brunei partner?
Not necessarily. It is good if you have a Brunei partner, but it is not essential. You come in and bring business, you give opportunities to our own small and medium-size enterprises, you may do so on your own terms. At the same time it is essential that we are in a position to supply you with the best Bruneians to work in your company.
Where will these businesses come from? ASEAN, the U.S., Europe?
From across the world. China is building our new petrochemical plant, and we are also investing in a new ammonia and urea plant, which we expect to be operational by 2019. It is not just going to produce ammonia and urea, but also methanol. So the by-products of this will give us another sector. That is the sort of industry we want in our future plans.
Meanwhile, the cost of raw material is plummeting–particularly oil and gas, which accounts for 90% of your national output. So how are you going to bridge to 2019 until enterprises like this can come online?
The way we look at it, we have gone through the highs and the lows on oil prices. We have been a producer more than 50 years. The good times, we save. The bad times we really have to do something different. Our joint ventures have to be much more efficient than during the good times. I want them to be efficient in all times. A lot of our FDI is coming in the next two years, and we will have sufficient reserves to carry us through.
Are you prepared to hold down production in an effort to raise oil prices?
I think we are the only country that produces according to the principle of sustainability. If we take a barrel out of the ground, we will already have discovered another to replace it. It has to be sustainable.
Aren’t some of these new fields, especially those far offshore, more expensive to produce and unlikely to be profitable with oil at $30 a barrel?
Some of the economics will be very challenging, I admit this. But we have also discovered fields that are economically advantageous. There are some discoveries in new commercial blocks offshore. When you combine a number together, they become more economically viable.
Are you worried about China encroaching on any of your oil ?reserves, your proper territory?
My foreign affairs colleague will have to speak to that. I did spend years as defense minister, you know. But we have a very good bilateral relationship with China, and we are committed to all the initiatives by ASEAN to preserve our rights.
His Highness the Sultan said in his address [the same day of this interview] that the national budget would have to be restrained to $6.7 billion this year–still substantial for a country of 420,000 but below previous years. How do you convince the people this kind of austerity is necessary when they are used to so many years of anything goes?
When I first came in, I looked at our electricity tariffs. I was shocked to find the way it was structured. This was 2010. If you spent less, you would be penalized. If you spent more, you would be rewarded. A year after that we decided to embark on a complete reform. In the beginning so many people were unhappy, because I was punishing people who were accustomed to waste. Those people who actually saved, I basically say, this is good for you and for us. And rewarded them. A lot of people were building a house with five or six air conditioners operating 24 hours whether there was anybody in the house or not. They kept all the lights on if there was anyone there or not. So we stuck to the reform. And until now I can tell you that over 90% of the Brunei population have shifted their patterns of using electricity from wasteful to conservationist. It took us a good two to three years to educate the people. Plus our climate is changing. We are committed that by 2035 a substantial percentage of our energy will come from renewable energy.
How important is the Trans-Pacific Partnership for your future development?
It is very important in that it will give us opportunities to access other markets. But the standard is high. We know that. The mere fact that we came to this level, our standard seems to be acceptable internationally as well.
There is a chance the U.S. Congress will reject the Trans-Pacific Partnership. How bad would that be for Brunei? And as far as you are concerned, can the treaty go ahead without the U.S.?
We are one of the four founders of the TPP–Singapore, Brunei, Chile, New Zealand. We also have the ASEAN economic community. That will give us access to 650 million people … ever broader opportunities. But TPP is also for [the U.S.]. Do you know the number of American companies operating in Brunei? There are quite a lot. Oil and gas, U.S. companies like Baker Hughes, Halliburton. All these are services companies. They, too, need TPP.
There is some thought here that you need to develop a domestic oil services competency that you can sell to others.
That is another thing–oil outsourcing. We should be ?leveraging our oil and gas expertise as well as our resources, because we have been in this industry for the past 50 years. Another thing we should be leveraging is Islamic finance. We have a lot of expertise here.
You are not a huge market, and an investor can probably find a much larger base of employees at lower cost in the Philippines or Bangladesh or India. So what commends Brunei to an investor?
You look at our educational system. It is a good system. We are producing more graduates than the country needs. And they all speak English. I will make sure that supporting business in this country will be customized. We have proved this by producing the right people to staff the energy sector. I call this an industry-ready workforce. There is no reason why we cannot do it across all industries. You will see–in six months to a year we will have call centers here. We are having early discussions with people like Microsoft.
Do you have a minimum wage?
We don’t call it a minimum wage, we call it a reasonable wage. For people working offshore, it will be at least $1,000 Brunei a month [U.S. $640]. In oil and gas, for instance, there are no taxes. As for housing, the government helps out, but they still have to pay rent or a loan over 30 years to buy. What we have to get away from is the mentality of subsidies. Subsidies for the low-income worker are okay, but only for the low income.
But subsidies were okay when oil was higher priced.
I enforced my reform on the electricity sector when oil was $100 a barrel. Fuel subsidies in Brunei are for the well-being of all the people because there is no good public transport system. We have to improve our public transport system. On my last trip to the U.S., I visited Uber. They are talking about launching here in Brunei. The thing I like about Uber is not only do you liberalize the market but you give the opportunity for people to work. When we were in San Francisco, we were driven by a mother who’d just taken her children to school.
Put on your previous hat as chief of security and defense minister. How concerned are you about the security of Brunei–its industries, resources and people. You are a Sunni nation in a world that is concerned about Sunni nations.
Everywhere people are concerned about security. That is the first thing. And we are also very concerned because we are a very small nation. We cannot afford to have any terrorists sitting in Brunei. This is why we have to be proactive–in educating our people. In Brunei it is all regulated properly–religious education. So we will not allow a person to come and give a sermon without permission. It is enshrined in our constitution.
So who decides who is radical and not allowed to speak?
The ministry of religious affairs. … Every preacher will have to apply. The Friday sermon is approved in advance by the ministry. How can we run a country without that? Our population is young. If there are foreigners who violate those rules, we will deport them. For a Bruneian it is the same, or he will have to go to rehab. Singapore is doing the same thing–one year or two years’ rehab, but not sent to Guantanamo.
Are you worried about the security of your oil reserves, attacks on that?
We have been in this business a long time. And this is part and parcel of our calculation–our own plan.
We’ve seen little overt security here. A few soldiers in camouflage uniforms, but they have no weapons, no guns. His Majesty drives himself in a Jeep in a two-car caravan. How is that possible in this day and age?
His Majesty goes and sees people at every Friday prayer. How is that possible? We are a special place. There are some occasions where our people would carry weapons.
Sumber - Forbes Asia
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