October 25, 2005

In Tiny Sultanate, Days of Easy Living May Be Numbered

After Years of Perks, Bruneians
Worry About Oil Wealth;
A Closely Guarded Secret
October 25, 2005; Page A1
BANDAR SERI BEGAWAN, Brunei -- His Majesty, Sultan Haji Hassanal Bolkiah Mu'izzaddin Waddaulah, has a problem: Oil is king in this tiny sultanate on the steamy island of Borneo. And it may be running out.
For years, Delaware-sized Brunei had an outsized presence in the global oil patch, pumping out a rich stream of crude oil and natural gas. With its share of the royalties, the Sultan and his family became one of the richest in the world. Their home, with 1,800 rooms and 250 toilets, is considered to be the largest residence in the world. Among the clan's glittering trinkets: a forearm and hand made of solid gold that the Sultan can use as a chin rest when deep in thought.
His Majesty's 370,000 subjects have it pretty good, too. Although many live in ramshackle stilt houses, they pay no personal income tax, enjoy virtually free health care, and often study at the world's finest universities -- on the sultanate's tab. Brunei also lavishes its many government workers with another layer of perks, including no-interest loans for housing and cars.
"Jobs are the last thing on [people's] minds" here, said Zaed Hani, a 17-year-old with shoulder-length black hair as he sipped lattes with friends one recent night at a cafe called T.T. Blues. The government, he said, has always taken care of its people.
But even as oil prices soar past $60 a barrel, many here fear the days of easy living are numbered. Oil production peaked as far back as 1979, and analysts now say the sultanate could face a serious output squeeze within the next decade. Last year, Brunei pumped out 206,000 barrels of oil a day, slightly less than the year before.
"They say there will be more oil," said Abdul Zainidi, a 22-year-old student who sat outside a mall with a bag of Kentucky Fried Chicken. "We know there won't be."
Oil and gas total more than 90% of Brunei's exports. Given current trends, even government optimists concede they can't continue to support the many young people spilling out of the local university each year. The median age of Bruneians is 27, compared with 36 years in the U.S.
During his annual birthday address in July, the Sultan addressed the need to diversify, and assured his subjects that his government "is not complacent" about attracting more foreign investment. Now, after years of half-hearted attempts to do so, he has dispatched some of his best men to recruit new industries -- such as tourism, petrochemicals and offshore banking.
In Brunei, late-model BMWs and fast-food chains abound, including a Dairy Queen. A host of international banks dot the downtown Bandar Seri Begawan area, serving a long list of monied locals. Turning the sultanate into Asia's next tourism and industrial hotspot, however, won't be easy.
There's no alcohol for sale here, in accordance with Islamic law. It doesn't help that the Sultan -- who also moonlights as the country's prime minister, finance minister and defense minister -- keeps key information close to the royal vest. The actual size of Brunei's oil reserves, for example, is a closely guarded secret. No one other than a secretive government investment agency knows how much money the country has salted away for a rainy day.
As for economic diversification, "everybody makes noises just to feel good, but nothing very much happens," says Ignatius Stephen, a journalist who recently opened up for a government-subsidized root canal (his cost: $1.80). "There's a complacency that's very, very difficult to shake off," he says.
"Puzzling," is how ING economist Tim Condon in Singapore sums up Brunei and its prospects. He says that while he doesn't want to write the Bruneians off entirely, they do appear to be "at last-mover disadvantage" in the region.
Brunei's history dates back to at least the 1300s. For centuries, it ruled vast territories stretching across Southeast Asia. That changed, and by the 1800s the empire declined to but a sliver on the island of Borneo, now shared by Malaysia and Indonesia. In 1929, overseas explorers struck oil, in some measure restoring Brunei to its former glory.
Some officials think tinkering with the oil-only formula is risky, especially after the fantastic flame-out of Prince Jefri, the Sultan's brother, in the 1990s. Jefri, who was the country's finance minister, lost an estimated $15 billion or more on failed investments.
His Majesty was once believed to be the richest person in the world in the 1990s. But as the Bruneian bounty bleeds away, the Sultan is now down to his last $20 billion, according to Forbes magazine, compared with an estimated $30 billion or more in the mid-1990s.
His men are soldiering on. Led by the Brunei Economic Development Board and other officials, they've drafted a multipronged strategy that calls for everything from promoting tourism to building a deep-water port. To lure backpackers and golfers, for instance, they've set up a tourism board and launched an ad slogan -- "The Green Heart of Borneo" -- to tout Brunei's pristine jungle.
Economic development officials have also hit the road, traveling across the world to pitch Brunei to investors in Tokyo and other global financial capitals. They've contacted no fewer than 26 port operators and shipping companies -- and even offered to pay 70% of the cost -- but haven't closed a deal.
Alcoa Inc. has considered locating one of its aluminum smelters here. But the company has many possible ventures in the works. Any final agreement with the sultanate is "way down the pike," says Alcoa spokesman Kevin Lowery.
The country's infrastructure is oddly challenged. An abundance of opulent hotel rooms -- including one replete with gold-thread carpets -- hasn't helped anemic occupancy rates, which hover at about 30%. Road access to a few beaches is limited, forcing some tourists to hack through bushes and brush just to catch a few waves.
Even the sprawling Jerudong amusement park isn't the attraction it once was. The aging park was virtually empty on a recent night; stray cats crisscrossed the grounds and less than a half-dozen rides were open. Every 30 seconds or so, a fake log tumbled down a flume, splashed into the water below and then headed up a make-believe mountain again -- without passengers. Richard Rowswell, a 35-year-old British Navy man was bored with the spectacle -- and sore over the park's lack of booze. "A British person likes to have a beer," he said.

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