US embassy cable - 85BANDARSERIBEGAWAN214

BIG BUSINESS IS ROYAL BUSINESS IN BRUNEI

Identifier: 85BANDARSERIBEGAWAN214
Wikileaks: View 85BANDARSERIBEGAWAN214 at Wikileaks.org
Origin: Embassy Bandar Seri Begawan
Created: 1985-03-04 06:20:00
Classification: CONFIDENTIAL
Tags: ECON BX KPRP
Redacted: This cable was not redacted by Wikileaks.
R 040620Z MAR 85
FM AMEMBASSY BANDAR SERI BEGAWAN
TO SECSTATE WASHDC 0511
C O N F I D E N T I A L SECTION 01 OF 04 BANDAR SERI BEGAWAN 0214 
 
E.O. 12356:  DECL:  OADR 
TAGS:  ECON BX KPRP 
SUBJ:  BIG BUSINESS IS ROYAL BUSINESS IN BRUNEI 
 
1.  C - ENTIRE TEXT. 
 
2.  SUMMARY:  BEGINNING A FEW YEARS BEFORE INDEPENDENCE, 
SIGNIFICANT GROWTH HAD OCCURRED IN THE SHARE OF BRUNEI'S 
PRIVATE ECONOMY OWNED BY ETHNIC MALAY CITIZENS, "BUMIPUTRA" 
BUSINESS, AS IT IS CALLED.  WHILE THIS HAS ENRICHED A NUMBER 
OF BUMIPUTRA BUSINESSMEN, THE EXTENT TO WHICH THE WEALTH HAS 
BEEN SHARED HAS NOT SATISFIED EVERYONE.  CONTACTS WITH THE 
LOCAL MALAY CHAMBER OF COMMERCE HAVE ELICITED SEVERAL 
EXPRESSIONS OF DISSATISFACTION WITH THE EXTENT TO WHICH 
BUMIPUTRA BUSINESS GROWTH HAS BEEN DOMINATED BY TWO COMPANIES, 
QAF AND JASRA, PARTICULARLY THE FORMER.  THESE TWO COMPANIES 
ARE OWNED BY THE SULTAN'S BROTHERS, AND THEIR RAPID GROWTH 
TO BECOME THE LARGEST PRIVATE EMPLOYERS IN PGUNAI ASIDE FROM 
BRUNEI SHELL IN JUST A FEW YEARS HAS CAUSEX RESENTMENT. 
END SUMMARY 
 
3.  THE MALAY CHAMBER HAS AMONG ITS LEADERSHIP -- INCLUDING 
ITS PRESIDENT -- MEN WHO WERE PROMINENT IN THE OPPOSITION 
PARTY THAT DIED WITH ELECTORAL POLITICS IN THE MID-SIXTIES 
AND, ACCORDING TO ONE CHAMBER OFFICIAL WHO WAS NOT A MEMBER 
OF THAT PARTY, THE ORGANIZATION CARRIES A BURDEN IN STILL 
BEING IDENTIFIED WITH IT.  THE CHAIRMAN OF THE CHAMBER, 
HOWEVER, IS A FORMER MENTERI BESAR -- A CHIEF MINISTER -- 
AND IS ALSO CHAIRMAN OF QAF. THE CHAMBER, DESPITE ITS "BURDEN", 
MANAGES TO SERVE AS A CHANNEL OF COMMUNICATION TO THE GOVERNMENT 
IN ELICITING POLICIES FAVORABLE TO ITS MEMBERS.  AN EXAMPLE 
IS THE CURRENT RUMOR THAT BRUNEI WILL ESTABLISH A NATIONAL 
BANK:  CHAMBER OFFICIALS CLAIM THAT THIS IS THEIR SUGGESTION 
SINCE THEY ARE UNABLE TO OBTAIN ADEQUATE FINANCING FROM 
EXISTING BANKS TO SUPPORT THEIR BUSINESS GROWTH.  INTERESTINGLY, 
THEY DO NOT BLAME THE BANKS, OF WHICH ONLY TWO ARE HEADQUARTERED 
HERE AND EVEN THOSE TWO ARE MAJORITY-OWNED BY FOREIGNERS, 
FOR THIS LACK OF SUPPORT.  THEY UNDERSTAND, THEY SAY, THAT 
THE BANKS MUST HAVE COLLATERAL FOR A LOAN, BUT MOST BUMIPUTRA 
BUSINESSMEN HAVE LAND AS THEIR CHIEF ASSET AND THEY CANNOT 
PLEDGE THEIR LAND AS COLLATERAL BECAUSE THE BANKS COULD NOT 
SIMPLY FORECLOSE AND GAIN POSSESSION OF THE LAND IN THE EVENT 
OF DEFAULT.  ALL LAND TRANSFERS ARE SUBJECT TO THE APPROVAL 
OF THE SULTAN AND LAND CANNOT BE OWNED BY NON-CITIZENS. 
(THEORY AND PRACTICE DIVERGES SOMEWHAT ON THE QUESTION OF LAND 
OWNERSHIP IN BRUNEI.  IN THEORY, CITIZENS DO NOT OWN LAND 
EITHER, IN THE SENSE OF HAVING CLEAR TITLE, BUT MERELY 
HOLD LAND AT THE SUFFERANCE OF THE SULTAN;  IN THEORY THE SULTAN 
COULD REPOSSESS LAND, E.G., AGRICULTURAL LAND ALWOWED TO LIE 
IDLE FOR TWO YEARS, BUT IN PRACTICE HE DOES NOT.)  THE LAW 
THAT PROVIDES FOR THESE LIMITATIONS IS BLAMED BY THE CHAMBER 
OFFICIALS FOR THEIR FINANCING DIFFICULTIES, AND THE REQUIREMENT 
THAT THE SULTAN APPROVE LAND TRANSFERS IS REGARDED AS AN 
UNWARRANTED LIMITATION OF THEIR BUSINESS OPPORTUNITIES. 
CHAMBER MEMBERS HAVE SAID THAT INADEQUATE FULFILLMENT OF 
PROMISES TO FAVOR BUMIPUTRA BUSINESSES IN AWARDING GOVERNMENT 
CONTRACTS IS A FAVORITE THEME OF THE GOB - CHAMBER MEETINGS. 
 
4.  THE TWO BIG BUMIPUTRA BUSINESSES, HOWEVER, HAVE SUFFERED 
FROM NO SUCH PROBLEMS.  QAF IS MAINLY OWNED BY PRINCE MOHAMED, 
ONE OF THREE YOUNGER BROTHERS OF THE SULTAN OF BRUNEI (AND 
MINISTER OF FOREIGN AFFAIRS)  AND ITS RAPID EXPANSION TO A 
COMPANY WITH 1,500 EMPLOYEES AND SIGNIFICANT ASSETS IN BOTH 
BRUNEI AND SINGAPORE IN THE SHORT TIME SINCE 1982 IS ACCOUNTED 
FOR MAINLY BY ITS ABILITY TO DRAW ON HUGE FINANCIAL RESERVES 
TO BUY EXISTING BUSINESSES AND THEN ASSURE THEIR SUCCESS 
THROUGH A NETWORK OF GOOD CONNECTIONS.  QAF'S SINGAPORE 
ASSETS INCLUDE BEN AND CO., THROUGH WHICH QAF STOCK WILL BE 
TRADED ON THE SINGAPORE STOCK EXCHANGE, AND NATIONAL COLD 
STORAGE, A WELL-KNOWN FOOD WHOLESALER AND RETAILER THERE, IN 
ADDITION TO STAKES IN SEVERAL TRADING AND REAL ESTATE 
COMPANIES.  QAF RECENTLY MADE NEWS IN THE BUSINESS PAPERS IN 
SINGAPORE WHEN IT SOLD ITS PIZZA HUT FRANCHISE.  IN BRUNEI, 
QAF'S INFLUENCE IS BROAD, RANGING FROM CONTROLLING INTEREST 
IN THE ONE NEWSPAPER PUBLISHED HERE THROUGH FOOD RETAILING TO 
REAL ESTATE DEVELOPMENT.  A PARTIAL LIST OF QAF'S LOCAL 
HOLDINGS INCLUDE OWNERSHIP OF QAF PLAZA, BRUNEI'S NEWEST (AND 
LEAST CONVENIENTLY LOCATED) SHOPPING AND OFFICE COMPLEX: 
20 PERCENT OF THE ISLAND DEVELOPMENT BANK, ONE OF TWO 
LOCALLY-CHARTERED BANKS AND A RECENT ACQUISITION (THE ROYAL 
FAMILY REPORTEDLY OWNS 30 PERCENT OF THE OTHER LOCAL BANK -- 
NATIONAL BANK OF BRUNEI -- AND PRINCE SUFRI IS PRESIDENT OF THE 
BANK);  75 PERCENT OF BRUNEI PRESS, WHICH PUBLISHES THE BORNEO 
BULLETIN;  50 PERCENT OF LOCAL DAIRY FARM OPERATIONS, WHICH OWNS THE 
BEST LOCAL SUPERMARKETS AND WESTERN RESTAURANT, IN ADDITION TO 
CATERING SERVICES (INCLUDING FOR ROYAL BRUNEI AIRLINES) AND 
WHOLESALE FOOD DISTRIBUTION;  49 PERCENT OF Q-CARRIER, WHICH 
MARKETS AND SERVICES AIR CONDITIONERS;  50 PERCENT OF AN INDUSTRIAL 
GAS COMPANY, SUPPLIER TO BRUNEI SHELL, AND 100 PERCENT OF FOUR 
OR FIVE OTHER COMPANIES THAT SUPPLY PRODUCTS OR SERVICES TO 
BRUNEI SHELL;  PLUS VARYING PERCENTAGES OF COMPANIES THAT ARE 
AGENTS FOR SUCH FOREIGN COMPANIES AS MERCEDES-BENZ, NISSAN, 
SUZUKI, BEECHAMS, CADBURY SCHWEPPES, PROCTOR & GAMBLE, AND 
INTERNATIONAL PAINTS.  IN ADDITION, RUMORS HAVE CONNECTED 
QAF WITH THE PLANNED CONSTRUCTION OF A NEW INTERNATIONAL- 
STANDARD HOTEL, TO BE CALLED THE PRINCE HOTEL. 
 
5.  JASRA HAS ONLY ABOUT ONE-THIRD THE NUMBER OF EMPLOYEES 
AS QAF, BUT IN AN ECONOMY THE SIZE OF BRUNEI'S, THE GROWTH TO 
THAT LEVEL OVER ONLY SIX YEARS PUTS JASRA INTO THE SAME VERY 
VISIBLE CATEGORY.  JASRA IS MAINLY OWNED BY PRINCE JEFRI, ALSO 
DEPUTY MINISTER FOR FINANCE AND CHAIRMAN OF THE GOVERNMENT 
TENDER COMMITTEE, AND HAS GROWN THROUGH EXPANSION OF ITS SUPPLY 
AND SERVICE CONTRACTS TO BRUNEI SHELL.  NOW THAT ITS 
CONSTRUCTION ACTIVITIES HAVE BEEN CURTAILED, THE MAIN BUSINESS 
OF THE COMPANY IS OIL.  JASRA IS A PARTNER IN THE ONLY ACTIVE 
OIL EXPLORATION EFFORT IN BRUNEI IN RECENT YEARS OUTSIDE BRUNEI 
ASMELL, UNDERTAKEN BY JASRA JACKSON, A JOINT VENTURE OF JASRA 
AND THE AMERICAN JACKSON OIL CO.  IF JASRA JACKSON WERE TO 
STRIKE OIL IN SIGNIFICANT QUANTITIES, IT WOULD BE AN INTERESTING 
COMPLICATION IN THE ROYAL FAMILY'S BUSINESS AFFAIRS, AS PRINCE 
JEFRI IS ALSO REPORTEDLY PART-OWNER WITH OTHER MEMBERS OF THE 
ROYAL FAMILY OF A COMPANY THAT EITHER BUYS OIL FROM BRUNEI 
SHELL OR RECEIVES A QUANTITY AS A PAYMENT IN KIND AND THEN 
RESELLS IT THROUGH SHELL OIL'S MARKETING ORGANIZATION.  THIS 
PAPER TRANSACTION, OF UNKNOWN VALUE, IS WHERE THE ROYAL FAMILY 
RECEIVES MUCH OF ITS PRIVATE FLOW OF WEALTH FROM BRUNEI'S OIL. 
JASRA ALSO OWNS THE LARGEST CAR RENTAL AGENCY IN BRUNEI AND, 
AS WITH NEARLY ALL BUMIPUTRA BUSINESS, IS ACTIVE IN REAL 
ESTATE DEVELOPMENT.  A RECENT MAJOR MOVE WAS THE ACQUISITION 
OF 50 PERCENT OF THE LOCAL OFFICE OF THE VENERABLE HARRISONS 
AND CROSFIELD TRADING COMPANY, A MAJOR SUPPLIER OF IMPORTED 
GOODS TO THE PRIVATE ECONOMY, HENCEFORTH TO BE KNOWN IN BRUNEI 
AS JASRA HARRISONS.  JASRA ITSELF HAS ALWAYS BEEN AN IMPORTER 
AND SUPPLIER TO THE GOVERNMENT AND BRUNEI SHELL. 
 
6.  THE RAPID GROWTH OF THE COMPANIES OWNED BY THE ROYAL 
BROTHERS LEADS TO THE QUESTION OF WHETHER THERE IS SOME PLANNED 
OBJECTIVE FOR THE ROYAL FAMILY IN BECOMING SO ACTIVE SO FAST 
IN THE DOMESTIC ECONOMY, AND WHETHER THERE IS ANY COORDINATION 
OF THE FAMILY'S BUSINESS ACTIVITIES.  SPECULATION ON MOTIVE 
WAS MERELY FUELED BY AN ANNOUNCEMENT PUBLISHED IN NOVEMBER 1984 TO 
THE EFFECT THAT THE SULTAN OFFICIALLY DENIED THAT THE GOVERNMENT 
OF BRUNEI HAD ANY INTENTION TO BUY ANY COMMERCIAL COMPANY 
"FOR EXAMPLE, QAF LIMITED".   THE ANNOUNCEMENT, IN BRUNEI'S 
OFFICIAL NEWSPAPER, PELITA BRUNEI, WENT ON TO SAY THAT "THIS 
STRONG DENIAL WAS MADE TODAY IN A STATEMENT ISSUED BY THE 
MINISTRY OF FINANCE WHICH WENT ON TO SAY THAT ANY INVOLVEMENT 
BY MEMBERS OF THE BRUNEI ROYAL FAMILY IN ANY COMMERCIAL 
COMPANY WHETHER INSIDE OR OUTSIDE THE COUNTRY IS THEIR OWN 
PERSONAL MATTER AND HAS NO CONNECTION WHATSOEVER WITH HIS 
MAJESTY'S GOVERNMENT."  THE ANNOUNCEMENT ALSO CAUSED SOME 
SPECULATION THAT IT MIGHT BE EVIDENCE OF A FAILURE TO COORDINATE 
THE ROYAL FAMILY'S BUSINESS ACTIVITIES, THAT, IN FACT, THE 
SULTAN MIGHT BE ANNOUNCING HIS DISAPPROVAL OF QAF'S -- AND 
BROTHER MOHAMED'S -- ACTIVITIES. 
 
7.  THREE POSSIBLE MOTIVES HAVE BEEN SERIOUSLY DISCUSSED BY 
EXPATRIATE OBSERVERS WHO HAVE BEEN AWARE OF THE ACCOMPANYING 
GROWTH IN DISSATISFACTION FROM OTHER BUMIPUTRA BUSINESSMEN 
AS WELL AS FROM THE CHINESE BUSINESS COMMUNITY.  (IT IS 
UNDERSTOOD THAT PARTICULARLY CHINESE BUSINESS IN THE SERIA/ 
KUALA BELAIT AREA HAS BEEN AFFECTED, WHERE THE CHINESE WHO LONG 
SERVED AS LOCAL CONTRACTORS TO BRUNEI SHELL HAVE BEEN 
SQUEEZED.)  THERE ARE:  (1)  THAT THE BUSINESS INTERESTS ARE 
INTENDED TO ACHIEVE THE SAME THING AS ANY OTHER BUSINESS, MAKE 
A PROFIT AND ENRICH, IN THIS CASE, FURTHER ENRICH THE OWNERS; (2) 
THAT THE ROYAL FAMILY OBSERVED THAT EXISTING BUMIPUTRA 
BUSINESS WAS NOT ADEQUATELY SKILLED OR SUFFICIENTLY FINANCED 
TO EXPAND INTO AREAS THAT NATIONAL POLICY WANTED TO SEE TAKEN 
OVER FROM FOREIGNERS (OR THAT THEY WERE DISMAYED BY THE 
TENDENCY FOR BUMIPUTRA BUSINESSES TO BE "ALI BABA" COMPANIES, 
ONES WHICH HAVE BUMIPUTRA EQUITY PARTICIPATION, AND A MALAY 
NAME, BUT WHICH ARE ACTUALLY ONLY CONTINUATIONS OF WELL- 
ESTABLISHED CHINESE FIRMS WHERE THE MANAGEMENT, LABOR AND 
MOST OF THE EQUITY REMAINS CHINESE), SO THEY DECIDED TO DO IT 
THEMSELVES, OR (3) THAT THE ROYAL FAMILY, ALREADY ASSURED OF A 
MONOPOLY ON POLITICAL POWER, WANTED TO ASSURE THAT LEAVING THE 
HIGH POINTS OF THE ECONOMY IN THE HANDS OF OTHERS, EVEN IF THEY 
WERE BUMIPUTRAS, DID NOT LEAD TO THE DEVELOPMENT OF ALTERNATIVE 
POWER CENTERS IN THE SOCIETY. 
 
8.  THE THIRD POSSIBILITY PROBABLY CAN BE DISMISSED FAIRLY 
QUICKLY BECAUSE NOT VERY MUCH ECONOMIC ACTIVITY GOES ON IN 
BRUNEI THAT IS NOT DEPENDENT ON EITHER THE GOVERNMENT OR BRUNEI 
SHELL, BOTH OF WHICH CAN BE CONTROLLED BY THE ROYAL POLITICAL 
MONOPOLY.  MOST BUSINESSES HERE OF ANY SIZE COULD BE QUICKLY 
RUINED IF CUT OFF FROM CONTRACTS FROM THOSE TWO SOURCES.  AN 
ANNOUNCED SCHEME TO SELL QAF STOCK TO BRUNEI CITIZENS, WITH 
LIMITATIONS ON THEIR ABILITY TO RESELL IT, MAY BE INTENDED TO 
ALLOW PARTICIPATION IN PRIVATE ECONOMIC GROWTH BY A WIDER GROUP 
WITHOUT ACTUALLY LOSING CONTROL OF A KEY ECONOMIC SECTOR TO 
ANYONE.  THE PLAN WOULD HAVE 30 PERCENT OF THE QAF STOCK 
SOLD AT A SPECIAL PRICE TO QUALIFIED BUYERS. 
 
9.  SEVERAL OBSERVERS PUT THE DOMESTIC ROYAL BUSINESS 
ACTIVITIES DOWN TO A SIMPLE DESIRE TO GET RICHER, WHICH MAY 
SEEM UNNECESSARY, ALL THINGS CONSIDERED, BUT NOT UNUSUAL 
CERTAINLY IN THE SOUTHEAST ASIAN CONTEXT.  THIS MAY WELL 
HAVE BEEN THE INITIAL MOTIVATION, BUT THE BUSINESS 
PRACTICES OF THE TWO COMPANIES SEEM TO BE ALLOWING FOR THE 
SECOND POSSIBILITY TO BE AT LEAST A CONSIDERATION.  OFFICIALS 
OF BOTH COMPANIES AT THE MANAGING DIRECTOR OR FINANCIAL 
CONTROLLER LEVEL HAVE DECLARED TO EMBOFF THAT THEY NO LONGER BID 
FOR THE BASIC CATERING, SUPPLY AND MAINTENANCE CONTRACTS OF 
BRUNEI SHELL AND THE GOVERNMENT THAT THEY ONCE DID.  THESE ARE 
CONSCIOUSLY LEFT TO SMALLER BUMIPUTRA COMPANIES.  QAF AND 
JASRA HAVE MOVED "UPMARKET", DOING MORE TECHNICAL OR MORE 
CAPITAL INTENSIVE THINGS AS THEY SEE OTHER BUMIPUTRA 
COMPANIES ABLE TO DO THE SIMPLER THINGS.  TO THE EXTENT THIS 
IS NOT A BUSINESS DECISION, BUT INSTEAD A MATTER OF POLICY 
AIMED AT ACHIEVING A GIVEN STRUCTURE IN THE BUMIPUTRA COMMUNITY, 
THEN HIGHER MOTIVES CAN BE ASCRIBED TO THE ROYAL BUSINESS 
ACTIVITIES.  HOWEVER, TO SOME EXTENT AT LEAST, IT IS A BUSINESS 
JECISION, AS A JASRA MANAGER ADMITTED TO EMBOFF.  THE LOWER 
END OF THE RANGE OF CONTRACTS HAS BECOME MORE COMPETITIVE, WITH 
PROFIT MARGINS THINNER AND PRICING TOUGHER, SO THE MANAGERS OF 
THE ROYAL COMPANIES MAY SIMPLY BE MOVING ON TO WHERE THE 
CREAM IS THICKER. 
 
10.  AN INTERESTING QUESTION IS WHAT THE FOURTH BROTHER, PRINCE 
SUFRI, WILL BE ALLOWED AS HIS SHARE.  HE APPEARS TO BE 
BELATEDLY MAKING HIS MOVE INTO THE BRUNEI BUSINESS WORLD, 
(ASIDE FROM REAL ESTATE DEVELOPMENT, IN WHICH HE HAS HAD 
INTERESTS FOR SEVERAL YEARS) 
WITH THE VEHICLE BEING SINARAN, A COMPANY THAT HAS EXISTED 
SINCE 1974, BUT INACTIVE UNTIL VERY RECENTLY.  SINARAN, REGISTERED 
AS A TRADING AND CONSTRUCTION COMPANY, MAY BE THE RECIPIENT, IN 
PARTNERSHIP WITH AN AMERICAN FIRM, OF SOME OF THE LARGE 
CONTRACTS THAT ARE RUMORED AS AVAILABLE OVER THE NEXT YEAR, 
INCLUDING A NEW AIR BASE, SEVERAL MORE PIECES OF BRUNEI'S 
COASTAL HIGHWAY, A MAJOR BRIDGE ACROSS THE BRUNEI RIVER AND 
PERHAPS A RE-TENDERING OF THE CONTRACT TO BUILD A COGENERATION 
PLANT.  CERTAINLY THE AMERICAN FIRM HAS INDICATED IT BELIEVES 
IT HAS A GOOD CHANCE AT THESE, BECAUSE OF ITS CONNECTION WITH 
SINARAN.  IF ALL THREE YOUNGER BROTHERS SET OUT TO BUILD 
LARGE BUSINESSES WITHIN BRUNEI, THE OPPORTUNITIES FOR OTHER 
BUMIPUTRA BUSINESSMEN WILL BE ACCORDINGLY LIMITED.  THIS IS 
EVEN MORE TRUE WHEN THE ACTIVITIES OF SISTERS AND OTHER 
ASSORTED IN-LAWS ARE ADDED.  SEVERAL SECOND-RANKING TRADING 
AND CONSTRUCTION FIRMS COUNT ROYALTY AMONG THEIR OWNERS. 
 
11.  THE CONCLUSION IS THAT, FOR WHATEVER REASON, THE ROYAL 
FAMILY DOMINATES THE MALAY BUSINESS COMMUNITY TO AN EXTENT THAT 
PROBABLY IS CAUSING GREATER DISSATISFACTION THAN THE EXTENT TO 
WHICH THEY DOMINATE THE NATION'S POLITICS.  MOTIVES MAY BE 
TRADITIONAL BUSINESS REASONS, AND THE ECONOMIC DOMINANCE 
INADVERTENT, MERELY THE NATURAL RESULT OF BETTER FINANCING AND 
GOOD CONNECTIONS, BUT THE RESENTMENT BEARS WATCHING.  OFFICIALS 
OF THE TWO BIG COMPANIES THEMSELVES ARE AWARE OF IT, BUT THE 
EXTENT TO WHICH THE ROYAL FAMILY BELIEVES IT SOMETHING TO 
BE CONCERNED ABOUT IS UNKNOWN.  PRINCE SUFRI'S BUSINESS 
PROSPECTS MAY BE BOTH DEPENDENT ON AND AN INDICATION OF THE 
EXISTENCE OF SUCH CONCERN. 
 
 
KING 

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