Keeping it close: Ensuring the sector has a local impact remains a state priority

With the energy sector playing such a prominent role in the economy, the government is keen to make sure it has an increasingly positive impact locally in terms of both employment and revenue generation.

OUTLINING THE PLAN: Under the Brunei Vision 2035, the Energy Department at the Prime Minister’s Office (EDPMO) has laid out a number of ambitions and targets for increasing local participation in the oil and gas sector. By 2035 the government hopes to create 50,000 jobs in the energy sector, 80% of which are held by Bruneians. It has targeted 5000 Bruneian professionals in the sector by 2035 and 60% of spending on energy goods and services generated by local companies.

In February 2012 this was fleshed out further when the minister of energy, Pehin Dato Yasmin Umar, signed Directive 2 for local business development (LBD). The directive sets out plans to increase local content in contracts serving the oil and gas industry. The directive sets out the LBD allocation for different types of contracts. For example, for core contracts the policy sets out targets for local employment ranging from 50% to 90%, with more than 50% local management and more than 50% local content; for basic contracts, the local employment level is set at more than 90%, 100% local management and local content of over70%.

As such, the government is targeting an increased involvement of local supplies and businesses in the supply chain, as well as in the labour force. Tin Wui Min, general manager of Falah-Tek, pointed to a need for local firms to diversify as well. “Small and medium-sized enterprises in Brunei need to diversify into different sectors and try to offer different services to be able to sustain a decent level of activity,” he told OBG. The state has also created a number of incentives across the economy for the increased use of Bruneian labour. In the 2012-13 budget, for example, the government included provisions offering companies a tax credit of up to 50% on the basic salary of Bruneians employed from the beginning of 2012 and earning less than $2385 per month. There is also a tax credit for vocational training in the budget. Companies will receive a tax deduction when they enrol Bruneian nationals earning up to $1590 per month on vocational training courses at accredited institutions.

MEASURING IMPACT: All these moves will likely have a substantial impact on the oil and gas industry. According to data from the Department of Economic Planning and Development (JPKE), there were 6572 private sector employees in the extractive industries in 2010, of which 61.9% were Bruneian. However, given the importance of the sector, the government is keen to increase the size of the labour force. The EDPMO has set the target of 1600 new local jobs in the sector in 2013.

“We want to surpass that 1600, we hope to hit at least 2000 people employed in the industry by this year,”

Pehin Dato Yasmin told The Brunei Times.

One of the issues facing the government in these ambitions is the nature of an industry that is not particularly labour intensive. Jamain Lot, director of Petrokon, told OBG, “The oil and gas sector contributed 67.7% of the GDP in 2011. However, the 20,000 people working in this sector represent a much lower percentage of the working population. More opportunities will be available once deepwater fields and downstream industries are developed. These firms need a qualified workforce to drive sustainable businesses, provide operational excellence and implement sound staff management and succession planning. They create job opportunities for locals who are seeking challenging careers path.” There is also a strong belief that it will take significant time to reorient the industry towards local employment. “For example, to develop a fully fledged engineer takes at least three to five years,”

Lot told OBG. “To move to a senior position takes three to four more years and to become a head of the department takes more than 10 to 15 years of experience in the industry. We need ample time and continuous effort to prepare our locals to pursue these ambitions.”

Particularly for the large-scale operators, the human resources challenges will be sizable. While Jean Claude Salboch, corporate services manager at Total, told OBG that “the percentage requirements under LBD are in line with what we are able to do,” he also emphasised the challenges surrounding long-term planning and development of local talent. “Under the directive, we should provide a five-year [human resources] plan. Whether we have a good discovery on our block or not, it will be difficult to anticipate our requirements in five years time.” The company has been performing well on its LBD requirements. According to Salboch, Total should comprise 59% local staff by the end of 2013.

SUBSTANTIAL WORK: Some firms believe the new LBD requirements will demand substantial investment. “The oil and gas industries are very unique in nature, which makes it challenging to find local engineers qualified to handle these projects,” Mohd Shafie Hj Mohd Yusof, general manager of Petrokon Utama, told OBG. “There are engineers who can be plucked out of university, but they lack experience. We have over the years created a training platform for local engineers to provide them with exposure and experience.”

Haji Shahrurrizam bin Tuah, managing director of SC Oilfields and Logistics, echoed this sentiment. “An experienced workforce is vital in this sector and having knowledgeable staff is a must. It takes a minimum of five years to train a new worker on well operations, and it can be a challenge to train and retain quality human resources,” he told OBG.

Others within the industry suggest that, given the additional benefits and allowances required to hire expatriates, employing local staff will be cost-effective. One operator told OBG that they have been able to cut costs by $2m via hiring new local staff.

Another firm that has a strong record on Bruneian employment is Megamas, a local training company working with oilfield operators such as Brunei Shell Petroleum, amongst others. Bruneians account for about 85% of its staff. The general manager, Roger Ainsworth, told OBG that achieving such rates simply requires understanding incentive structures and the investment requirements to support the local market. According to Ainsworth, “Megamas believes offering the right terms and conditions is one of the major steps regarding local Bruneian recruitment and development, which is an investment in the long term that should not be underestimated.” With activity picking up in the sector as a result of government targets to double oil and gas production by 2035, there should be plenty of opportunities to bolster local involvement. This will be especially important in oilfield and associated services. Indeed, the government has placed equal emphasis on local content as well as employment.

ENCOURAGING SIGNS: One strategy that the government is keen to pursue is encouraging strong local companies to invest in assets such as rigs. Such a move would potentially have important implications for the heavyweight services firms. If local firms invest in rigs, the larger firms could be contracted to manage these assets backed by a Bruneian owner. However, as the government has also explicitly laid out in Directive 2, the desire is for local firms to be directly involved in the industry, not just acting as agents for contracts.

One local firm already thriving in the market is QOS. It has built up a steady base of contracts with international oil companies, with a strong reputation and ambitions to grow locally and internationally. Rudy Borhan, general manager of QOS, told OBG, “We can see potential business coming up three to five years down the road. They are diversifying now with more players, so it provides more opportunities.” The government hopes these opportunities will stimulate growth for local firms.