Built environment: Public works are providing a stream of contracts, while reforms and economic diversification pave the way for further growth

Several years of strong investment, mainly driven by government initiatives to improve infrastructure and address a housing shortage, have boosted Brunei Darussalam’s construction industry. Major ongoing projects include upgrades to the Brunei International Airport, as well as the construction of the Brunei Cancer Centre, the Prime Minister’s Office and several key roads and bridges. It is also likely that demand for the construction of homes, schools, and hospitals that cater to the Sultanate’s growing population will remain strong in the years to come.

The Sultanate’s small size and limited land area is an obvious constraint on sector growth. Beyond that, however, the dependence on government work has left contractors vulnerable to planning and delays of successive national development plans (NDPs). Even in the private sector, heavy regulation of land use and building permits can make property development expensive and time-consuming, driving up the price of housing. While the forecast remains positive, especially given the roll-out of new projects and acceleration of old ones under the latest NDP, the high level of competition in a relatively static market is keeping expectations muted.

DEVELOPING STORY: The roll-out of the 10th NDP (2012-17), will be the key focus for many construction companies that rely on public sector contracts or much of their work. The plan calls for BN$6.5bn ($5.06bn) in spending over five years, of which BN$3.8bn ($2.96bn), or 58%, is intended to finance 480 projects carried over from the ninth NDP, leaving BN$2.7bn ($2.1bn) for 202 new projects.

The NDP does not focus heavily on major physical infrastructure projects, highlighting instead social services and human resources development. However, one of the programme’s six designated directions is “high quality and sustainable development infrastructure”, which commits the government to developing sustainable water, electric, communications infrastructure and a strong transport network.

KEY PROJECTS: The government also announced several mega-projects in conjunction with the launch of the 10th NDP, which should offer work for the construction sector. One is a $100m multi-purpose training centre (MPTC), developed in conjunction with international defence contractor CAE, which will host the region’s largest helicopter simulator training facility. The memorandum of understanding, signed by the investment promotion agency, Brunei Economic Development Board (BEDB), anticipates the centre will open in 2014 and create 35 local jobs.

Another key project is the development of an integrated refinery and aromatics cracker project on Puala Muara Besar at a cost of $4bn by Zheijing Hengyi Group, a privately owned company from the People’s Republic of China. While these two projects are in the early stages, their announcement bodes well for future contracts in the construction pipeline.

SPEED BUMP: The Sultanate’s mega-projects have been hampered by delays, however. Members of the State Legislative Council, for example, have complained for some time about pushbacks in the rollout of major road projects such as the Telisai-Lumut and Lubok-Nihing highways. Additionally, there is a backlog of housing projects, with some families who had applied for public housing in the early 1990s only acquired their homes in the last few years.

Several key projects were assigned to the BEDB to expedite their production. “BEDB’s core mandate is to provide infrastructure necessary for major foreigninvestment projects, but we have also been assigned to help fast-track the implementation of certain key projects under the NDP,” Julian Fung, the head of infrastructure at BEDB, told OBG. The BEDB was given the management of three housing projects of more than 1000 houses each, as well as responsibility for the modernisation of the Brunei International Airport, the construction of the Telisai-Lumut highway, the development of the Sultanate’s first integrated waste management facility, and the Pulau Muara Besar bridge. “There is still a lot of opportunity in Brunei Darussalam in terms of waste management, especially as the country’s economy grows,” said Louis Leong, the general manager of local washroom and hygiene services provider Rentokil Initial.

Key decisions intended to speed up the construction of the housing units include the use of joint design-and-build contracts to reduce the time necessary for the initial design work, as well as the awarding of bulk contracts rather than the tendering of several smaller packages.

SIGNED, SEALED & DELIVERED: Of the three housing projects assigned to the BEBD, one has been completed: 2000 houses in Kampong Pandan, in the Kuala Belait municipality, which were finished and turned over to homeowners in April 2011. Another, being constructed by UEM Builders, consists of 4000 homes in Kampong Mentiri in the Brunei-Muara district. According to Fung of BEBD, the project’s scale required the services of the large Malaysian contractor, which was able to use more efficient techniques, such as precast panels, to complete the job faster. The units should be ready by late 2013, two to three months ahead of schedule. A third project, 1500 houses in Tutong, will be delayed until late 2013 due in part to heavy rains during 2011.

SUPPLY & DEMAND: The BEBD’s housing commitments total 7500 units, under half (43%) of the anticipated 17,312 units scheduled to be constructed by 2014. The remainder are being constructed under the MoD itself. The total ordered represents just half of the nation’s demand, which amounted to 33,746 houses through 2011. The central district of Brunei-Muara has the greatest shortfall, with demand estimated at over 25,000 and fewer than 11,000 houses scheduled for delivery by 2014.

Belait has a demand of 5499 houses and will see just 3970 units built by 2014, while Temburong, the smallest district, will have 408 of 439 units of demand met by that year. Only Tutong, which is scheduled for 2258 units and has demand of just 2011 homes, will match the needs seen 2011 by 2014. Nationwide, just over 9000 of the units should be completed by the end of 2012, with the approximately 7000 remaining to be built by 2014.

Even as it endeavours to build houses as fast as possible, the MoD is still playing catch-up with demand from the 1990s and 2000s. It has set a goal of 2017 for building another 18,000 houses, which will meet demand up to 2012. By then, the Housing Development Department estimates waiting times for new homes will be cut down to 10 years or less.

SPACE CONSTRAINTS: Attempts to meet the affordable housing demand are being challenged by resource constraints shaped by geographic, political and social concerns. “The government owns the majority of land with only a small percentage privately owned. Developable land is limited, and that is hampering the growth of the private construction and real estate sector,” said Jimmy Koh Hoe Eng, the managing director of Suntech Concrete. Brunei Darussalam’s total land area is just over 5000 sq miles, and about half of which is protected forest under the World Wildlife Fund’s Heart of Borneo initiative, which aims to preserve virgin rainforest in Malaysia, Indonesia and Brunei Darussalam. The developed areas of the Sultanate represent just 15-20% of the total landmass, and only 3% of land is privately owned. But even given the space crunch, Brunei Darussalam is comparatively under-populated. The central district of Brunei-Muara, which is home to over 70% of the population, has just 490 people per sq km. The nation as a whole is even less dense, at 68 people per sq km. By contrast, the metropolitan area of Kuala Lumpur has over 2500 people per sq km and Jakarta boasts nearly 4300 people per sq km.

Brunei Darussalam’s low population density has enabled its citizens to enjoy landed properties for decades – the typical government-built house is a gateless house on concrete stilts within a large compound. With the increased demand for housing, the availability of land for such properties is diminishing, particularly as the authorities continue to restrict the land that is actually available for development.

LOOKING UP: This is leading to a paradigm shift in development, exemplified by the first vertical housing project, which will go up in the Lambak Kanan kampong, or village, of Brunei-Muara district. Thus far, tenders have been submitted for 320 housing units with a low- to mid-rise design concept. In addition to being space-efficient, vertical housing allows for more economical construction.

The minister of development, Pehin Dato Suyoi Osman, also promised that the project would employ environmentally friendly building techniques, including energy-efficient materials and rainwater harvesting. Low-rise housing has received a lukewarm reaction among a population used to more spacious arrangements, but players in the sector expect that citizens will be able to adjust their expectations as new types of property become available, especially since homes sold by the private sector are so restricted and expensive. Mohd Billy Lim Abdul Aziz, the chief architect at Arkitek Rekajaya, told OBG, “Designing vertical housing that appeals to Bruneians is always a challenge, but people will adapt over time.”

BY THE NUMBERS: The last several years have seen solid but muted growth for the construction industry. The sector’s contribution to GDP grew 3.8% in 2011, reaching BN$504.9m ($393.2m). Construction’s overall share of the economy stayed flat, at roughly 4.1% of GDP. However, construction accounted for BN$1.53bn ($1.2bn) in 2011, or 12.6% of overall expenditures. Growth tailed off slightly in 2012, with the sector’s GDP rising just 1.1% year-on-year in the first half of the year. “Construction is the second-largest industry, behind energy, and will remain in this position because of infrastructure spending,” Yong Teck Chin, the managing director of the New Temburong Quarry, told OBG.

PUBLIC WORKS: Given Brunei Darussalam’s size and its dependence on oil revenues, most of the work for major contractors comes from the public sector or Brunei Shell Petroleum (BSP). For example, John Lee Seng Poh, the executive director of United Engineers, a local subsidiary of Singaporebased United Engineers, told OBG that over 95% of its work comes from the government.

The MoD, meanwhile, estimates that the total volume of work from the private sector amounts to less than BN$100m ($77.8m) annually. Nonetheless, the construction sector is highly competitive, with tenders sought after by mid-size, local companies as well as larger internationals. These include TSL, Tobishima, and United Engineers, which are local imprints of foreign construction firms, but have been in the Brunei Darussalam market for upwards of 20 years. Recently, however, foreign companies like Bina Puri, UEM, and Trans Resources Corporation have entered the sector, looking to compete for some of the major contracts under the NDP. Finally, locally owned companies Bina Mega, Swee, LCY Development and Adinin also compete in the market.

BIG OIL: Although the majority of contractors get their work from government projects and their various subcontracts, BSP continues to be an important source of work for both foreign and local companies. The latest major development with important implications for the construction sector was BSP’s award of a $400m contract to Aker Solutions of Norway. The five-year deal, which includes an option of two additional years, makes Aker the management contractor, responsible for providing construction and maintenance services for BSP’s offshore assets. Aker replaces a joint venture between the British oilfield services firm the Wood Group and two local contractors, which held an eight-year contract that expired in December 2012.

Although this contract moved from a partly Bruneian joint venture to a wholly foreign contractor, it is not contradictory to the Local Business Directive (LBD) issued in April 2012 by the Energy Department at the Prime Minister’s Office. The LBD instructs foreign players in the oil and gas industry to draw up plans for increasing the local share of jobs and subcontracts and for transferring responsibility, when possible, to local firms. The new contract upholds the local-content principle – Aker will gradually transfer responsibility to Bruneian companies over the course of the deal, as they acquire the necessary competency. The local content provisions in the Aker deal are mirrored in the contracting process being undertaken across the oil and gas sector. A recent tender for wellhead platform construction in Total’s Maharaja Lela South gas field will require the winner – likely a foreign player with a Bruneian partner – to produce at least two-thirds of the platform tonnage in a local yard in Muara.

MAJOR PROJECTS: Medium-sized and large contractors are enjoying an uptick in demand, as the construction phases of several large projects coincide. One of these is the modernisation of Brunei International Airport, with the work being carried out through a joint venture between local firm Swee and a large Malaysian company. The BN$130m ($101.2m) job, which is expected to be completed in late 2014, is the most prominent of the national development projects being implemented through the BEDB. Others include the Pulau Muara Besar bridge, connecting the island designated as a petrochemicals refinery centre to the mainland. This will go to tender in early 2013, along with several other bridges, including a BN$1bn ($778.8bn) bridge across the Bay of Brunei to the isolated district of Temburong.

The list of priority projects under construction also includes a multimillion-dollar new building at the Brunei Cancer Centre, which is being carried out by TSL Construction, the local affiliate of the Singapore-based company of the same name. The project, which kicked off a two-year construction phase in April 2012, will house facilities for Radiotherapy and Nuclear Medicine, thus decreasing the number of patients who must go abroad to seek treatment. United Engineers, for its own part, has a BN$131.5m ($102.4m) contract to build the new Prime Minister’s Office complex (see analysis).

However, contractors worry that the current heavy load may not be sustainable, as the list of upcoming projects is sparse. This is especially true for those companies focusing on construction of corporate and office space; Brunei Darussalam has now built more than enough government office space, and is unlikely to issue many new contracts in this area.

BELABORED LABOUR: Brunei Darussalam’s private sector workforce is disproportionately foreign, with nearly 70% of the private labour pool coming from abroad. Within the construction sector that ratio rises to nearly 100%, outside of the managerial and design positions within Bruneian firms. Just six out of 3773 workers who were registered as job seekers with the Local Employment and Workforce Development Agency (APTK) listed their occupation as “construction worker” in 2010.

However, the strong growth of other South-east Asian economies has diverted the flow of skilled labourers from Brunei Darussalam to other countries. Thai workers have been largely replaced in the Sultanate by migrants from Vietnam, India or elsewhere. Costly fees charged by local recruiting agents in Thailand have also deterred some workers from coming, although the Thai and Bruneian governments are reportedly working on an arrangement that could reduce costs. Given that the Sultanate’s construction market is relatively small within the region, most companies have not found it difficult to find the necessary foreign expertise and labour.

ECO FRIENDLY: Green building practices have been gaining attention in Brunei Darussalam over the past decade, thanks in part to studies revealing that the Sultanate is the biggest per-capita carbon dioxide emitter in Asia, with inefficiently designed buildings being a significant contributor. Despite making headlines in 2010 with the country’s first “green building,” the seven-storey Knowledge Hub developed by the BEDB, Brunei Darussalam has been slow to formalise a national environmental strategy.

That began to change in 2012, however, when the Sultanate’s Public Works Department announced during the launch of the 10th NDP that it would soon adapt Singapore’s Green Mark system for new non-residential buildings. The Green Mark programme, which was chosen due to similarities in the climates of Singapore and Brunei Darussalam, will form the basis for the Sultanate’s own National Green Building Certification Scheme. The scheme is expected to take between two and five years to formulate given the need to collect data. In the meantime, private firms have sensed that the government is more serious than ever about encouraging and adopting green standards. “The government is more willing to pay a premium for green construction techniques, and since most materials are imported anyway here, the cost increase is mitigated,” Lee told OBG.

SEEKING APPROVAL: While the dependence on the state for housing and infrastructure is something of an inevitability, a common complaint is that bureaucracy is hampering private development. Even the 4% of land that is privately held is difficult to develop on, usually requiring a permit to change the land use designation, which can take months or years to be approved. The government addressed one clog in the system in 2010 by establishing the Authority for Building Control and Construction Industry (ABCi) to reduce the waiting time for building application approvals. The new authority consolidated several departments that had previously been responsible for approving construction permits. Results have been very positive, with Brunei Darussalam’s ranking climbing from 88th to 43rd on the “dealing with construction permits” section of the World Bank’s “Doing Business” 2013 report.

However, uncertainties remain, even with regard to government contracting work. One recurring theme is that many rules governing property and development were adapted from British law decades ago, and while they may have been appropriate at the time, they have not been updated to reflect current realities. “Brunei Darussalam’s standard building contract is a museum piece by Western standards. It is subject to all kinds of interpretations, and leaves nobody protected,” Masri Mohd Taha, the principal architect at Arkitek Opfis, told OBG. The land code, which dates to 1910, is another example of legislation that contributed to uncertainties, in this case a dispute on whether foreigners can own land.

OUTLOOK: Brunei Darussalam’s construction sector continues to hum along on the strength of a slow but steady pipeline of government jobs in infrastructure and public services like housing, schools, and hospitals. The lack of a dynamic private sector outside of the oil and gas sector limits the sector’s growth potential to some extent. However, if the Sultanate’s economic diversification project succeeds in attracting investments to the country, Brunei Darussalam will need modern and efficient policies and regulators to oversee the development of its built environment. The coming years will test whether the ongoing reforms aimed at improving the country’s business environment represent true progress.