Oil price drop drives development in Brunei Darussalam's transport sector

As Brunei Darussalam prepares to expand its economic activity away from oil and gas, it is looking toward other sectors to contribute further to GDP. The transport industry has thus found itself in the spotlight, with expectations of the sector’s economic and strategic input to growth running high.

A COMPLEX AREA: With a total area of 5765 sq km, Brunei Darussalam’s physical geography consists of 5265 sq km of land and 500 sq km of water spread across coastal plains along the South China Sea, hilly lowlands in the west and mountains in the east. The country is divided in two by the Limbang district of Malaysia, which separates the Temburong district from the districts of Brunei Muara, Tutong and Belait in the west. The Sultanate’s 266 km of land boundaries are with its only bordering nation, Malaysia.

Forests cover 70% of the Sultanate, and with diverse waterways, mountainous areas and coastlines, the landscape is a complex area to traverse. Transport options and facilities within Brunei Darussalam include a national highway system, a public bus network servicing both urban and regional areas, water taxis, seaports, airports and cycle lanes; however, the majority of Bruneians use private cars.

The Ministry of Communications (MoC) is responsible for planning and regulating land transport routes, monitoring the aviation and maritime sectors, and setting the country’s transport policy. Buses and bus franchises are licensed and monitored by the Motor Vehicle Licensing Authority, which is part of the Land Transport Department, while the construction, maintenance and management of road infrastructure comes under the remit of the Ministry of Development. Private sector involvement ranges from providing public transport and logistics services, to freight haulage.

In 2015 the transport industry contributed less than 2% to GDP, according to Pehin Dato Abdullah Bakar, the former minister of communications, who told local media that the sector should establish a 5% share of GDP growth to support the efficient flow of goods, services and people.

UNDER CONSTRUCTION: To enable and encourage change in the sector, an overhaul of the country’s public transport segment is currently under way, as the government implements initiatives such as bus rapid transit and the introduction of toll roads to encourage the use of public transport (see analysis).

Brunei Darussalam officials are keen to implement transport policy plans that will put the country on a par with its ASEAN peers, which in 2010 adopted a region-wide transport plan, the ASEAN Strategic Transport Plan (ASTP) 2011-15. Also known as the Brunei Action Plan, the ASTP aimed to increase public transport options in order to establish an integrated and sustainable network as a way of promoting trade and tourism within ASEAN.

The ASTP itself was a product of the 2011 Master Plan on ASEAN Connectivity (MPAC), which supported the prioritisation of enhancing connectivity between and within ASEAN member states. MPAC’s overarching aim was to connect the region through heightened physical, institutional and people-to-people linkages, a goal realised via the financial resources and institutional mechanisms of member states. The master plan also laid the groundwork for the synchronisation of ongoing sectoral strategies, plans and projects within ASEAN.

MPAC identified various challenges to achieving enhanced physical connectivity in the region. These included poor-quality roads, undeveloped road networks, non-existent railway links, insufficient port and maritime infrastructure, an expanding digital divide and mounting demand for energy. The plan thus called for member states to begin to upgrade existing infrastructure, construct new infrastructure and logistics facilities, harmonise the region’s regulatory frameworks and cultivate a culture of innovation. To achieve these ambitious goals, MPAC pinpointed strategies for each member state, with the aim of establishing integrated and seamless regional connectivity through a multimodal transport system, enhanced information and communications technology infrastructure, and a regional energy security framework.

ROAD NETWORK: The more than 3000-km highway network provides ample access to all inhabited areas of the Sultanate. A coastal highway backbone runs eastward from Kuala Belait in the north-west to Muara Port in the north-east. The road is part of the pan-Borneo transport network connecting Brunei Darussalam to Malaysia and Indonesia. Arterial roads branching south off this major highway cross through Brunei Muara and into the capital Bandar Seri Begawan, as well as to rural areas in the Belait, Tutong and Temburong districts.

STRATEGIC WATERWAYS: Brunei Darussalam’s position adjacent to the sea lanes of the South China Sea make its 209 km of waterways and 161 km of coastline logistically important. Under the Kuala Lumpur Transport Strategic Plan 2016-25, Brunei Darussalam has agreed to contribute to the establishment of an ASEAN Single Shipping Market (ASSM) and to promote maritime safety, security and strategic economic corridors within ASEAN. As part of the ASSM, Brunei Darussalam will also engage in regional maritime transport cooperation to develop strategic maritime logistic corridors within ASEAN.

PASSENGER & CARGO GATEWAY: The first commercial air transport service in Brunei Darussalam began in 1953, when air links connecting Bandar Seri Begawan with Anduki in the Belait district were established. Today, Brunei Darussalam has one airport, Brunei International Airport, and one airfield, Anduki Airfield. Brunei Shell Petroleum (BSP) uses Anduki Airfield to operate helicopters that support offshore oil platforms. As well as being where the national carrier Royal Brunei Airlines (RB) is based, the area around the international airport is also home to the Rimba Air Base, from which the Royal Brunei Air Force operates.

In recent years the Sultanate’s air transport freight, defined by the volume of freight, express and diplomatic bags carried on a flight stage, has fluctuated. In 2011 freight – measured in metric tonnes multiplied by kilometres travelled – reached a historic high of 150m (tonnes-km) but plateaued at 128m between 2012 and 2013, and stood at 122m in 2014, according to the most recent World Bank figures.

The terminal at the international airport has been under renovation for the past few years, and it now boasts new facilities and an additional 18,000 sq metres of floor space. The extra room is expected to double the current annual passenger capacity from 1.5m to 3m. The airport’s modernisation is part of a drive to create a regionally competitive air logistics hub. Other upgrades include an automatic baggage tracking system and a centralised security system presiding over a new concourse, departure satellite lounge, baggage reclaim hall, arrival and departure lounge, and expanded Customs clearance and immigration areas. The project, managed by the Brunei Economic Development Board, aims to transform the terminal into a passenger and cargo gateway to the Sultanate. This should be an asset for the nation’s flag carrier as the implementation of the ASEAN Open Skies policy unfolds and competition between the region’s airlines increases.

SINGLE MARKET: On January 1, 2016 the ASEAN single market, known as the ASEAN Economic Community, came into existence with the aim of allowing goods, services, skilled labour and capital to flow freely between ASEAN member states, which together form a market of 622m people. A single market and production base has not been fully established yet, but the integrity of each country’s physical infrastructure is key to doing so. Developments to cross-border roads, power lines, railways and maritime transport will all be crucial in turning the aspiration into a reality, and improvements in these areas will in turn boost new and existing value chains and production networks.

Included in this drive toward market liberalisation is the ASEAN Single Aviation Market, also known as the ASEAN Open Skies policy, which came into effect in January 2015 with the aim of allowing carriers to operate with more freedom across the ASEAN market. Brunei Darussalam ratified the policy despite concerns that doing so would present RB with challenges in the form of increased levels of competition, especially from the entrance of low-cost carriers to the air passenger market, such as AirAsia, Lion Air and Cebu Pacific. The open skies policy will see all airline companies from the 10 member states of ASEAN being able to fly freely from their home country to any city within the bloc.

BRIDGING A DIVIDE: The most high-profile transport project on the horizon currently, Temburong Bridge, will connect the two sides of the country currently separated by Brunei Bay and the Limbang district of Malaysia. The bridge, which will consist of a four-lane motorway between Jalan Utama Mentiri in the Brunei-Muara district and Jalan Labu in Temburong, will cut the travel time between the two districts from two hours to about 30 minutes. Benefitting from the full backing of the government, it is the biggest bridge construction project in the country’s history. Set to measure 30 km in length and cost an estimated $1.6bn, the bridge is expected to not only help engender parity in national development, but also establish Brunei Bay as an international logistics port. His Majesty Sultan Haji Hassanal Bolkiah attended the project’s foundation laying ceremony on January 16, 2016, and construction is expected to be completed by 2019.

CORPORATISING THE PORTS: In the pursuit of increased efficiency, productivity and competitiveness, the MoC has corporatised some of the departments under its management. This has affected both its Marine and Ports Departments, whose remits have been modified by the establishment of an independent statutory body, the Brunei Maritime and Ports Authority, which will take over the management and regulation of logistics activities.

The country’s major seaport and ferry terminal is Muara Port, which channels more than 90% of the country’s imports and exports, excluding oil and gas, as these hydrocarbons move through terminals in Lumut and Seria in the Belait district. The Lumut terminal also exports liquefied natural gas (LNG). As highlighted by recent World Bank figures, Brunei Darussalam’s port container traffic – measured as the flow of containers from land to sea, and vice versa, in twenty-foot equivalent units (TEUs) – stood at 128,026 TEUs in 2014, representing a 31% increase over five years. Unsurprisingly, as the only deepwater port in Brunei Darussalam, Muara sees the most container throughput, with 111,817 TEUs in 2013.

MODERNISING SHIPPING: Brunei Darussalam’s export-oriented energy sector is built on its capacity to ship hydrocarbons. Anticipating increased regional demand, the Sultanate is moving to modernise its LNG transport fleet. LNG has become a major revenue earner for Brunei Darussalam, and a boom in the number of LNG facilities under construction is set to double LNG output by 2030, up from around 250m tonnes per year in 2012, according to figures from consultancy firm KPMG in its 2015 report, “Unlocking the supply chain for LNG project success”. The report also observes that the Asia-Pacific region presents considerable opportunities, as its energy and natural resources supply chain “is generally considered underdeveloped and high cost”.

While demand for LNG is expected to surge in tandem with dwindling domestic reserves in the Sultanate, shipping presents a natural platform from which it can extend its reach in the regional supply chain. “If Brunei [Darussalam] is looking at expanding its [LNG] business opportunities beyond its shores, then there’s scope [for it],” Quah Chee Yong, Shell’s general manager of shipping and maritime for Asia-Pacific and Middle East, told local media in September 2015. This has inspired recent efforts to modernise the Brunei Gas Carriers (BGC) LNG transport fleet. BGC is a joint venture company owned by the Brunei Darussalam government, Shell Gas and Diamond Gas Carriers. Established in 1998 with a mandate to replace an ageing fleet, BGC provides LNG transportation services from Brunei Darussalam to Malaysia, Japan, South Korea and Taiwan.

As of 2016 the company owned five LNG tankers and took delivery of the 154,800-cu-metre MV Amadi in 2015, despite a global oversupply of ships and tankers. The Amadi is BGC’s second tanker acquisition since November 2014, when it took delivery of Amadi’s sister ship, the Amani. Both vessels were constructed by Hyundai Heavy Industries in South Korea as part of a contract worth more than $350m, according to local media. At the moment, BSP operates and manages BGC’s ships and tankers, but this is set to change in 2020, when BGC itself will have taken over the operation and management of the vessels. The successful handover of this responsibility will partially rest on BGC’s ability to attract and train marine officers and skilled staff to operate and maintain the company’s vessels.

Another partly government-owned LNG firm, Brunei LNG (BLNG), also supplies gas to the domestic market and wider region, selling 6.71m tonnes of LNG per year to Japan and South Korea. BLNG, which is 50% owned by the government, 25% by Shell Overseas Holdings and 25% by Mitsubishi, was founded in 1969 and opened in 1973. Since operations began over 30 years ago, the firm has delivered more than 5000 cargoes (approximately 193m tonnes) of LNG.

As of 2016, eight LNG carriers – seven of which are owned by the joint venture company, Brunei Darussalam Shell Tankers – traverse the 4000 km route between Brunei Darussalam, South Korea and Japan. Each B-class vessel delivers loads of about 75,000 cu metres of LNG to terminals near Tokyo and Osaka in Japan, and to Pyeong Taek and Incheon in South Korea. Ships will begin delivering to a third Korean terminal at Tong Young upon its completion in 2017.

ALL EYES ON LOGISTICS: The logistics sector is expected to benefit from a more rationalised and growth-oriented transport industry, and increasing the sector’s GDP by 5-6% is part of the country’s long-term development plan, Wawasan Brunei 2035.

The ASEAN Kuala Lumpur Transport Strategic Plan 2016-25, which superseded the ASTP, tackles, among other regional issues, how to integrate and develop the logistics sectors of ASEAN countries. The plan details several agreements among ASEAN member countries, one of which involves establishing an integrated and globally competitive logistics and multimodal transport system for the movement of passengers and cargo.

In November 2014 Pehin Dato Abdullah underlined the government’s dedication to the ASEAN plan, declaring that the country’s ports sector needed to be “unshackled”. Working toward the ASEAN agreement and in conjunction with the objectives of the long-term plan, Brunei Darussalam has therefore set in motion schemes to establish sustainable “hubbing” activities in all modes of transport and communications, according to the former minister of communications. He added that these initiatives will improve elements of the supply chain, including market access requirements, cross-border facilitation, telecoms and transport infrastructure, physical security and the regulatory environment. To this end Muara Port is being both corporatised and privatised, with MoC plans for the port involving increased private sector participation, enhanced operations and a more developed infrastructure.

Work is already under way to realise these goals. First, Muara Container Terminal is being extended by between 150 and 200 metres, which is due to boost the terminal’s capacity from 220,000 TEUs to 330,000 before the end of 2016. In addition, the MoC is looking to contract out operations at the terminal to an established international firm that will promote and market it as a trans-shipment hub. Lastly, the MoC plans to dredge the Muara Channel to a depth of 14 metres from its current depth of 12 metres, thus enabling larger vessels to dock there.

Brunei Darussalam’s ports have already attracted a high level of interest from Guangxi-Beibu Gulf International Port Group. The Chinese state-owned ports corporation is ready to move ahead with a joint venture project to develop the Sultanate’s ports sector into a regional logistics hub, according to comments made by SQW China Limited’s managing director, Gary Ho, in November 2015. Guangxi-Beibu’s collaboration with Muara Port could increase the port’s processing capabilities and aid cooperation between the two countries, while also strengthening Brunei Darussalam’s economic position in ASEAN.

In September 2015 the MoC signed a letter of intent with the Guangxi-Beibu group. If the project goes ahead it would fall under China’s “One Belt, One Road” initiative, which aims to improve trade links with South-east Asia, the Middle East and Western Europe. To this end, the Guangxi-Beibu group took up co-management of one of Malaysia’s key shipping ports, Kuantan Port, when it invested $100m to acquire a 40% stake in 2013 in the Kuatan Port Consortium, which manages and operates the port.

OUTLOOK: The extent to which the various transport- and logisitics-related initiatives being pursued by the private sector, the government and ASEAN as a whole will be a boon to the economy remains to be seen. However, the government appears to be taking the challenge of transforming the sector into a regional powerhouse seriously, as evidenced by the potential drivers for growth it has created in the last few years. Foreign investors and the private sector are also beginning to recognise that transport and logistics are now ripe for investment. If all goes according to plan, mega-projects like Temburong Bridge could be the start of bringing together not just two sides of a country and its people, but also a new and profitable type of economy in the Sultanate.