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The royal treatment, ruling family feuds as oil income drops in Brunei
New York Times - August 27, 1998
Mark Landler, Bandar Seri Begawan, Brunei – Beneath a canopy of crystal chandeliers in a dazzling throne room here earlier this month, a gentle-looking young prince in a golden tunic was handed a jewel-encrusted dagger and proclaimed heir to the Islamic Sultanate of Brunei.
Royal succession is a serious business in this secluded, oil-rich country on the northern coast of Borneo, where Sultan Hassanal Bolkiah has ruled with absolute authority since Brunei gained independence from Britain in 1984. And never more so than now, when the Sultan is battling both a bitter family feud and a free fall in oil prices, which has thrown the fief into a financial bind.
The crowning of the Sultan's eldest son, the 24-year-old Prince al-Muhtadee Billah, was a suitably solemn affair – steeped in six centuries of Malay tradition that gave it an almost otherworldly aura.
"We have been praying for this day," a young woman said after the ceremony on Aug. 10 as the Prince was drawn through the capital in a gold-and-white chariot. Like most of Brunei's 305,000 people, she regards the royal family with a reverence verging on awe. Thanks to the richest oil reserves in Southeast Asia, the Sultan has transformed his country into an enclave of docile affluence.
But the investiture of Prince Billah comes at a time of rising turmoil in this normally peaceful country, although it is still relatively unscathed by the Asian economic crisis swirling around it. The Sultan recently stripped his younger brother, Prince Jefri Bolkiah, of his posts as head of Brunei's state investment agency and its largest conglomerate, reflecting allegations that the Prince squandered billions on bad investments and a profligate life style.
Even the Sultan has come under scrutiny for living like Croesus while a decline in oil prices drains Brunei's economy. Building a 1,788-room palace with air-conditioned stables and hiring Michael Jackson to perform at his 50th birthday party was fine as long as oil sales were pumping nearly $2 billion a year into Brunei's coffers. But with oil prices down one-third since January, Brunei has already lost about $400 million, or 20 percent of its revenue last year.
Brunei Shell Petroleum, a unit of the Royal/Dutch Shell Group and the dominant oil producer, is sending home expatriate workers, while local merchants are feeling the pinch as shoppers flock to neighboring Malaysia to buy cheaper goods. Analysts say Brunei is experiencing something new in its well-lubricated history: a cash-flow squeeze.
That squeeze may force the country to cut back on entitlement programs that earned it the nickname "Shellfare state." At $25,200, Brunei's citizens already have the highest per capita income in Southeast Asia. But the Government still doles out free health care and education – not to mention subsidized rent and interest-free loans for civil servants to buy houses.
"We've been fortunate in our history because we've never had to prioritize," said Selamat Munap, the Deputy Finance Minister. "We've been able to take care of our children, our sick, our elderly. Perhaps we will have to be more rigorous in our standards for Government spending."
Mr. Selamat delicately avoids mentioning the royal family, which has taken care of itself best of all. But diplomats here say the Sultan now recognizes that his relatives must curb their lavish ways. The Sultan, they say, is particularly angry with Prince Jefri, who set off on an epic spending spree in the early 1990's, buying luxury hotels from Paris and London to New York and Los Angeles.
"There was a dawning appreciation that they were getting ahead of their earnings," said one Western diplomat, who, like almost everybody here, insisted on anonymity out of fear of offending the Sultan.
The extent of the rift in the royal family became clear when Prince Jefri stayed away from Prince Billah's investiture, the most important ceremony since the Sultan's coronation in 1967. Prince Jefri, who is in self-imposed exile in the United States, issued a statement that he could not return to Brunei because "there is little I can do to oppose the destructive action of reactionary forces, which are becoming increasingly entrenched at all levels of government."
A spokesman for Prince Jefri said Islamic fundamentalists from Libya and Iran were playing an influential role in Brunei's Government – a contention that the Government dismisses as preposterous.
Still, with the Government starting a global investigation of the Prince, and the Prince hurling brickbats in response, Brunei is being dragged out of its velvet-lined obscurity. Before independence, it had been a British protectorate, with origins that date back to the 13th century, when a prince from western Borneo became the first sultan of this lush, heavily wooded land.
To some extent, Brunei's troubles are rooted in its most fortunate event: the 1929 discovery of oil off the coast. By 1996, Brunei was pumping 160,000 barrels a day, mostly for export to Japan. Oil and natural gas now generate 90 percent of the Government's income.
Even to people who could not find his country on a map, the Sultan of Brunei became famous as the richest man in the world. It is a title he only recently ceded to William H. Gates, the chairman of Microsoft; like other oil barons, the Sultan's net worth declines as fast as the price of crude.
With an estimated fortune that reached $35 billion in the early 1990's, the royal family has enjoyed life on a grand scale. Prince Jefri, 44, savored it with particular gusto, buying playthings like a sleek yacht, an Airbus jet, a Sikorsky helicopter and five-star hotels including the Plaza Athenee in Paris, the New York Palace and the Bel Air in Los Angeles.
Prince Jefri's ambitions extended beyond shopping. As Finance Minister from 1984 to 1996, he built, among other projects, a giant amusement park, free to visitors. Prince Jefri pursued his ventures through a web of private companies and Government agencies. The Amedeo Development Corporation, a private company owned by the Prince, built the amusement park and other projects in Brunei. Amedeo Crown, a Prince Jefri-owned company listed on the British island of Jersey, acquired Asprey, the London jeweler, while Prince Jefri family trusts own the American hotels.
The Brunei Investment Agency, a Government operation that the Prince led as chairman, manages investments and owns more hotels, including the Dorchester in London and the Beverly Hills Hotel in California.
Reconstructing what happened at these companies is difficult because their operations are cloaked in secrecy. The reputed advisers will not even confirm whether they work for Prince Jefri, the royal family or the Government.
Executives with ties to Prince Jefri said that Amedeo and the Brunei Investment Agency were both audited by the accounting firm KPMG Peat Marwick. Citibank is said to be their main adviser. Given the blurry line between the interests of the royal family and those of the state, these executives said it would be hard for any outsider to impose strict financial controls.
Last month, reports began to arise of huge, undisclosed losses at both Amedeo and the Brunei Investment Agency. Financial analysts said the investment agency's assets might have been pledged to buy hotels. The losses came as an acute embarrassment to the Sultan, who had offered loans to help his ailing neighbors, Thailand and Indonesia, only to discover that Brunei could not afford them.
So the Sultan abruptly stripped Prince Jefri of his jobs at both organizations and ordered the Government to seize Amedeo's assets in Brunei. The Sultan hired auditors from Arthur Andersen in London to calculate the losses, which some analysts say could reach billions of dollars.
Mr. Selamat, the Deputy Finance Minister, declined to comment on Amedeo's collapse but acknowledged that "any major corporate failure is going to have some impact on the economy of Brunei."
Prince Jefri's financial troubles came after another embarrassing episode, in which Shannon Marketic, a former Miss USA., accused him and the Sultan of trying to turn her into a sex slave. The lawsuit is pending, though the Sultan has sovereign immunity and Prince Jefri has immunity as a potential heir to the throne.
Prince Jefri would seem to have a bleak future in Brunei. But he contends that because his overseas properties are owned by separate companies and trusts, he still owns those assets and intends to keep them.
"I do not seek a fight and prefer to be left alone," he said in a statement. "I shall, however, vigorously defend my position and interests of my family."
An adviser to Prince Jefri, speaking on the condition of anonymity, said the Government was exaggerating the losses at Amedeo to discredit the Prince and destroy his power base within the country. The Government also recently seized three oil concessions that gave Prince Jefri a steady stream of income.
Now the Prince and his advisers are plotting a strategy to hold on to the remaining properties. Brunei's investigation has set off alarm bells in Europe and the United States, and Prince Jefri's lieutenants have had to reassure employees and suppliers that the hotels and other properties are not about to be seized.
Prince Jefri may be finally tightening his belt, too. At Asprey Group, the venerable but money-losing luxury-goods company he bought for $388 million in 1995, the Prince is merging the flagship Asprey with its sister company, Garrard, and selling off unprofitable businesses.
"The idea that because we have a principal who is a prince, we can spend whatever our hearts desire, is not true," said Ian Dahl, the chief executive of Asprey in London. "We run a very tightfisted company." Prince Jefri's adviser said he was being hounded by Islamic militants, including another of the Sultan's brothers, Prince Mohamed. "This is a classic power struggle between those who favor a more conservative, religious approach and those who favor a more open, tolerant approach," the adviser said.
Brunei has become more straitlaced in recent years. Alcohol is no longer served in bars or restaurants. But other facts of life here may have less to do with religion than money. Several observers said the Sultan's largess had created a politically satisfied, even sedated, populace. Even people who live in houses on stilts in Brunei's 500-year-old water village own satellite dishes.
"The people feel they've gotten a good deal from the Sultan," said Rex DeSilva, the editor of The Borneo Bulletin, which calls itself an independent newspaper even though it is controlled by Prince Mohamed. "If a ruler can't be popular with all that, who can?"
Indeed, the Sultan's biggest challenge may be economic rather than political. For years, he has promised to wean Brunei from its reliance on oil by diversifying its economy. Yet the Government's efforts to become a trade and tourism center have come to naught. Given that Brunei has about 23 years of oil reserves left, that problem may fall to the Sultan's son.
For now, Prince Billah may help overcome some of Brunei's current ills. Unlike his playboy uncle, Prince Jefri, or even his father at a younger age, Prince Billah projects a less frivolous image. Educated at Oxford, Prince Billah is said to be a sober young man. His idea of indulgence, according to royal propaganda, is a game of snooker and the tame saxophone music of Kenny G.