Paper Presentations Session

PRIVATISATION AND CORPORATISATION:

BRUNEI DARUSSALAM’S EXPERIENCE

by

Ms Hjh Zainab binti Hj Morshidi

Acting Assistant Director, Department of Policy and Coordination

Economic Planning and Development Department, Brunei Darussalam

Introduction

Brunei Darussalam ‘s socio-economic growth has been and still is being fuelled in large part by Government spending on infrastructure. Within the period of the Seventh National Development Plan (1996-2000) for example, out of the B$8 billion investment  made, $5.6 billions (70.8%) were made by public sector and only $2.36 billion (29.2%) by the private sector.  The reason for such spending pattern is that the private sector is still too small to contribute substantially to the socio-economic development of the country.

As a result of the Government spending, Brunei Darussalam has seen major development in infrastructure and public services, and an improvement in the standards of living of the population. To sustain and improve such standards of living requires considerable investment.

As the Government’s capacity to spend relies heavily on it’s revenue from the export of oil and gas, which accounts for 80% of the total revenue, the question rises on the sustainability of the Government capacity to assume the role as major investor in the public services in the long term. Oil and gas are non-renewable and very susceptible to fluctuation of the global oil price. Hence there is a need to find alternative developmental strategies that will not only help maintain and improve the quality of public services but also open up opportunities for the private sector to grow and contribute more to the diversification of the economy.

One such development strategy which has been adopted by Brunei Darussalam is privatisation. This policy was first incorporated in the Fifth National Development Plan (1986 - 1990) and has been pursued in subsequent National Development Plans.

Rationale for privatization

Other than opening opportunities for private sector to grow privatisation is being pursued for its contribution to many other policy objectives. Firstly, private investment will relieve the increasing financial and administrative cost of the Government in maintaining its big public sector and providing infrastructure. By this, the Government should be in a better position to manage its resources for the development of other strategically important sectors to help diversify the economy.

Secondly, privatisation should improve efficiency and productivity for the benefits of both suppliers and consumers.

Thirdly, by stimulating private entrepreneurship and investment it expected to assist in reducing the size of the public sector and enhancing the role of the Government as regulator and facilitator of private sector development.

Fourthly, the commercial and profit orientation of the private sector is expected to provide the thrust for further growth, through higher efficiency and profit, while the Government is able to gain additional revenue particularly in the form of corporate tax and licensing fees

Implementation of the privatization policies

Forms of privatization

Despite the common use of the narrow definition of privatisation which restrict privatisation to the sale or divestment of Government concerns to the private sector, experiences from many economies have shown that privatisation can be in different forms which include:

a)   Sales and divestment of state concerns

b)   Public issue or sale of minority or even majority share  in a state-owned public company

c)   Placement of share with institutional investors

d)   Public Private Partnership involving “contracting out” of public services previously provided within the public sector, under the concept such as BOT, BOO, CAO, DOT, ROT, ROO and lease of physical assets

e)  Joint public-private sector ventures

 f)  Scheme to draw private financing into construction projects

g)  Allowing private competition where the public sector previously enjoyed a monopoly

In the context of privatisation in Brunei Darussalam, a practical approach has been adopted whereby corporatisation of Government agency and/or department is undertaken first before actual privatisation. This means that Government agency or department is transformed into a corporate body that is registered and run under the companies act without undergoing changes in ownership. The grace period between when corporate body is finally privatised would depend on the new company. This is to better prepare the corporate body and ensure a smoother transition to a fully privatised company.

Beside corporatisation, the Government is also pursuing the other forms of privatization, namely Private-Public Partnership (PPP) in the commercialisation of public services.

The rapid pace of globalisation has impressed upon the Government of the urgency to accelerate the diversification process and develop a sustainable and competitive economy driven by the private sector. This suggests that  there is a need to revisit the privatization strategy and other developmental strategy with a view’ to accelerating the process of building up the capacity of the private sector. There is a need to review the scope of the privatisation to consider other forms of privatization such as public issue or sale of minority or even majority shares in public company, joint venture between private sector and government sector and competitive bidding to break monopolies.

These forms of privatisation have been implemented in the previous National Development Plans. Public issue or sale of minority or even majority shares in public company, as undertaken by Islam Bank Brunei Berhad, promotes saving and productive uses of capital. It also increases capitalisation of companies for expansion and new investment.

Joint venture between private sector and government sector on the other hand would enable both parties to draw strength from each other and strengthen capacity to undertake investment. Meanwhile introducing competition such as the case of mobile phone service provider Datastream Technology Sdn Bhd (DST) would lead to efficiency and productivity, and more choices to consumers.

Corporatisation/Privatisation process

Privatization/Corporatisation process in Brunei Darussalam is undertaken on a case to case basis. Typically, the Economic Planning and Development Department considers proposals from each Ministry and Government Department. Each proposal is evaluated and considered based on a number of criteria such as profitability and viability of proposal, continuation of any social objectives undertaken by the previous organisation, employees are not disadvantaged by the process and the cost benefit analysis is positive.

Administrative and legal framework

The main body responsible for evaluating privatisation and corporatisation proposal, is the Special Committee on Privatisation. Previously chaired by the Assistant Minister of Finance, this Committee has been transferred to the Prime Minister’s Office late in the year 2001. The Special Committee has 8 members consisting of Senior Officer of relevant agencies and is chaired by the Permanent Secretary, Prime Minister’s Office and is serviced by a Secretariat.

Privatisation/Corporatisation proposals received by the Economic Planning and Development Department are evaluated by the Special Committee on Privatisation. So far this year, the Committee has considered and recommended the corporatisation of Telecommuniction Department through the formation of a successor company. The Successor company is legalised through the Successor Company Act and regulated by a regulatory body under the Telecommunication Act.

The way forward

As a way forward, the Government of Brunei Darussalam will continue to pursue and accelerate the corporatisation of relevant Government entities and commercialisation of public services. Under the 8^th National Development Plan, several Government agencies and services have been identified as potentials for corporatisation. These include the Electrical Services Department, Postal Services Department, Services under the Department of Public Works, Technical Department, Department of Road, Sewerage and Sanitary, Department of Waterworks and Workshop, Civil Aviation, International Airport, Printing Department, Port Department, Land Transport Department and Info-communication and State Store Department.

In addition, the government is critically reviewing the overall privatisation process and considering the feasibility of undertaking a Privatisation Masterplan that would create a more comprehensive and systematic privatisation plan and program that covers a broad spectrum of the public services and state-owned operations. This plan amongst others would define the objective, guidelines and policy and policy objectives of privatisation and overall implementation strategy. The plan also envisages to outline a plan of action on the privatisation of identified projects to facilitate monitoring and coordination, effective institutional mechanisms, issues to be addressed before and after privatisation as well as a regulatory requirements to facilitate and accelerate privatisation program.

Alternatively, the Government can consider drawing up a guideline on privatisation of Public Services and other state-owned enterprises. This guideline would provide civil servant and the private sector with broad policy guidelines on privatisation, rules and regulations for privatisation and and commercialisation of public services to take place. The guidelines will improve transparency and investors’ confidence on the whole process. The guidelines would also outline method for commercialisation, sectors covered and mechanisms for inviting proposals, award and monitoring of privatised activities and services and incentives.

Conclusion

Privatisation as an alternative developmental strategy is still quite new in Brunei Darussalam, and thus still has long way to go before we can see its impact on the developmental objectives. But we have no doubt it will change the economic conditions in Brunei Darussalam to accelerate the  private sector development. It is hoped through the sharing of experiences further refinement in the concept and implementation privatisation can be recommended for consideration. This recommendation would include alternative forms of privatisation, regulatory reforms needed to facilitate privatisation as well as regulation of privatized natural monopolies.