BRUNEI AND MALAYSIA CLOSER TO RESOLVING OFFSHORE

C O N F I D E N T I A L SECTION 01 OF 03 BANDAR SERI BEGAWAN 000246

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/16/2027
TAGS: EPET PREL MY BX
SUBJECT: BRUNEI AND MALAYSIA CLOSER TO RESOLVING OFFSHORE
OIL DISPUTE, BUT NOT THERE YET

REF: A. KUALA LUMPUR 1215

B. BANDAR SERI BEGAWAN 194

Classified By: Ambassador Emil Skodon for Reasons 1.4 (B,D)

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SUMMARY
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1. (C) At the annual Malaysia-Brunei Leaders Consultations,
Prime Minister Abdullah and Sultan Bolkiah made progress
toward resolving a maritime border dispute that has prevented
exploration of potentially large offshore oil and gas fields
located in areas claimed by both countries. Officials hope
to reach a final deal on the maritime border by the end of
this year, possibly to be followed by a production sharing
arrangement. Brunei's apparent willingness to negotiate the
maritime border represents a pragmatic retreat from its
long-held position that the entire disputed area fell solely
under its purview. The two leaders also discussed other
border issues; noted Malaysia's willingness to consider
participating in the hybrid UN-AU peacekeeping force in
Darfur, if invited to do so; and, looked forward to an ASEAN
Charter that would create a "culture of honoring obligations
and being held accountable for non-compliance." END SUMMARY.

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ANNUAL CONSULTATIONS HELD
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2. (U) Malaysian Prime Minister Abdullah bin Ahmad Badawi
visited Brunei August 13-14 for the eleventh annual Leaders'
Consultation between the two countries. Among the members of
Abdullah's delegation were the Malaysian Ministers of Foreign
Affairs, Higher Education, and Home Affairs, and the Chief
Ministers of the states of Sabah and Sarawak. The Prime
Minister's spouse, Datin Seri Jeanne Abdullah, also
accompanied him. The consultation included a one-on-one
meeting between Abdullah and Brunei Sultan Haji Hassanal
Bolkiah on the first day of the PM's visit.

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OFFSHORE OIL DISPUTE: NO RESOLUTION YET...
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3. (C) The most significant issue discussed during the
consultations was the maritime boundary dispute between
Malaysia and Brunei that has delayed development of
potentially rich oil and gas fields off the Borneo coast
since 2003 (reftels). Reuters, citing Bruneian and Malaysian
sources, reported on the 13th that an agreement resolving the
dispute had been reached. Speculation to this effect was
increased by the presence in Brunei of Tan Sri Dato Mohamad
Hassan Marican, CEO of Malaysia's state-owned oil company
Petronas. He was ostensibly here to deliver a luncheon
address on downstream hydrocarbon industries hosted by the
Brunei Economic Development Board (BEDB),and was not listed
as part of Malaysia's delegation to the bilateral
consultations. BEDB Chairman Dato Tim Ong maintained to
Ambassador that the timing of Marican's trip was a
coincidence, but also confirmed that Marican had an
unpublicized meeting with Brunei Minister of Foreign Affairs
and Trade (and the Sultan's brother),Prince Mohamed Bolkiah.


4. (U) In the event, expectations that the long-running
dispute would finally be resolved proved to be short of the
mark. The joint statement issued by Brunei's Ministry of
Foreign Affairs and Trade (MFAT) at the conclusion of the
talks stated only that both sides had put forward new
proposals, and that the two leaders had agreed on the need
for an urgent resolution and instructed their negotiating
teams to work out details. PM Abdullah was more upbeat,
telling reporters after the consultations that the two sides
made "good progress" but there remained "a few small things
to sort out...it will not take a lot of time."

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...BUT A DEAL EXPECTED SOON
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5. (C) MFAT officials and the Malaysian High Commissioner to
Brunei echoed Abdullah's positive assessment in separate
conversations with the Ambassador. They indicated that the
two sides had reached an agreement in principle on
demarcating the maritime boundary, and that negotiating teams

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were expected to work out the final details before the end of
the year. (Pehin Lim Jock Seng, Minister of Foreign Affairs
and Trade II, will lead the Bruneian negotiating team.)


6. (C) Interestingly, these sources confirmed that the two
nations now planned to agree on final demarcation of the
border before moving on to discussion of a production sharing
agreement or unified concession. Oil industry sources had
previously told us that planning for a production sharing
agreement was fairly well along, and hinted that such a
commercial arrangement might be a means of finessing the
politically sensitive border demarcation issue; it would
seem, however, that the leaders agreed to tackle the
demarcation problem directly.

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OTHER BORDER ISSUES: LIMBANG BRIDGE, FREQUENT TRAVELER CARD
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7. (C) MFAT officials also told Ambassador that progress had
been made on another sensitive border-related issue,
construction of a bridge over the Limbang River linking the
Bruneian enclave of Temburong to the Malaysian district of
Limbang, which divides Temburong from Brunei proper. Brunei
has never recognized the 1890 incorporation of Limbang into
Sarawak by the "White Rajah" Charles Brooke, and still claims
the territory as its own. Construction of a bridge has been
stymied by the Malaysian position that it should incorporate
immigration posts and a border crossing, and Bruneian refusal
to undertake any construction that would imply recognition
that the river constitutes an international border. The two
sides have now agreed in principle to work around this
impasse by out-sourcing construction of a bridge itself to a
private firm, leaving each country free to decide whether or
not to install a border post on the territory it controlled.
(This topic was not mentioned in the joint statement issued
by the MFAT.)


8. (U) Following the bilateral consultations, PM Abdullah
told the media that he expected an agreement on a Frequent
Travelers Card (the FTC) to be finalized in September. The
agreement would allow frequent travelers who hold Bruneian
"smart" Identification Cards or Malaysian "MyKad" cards (a
combined ID and drivers license) to utilize these documents
instead of a passport at designated border entry points.
According to Bruneian media reports, this follows a
successful trial program that involved about 600 Bruneian
citizens who frequently cross the Kuala Belait/Miri border
with Malaysia. The FTC program would first be expanded to
other land border entry points and eventually to airports as
well, and would probably be limited to frequent travelers who
cross the border five or more times per month.

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OTHER ISSUES: HEART OF BORNEO, DARFUR, MIDDLE EAST
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9. (U) According to the Joint Statement issued at the
conclusion of the consultations, the Prime Minister and the
Sultan also:

-- advocated the expansion of bilateral trade and investment,
particularly in the halal products industry, Islamic banking,
tourism, and joint ventures in third countries;

-- endorsed negotiations on the further expansion of air
transportation links, including greater flight frequencies;

-- noted the Heart of Borneo Declaration and reaffirmed their
commitment to trans-boundary management of Borneo's tropical
forest resources;

-- looked forward to receiving the final draft of an ASEAN
Charter which would create "a culture of honoring obligations
and being held accountable for non-compliance" at the 13th
ASEAN Summit to be hosted by Singapore;

-- exchanged views on Darfur, welcomed the formation of the
UNAMID peacekeeping force, and noted that Malaysia, if
invited, would "consider at an appropriate time its
participation in UNAMID;"

-- encouraged international efforts to bring peace and
stability to the Middle East, and urged the international
community to continue to find ways to assist the people of

BANDAR SER 00000246 003 OF 003


Iraq in determining their own future.

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COMMENT
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10. (C) Brunei's apparent willingness to compromise on the
maritime border is a step back from its previous hard-line
claim over the entire disputed area. It represents a
recognition that over the long term Brunei will need access
to some portion of the hydrocarbon resources thought to lie
within the disputed area to maintain its position as a
significant oil and gas exporter. Even though a final deal
on the offshore boundary dispute was not reached at this
meeting, Bruneian officials are noticeably more upbeat about
the prospects for resolution than we have seen them
previously. The personal chemistry between the Sultan and
Abdullah appeared to be excellent throughout the two days of
these consultations, and may be one factor contributing to
the optimistic mood. END COMMENT.
SKODON