BRUNEI-MALAYSIA TERRITORIAL SETTLEMENT OVERSHADOWED BY

UNCLAS SECTION 01 OF 02 BANDAR SERI BEGAWAN 000059

SENSITIVE

SIPDIS

DEPARTMENT FOR EAP/MTS/MGCOPPOLA

E.O. 12958: N/A
TAGS: PGOV PINR PHUM ECON BX

SUBJECT: BRUNEI-MALAYSIA TERRITORIAL SETTLEMENT OVERSHADOWED BY
LIMBANG CLAIMS

SUMMARY
--------------
1.(SBU) On March 16, The Sultan of Brunei and Malaysia's Prime
Minister Abdullah Badawi signed a 'Letter of Exchange' (LOE). The
LOE specified the final delimitation of maritime boundaries, the
establishment of Commercial Agreement Areas (CAA) in oil and gas,
the modalities for the final demarcation of land boundaries, right
of passage for Malaysian vessels across Brunei waters, and setting
up of the joint Brunei-Malaysia technical committee. The joint
committee is tasked with finalizing the details of demarcating the
boundary issues. Over the past two weeks, the LOE signing has been
overshadowed by a public row over any final settlement regarding
Limbang, an area in the Malaysian state of Sarawak that Brunei has
long claimed as its own territory. Senior Bruneian officials stated
Limbang was not/not part of the settlement talks. Overall Bruneians
have expressed mixed feelings on the settlement. Local bloggers have
supported the process whereas the National Development Party (NDP)
will be disappointed if Brunei government does not claim Limbang as
Brunei territory. The development of new, and once disputed, areas
for oil and gas exploration is seen as the key factor for a lasting
final settlement. End Summary.

BRUNEI-MALAYSIA LONG NEGOTIATIONS
--------------
2.(U) The negotiations over the agreement began in 1995 and it has
taken 39 rounds of talks to finalize the LOE. The dispute over
Limbang started in 1890 with the cession of the territory by Brunei
to Sarawak's James Brooke which resulted in a significant reduction
of Bruneian territory. (NOTE: Limbang is located on the banks of
Sungai Limbang between the two halves of Brunei with a population
over 40,000. END NOTE.)

3.(U) The maritime boundaries dispute started in 2003 when Shell and
Total's exploration work at Block J and K was suspended following an
incident where Total exploration was chased away by Malaysian patrol
boats. The Malaysian claimed it had extended its territorial claims
into seas, which Brunei replies are in its Exclusive Economic Zone
(EEZ). Brunei awarded offshore Blocks J and K to consortia led by
Shell and Total in 2000. The CCA stipulated that the oil and gas
revenue in the disputed areas would be shared between the two
nations. It was not disclosed how much each country would receive.


4.(U) The joint Brunei-Malaysia technical committee tasked to
finalize the technical issues related to surveying and demarcating
both the land and maritime boundaries would "require a bit of time".
Until then, petroleum exploration and exploitation activities in the
area will have to wait. (NOTE: Brunei team is led by the Minister
of Foreign Affairs and Trade II, Pehin Lim Jock Seng, while Malaysia
team is lead by Malaysian Foreign Minister Datuk Seri Dr Rais Yatim.
END NOTE.)


MALAYSIA'S PUBLIC CLAIMS ON LIMBANG
--------------
5.(U)On March 16, during a press conference with the Malaysian
media, PM Abdullah Badawi said "Brunei has decided to drop the
Limbang issue and as a result, Limbang is part of Malaysian
territory". However, the following day at the Legislative Council
session, the Minister of Foreign Affairs and Trade II, Pehin Lim
Jock Seng, clarified PM Abdullah Badawi's statement by saying, "In
actual fact, the issue of claims over Limbang was never discussed.
What was discussed is regarding the demarcation of land boundaries".
Pehin Lim Jock Seng further clarified that the LOE did not have any
specific mention on Limbang.

GOVERNMENT OF BRUNEI DIRECTS MEDIA RESPONSE
--------------
6.(SBU) In response to the Malaysian media report on PM Abdullah
Badawi's statement, the Information Department instructed both
private-owned Borneo Bulletin and Brunei Times to make Pehin Lim
Jock Seng's clarification as the headline. Local journalist told
Political Assistant that the Information Department received the
instruction from the Prime Minister's Office. According to embassy
contacts, the local media would have preferred for Pehin Lim Jock
Seng to hold a press conference.


BRUNEI'S MIXED REACTION
-------------- --------------

7. (SBU) Rozan Yunos, Permanent Secretary at the Ministry of
Development, wrote on his blog; "I am not that much worried about
the land boundary or the issue of claims...the bigger issue is
economics". Rozan would rather focus on the maritime agreement
because there is great potential in the maritime area. Another

BANDAR SER 00000059 002 OF 002


popular local blogger, 'anakbrunei' concurred with Rozan's statement
and agreed that "we should be focusing on the potential economic
gains rather than getting all hot and bothered over the border".

8.(SBU)On March 16, Brunei's only political party, NDP wrote on
their website that they hoped the agreement on the issue of Limbang
will favor Brunei and Brunei will not be at lost. NDP, since its
inception in 2005, has been campaigning vigorously for the Brunei
government to claim Limbang as Brunei's territory because there is
still one village in Limbang where Brunei citizens are still
residing. NDP Vice President Mahmud Morshidi did not hide his
disappointment if Brunei dropped its claim over Limbang. On March
19, NDP wrote that the government should include its citizen in the
decision making on the issues of claims and invited Pehin Lim Jock
Seng to be more transparent in discussions about settlement status.

UPSIDE OF SETTLEMENT
--------------

9. (SBU) Total (French Oil and Gas firm) was not a participant in
the negotiations. (NOTE: Total current is responsible for about five
percent of Brunei's total oil and gas production. END NOTE.)
However, Total did give a presentation to GoB officials on technical
and production details of any final settlement. During the past
year, Total has publicly encouraged the GoB to speed up the
negotiations. There appears to be mixed opinion in Total regarding
how quickly the CCAs will be finalized. This mixed opinion is
balanced by the tremendous oil and gas development possibilities.
Total, the GoB, and current and future partners will benefit from
oil and gas fields that have conservative public estimates of at
least twenty years of production.

COMMENT
--------------

10. (SBU) The initial public goodwill was greatly reduced by the
public spat over Limbang. It appeared GoB officials were caught off
guard by senior Malaysian leaders' public statements. In our recent
discussions with GoB officials, local media, and private sector
business leaders there is a general consensus that any lasting final
settlement hinges on the upcoming committee meetings. While Limbang
is an important issue to many Bruneians, the benefits of new oil and
gas field development can and will do much to mitigate those
concerns. Demarcation and the CCA actual revenue sharing will
determine how quickly both sides come to final settlement. While
public sentiment has been positive, notwithstanding the Limbang
dispute, there are many leaders who have told us they believe the
final settlement is likely a longer-term process than initial
anticipated and announced.

MCINTYRE