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Brunei and China Eye Further BRI Projects After Launch of Refinery

With phase one of the China-backed Hengyi petrochemical facility online, further collaboration is in the pipeline.

Photo: The Hengyi oil refinery and petrochemical installation: Set to fuel Brunei’s GDP growth.
The Hengyi oil refinery and petrochemical installation: Set to fuel Brunei's GDP growth.
Photo: The Hengyi oil refinery and petrochemical installation: Set to fuel Brunei’s GDP growth.
The Hengyi oil refinery and petrochemical installation: Set to fuel Brunei's GDP growth.

Late last month, Hengyi Industries Sdn Bhd, a massive petrochemical facility developed as a joint venture between China and Brunei Darussalam, signed commercial agreements with the Brunei Shell Petroleum Company (BSP) and the Brunei Shell Marketing Company (BSM). These covered both the supply of crude oil to Hengyi, and also cleared the way for the plant's fuel products to be sold throughout Brunei, Asia's fourth-smallest country. The announcement of the deal coincided with the Hengyi plant – the largest Belt and Road Initiative (BRI) investment in Brunei – coming online after a two-year construction period.

Hengyi Industries is 70% owned by China's Zhejiang Hengyi Group, with the remainder held by Damai Holdings, a wholly-owned subsidiary of the Brunei government's Strategic Development Capital Fund. The joint venture has overall responsibility for the 955-hectare Pulau Muara Besar (PMB) Industrial Park. Set on an island in Brunei Bay, the Park is home to the vast Hengyi oil refinery and petrochemical installation.

Work on the installation began in 2017, with an investment of some US$3.4 billion secured for its development and implementation. It was a project that captured the attention of financial markets across the world when China's Hengyi Petrochemicals tendered $79 million worth of BRI bonds on the Shenzhen Stock Exchange in order to help with funding. Hengyi has since committed a further $12 billion towards the development of the second phase of the project, establishing this as by far the largest foreign direct invested project in the long history of the sultanate.

With the massive refinery now opening for business, the agreements it has signed with Brunei Shell are intended to substantially increase the efficiency of the domestic oil and gas value chain. This will see BSP supply crude oil to the PMB plant, which Hengyi will, in turn, process and return as a range of refined fuel products – including petrol, diesel and jet oil – that BSM will then distribute and sell throughout the local market.

The production of test products at the 160,000 barrels-per-day unit began in early September, with the first batch of refined products – including naphtha, kerosene and diesel – now undergoing analysis to ensure they comply with statutory specifications. Assuming everything goes to plan, the plant's secondary units will come online imminently, with the delivery of on-spec products expected to commence shortly afterwards. The first phase of the project will see a crude processing output of eight million metric tonnes per year (mt/y), comprising 1.5 million mt/y of PX, 500,000 mt/y of benzene, and 6 million mt/y of gasoline, kerosene, diesel and other products. Once the second phase is mission-ready, the refinery will gain 14 million mt/y of crude processing capacity, bringing its overall capacity to 22 million mt/y.

The successful completion of the first phase of the PMB plant has been widely welcomed on the domestic front. According to official estimates, in 2020 alone, the plant should add about $1.3 billion to Brunei's GDP – a considerable contribution given that the country's total GDP for 2017 was $16.5 billion.

Unsurprisingly, given the successful development of the facility, both parties have prioritised further collaboration. In line with this, the countries have upgraded their bilateral relations into a Strategic Co-operative Partnership and signed a Memorandum of Understanding with regard to A Bilateral Plan on Jointly Promoting Co-operation Within the BRI Framework. This, in turn, has led to the establishment of the Brunei-China One Belt One Road Association, which has a number of high-level officials on its executive board, including Mohd Amin Liew, Brunei's Second Minister of Finance and the Economy.

Soaring trade figures between the two countries are also playing their part in bringing the two together. Overall, the volume of China-Brunei trade increased by 86% last year, the fastest growth rate in the whole of the China-ASEAN region, according to figures quoted by Yu Hong, the Chinese Ambassador to Brunei. As a further sign of the closening ties between the two nations, Sultan Haji Hassanal Bolkiah, Brunei's long-reigning monarch, was also one of the high-profile attendees at the Second Belt and Road Forum for International Co-operation held in Beijing at the end of April this year.

During the course of the event, the Sultan held one-on-one talks with Xi Jinping, the Chinese President, which are expected to lead to additional China-Brunei BRI projects being announced in due course. At present, while a number of Chinese firms are already involved in major infrastructure projects in the Kingdom, including the Temburong Bridge, the Ulu Tutong Dam and the Telisai-Lumut Highway Project, there has yet to be any formal announcement of BRI backing for these high-profile developments.

Geoff de Freitas, Special Correspondent, Bandar Seri Begawan

Content provided by Picture: HKTDC Research
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