Energy contractors' financing concerns in spotlight

OIL and gas contractors and companies have voiced strong concerns over difficulties in securing financing, claiming that some financial institutions in the country are "stingy" and "unprofessional".

During an engagement session between banks and the Energy Department at the Prime Minister's Office yesterday, the energy minister, Yang Berhormat Pehin Datu Singamanteri Kolonel (Rtd) Dato Seri Setia (Dr) Hj Mohd Yasmin, reiterated the concerns of energy companies and contractors that were brought to his attention from previous meetings.

During the dialogue session yesterday, YB Pehin Dato Hj Mohd Yasmin said: "I hope some of what were said are not true, but are just loose cannon balls that were said out of frustration," while stressing that he was only repeating views that have been relayed to him.

The top statement, said the minister, was that financial institutions in the country are stingy and that it is difficult for oil and gas contractors to secure loans.

"Secondly, local bankers are friendly but only to some segments of the players within the industry and definitely not to some of them.

"Besides that, the people handling loans are very unprofessional, where some loans were approved over a cup of coffee at coffee shops, and that bankers are aloof and do not have complete understanding of what is happening in the field, their predicaments, dilemmas and cries for help," said the minister.

YB Pehin Dato Hj Mohd Yasmin pointed out that there may be some merit to some of the statements.

"There are facts supporting this accusation. According to the Ease of Doing Business Index issued by the World Bank on Brunei, we are ranked very low at 126 on ease of getting credit from the banks. As for accusations of corruption, this is an interesting issue and may even be true," he said.

"The World Report on Global Competitiveness Index 2010, show that one of the most problematic factors for doing business in Brunei is identified as corruption and also access to Financing involving banks. In 2011, the Transparency International Corruption Index ranked Brunei as number 44 (out of 182)," he added.

Another feedback the minister said he received from a contractor was that rates offered by banks outside of the country are generally more competitive than those offered in Brunei.

"So my question is why is this so and what we can do together on this? If the foreign bankers are able to have faith and provide the financing to our local contractors, but ours don't, then something is amiss here," he said.

In response, the Chief Executive Officer of the Baiduri Group, Pierre Imhof, said Bruneian banks are "very liquid" and are hoping to lend more locally.

"If we do borrow more, it will firstly, support the local economy, and secondly, it will give us better returns. That is a statement I really want to make, and that we are ready and we are keen to lend to local companies," he said.

"Some of these issues are regularly mentioned to us by clients, and though the gap is now narrowing, one element that we have faced is, very often in the oil and gas sector the financing maybe require foreign currencies," he said.

Imhof said that if the financing is in US dollars, banks in Brunei would be "less liquid to finance in good conditions".

HSBC Brunei's Deputy Chief Executive Officer, Rosdi Amin Yaakub, said profit margins would be unsustainable if local banks were to compete with foreign competitors in US dollars.

"An international player is not subject to some of the requirements in Brunei, like pricing and cost, so they are not subject to some of the rules that are being applied to Brunei that is why the price is (different). If withholding tax is not applied, then they have an advantage as well," Rosdi said.

Citibank's Managing Director, Terrence Cuddyre, said that there was a case where a foreign Citibank office was offering a more aggressive rate than Citibank in Brunei could offer, but said that it was like comparing apples to oranges.

"Therefore, we need to see it in a certain context where we are comparing apples and apples, rather than apples to oranges," he said.

When it comes to securing loans, it all comes down to a company's ability to prepare financial statements for the banks to evaluate, Cuddyre said.

"Where there are long periods of little to no profitability, or little to no growth, or even unreasonably low growth, how can you put this forward if this company is barely existing?" he said.

Bank Islam Brunei Darussalam's (BIBD) Managing Director, Javed Ahmad, said it is important to look at withholding tax and when it gets exempted.

"For example, a particular financing went into Brunei. Assume it's worth $100, and there would be about $2 profit for the Brunei-based bank. On that $2, we would pay 20 per cent taxes, which is about 40 cents to the government, and that's great. But what happens when the withholding tax exemption is given? That financing goes overseas, so rather than paying taxes to Brunei government, the tax is paid to a foreign government," he said.

There is a dire need for companies to be able to prepare proper financial statements for banks to make an assessment, Javed said.

"One way to do that is to have them pay taxes.

"If small companies don't pay taxes, don't give them 20 per cent tax rates, give them something like five per cent.

"Let the large companies pay 20 per cent, because if smaller companies pay taxes, they need to make proper financial statements," he said.

Another benefit of having smaller companies pay some form of taxes is so that the large companies cannot siphon off profits from the smaller businesses, such as in limited partnerships or sole proprietorships.

Javed went on to say that not even one per cent of BIBD's customers produce financial statements on time, or one that gives a true and fair view.

"That is the reality, so if you don't have all this information, how do you actually provide financing to customer? It's literally based on two to three things, such as whether or not the contract is from the government or Brunei Shell or two to three other companies, whether the contractor has had a track record of completing the contract, and gut feeling," he said.

"In order to actually provide financing, that is what we end up doing unfortunately, and that is the reality of it," he said.

The Brunei Times