A summary lore for this map.

Back in 1963, Indonesia (along with its proxies in Borneo) attempt to "liberate" Borneo from "European Colonization" by sparking the "Konfrontasi" against the newly formed Malaysian Federation. In our timeline, Malaysia, along with the commonwealth, limited the skirmish within Malaysias borders, but in this timeline, the British thought that in order to "eliminate communist threats", they persuaded the commonwealth and Malaysian forces to make a counter offensive on to Indonesian soil.

The attack managed to push back the Indonesian forces from the Sarawakian border to the city of Banjar. Seeing how the war is effectively won, the Malaysian government purposes a peace treaty by makinga neutral Borneon State and essentially giving up any irrenditism claims between two sides and to maintain minimal political discourse between Malaysia and Indonesia. Because Malaysia and the commonwealth were the "victors" in this "war, Indonesia was forced to cede the rest of Sebatik and the entirity of the Natuna islands to the newly created Borneo Federation.

Within the British and Malaysian Borneon side, all borneon parties were given a condition to form this new state, in order to maintain political balance within the new country and prevent a "big brother" situation like how Russia is in the Soviet Union or England in the UK , each state has to reshuffle their borders to remove most claims and maintain balance of power withing each member states and somewhat appease every side.

The newly formed Borneon Federation's administration hierarchy somewhat mirrored that of the Malaysian (Malayan) hierarchy in that, each division is a state with their own administration policy free from the federal government's control, while the Bruniean Sultan is the defacto Head of Statewith power limited to only appease to Borneon customsm, the Head of the Government is through Parlimentary votes according to how it's usually done in a constitutional monarch system.

*Very important edit here, I was in a rush making this. The capital of this Borneo timeline is Miri, due to the oil industry and roughly centralized position between east and west borneon coast

Interesting. I assume the federal capital would be Bandar Brunei and the main economic centres would be Jesselton, Kuching and Sandakan.

And why the inclusion of Natuna Island? My understanding is that the Island was part of Johor sultanate, hence stronger claim than Brunei. Correct me if I'm wrong.

Such political union may no longer be possible. But, we can still pursue some sort of economic union.