Also: Timor set for oil windfall

Sydney Morning Herald Thursday, April 13, 2000

New nation has opportunity for gains in the Gap COMMENT by ANDREW McNAUGHTAN

When the Australian and Indonesian foreign ministers toasted the signing of the Timor Gap treaty in 1989 it was presented as a diplomatic coup and a sign of a friendly, co-operative relationship.

The reality was different. The treaty was an implicit acknowledgment that the governments had failed to agree on a seabed boundary because of some thorny political issues.

The significant petroleum potential of the Timor Sea has influenced strategy and politics since before Indonesia invaded East Timor, and sovereignty over these resources remains a controversial issue.

In 1972 Canberra and Jakarta signed a seabed boundary agreement that many considered favourable to Australia. Canberra had argued that its ocean territory was determined by its continental shelf, resulting in a seabed boundary much nearer Indonesia.

However, Australia and Portugal could not agree on a maritime border between Australia and what was then Portuguese Timor, now East Timor. This resulted in a gap in the boundary known as the Timor Gap.

The Portuguese felt the division should be half way between the two coastlines because they were aware this was about to become the new standard.

This median-line norm for boundaries between opposing coastlines was subsequently introduced under the United Nations Convention on the Law of the Sea in 1982 and confirmed by International Court of Justice case law.

Both governments realised the seabed boundary, giving sovereignty over the oil and gas resources, was of vital economic importance. In the early 1970s Portugal and Australia issued overlapping exploration permits in the disputed area to different oil companies to strengthen their competing sovereignty claims.

Australia felt a line should simply be drawn to connect the (favourable) boundaries it had just agreed with Indonesia to the east and west, whereas Portugal expected a mid-line boundary (favourable to Lisbon) would ultimately be adopted. This confusion and frustration was a factor in Gough Whitlam's well publicised dislike for the Portuguese.

IN 1975 the attitude of the Department of Foreign Affairs and ultimately the Australian Government was clearly articulated in a secret cable to Canberra from Australia's Ambassador to Jakarta, Richard Woolcott.

He suggested that "closing the present gap in the agreed sea border could be much more readily negotiated with Indonesia ... than with Portugal or independent Portuguese Timor". He also said, alluding to the potential resource wealth, that the Department of Minerals and Energy would have an interest in this.

The view that it would be strategically and economically advantageous to Australia if Indonesia took East Timor was a factor in Canberra's passivity about the invasion. Australia had every reason to expect Indonesia would "do the right thing" and simply draw a line connecting existing dots on the map, giving Australian sovereignty over the Gap's potentially vast oil and gas wealth.

Australia was then confronted with the brutality of the Indonesian occupation. This made it politically difficult, and legally dubious, to recognise formally Indonesian sovereignty over East Timor. Yet such recognition was a prerequisite for negotiating with Indonesia to settle the seabed boundary between occupied East Timor and Australia. Canberra could not legally negotiate with a country that it did not recognise as sovereign.

Australia became an international advocate for Indonesia's occupation.

In 1979, after it was hoped the Timorese resistance had been destroyed, Australia began negotiations with Indonesia on the Timor Gap, signifying Canberra's formal recognition of the annexation of East Timor.

However, Australia ultimately would have reason to be disappointed with the outcome of the talks. Indonesia, believing it had given too much away in the 1972 agreement and miffed that there had been criticism from Australia over its invasion of Timor, did not agree to simply connect the seabed boundaries to the east and west.

It now did not need to concede so much territory in this oil-rich area since it had already achieved its aim - Australia had been manoeuvred into accepting Indonesian sovereignty over East Timor. Jakarta wanted more territory and was playing hard ball. It now sought a mid-line boundary agreement that would be consistent with the new international convention.

Such an agreement would be politically unpalatable and unacceptable to Australia. Apart from the negative financial impact, Canberra, for all its trouble in becoming an ally in Indonesia's takeover of East Timor, had been given a worse deal in the Gap than on either side of it.

Observers would see a falling out among thieves, with Australia taken in and duped by Indonesia.

So ensued 10 years of wrangling before a tortuous political compromise could be worked out. The result - the establishment of a Zone of Co-operation under the Timor Gap treaty - was a complex agreement that blurred the boundaries in a way that made it hard for most outsiders to interpret.

The Timor Gap treaty, far from being an enduring resolution of the disputed border, was the outcome of a failure to settle the underlying seabed boundary dispute.

The original Timor Gap treaty is now defunct, Indonesia having formally withdrawn. There is now a temporary memorandum of understanding between the interim UN administration, representing the East Timorese, and Canberra, pending final resolution of the issue.

A Canadian authority on international maritime boundary law, Jeffrey Smith, who is about to publish a treatise on an independent East Timor's maritime entitlements, says there is a unique opportunity to clarify the boundaries of one of the few disputed zones in the world.

The East Timorese could almost certainly claim sovereignty to the mid-line of the Gap and receive significantly more desperately needed revenue.

Andrew McNaughtan, a Sydney doctor, is convener of the Australia East Timor Association.

---- Timor set for oil windfall By DAVID LAGUE, Foreign Affairs Correspondent

An independent East Timor would have a powerful legal case to renegotiate the Timor Gap treaty and win a bigger share of potentially massive oil and gas revenues, according to legal and oil industry experts.

The terms of the controversial treaty between Australia and Indonesia carving up the seabed oil and gas have continued under an interim arrangement with the United Nations Transitional Authority in East Timor, but a new government in Dili would have the right to renegotiate its ocean boundary with Australia.

There are potentially billions of dollars in revenue at stake for an impoverished East Timor.

Since the treaty was signed in 1989, it has become accepted under the UN Convention on the Law of the Sea that the exclusive economic zone boundary between two states that are less than 400 nautical miles apart should be the mid-line between their coasts.

If a new government in Dili succeeded in redrawing the boundary to this mid-point, the bulk of the oil and gas Australia shares in the Timor Gap would fall in East Timorese territory.

An oil and gas industry consultant and Timor Gap analyst, Mr Geoffrey McKee, believes the birth of the new nation will clear the way for a new deal.

"All our research points to the fact that a settlement in accordance with international norms would be in East Timor's favour. I think this will be settled by international arbitration. If it goes to arbitration East Timor can't lose."

A Canadian lawyer and oceanographer, Mr Jeffrey Smith, has thrown his weight behind legal arguments that East Timor could do better from a new deal with Australia. He is about to publish a lengthy legal paper on East Timor's maritime entitlements, and he also believes that a middle line will become the new boundary.

The Howard Government and the oil industry have been anxious to preserve the existing arrangements to exploit the Timor Gap resources during the transition.

A spokesman for the Minister for Foreign Affairs, Mr Downer, said yesterday that the Government was happy with existing arrangements but the future of the treaty was under "active consideration".

The convener of the Australia East Timor Association, Dr Andrew McNaughtan, said yesterday that it would be up to the future government of East Timor to decide how it would deal with Australia on the Timor Gap, but there was now an opportunity to agree on a legitimate oceanic border.

"The Timor Gap treaty is a pretty shonky piece of work that is a by-product of Indonesia's illegal occupation and annexation of East Timor and Australia's collusion with Jakarta over this," he said.

There are projections from oil industry sources that government revenues for oil alone from the Bayu-Undan field in the co-operation zone could reach $5.2billion over 24 years if this went ahead.

Under existing arrangements, this would be split evenly between Australia and East Timor.

A consortium headed by Phillips Petroleum late last year announced that it would go ahead with initial development of the field.

Critics of the Timor Gap treaty say that Australia had expected a generous deal from Jakarta after recognising its rule over East Timor but that Indonesia had taken a tough line after conceding too much in earlier agreements on common oceanic boundaries.

They say the complex treaty with its sharing arrangements demonstrates that the two sides failed to agree on a border.

After initially condemning the treaty, East Timorese leaders have assured the oil industry and the Australian Government that they want the development to go ahead under existing arrangements while East Timor is under UN control, but there have been signals that they will want the border renegotiated as they begin to redevelop their economically backward homeland.

However, in this sensitive transitional phase, the leadership is unwilling to antagonise Canberra or deter the oil industry with claims for a bigger share of revenues.

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