Dow Jones Newswires May 5, 2000

East Timor Serves Notice On Redefining Timor Gap Treaty

CANBERRA -- Independence leader Xanana Gusmao Friday served notice East Timor will renegotiate the terms of the Timor Gap Treaty, which covers sharing of royalties with Australia from energy production in the Timor Sea.

The treaty was drawn up in 1989 between Australia and Indonesia but lapsed following Indonesia's formal withdrawal in 1999.

The terms of the treaty now are covered under a memorandum of understanding between Australia and the United Nations Transitional Administration in East Timor, which is overseeing the fledgling nation's transition to full independence.

Indeed, as Gusmao confirmed, East Timor will inherit the treaty but for now UNTAET is administering it.

"Hopefully, as soon as possible, when East Timor is independent we will have also a team of experts to deal with this matter," he said in answer to a question at a National Press Club address.

Gusmao said that for the moment he is more interested in stabilizing conditions inside East Timor before embarking on treaty talks.

"I don't think that in this difficult situation inside the country, we can start thinking about the future," he said. "This future will be based on improvement on the conditions right now on the ground."

"I will see you when we are independent to answer your question," he added.

While royalty payments from energy production in the Timor Gap area are still relatively small, they could rise sharply in coming years.

According to the government agency that manages the treaty on Australia's behalf, until mid-1999, only about A$2.5 million in royalties had been distributed to each side.

Phillips Petroleum Co. (P), the operator of the Bayu-Undan project in the Timor Sea, announced Oct. 26, 1999, it plans to proceed with a US$1.4 billion development to extract liquefied petroleum gas and condensate from the field, with production from 2004.

Royal Dutch/Shell Group (RD) and Woodside Petroleum Ltd. (A.WPL) also are considering developing their Northern Australian Gas Venture based on huge unexploited gas resources.

Both are in the area covered by the treaty and could provide a major revenue stream for the desperately poor East Timor, which was ransacked by Indonesia before it withdrew from the territory.

Right now, the boundary of the treaty grossly favors Australia with any renegotiation possibly seeing the boundary moved in line with international convention to the midpoint between the two nations, significantly benefiting East Timor.

Gusmao is visiting Australia in part for talks Saturday with Australia's Prime Minister John Howard and for the launch of the English translation of his autobiography.

He said East Timor is entering a period of reconstruction from an emergency phase requiring humanitarian assistance after Indonesia withdrew.

But East Timor will have to wait for the outcome of a meeting in June of the World Bank, which will consider East Timor's plans and budgets for rebuilding, he said.

This will generate much needed employment and help alleviate the discontent that has recently emerged among young East Timorese, such as violence, drinking and gambling, he said.

Gusmao said East Timor will attend as an observer the next meeting of the Association of South East Asian Nations, a move which he said has the "unqualified support" of Indonesia's President Abdurrahman Wahid.

-By Ray Brindal; 612-6208-0902; Ray.Brindal@dowjones.com

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