Australia says Timor Gap talks tied to aid

CANBERRA, Oct 9 (Reuters) - Australia hinted on Monday that the 50-50 split in oil revenues from a joint offshore exploration area in the Timor Sea could be adjusted in favour of East Timor.

``We'll be looking to see whether that arrangement is entirely appropriate for the new and struggling country of East Timor, that obviously is one of the significant issues,'' Australian Foreign Minister Alexander Downer told reporters.

Talks between Australia and East Timor on revenues from the disputed Zone of Co-operation in the Timor Sea began on Monday in Dili, with East Timor seeking up to 90 percent of the funds based on border claims that put key petroleum projects in its waters.

The Timor Gap Treaty, originally signed between Australia and Indonesia, evenly split revenues from the zone after the two countries could not agree on a border.

But the treaty must be renegotiated following East Timor's vote for independence last year.

But Downer said Australia could tie the issue of royalties in the Timor Sea to the future level of development aid it has earmarked for the emerging country.

``The extent to which East Timor itself is able to get the royalties, or a share of the royalties, the size of its share, plays into the overall size of the Australian aid programme in East Timor and so on,'' Downer said.

``So there are a lot of issues tied up together here.''

The border alongside the Zone of Co-operation is a sensitive issue as several major gas and oil deposits lie just outside Indonesian territory in Australian waters, including the 140,000 barrels per day Laminaria project.

Australia has said the first round of talks will be more about royalties as East Timor is not yet a sovereign country with the right to negotiate boundaries.

But East Timor's boundary claims underpin its demand for extra revenues, critical to its future. Some industry analysts say Australia could give more than 70 percent of the royalties to East Timor, reflecting the equal validity of its claim and political pressure to help a country to which it has already given millions of dollars in aid.

Downer said a smooth and speedy negotiation, rather than a border dispute locked up in international courts for years, is in everyone's best interest.

``We, for our part, and I'm sure the U.N. on behalf of East Timor, wouldn't want to see the reasonably prospective investments in the Timor Gap lost or in any way jeopardised by an unsuccessful negotiation and a poorly handed negotiation.''

He dismissed talk of the possible involvement of the International Court of Justice in the dispute.

``As far as the International Court of Justice is concerned, I think from my reading of the newspapers this morning, is more of a throw-away line from Peter Galbraith, who is the U.N. official responsible for the negotiations, rather than something we would want to overshadow negotiations,'' he said.

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