East Timor calls pipeline criticism unhelpful

DILI, East Timor, Aug 5 (Reuters) - East Timor's transitional government on Sunday dismissed criticism that it was to blame for the delay in a key pipeline crucial to developing its natural gas reserves and to bring revenue to the impoverished territory.

Last week, partners in the Bayu-Undan Timor Sea project indefinitely deferred the $500 million plan to bring gas to northern Australia, citing legal, fiscal and tax uncertainty.

The move throws into doubt multi-billion dollar development of the Timor Sea.

"Criticisms of East Timor by Phillips Petroleum and by Australian ministers are not made in a spirit of partnership and cooperation," United Nations administrator Sergio Vieira de Mello said.

A U.N. statement on Sunday quoted him as saying that Australia and former colonial power Indonesia had left behind an array of legal and fiscal difficulties in the Timor Sea.

Hopes rose that the gas project would go ahead last month when Australia and East Timor initialled a deal after a year of often acrimonious negotiations that would give East Timor 90 percent of petroleum revenue.

The revenue would be a huge boost for the tiny territory, which is still struggling to recover from the scorched-earth policy adopted by Indonesia after the majority of the population voted in 1999 to end Jakarta's long and often brutal rule.

The U.N. rejected the suggestion by Phillips <<A HREF="aol://4785:P">P.N</A>> that East Timor had reneged on a commitment to give oil companies "the same generous fiscal terms they were given by Indonesia and Australia under the old treaty."

Senior U.N. official in East Timor, Peter Galbraith, said there should be no surprise on the part of the oil companies about East Timor's right to implement its own taxes on oil and gas production from the Timor Sea.

"The new treaty initialed only on 5 July, makes it very clear that both East Timor and Australia have the right to implement taxes on their respective shares of petroleum production.

"East Timor agreed to (Australian) Foreign Minister (Alexander) Downer's request on 28 June that the new treaty should continue the terms of the company contracts from the old, illegal treaty," he said.

"But, even then we made it clear, and not for the first time, that East Timor would use its tax authority to recover part or all of the unfair investment incentives in those contracts," Galbraith added.

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