Subject: SMH: Oil and hope will gush out from the Timor Sea

Also: Timorese leaders say oil revenue must be spent wisely

Sydney Morning Herald July 6, 2001

Oil and hope will gush out from the Timor Sea

The Timor Sea deal is far-sighted, it benefits Australia and gives stability to a struggling new country, write Mari Alkatiri and Peter Galbraith .

The new Timor Sea treaty is a fair deal for East Timor and an even better deal for Australia and the companies developing oil and gas in the Timor Sea. Significantly, the treaty, initialled yesterday in Dili, also rights a historic wrong.

In 1989, Indonesia and Australia concluded a treaty to divide between them the resources of the Timor Sea. Indonesia had no right to make such a treaty because its presence in East Timor was illegal. The East Timorese people had no say about the 1989 treaty, and would have received no benefits from it.

The new treaty was negotiated at the direction of the East Timorese leadership. The negotiating team - an equal partnership between an East Timorese Cabinet member and a former American diplomat - was supported by East Timorese leader Xanana Gusmao, and a majority-East Timorese Cabinet. The treaty will be effective only when it is ratified by the elected representatives of the East Timorese people.

The treaty will give East Timor 90 per cent of the oil and gas in an area of the Timor Sea north of the midpoint between the Northern Territory and East Timor. This will generate between $7 billion and $9 billion for East Timor over the next 20 years.

The treaty can mean the difference between one teacher for every 100 students, and one for every 40. It can allow the country to extend basic health care, such as malaria prophylaxis and immunisation of children, to its people.

It will not make East Timor rich. However, if the money is well spent, it will give the people of East Timor the opportunity to escape the grinding poverty that is the legacy of occupation and war.

Under international law, East Timor is entitled to a seabed boundary at the midpoint between East Timor and Australia. This would give East Timor not 90 per cent, but 100 per cent of the oil and gas in the Timor Sea.

Thus, while it may look like Australia is making a major concession in moving from the 50/50 revenue sharing it had under the Indonesia treaty to the 90/10 split in this new treaty, it is more than fair for Australia.

Further, Australia will receive virtually all the downstream benefits from the development of gas in the Timor Sea.

The pipeline will bring gas ashore in Darwin that will be used in new infrastructure projects including multibillion-dollar plants to convert the gas into liquid natural gas (LNG) for export to the United States, and into methanol for export to Asia.

The Northern Territory Treasury believes these gas-related developments will generate $50 billion in economic activity in the Territory over the next 20 years. This is at least five times the benefit that will come to East Timor.

The negotiations that achieved this were very nearly torpedoed in Canberra last week, when Australia insisted that East Timor continue the terms of contracts that companies had with Indonesia and Australia under the illegal 1989 treaty.

This was an enormous problem for the East Timorese, because the 1989 treaty had offered companies enormous financial incentives to explore in the Timor Sea. The incentives were not economically justifiable, but reflected the political risk of investing in territory that did not rightfully belong to Indonesia. Even though East Timor had not been party to these unfair incentives, Australia expected East Timor to continue to pay these companies their premium.

The incentives - offering companies $2.27 back for every dollar invested, in addition to ordinary profits - were to cost the East Timorese people $1 billion compared with what they would get under more usual oil and gas contracts.

As a party to the 1989 treaty, Australia was concerned that changing the contracts could damage its reputation, as well as incur liability. To accommodate Australia, East Timor ultimately agreed to continue the terms of the contracts. However, East Timor insisted it would use its taxing powers under the new treaty to recover at least some of these unfair incentives.

East Timor is determined to develop a reputation as a reliable place to do business. In the coming months, it will develop a royalty and tax code that will provide good returns to investors while being fair to East Timor.

The exceptional taxes on the current contracts are only a one-time levy forced on East Timor by Australia and will apply only to excess profits. In exchange, companies will no longer face the political and fiscal uncertainties of investing in a disputed territory.

Mari Alkatiri is the Cabinet Member for Economic Affairs in the East Timor Transitional Administration. Peter Galbraith, a former US ambassador to Croatia, is the Cabinet Member for Political Affairs and Timor Sea. They negotiated the new treaty on behalf of East Timor.

Timorese leaders say oil revenue must be spent wisely

BBC Monitoring Service - United Kingdom; Jul 5, 2001

Source: RDP Antena 1 radio, Lisbon, in Portuguese 0800 gmt 5 Jul 01

[Presenter] East Timor and Australia have signed a crucial agreement, the basis for a future treaty giving the future state of Timor Loro Sae 90 per cent of the oil revenue from the Timor Sea. Until now the Timor Gap's revenue was shared equally between Australia and Indonesia. Now Indonesia is out of the deal, Timor will receive 90 per cent of the share and Australia 10 per cent.

[Reporter] ...It is likely that in the next 20 years this deal will bring roughly 180m dollars annually to East Timor. The accord is expected to be turned into a treaty once East Timor becomes independent and democratic structures are in place... Jose Ramos Horta, Timorese foreign minister, believes this is an excellent agreement but it carries serious internal risks.

[Horta] The danger of wealth, the danger of the dollar, the petro-dollar - it is obvious. It is clear that we must have solid and democratic institutions. We must work with great transparency and with a great sense of responsibility, otherwise we could have all the oil in the world but the country would still not develop. There are so many examples of this. Our neighbours, for example: one of the largest oil producers in the world and yet 50 years after independence it has not managed to resolve the problem of poverty.

[Reporter] Timorese Economy Minister Mari Alkatiri, one of the negotiators of this accord, agrees with Ramos Horta.

[Alkatiri] Until a system is set up to ensure that the money, these resources, will indeed benefit the whole population and not just some bank accounts, it will be a good idea to take great care. And above all we must develop a transparent, solid, effective system to absorb this money and spend it positively to develop the whole country. Source: RDP Antena 1 radio, Lisbon, in Portuguese 0800 gmt 5 Jul 01

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