Subject: ABC: Billion dollar delays to Bayu Udan gas project

EAST TIMOR: Billion dollar delays to Bayu Udan gas project

The government of East Timor says it fears delays in a billion dollar gas project could have serious implications for national revenue and economic development. A report released in Dili this week suggests the Bayu Undan gas recycling project in the Timor Sea is facing an eight-month delay. The news adds to concerns over the future of the project, in waters claimed by both Australia and East Timor. Listen |

Presenter/Interviewer: James Panichi

Speakers: Professor Gillian Triggs, director of the Institute for Comparative and International Law at the University of Melbourne; Jorge Teme, East Timor's ambassador to Australia; Charles Scheiner, from East Timor NGO La'o Hamutuk; Blair Murphy, Darwin Area Manager, ConocoPhillips.

PANICHI: Ambassador Jorge Teme was this week busy preparing for the official opening of East Timor's new embassy premises in Canberra.

He says his country's relationship with Australia is important to its future prosperity.

Yet, he also concedes the recent Bayu Undan hiccups have placed his government in an awkward position.

TEME: "I think the government is very concerned about that delay. Of course Australia understands that it will affect East Timor economically or financially and everybody is concerned about that.

"Everybody will imagine how a new independent country can survive with such difficulties."

PANICHI: The problem is that for a US$1.6 billion project, delays are inevitable and - often - factored in to the initial budget.

That's why the US-based company managing the project, ConocoPhillips, says that the technical problems pose no threat to the operation's viability.

But for a struggling government, an eight-month delay in revenue can be a serious problem.

Charles Scheiner is from East Timor NGO La'o Hamutuk.

His organisation met with donor countries last week, and alerted them to the impending budgetary crisis.

SCHEINER: "East Timor, when they made their national plan prior to independence with the help of a lot of international experts, they took Phillips' projections of when Bayu Undan revenues would come in as being reality.

"And now that those revenues are late, East Timor's budget has a huge problem. And starting in 2005, the government will be running deficits of in the order of $30 million - in 2005-2006 - because they had planned to have this money coming in from the oil revenues and they don't."

PANICHI: And the Bayu Undan gas and liquids project also poses a diplomatic challenge for the East Timor government.

It's currently in talks with Australia over sea boundaries - which were estalished before the Portuguese abandoned the territory in 1975.

And while those talks are moving very slowly, they could trigger a change of sovereignty, with implications for the project.

Yet Ambassador Teme says he's confident the strong relationship between East Timor and Australia can survive any difference of opinon.

TEME: "These two countries' relations is not only a relation based on this business, but one which has been shaped by history. And I don't think this will jeopardise the relations between these two countries."

PANICHI: However, the costly delay could jeopardise the relationship with ConocoPhillips, if sovereignty were to pass to East Timor.

But for now, the company's Darwin Area Manager Blair Murphy is keen to keep well away from from the diplomatic wrangle.

MURPHY: "For the Bayu Undan project, this does not affect us. We have agreements in place - temporary agreements in place - right now, so those discussions are government to government and do not affect us."

PANICHI: Although, ultimately, your company will have to negotiate either with East Timor or Australia. Do you have any preference in terms of the government you have to negotiate with?

MURPHY: "It's a government-to-government issue, regarding their borders, and we have no opinion on it."

TRIGGS: "If East Timor were to be successful, in moving towards a median line, then many of the current joint venture arrangements would fall within East Timor's sovereignty."

Professor Gillian Triggs, an international law expert from Melbourne University.

She says the uncertainty over sovereignty means those keen to exploit natural resources in the Timor Gap will have to tread very carefully.

TRIGGS: "The companies concerned would want to be negotiating with both governments, in order to see where the better tax regimes lay.

"If however the area over which a company already has a licence is within the sovereignty of one state or another, of course they won't have a choice as to how they negotiate. They will simply be dealing with one government alone.

"If, however, they were to be looking at prospects of licences, they may well prefer to deal with one government rather than another."

PANICHI: So, although ConocoPhillips is steering clear of the negotiations, the outcome of the talks between Australia and East Timor will have a commercial dimension.

The Bayu Undan gas production target for 2004 is now of 12 million barrels - a substantial reduction when compared to the 2001 projection of 33 million barrels.

That leaves East Timor with a hole in its 2004 budget - and donor countries may now have to step in to fill the void.


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