Subject: Asia Times: Timor's tutorial in oil politics

Timor's tutorial in oil politics By Quinton Temby

PERTH - At an international conference on regional security held in East Timor last year, the frustration of many Timorese officials was obvious. It was just over two years since East Timor had voted for independence from Indonesia and been ravaged by its scorched earth retribution. But the frustration wasn't directed at Indonesia.

The problem was Australia. East Timor's wealthiest neighbor had positioned itself to be the main beneficiary of a treaty to divide the rich oil and natural-gas reserves of the Timor Sea. One East Timorese Foreign Ministry official was so dismayed at Australia's stance that he dropped his diplomatic guard in front of the other delegates to implore the Australian representative to see that Timor is poor, Australia is rich and that its division of the reserves is "very unfair".

"It's hard to tell our people that the colonization will never end, even if we achieve our independence," he said. The Australian representative, former diplomat and now academic Alan Dupont, responded with what has become a familiar "tutorial in politics" for East Timor: "Unfortunately," he said, "international relations is not based on emotion or equity. It's based on hard-nosed reality."

But if the East Timorese had ever believed this, they might never have won their independence. After 24 years of struggle against Indonesian occupation, East Timor celebrated its formal independence on May 20 last year. It formally became the newest nation in the world and the poorest in Asia. The departing Indonesian military and militia had left public facilities destroyed, the electricity grid sabotaged and whole villages burned. Since then East Timor has been in a state of rehabilitation and repair, starting from a poverty level equal to that of Rwanda and ending up with an unhealthy reliance on foreign aid. But there is a once-in-a-generation chance out of this poverty and dependency with the Timor Sea oil and gas.

The Timor Sea, however, is disputed territory. Australia claims the seabed as part of its continental shelf, which it says extends to the Timor Trough, just 50 nautical miles off the coast of East Timor. East Timor challenges this claim - which would put all of the reserves in Australian territory - pointing to the principle of a midway line between the two nations. Unable to agree on maritime boundaries, a controversial Timor Sea Treaty to share the reserves was signed on East Timor's first day of independence. But on the same day, East Timor's prime minister, Mari Alkatiri, announced that his country still claims its entitlement to permanent maritime boundaries - boundaries which would void the treaty just signed. As such, the prizefight for resources between the region's richest and poorest countries had become official.

On one side of the dispute, with such a low level of development it would be akin to sovereign suicide if East Timor were to accept Australia's maritime claim, forgoing its only significant source of income. On the other side, Australia fears that East Timor's claim would unsettle the adjacent Australia-Indonesia boundary by making it look ungenerous. This boundary gives about three-quarters of the seabed to Australia, in a deal in which Indonesia's former foreign minister and law-of-the-sea expert Dr Mochtar Kusumaatmadja said his country had been "taken to the cleaners". The Australian fear was conceded a few days after the Timor Sea Treaty was signed when Foreign Minister Alexander Downer said of the East Timorese, "As I have explained to them, our maritime boundaries with Indonesia cover several thousand kilometers. That is a very, very big issue for us and we are not in the game of renegotiating them."

But the Australians had an even greater reason to fear East Timor's boundary claim. Prior to the signing of the treaty, a growing body of legal advice was indicating that the new nation's maritime boundary rights might encompass all of the resources which are claimed by Australia under the Timor Sea Treaty. This development culminated with the maneuverings of Petrotimor, a US-based oil company vying for a stake in the Timor Sea. The company had commissioned an opinion on East Timor's potential maritime rights by two authorities in the area: Vaughan Lowe, professor of International Law at Oxford University, and Christopher Carleton, head of the Law of the Sea Division at the UK Hydrographic Office.

The Lowe opinion argued that Australia's proposed treaty would prevent East Timor from establishing its rightful maritime boundaries in accordance with international law. This meant that under the treaty, almost 60 percent of East Timor's resources - some US$20 billion worth of oil and gas - would go to Australia. Petrotimor urged the Timorese government to reject the treaty and submit its boundary dispute to the International Court of Justice in The Hague. The company would fund the legal action, in return for a 10 percent cut of the oil and gas revenue if it was successful.

Justifiably, there was skepticism of Petrotimor's speculative scheme. The United Nations Transitional Administration in East Timor dismissed the offer. The legal argument, however, was taken seriously on both sides of the Timor Sea. Two days before the offer was made public by Petrotimor in the East Timorese capital Dili, Australia secretly exempted itself from maritime boundary dispute resolution in the International Tribunal for the Law of the Sea and the International Court of Justice. According to an Australian government National Interest Analysis, this was done secretly because "public knowledge of the proposed action could have led other countries to preempt the declaration by commencing an action against Australia in relation to sea-boundary delimitation". The government's view was that "maritime boundary disputes are best resolved through negotiation and not litigation". Soon-to-be prime minister Alkatiri described the Australian move as "an unfriendly act".

With the threat of international arbitration out of the way and with pressure on East Timor to secure revenue independent of foreign donors and the World Bank, Australia has been able to ram through its lopsided treaty. The disparity in the negotiating resources of the two countries has been symbolically stark. East Timor retained two young Western lawyers funded by the United Nations; the Australians always had an extensive, high-powered team of lawyers, advisors and negotiators. On one occasion, on short notice they swept into Dili under the command of Foreign Minister Downer, a huddle of large white men in dark suits. Four-wheel-drives slammed to a halt outside East Timor's main government building as the Australians charged into the cabinet room.

Behind the closed doors Australia's foreign minister was patronizing and arrogant. According to a leaked transcript of the negotiating session, Downer said, "If I was in your position I would focus on revenue for your new and poor country and how to [progress] without compromising your integrity. To call us a big bully is a grotesque simplification of Australia. We had a cozy economic agreement with Indonesia; we bailed East Timor out with no economic benefit."

By this point in time Prime Minister Alkatiri was almost resigned to the fact that Australia had no intention of agreeing to maritime boundaries. So he tried to increase East Timor's share of the oil and gas. In rejecting this move, Downer threatened to tear up the treaty. "We don't have to exploit the resources, they can stay there for 20, 40, 50 years," he said. Later, Downer warned, "We are very tough. We will not care if you give information to the media. Let me give you a tutorial in politics - not a chance."

For the Timorese, however, their entire history since Indonesia's invasion in 1975 has been a tutorial in Australia's morally dismal politics. It was Australia's then ambassador to Indonesia, Richard Woolcott, who encouraged his government to support the invasion at least in part because it would be easier to negotiate maritime boundaries with Indonesia. This would be, he coyly said in a cable that was leaked, in the interests of the Department of Minerals and Energy.

After years of wrangling, the Timor Gap Treaty, in effect appropriating East Timor's oil and gas, was signed between Australia and Indonesia in 1989. For supporters of East Timor the agreement marks a historic low point in Australian foreign policy. For Xanana Gusmao, East Timor's guerrilla leader and future president, the agreement was a "total betrayal". Speaking to Australian radio from his mountain hideout in 1991 he said: "Australia has been an accomplice in the genocide perpetrated by the occupation forces, because the interests which Australia wanted to secure with the annexation of East Timor to Indonesia are so evident. The best proof is the Timor Gap agreement."

This is the "cozy economic agreement" to which the Australian foreign minister referred when he was trying to force East Timor to accept the new Timor Sea Treaty as its replacement. Although Australia has characterized the new treaty as a generous gift to East Timor, it's basically the same agreement as before, though not as cozy. The major change is that within a Joint Petroleum Development Area (which excludes most of the disputed petroleum) East Timor will receive 90 percent of the revenue. With Conoco Phillips' Bayu Undan gas-field development, which began production last year, this will be worth about $3 billion over 15 years to East Timor, allowing the government to function after donors withdraw and, it is hoped, avoid going into debt.

Falling mostly outside of the joint development area are the largest fields, known collectively as Greater Sunrise and operated by Woodside Australian Energy. Eighty-two percent of the revenue from these fields will go to Australia. Although they won't be developed for several years, it was a successful Australian strategy, promoted by Woodside and its partner Shell, to hold up the supposedly interim treaty for months - putting the Bayu Undan development at risk - until its division of Greater Sunrise was clinched.

Inevitably, all this sharing in the Timor Sea has been restricted to the petroleum reserves on East Timor's side of the midpoint between the two countries. The rich reserves that lie on Australia's side are not under dispute.

Australia's legacy of exploitation, bound to Indonesia's torturous occupation, is well known in East Timor. Much was forgiven, however, in September 1999 when Australia led a United Nations peacekeeping force to usher out Indonesian military and militia that had destroyed the place in retribution for its vote for independence. But this humanitarian intervention has since been degraded by the suspicion that the Australian government has used it to secure its theft of what amounts to more than half of East Timor's natural wealth.

If petroleum wasn't a motivation for coming to East Timor's aid in 1999, Australia has since been caught calling on a payback for the peacekeepers, when its foreign minister complained during negotiations that Australia had "bailed East Timor out with no economic benefit". But perhaps there was a benefit. In November 1999, with peacekeepers on the ground and Timor still smoldering, Australia received its first big windfall from the Timor Sea as billions of dollars of oil began pumping out of Woodside's highly disputed Laminaria and Corallina reserves.

At this time East Timor must have been the most devastated nation on Earth. Seventy percent of its infrastructure had been destroyed and most of its people had been driven from their homes. According to the United Nations Development Program, East Timor had the lowest income per head in the world. Nevertheless, from 1999 to 2002 the Australian government took an estimated $1.2 billion in revenue from Laminaria-Corallina. For the same period Australia gave East Timor $200 million in aid.

Australia's hardball treatment of East Timor has embittered its relationship with its tiny neighbor. But publicly, East Timor has remained diplomatic and optimistic. The Timor Sea Treaty finally came into force on April 2, with Prime Minister Alkatiri saying that "as a temporary revenue-sharing arrangement, the treaty represents a good interim measure until maritime boundaries are agreed".

But it's in Australia's interests to delay a boundary agreement until the Timor Sea reserves have been drained. This way, Australia can continue to give millions in aid with one hand and take billions in oil with the other.

Quinton Temby was a freelance correspondent for Deutsche Welle and Radio Australia during East Timor's first year of independence.

(©2003 Quinton Temby.)


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