Subject: SMH: Turning Timor Oil into Prosperity

Sydney Morning Herald Monday, July 11, 2005


Turning Timor Oil into Prosperity

East Timor has finally secured its pot of liquid gold. After protracted, sometimes bitter, negotiations with Australia over oil and gas in the Timor Sea, agreement on the disputed Greater Sunrise gas deposit confirms a resource-led future for East Timor.

With the Bayu-Undan oilfield already on line, and that money flowing, Australia's poor, vulnerable young neighbour has a real opportunity to build a viable economy and end aid dependency for good.

For the East Timorese people, who have continued to eke a living out of subsistence farms since independence, this is the development chance that so long eluded them. And for Australia, which invested heavily to secure and rebuild East Timor after the carnage of 1999, this is the cash which should cut the apron strings once and for all. Conservative estimates suggest East Timor can count on $US15 billion ($24 billion) in oil and gas royalties over about 40 years.

To understand how overwhelming this new wealth seems, consider this year's national budget of just $100million, or annual tax revenues of only $36 million. Income from the Bayu-Undan oilfield alone was close to $250 million over the previous financial year. Last week's breakthrough deal with Canberra over the Greater Sunrise gasfield will give Dili half the revenue when it comes on line. The relief in East Timor must be palpable. The risk in allowing the dispute with Australia to drag on was considerable; Dili simply didn't have any other significant income sources to plug the budget.

But economists continue to rank the world's newest petro-economy as "marginally viable" because gaining access to oil and gas income is only the first hurdle. A tougher challenge lies ahead - how to prevent liquid gold inducing complacency, corruption and waste. Unemployment and underemployment in East Timor is close to 50 per cent, infant mortality is high, education and health services are inadequate and hunger stalks poor rural villages. The temptation is to pour money into public sector employment and agricultural subsidies, distorting the weak non-oil economy. The sudden injection of large sums of easily won cash into any economy also inevitably erodes cultures of thrift. Incompetently or corruptly managed resource riches can make poor nations poorer. East Timor's transparent Petroleum Fund, however, is a prudent plan for the future. The fund locks Timor Sea oil and gas revenue into sustainable, long-term international investments. It is not foolproof, and much hangs on whether returns from the fund can be translated into prosperity. It is, however, the best possible start.

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