Subject: East Timor debates use of oil riches

The National (Abu Dhabi)

East Timor debates use of oil riches

Marianne Kearney, Foreign Correspondent * Last Updated: August 26. 2008 10:31PM UAE / August 26. 2008 6:31PM GMT

DILI // Plans to build a massive new power station in East Timor have stirred debate over the use of the tiny and impoverished country's oil profits amid fears the government is squandering its hard-won oil and gas wealth.

The US$390 million (Dh1.43 billion) power station would be the largest project built in the country, where power blackouts are frequent and many areas lack access to the electricity grid.

But critics have objected to the plant, both because of its use of imported heavy oil, a technology mostly considered outdated in the West due to its polluting by-products, such as sulphur, and because it is to be partially funded by dipping into the country's protected oil and gas funds. This month, the opposition Fretilin Party refused to sign off on the budget because it included funding for the plant.

"We put forward a vote in parliament to eliminate funding for a heavy oil power station in favour of the government exploring renewable energy initiatives," said Jose Teixeira, an opposition spokesman and former state secretary for natural resources.

With few other resources apart from oil and gas, East Timor established one of the world's most progressive oil-fund laws, modelled on Norway's: just three per cent of its profits can be used for public spending; the rest is saved in a sovereign US-based fund that will be used for future East Timor generations.

The country enacted the law to avoid the resource curse: oil- and gas-rich countries squandering their money on expensive projects, with much of the oil profits ending up in the pockets of the elite and little of the wealth trickling down to ordinary citizens.

Jose Ramos-Horta, the president, opposition figures and donors fear the government under Xanana Gusmao, a former guerrilla fighter, plans to recklessly spend a huge portion of the oil money.

The almost $800m midyear budget is more than twice what was budgeted for the first six months of 2008. It also proposes to withdraw an additional $290m of oil funds above the level considered sustainable.

"If this continues, we fear there will be no money left for East Timor's future," said Viriato Seac, from La'o Hamutuk, a local group that monitors the government and the oil and gas industry.

Mr Ramos-Horta said he would refuse to pass the budget into law, as there was widespread objection, both at home and among such donors as the World Bank and International Monetary Fund to the use of additional oil funds.

However, one day after publicly criticising the budget, he said his office accidentally signed off on it after he had left on a trip to China. He issued an apology.

The Fretilin Party has also argued that the budget, which would spend $600m in just five months, could lead to corruption.

"[There are] big increases for overseas travel for ministers, luxury four-wheel drive cars for MPs and cars for civil servants. The money will just disappear and risk the rise of both corruption and inflation," Mr Teixeira said.

The state secretary for electricity and water has vowed to push on with the electricity station, arguing East Timor desperately needs power if its economy is to grow.

"We need to deliver electricity quickly to the people," Januario da Costa said.

He argued that more environmentally friendly types of stations, such the hydro-powered plant currently supplying power to eastern Timor, take too long to build. "We've been building the Iralalaro hydroelectric power station from 2003 until now, and it's still not complete," he said.

The government has argued that public spending is necessary to combat the high unemployment and social unrest plaguing much of the remote, mountainous country, since the outbreak of violence and instability in 2006.

Tens of thousands of people were displaced during the crisis, most of whom have only recently returned to their homes. East Timor also has been severely hit by rising global oil and food prices, and part of the budget will be used to subsidise the cost of basic foods.

Sources within the finance ministry are particularly concerned with the large amount of money allocated for the power station, and the $240m to subsidise food and other basic necessities.

"No previous government ever spent more than $180m a year, how will they spend over $770m this year?" asked one foreign adviser in the finance ministry.

Critics also said the government may have already chosen a company to build the power station and grid, because it allowed just three weeks for international companies to put in an expression of interest.

Mr Costa denied there was any favoured tenderer and said despite the short time period, 14 multinational companies, including those from Australia and Singapore, had submitted proposals.

Mr Teixeira, the opposition spokesman, said the country needed projects that created employment and upgraded infrastructure, but said he feared the electricity station would be "a white elephant" that "squandered the country's future".

East Timor is one of Asia's poorest countries and has struggled for years to obtain the billions of dollars in revenue from its oil and gas fields.

Australia, which originally signed an agreement with former conquering power Indonesia, initially claimed it should have the right to 50 per cent of the oil and gas fields in the Timor Sea, based on an earlier deal with Jakarta. But since 2002, East Timor has argued that under current maritime laws 90 per cent of the fields would be considered within its sea boundaries.

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