East Timor’s Oil: Blessing or Curse?

by Charles Scheiner

East Timor hopes to use its offshore oil and gas deposits to enable the country to escape its position as the poorest nation in Asia. Managing those resources, however, will be a challenge for the inexperienced nation. East Timor must avoid the “paradox of plenty” which has brought misery to people in oil-producing countries across the Third World.

However, given that Australia illegally claims much of East Timor’s seabed resources, many East Timorese people see the issue of the oil curse as secondary to what they perceive to be an ongoing struggle for independence. That struggle will not end until Australia respects the country’s true national boundaries and allows East Timor full access to its fair share of the seabed resources.

The economic future of East Timor depends on where the Timor Sea boundary with Australia is drawn. Since the 1999 referendum, the Australia government has taken in more than one billion dollars in revenues from oil fields much closer to East Timor than to Australia. Under current international legal principles, these fields should belong to East Timor. (Larger fields, yet to be developed, are claimed by both countries.)

After two years of stalling, Australia finally sat down at the negotiating table last April, one week after one thousand East Timorese protested Canberra’s “occupation” of the Timor Sea. The talks went nowhere, because Australia refused to discuss the 60 percent of East Timor’s legal entitlement Australia claims on the basis of illegal agreements with the former Indonesia occupiers.

Over the next few months, grassroots pressure in East Timor, Australia and around the world grew increasingly uncomfortable for Canberra. Two months before Australia’s October election, Foreign Ministers José Ramos-Horta and Alexander Downer suggested a “creative solution,” whereby Australia would give up some revenues from disputed fields. In return, East Timor would not ask for a permanent maritime boundary until the oil and gas had been exhausted. Under pressure from the oil companies to reach an agreement by year-end, Downer said that he hoped for a “Christmas present for all the people of East Timor.”

Last June, ETAN demonstrated in support of East Timor at the Australian Embassy in Washington, DC.

East Timorese NGOs, insulted by Downer’s “present” of a fraction of what his government had stolen from them and resenting Australia’s use of their national entitlement as a campaign tool, wrote “Over the past six months, we have been disappointed to see Timor-Leste’s rights used by Australian politicians for domestic political purposes. Our rights are based on international law and moral principles, not on Australian public opinion polls.”

Two weeks of talks were suspended in September for the Australian election. On October 9, Australian voters re-elected their conservative government. At the negotiations two weeks later, East Timor again asked for respect of its rights, including a possible gas pipeline to a future liquification plant in East Timor. Unfortunately, Australia has returned to its former intransigent position, and refused to discuss non-Australian development options.

A “seriously disappointed” Prime Minister Mari Alkatiri wrote “We were talking about East Timorese participation in the development of the disputed resources. The Australians, unfortunately, only wanted to talk about money. The stakes are high for both nations, but it is fair to say these talks were of vital importance to a country that after 24 years of brutal occupation has no industry and most of whose people are desperately poor and live a semi-subsistence lifestyle.”

Negotiations will not resume until mid-2005, but it appears that Australia hopes to prolong its maritime occupation indefinitely. Thus, ETAN and other advocates in East Timor, Australia and around the world will continue to demand that Canberra respect the rights of its sovereign neighbor.

As talks continue, Dili has begun to receive some oil revenues. The new nation is developing policies to regulate the industry, to issue new on-shore and off-shore licenses, and to manage the income, which will soon far exceed all other government revenues.

Resource Curse

In virtually every country which was not rich, economically diversified and democratic before oil money started to flow, the “resource curse” has left people worse off than in comparable countries without oil. Petroleum extraction almost invariably brings war, corruption, unsustainable economic policies, conflict, debt and/or environmental devastation.

East Timor contains all the pre-conditions for this “paradox of plenty”: its population faces desperate poverty and an inexperienced government structure with no tradition of integrity or democracy. In a few years, oil and gas revenues will comprise more than half of East Timor’s gross domestic product, nearly all its exports, and more than two-thirds of its government income. In a few decades, all of the oil will be gone.

East Timor, which is influenced by advisors from international financial institutions and pressured by oil companies, is writing laws to manage the petroleum industry and revenues. Although international advisers and policymakers know of the pitfalls of basing an economy on oil, their drafts are not imaginative enough to avoid the resource trap. La’o Hamutuk (a Timorese NGO), ETAN and others are bringing in broader perspectives promoting transparency, accountability, public and community consultation, environmental protection and restoration, long-term economic planning, and other lessons learned from countries which have suffered the resource curse.

Although East Timor’s struggle against Indonesian military occupation was long and painful, the goals and methods were clear. The means of protecting future generations from present-day petroleum mismanagement are harder to envision, more uncertain and probably more difficult to implement.

With skill and luck, East Timor could break the pattern and become a leader in responsible oil development. However, international solidarity is essential to help the Timorese people resist pressure from the oil companies and bad advice from pro-globalization economists.

For more information, see http://www.etan.org/action/issues/tsea.htm.

See also Lao Hamutuk: Can East Timor Avoid the Resource Curse?