(part 1 of 2) http://www.abc.net.au/rn/talks/bbing/s125738.htm

BACKGROUND BRIEFING, May 7, 2000

Doing the Business in East Timor Produced by Gerald Tooth

Summary: In East Timor, in Dili, the air is pungent with smoke and the streets strewn with rubble. But business - Australian business is moving in. Construction, hotels, cars, shipping. It's needed and welcomed, but it distorts the local economy. And, because there's a legal vacuum, there are disputes and anger on all sides.

Meanwhile, Darwin is preparing for the good oil on the Timor Sea.

Background Briefing producer, Gerald Tooth, has been investigating on the ground in East Timor.

Gerald Tooth:The serious clean-up of Dili has only just begun, but as the charred shards of debris are shovelled out of burnt out buildings, business is already thriving.

Hotels have burst forth out of the rubble, warehouses risen out of swamps, and rental car yards replaced military barracks.

It's expected that 1.2 billion dollars of international funding will be spent rebuilding East Timor over the next three to four years, and there's a race to be part of it.

It is however a race without rules and it's got some East Timorese questioning what their struggle for independence really was all about.

I'm Gerald Tooth and today Background Briefing will take you to East Timor where we're going to look at some of the activities of Australian business in the world's newest and most vulnerable nation, where order is still a gruelling marathon away and chaos is just one step backwards.

MARKET ATMOS

Gerald Tooth: It may have stopped burning late last year, but Dili still smells like smoke. Some of that is smoke of market vendors cooking, but there's a darker more acrid smell in empty streets where every second house is a crumpled wreck, and it's a smell that hangs on in the houses that are left standing..

There's also a growing odour about the free-for-all that is free enterprise in the city. And likewise it's a smell that's not about to go away in a hurry. Because the sanitising influence of an independent government and a functioning judicial system is still a while off.

VOICES AND TRAFFIC ATMOS

East Timor is in a state of compete flux. It is a nation of 800 thousand people inventing itself as an independent state; yet it is a nation which already has a long history.

On the streets people speak their own language - Tetum. But they also speak the languages of their many colonisers, Portuguese, Indonesian - and most recently English. They trade with Rupiah, American dollars or Australian dollars in an essentially tax free economy.

Their cars carry the number plates of the UN, of aid agencies, of the Northern Territory, or frequently, no number plate at all.

The law of the land is Indonesian law, combined in a mish mash fashion with UN regulations. But there are no courts or tribunals to address breaches of those laws, and, as the UN has found out to its dismay, its own ability to enforce them is at best weak.

With the UN, aid agencies and private consortiums all coming in since the independence ballot, some East Timorese are even saying as though they're standing by yet again, as another invasion takes place.

They've formed an organisation called Rebuild Watch.

Sitting in a restaurant on Dili's seafront esplanade Rebuild Watch's spokesperson Maria Bernardino looks content as she heartily eats a plateful of fresh seafood and rice - seemingly watched over by Peter Cosgrove, who's photo has been cut from a magazine and stuck on the wall above.

But with the meal finished she reveals her growing anger and frustration at the latest wave of foreigners to arrive in East Timor. And her view is one that is becoming widespread amongst East Timorese. Maria Bernadino: At this point in time it feels like East Timorese is going through another invasion. Foreign business invasion, foreign UN invasion of East Timor.

Gerald Tooth: Why do you use that word that's a very strong word. Why do you use the word invasion?

Maria Bernadino: Because this is exactly what it is. This is no different, or at least not much different from the Indonesian invasion. All they need to do now is go around shooting people and torture people and that'll be exactly the same. The discrimination is still there. The ill treatment is still there, the Timorese are treated as animals in East Timor. We are discriminated upon. Their skills are not being recognised. They're discriminated when it comes to employment as well. We have had no help so far from international community, in trying to set up the business, or UN.

Gerald Tooth: The UN is the government in East Timor. It's the first time they've been responsible for administering an entire country, which they are doing under the banner of the United Nations Transitional Administration in East Timor, known as UNTAET.

Mario Bernadino's criticism that nothing's being done to help locals start businesses doesn't hold true. The World Bank, with four million US dollars of UN pledged funds, has set up a small business loans scheme.

Her claims of discrimination against East Timorese workers are based on the lack of work in East Timor, while foreigners are seen to be winning highly paid contracts with the UN.

Unemployment is estimated to be as high as 95 per cent. It's a figure the UN disputes without offering an alternative.

And those East Timorese who do find jobs find stark wage disparities between foreigners and locals. UNTAET has set a maximum wage of five American dollars a day for unskilled Timorese workers, while foreigners working for the same organisation could be earning ten times that in hardship allowance alone.

The reality is though, foreign businesses are the major employers in East Timor right now. The UN is in the process of recruiting 7000 East Timorese civil servants, and a visit to any workplace reveals that foreign owned companies have made a point of employing locals.

Nevertheless the UN does share some of Maria Bernadino's concerns.

ATMOS

Reader: Good morning I haven't seen you since January I think as a group, and I apologise for that.

Gerald Tooth: At a recent press conference in Dili UNTAET head, Brazilian Sergio de Mello said he was disturbed by the initial approach taken by some foreign investors.

Sergio de Mello: Yes I had concerns at the beginning because it seemed to be a free for all. Anyone who wished to open any business, any small business was able to do so. Things are now getting under control. We issued as you know a regulation on the registration of the commercial enterprises so they must register with us. The moment they register with us they are also notified that they will when we have that capacity have to pay taxes retroactively to the date of their registration. So it is not a tax-free regime that they enjoy here. This is not the far west.

Gerald Tooth: Does he think some of those foreigners have taken unfair advantage of the situation?

Sergio de Mello: The answer is yes, but was the advantage unfair. I mean they just came in. They took advantage of the situation. Was it unfair? I wouldn't want to pass a judgment. But we certainly cannot tolerate a free for all type of environment for very much longer.

Gerald Tooth: Sergio de Mello's assurances that order and regulation are just around the corner are not born out by the facts. There is no functioning court system and won't be for some time.

The regulations passed by the UN since it took over are precarious. UNTAET's interim status undermines their authority, and as you will hear even the UN is prepared to ignore them when they're inconvenient.

Most significantly though an East Timorese government is on the way, and it will be making the lasting laws.

Jose Ramos Horta will be one of those at the top of the decision making tree, and his view on taxing foreign investors is sharply at odds with Sergio de Mello's.

Jose Ramos Horta: The basis of East Timor's future economy has to be free enterprise. Philosophically we all believe in it, and as far as I'm concerned we haven't made any decision yet, policy yet, but as far as I'm concerned I would say that anyone with a foreign investor wishing to invest here and create jobs in the process, and at the same time generate export and a foreign exchange income for East Timor should not pay any tax at all. So East Timor should be totally a tax free country for investors who put here millions of dollars, who create jobs and generate foreign exchange for the country.

Gerald Tooth: Along with Xanana Gusmao, Jose Ramos Horta leads the dominant political party in East Timor, the National Council of Timorese Resistance - or CNRT.

An election is being planned for late in 2001 which is expected to install a CNRT led government.

The party is basically an umbrella organisation that contains most of the resistance groups who fought against the Indonesian occupation. As such it remains a volatile combination of many different viewpoints.

In general though the party, like Jose Ramos Horta, is welcoming of foreign investment.

But this is East Timor's most recent dilemma and the one that will consume it as it builds itself into an independent nation.

How does it secure the ongoing help it needs - help that has to come in the long term from foreign investors - in an environment of such profound uncertainties.

Mark Plunkett is a prominent Brisbane lawyer who has built a career on grappling with these issues in troubled UN missions around the world. He has a significant presence in East Timor through his Paxiquest and Paximus group of companies that consult on issues of conflict resolution and the rule of law. They also run a temporary hotel in Dili.

Speaking by phone, Market Plunkett says careful thought needs to be given to the way foreign enterprises are allowed to set up in places like East Timor.

Mark Plunkett: It's very very difficult to enter into these small third world economies without causing huge market disparities in terms of what you pay for goods, in terms of what you pay workers. And of course you want to pay them what's fair, what's right and what's proper. And you are in a very strong position advantage because you're resourced and they're completely under-resourced in terms of opportunities to obtain employment. So that you can cause huge market distortions, even if you're well meaning. So there is the opening to the accusation that they are profiting at the misery of others.

But part of the reality of peace-keeping is people get paid do it. Who would begrudge the INTERFET troops for having a tax free income to the time they are taking the risk has always been the situation that Australian troops don't pay tax in war or warlike zones. Who would begrudge Qantas which is now flying into East Timor not to be able to make a profit on their tickets?

The reality is that you won't get businesses in there, and you won't even get humanitarian workers there on government organisations unless they can pay their rent at home and pay for their children's so forth and so on. So there always will be disparities in income earned by the peacekeepers and by the people who they are seeking to serve. And it often gives rise to for example accusations of wage apartheid. Why are the workers getting paid who are indigenous at such a lowly rate compared to the international workers who are getting paid an extraordinarily high rate? And part of that's about the economy of scale, about the fact that the international workers have to pay their bills in their countries of origins.

But again it comes back to this point that peacekeepers who go into a country are well resourced and are going to earn a living out of their peacekeeping, whether they're private enterprise or public sector operatives. And the point is to ensure that the delivery - as much as possible the delivery of resources remains in the country.

Gerald Tooth: He says the establishment of the rule of law is the most important foundation stone for nation building. His assessment of the UN's performance in East Timor in regard to this is simple - it's not moving fast enough.

Mark Plunkett: Rather to the contrary a lot of the mistakes that we have ourselves committed in previous peace operations are being repeated here in East Timor. And a lot of our moderate successes are not being built upon in East Timor.

What is essential is to have a comprehensive, co-ordinated campaign plan for the re-establishment of the Rule of Law. There is no such plan in East Timor, yet reflective practitioners and engaged scholars of peacekeeping have reached a fairly acute level of awareness, and also have recorded and detailed the techniques and the models that can be used for this; none of which are being employed in East Timor. So that you're having inflation breakout, you're having a lot of idle impatient youth, you're having a lot of angry disgruntled people and you're having an outbreak, particularly over the last few days, of a very serious lawlessness, where people are reverting to violence as their main means of resolving disputes.

If for example there were no courts, there was no law and there were no police, then if someone raped our sisters or bashed our mothers then we would take the law into our own hands, and go out and deliver justice retributive - in like circumstances. It's very very important to establish a merit review system based on justice. But it's also very very important to bring about a negotiated compliance with the Rule of Law by explaining to people that they can resolve their conflicts without having to use machetes and guns.

Lawyer Mark Plunkett.

Gerald Tooth: So far though there's no shortage of Australian businesses willing to hurl themselves headlong into this well of uncertainty that will determine East Timor's future.

Sixty have registered with the UN and some, whether they like it or not, are already providing graphic illustrations of the pitfalls for both investors and the Timorese.

TELSTRA FX - the number entered is zero four zero

Leading the pack, virtually landing on the beach with the Australian-led INTERFET troops was corporate giant Telstra who set up a mobile service in Dili and is busy rehabilitating East Timor's land line services.

Telstra was originally contracted by the Australian Defence Forces to support their operation for its duration. When INTERFET departed the UN offered Telstra a temporary contract, giving it a short term monopoly over East Timor's telecommunications system.

That monopoly is illegal however, because UNTAET has since reinstated Indonesian law as the law of the land to fill the legal vacuum.

Indonesian foreign investment laws require foreign-owned Telco companies to take on a Timorese joint venture partner with at least a 10 per cent stake in the business, which Telstra hasn't done.

Martin Hardie is an Australian lawyer who works as an adviser to the leader of East Timor's Socialist Party the PST. Previously he has fulfilled a similar role for the CNRT in Xanana Gusmao's office. He works in a building on Dili's waterfront in a room at the back. Outside his window the local boys soccer team idly fills in time between training sessions.

Martin Hardie says the UNTAET regulation puts Telstra in a very difficult position.

Martin Hardie: Therefore Indonesian foreign investment law applies in Timor today. You have to read the legislation as if it was a Timorese law. And the effect of that is that it's illegal for a telecommunications operation to be run by a fully foreign owned company. Nobody seems to have discussed this in the UN or in Telstra at this stage, and it's a matter that I think will need to be resolved fairly quickly.

Gerald Tooth: What you're saying is that Telstra's operation in East Timor today is in fact illegal?;

Martin Hardie: Yes. Yes. On the basis of the law that applies in East Timor, they're breaking the law every day.

Gerald Tooth: What's the consequence of that?

Martin Hardie: Well the consequence could be that if some Timorese people wanted to take issue with it, their operation could be closed down and damages might flow.

Gerald Tooth: Martin Hardie.

A couple of blocks away behind the Dili soccer ground sits the former Indonesian Telecom building, which now houses Telstra. Tony Reid, Telstra's Country Manager for East Timor, has an office upstairs overlooking the marketplace where recent gang violence broke out.

UNTAET passed its first regulation in November but Tony Reid has only just found out it has implications for the operation he's overseeing.

Tony Reid: Well it means that it's just another issue that needs to be dealt with. I think that we've been in an environment virtually from the day that we came here of uncertainty, and the prime objective for us was to restore the communications here. If that presents a problem for us then it's a problem that needs to be addressed, and we'll seek to address it.

Gerald Tooth: Why wasn't it addressed initially?

Tony Reid: It wasn't made aware to us initially. We were unaware that this was going to be the case. When we first came into this country they were under martial law. And under INTERFET they had the powers to do whatever was necessary to maintain stability. And that was the operation's original intention. And we came in during that period.

Gerald Tooth: So ostensibly though, you benefited from the uncertainty in the law at that point in time.

Tony Reid: We believe that East Timor has benefited from that as well.

Gerald Tooth: But as things stand, technically Telstra's operation here is illegal.

Tony Reid: Stop.

Gerald Tooth: You won’t answer that, or ...

Tony Reid: Well I want you to stop recording, yeah.

Gerald Tooth: With the recorder turned off Tony Reid said he would not answer any questions about the legality of their operations.

He said he'd only just become aware of the Foreign Investment provisions in the last 24 hours, and would not discuss the matter without getting legal advice.

At the time of going to air he said the situation still remained unclear and he was waiting for formal notification from UNTAET about the situation.

Like Telstra UNTAET were totally unaware that they'd effectively outlawed the operation of the country's only telecommunications system.

Bob Churcher is UNTAET's equivalent of the Communications Minister. He works out of UNTAET headquarters, the most prominent building in Dili, which will eventually house the new nation's own government.

He says enforcing the law in this instance is not in the best interests of East Timor.

Bob Churcher: You're quite right that our attention has been drawn to this. My attention was drawn to this just yesterday, and I'm afraid that I was not personally aware of that. But I don't see that it's relevant. As a government we have a duty to provide services, and although we're only administration, we're taking the part of the government here, we have a duty to provide telecommunication services as much as we have a duty to provide roads or electricity or water or anything else. And so we have to go ahead. We've inherited a situation which was not necessarily of our making and we're going to make the best of it that there is on behalf of the people of East Timor.

Gerald Tooth: But the implication there is that you are providing a telecommunications system in breach of the current law?

Bob Churcher: I wouldn't agree with that. I think you would have to read Article One which provided that we continue with Indonesian law in the spirit with which it was meant. It was not meant that we should start excluding services which were already being provided.

Gerald Tooth: You're saying that the Indonesian law is in fact irrelevant in this situation, or just simply shouldn't be applied?

Bob Churcher: I'm saying that it has now become relevant possibly. But it was clearly not relevant at the time the agreement was started. So we inherited a situation which became in breach of the law after we passed Article One. I think that's an oversight that can easily be addressed, but it's not necessarily a matter of great concern.

My view would be that we have a duty to provide telecommunication services and we're doing so within the limitations of the present situation of funding. And I think the particular aspect to look at here is the question of funding. We're getting this done at no cost and the repair of all this equipment and everything else at no cost to the country of East Timor. And frankly it's somebody else's risk.

Were it be a choice I would not spend any money which I should be spending on hospitals or roads on telecommunications when I can get that done commercially.

Gerald Tooth: Timor may be getting its phone system restored and improved at no cost, but it's also getting it at no profit. And there are handsome profits to be made there right now.

The UN mission alone has brought more than 10,000 people into the country.

Add to that a plethora of non government organisations and private businesses and there's quite a sizable phone using population. And to this point in time they've had no option but to use mobile phones for all their calls.

The land line system is only just being restored and is very limited. As a result virtually the whole foreign population in East Timor carry and use mobile phones, and the East Timorese also are using them in growing numbers.

Telstra confirmed it was making a profit in this sector of its operation - though it would not say how much.

East Timor in the meantime isn't going to see any of the income from those profits, because the UN is not enforcing the law that would make Telstra give up 10 per cent of its business to a local partner; something Telstra says it has not considered to date.

Jose Ramos Horta however says it's better to have Telstra and phones that work than pursue their profits. He says he's not concerned about the situation.

Jose Ramos Horta: Not really, I think they have done a valuable service to the country, and we have to be grateful for that, and I hope they expand - they continue the work until such a time when there is an international tender and there is fair competition by everybody to see who will have in the end the strategic, the final benefit of controlling a majority of East Timor telecommunications.

Gerald Tooth: Do you have any concerns that there wasn't a tender process in the first place when Telstra set up here?

Jose Ramos Horta: No I'm not concerned. It was impossible. We needed one right then and there, and we still need one. If Telstra were to freeze, to pull out, it would be disastrous. So I'm glad they're here and I think they've been a valuable service and it is a highly respected company and very competent around the world, and if they win the international tender. Why not, I'll be pleased.

Gerald Tooth: Jose Ramos Horta

Australia's Communications Minister, Senator Richard Alston declined to comment on the situation. A spokesperson for the Minister said the legal status of Telstra's operation was not an issue as far as they were concerned, and it was entirely a matter for the UN.

TELSTRA FX - ...charges will apply immediately if you proceed after the tone ...

Gerald Tooth: The legal status of its operation aside, Telstra's business practices in East Timor are also being criticised.

In Australia the Australian Consumer and Competition Commission has just found that Telstra has been overcharging the other telcos using its network to the tune of 80 million dollars a year.

In East Timor, lawyer Martin Hardie is critical of Telstra's mobile phone rates. He says Telstra hasn't made it clear to their mobile phone customers that discount rates available in Australia aren't on offer.

Martin Hardie: When Telstra came in, they promoted their service as being the same as the service in Australia. They said that the call rates will be the same as mobile call rates in Australia. What they didn't say was they would be the same as the full rate of calling in Australia and we would not get any of the benefits of discount rates at night time, weekends or calling mobile to mobile as you receive in Australia. So everybody's been charged the highest rate possible for every call that they make, and it seems for the calls that they don't make. Because the network's busy all of the time, a lot of the calls aren't successful and they divert to message bank. The Timorese people are spending vasts amounts of money on re-charge cards for their telephones and using most of that money to collect their messages when the calls haven't come through to them.

Gerald Tooth: What evidence do you have to support that argument that Telstra is charging the top rate, seven days a week, twenty-four hours a day?

Martin Hardie: My phone bills. And I've enquired with people when I've paid my phone bills and they've told me that none of the discounts apply in Timor.

Gerald Tooth: Martin Hardie.

Telstra's in country manager Tony Reid says they're only charging the same rates as those that were being charged by Indonesian Telecom before the independence ballot.

Tony Reid: In terms of the price that they are charging now, they are in line with what was being charged before. I think it was a quick solution in a country that had no communications at all.

Gerald Tooth: What you're saying is that there's no discounted rates on mobile phone use in Dili like there is in Australia, or that there is?

Tony Reid: We're not in Australia.

Gerald Tooth: So it's a flat rate. It's the top rate all the time.

Tony Reid: There are several rates that apply to mobile phone calls. There are several different plans. Those plans that operate in Australia are operating here. The services here, there's a large slice of them are pre-paid because a lot of the customers are international customers and that's the way that they want to pay for it. And on those basis they're still the same rates as they are in Australia. The only thing that may not be there is some of the after-hours rates that are applicable in Australia. They can be afforded, to be offered in Australia where you've got an Australia-wide network. In East Timor we have a much smaller network and it's the only form of communications.

Gerald Tooth: Tony Reid

Telstra's mobile service in East Timor is in fact regarded as part of the Australian network. Certainly the service component of the network, such as call connect and number inquiries are all sourced in Australia. And calls to Australia from East Timor are billed at what is called the remote rate which applies within Australia, as opposed to the international rate.

As well Telstra was paid by the Australian Defence Force to set up its operation there. An expense met by Australian tax payers.

Another area of legal uncertainty is the exploration of the region's oil and gas reserves.

For the moment the East Timor Gap Treaty is sitting quietly in a back corner, but it just could be the party pooper that turns out the lights on the current festivities at the Australia-East Timor mutual admiration club.

The Treaty was signed in 1989 by the then Australian Foreign Minister, Gareth Evans and his Indonesian counterpart Ali Alitas.

Its basic effect was to extend Australia's normal seabed exploration rights to un-normal lengths, taking them virtually to East Timor's doorstep through the creation of a Zone of Co-operation.

It gave Australia shared royalties with Indonesia from rich oil and gas fields discovered there.

Despite now benefiting directly from the royalties East Timorese view the arrangements as unfair, and want to renegotiate its terms.

Jose Ramos Horta says the current 50-50 split of royalties in the shared area of co-operation is untenable.

Jose Ramos Horta: What I’m saying is that so far we are happy to continue to live with the terms of the agreement for the next year or two or three years. However at the same time we must begin negotiations to review some of the terms. And what I'm saying is that the Australians are fair-minded, very generous. Prime Minister John Howard and lexander Downer seem to be two most compassionate individuals on this planet.

So I believe that they both will take the initiative themselves, without waiting for bargaining from the UN side or our side. They will take the initiative themselves in offering a better deal to the East Timorese. For instance if you look into the Timor Sea map and if you notice where the gas and oil findings are located, I would do dare to say that up to 90% of the revenues from there could go to East Timor if we have a fair deal.

Gerald Tooth: In your view is the deal as it stands now though, unfair?

Jose Ramos Hortas: Well it was a pity that we were not involved. We did not negotiate it. It was a treaty that involved Australia and Indonesia. At the time Indonesia was not interested so much in the oil and gas, it was interested in Australia's recognition of Indonesia's sovereignty of East Timor. For Indonesia at the time far more important was that it gained Australia's recognition of it's sovereignty of East Timor. So it was prepared to go along with a number of areas that in other circumstances it should not have accepted. Because if one look at the map of the region and where the oil and natural gas are, obviously it should go to East Timor.

Gerald Tooth: And you think that will happen?

Jose Ramos Hortas: Well I have unlimited faith in the Australian people. Unlimited faith in John Howard and Alexander Downer's compassion, and the sense of justice. Instead of let's say, instead of Australia every year give money to East Timor partly foreign aid like it does to Papua New Guinea, why just don't let East Timor benefit from it's own oil and gas and at the same time reduce Australia's external aid assistance to East Timor.

Gerald Tooth: Jose Ramos Horta

A renegotiation of the Treaty's terms along such lines is likely to shake the confidence of some oil companies looking to further develop the region. And the place where that will be felt is the Northern Territory.

For over a decade the Northern Territory has been gearing up to cash in on the oil and gas industry in the Timor Sea.

The recent go ahead for the Bayu-Undan oil and gas field located 500 km North West of Darwin, and 250 km South of East Timor is the last piece in the shimmering jigsaw.

It's expected to eventually pump out oil and gas worth over three billion dollars a year.

It's the business generated by that which Darwin is banking on to re-invent itself.

The Northern Territory Government is developing what it calls its HUB PLAN in an effort to turn Darwin into a major port in South East Asia.

It's undertaking a 200 million dollar port redevelopment that will be linked to the 1.2 billion dollar Darwin to Alice Springs railway development.

It will all be made viable by the expected business of support industries for oil and gas exploration and then the refining of those resources when they come to Darwin by pipeline.

Any renegotiation of the Timor Gap Treaty would hold up Dennis Burke's grand vision.

Not surprisingly the NT Chief Minister is adamant that the deal as it stands is a fair one. And Mr Burke certainly has influence with the Prime Minister.

Recently he convinced John Howard to let him keep his mandatory sentencing laws and give him five million dollars to implement them, when there was enormous pressure on Howard to scrap them.

Jose Ramos Horta's unlimited faith in the Prime Minister to offer a better deal on the Timor Gap Treaty may founder on Dennis Burke's sphere of influence.

Dennis Burke: I would say that if the Timor Sea gap taxation provisions were renegotiated, Australia would play an even harder bargain that they played before. I would think that the negotiations that were done when the Indonesians had control was a very good deal for Indonesia at the time. And that deal passed directly through to East Timor. It was probably the best deal they would get.

So I wouldn't be fearful if I were East Timorese about loss of revenue. I'd simply be hoping that the Australian government did everything possible to assist industry to get that field up. Because frankly when it comes to gas world-wide there are plenty of alternate supplies besides the Timor Sea.

Gerald Tooth: But not for the Northern Territory and Dennis Burke there isn't.

Oil and gas aren't the only benefits to the Northern Territory in relation to East Timor.

The Northern Territory government has been very active in promoting business in East Timor. Some say too active.

Some Northern Territory companies known as the Silver Circle are on the ground in East Timor. They're businesses which have connections to the Northern Territory's ruling Country Liberal Party.

The one who has received the most publicity is multi-millionaire Wayne Thomas. He set up a hotel in East Timor called the Dili Lodge that has been at the centre of much controversy.

Made of prefabricated units, it's located on the outskirts of Dili near the airport.

Heading to the city it's the first major structure the visitor sees. Out the front is a line of new vehicles for hire and a sign advertising hot pies, cold beer and vacancies.

The development cost three million dollars, and one of its investors is Federal Liberal Party President and former Northern Territory Chief Minister Shane Stone; who chipped in around 75 thousand dollars through a venture capital investment company.

The lodge has room for up to 200 guests at 110 Australian dollars a night.

It was built on land formerly occupied by the Indonesian army in Dili. In December 1999 the UN ordered the hotel closed down, and the buildings removed - deeming Wayne Thomas's lease unlawful because the ownership of the property was in dispute.

Wayne Thomas and his East Timorese partner Manuel Carascalao stood their ground and the UN eventually backed down, allowing the business to keep operating.

The whole fiasco only made clear that the UN was incapable of enforcing its own regulations covering land use. The Thomas lease was signed in the Northern Territory, and as such fell under Northern Territory law, which as events unfolded, proved impervious to the UN regulation and the Indonesian law in place in East Timor.

The Thomas venture is also often pointed to as an example of the Silver Circle turning up in Timor.

Other Northern Territory companies in Timor along with Wayne Thomas include Henry Walker Eltin, who own Air North which was the first commercial airline running a service to Dili.

There's Wastemaster, owned by The Hannon Group who have the contract to dispose of the UN's waste.

Perkins Shipping is also there, while builders Sitlzer Brothers came in immediately after the crisis in a delegation that included the Northern Territory Water and Power Authority. Most of them are names on the political donors list to the CLP.

Last year Perkins Shipping gave 30 thousand dollars to the CLP. Smaller donations rolled in from Henry Walker Eltin and Sitlzer Brothers.

While Wastemaster director Michael John Hannon is in a partnership with former NT Chief Minister, Paul Everingham in the Australian Lottery Company.

Martin Hardie says the Northern Territory's business ethos has come to Timor with them.

Martin Hardie: There is an attempt to establish or - it may not be a conscious one, maybe it's part of the business culture of the Northern Territory - but there seems to be an attempt to engender favour amongst the Silver Circle of Timorese businessmen at the expense of other Timorese and Australian businesses.

Gerald Tooth: Martin Hardie is critical of the activities of Mike Gallagher who is employed by the Northern Territory government to facilitate its interests in East Timor. Top of the list is helping Northern Territory businesses to get set up.

I meet Mike Gallagher in the beer garden at the Hotel Dili and ask him what sort of businesses have benefited from his services.

Mike Gallagher: Certainly one of the early businesses to come in here was the establishment of the Timor Lodge which is just on the outskirts of Dili. It was viewed at the time that this establishment was very necessary; both for business persons to stay at a reasonable form of accommodation and also for UNTAET staff accommodation. That establishment certainly has gone through some trials, but it is now up and running correctly, and appears to have certainly the support of the business community.

Gerald Tooth: Is it fair to say that there was a perception surrounding that that the Northern Territory was promoting in the interests of former CLP members. That Shane Stone had an interest in that organisation?

Mike Gallagher: No, look I can't comment on that. My background is that it was a group of Northern Territory investors coming over to establish a form of accommodation to assist in the development of the, or to provide a form of accommodation for business and UNTAET persons.

Gerald Tooth: Mike Gallagher

Back in Darwin, Northern Territory Chief Minister Dennis Burke is defending the way his government does business in Dili. He denies claims that the CLP connected companies are being favoured.

Dennis Burke: Well my immediate response is that I'm surprised to hear it. The liaison officer in East Timor, in Dili, Mike Gallagher who's been there right through some very troubled times, knowing the gentleman myself he would assist any NT business that was trying to get entrée into East Timor. The reality of many of our businesses are, the more mature businesses that the Northern Territory tend to be generally considered to be part of the Silver Circle in any case. So I would say that the criticism seems fairly unfounded, but I can understand it would come from some sectors.

Gerald Tooth: Well the list of NT businesses that are there, Henry Walker with Air North and Wastemaster, with Hannon, Thrifty Car Rentals, Perkins Shipping, Sitlzer Builders turned up early in the piece, and Wayne Thomas. That criticism carries that they all have demonstrable associations with the CLP. And there is that perception that they've been pushed in there by the government. Given a ride or a leg-up by the government.

Dennis Burke: Well I dispute that entirely. And apart from you raising that now, I can tell you that my efforts have been directed in general terms through public servants in assisting business generally, and the only criticism that I've heard is essentially criticism that's been directed straight at me. And that was for not getting involved in the Thomas venture when it was being criticised. And I said that this was an issue for that business and the UN authorities at the time.

Gerald Tooth: But do you acknowledge that they're considered, or most of those businesses are considered to have been or are part of the Silver Circle?

Dennis Burke: No I don't think anyone knows what the Silver Circle is frankly. It's been around for so long, people just use this word Silver Circle and I can tell you I don't know what the Silver Circle is. I know of some business people who are sympathetic to the CLP, and I can tell you some of them don't like me at all; including I would imagine Wayne Thomas at the moment. Because he was very critical of the fact I didn't intervene on his behalf when he was criticised by the UN.

Gerald Tooth: And it's just coincidence that these people have associations with the CLP?

Dennis Burke: It's coincidence, yes. Because you know in the case of Wayne Thomas, there's a person who sees an opportunity. You mentioned one of the hire car rent-a-car companies - that individual is an entrepreneur in his own right. He wouldn't take any advice from me either way, and didn't.

Gerald Tooth: Dennis Burke

Jose Ramos Horta however welcomes the Northern Territory's business.

Jose Ramos Horta: I want to look at the East Timor economy and Northern Territory as integrated, and not as competing. So if we look at the northern people of Australia and the island of East Timor and the part of the region as part of an economy, then there is no reason for each side to try to get a better deal. What we have to look at is how Australia can help develop in East Timor because a stable prosperous East Timor will be very good for Australia's economy. It will be very good for Australian business. So by building here infrastructures around the oil and natural gas sector, will benefit Australian business. So Northern Territory must see East Timor as some sort of an extension of its own economy and East Timor should see Northern Territory as an extension of its own economy.

Gerald Tooth: Do you have any concerns that if that actually does happen that East Timor will be overwhelmed by the Northern Territory?

Jose Ramos Horta: Oh maybe we would overwhelm Northern Territory, I'm not so worried about that. Who knows a few years from now everybody in Northern Territory will be start speaking Tetum or Portuguese.

Gerald Tooth: Jose Ramos Horta

Of course it's not only Northern Territory businesses that have gone to Timor. They've come from everywhere.

Queensland-based Paximus, whose primary role is conflict resolution, have found themselves in conflict with a local land owner over their 82 room hotel in Dili. This provides an example of how even a well intentioned company can strike trouble.

The landowner told Background Briefing through her lawyer, that she'd expected a health clinic to be built on the site when she leased it to Paximus director Gary Wood for 700 Australian dollars a month.

The woman, who is a prominent Dili land owner does not speak English; and for her lawyer Eusavio Gutteres, English is his fourth language.

Eusavio Gutteres: Gary, Gary just said to Rosentina now I've come here to help you, you know. My mission is I'm like - I work like NGO. I'm not for private company. So the madam say okay, we accept you because you work like humanitarian or NGO to help us, okay. Please set up clinic and help our people, the Timorese. So not for set up hotels.

Gerald Tooth: Eusavio Gutteres

Paximus counters that the allegation is simply not true, and the land owner was at all times aware of their planned use of the land. That she in fact gave them a list of people to employ at the hotel, and her daughter was given the job of receptionist.

The hotel is set up as a non-profit organisation that feeds funds back into Paximus's conflict resolution training and other humanitarian activities on a pro-bono basis.

Lawyer and company director Mark Plunkett says he's dismayed at the disagreement because at all times his company has practiced what it preaches and bent over backwards to behave in an ethical fashion.

Mark Plunkett: But notwithstanding that you're bound to get into disputes. I mean there have always been disputes about wages or value of payment. And if people who are in difficult desperate circumstances, why wouldn't they ask for more money or more pay. It's a reasonable human reaction on their part, and it's difficult where there is no court to take it to a judicial umpire. So it's necessary for people in the dispute to be skilled at being able to manage that dispute by interactive problem solving and negotiations. And it can be done. And I think if those sorts of things are brought into place when these disputes occur, then I'm reasonably confident that most of them can be sorted out including the one that we are involved in ourselves.

Gerald Tooth: Mark Plunkett

It appears that in this case the Timorese land owner is using this allegation to bring pressure to bear on the foreign investor to pay more rent after having reached an agreement in good faith.

One of the major criticisms of foreign investors is that most have failed to enter into joint ventures with the East Timorese.

But being in a joint venture is no guarantee of avoiding confusion and accusations of profiteering.

The story of the gravel quarry in the town of Liquica, where one of the most horrific massacres of the East Timor crisis took place, illustrates this.

There, another Queensland-based civil engineering company J J McDonald Sons is in a 50-50 partnership with an East Timorese businessman as the Timor Construction Company.

They secured a 15 year lease on a gravel quarry, vital to their road building business for the sum of 18 buffalo, 36 chickens, 12 goats, 6 pigs and a monthly supply of rice. The UN saw this as a blatant attempt to profit at the expense of the local owners and stepped in and demanded the contract be re-written.

So far it hasn't been sorted out.

J J McDonald spokesman Matt Heery, speaking by telephone from his Townsville home, says it will be soon.

Matt Heery: There is a program there where our joint venture partner was used to negotiating deals back in the cultural sense of supplying landowners with rice and cattle and goats and there was no friction as far as the negotiations go.

But we certainly did take advice both from the United Nations and the quarry owners, and I believe that negotiations are progressing along very well at the moment. And may I stress a point that as an Australian company in a joint venture relationship, one must take the lead of your local people, and if that was the way it was negotiated. Since then we have noted that's not accepted by the United Nations and we are certainly addressing that at the moment.

Gerald Tooth: Well it's been presented to me as an example of profiteering that's been going on in East Timor, and the United Nations were certainly concerned that that was the case.

Matt Heery: Oh it might be an example. I mean some people might suggest an example of profiteering. I mean it certainly wasn't, but there's been no agenda for us to manipulate any system, or to make substantial profits at the cost of, I guess the ignorance for want of a better word of the local community. We're very, I mean we encourage the local community to assist us in that regard and you can bet London to the brick that we probably don't do it a hundred per cent, but we're getting better.

THEME

Co-ordinating Producer, Linda McGuinness; Research, Julie Browning; Technical Operator, David Bates; Executive Producer, Kirsten Garrett.

I'm Gerald Tooth and you've been listening to Background Briefing.

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