Subject: Australia--East Timor Energy Royalty Talks Pushed Back

Also: Australian Labor Party Backs Midway Border With E Timor

Dow Jones Newswires August 3, 2000

Australia/East Timor Energy Royalty Talks Pushed Back

CANBERRA -- Talks between Australia, the United Nations Transitional Administration for East Timor and East Timorese representatives over sharing economic benefits from energy production in the Timor Sea have been pushed back to late this year, Ashton Calvert, secretary of the Department of Foreign Affairs and Trade, said Thursday.

"We expect probably late this year to start some preliminary negotiations" over the terms of a new treaty to replace the lapsed Timor Gap Treaty, he said at a National Press Club address.

The talks are aimed at settling arrangements, particularly for royalties from oil and natural gas production, "after East Timor's independence, which we currently expect to occur sometime next year," he said.

Late June, East Timor's representative in the talks, Mari Alkitiri, said formal talks will start in August or September.

The outcome of the talks is critical to the economic health of East Timor, which was ransacked before Indonesia's withdrawal in September 1999.

Royalties from energy production could be the biggest source of income for East Timor's government after independence.

Sharing of benefits from energy production in the Timor Sea was covered by the Timor Gap Treaty.

This lapsed after East Timor's August 1999 vote for independence from Indonesia.

The terms of the treaty were continued under a memorandum of understanding between Australia and UNTAET, which oversees the nation's transition to full independence.

In July, the Australian government acknowledged that the share of royalties is more important than fixing a midway boundary between Australia and East Timor.

Australia "understands the discussion or debate is about the share of revenue; it's not the actual delimitation of the seabed," a spokesman for Foreign Minister Alexander Downer told Dow Jones Newswires at the time.

Australia Understands East Timor Wants Bigger Share Calvert said "it's a very natural aspiration by the East Timorese that they get a bigger share out of this whole arrangement than the Indonesians had, so I'm sure they'll start wanting more than the status quo."

He also said the arrangements for sharing benefits covered by the MOU was "quite stable"

All parties to the discussions have stressed the need for stability in fiscal and other arrangements given the large investment in exploiting energy resources that is now taking place.

"Australia will of course be sensible and reasonable and fair as we enter those discussions," he said.

"We don't start with a position where we think the thing is in any way lopsided to begin with," he added.

Of immediate interest is the Bayu-Undan project, a gas and liquids development in the Timor Sea.

In October 1999, Phillips Petroleum Co. (P) said it will proceed with the US$1.46 billion liquids-stripping-and-gas-recycle first stage of the project. Phillips holds a 50.3% stake in the project and is its operator.

Under existing arrangements, Australia and East Timor would each get half of royalty benefits from the project, which is located closer to East Timor than Australia.

East Timor leader Jose Ramos-Horta argued in May that East Timor should take 90% of royalties from the project and Australia 10%.

Production from Bayu-Undan is scheduled to begin early 2004 and is expected to peak at 100,000 barrels a day.

The company also wants to pump natural gas to Darwin to supply north Australian markets but hasn't formally committed itself to this project.

Bayu-Undan is the first major gas development in the Timor Sea and the biggest project in the area to date.

-By Ray Brindal, Dow Jones Newswires; 612-6208-0902; ray.brindal@dowjones.com -----

Dow Jones Newswires August 3, 2000

Australian Labor Party Backs Midway Border With E Timor

CANBERRA -- The major opposition group, the Australian Labor Party, says a maritime border with East Timor should be set midway between the two countries, ensuring if this comes to pass that East Timor will reap the lion's share of royalties from energy production in the region.

Currently the border between the two nations is set close to East Timor, grossly favoring Australia.

A 1989 agreement covering the boundary and royalties from energy production in the Timor Sea between Australia and Indonesia known as the Timor Gap Treaty lapsed when Indonesia withdrew following East Timor's Aug. 30 vote for independence.

Australia and the United Nations Transitional Administration for East Timor, which is overseeing its move to full independence, since agreed in a memorandum of understanding to continue the terms of the treaty in the short term, subject to a full renegotiation of the issue.

The labor party agreed to take its position at a national conference held this week in Hobart.

"Labor is prepared to support the negotiation and conclusion of a permanent maritime boundary in the Timor Gap based on lines of equidistance between Australia and East Timor," according to its foreign affairs spokesman Laurie Brereton.

"Such a settlement would see major gas and petroleum reserves within east Timor's maritime boundaries and would be a just outcome consistent with the Law of the Sea," Brereton said in a statement.

The Labor Party is neck and neck with the governing Liberal-National Coalition in voter opinion polls.

The next government general election doesn't have to be called until October 2001, but Prime Minister John Howard can call a poll at any time. He called the last election five months before his three-year term ended.

Australia, UNTAET and East Timorese leaders have already started negotiations for a new treaty.

East Timor wants a midpoint boundary.

Australia hasn't decided its position on the crucial border and royalty share questions.

An Australian official familiar with the issue, but who declined to be named, said cabinet likely will consider the matter in September, ahead of the next round of talks scheduled for October.

The Labor Party said royalties from the exploitation of energy resources in the disputed area have the potential to make a major contribution to the economic self-sufficiency and prosperity of East Timor, which was ransacked before Indonesia withdrew.

Labor urged the government to "adopt an approach that takes fully into account the importance of advancing East Timor's viability and financial independence."

A new treaty reached by agreement to mutual satisfaction and consistent with the Law of the Sea will be a "very important element in the development of relations between Australia and East Timor," Brereton said.

On Thursday, Ashton Calvert, secretary of the Department of Foreign Affairs and Trade, said the upcoming talks are aimed at settling arrangements for "after East Timor's independence, which we currently expect to occur sometime next year."

Settling the issue is becoming more important because of planned investment in the area.

In October 1999, Phillips Petroleum Co. (P) said it will proceed with the US$1.46 billion liquids-stripping-and-gas-recycle first stage of the Bayu-Undan project in the Timor Sea, located just inside East Timor's side of a midpoint boundary.

Phillips holds a 50.3% stake in the project and is its operator.

Under existing arrangements, Australia and East Timor would each get half of royalty benefits from the project, which is located closer to East Timor than Australia.

East Timor leader Jose Ramos-Horta argued in May that East Timor should take 90% of royalties from the project and Australia 10%.

Production from Bayu-Undan is scheduled to begin early 2004 and is expected to peak at 100,000 barrels a day.

The company also wants to pump natural gas to Darwin to supply north Australian markets but hasn't formally committed itself to this project.

Bayu-Undan is the first major gas development in the Timor Sea and the biggest project in the area to date.


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