Sydney Morning Herald May 11, 2001

Deal is close on oil and gas bounty

By Hamish McDonald, Foreign Editor

Negotiators for East Timor and Australia in the difficult Timor Gap seabed boundary talks have made breakthroughs pointing to an early agreement that will underpin natural gas and industrial projects worth up to $15 billion.

"Things are getting closer and I am very much more optimistic that we will get at least a framework agreement very soon, which will be the base for the future treaty," the seniormost East Timorese negotiator, Dr Mari Alkatiri, told the Herald last night. "I think it will be enough for the operators and investors to continue their activities in the zone."

Dr Alkatiri, economic affairs minister in the emerging nation's United Nations transitional administration, said officials on both sides would exchange views before a formal negotiating round in Dili at the end of the month.

He confirmed that the East Timor side has accepted the principle of joint development, indicating that the shared development zone worked out with the territory's Indonesian occupiers will continue in force.

He said the oil revenue split from the joint zone had not yet been fixed. Sources said the UN team negotiating for East Timor held out in talks last week in Brisbane for a 90:10 split. Australia has so far offered 85:15, already a huge concession from the 50:50 split under the defunct treaty.

Dr Alkatiri yesterday met the Foreign Minister, Mr Downer, and Resources Minister, Senator Minchin, in Melbourne to discuss the negotiations, and later met Labor's foreign affairs spokesman, Mr Laurie Brereton.

Both sides appear hopeful the preliminary agreement can be reached in June, with a formal agreement to follow soon after East Timor holds its first free elections on August 30.

Canberra may have to concede further gains from oil and gas fields straddling the shared zone or immediately adjacent, compensating East Timor for dropping its argument that the Timor Gap should be widened to the East and West.

This argument over "unitisation" of government entitlements will especially affect the huge Great Sunrise discovery. Its 9 trillion cubic feet of gas lies under the eastern boundary, about 20 per cent lies under the shared zone and the rest in Australia's zone.

The partners in Great Sunrise - Woodside, Phillips, Shell and Osaka Gas - recently announced plans to link the field to the undersea pipeline proposed for Phillips' Bayu-Undan field, sending gas to a planned liquified natural gas plant and a methanol plant near Darwin.

In negotiations held since last October, UN and Timorese negotiators have asserted a strong claim under international law for shifting the seabed border to the median line between the two coasts, which would bring all the current shared zone under East Timor's jurisdiction. The new revenue split effectively concedes this, some advisers assert.

In a controversial speech last month, the chief UN negotiator in the talks, Mr Peter Galbraith, cited a study of Sunrise and its linked methanol project as showing the downstream benefits in terms of jobs and GDP would be hugely tilted towards Australia.

East Timor was prepared to set aside resolving the sovereignty issue and enter an interim agreement "provided it has the same or nearly the same economic benefits as if there were an actual maritime delimitation done in accordance with international law," Mr Galbraith said.

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