The Australian December 4, 2001, Tuesday

Timor Sea gas talks get down to bedrock Nigel Wilson

* Energy

A NEW wave of confidence is emerging that East Timor and Australia within weeks will reach agreement on key aspects of future development of Timor Sea gas reserves.

New proposals providing non-cash benefits to the East Timorese for 20 years have been circulated by Phillips Petroleum in a bid to resolve its dispute concerning Timor Sea developments.

Phillips's confidential proposals are understood to involve the provision of long-term employment and training as part of a claim by the US company that effective taxation provisions on its Bayu Undan project should be no higher than they were under arrangements agreed in 1989 between Australia and Indonesia.

East Timor's foreign affairs minister Jose Ramos Horta believes an agreement can be reached "in the next few weeks".

Officials are hoping there will be progress on the Phillips dispute before a meeting of donor countries to East Timor in Oslo scheduled for the middle of the month. "If East Timor can show real progress in these talks with Phillips it would give the new administration greater credibility among donor countries," one official said.

A planned meeting between Australian officials, East Timorese representatives and the United Nations Temporary Administration for East Timor has been put on hold in the hope the Phillips discussions can achieve an early breakthrough.

Phillips's Darwin manager Jim Godlove declined yesterday to discuss the detail of the negotiations.

"I can confirm we've resumed negotiations with the East Timorese," he said. "We've been looking to identify the long-term benefits of petroleum investment for East Timor. "

Phillips has said in the past it needs legal and fiscal security from the East Timorese before it can consider investing in the second phase of its Bayu Undan project.

Speaking after a meeting with Foreign Minister Alexander Downer, Mr Ramos Horta said he did not expect delays in Timor Sea investment. "We're hoping in the next few weeks we can conclude the arrangements for an agreement with Phillips and other contractors," he said. "Talks are going on right now in a very positive climate.

"I have seen a proposal from Phillips to provide additional incentives to East Timor itself.

"Our side, we're very pleased with that proposal ... I believe that in the next few weeks we'll reach agreement with Phillips," Mr Ramos Horta said.

Mr Godlove said there was no timetable for the talks with East Timorese officials but he was happy that talks had resumed.

A spokesperson for Mr Downer said it was expected that discussions on technical aspects of the arrangement reached in July between Australia and UNTAET would begin in Dili.

It was uncertainties caused by these arrangements -- particularly taxation and resource security -- that led Phillips and its partners to postpone indefinitely a decision to invest upwards of $800 million on a large diameter pipeline between Bayu Undan and Darwin.

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