Dow Jones Newswires July 4, 2001

Australia The Main Winner From East Timor Pact -Timor Min

CANBERRA -- Australia drove a hard bargain in negotiations with East Timor in an agreement covering royalty sharing from energy production in the Timor Sea, Peter Galbraith, East Timor's Transitional Cabinet Member for Political Affairs and Timor Sea, said Wednesday.

Indeed, Australia stands to gain most of the economic benefits from energy production in the area, he said.

Galbraith was one of the chief negotiators for East Timor in the protracted negotiations that ended last week, along with Transitional Cabinet Member for Economic Affairs Mari Alkatiri and Cabinet Member for Foreign Affairs Jose Ramos-Horta.

The framework agreement was unveiled Tuesday and is scheduled to be signed in Dili Thursday by Australian and East Timorese representatives.

The terms of the arrangement will be incorporated into a new treaty upon East Timor's independence, expected by early 2002.

Galbraith rejected repeated assertions by Australia's Foreign Minister Alexander Downer that Australia wanted to be and was generous in striking the agreement.

The agreement isn't about generosity, he said.

"The Australians did what we did, which is they bargained very hard on behalf of their own national interest," he said in an interview on Australian Broadcasting Corp. radio.

The negotiations, which began formally in October 2000, were "surprisingly difficult," he said.

"But I guess that's what happens when people start arguing about money," he said.

- - 04/07/01 09-10G The agreement covers a 75,000-square-kilometer area known as the Timor Gap between the two countries, now known as the Joint Petroleum Development Area.

Energy production in the area formerly was covered by the 1989 Timor Gap Treaty between Australia and Indonesia, in which royalties were split 50/50.

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

Asked about A$13.7 billion proposed to be spent developing industry in and around Darwin to produce and use Timor Sea gas, Galbraith said these figures illustrate that "the greater economic benefit from this arrangement will go to Australia."

The figure of A$13.7 billion for infrastructure and project development was put forward in June by Daryl Manzie, the Northern Territory's Minister for Resource Development.

Projects proposed include oil and natural gas production facilities and undersea gas pipelines in the Timor Sea, gas processing projects in Darwin city, including separate liquefied natural gas and methanol plants, and pipelines south from Darwin.

No such projects are proposed for East Timor.

A key element of the arrangement is that East Timor gets 90% of the royalties from energy developments in the area, with Australia getting the 10% balance.

This is estimated to yield East Timor more than A$7 billion and Australia about A$1 billion in the 20 years from 2004.

The 90/10 split is accurate so far as sharing of royalties is concerned, Galbraith said.

"But in terms of the overall economic benefit, in fact the greater economic benefit goes to Australia," he said.

Overall, the agreement is a "very good deal for Australia," Galbraith said, as it will receive the benefits of the downstream activities that will take place in the Northern Territory.

"Those activities probably will be worth between 5 and 10 times the amount of money...that will go to East Timor," he said.

"Australia would get in the Northern Territory, perhaps A$50 billion in increased economic activity, which in turn would generate about A$15 billion in taxes," he said.

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

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