The Australian

Timor developers all at sea By NIGEL WILSON

05jul01

BILLIONS of dollars in Timor Sea investment remain in doubt despite the signing in Dili today of a framework agreement on sharing revenues from oil and gas developments.

Details of the agreement, to be formalised at ceremony involving Foreign Minister Alexander Downer, Resources Minister Senator Nick Minchin and East Timorese representatives, have yet to be made public. But companies are already alarmed that they face paying the East Timorese vast amounts in company tax.

In a joint statement announcing the acceptance by East Timor of the framework agreement, the ministers said that over the 20 years from 2004 East Timor was estimated to receive substantially more than $7 billion in revenue from existing and planned developments in the area.

The Department of Foreign Affairs confirmed yesterday that as well as agreeing to a 90:10 split in government revenues, the framework agreement provided that corporate tax revenues would be split the same way.

Under the Timor Gap Treaty signed between Australia and Indonesia in 1989 both revenue sources were split 50:50.

Even though Indonesia charged a higher rate of company tax than Australia, the 1989 arrangement did not substantially affect rates of return on investment.

But industry officials noted yesterday that with East Timor proposing a corporate tax rate of up to 44 per cent ­ some East Timor officials have suggested 60 per cent ­ a 90:10 split on company tax would dramatically alter project economics for the $7.5 billion LNG project based on the Bayu_Undan reserves.

"The tax situation is quite a dramatic development if you remember that at the beginning of the negotiations last year, the East Timorese gave a commitment that the outcome would be no more onerous than the previous arrangement with Indonesia," according to one industry official who did not want to be named.

Jim Godlove, the Darwin manager of Bayu-Undan operator Phillips Petroleum said yesterday he would not comment on the detail of the framework agreement.

"What we have is a great step forward in the development of Timor Sea gas reserves," he said.

"We have always said is that the sharing of government revenues from the various production agreements is a matter for the governments.

"What we will have to do is to talk to the East Timorese about what the document really means."

A spokesman for Woodside ­ which holds the Greater Sunrise resource with Shell and Phillips ­ acknowledged that much progress had been made between Australia and East Timor.

"But we still have to evaluate the legal and fiscal terms of the framework before determining just how it might affect our investment plans," he said.

Industry officials were concerned that the agreement appeared to cover only projects already announced and the level of work companies were expected to place in East Timor to support projects which had to compete internationally.

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