Australian Financial Review June 18, 2003

East Timor creates oil fund

Ian Howarth

The East Timorese government will establish a petroleum fund, to be administered by an independent council, to receive and distribute billions of dollars in tax revenue from the emerging oil and gas projects in the Timor Sea.

The "permanent petroleum fund" is a concept the East Timorese have borrowed from Norway, which developed a similar fund to manage its oil and cash flows from the North Sea.

But East Timor plans to modify the Norwegian scheme to build in additional safeguards, according to East Timor's Secretary of State for Tourism, Environment and Industry, Jose Teixiera.

Speaking in Darwin yesterday Mr Teixiera said the "Norway plus" fund was designed to ensure the proper distribution of money from the fund.

East Timor is expected to reap about $US3 billion ($4.5 billion) in tax revenue from the Bayu-Undan gas project, which is being developed by ConocoPhillips.

The Bayu-Undan field is in the Joint Petroleum Development Area, administered by both Australia and east Timor.

East Timor will earn 90 per cent of all tax revenue from the project, and Australia 10 per cent.

"The future of our people depends so heavily on this revenue," Mr Teixiera said.

Australia's Foreign Minister, Alexander Downer, approved of the "Norway plus" fund.

"The notion of putting revenue into a fund for present and future generations to be wisely used is an attractive one," he said.

"We can all think of countries over the last 50 years that have enjoyed a great windfall from resource exploitation ... and that money has, over a short period of time, disappeared.

"[In some cases] vast quantities of money had gone into the hands of elites and the ... community has completely missed out.

"It could be argued that this was one of the causes of the Bougainville civil war."

Mr Teixiera also said that, while the tax revenue from the Bayu-Undan project would be welcome, East Timor was entitled to more of the revenue.

He said East Timor had a legitimate claim to move the seabed boundary between Australia and East Timor to the middle point, which would give East Timor control of virtually all the Bayu-Undan and Sunrise gas fields.

He said that the international unitisation agreement, which enabled the Bayu-Undan project to proceed was unfair.

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