Subject: Age: How they fooled us on East Timor

The Age

How they fooled us on East Timor

March 11 2003

They fooled me. Perhaps they fooled you, too. These days the spin doctors are everywhere, and they know how to pull the wool over our eyes.

A year before East Timor became independent, Australia announced what seemed a noble gesture. It would cut its own share of oil and gas royalties from the joint petroleum development area (JPDA) in the Timor Sea from 50 per cent to 10 per cent. The new nation could take 90 per cent.

This means East Timor will gain 90 per cent of the royalties from the big Bayu-Undan gasfield, due to begin production next year. Project partners put the value of its exports over the next 20 years at $30 billion, of which $6 billion would be revenue for East Timor.

At face value, Australia had unilaterally given away $2.5 billion to $3 billion in long-term revenue to its young neighbour.

But that was only half the deal. What gradually became clear was that Australia also insisted that East Timor virtually sign away its claim on two other proven oil and gas deposits in the Timor Sea, together double the size of Bayu-Undan.

The big one is the massive Greater Sunrise gasfield, 450 kilometres north-west of Darwin, the little one the Laminara Corallina oilfield further west. Both of them are far closer to East Timor than to Australia. Both are claimed by East Timor as offshore territory.

Yet Australia made it part of the Timor Sea Treaty that in the seas outside the JDPA where both governments claim sovereignty - including 80 per cent of Greater Sunrise and all of Laminara Corallina - 100 per cent of royalties would flow to Australia.

The treaty added a proviso that this was "without prejudice" to the permanent seabed boundaries the two countries would negotiate in future.

In theory, these could shift the boundary in East Timor's favour. In theory, Australia might then agree to give East Timor a bigger share of royalties. But as we shall see, that is unlikely.

When the East Timorese then kept raising the unfairness of this deal, Foreign Minister Alexander Downer moved to lock them into it. Australia refused to ratify the Timor Sea Treaty until East Timor signed a "unitisation agreement" in which 82 per cent of royalties from Greater Sunrise would flow to Australia, and just 18 per cent to East Timor.

A transcript of negotiations in Dili last November 27, leaked to the website, quotes East Timorese Prime Minister Mari Alkatiri as complaining that Australia was insisting on boundaries it had negotiated years ago with Indonesia, and offering his country "scrapings off a plate".

Downer became vehement in reply. "We are not going to negotiate the Timor Sea Treaty - understand that," he told Alkatiri. "It doesn't matter what your Western advisers say... There will be no new joint development area for Greater Sunrise... We are very tough. We will not care if you give information to the media. Let me give you a tutorial in politics - not a chance."

And so it continued until last week, when as the Australian Senate was finally allowed to debate and ratify the Timor Sea Treaty, East Timor's Government simultaneously signed a unitisation agreement giving it just 18 per cent of royalties from Greater Sunrise.

In a short video produced by Sydney-based film-maker H. T. Lee, Timor Gap Oil and Gas: Don't Rob Their Future, oil and gas consultant Geoff McKee estimates that in fact, Australia stands to take 60 per cent of the royalties from known energy resources in areas claimed by both countries, while East Timor gets just 40 per cent.

Sources familiar with the negotiations say these numbers ignore big differences in the status of the projects. Bayu-Undan is now on the starting block, with contracts signed to export all its gas to Japan, ultimately after processing into liquefied natural gas (LNG) in Darwin.

Its money will start flowing to East Timor next year, and will help the new nation through the critical early years when it must catch up in education, health care, infrastructure and jobs.

By contrast, Greater Sunrise is now in limbo, a deposit in deeper seas, with no guaranteed markets, and relying on an untried technology of conversion to LNG on floating platforms. In a secret memorandum signed last week, Australia promised East Timor a further $US10 million ($A16.2 million) a year if and when such offshore production begins, a concession worth up to $A500 million over its lifetime.

It is also unclear where the boundary should be. Australia's definition follows its continental shelf, which extends under shallow water almost three-quarters of the way across the Timor Sea. East Timor defines it as a line through the middle of the Timor Sea. There are legal opinions behind both views. What is clear is that this issue will never be settled by an independent judge. Last year Australia suddenly excluded both the International Court of Justice and the International Tribunal for the Law of the Sea from arbitrating any dispute on its maritime boundaries.

East Timor may negotiate for changes, but we will decide, and there will be no appeal. We have looked after our interests well. It's a pity about theirs.

Tim Colebatch is economics editor of The Age. Email:

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