Ramos Horta: 'Resource Curse' Holds No Fears for Petro-Economy

EAST Timor, with a population of about 800,000, runs on a national budget of $100million a year. That works out at about $125 per head of population to operate schools, hospitals, the police - all our government services.

This financial year we were forced to cut this tiny budget by 5 per cent because of a sudden delay in receipts from the Bayu-Undan oil and gas project in the Timor Sea - our economic lifeline. Rather than borrowing or running down our oil fund savings, we made spending cuts equivalent to a $10billion cut in the Australian federal budget. We did this with help from Australian advisers who have provided tremendous assistance in establishing our economic and taxation institutions. While our national struggle has for a generation focused on achieving independence, we have learned a great deal since May 2002 about the importance of achieving economic independence.

Having managed a small budget in difficult circumstances, I believe we have demonstrated that we are capable of managing more substantial oil and gas revenue. My government has a policy of remaining debt free. We will not borrow from international institutions or any other institution - despite having received many attractive offers of late.

And having lately become the world's newest petro-economy, we are already fully apprised of the dangers of the "resource curse", the need to manage these resources in an open and accountable way. We have saved about a quarter of the receipts from Timor Sea oil and gas developments in an account with the US Federal Reserve under a temporary policy, and we plan to be even more ambitious under a permanent petroleum fund that will be established this financial year.

The resources that will flow to East Timor under a fair settlement with Australia will help make our nation a viable, independent and prosperous neighbour of Australia. Many analysts, including the World Bank and Oxfam/Community Aid Abroad, have warned that East Timor will be a marginally viable nation under the $5billion revenue that will come, over the coming decades, as a result of the temporary Timor Sea Treaty signed in May 2002.

This is why it is important that East Timor gains a fair and just settlement in negotiations with Australia, which I hope will now proceed well following last week's meeting. We estimate revenue of about $15billion over the coming decades under a settlement that delivers to East Timor the resources that would belong to it under a permanent boundary. A settlement on these terms would enable us to address our overwhelming poverty and underdevelopment, not to forget the trauma that remains after a generation of brutal occupation.

Some might consider East Timor's potential petroleum wealth a great blessing - something that will help solve all our problems. However, it is not the intention of my government to make East Timor a petroleum-dependent country. It is dangerous to be a petroleum-dependent country.

Gaining access to the resources that belong to East Timor under international law is only half the battle of putting our national development and reconstruction on the right footing. The rest is up to us. Our development will only succeed if we manage our petroleum wealth responsibly and prudently - for the benefit of this generation and those in the future. Our petroleum fund policy recognises that these resources also belong to future generations.

What we are looking for in managing these resources is using them to develop other sectors of economy, so that we have a broadly based development path. We want economic development that will be sustainable for our people so that they are not dependent on non-renewable resources. This is why I have accepted the advice of the International Monetary Fund to establish a permanent Timor-Leste Petroleum Fund which will retain, on average, half the revenue from oil and gas. We are modelling this fund on Norway's petroleum fund, but we plan to have more stringent accountability and transparency measures.

Much has also been said of East Timor's potential to become another Nauru. Indeed, Nauru set up a trust fund as well, but this suffered from poor management and investment decisions. A trust fund is not a panacea for good economic management. It will only work if it is accompanied by responsible economic management - something I argue strongly that East Timor is already practising. Of greater relevance in assessing our ability to manage our resources is the recent recognition by the World Bank that East Timor's regulation of its petroleum sector and management of its petroleum revenues already constitutes international best practice.

Our aim is to establish a stable regime for the development of our sector that investors can rely on. We have not varied tax rates on projects, and nor will this happen in the future.

In February this year the first $US1.8billion ($2.5billion) phase of the Bayu-Undan oil and gas project went into production. This is a great milestone in our national development, coming less than two years after independence. It is also a great achievement for both our nations, as it is located in the joint development area. I look forward to many more joint developments that will reflect the sound economic management being practised by both nations.

On August 11, East Timorese foreign minister Jose Ramos Horta and Australian foreign minister Alexander Downer agreed on a “framework” for a Timor Sea agreement. According to Downer, an agreement could be reached by Christmas.

During a joint press conference in Canberra, Downer stated that, “as a result of these discussions, we can find a way through which will be beneficial to the people of East Timor, but will also be satisfactory as far as the Australian people are concerned”. The ministers did not discuss details of the talks.

In the press conference, Downer stated that Australia’s concerns are “less with the revenue we can extract from the Timor Sea than with the broader questions of sovereignty”. This probably means that the Australian government is willing to offer East Timor a higher percentage of revenue, in order to entrench the current, highly unfair, maritime boundary between East Timor and Australia.

According to UN conventions on the law of the sea, the maritime boundary should be drawn halfway between East Timor and Australia. Under its agreement with Indonesia, however, the Australian government took sovereignty of considerably more. Since the occupation ended, the Timorese government has been attempting to reset the boundary in accordance with international law. The disputed area includes the entire Timor Sea, and the Greater Sunrise, Buffalo, Laminaria and Corallina oil and gas fields.

Horta’s indication that both Prime Minister Mari Alkatiri and President Xanana Gusmao were supportive of finding “a solution that is satisfactory to the two sides” may mean an East Timorese compromise on the boundary is forthcoming. However, many Timorese believe that a fair boundary is necessary for the country to achieve full independence.

Australia will push for any agreement to include East Timorese government ratification of the Greater Sunrise Unitisation Agreement, which Woodside Petroleum, the lead company in the Greater Sunrise project, has been agitating for. This could be a sticking point. So far, East Timor has refused to ratify the agreement, because entitlements under the agreement will be affected by changes in the maritime boundary.

On August 13, the Murdoch-owned Australian newspaper — which has been campaigning against a fair deal for Timor — reported that “in an offer yet to go to federal cabinet, the Howard Government is now prepared to concede up to half of the Greater Sunrise gas reserves to East Timor, giving it an extra $3 billion”. However, East Timorese sources have been reluctant to comment on a possible resolution.

On August 13, the Timorese secretary of state for resources and energy, Jose Teixeira, told Green Left Weekly that it was “difficult to answer if there is a deal” as yet. He said that Alkatiri “has just been briefed about what happened in Canberra” and a statement would be released by Alkatiri’s office this week.

Teixeira said that the Timorese negotiating team was “encouraged by suggestions of a framework” for negotiations, but that “a lot of detail still has to be worked out”. Asked if the campaign for East Timor’s claim to the oil and gas in the Timor Sea is now finished, Teixeira responded that, whilst East Timor was “encouraged by the goodwill shown by Australia”, it was still cautious, because the details are still unclear.

Greens Senator Bob Brown commented that the rumours of Australian government concessions on Greater Sunrise showed, “not just how justified the East Timorese refusal to accept the deal was, but how angry the Australian electorate has been over the mistreatment of East Timor by the Coalition government”.

He added: “The Greens will not accept any deal which falls short of an internationally arbitrated readjustment of the sea boundaries.”

Leading Timorese activist Tomas Freitas told Green Left Weekly on August 13 that campaigners in East Timor had many questions about the details of Downer and Horta’s agreement and discussions — in particular, whether his government had discarded its principle of maritime sovereignty. They were waiting, he said, for clarification from Alkatiri’s office before releasing a statement.

Dan Nicholson from the Timor Sea Justice Campaign in Melbourne was similarly cautious. He said that the group would go ahead with its planned meeting on August 18 and decide on campaign priorities, which could include continued lobbying efforts and hosting a tour of two Timorese civil society activists.

The next round of talks between the two countries will likely go ahead on September 20 in Canberra.

wife of East Timorese President Xanana Gusmao and chairperson of the Alola Foundation for women and children of East Timor, has condemned the stance taken by the Howard government on the Timor Sea oil and gas negotiations.

Speaking in Melbourne on August 6, she said that having access to the hydrocarbon resources in the Timor Sea was the key to East Timor’s ability to respond to basic needs. “I'm dismayed at the attitude of the Australian government”, she said. “Surely the powers that be in Canberra should say it is better for us and better for East Timor if they stand on their own two feet.”

Sword-Gusmao alleged that Canberra’s intractability in negotiations suggested that Australia preferred to “keep East Timor dependent on aid to give it leverage to have influence in the country”.

The issue of permanent maritime boundaries based on the international law principle of the “median line” between two countries was “an ongoing self-determination issue” for the Timorese, said Sword-Gusmao.

She praised the work of the Timor Sea Justice Campaign, which has “kept the issue alive in Australia” and “raised public awareness”. She warned that in Australia, “newspapers don’t necessarily tell you the real truth”, arguing that sections of the Australian media ran the line that the Timorese were “ungrateful” for the 90% of gas revenues East Timor would receive, despite this figure only pertaining to the Joint Petroleum Development Area and not to the other oil and gas fields in the Timor Sea.

Sword-Gusmao said that foreign minister Alexander Downer was not interested in “Australians knowing the fact that East Timor would get four times the amount if the boundaries were resolved [under international law]”.

She said the Australian foreign affairs department “is out of synch with public opinion and sentiment on East Timor”.

During her travels in Australia, according to Sword-Gusmao, she had not met one person who disagreed with East Timor’s claim, “and I haven’t just been meeting with members of the Timor Sea Justice Campaign”.

She said it was difficult, in a country with limited media outreach and low levels of literacy like East Timor, to “get the technical details across”, but the East Timorese people understand it as “an issue of rights and fairness”.

Asked about the difference between the Labor Party and the Coalition on the Timor Sea issue, she said: “I think the substantial difference in the position of the opposition Labor Party and the current government is Labor has said that they are not interested in screwing East Timor... but let’s say that nothing can be worse than what we’ve got at the moment.”

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