May 22, 2004

East Timor struggles for oil with Australia By Sonny Inbaraj and Mario de Queiroz

DARWIN, Australia - East Timor, the world's youngest republic, marked its second anniversary on Thursday, although the poverty-stricken country may have little to celebrate after initial hopes of quick riches from undersea resources were dashed by neighboring Australia in an ongoing row over oil rights.

Australia's thirst for petroleum poses a threat to East Timor's independence, the fight for which has marked its violent history for centuries, according to an extensive report from the British-based non-governmental humanitarian group Oxfam. The Australian arm of the group, Community Aid Abroad, warned that East Timor is at risk of becoming a "failed state" if Australia hinders the new nation's capacity to finance its long-term development by taking the lion's share of revenue from oil and gas resources in the Timor Sea. The reserves are estimated at 30 million barrels of oil and 175 million barrels of natural gas, with royalties calculated to reach US$21.3 billion.

Meanwhile, aid donors, on which East Timor's budget heavily depends, are not predicting a gloomy future for the world's newest country of 800,000 people. At a conference in East Timor's capital Dili this week, aid donors from international financial organizations and foreign governments praised East Timor authorities for reducing the budget deficit from $126 million in 2003 to $30 million this year.

The deficit's downward revision was possible, the donors said, because of "a great effort by the government and the planned increase in revenues from oil and gas", due primarily to hikes in international prices.

But East Timorese government officials warn that oil revenues could be much lower than expected, due to the maritime territorial dispute with neighboring Australia.

In Australia, community groups and opposition parties have condemned the Australian government for what has been described as an attempt to steal millions of dollars of revenues from petroleum projects in the sea between the two countries.

"The vast oil and gas reserves of the Timor Sea provide East Timor with a window of opportunity for providing for its people and future generations," said James Ensor, Oxfam Community Aid Abroad's director of public policy. "However, Australia is not displaying good faith in its current negotiations with our neighbor," Ensor added.

While Australia has been a generous donor to East Timor, Oxfam said that the smaller nation has already paid back 10-fold in oil revenues the aid received since 1999, when a multinational force led by the United Nations forced Indonesia off the island, part of the Java archipelago.

Five years ago, Australia intervened in the militia war between Indonesian special forces and Timorese guerrillas, using hard cash and military firepower to eventually secure independence for the eastern half of the island of Timor. The UN took control of East Timor in 2000 and 2001, although the island formally remained a "territory under Portuguese administration until completing the process of decolonization", which ended with the formal declaration of independence on May 20, 2002.

Now, just two years after independence, the stance of the Australian government on the maritime border negotiations with East Timor is limiting the capacity of the latter to plan and finance its future development, charges the Oxfam report, published on Wednesday in London.

The new republic demands that the maritime border be set 200 nautical miles off its coastline, as stipulated by international law, guaranteeing it control over the rich petroleum and natural gas resources. But Australia, which makes a similar claim, refuses. At the closest point between the land masses, the sea is only 230 nautical miles wide, resulting in overlapping claims.

Australia argues that the maritime border should respect the agreement it signed in 1989 with Indonesia's Suharto dictatorship, considered at the time compensation from Jakarta to Canberra for being the only government to recognize Indonesia's sovereignty over the former Portuguese colony that it occupied.

Canberra's firm position in this matter has been reiterated in many international forums. And Australian officials have stressed that even if the petroleum and natural gas reserves prove to be closer to East Timor than Australia in the Timor Sea, it will stand by the validity of the 1989 accord.

Another crucial aspect of the oil dispute is the heavy pressure being placed on the Australian government and on the mission of the UN Transitional Administration in East Timor (UNTAET) from US-based Phillips Petroleum company and Australia's Woodside Petroleum. Both transnationals have said they could cancel or delay investment and exploitation plans if the maritime border dispute is not resolved in the next few months.

In April, Woodside Petroleum declared that it will scrap its $5 billion oil and gas development in the Timor Sea unless Dili's parliament ratifies the International Unitization Agreement (IUA), a deal between the two countries to share the proceeds from the Timor Sea's oil reserves.

Officially, these firms are staying out of the controversy, but behind the scenes they prefer Australia, which keeps 30 percent of oil and natural gas profits, compared to the 40 percent that East Timor holds on to.

East Timor is the poorest country in East Asia, and its only possibility for development seems to be the fossil fuels that lie beneath the seabed that Australia refuses to hand over, according to Oxfam.

Donors meeting in Dili, however, applauded East Timor's parliament for approving a commercial code and company law aimed at spurring private investment, and praised the government for improving access to health services and electricity.

"Your progress has been impressive, though the remaining challenges remain formidable," said Jemal-ud-din Kassum, the World Bank's vice president for the East Asia-Pacific region.

In its report to donors released on Wednesday, the World Bank said East Timor's economy was set to grow by 1 percent this year after contracting 2 percent in 2003.

But harsh realities still remain in East Timor despite the rosy donors' report. The figures are staggering: 41 percent of East Timor's 760,000 inhabitants live in extreme poverty, 51 percent are illiterate, one in 10 children dies before reaching age five and around half of the working-age population is unemployed.

East Timor's poverty keeps it heavily dependent upon international aid for support. At the same time, Victoria Markwick-Smith, a special adviser to East Timor's government, is wary that donor fatigue is fast setting in among the aid community in East Timor. "With the tensions in Iraq and conflicts elsewhere, funds meant for East Timor are being channeled elsewhere," she said.

Few would deny that the relatively inexperienced East Timorese government led by Prime Minister Mari Alkatiri has, indeed, made impressive strides in just two years.

For 25 years, East Timor was occupied by Indonesia. The Timorese in a UN-sponsored referendum opted for independence in late August 1999, but when the ballot results were announced in September, Indonesian military-sponsored militias went on an orgy of terror and razed Dili. Jakarta's "scorched earth" withdrawal destroyed East Timor's entire infrastructure.

"The outside world has to realize that we started from a minus zero position after the Indonesian military and their militias reduced the country to a smoking rubble," Markwick-Smith told Inter Press Service.

The prime minister himself has appealed to donors not to overlook his country and help it overcome its teething problems. "We seek perfection and excellence, but in the context of the real world we develop our capacities step-by-step," Alkatiri said.

Markwick-Smith defended East Timor's slow pace and urged donors to be more sympathetic to the country. "Donors should realize that the East Timorese have a different pace of working," she said. "They don't operate with deadlines, project parameters and other constraints imposed by donors."

But the only way for East Timor to wean itself from international aid money, is to quickly realize the profits from oil and gas projects in the Timor Sea. That, however, seems to be an uphill struggle with Australia flexing its muscles as the region's bully.

Australia and East Timor began talks in April to establish a permanent maritime boundary in the oil-rich Timor Sea and divide up control of the multi-million dollar Greater Sunrise oil field.

Australia has already won an 82 percent slice of the estimated $7 billion Greater Sunrise royalties through a previous deal, but this is yet to be ratified by the East Timorese parliament.

East Timor wants the new seabed boundary no further than halfway between the two countries, but Australia has refused to budge, saying that this concession would cause it to lose potentially millions of dollars in royalties.

"The Australian government is saying on the one hand that East Timor has to stop its dependency on aid and get on its own two feet, but on the other hand, [it is saying] we are going to take the resource that gives you the revenues to build schools, to build hospitals, to pave roads, to have security," said Australia's Greens Senator Bob Brown.

"A resolution of this dispute sooner rather than later would go a long way to helping the region's poorest nation deliver basic services to its people," added Brown.

(Inter Press Service)

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