Subject: AP: E.Timor's Economic Future May Lie In Sub-Sea Resources
Date: Sat, 12 Jun 1999 10:48:33 -0400
From: "John M. Miller" <>

Received from Joyo Indonesian News:

June 11, 1999 E.Timor's Economic Future May Lie In Sub-Sea Resources

SYDNEY (AP)--Locked beneath the narrow strip of sea separating Australia and its island neighbor Timor is enough oil and gas to fuel a small nation.

If East Timor, the disputed territory covering half of the island, breaks away from Indonesia and becomes a new nation, as expected sometime next year, its political leaders will be looking to do just that.

Securing peace in the territory, which has been wracked by violence between separatists and the Indonesian military for 23 years of often brutal rule, and more recently by pro-integrationist militias, is one essential element to establishing a new nation.

Building national fortunes from what is now a small agrarian economy dominated by commerce and government infrastructure from the faraway Indonesian capital of Jakarta is another essential element.

Royalties from exploitation of the resource rich Bonaparte Basin in the Timor Sea will be crucial, even if substantial royalty revenue is up to a decade away, analysts say.

First, East Timorese must vote against an Indonesian offer of greater autonomy at a U.N.-sponsored ballot scheduled for Aug. 8. Current President B.J. Habibie says Indonesia will let East Timor go if the offer is rejected.

An Independent E.Timor Will Depend On Oil, Aid

"East Timor will have a heavy dependence on oil revenues and foreign aid," immediately after the U.N. ballot, if it chooses independence, said Dr. Michael van Langenberg of Sydney University's School of Southeast Asian Studies.

But East Timor is excluded from the complex treaty which assigns exploration and exploitation rights to the Timor Gap, a hole in the territorial waters boundary between Australia and Timor.

The Timor Gap treaty was signed in 1989 after more than two decades of negotiations, made possible only by Australia's controversial 1976 decision to recognize Indonesian sovereignty over East Timor.

One Of Richest Hydrocarbon Areas Beyond Middle East

Indonesia invaded the former Portugese colony in 1975 and annexed it the following year. The United Nations and most countries still recognize Portugal as the administering power.

Despite being incomplete - it covers only oil and not gas, which is increasingly being found - resources companies welcomed the treaty and exploration has boomed.

Current production is small, but Australian officials say the region is one of the richest new hydrocarbon provinces outside the Middle East.

Capital expenditure on the region has reached some A$3.3 billion. One company estimates revenues will eventually reach US$11 billion.

The boundaries under the treaty form a coffin-shaped zone which divides administration and ownership among no fewer than four national and state governments.

The northern part is administered by Indonesia, with Australia holding rights to 10% of royalties on any oil found. The southern part is administered by two Australian state governments, and Indonesia has 10% royalty rights.

In between is the 23,552-square mile Zone of Cooperation, or ZOCA, administered jointly by Australia and Indonesia, where royalties on anything found are split 50-50.

Phillips Petroleum Co., based in Bartlesville, Oklahoma, currently pumps 33,000 barrels a day from its Elang, Kakatua and Kakatua North oil fields and owns the rights to exploit other fields in the Australian zone and the ZOCA, including the Bayu-Undan gas field, which is due to be in production by early 2003.

Australian company Woodside Petroleum Ltd. expects its A$1.37 billion Laminaria-Corallina oil project to be producing by the end of 1999, said corporate affairs manager Geoff Wedgwood.

At least seven other finds have been made.

The foreign ministers of Indonesia and Australia have agreed that at least some aspects of the treaty will have to be renegotiated if East Timor becomes independent, a prospect which worries companies with interests in the region as creating potential uncertainty.

Significant Revenue From Royalties 10 Years Away

Jailed resistance leader Jose Alexandre Gusmao and Nobel laureate Jose Ramos Horta, expected to be key players in any new East Timorese government, want East Timor to replace Indonesia as signatory to the treaty.

"If East Timor becomes independent, Indonesia ceases to be the other signatory. Timor would have to be signatory, without changing the content of the treaty," Ramos Horta said earlier this year.

Analysts say it may be ten years before royalties are enough to contribute significantly to the economy of an independent East Timor.

"The Timor Gap treaty will have no impact for probably a decade," said Scott Burchill, senior lecturer in international relations at Deakin University. "But it will play a major role in East Timor's economic development when it comes on stream."

If it becomes independent, East Timor will face an urgent need to replace commerce and infrastructure currently funded by the Indonesian government, van Langenberg said.

Resources Cos Want Continuity Before They Invest

In addition to an estimated US$150 million a year from Jakarta, East Timor's industries are coffee, sugarcane, sandalwood and other timber. Marble is also cut from the hillsides.

Dissident academic George Aditjondro says these industries are currently dominated by family or friends of former authoritarian president Suharto, with little return to East Timor.

A newly independent East Timor must take control of these industries and royalties from resources in the Timor Sea to avoid complete dependence on foreign aid, van Langenberg said.

Australia, Brazil, former colonial power Portugal and others have pledged aid if East Timor undertakes the transition to independence.

Burchill said the amount of aid will depend on Indonesia, and will skyrocket if Indonesia adopts a "scorched earth" policy of withdrawal, Burchill said.

Resource companies want continuity.

"The issue of independence for East Timor is a matter of international law and resolution between governments," said Wedgwood.

"But if there is no logical and consistent regime in place people will be reluctant to spend large amounts of money in the region."

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