| Subject: CSM: East Timor
Prospects Oil Zone For Income Christian
Science Monitor [Boston] Wednesday, November 3, 1999
E. Timor prospects oil zone for income
The Timor Gap may figure into assessments the World Bank is
making of the area's economic future.
Shawn Donnan Special to The Christian Science Monitor
DARWIN, AUSTRALIA
Between this muggy northern Australian city and tiny East
Timor lies a region in the sea that may hold the economic key to newly free East Timor's
future.
The 38,000-square-mile area known as the Timor Gap is a
cooperation zone created by a treaty signed in 1995 between Australia and Indonesia. It
has oil and natural-gas resources that geologists claim are stored deep in the seabed. So
far, however, it has yielded little except modest amounts of oil, legal battles, and
speculation over just what its possibilities really are.
But with East Timor's newfound independence from Indonesia,
the zone has gained new significance. In the long run, it could be what makes the
difference between the small half-island relying forever on foreign aid to survive and
being able to chart a truly independent course.
The problem is that no one knows just how much oil or
natural gas is there. "Up to now we don't know exactly what we can get from it,"
says Mario Carrascalão, a senior pro-independence figure who planned to lead an East
Timorese contingent accompanying a World Bank mission when it arrived in East Timor on
Oct. 29. The World Bank is undertaking a crucial study that will determine in large part
just how much aid the new country receives in the coming years.
Australia's and Indonesia's royalties from the area now
amount to only a few million dollars. But oil companies have been dangling the prospect of
hundreds of millions in royalties down the road, and the giant Phillips Petroleum has
already unveiled a plan to harvest oil condensate from natural gas reserves in the area.
That could be crucial income for a country of 850,000
people. East Timor's biggest export now is the $10 million to $20 million in organic
coffee beans it sent to the United States each year under Indonesian rule. Its entire
civil service is expected to have a budget of just $64 million.
"It's very obvious that it's going to be very
important," says João Saldanha, an American-trained economist who is now part of an
East Timorese team working to plan their country's economic future. "But the question
is how much is it going to be, how much are we going to get."
What has kept many resource companies from rushing headlong
into the area covered in the treaty has been the political uncertainty that has hung over
East Timor, oil analysts say.
The fight that followed the signing of the treaty was so
bitter that Portugal - East Timor's colonial ruler and the center of much of the
pro-independence movement's political activity in the last 23 years - took both Australia
and Indonesia before the International Court of Justice in The Hague in a bid to have it
canceled.
But now, political certainty about the region is slowly
fading. A United Nations transitional administration is set to take over from the
Australia-led multinational force, and the long process of nation-building is getting
under way amid the ruins left by elements of a vengeful Indonesian military and its
militia cronies during a three-week rampage after an Aug. 30 vote for independence.
There are still important questions left to answer over
just what form the government of the new country will take once the UN pulls out in two to
three years. But oil companies now at least have someone to talk to and the certainty that
Indonesia has at least for the time being given up its claim of sovereignty over East
Timor.
Nobel laureate José Ramos-Horta, the diplomatic face of
the East Timorese independence movement, caused some nervousness in the oil industry when
he said earlier this year that he wanted the Timor Gap Treaty to be renegotiated. But he
has since backed away from that stance and taken a more conciliatory approach.
"The only thing wrong with the treaty is who signed
the treaty," he said recently. "There is nothing wrong with the terms.... No
mining company should have any concern whatsoever. In the end it's in our national
interest."
Any windfall remains years away, though. At the earliest,
significant royalties are five years down the road, analysts say. Even then - if they
materialize - they are likely to be only in the range of $25 million to $30 million a
year, although the long-term potential is for them to grow into the hundreds of millions,
oil companies are advertising.
In the meantime, it will be international aid that will pay
for East Timor's reconstruction, and economists are looking elsewhere for revenues to
begin filling its coffers.
Agriculture and tourism have been identified as possible
major earners, and there are plans to in the coming months impose taxes on items like
alcohol and cigarettes and even charge landing fees at airports there.
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