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Economics

Oil Curse or Oil Blessing?

Timor-Leste uses oil revenues to invest in human development

National Petroleum Authority President Gualdino da Silva oversees the Greater Sunrise oil and gas field.

Ten years after emerging from a costly conflict for its independence and securing its political stability, Timor-Leste is assiduously working to overcome another challenge: an oil curse.

Oil is Timor-Leste’s leading industry, and experts say it will continue to be for the foreseeable future. According to published reports, the annual budget has ballooned from $70 million in 2004 to $1.3 billion in 2011 – with virtually all the revenue coming from the petroleum fund.

Timor-Leste’s hopes and ambitions are tied to its oil wealth,and government officials are eager to use that wealth to develop its social infrastructure and invest in education and other human services, thereby avoiding the paradox of plenty – when oil revenues spur corruption and inflation. These consequences have caused some developing countries to become worse off as sudden wealth can discourage long-term planning,fiscal responsibility and economic development.

To avoid the oil curse,Timor-Leste set up a special Petroleum Fund in 2005 that was modeled on Norway’s sovereign wealth fun to ensure the sustainable use of its revenues over the long term and avoid waste and inefficiency. Assets from the Timorese fund surpassed $8 billion in 2011.

“You can call it a curse; but, if it is managed well,it can be a blessing,” said Raymond Lee Orbach, the director of the University of Texas at Austin’s Energy Institute and former first Undersecretary for Science at the U.S. Department of Energy.

Offshore oil rig

Some countries depend exclusively on revenues from oil without investing in their population, thus creating the paradox of plenty. That can be avoided, Orbach said, with sufficient investment in education and social development.

“They have the potential to have a great future,” Orbach said. “They recognize energy as their major resource.”

A project at the center of Timor-Leste’s ambitions: Greater Sunrise oil and gas field project, commonly known as Sunrise. Sunrise – a swath of area between Timor-Leste, Australia and Indonesia – has been the subject of controversy, exploration and negotiations since it was discovered in 1974. The current controversy is entangled in the history of maritime negotiations.

At the heart of the debate is the question of where to liquefy the natural gas,thus allowing the energy to be exported. The united view in Timor-Leste is that the pipeline must be brought to Timor-Leste as a measure of fairness.

In early 2010, the government of TimorLeste took a hard stance: they would not approve any development plan that didn’t include a pipeline to Timor-Leste and a liquefied natural gas plant on the south coast. Deputy Prime Minister José Luís Guterres and other government officials have said that Timor-Leste wants the Sunrise pipeline as the fairest distribution of resources in the region.

“There have been a lot of robust discussions over the past three years since this government came to power,” said Sunrise Commissioner Francisco da Costa Monteiro.

He said the negotiations are ongoing.

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