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Timor-Leste now

Economics

Standing Firm

Timor-Leste’s experience in asserting control over its own natural resources provides a case study on the challenges all g7+ countries face.

Greater Sunrise oil rig Greater Sunrise oil rig

Timor-Leste whose population is comparable to that of Rhode Island, is situated between Australia and Indonesia, one of the strongest economies in the world and, the other, one of the largest.

Yet Timor-Leste has methodically fought for its rights and prioritizes long-term planning over political expediency. Timor-Leste understands that the path it takes depends on the potential of its natural resources and choice of governance to manage those resources. In this country of 1.1 million where the natural resources include oil, gas, minerals, forestry and fishing, the economic possibilities are vast. Timor-Leste has the resources that can help it develop; but, it must first negotiate with Australia in long and complex disputes over the onshore processing of oil. That has required courageous and long-term planning by Timor-Leste’s leaders.

“Sunrise is our opportunity to develop,” National Authority Petroleum President Gualdino Da Silva said from his office in the center of Dili, the capital of Timor-Leste. “We need to proceed carefully.”

Understanding Greater Sunrise

The Greater Sunrise Oil and Gas Field has been the focus of exploration, controversy and international negotiations between Timor-Leste and Australia since it was discovered in 1974. At stake is 9 trillion cubic feet of natural gas, and for Timor-Leste, a chance to develop and set up much-needed infrastructure destroyed by decades of occupation and war.

Oil and gas are the leading economic drivers in Timor-Leste, which for political and management purposes, is divided into three petroleum areas: The Onshore Exclusive Area, the Offshore Timor-Leste Exclusive Area and the Offshore Joint Petroleum Development Area, which where Bayu Undan and Kitan fields are found. The Bayu field has 4 trillion cubic feet; and with the potential of the Kitan field, could bring Timor-Leste more than $20 billion dollars in less than 15 years. This figure could easily double with the addition of Greater Sunrise, said Alfredo Pires Secretary of State for Natural Resources.

Timor-Leste is advocating for a liquefied natural gas (LNG) plant to be located onshore. The Bayu Undan field is active and a key source of revenue for Timor-Leste. However, that gas is piped to Darwin, Australia for processing. The Northern Territory, where Darwin is located, has enjoyed the abundant economic benefits from an onshore plant. Timorese officials are calling for the oil from the second field to be piped to Timor-Leste for processing so that the country can share in the same benefits as Australia. According to the East Timor Institute for Reconstruction and Monitoring and Analysis, a leading civil society organization that monitors the management of natural resources, an LNG plant in Timor-Leste would provide an additional $1 billion to as much as $2.5 billion in foreign direct investment. Roughly half of that would be spent in Timor-Leste. Once the initial investment is complete, the institute estimates $60 million would be spent in operating expenditures—half of which would be spent in Timor-Leste—for the life of the plant that could last for as long as 40 years.

An LNG plant would also generate thousands of jobs directly and indirectly that would eventually go to Timorese. In addition to the plant itself, there would also be a need for locally-run businesses to support the plant. According to the institute, this multiplier effect doubles or triples the number of jobs created.

When the Sunrise controversy began in the 1970s, Timor-Leste could not participate in the negotiation because it was still a Portuguese colony, but it has maintained that the treaties unfairly favor Australia. In 1974, the year that the field was discovered, Australian-based Woodside conducted its first drill test. One year later, Portugal withdrew from Timor-Leste and Indonesia, setting off a 24-year conflict. During those years, Australia and Indonesia held more than a dozen negotiating rounds and eventually reached an arrangement to split oil revenues, according to the East Timor Institute. In 2001, an agreement was signed in which Timor-Leste would receive 90%, and Australia 10% of upstream oil and gas revenues from the gas field. The next year Australia withdrew from the United Nations Convention on the Law of the Sea, which according to the institute prevented Timor-Leste from bringing the dispute to an impartial third-party arbiter.

According to the East Timor Institute, after Timor-Leste became an independent country, negotiations have taken an entirely different turn. In July 2002, the Sunrise International Unitization Agreement defined how the Greater Sunrise field would be divided. The agreement established the Timor Sea Designated Authority to manage projects in the joint development area.

However that same year, production sharing contracts did not go as expected. The actions of Australia prompted several highranking Timorese, including current President José Ramos-Horta, to propose creative solutions that were rejected.

In 2004, three additional rounds of negotiations took place. Woodside presented its feasibility report in which it said a pipeline from Sunrise to Timor-Leste would be less financially advantageous than a pipeline from Sunrise to Darwin, Australia. Timor-Leste hired an independent consultant who challenged the evidence.

Timorese government officials and consultants have over the years engaged Australia in contracts, technical delegations and mining codes to enable bidding rounds to proceed. At present, the Sunrise project is operated by Woodside (Australia), which has a 33% share in the project, shared with joint partners ConocoPhillips, Royal Dutch Shell and Osaka Gas. Despite being closer to Timor-Leste, the pipeline was built going to Australia.

Shell Corporation and Woodside Australia did not immediately return calls for comment. These companies maintain that the development plan is a commercial decision that is made in the best financial interests of their stockholders and the governments of Australia and Timor-Leste.

Jointly Reassessing

The owners of Greater Sunrise, the Government of Timor-Leste and Australia have recently agreed to jointly reassess the boundaries of the Greater Sunrise field, but the Sunrise dispute speaks to Timor-Leste’s desire to establish itself and stand on its own.

In 2011, Timor-Leste said it would not approve any development that didn’t include a pipeline to Timor-Leste and a liquefied natural gas plant on the south coast. Deputy Prime Minister José Guterres reaffirmed this stance.

“There is no justification for Australia already having benefited from a pipeline for development of the gas in Darwin and that East Timor has none,” he said.

Timor-Leste remains committed to full transparency, openness, accountability and development. Secretary of State for the Council of Ministers Agio Pereira said that resource management, including that of Sunrise, is paramount to the government.

“One of the most important roles of the Xanana Gusmão government is to protect and prudently manage the petroleum sector to benefit the resource owners, the people of Timor-Leste,” he said. “Transparency and accountability has been a key priority to ensure those resources and revenue derived are properly accounted for and that global good governance standards are met and implemented by the government.”

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