With East Timor in a mess, what will become of the natural resources off its coast? It depends, writes Bernard Lane, on which country you speak to.

Between Australia and the former Indonesian province of East Timor there is no single maritime boundary.

Australia and Indonesia could not agree on a seabed boundary, which decided oil or gas rights. Hence the "gap". Australia said the boundary should be close to the Timor coast because Australia's continental shelf extends so far north. Indonesia argued the boundary should be a median line between the two coasts.

In 1989 the two nations put off a final seabed boundary and struck an interim deal for joint development in the gap. The gap has three zones – A, B and C. A gasfield, Bayu-Undan, is being developed in Zone A of the gap, the crucial zone where Australia and Indonesia agreed to divide royalties 50-50. Australia and Indonesia already had a boundary dividing the water column (which decides fishing rights). This 1981 boundary runs along the median line, coinciding with the southern boundary of Zone A.

East Timor's political leadership may persue a better deal in the Timor Sea, where there is hope of rich resources – as well as a treaty symbolising the long-held assumption of Indonesia and Australia that there never would be an independent state of East Timor.

The Timor Gap Treaty promised Australia and Indonesia half shares in government revenue from the US$1.4 billion Bayu-Undan gasfield, the best find so far in the contested area of the Timor Sea. With Indonesia gone, what will East Timor do about the treaty?

Australia's Foreign Minister Alexander Downer has not been alone in speaking as if the East Timorese have already undertaken to honour the treaty.

So far most commentary has implied near-inevitable succession by East Timor to Indonesia's treaty rights, no real change in the treaty beyond the technical, and a harmony of interests between Australia, East Timor and Phillips Petroleum, the company leading development of the Bayu-Undan field.

In mid-1998 East Timor's political grouping, the National Council of for Timorese Resistance (CNRT), issued a statement seeking a review of the treaty but also recognising the rights of the petroleum companies – and the joint development interests of Australia.

One CNRT signatory to the statement was Dr. Mari Alkatiri, who has responsibility for the treaty issue. The interview he gave The Weekend Australian this week suggests the CNRT may be repositioning itself to seek a better deal from Australia than Indonesia got under the treaty.

Alkatiri says it would be premature to reveal the CNRT position. But he confirms that East Timor's bargaining options include a bigger share of government revenue from projects in the crucial joint development Zone A, where Bayu-Undan lies, and a new maritime boundary with Australia that would give East Timor control of the entire Zone A.

He says neither strategy need concern the Bayu-Undan project. The companies could keep working under treaty-like arrangements during the two to three year period of United Nations transitional administration.

And when the UN gives way to a sovereign East Timorese government, renegotiation of the treaty with Australia would not affect the legal rights or taxation rates of the companies. "It doesn't matter for them [the oil companies] whether they are going to pay Australia or East Timor," he says.

If Bayu-Undan succeeds, others may follow. Right now Zone A has only a small oilfield in production, Elang-Kakatua. The more promising Bayu-Undan is dwarfed by the gas fields of Australia and Indonesia. But for a ravaged East Timor, Zone A revenues could well be significant.

Phillips Petroleum's Darwin area manager Jim Godlove says Bayu-Undan could give East Timor, on the existing 50-50 split, "many tens of millions of US dollars a year". The figure can't be precise. Before Bayu-Undan can realise it's full potential, it must meet a series of challenges; the treaty transition is just one.

The origins of the treaty lie more in geography than in gas. In that area, Australia and Indonesia could not agree on a seabed boundary. Indonesia favoured a median line between the Australian and East Timorese coasts. Australia said the boundary should be north of the median line because its continental shelf reached well towards Timor's coast. Hence the joint development treaty, with a coffin-shaped gap of contested territory divided into zones, and a joint administrative authority headquartered in Jakarta.

From 1991, when it came into force, the treaty had at least 40 years to run, although both nations were supposed to make regular attempts to agree on a final seabed boundary.

In a sense, the treaty still works. Only last month Phillips gave the go-ahead for the first stage of Bayu-Undan. Indonesians still occupy half the positions on the joint authority. Indonesia still gets (modest) monthly revenue payments, its half share from Elang-Kakatua. In another sense, the treaty is defunct. It assumed Indonesia would continue to exercise sovereignty over East Timor, according to former Commonwealth solicitor-general Gavan Griffith. QC. Yet authority over East Timor has now passed to the UN.

For all the talk of East Timor naturally succeeding to Indonesia's rights, Australia acknowledges that the choice is East Timor's. Even so, Australia argues that self-interest should make East Timor "step into the shoes" of Indonesia, and continue joint development with Australia. The only renegotiation yet envisaged by Australia is technical: for example, withdrawal of Indonesia from the joint authority and revenue regimes.

Alkatiri does not like the shoe-stepping metaphor: "It is really impossible to do it, because for us the treaty is an illegal one ... that's why we simply cannot be a successor state." In the two or thee year transition period, the only difference my be terminology. In a matter of weeks, the UN on behalf of East Timor and Australia, is expected, in effect, to continue the treaty arrangements.

Alkatiri prefers to describe this as a practical "mechanism" to allow Bayu-Undan to proceed. "It doesn't mean that we [have] accepted already to be a successor state of the treaty," he says. Like Australia, he is well aware that nothing agreed now by the UN can legally bind the future government of East Timor. That government could seek a better deal.

Asked whether it could seek a larger share than 50 percent of Zona A revenue, Alkatiri says: "We are considering a lot of things, but of course, that is one of them."

He says there should be no direct "linkage" between any increased revenue for East Timor and a decrease in foreign aid, but adds: "If we are getting much more revenue we will need less aid." Alkatiri also says East Timor would seek to resolve the dispute underlying the treaty: the position of the final seabed boundary.

This could be very significant for control of resources in Zone A, according to Geoffrey McKee, an oil industry consultant and adviser to the Darwin-based East Timor International Support Centre.

Back in 1981, Australia and Indonesia agreed on a fisheries line running through the Timor Sea. It is on the median line between the two coasts and follow the southern boundary of Zone A.

McKee has international law advice that East Timor would have a good case to argue for a single maritime boundary through the gap, with the seabed boundary (deciding gas and oil rights) joining the fisheries boundary at the median line. If Australia agreed, he says, it would give East Timor total control of Zone A, and twice the government revenue from Bayu-Undan (a potential US$4.4 billion over 25 years, rather than US$2.2 billion).

Asked whether he was considering such a "median line" approach, Alkatiri says: "I have different ideas on this question, but, of course, it will be better for East Timor if the median line [principle] is accepted."

The median line would be a viable starting point for negotiation, according to Ivan Shearer, Challis professor of international law at Sydney University. Shearer says recent international practice "puts all the pressure on favouring a common line for both seabed and water-column (fisheries) boundaries and that would naturally start from a hypothesis that the fairest boundary is one which meets half way, a median line."

It is too early to say how far East Timor will push for a better deal in the Timor Gap. CNRT is caught up with more immediate concerns and the complexion of a future government is unclear.

Indonesia's rights are there for taking, but there is no guarantee a radical renegotiation would win East Timor anything better.

Victor Prescott, a political geographer at Melbourne University, points out that the treaty and the 1981 fisheries line were part of a matrix of innovative agreements between Australia and Indonesia, including a 1997 agreement yet to be ratified. If East Timor wanted to open the treaty, then Australia might insist on quite wide-ranging negotiations. "If they [East Timor] want some sort of cash flow to augment whatever aid flow is going on," Prescott says, "then the easiest thing to do is say, 'fine let's continue the Timor Gap Treaty'."

The former Australian foreign minister who signed the treaty, Gareth Evans, recalls it's origins in the intractable dispute with Jakarta. "The difficulty was to reach agreement about the [seabed] boundary with the Indonesians and the army of international lawyers they had," he says. He cannot see why it would be easier with any other nation state.

McKee argues that East Timor's claim for a better deal would not just be legal but moral, especially after the destruction that followed the independence vote. Even so, Shearer says the East Timorese would be hoping for all kinds of support from Australia, their regional ally. "I would not expect [East Timor] to drive too hard a bargain [over the treaty]," he says.

Like other CNRT leaders, Alkatiri stresses the importance of good relations with Australia. And he suggests a flexible approach to treaty negotiations. "Of course this is a political negotiation," he says, "you have to defend your position but you have to be prepared to make some concessions, too."

[The 1997 agreement, mentioned above, refers to a Treaty signed in March 1997 by Indonesia and Australia. The 1997 Treaty finally settled the water column boundary in the Timor Gap, making it coincident with the southern boundary of 'Zone A'. It has not yet been ratified. Australia's Joint Standing Committee on Treaties recommended (in it's 12th report) that Australia ratify 1997 Treaty. The 1981 fisheries agreement – referred to by Lane – was a 'memorandum of understanding' that established a Provisional Fisheries Surveillance and Enforcement Line' ('PFSEL') in the Timor Gap, pending permanent delimitation of the maritime boundary. The 1997 Treaty achieved the permanent delimitation foreshadowed by the PFSEL agreement.]