East Timor may be forced to apply its future revenues from oil and natural gas exploration in the Timor Gap to cover its operational budget, rather than in investing in the territory's development, according to a study which will be presented to an international donors conference.

"The rapid increase in recurrent expenses between now and the middle of the decade means that the majority of future revenues from oil and natural gas will likely be used to finance the state budget instead of long-term investment", says the UN administration study obtained by Lusa in Dili Tuesday.

Estimates indicate that Dili's current 65 million dollar budget could reach 100 million by mid-decade, placing enormous financial pressure on the fledgling nation which has projected revenues of only dlrs 19 million. While there are no sure estimates of East Timor's future revenues from offshore Timor Gap oil and natural gas fields, some reports have placed Dili's share at up to dlrs 100 million per year. East Timor and Australia are currently negotiating changes to the 1989 treaty between Canberra and Indonesia over the Timor Gap's resources.

"Given the high level of expenses indicated by the projections, any delay in capitalizing the oil and natural gas revenues could mean the need to undertake loans to cover budget deficits", warns the the study, which will be presented to a key donors conference taking place in Canberra Thursday and Friday.

Dili's UN chief, Sergio Vieira de Mello, told Lusa that mounting financial pressures on his UNTAET administration could require the use of "Timor Gap resources" for Dili's operational budget even during the remaining period of transition to independence. The territory is expected to gain full independence sometime next year.

"What is important", Vieira de Mello stressed, "is to find a balance, yet in the transition period, between saving for future development" and the use of some Timor Gap revenues and taxes "to cover current administrative operational expenses".

Such a "proportional balance will not be easy to find, but is indispensable", the Brazilian diplomat said. Donors in Canberra, he added, would be told East Timor would require "long-term" international financial and technical aid.