Mark Dodd – East Timor is set to get up to 90 per cent of Timor Sea oil and gas revenue in a move Australia hopes will ensure the new nation does not become dependent on foreign aid.

The Foreign Minister, Mr Downer, said yesterday that Australia wanted to avoid mistakes made in the early years of Papua New Guinea's independence, when Australia had to prop up its Budget.

Diplomatic sources say Australia is likely to agree to an East Timor demand for a 90 per cent share of revenue, compared with the old 50:50 split with Indonesia.

East Timor's Cabinet member for economic affairs, Dr Mari Alkatiri, told the Herald he hoped an unsigned agreement on the Timor Gap could be reached by today. "It would be a good signal for the whole donor community," he said.

Mr Downer said the new Timor Gap Agreement would most likely be signed by July, with East Timor receiving substantial oil and gas income by 2004. "I hope it will be possible to endorse a framework agreement by early July that will provide the security investors need to proceed with planned investments," he told the fourth annual meeting of East Timor donors in Canberra yesterday.

Representatives from the donors – 29 countries, multilateral institutions such as the World Bank and non-governmental agencies – are meeting to discuss East Timor's situation two months ahead of elections for its first Parliament.

Mr Downer said Australia would provide budgetary support to East Timor but would avoid squandering millions of dollars in direct financial aid as it did in the early years of PNG's independence.

"Being generous with Timor Sea revenue will be a good way of ensuring their [East Timor's] Budget becomes sustainable – and this is a big issue." Australia is one of East Timor's biggest aid donors, having pledged a $150 million package over four years.

"We need to be generous with East Timor and help East Timor in its early years of being an independent nation," he said. "Australia has a vested interest in a successful new emerging country in our vicinity. We don't have an interest in a struggling and embattled country."