Canberra – Australia said on Tuesday it would urge Phillips Petroleum Co chairman and chief executive Jim Mulva to talk tough with East Timor over tax proposals which are stalling a Timor Sea gas project.

This month US-based Phillips indefinitely deferred investment in a US$500 million pipeline to bring gas to Darwin due to legal, fiscal and tax uncertainty under a new Timor Gap agreement between Australia and East Timor.

Resources Minister Nick Minchin said on Tuesday he would meet Mulva in Canberra on Wednesday to push for a breakthrough on the tax issue which is needed to meet a letter of intent to deliver liquefied natural gas to El Paso Corp from 2005.

Minchin said he would urge Mulva to stress to the East Timorese authorities the economics of the projects and why East Timor's tax proposals would render operations unviable. "We must make sure these projects proceed and I trust that Phillips will be able to persuade East Timor to adopt a realistic and practical approach to taxation of oil and gas," Minchin told reporters.

The problems stalling the gas project arose after Australia and East Timor drew up a new agreement to cover petroleum production in the disputed Timor Gap area of the Timor Sea.

Previous treaties over the zone between Australia and Indonesia became invalid after East Timor voted in 1999 to break away from Jakarta after 24 years of often brutal Indonesian rule.

Minchin said impoverished East Timor would miss out on valuable revenue if it refused to change its tax proposals. "If they don't, the project is unviable and there is no point in seeking, for example, 100 percent of nothing," he said.

Australia and East Timor last month reached a framework agreement based on a 90/10 revenue split in favour of East Timor for oil and gas recovered from the Timor Gap. Under a Phillips proposal, a 4.8 million tonnes a year LNG plant in Darwin would be supplied firstly by gas from the Bayu-Undan project which Phillips operates and owns 50.3 percent of.

Other stakeholders in Bayu-Undan are Santos Ltd with 11.8 percent, Inpex Sahul Ltd 11.7 percent, Kerr McGee Corp 11.2 percent, Phillips unit Petroz NL 8.3 percent and Eni 6.7 percent.

This would be followed by gas from the Greater Sunrise field due to come on line in 2006 with 9.16 tcf of gas. Greater Sunrise is operated by 33.44 percent stakeholder Woodside Petroleum Ltd. Royal Dutch/Shell has 26.56 percent, Phillips 30 percent and Osaka Gas Co Ltd 10 percent.

Mulva is also expected to meet Foreign Minister Alexander Downer while in Canberra.