Reporter: Mark Colvin

Mark Colvin: East Timor's Foreign Minister, Jose Ramos Horta, says the relationship between his country and Australia seems to be at its lowest point since the liberation in 1999.

In a speech at the Lowy Institute in Sydney he said he was deeply disillusioned with Australia's behaviour in negotiations over the oil and gas in the Timor Gap, that's the stretch of sea between Timor and Australia, and he used words like "bullying" and "blackmail" to describe Australia's actions.

Jose Ramos Horta said his last hope, because all else had failed, was an appeal to the Prime Minister John Howard whom he still regarded as a friend of East Timor. Barring that, he said he'd go to the UN General Assembly and ask for the matter to be referred to the International Court of Justice. Australia has already refused to have the matter referred to the ICJ for mediation.

All this comes after both sides felt the talks showed promise. Back in August it was expected that an agreement would be signed by Christmas. After his speech today, I asked Jose Ramos Horta what had gone wrong.

Jose Ramos Horta: What happened was that in Dili, in the last round of the talks only a few weeks ago, the Australian side basically imposed on us an ultimatum. Mr Doug Chester, the senior official from Foreign Affairs, DFAT, that led the Australian delegation, simply said take it or leave it by 5pm, 27 October.

Mark Colvin: Take what or leave it?

Jose Ramos Horta: And that is accept a permanent boundary on Australia's terms, meaning that East Timor would accept Australia claims of continental shelf as the limit of its boundary, which comes two thirds closer to our shores than a normal median line between the two countries, and Australia in turn would offer a sort of financial compensation of $3-billion over a period of 30 years – much less than what they had offered in the previous round of talks in Darwin, which was something like US $4.3-billion.

Mark Colvin: So, what did you say to this take-it-or-leave-it offer?

Jose Ramos Horta: Of course, we cannot accept ultimatums. We cannot accept blackmail. We are poor but we have a sense of honour, of dignity, of our rights.

Mark Colvin: I believe you're also angry about an instance of what you think was bad faith in terms of Australia speaking to the press, when you thought there was an agreement not to say anything.

Jose Ramos Horta: Yes, it was Mr Doug Chester himself, who had insisted on the rule that there'll be no talks to the press. He insisted on it, our side agreed. Within minutes of him leaving the room, he was already doing the spin of his delegation's views of why things went wrong. And my prime minister was furious. He ... at the time, he immediately acted, expressed his shock, dismay at such a flagrant disregard for an agreement that had been reached just a few minutes earlier.

Mark Colvin: So, the end result of this, the upshot, is that you are thoroughly disillusioned and don't believe that the two countries will be able to reach a reasonable agreement, you said. Where are we now?

Jose Ramos Horta: Well, I'm still hopeful, confident in Prime Minister John Howard. We are forever grateful to Australia for what it has done since '99. It was Australia leadership that enabled Interfet to take place, and Prime Minister John Howard has shown to be a friend of East Timor. I hope that he takes personal leadership on this issue. We might still salvage; if not we have to part ways and fight for our rights the best we can. We will...

Mark Colvin: But where is there to go, if Australia has refused to go to the International Court of Justice and has refused independent mediation, where do you go next?

Jose Ramos Horta: Well, we have to go to the International Court of Justice, the United Nations General Assembly to request a non-binding adviser opinion on the whole issue.

Mark Colvin: So, even if Australia doesn't want to go to international mediation, you can force some sort of mediation?

Jose Ramos Horta: Yes, it cannot, Australia cannot prevent the United Nations General Assembly from requesting the International Court of Justice to provide an adviser opinion, non-binding, on the whole story of the Timor Sea.

Mark Colvin: But it's non-binding, then you could still be back in the same situation, if Australia refuses to be bound by it.

Jose Ramos Horta: Oil companies would be then reluctant to invest in the Timor Sea, so...

Mark Colvin: But that could be cutting your own throat.

Jose Ramos Horta: It's possible, it's possible, but Australia itself, Australia's interests would be undermined in the whole great fanfare about the development of the Northern Territory would be put on hold. It would not serve anyone's interests, and it would be very damaging to our relationship, it would be very damaging to Australia's international credibility, it would really weaken Australian stance regionally, it would be seen by the rest of the world as such a rich, powerful country bullying the poorest country, one of the poorest countries in the world.

Mark Colvin: Is this the lowest point in diplomatic relations between our two countries since liberation in 1999?

Jose Ramos Horta: It seems so, but obviously, you know, I'm not alarmed by it. I still have great respect and affection for Australia, respect for John Howard as Prime Minister of this country. I believe Alexander Downer is a friend, a personal friend, and I hope that we stay in talking terms in the next few days or weeks so that we find a consensus leading us to a way out of this imbroglio.

Mark Colvin: You said, "we are poor and in no hurry to become rich, we are patient and proud". Do you really mean that, or is it just diplomatic brinkmanship?

Jose Ramos Horta: Oh, I mean, it. You know, obviously if we cannot get a fair, equitable, just resolution, a deal that we can, in our conscience, explain to our people, our parliament, well we have it do without the immediate resources. We can wait a few more years. We waited 24 years before we became free and independent. So, it will be Australia that might have to leave with a bad conscience. They are the ones who have to look at the mirror every day and figure out whether what they are doing is the right thing or not.

Mark Colvin: Jose Ramos Horta speaking to me a little earlier. And we invited the Foreign Minister Alexander Downer onto the program to respond to Mr Horta's concerns, but he declined our offer. A spokesman for Mr Downer said the ball was now in East Timor's court, and that Australia would welcome any creative solution that East Timor may have. He said the Minister would discuss the issue further with Jose Ramos Horta at the South West Pacific dialogue later this week.