Bloomberg – East Timor's President Xanana Gusmao said his country shouldn't rush to settle a dispute with Australia over offshore oil and gas fields before the three-year-old nation can handle the royalties, which may exceed $14 billion over two decades.

"Why are we rushing? Having billions of dollars to rest in the bank?" Gusmao said in an interview in Bangkok. "We already have the institutions, but we don't yet have people who can assure that we will stand on a culture of transparency, a culture of effective handling of problems."

Australia and East Timor are "on the threshold" of an accord to split petroleum royalties from Woodside Petroleum Ltd.'s stalled Sunrise gas project, Foreign Minister Alexander Downer said May 13. Talks on a final settlement on the border between the two countries may be suspended for 50 years, East Timor's Foreign Minister Jose Ramos-Horta said May 30.

East Timor, which broke away from Indonesia in May 2002 after a 24-year armed struggle, wants the boundary at a mid-point between the two countries, in the gas-rich Timor Sea. Australia pushed for the revenue split to be agreed before any territorial settlement. That's the wrong way around, Gusmao said.

"It's fundamental for me as president to guarantee the sovereignty, to guarantee the state, and the fundamental problem is the demarcation," Gusmao said while attending a Business Week leadership forum in Bangkok. "It must be the basis of all the considerations."

Judiciary

Finalizing sea boundaries, establishing a strong judiciary, responsible police force, and a financial structure including a central bank and a development bank are essential to ensure the country's economy benefits from the oil revenue, and to avoid the money being misspent, or corrupting officials, he said.

East Timor's head of state is not directly involved in the government's negotiations with Australia. "I am not talking on behalf of the government, because we are separated institutions in our system, but in my perception, we should not rush like we are in a very, very difficult situation of need," he said.

Woodside, Australia's second-biggest oil and gas producer, and its partners stopped work on the proposed $3.7 billion Sunrise gas project on Dec.

31 in the absence of an agreement between Australia and East Timor on the division of royalties. East Timor will receive as much as $5 billion of extra revenue under a proposed agreement with Australia on splitting petroleum royalties from the Sunrise field, Australian Industry Minister Ian Macfarlane said on June 6.

Royalties

In addition, East Timor will receive about $14 billion over the next 20 years from its 90 percent share of royalties from an area jointly administered by the two countries, Macfarlane told the South East Asia Australia Offshore Conference in Darwin, Australia. The actual amounts depend on oil prices, he said.

United Nations ended its peacekeeping mission in East Timor on May 20, and Australian troops followed this week. About 300 UN representatives remain in East Timor to help the country establish technical systems, rather than security and stability.

The UN administered the territory of about 1 million people after its vote for independence in a 1999 referendum, after which pro-Indonesia groups destroyed about 70 percent of local property and killed more than 1,400 people. Indonesia invaded the former Portuguese colony in 1975.