Damien Kingsbury – Woodside and the East Timorese government have just 10 days to strike a deal on a lucrative gas project – or the controversial sea boundary between Australia and East Timor will be redrawn. Billions of dollars are at stake.
Australia's relationship with East Timor is at risk as the deadline looms on a hotly disputed and lucrative liquid natural gas project – with no resolution in sight.
West Australian-based Woodside Petroleum has until February 23 to reach an agreement with the government of East Timor over the site of processing LNG or else the arrangement between the two is likely to be stopped. This would then trigger the cancellation of Australia's sea boundary agreements with East Timor.
At this late stage it's unlikely Woodside will change its long-held position and accede to East Timor's demand that the LNG be processed on East Timor's south coast. Woodside's preferred option is a floating processing platform at the Greater Sunrise LNG field in the Timor Sea.
The East Timorese government can cancel Woodside's involvement in the project, valued at $20 billion, if no agreement is reached on processing by February 23. But more critically, the termination of Woodside's contract would end Australia-East Timor agreements on the Timor Sea boundary between the two countries.
The bilateral treaty (the Timor Sea Treaty), the Certain Maritime Arrangements in the Timor Sea (CMATS) and a third document – all imposed by Australia on East Timor in 2002-3 – allocate revenues from the Joint Petroleum Development Area (JPDA) in the Timor Sea. Within the shared, now largely exhausted JPDA, East Timor receives 90% of revenues, Australia receives 10%.
However, 80% of the more important Greater Sunrise field lies outside the JPDA, where the benefits are divided evenly under the Sunrise International Unitisation Agreement (IUA).
East Timor points out the imposition of the boundary contravenes the UN Convention on the Law of the Sea, which Australia withdrew from recognising just before negotiations with East Timor. Under this convention, all of the Greater Sunrise field should be within East Timor's exclusive economic zone.
East Timor reluctantly signed the Timor Sea Treaty, CMATS and the IUA in 2002-3 with a metaphorical gun to its head. Australia's position, led by then foreign minister Alexander Downer, was that if East Timor did not sign the treaty Australia would simply allow the pre-existing boundary agreement with Indonesia to remain in place, East Timor would be starved of revenue from the fields and the new state would collapse just after it had gained independence.
There are still 10 days remaining for an agreement between Woodside and East Timor, but the indications are that neither side will budge sufficiently to allow the project to proceed. This will then allow the East Timorese government to cancel the agreement with Woodside and trigger the right of the East Timorese government to terminate the CMATS treaty, throwing open the issue of boundaries between the two countries.
Assuming the agreement is cancelled, East Timor is hoping for two outcomes: it can quarantine the issue of the sea boundary within the bilateral relationship, and it can renegotiate the boundary, following international convention, at the median point between Australia and East Timor.
Despite criticism of Australia in 2010, East Timor's Prime Minister Xanana Gusmao wants a continuation of the currently close relations between the two countries. This includes Australia's $116.7 million aid program, diplomatic support and future security arrangements.
But Australia showed in 2002 that it can be brutal in its dealings with its smaller neighbours so, assuming the treaty is cancelled, the decision on whether the sea boundary issue is quarantined from the wider bilateral relationship will sit firmly with Australia.
When in 2004 Australia negotiated its sea boundary with New Zealand, it opted for the UN Convention's median point. East Timor is hoping that, if the Timor Sea Treaty is renegotiated – presumably after the next federal election – Australia will revert to the UN Convention. Doing so, however, would mark an ethical consistency in Australia's regional relations that has to date been absent.
[Professor Damien Kingsbury is director of the Centre for Citizenship, Development and Human Rights at Deakin University. He is co-editor, with Michael Leach, of The Politics of East Timor: Democratic Consolidation After Intervention, Cornell University Press, 2013.]
Re: Woodside gas deal could redraw Australia-East Timor borders
Comment by Charles Scheiner - February 13, 2013
Charlie Scheiner, La'o Hamutuk – Although the conclusion of this article – that Australia should respect the international legal principle of a median line maritime boundary with Timor-Leste – is laudable, many of the "facts" are incorrect.
Unfortunately, inaccuracy and misinterpretation are becoming common in reporting on the imminent possible end of the CMATS gag rule. La'o Hamutuk just published an introductory article on CMATS basics (http://www.laohamutuk.org/Oil/Boundary/2013/CMATSImplications11Feb2013.htm), and we have written in more detail at http://www.laohamutuk.org/Oil/Boundary/CMATSindex.htm (overview, current developments and links), http://www.laohamutuk.org/Bulletin/2007/Jun/bulletinv8n2.html#50year (ratification) and http://www.laohamutuk.org/Bulletin/2006/Apr/bulletinv7n1.html (analysis and history through 2006). This posting is intended to correct misinformation in the referenced article.
1. There are no "borders" to "redraw." The underlying obstacle to this process is that Australia has NEVER agreed on a maritime boundary with Timor-Leste. The three agreements signed so far are about managing petroleum development and revenues. Many people in Timor-Leste and elsewhere feel that this country's struggle for independence is incomplete until its actual borders (which involve many more issues than oil and gas) are defined. In effect, Australia continues to occupy maritime territory which would be part of Timor-Leste under a fair, legal boundary determination – prolonging illegal territorial control taken during Indonesia's illegal occupation of Timor-Leste's land.
2. There is no chance that a Sunrise development plan will be approved before 23 February 2013. Even if Woodside or Timor-Leste were to change their position today on where the gas should be liquefied, a development plan requires extensive engineering and design. It could not be finished and approved by both governments (Australia also has to approve it) in ten days.
3. This disagreement does not threaten Australia's relationship with Timor-Leste. The controversy, with different views, began long before Timor-Leste voters ousted Indonesia in 1999. Although bilateral negotiations over Timor Sea issues have had their ups and downs over the last twelve years, ties between the two neighbors remain strong – notwithstanding Timor-Leste's repeatedly ignored wish to be treated fairly as an equally sovereign nation.
4. The currently applicable contracts between Woodside and its partners and the Governments of Timor-Leste and Australia to develop the Sunrise field were signed in 2003 (replacing earlier contracts with Australia and Indonesia during the illegal Indonesian occupation). The CMATS Treaty was signed in 2006 and came into force on 23 February 2007. Its termination would not have any effect on the contracts signed five years earlier. Although those contracts are unfortunately secret, we believe that they will be in effect until 2037 or later, unless the four companies and two governments agree to amend them.
5. Although the Bayu-Undan field (which contains most of the resources in the JPDA) has passed its peak of production, it will not be exhausted until around 2024, and Timor-Leste gets 90% of its upstream (extraction) tax and royalty payments. Gas and oil fields in the JPDA currently provide more than 90% of Timor-Leste Government revenues.
6. Although the Sunrise field may be "more important" to Australia, it is less clear from Timor-Leste's perspectivEast Timor-Leste will receive only 50% of Sunrise upstream revenues, and Sunrise's value may decline as new sources of natural gas enter the world market. Bayu-Undan, which is carrying Timor-Leste during this critical period before our non-oil economy has developed, is essential to this nation today. By the time Sunrise production begins (about five years after a development plan is agreed), we hope that Timor-Leste will have income from sources other than petroleum, and annual receipts from Sunrise (which will be smaller than those from Bayu-Undan today) will be less indispensable.
7. The relationship between the Timor Sea Treaty (TST, signed in 2002, ratified in 2003), the Sunrise International Unitization Agreement (IUA, signed in 2003, ratified in 2007) and CMATS (signed in 2006, ratified in 2007) is more complex than the article indicates. In brief, Timor-Leste needed the TST so that Bayu-Undan could go ahead, but Australia refused to ratify the TST until Timor-Leste signed the IUA – which Senator Bob Brown termed "blackmail." Timor-Leste then declined to ratify the IUA, which it had signed under duress. In the CMATS compromise four years later, Timor-Leste ratified the IUA and acquiesced in a gag rule on boundary discussions in return for 50% of Sunrise upstream revenues.
8. If Timor-Leste or Australia exercises its right under CMATS Article 12 to terminate the treaty at any time after February 23, processes to settle the maritime boundary could resume. The CMATS treaty will automatically would come back into force (restoring the 50-50 Sunrise revenue sharing) if and when Sunrise production begins in the future.
9. Under international treaty law, two signers to a bilateral treaty can always decide to cancel or modify the treaty. In other words, if Australia had been willing to discuss maritime boundaries at any time since 2006, both governments would have agreed to revoke the CMATS gag rule. Articles 24 of the TST ("This Treaty may be amended at any time by written agreement between Australia and East Timor") and 27.2 in the IUA ("This Agreement may be amended or terminated at any time by written agreement between Timor-Leste and Australia") are in fact redundant – that principle applies to all agreements between governments, as spelled out in the Vienna Convention on the Law of Treaties.
We hope that Australia is finally ready to deal fairly and openly with its northern neighbor, without imposing a gag rule on Timor-Leste to bar discussion of particular topics. And we hope that Australia is ready to comply with the rule of law – allowing courts or arbitration to settle the boundary issue when inherently unbalanced negotiations (due to the relative size, wealth, power and experience of the parties) are unable to. Law exists to protect the weak from the strong, and to ensure the everybody's basic rights are respected. Do some of the "Rule of Law" trainers and advisors AusAID pays to work in Dili need to build capacity in Canberra.
RE: Woodside gas deal could redraw Australia-East Timor borders
Response by Damien Kingsbury - February 13, 2013
Thank you for reinforcing nearly all of the points made in the article published by Crikey.com. CMATS was, indeed, signed in 2006, applying in 2007. That was my oversight.
1. The article's reference to redrawing the 'boundary' between Australia and Timor-Leste refers to the three demarcated divisions in the JPDA. That term was used to me by a senior Timor-Leste official on Monday. So while the 'boundary' (or 'border', a word not used in the article) does not apply in a legal sense, it is held to apply in a functional sense.
2. As the date of expiry has not yet been reached, the article was necessarily qualified on the issue of a possible agreement on the Wodside issue. While it is exceptionally unlikely that any formal agreement could be completed by the 23rd (government can convene at short notice to make large decisions, e.g. going to war), it does remain possible to reach an agreement in principle to be later formally ratified.
3. The view that the cancellation of the Woodside agreement could negatively impact on the bilateral relationship is not mine but a very real and live concern on the part of the Timor-Leste government. While it would be inappropriate to nominate my source, you can be assured that the Timor-Leste government is sensitive to this possibility, which it trusts will be avoided should the Greater Sunrise issue come to a head.
4. See the second line re CMATS.
5. As you say, production from the JPDA is in decline. It is not yet exhausted, but its capacity to continue to delivery royalties to the Timor-Leste government will reduce.
6. The issue is that this, then, increases the relative importance of the Greater Sunrise field. 'Hoping' that Timor-Leste will have income from sources other than petroleum is – to use your word – laudable. We all hope for that, but this does not make it so. Indeed, without the development of a petro-chemical industry, it is difficult to see where that income will be produced. As such, resource income will remain critical to Timor-Leste's opportunities for development at least until the middle future. This is why we agree that its income should be carefully and sustainably managed.
7. I agree that the TST, IUA and CMATS are much more complex than the article indicates. It is a news article, by definition limited in space, and not focused as such on the three agreements.
8. The issue is not about Greater Sunrise' 50-50 share (although it probably should be), but about the processing site. La'o Hamutuk itself said two days ago that CMAT is being considered for cancellation by Resources Minister Alfredo Pires. http://www.laohamutuk.org/Oil/Boundary/2013/CMATSImplications11Feb2013.htm
9. It is usual to have a public and fairly well developed reason for canceling a treaty – especially if one wishes to preserve anything remotely resembling good bilateral relations.
In conclusion, it is far from established that 'many of the "facts" are incorrect'. It actually it appears there is one, about a date, which does not go to the substance of the article or the issue.
With best wishes,
Damien