Virginia Marsh and Tom Mccawley – Australia and East Timor are edging towards agreement on a critical new treaty to govern the Timor Gap, paving the way for development of the substantial gas deposits in the resource-rich waters that divide the two neighbours. Speedy conclusion of the treaty is vital for East Timor – which in late 1999 voted to secede from Indonesia – because revenues from the developments will provide the impoverished new state with its main source of income.
Based on exploration to date, the Timor Gap fields contain 500m barrels of oil equivalent, worth some US Dollars 17bn (Pounds 12bn) at today's prices.
East Timor has a budget this year of US Dollars 60m, is entirely reliant on foreign aid and is being run by a United Nations-led transition government (Untaet) ahead of elections for a national assembly due later this year.
Negotiations on a new treaty began eight months ago and there has been concern among oil companies working in the region over delays in reaching agreement. But Peter Galbraith, Untaet minister for political affairs and East Timor's chief negotiator in the talks, said in an interview yesterday there had been "substantial progress" in the negotiations.
Australian officials added that further talks were due to take place in Dili, the East Timorese capital, next week.
After initially proposing to split revenues on a 60:40 basis, Australia is now believed to be offering the state an 85 per cent share. East Timor, however, is holding out for 90 per cent.
"If we had applied international law, we would have won 100 per cent of the revenues," said Mari Alkatiri, a senior East Timorese official involved in the talks. "We are negotiating to maintain a good relationship."
Australia has been under pressure to give East Timor a far greater share of the revenues to help the former Portuguese colony become a viable, independent state.
Depending on the outcome of the negotiations – which also cover sea boundaries – Untaet expects the fields to generate USDollars 100m-USDollars 500m in annual revenues a year, transforming East Timor's economic prospects.
Gross domestic product in the territory is about USDollars 250 per capita with most of its population living on subsistence farming. The two sides are under pressure to agree a framework for the treaty by early July to enable development of Bayu-Undan, the first field, to proceed.
Phillips Petroleum, the US group that operates the field where production is set to begin in late 2003, has a July deadline to give the go-ahead for construction of a 500km pipeline to Darwin. It also needs to finalise cornerstone supply contracts in the coming three months, including a deal worth up to ADollars 7bn (Pounds 2.6bn) to supply liquefied natural gas from the Timor Sea to El Paso, the US energy group, mainly for use in California.
"This is not a new deadline. It was known nine months ago," said Jim Godlove, the company's Darwin area manager. "The entire set of gas export contracts could be jeopardised [if the treaty is not agreed in time]."