Mark Forbes – Australia and East Timor have reached agreement over exploiting the rich oil and gas fields in the Timor Gap, with Prime Minister John Howard to sign a treaty at independence celebrations in Dili next week.

The deal should allow to proceed projects worth billions of dollars, including gas processing in Darwin, and give East Timor its only substantial revenue source to rebuild the world's youngest nation.

Attempts to guarantee more revenue for East Timor had threatened to scuttle the treaty and led Australia to withdraw recognition of international seabed law.

The final deal grants East Timor 90 per cent of revenues from a joint development zone between Australia and East Timor.

Mr Howard said the treaty was "an important demonstration of the good faith between Australia and the newly emerging country of East Timor". "We have been very fair, extremely fair. We have made concessions," he said.

East Timor wins immediate access to a desperately needed income stream of $7 billion to $9 billion over 20 years. If all the gas and oil is piped into Darwin, Australia stands to gain industrial spin-offs worth $50 billion over the same period.

Recent East Timorese legal advice claimed that if seabed boundaries were drawn according to accepted international maritime law, East Timor should own outright most of the known natural gas and oil deposits within the joint development zone and much of the large neighbouring deposits in Australia's exclusive zone. Foreign Minister Alexander Downer said he was delighted with deal.