Dili – An East Timor-Australia treaty that serves as the basis for the development of the major oil and gas deposits in the Timor Sea between the two countries came into force Wednesday.

The treaty is the fundamental document underpinning development in the area of the seabed referred to in the treaty as the Joint Petroleum Development Area (JPDA), which will be jointly managed by East Timor and Australia.

Under the terms of the treaty, cash-starved East Timor will receive 90% of revenue that flows to the two governments from oil and gas production in the JPDA, while Australia will get 10%.

"This is a happy day for East Timor and Australia," East Timor's Prime Minister Mari Alkatiri said at a ceremony held in Dili to mark the occasion. "From today, we have a clear legal framework for petroleum investment in one part of the Timor Sea."

The treaty was signed by Alkatiri and Australian Prime Minister John Howard last May 20.

Alkatiri said significant work has already been carried out by investors and by the two governments to bring into production petroleum fields in the treaty area, including the Bayu-Undan, Jahal and Kuda Tasi fields, and Greater Sunrise reservoirs lying partly within the JPDA.

Bayu-Undan, the first major development, will proceed under the terms of a gas development plan that the two governments and investors expect to finalize in coming weeks. It is estimated to bring around $3 billion in revenue to East Timor over the estimated 17-year life of the field.

Australian Ambassador Paul Foley said at the ceremony that the treaty will be crucial in promoting the long-term stability and prosperity of East Timor, "a goal to which Australia is committed."

He said East Timor's large share of revenue from the joint area "will make a significant contribution to government's revenue and therefore to the economic and social development of East Timor."

The project is also expected to bring significant economic benefits to Australia, both from upstream revenue and from the proposed location of gas processing facilities in its northern city of Darwin, from where the gas will be exported.

The treaty provides for a comprehensive regulatory framework covering matters such as development and production, the marine environment, employment, health and safety of workers, surveillance, security, search-and-rescue and air traffic services as well as the application of taxation and criminal law.

But Alkatiri emphasized that the treaty, while providing a clear legal framework for investment, does not provide a permanent or comprehensive framework.

"A permanent framework can only be provided by permanent maritime boundaries, which unfortunately East Timor does not yet have," he said. "But as a temporary revenue sharing arrangement, the treaty represents a good interim measure until maritime boundaries are agreed."