Eleanor Hall: The Oxfam Community Aid Abroad report into East Timor is highly critical of the Australian Government, particularly its approach to the Timor Sea oil and gas fields. And the report says it's in Australia's national interest to be more generous and to help prevent East Timor from becoming a failed state.

Hamish Fitzsimmons spoke to the report's author James Ensor.

James Ensor: It's principally the result of declining aid and uncertainty over future oil and gas revenues from the Timor Sea. The uncertainty over oil and gas revenues in the future is linked to East Timor's budget projections where, under current arrangements, the country would receive about $1 million a year in oil and gas revenue.

But under arrangements that the East Timor Government believes would come into place if their maritime claim were to be adjudicated under international law, the country would be in a position in the medium-term to have an annual budget in the vicinity of $300 million with which to address the country's needs.

Hamish Fitzsimmons: Where does that $1 million a year come from. Doesn't the treaty with oil and gas revenues mean that East Timor receives 90 per cent of the profits from the reserves?

James Esnor: No, that's not true. In reality, East Timor receives 90 per cent of oil and gas revenues from one slice, if you like, of a larger Timor Sea oil and gas field cake.

The much larger slices of that cake are the Coralina/Laminaria oil and gas field, from which the Australian Government over the last five years has received nearly ten times of the amount of revenue from than it has provided aid in East Timor.

We've allocated about $320 million in aid to the country over the last five years and received a bit over $2.1 billion in oil and gas revenue from that contested oil and gas field.

Hamish Fitzsimmons: Where do you see East Timor going in the next three years?

James Esnor: The next three years are critical to the country's future prospects. We've seen last year, for the first time since independence, economic decline, the economy has shrunk by 2 per cent. We've seen income per person drop by 5 per cent last year and the development indicators moving forward, still alarmingly worrying.

We've got more than 50 per cent of adults that can't read or write, 40 per cent of the population living below the poverty line and still at this point, more than one in ten children who are born today will die before the age of five.

Eleanor Hall: James Ensor from Community Aid Abroad speaking to Hamish Fitzsimmons.