HT Lee – The next round of talks between East Timor and Australia over the Timor Sea oil and gas riches begins on Wednesday in Sydney – just in time to be buried in the post-budget avalanche. Foreign Minister Lord Downer hopes the talks will tie up the loose ends to the creative solutions proposed by his East Timorese counterpart Jose Ramos-Horta.

Under the proposal, East Timor will forgo its claim to maritime boundary for 99 years, in return for a one-off additional payment of not more than $5 billion from the revenue of Greater Sunrise. Both Downer and Horta hope the talks can be finalised in Sydney. However, should there be a hitch hardly anyone would notice it. All the attention in town would be about Costello's budget. And the implanted impression through Downer's spin will still be "Deal reached on Timor Sea oil" as reported by Cynthia Banham in the SMH two weeks ago.

Unfortunately for Downer and Horta their smooth sailing double act is heading towards some troubled waters. The local East Timorese NGOs are not pleased with the deal. Demonstrations are being planned.

And long time Darwin East Timorese activist Rob Wesley Smith has written an open letter to Jose Ramos Horta: "Timor Sea Skulduggery," posted on the online Timor Sea Justice discussion group - http://www.TimorSeaJustice.org/.

The proposed "creative solution", according to Wesley, is short-changing the East Timorese to the tune of billions of dollars in revenue. And he accuses Horta of wanting to "enhance his credentials as a peacemaker to strengthen his claims to be the next Secretary General of the UN." Wesley also pointed out that, according to an AGE article this week, the Sunrise project would not even get started until after 2015 with the first oil and gas on that scenario unlikely to flow until after 2020. So why the hurry?

Is there any truth in Wesley's accusations? The creative solution was first raised in August last year by Horta and Downer. They announced a breakthrough at a joint press conference in Canberra: "We will continue to talk in the next few weeks to work out the details of this arrangement so it is satisfactory to all of us," Downer said. "We have the basic ideas, I think we can meet halfway in the approach and now we just need to work out the details."

Some East Timorese supporters accused Horta of doing his mate Downer a favour because that announcement neutralised the Timor Sea dispute as an election issue. According to sources in East Timor, the creative solution was initiated by Horta and supported by Galbraith.

The deal was for a one-off payment of US$10 billion. In return, East Timor would undertake to put the boundary negotiations on hold for a period up to 99 years – known as the Hong Kong solution.

At the September round of talks in Canberra, Australia bargained the figure down to US$3 billion. It was agreed that the December round of talks would finalise the deal. However, it appeared the East Timorese negotiators had overstepped their brief from Prime Minister Alkatiri. He took objection to the proposal and insisted that the boundary negotiations would continue.

The Australian negotiators, according to our sources, had no choice but to announced the talks had broken down because the East Timorese had changed the goal posts. The purpose of the announcement was to give the impression the Hong Kong solution was an Australian idea – protecting the real identities of those who initiated it. Woodside in many ways was pleased the IUA was not ratified by last December because it gave it an out to delay the Sunrise project. They have other more pressing commitments at Browse Basin and other overseas projects. In fact they have pulled out all their engineers from Sunrise to Browse Basin.

In spite of Downer's spin, East Timor is not getting a greater share of Greater Sunrise. Its share of the rich oil and gas reserves is still restricted to the current boundary of the Joint Petroleum Development Area (JPDA) – 18% of Greater Sunrise; 90% of Bayu Undan; and no share from Laminara/Corralina. The three oil and gas fields have total reserves of 3.3 billion barrels of oil equivalent (BOE) - Bayu Undan 1.05 billion BOE; Greater Sunrise 2.05 billion BOE; and Laminara/Corralina 0.2 billion BOE. And East Timor's share is still less than 40%.

The US$3.5 billion now on offer can be described as creative accounting. The price of oil has more than doubled since the January 2003 price of US$20 per barrel. According to oil and gas consultant Geoff McKee the all up government take from Sunrise has risen from US$18.5 billion to $US40 billion based on present day value of around US$50 per barrel.

And if you add up the Australian share of the windfall from Bayu Undan and Laminara/Corralina you will get a figure of more than US$3.5 billion without even adding up the windfall from Sunrise.

The creative solution proposal does not include the "with the stroke of the pen" solution first raised by the late Andrew McNaughtan three years ago. To overcome the boundary problems with our neighbours, McNaughtan suggested that Australia could, under the terms of the Timor Sea, Treaty deem East Timor to received a greater share of Greater Sunrise than the 18% to which it is currently entitled.

Alternatively, Australia could agree to expand the boundary of the JPDA to be as close as possible to the boundary claimed by East Timor.

Any oil and gas revenue in the new expanded JPDA could then be shared between Australia and East Timor using a new formula to that of the present 90:10 in favour of East Timor.

McNaughtan handed in his proposals in person to Horta in late 2003 - just before his untimely death. However, Horta appears not to have given McNaughtan's stroke-of-the-pen solution any thought. All the spin and leaks to the media of the success of last month's talks came from Downer and DFAT. This, according to our sources, is to put pressure on Alkatiri and East Timor's parliament to ratify the deal. We now eagerly await the outcome of the Sydney talks.