East Timor's Council of Ministers has approved revisions to the Petroleum Fund Law that will see one of the smallest countries in the world move its money out of the world's biggest economy, the United States.

Revenue from oil and gas exploration and drilling forms the bulk of East Timor's budget. As the law stands now, the country invests 90 per cent of its money in US treasury bonds and 10 per cent in different assets.

The change to law still needs to be approved by the National Parliament, but if it is, it would see 50 per cent of East Timor's oil money invested in a range of various assets, currencies and regions for diversified risk and greater economic returns.

Presenter: Liam Cochrane

Speaker: Jose Teixeira, Member of Parliament, Fretilin Party and former Minister for Natural Resources, Minerals and Energy Policy

Teixeira: Well if it was only that, that is one of the moves being mooted that'd be fine, because there is nothing wrong with diversification of the fund itself. Certainly it was also our intent when the fund was first established, when we had limited capacity it was our intention to make sure that we one day diversified the funds. That's not our concern. Our concern is with the other aspects, which includes the lowering of the credit rating for which securities the fund can be invested in. Currently it has to be double-A plus rated and one of the proposals as I was informed and as I read is to bring it down to as low as B. There are some other issues that make the fund from our point of view less transparent in terms of its management, and less out of the control of Timorese authorities, and that's a concern for us. Security lending for example is a real big problem for us.

Cochrane: Ok so two issues there, one of them is the more risky investment if you're looking at the credit ratings of B rather than AA-plus. Are you worried that the significant money, we're talking about billions of dollars here, could be put at risk by unsafe investments?

Teixeira: Look the problem you see is this that the global financial crisis has not yet stabilised. There is still a lot of dynamic involved and I think at this stage to start to play games with equities as is proposed, some equities that are non-bond secured, they're non-state sovereign backed, I think these are very risky investments to go into. The advice that I understand that the current de facto government is getting is that you've got to take a long-term view and that you might lose some on the swings that you might pick up on the roundabout. Well from my point of view the fund is far too small right now. We've only got one major production, oil and one major gas production platform, we've got some smaller ones coming on stream but right now there are very, very few eggs in our little basket. Diversification to get better yields annually is one thing, but to lower the security of the investment and to increase the risk is another thing.

Cochrane: Now the other issue that you raised was that of transparency and you've pointed out in press releases over the last week that you've made note of the Finance Minister's comments and the Prime Minister's comments urging government officials to do more to tackle corruption. At this point how do you rate the government's progress in fighting corruption?

Teixeira: It's been woeful, they've stuck their head in the sand, when we were pointing out some of the dangerous aspects of including some of the very, very large budgets that we always warned them would not result in actual service delivery or benefits to the population, and that it'd just be lost in waste and in corruption, we were just criticised as being anti-development. We were criticised as being just too conservative fiscally. Well it's proven to be right in that the services are not being delivered, the major capital investment into infrastructure has not gone ahead, and in fact all that's happened is there's been a lot of waste and leakage, and for them now to be recognising and to be saying we acknowledge that it's there, I think it comes a little bit too late.

Cochrane: Now you mentioned projects not being completed and infrastructure not getting developed. One of the most common complaints from Dili residents that I heard when I visited last month was in regards to the frequent power cuts, the electricity blackouts. Now I understand that the Fretilin Party has requested some contracts and documents that you believe should be available to the government relating to power production. Has there been any development on that, have you received those documents?

Teixeira: I don't think I'll ever see hide nor hair of those. In October of last year our national parliament with the vote of members from the government passed a resolution that there'd be an audit undertaken of those contracts as well as the investment that's been made, the budget that's been spent. And all that we got almost two months late was more in terms of a very shallow sort of study or assessment of the sector. And yet still no reference in detail of any of the contractual documents being made available. This is something that we'll continue to insist on, and we are seeking right now other possibilities, including perhaps taking the matter to court in order to obtain that documentation.

Cochrane: Now to bring the conversation around full circle, we talked about the investment of oil money but of course that depends on having oil money in the first place. Last week on Connect Asia we heard a fairly scathing critique of the energy company Woodside by one of their former employees, Mandy White, she was criticising the way they've handled community and government relations. Do you agree with her assessment that Woodside should shoulder a lot of the blame for the current stalemate over exploring the Greater Sunrise gas field?

Teixeira: Look I'm not going to criticise on events that have occurred during the tenure of this government because we have not participated in the negotiations. All that I can say is that when I was involved with Woodside we initially were confronted with some fairly aggressive and fairly obstinate positions taken by Woodside. We managed to bring them to the table and we were beginning to talk and Woodside was beginning to listen to the options. Now I guess only the current negotiators, including perhaps Ms White and the Woodside people know want went on. I can only say that my experience with Woodside was both negative and then heading towardes positive without necessarily getting totally to the positive.

Cochrane: Ok so you can understand though her comments of at least initially an aggressive approach to negotiating the deal?

Teixeira: Well when you're dealing with big oil you're always likely to come across some pretty obstinate positions. Big oil and small emerging nations are not a good mix for cosy relationships or even warm relationships. There is a power imbalance that exists there and the fact is that they have their goals whereas the government, including this government of the day, and we have a consensus in relation to what happens with Sunrise Gas, we don't have a problem with that, we have many issues that we differ on, but the one issue is that we share the goal. In some respects the government is only carrying forward the work that we began, in many respects in fact. So from our point of view I think I can pretty much see their point and Ms White's point of the obstacles that big oil can be sometimes.