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Timor-Leste can't afford its Greater Sunrise grandiose ambitions

Australian Financial Review - August 30, 2019

Damien Kingsbury – In the weeks before Timor-Leste's historic vote for independence in 1999, there was a sense the horror and misery of the 24 years of Indonesian occupation were coming to an end.

In the face of massive intimidation, an overwhelming majority voted for independence, optimistic about what lay ahead. Twenty years on, many will probably be reflecting on those hopes and dreams.

With limited capacity and resources, newly independent states rarely live up to expectations. When political crisis hit in 2006, Timor-Leste could have followed the path from violence to authoritarian response and on to one- party rule. Instead, due in significant part to international intervention, it not only survived but emerged as arguably the most democratic state in south-east Asia.

Democracy does not, however, necessarily result in good decision-making, nor does it obviate the influence of charismatic figures, such as former guerrilla leader, president and prime minister Xanana Gusmao. Gusmao has been a uniting figure for most East Timorese, personifying what many long thought was an unrealisable dream of independence. With Timor-Leste's nay-sayers proved wrong in 1999, Gusmao's vision for the country since has reflected hope – and luck – over probability.

In the next few years, the 2007 election released political tension and windfall oil income from the Timor Sea oilfields helped buy off disaffected soldiers and veterans, rebuilt homes, and allowed small pensions for the elderly. Imported, subsidised rice and better education led to a dramatic fall in infant and maternal mortality, and a related increase in life expectancy.

But in the past decade, these indicators have stagnated. Malnutrition and poor education are still endemic. The country remains heavily dependent on imported food with self-sufficiency seemingly out of reach of its agricultural sector.

Crucially, government spending for more than a decade has outpaced what would have been a prudent rate of withdrawals from the country's $16 billion sovereign wealth Petroleum Fund. The fund could have sustained a 3 per cent withdrawal rate – spending has been at least twice that. With the Timor Sea oilfields expected to cease production by 2023 and no other meaningful sources of income, at the present rate of spending the country will be broke before 2030.

Since 2007, Timor-Leste's plans to boost revenues and provide jobs has focused on the Timor Sea's potential $50 billion Greater Sunrise liquid natural gas (LNG) and oilfield. The resolution of the Timor Sea dispute with Australia in Timor-Leste's favour last year brought the Greater Sunrise field a step closer to being developed. But it is not yet out of the blocks.

The Timor-Leste government insists that the LNG be piped to a planned processing plant on the country's south coast. Woodside Petroleum, the lead Greater Sunrise operator, is deeply reluctant to lay the pipelines as this would require routing across a technically challenging deep undersea trench and would prefer either a floating platform or piping to Darwin. This difference of opinion has put the project on hold.

Risk in going solo

Timor-Leste is now considering buying out Woodside's partners to gain a majority share and develop the field itself. With this in mind, it has acquired the Conoco-Phillips stake. The nation has already committed to building the LNG refinery, plus infrastructure, at a cost of at least $5 billion. The development cost for the whole project could be as much as $16 billion.

If Timor-Leste does go it alone, many fear the project would quickly exhaust the country's limited financial reserves. Timor-Leste would then most likely require a loan, probably from China, and this will make it beholden to a regional superpower whose intentions are not always benign and which is often at strategic odds with neighbours such as Australia and Indonesia.

If Greater Sunrise is developed by Woodside, on the other hand, Timor-Leste stands to gain a much-needed revenue boost to the sovereign wealth fund at virtually no domestic cost. It would allow the country breathing space to plan its way towards a sustainable economy.

The events of 1999 required a very particular set of circumstances to deliver independence; the Cold War had ended and the US was less concerned to prop up allies such as Indonesia's President Suharto, Indonesia was in economic crisis, and idiosyncratic post-Suharto President B.J. Habibie acted against his country's elites and military by allowing the independence referendum. The ballot also had the support of the wider international community.

Achieving independence was thus partly the result of a lucky confluence of events. Successfully running a country, however, is not a matter of luck but sound decisions. If Timor-Leste can reconcile its ambitions with its capacity, it has a chance to remain a stable, developing country. Overreaching, like it now seems to be doing, will most likely have disastrous consequences for its long-suffering people.

[Damien Kingsbury is Professor of International Politics at Deakin University. He led the Australian volunteer observer mission to Timor-Leste in 1999 and has co-ordinated observer missions to each of its elections since independence.]

Source: https://www.afr.com/world/asia/timor-leste-can-t-afford-its-greater-sunrise-grandiose-ambitions-20190829-p52m5