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A year on from independence, East Timor is still plagued by poverty, uncertainty, and lack of government capacity. However, the 4 December riots and the militia infiltration’s of January have focussed attention on the urgent need to address development issues, while also dealing effectively with internal security. Two important developments in 2003 have improved the prospects for success in both these tasks.
In March, the Australian Parliament finally ratified the Timor Sea Treaty. This was at the last possible moment before an agreement by Phillips Petroleum to supply liquefied natural gas (LNG) from the Timor Sea to Japanese power companies was due to lapse, if legal certainty on the ownership of the resources could not be established. East Timor was required to accept as the price for ratification an ‘International Unitisation Agreement’ regarding the exploitation of the Greater Sunrise gas field, most of which lies outside the area covered by the Treaty. Though the two issues were not necessarily linked, it was the Australian government’s strategy to treat them as a package. Securing the exploitation of the estimated 10 trillion cubic feet of gas (worth as much as A$30 billion) located in the Greater Sunrise field has been an objective of the Australian government throughout its negotiations with Dili.
From the Treaty’s ‘Joint Petroleum Development Area’ (JPDA) where East Timor is entitled to receive 90 per cent of the revenues, the new nation can now expect a revenue stream estimated at A$6.5 billion over 20 years, with Australia to receive about A$1.5 billion. It will also receive a possible A$500 million in revenue generated by the exploitation of Greater Sunrise field. Prime Minister Alkatiri must have derived some satisfaction from the fact that he was able to extract a final sweetener as the price of closing the deal. Australia agreed to a further US$1 million a year for at least five years, and US$10 million per year once exploitation of Greater Sunrise begins. It should be kept in mind that the latter figure is around 15 per cent of the Dili government’s current budget. However, reductions of 24 per cent in Australian overseas aid to East Timor announced in the 2003 budget have reduced somewhat the net benefit of the arrangement.
If Dili can now rely upon guaranteed future revenues to fund development, the security situation in the country is still precarious. After a review of the deterioration in the security position, the UN Security Council decided (in resolution 1473) on 4 April 2003, to slow the anticipated draw down of UNMISET forces and to reconfigure the police component to provide the capacity to deal more effectively with such problems. UNMISET was established with a mandate for the two-year period from independence, but it remains to be seen whether East Timor will be able to take full responsibility for all security tasks by this time next year. The UN is now, however, much more focussed on developing East Timor’s capacity in this vital area of policy.
WATCHPOINT: Once Timor Sea Treaty revenues begin to flow, how will they be used to fund development, and will security be maintained to make sustainable development possible?
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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