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As it approached its second birthday as an independent nation, East Timor resumed negotiations with Australia on a permanent delimitation of their seabed boundary at a meeting convened in Dili on 20 April. The East Timorese Prime Minister Mari Alkatiri complained of the slowness of the negotiations, with Australia insisting on only two sessions a year while East Timor has sought monthly meetings to resolve the issue within five years. He also claimed that if Australia accepted a boundary established according to current international principles, the impoverished new nation’s revenues would be tripled as a result. President Gusmão reminded Australia that, without an adequate income to meet its desperate need for development funds, East Timor faced the prospect of ‘state failure’ in the manner of the Solomon Islands. Protestors at the Australian Embassy have complained of the unfair treatment of East Timor’s claims.
Under the 2003 Timor Sea Treaty the revenues generated from the Joint Petroleum Development Area (formerly the joint and equal possession of Australia and Indonesia) are to be shared with 90 per cent going to East Timor. In an annex to the Treaty, the large Greater Sunrise gas field, which borders the JPDA, is divided in such a way that 20.1 per cent is recognised as coming within the JPDA with East Timor consequently standing to gain 18 per cent of the royalties generated. Under these terms East Timor will earn altogether around A$7 billion over 20 years.
A revision of these terms may well increase East Timor’s revenues. However, under those circumstances oil and gas companies may consider that investments in the fields in question may pose a greater risk, and in order to secure and adequately protect them East Timor would be obliged to find some of the expenses necessary. While the Greater Sunrise ‘unitisation’ agreement was signed in Dili in March 2003 it has not yet been ratified by East Timor’s parliament, and Mari Alkatiri has threatened to delay ratification in order to pressure Australia to adopt a more conciliatory approach. Woodside Petroleum which is set to invest at least A$6 billion in Greater Sunrise has warned that without timely ratification the project will not proceed.
This controversy is occurring just at a time when the record of Australia’s handling of the 1999 crisis has come under fresh scrutiny as a result of the publication of internal Defence Department documents. According to LtCol Lance Collins, a senior intelligence analyst who served as MajGen Cosgove’s chief of intelligence in East Timor, he produced reports prior to the 1999 ballot arguing that the Indonesian military were the sponsors of the Timorese ‘militias’ and that they would take revenge for a vote for independence. These warnings were deflected by the ‘Indonesia lobby’ within the Australian security community, whose hostility then adversely affected his career prospects and reputation. Though the government still refers to East Timor as a triumph of policy-making, these claims (if substantiated) suggest that Canberra by virtue of its encouragement of, and assistance with the financing of, the ballot should accept some responsibility for the devastation of the territory by the militias in September 1999. In those circumstances East Timor’s case for an increased revenue stream to devote to development and reconstruction can only be strengthened.
WATCHPOINT: Will the Australian government modify its approach to the Timor seabed negotiations to accommodate to renewed domestic and East Timorese criticism of its record, and what impact might this have on business decisions regarding resource extraction?
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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