New Internationalist

Timor oil pressure

Issue 346

Independence comes at a high price

After 500 years of colonialism 2002 marks an outstanding victory for self-determination in East Timor. But in the world’s newest nation, the struggle for economic independence is just beginning. Since the cataclysmic end to Indonesian occupation in 1999, East Timor’s economy has been reliant on donations from countries, most of which supported its annexation. That should change in 2005 when enough oil and gas revenues from the Timor Sea come online to sustain Government expenditure. In the meantime, international donors are being asked by the East Timor Government to save the country from going into debt by bridging its expected ‘gap’ (a third of its budget) with $91 million in grants.

Despite the modesty of the request, foreign donors (including the US, Australia, and Japan) want the World Bank — not the East Timor Government — to administer the grants. East Timor’s Finance Minister, Fernanda Borges, resigned in April. The main fear held by commentators inside the country now is that the grants will be made contingent upon East Timor giving up oil and gas reserves in the Timor Sea: an implicit part of World Bank negotiations.

While the Timor Sea reserves are in a seabed claimed by both Australia and East Timor, a treaty negotiated between Australia and the UN Transitional Administration in East Timor entitles East Timor to 90 per cent and Australia to 10 per cent of the oil and gas revenues in a ‘Joint Petroleum Development Area’ within the disputed territory. This sounds favourable for East Timor. Yet the area covered by the treaty holds less than half the petroleum reserves in the disputed area. Most of the reserves, and most of the revenue from them, flow to Australia. Australia is acting to ensure that these revenue flows continue. It may be East Timor’s fourth-largest donor, but it wants to give millions with one hand and take an estimated $30 billion in future oil and gas revenue with the other.

At a conference in the capital, Dili in late March, PetroTimor (a US oil company vying for a stake in the area) produced expert legal advice saying that the treaty compromised East Timor’s position under current international law on maritime boundaries, that would have given East Timor almost all of the reserves in the Timor Sea. PetroTimor offered to fund East Timor’s case against Australia in the International Court of Justice, in return for a cut of the revenues. The International Court of Justice can determine a case only when both countries in dispute accept its jurisdiction. The Monday following PetroTimor’s revelations, the Australian Government announced that it had withdrawn from the court’s jurisdiction on maritime boundaries claiming that disputes were better settled through ‘negotiation’. Meanwhile, UN advisers presently in East Timor are supporting the continuation of the treaty, and Australia’s economic position under it.

East Timor’s Prime Minister, Mari Alkatiri, has described the move as an ‘unfriendly act’. But East Timor needs money: even if it comes from short-term grants and inequitable treaties. The donor grants will help this emerging nation avoid the debt trap and be independent from the World Bank in the long term. But economic freedom comes at a high price. East Timor may have to compromise some of its sovereignty and most of its natural wealth to get it.

Quinton Temby

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