Timor Leste ‘no better off in short term’ despite sea treaty cancellation
SBS News – January 9, 2017
Kerrie Armstrong, Myles Morgan — Timor Leste will be no better off despite the cancellation of a treaty that divided resource revenues between the country and Australia, an expert says.
Deakin University southeast Asia expert, Damien Kingsbury, told SBS News the cancellation of the 2006 treaty means a pre-existing 2002 treaty is now back in force. “East Timor is no better off in the short term under the new arrangement,” he said.
“There’s no particular benefit to Australia between the two agreements. Australia will have to pay a small amount of money to East Timor in the 2002 agreement now that that’s back in force, but that’s not really significant in the grand scheme of things and it doesn’t really alter the broader financial arrangements around the division of resources.”
Timor Leste has long pushed for Australia to agree to a maritime boundary between the two countries that would comply with the international law of the sea. A halfway boundary between the two nations would mean the mineral rich fields would be under Timor Leste’s control.
The government also argued, successfully, that Australia negotiated the 2006 treaty, which allowed Australia a disproportionate share of the oil and gas revenues from the Timor Sea operations, in bad faith after allegedly bugging the Timor Leste government.
“It would appear that Australia has agreed that it was conducted in bad faith and that treaty has been cancelled,” Professor Kingsbury said.
“The current status is both governments have said they will enter into negotiations around a permanent maritime boundary between Australia and East Timor — that’s what East Timor has been arguing for. The question now is whether that is going to occur in a shorter time frame or in a longer time frame.
“I think more likely is it’s going to take quite some time, indeed Australia may not negotiate in good faith or it may not negotiate with any sense of urgency, the practical outcome being the existing arrangements in the Timor Sea remain in place.”
Timor Leste’s ambassador to Australia, Abel Guterres, told SBS News the maritime boundary was a bigger picture than resources revenue. “Timor Leste needs to know what part of the sea belongs to it in terms of its development, its long term economic issues,” he said.
“As a new state we must know what belongs to us and in terms of our fisheries, our navy corporation, how far can our navy come into the waters in the Timor Sea, and (how) far Australian navy can go there, so this is a bigger picture issue in terms of co-operation between the two countries and this is where clear jurisdiction is so important.”
Mr Guterres said it was important that both sides had agreed to come together and negotiate under international law.
“International law is neutral, that both sides can live with because neither side imposing on the other, which is very important, and both sides have agreed to negotiate under international law and that is perfect for Timor Leste,” he said. “I’m sure the end result will satisfy both sides and that is what is important for us.”
Timor Sea Campaign’s national co-ordinator, Ella Fabry, told SBS News the cancellation of the treaty was “the first step in righting the wrongs of the past”.
“For us, we’re hoping it means it will pave the way to negotiating a much fairer maritime boundary with Timor Leste,” she said.
“The simple and fairest solution for this is to draw permanent maritime boundary along the median line. That’s what would be in accordance with the international law.”
Professor Kingsbury said Timor Leste was in a difficult place financially, and needed access to the Timor Sea’s Greater Sunrise liquid natural gas (LNG) project revenue in order to shore up its economic future. But even this solution is unlikely to solve all the country’s financial woes.
“East Timor currently has about $16 billion in the bank and it’s supposed to be living off the interest from that revenue stream, however it’s also been using the capital from that account and at this rate of expenditure East Timor will be broke by the end of the 2020s, so what it hopes to do is to tap into the resources of the Greater Sunrise field,” he said.
“In the heyday of the Greater Sunrise field, when LNG prices were high, the field was thought to be worth about $45 billion in revenues, which would be divided evenly between Australia and Timor Leste.
“However LNG prices have fallen very considerably since then, so even if East Timor does get access to the field, and even somebody does choose to develop it, and even if the timing of that fits into its other more pressing financial requirements, it’s not clear that East Timor will derive enough money from that field to sustain it into the long-term future.”
Ms Fabry said a fair maritime boundary would provide “economic security and it would close the journey to independence for them”.
“They’re a fledgling nation, they’ve only just become independent 14 years ago, so for them it would mean completing that journey to independence and knowing exactly what their economy is going to look like for the next 10 years,” she said.
“I think the conciliation that came about late last year was a huge victory for Timor and it was a huge victory for fairness and good relationships in the region and a lot of the pressure that’s going to go on the Australian government will come from the Australian people who are lot more wary of them this time around.”
SETL was established in 20 to provide loans to young employed East Timorese who cannot access bank loans for housing. The first loan to a young couple in Dili, both employed in nation building jobs but unable to secure a bank loan, was set up as a Pilot Program. Both borrowers and SETL kept records of the issues from and challenges of the project (ie the building process and concurrent loan repayments) with the intention to meet and discuss how things could be improved. Most of the SETL Board travelled to Dili in July 2016 and the review discussions were on-going over two weeks so that a clearer picture could be gained. Cultural and languages differences meant this process was appropriate, indeed essential.
The review showed that the SETL Pilot Program has been very successful thus far. A substantial house has been constructed in which the borrowers are living with their young family, and repayments are being made on time according to the agreement. The house is spacious, well built and, although SETL did not fund land acquisition, on a big block of land that is useful for fruit tree and vegetable cultivation.
What was learnt during this review consultation will affect future loans by SETL in Timor Leste. These include:
careful attention must be paid in calculating loan amounts to rising costs in an economy where almost all commodities are imported. It is not possible to predict the future of prices accurately so an allowance must be built in to project cost estimates.
The schedule of loan repayments needs to be scrutinised to ensure it is not too high as to become unsustainable. East Timorese are not used to loans of this size and employment is not secure, hence borrowers are anxious to repay quickly while they have income. Financial education pre-loan advancement should help borrowers understand that repayment of a housing loan is long term, that arrangements include flexibility and that obligation to repay does not have to equal overwhelming stress. This is a cultural difference in borrowing experience from taking up a personal loan under the traditional deve system where personal reputation is at stake.
The biggest learning for the SETL Board was about the community context of TL borrowers which differs markedly from borrowers in Australia. Living in one of the world’s poorest countries, when people have a job there is expectation that they will share with those who don’t. Traditional cultural demands include contributions to funerals, weddings, christenings but also money for health crises (of which there continue to be many in a post-conflict society) eg operations, chemotherapy (often done in Indonesia). Borrowers have high community demands on them that are a big pressure when repaying a set amount for a loan. Failure to provide help produces significant social disapproval, a factor not well understood by SETL Board before our consultation. This must be considered as significant in negotiating loan repayment amounts.
The financial sector in Timor Leste is underdeveloped with property rights unclear and disputes clogging up the courts, and contract enforcement regulation is weak or non-existent. The real guarantor of loan repayments is relationship, as it is understood within the TL context. SETL will therefore seek to identify through our contacts in Timor Leste an intermediate layer of people with whom a would-be borrower has a relationship to provide that relationship obligation. SETL could then remain unidentified as a “not-for-profit” organisation which does not hold the same power of obligation to repay.
Housing is SETL’s prime concern but due to the underdeveloped systems of Timor Leste, house building has many challenges. In the Pilot Program these were dealt with by the first borrowers by themselves, eg project management, inspection of the quality of work, materials purchasing. They did this successfully but at a very high cost to themselves. So the SETL board has decided to widen our possible loan scope because it is likely be difficult to identify potential borrowers who could undertake these extra but necessary building tasks. If an intermediate person was approached about a loan that SETL assesses as meeting a grassroots need, we may be open to funding such a venture. This will be explored further in 2017 when we seek to set up the intermediary structure.
Three of the world’s most fragile countries are on Australia’s doorstep, according to a new report that implores the international community to maintain its aid commitments.
The OECD’s “States of Fragility 2016: Understanding Violence” report, released this week, identifies 56 countries or regions as being fragile based on how exposed they are to risks like economic shock, youth unemployment, disease, corruption, crime and violence.
Three of Australia’s closest neighbours – Papua New Guinea (PNG), the Solomon Islands and Timor-Leste (East Timor) – are assessed as fragile. PNG is rated as more fragile than countries that have endured recent coup attempts such as Egypt, Libya, and Burkina Faso.
The 56 countries assessed as fragile by the OECD. (OECD)
The report calls on the international community to “provide adequate, long-term? development assistance for these countries and “focus funding on the real drivers of fragility?. It also wants countries to develop “better financing strategies?.
The rise of violence in the world is also examined. The OECD estimates almost half the world?s people have been affected by some form of political violence over the last 15 years and it underscores that fact the conflict is not the leading cause of violent death. The report notes that in 2015, more people died violently in countries outside of conflict, including Brazil and India, than in Syria.
According to the report, PNG and Timor-Leste are more vulnerable to political risks, while the Solomon Islands?s most substantial vulnerability is to environmental and health risks.
Together with Indonesia, these three countries represent the largest four recipients of Australian aid. PNG was given $554.5 million in 2015-16, the Solomon Islands was granted $175.9 million and Timor-Leste received $95.3 million.
A 14-year old border conflict between Timor-Leste, also known as East Timor, and Australia was revived by The Hague’s Permanent Court of Arbitration (PCA) on Monday.
Around 3,000 nautical miles separate Australia and Timor-Leste, an island in the Indonesian archipelago. Between the two countries lie the Timor Sea, home to the Joint Petroleum Development Area (JPDA) that is rich in oil and natural gas deposits. Next to the JPDA are the Sunrise and Troubadour gas fields, collectively known as Greater Sunrise, that are worth an estimated $40 billion.
These fields are at the heart of the maritime dispute that has weighed on bilateral relations and holds the potential to accelerate the nascent Timorese economy.
The Permanent Court of Arbitration
Under the 2002 Timor Sea Treaty, the Southeast Asian island receives 90 percent of revenues from the JPDA’s energy resources, with the remainder going to Australia.
However, only 20 percent of the Greater Sunrise fields lies inside the JPDA, according to the 2006 International Unitization Agreement on Sunrise (IUA), which allotted the remaining 80 percent to Australia.
Subsequently, a separate 2006 agreement [the Treaty on Certain Maritime Arrangements in the Timor Sea, or CMATS] was signed to divide revenues from the Sunrise fields 50-50. CMATs also stipulated a 50-year freeze on both countries from negotiating a permanent maritime boundary.
In 2013, the Timorese government accused Canberra of espionage to gain commercial advantage during CMAT’s negotiations, claiming that such a move invalidated the agreement.
In April this year, Timorese Prime Minister Rui Maria de Araujo initiated formal conciliation proceedings by invoking the United Nations Convention on the Law of the Sea. He aims to establish an exclusive economic zone, including a permanent boundary, one that will allow the island to gain control of the entire lucrative Greater Sunrise fields.
Australia has argued that the Hague’s international arbitration court does not have jurisdiction over the dispute as per CMATsa response that bears striking similarities to China’s viewpoint when the same court ruled on the South China Sea dispute. In an effort to appeal to the U.S. for help earlier this year, PM Araujo also accused Australia of behaving like Beijing.
On Monday this week, the court refuted Canberra’s claims, announcing that it was indeed competent to hold a conciliation. Talks between the two countries will now continue over the next year.
VALENTINO DARIEL SOUSA | AFP | Getty Images
Activists attend a rally outside the Australian embassy in Dili, capital of Timor-Leste, on February 23, 2016. Hundreds called on the Australian government to negotiate for the establishment of permanent maritime boundaries between Australia and Timor-Leste.
Home to a population of 1.2 million, Timor-Leste relies on oil and gas revenues from the JPDA for the majority of its state budget, and the World Bank has long warned the middle-income country to diversify its economy away from energy.
The country was a Portuguese colony until pro-independence fighters declared victory in 1975. Shortly thereafter, Indonesia claimed the region as its 27th province, paving the way for a violent conflict between the Indonesian military and separatist forces. It was only in 2002 that East Timor became a sovereign state once Jakarta relinquished control.
“Development of the Greater Sunrise gas field is the key to the economic future of Timor-Leste,” Rebecca Strating, lecturer at Melbourne’s La Trobe University, argued in a note last week.
PM Araujo is using the conciliation as part of a broader diplomacy strategy to pressure the Turnbull government, using activist-style rhetoric that positions the dispute as the final stage of Timor-Leste’s sovereignty, Strating explained.
But the island is running out of time.
It’s estimated that the Bayu-Undan oil field, one of the government’s biggest income generators located in the JPDA, will stop producing in 2022, Strating flagged. Moreover, the country’s $16 billion sovereign wealth fundknown as the Timor-Leste Petroleum Fundcould be depleted by 2025, she noted.
The fund was among the top five best performers in the 2013 Resource Governance Index, a ranking developed by the non-profit Natural Resource Governance Institute.
“Even if Timor-Leste wins the conciliation, it will mean going back to square one with Greater Sunrise negotiations. It is difficult to see how this presents a practical, long-term solution for resolving the dispute,” said Strating.
On Monday, Australian Foreign Minister Julie Bishop noted the current arrangements were hugely beneficial to the former Portuguese colony but said her government would engage in good faith during the conciliation process.
“There is an inescapable perception that Australia is denying its tiny, impoverished neighbor its sovereign birthright to determine its boundaries, control its own resources, and shape its own destiny,” Ben Saul, Challis chair of international law at the University of Sydney, wrote in an August note. “Australia should stop obstructing Timor and help it to secure its borders and its future. This week’s conciliation gives Australia a new chance to do the right thing.”
Legal experts say July’s South China Sea ruling could offer insight into the final verdict on the Timor Sea matter.
By denying China’s territorial claims, the tribunal raises the prospect that Timor-Leste might successfully initiate an arbitration against Australia, corporate law firm Gilbert + Tobin explained in a report. Nyshka ChandranReporter, CNBC Asia-Pacific
Vol 26 No 19/Another win for ‘David’ Timor against ‘Goliath’ Australia
Another win for ‘David’ Timor against ‘Goliath’ Australia
Frank Brennan | 26 September 2016
David Timor has once again scored a win against Goliath Australia in the international legal forum. Last time it was in the International Court of Justice which took strong exception to Australia’s raiding of the office of a lawyer involved in the preparation of Timor Leste’s case, though admittedly Australia’s one ad hoc judge did dissent on key points from the other 15 judges!
This time it was before a five-member Conciliation Commission convened under the auspices of the Permanent Court of Arbitration. Timor had asked for compulsory conciliation seeking to advance its demand that Australia come to the table and commence the negotiation of maritime boundaries. Australia raised six objections to the conciliation. All six objections were rejected unanimously by the commission.
Two of the commissioners were nominated directly by Australia. One of those commissioners was Dr Rosalie Balkin who had been a highly respected Assistant Secretary in the Australian the Attorney-General’s Department. She had been in charge of the Public International Law Branch in the Office of International Law.
Balkin’s involvement is very significant in light of the long entrenched Canberra bureaucratic mindset which has informed governments of both political persuasions on Timor issues, urging them to yield no ground when it comes to boundary negotiations.
Responding to the commission’s findings, Attorney General George Brandis and Foreign Minister Julie Bishop on Tuesday regurgitated the long repeated Canberra mantra: ‘The current treaty arrangements between Australia and Timor-Leste have been hugely beneficial to Timor-Leste and have supported the accumulation of a $16 billion sovereign wealth fund …
‘We have a strong interest in Timor-Leste’s stability and growing prosperity, and in providing a stable and transparent framework for investment in the Timor Sea.’
They have no idea just how patronising this sounds in Dili each time Australia gets defeated in the international forum. They may well be right. But it’s not their call. Timor-Leste is now an independent sovereign nation and its leaders, which include those who fought for its independence, now want to negotiate maritime boundaries. It’s time for some very plain speaking in Canberra.
Australia and Timor Leste negotiated the Timor Sea Treaty in 2002 and the CMATS Treaty (Treaty on Certain Maritime Arrangements in The Timor Sea) in 2006. The CMATS treaty was negotiated in such indecent haste that Foreign Minister Alexander Downer deliberately circumvented the usual Australian parliamentary process for scrutinising the treaty. “Turnbull’s advisers may well continue to argue that risks in relationships can be minimised by maintaining present arrangements. This week’s ruling should give the Canberra bureaucrats every reason to pause.”
It was finalised at a time of great political instability in Timor Leste. CMATS was designed to put the negotiation of maritime boundaries on hold for 50 years, providing Timor Leste with a 50 per cent revenue share of the Greater Sunrise oil and gas field, even though most of the field fell within Australian jurisdiction under the 2002 agreement. Back in 2006, commentators including me endorsed CMATS as a fair deal given that it was supported by the Timorese leadership who were content to put boundary negotiations on the long finger in exchange for a short term financial windfall.
The expectation was that a deal for the development of Sunrise would be finalised within six years and that production would start shortly thereafter. But that never happened. No deal was struck with the joint venturers led by Woodside and Shell. With the present glut in oil and gas prices, it is highly unlikely that Sunrise will be developed in the foreseeable future. For example, Shell has shelved the Browse project off the Western Australian coast. Browse is twice the size of Sunrise, and has none of the complex jurisdictional issues.
Having learnt that Australia spied on the Timorese negotiators when CMATS was being finalised, the Timorese have been keen to invalidate the CMATS Treaty. They have other international proceedings on foot seeking a declaration of invalidity. They may succeed; they may not. Meanwhile the Timorese have received legal advice which encourages them to think that the whole of Sunrise might eventually be included within Timor’s jurisdiction, avoiding the need to deal further with the Australians. There is no certainty about this, because negotiations will need to include a place at the table for Indonesia as well as Australia and Timor-Leste.
The Timorese convinced the Labor Party before the last election that a future Labor government should commit to prompt negotiation of a maritime boundary. Labor also announced it would reverse the 2002 Australian decision to withdraw Australia from court determinations or arbitration in the event of a failure to reach agreement. The Timorese then treaded carefully and respectfully with Malcolm Turnbull during the election campaign. With new prime ministers on either side of the Timor Trough, the Timorese thought the time was ripe to seek agreement on commencing the negotiation of maritime boundaries. They could have enlisted their many Australian friends to campaign against Turnbull in the election. But they decided not to. The opted to wait.
Armed with a strong legal team from the UK led by Vaughan Lowe and Sir Michael Wood, two of the doyens of international maritime law, the Timorese then took a bold step. Lowe and Wood had advised that the UN Convention on the Law of the Sea (UNCLOS) contained provisions for compulsory conciliation in cases where the parties had agreed not to go to arbitration or to judicial settlement. They argued this was the situation with CMATS. The commission agreed. The commission decided:
Nothing in CMATS constitutes an agreement ‘to seek settlement of the dispute by a means of [the Parties’] own choice’. Nor does the commission consider that an agreement not to pursue any means of dispute settlement can reasonably be considered a dispute settlement means of the parties’ own choice. Accordingly the commission concludes that CMATS is not an agreement [pursuant to UNCLOS] that would preclude recourse to compulsory conciliation.
The Conciliation Commission will now host a year of meetings between the parties assisting them to reach agreement on maritime boundaries. The commission will then produce a report. Though the report and any observations by the commission are not legally binding, this one-year procedure should now be enough to convince the Turnbull government that there is no point in putting negotiations on hold for another 41 years or until the election of the next Labor government. “Turnbull will need to develop a new narrative as to why Australia wouldn’t make the best of a bad lot and use the compulsory conciliation as a means to kick start a sensible negotiation of maritime boundaries. Hopefully he will drop the patronising Canberra line that we Australians know what’s best for the Timorese.”
Turnbull’s advisers may well continue to tell him that CMATS provides certainty for economic development of Greater Sunrise, while putting on hold the uncertainty of maritime boundary negotiations which might exacerbate tensions with Indonesia, given the past dealings and agreements between Indonesia and Australia. They may well continue to argue that risks in relationships can be minimised by maintaining present arrangements. This week’s ruling should give the Canberra bureaucrats every reason to pause.
There is nothing to be gained for Australia by continuing to put negotiations on hold when there is no immediate prospect of Sunrise being developed, when the Timorese are increasingly convinced (whether rightly or wrongly) that they were duped, when Australia is wanting to put out a clear message in the South China Sea that China be committed to negotiations in accordance with international law, and when Australia has to spend a year at the table engaged in conciliation under the watchful eye of five commissioners who have already taken a dim view of Australia’s legalistic approach.
More than ever, Turnbull will have to stop preaching on the South China Sea if he is not prepared to act in the Timor Sea. Australia has already told the commission that ‘it will engage in the conciliation in good faith’. So Turnbull will need to develop a new narrative as to why Australia wouldn’t make the best of a bad lot and use the compulsory conciliation as a means to kick start a sensible negotiation of maritime boundaries. Hopefully he will drop the patronising Canberra line that we Australians know what’s best for the Timorese. With their flash UK legal advisers and Norwegian commercial advisers, the Timorese will make their own decisions from here on. Thus far, David has scored two king hits in the international forum. It’s time for Goliath to take stock.
Frank Brennan SJ is professor of law at Australian Catholic University.
Minister of State and of the Presidency of the Council of Ministers and Official Spokesperson for the Government of Timor-Leste
Dili, September 26th, 2016
Timor-Leste announced world’s “most improved” in the health-related SDG index
A major study, launched at the United Nations on Wednesday the 21st of September and published in the medical journal the Lancet, has rated Timor-Leste as the most improved of 188 nations in the health-related Sustainable Development Goals index for the period 2000-2015.
The study said that “in Timor-Leste changes in the health-related SDG index were largely driven by improvements in Universal Health Coverage tracer interventions, skilled birth attendance, met need with modern contraception, under-5 and neonatal mortality, childhood stunting, risk exposure to unsafe water and sanitation, and mortality from war or conflict.”
It also highlighted that “in more recent years, health-care reform and financing have topped policy agendas in Timor-Leste, including the Ministry of Health’s roll-out of a Basic Health Services Package and Hospital Services Package”.
This world’s best improvement is to be celebrated whilst recognizing there is still much to be done. Timor-Leste’s ranking on the index is now 122 of the 188 nations measured.
The Sixth Constitutional Government has implemented major health programs since February 2015 to make sure this excellent progress is not just maintained but accelerated. The National Immunization Campaign for Measles, Rubella and Polio reaching over of 96% children under the age of 15, the launch of the Comprehensive Package of Primary Health Care and the Health Program in the Family, and the development and passing of the Tobacco Control Regime with its education campaign and support services are some of the highlights.
Government Spokesperson, Minister of State Agio Pereira noted “to be recognized as making the most improvement in health reminds that we are moving well. We use this kind of encouragement to press on with even more vigour to improve the health.”
East Timor has taken Australia to the United Nations Conciliation Commission at the Permanent Court of Arbitration in The Hague under the United Nations Convention on the Law of the Sea (UNCLOS).
At issue is a permanent maritime boundary and the exploitation of oil and gas reserves in the Timor Sea with East Timor accusing Australia of stealing badly needed resources that, by international law, belong to Asia’s poorest nation.
In hearings that began on August 29, East Timor is arguing for the maritime boundary to be fixed at the median line between the two countries, as provided for by UNCLOS and other international law.
Australia is arguing that it has a right to retain the lion’s share of East Timor’s hydrocarbon resources under unequal treaties forced on East Timor through espionage and subterfuge. Such treaties also took advantage of the economic weakness of East Timor created by the devastation of Indonesia’s illegal 1975–1999 occupation, which Australia supported.
Shortly after East Timor became independent in 2002, Australia announced it would no longer consider itself bound by judgements on boundary disputes under UNCLOS or at the International Court of Justice. This means it can legally ignore the Conciliation Commission’s findings.
“We have not come to The Hague to ask for favours or special treatment,” East Timor’s head negotiator, former President and Prime Minister Xanana Gusmão told the hearing on its opening day.
“We have come to seek our rights under international law. So many East Timorese people have fought and died for our sovereignty.”
Australia was the main diplomatic supporter of the genocidal Indonesian occupation, which killed up to 300,000 Timorese about a third of the population. The reason for this support was explained in an August 1975 diplomatic cable from then-Australian ambassador to Indonesia Richard Woolcott.
The cable stated bluntly that Australia could gain a more lucrative deal for the Timor Sea oil with Indonesia than an independent East Timor. The 1989 Timor Gap Treaty, illegally signed between Indonesia and Australia, proved this assessment correct.
“The image of the Australian and Indonesian foreign ministers flying over the Timor Sea while drinking champagne to celebrate the signing of the Timor Gap treaty filled us with much sadness,” Gusmão said.
Australian politicians, trying to prove that Australia has helped East Timor, make much of Australia’s despatch of peacekeeping troops in 1999. But what this self-congratulation ignores is that when the Indonesian government allowed a referendum in East Timor, Australian intelligence was aware that the Indonesian army, and the militias it created, were planning a massacre should East Timor vote for independence.
Yet Australia lobbied to ensure the Indonesian military was kept in charge of “security” before and after the UN-supervised vote.
Australian soldiers were sent and Indonesian forces withdrew without firing a shot after three weeks of widely publicised violence. About 1400 Timorese civilians were killed in the violence and 70% of the nation’s infrastructure destroyed.
Timorese activists said Australia used the delay to pressure East Timor’s leaders to accept the continuation of the Timor Gap Treaty’s provisions on oil and gas. East Timor was weakened in negotiations by the desperate need for revenue.
Gusmão told the UN Conciliation Commission that Australia took advantage of the devastation. He described the Timor Sea Treaty (TST), signed in 2002, as a “mirror image” of the 1989 treaty with Indonesia.
The TST gave East Timor 90% of royalties from the Bayu-Undan gas field, yet Bayu-Undan is closer to East Timor than Australia. The agreement also allows the gas to be piped to Darwin, giving Australia exclusive rights to tax gas from the pipeline.
A second treaty in 2006, the Treaty on Certain Maritime Arrangements in the Timor Sea (CMATS), split revenues from the Greater Sunrise oil field 50–50 and deferred the issue of a permanent maritime boundary for 50 years.
East Timor rejected CMATS as illegitimate in 2013 after it was revealed that the Australian intelligence outfit, ASIS, was bugging the East Timorese government and negotiating team during the treaty negotiations.
“We were not aware at the time, that under the cover of an Australian program renovating Timor-Leste government offices, Australia installed listening devices to spy on the Timorese officials to maximise their advantage and commercial interest,” Gusmão said.
Australia’s response to the revelations was to send domestic intelligence agency ASIO to raid the office of the Canberra lawyer of the Timorese government, seizing documents. The ASIS whistleblower who revealed the espionage was placed under house arrest, preventing them from testifying in The Hague.
Australian foreign minister Julie Bishop put her government’s case in an August 30 opinion piece in The Australian: “CMATS provides for an even split between Australia and East Timor from the Greater Sunrise field, despite 80% of the disputed area lying in an area of exclusive Australian seabed jurisdiction.”
Her definition of “exclusive seabed jurisdiction” is not shared by international law. Greater Sunrise, like Bayu-Undan, lies on the Timorese side of the median line.
“East Timor has made admirable gains in poverty reduction,” Bishop said. “It has done so largely on the back of oil and gas profits, which account for about 95% of government revenue.”
It is true that 95% of Timorese government revenue comes from oil and gas, but poverty has not reduced. This year a climate-change induced drought has in fact worsened it. “Almost 50% of households across the country are expected to experience varying levels of food insecurity,” the Red Cross reported in May.
Bishop also made the standard self-congratulatory remarks about “generous” Australian aid. However, Timorese civil society group La’o Hamutuk has pointed out that the US$5 billion illegally obtained by Australia since 1999 from oil and gas revenues that rightfully belongs to East Timor is at least $3 billion more than Australian aid to East Timor.
The former president of East Timor has told a commission sitting at the Permanent Court of Arbitration in The Hague that Australia exploited a vulnerable nation while negotiating treaties over oil and gas revenue in the disputed territory.
Hearing triggered under UNCLOS in attempt to get Australia to agree to a permanent maritime border
Australia says East Timor has benefited from the treaties
Cliams the hearing is beyond the jurisdiction of the commission
The hearing was triggered under the UN Convention on the Law of the Sea (UNCLOS) in an attempt to get Australia to agree to a permanent maritime border.
But Australia has made the case that East Timor has benefited from the revenue-sharing treaties and that the hearing is beyond the jurisdiction of the commission.
East Timor’s former president Xanana Gusmao accused Australia of first taking advantage of the country in 2002, while negotiating the Timor Sea treaty at a time when 70 per cent of East Timor’s infrastructure had been burnt down by pro Indonesian militias, and while the country was still struggling to establish itself.
And secondly, he said, in the lead-up to the revenue-sharing agreement of 2006 when Australian foreign intelligence agents bugged the cabinet rooms in Dilli to get the upper hand in negotiations.
“We were not aware at the time, that under the cover of an Australian program renovating Timor-Leste government offices, Australia installed listening devices to spy on the Timorese officials,” he said.
“To maximise their advantage and commercial interest.”
Minister of State Agio Pereira made it clear to the commission that they wanted the 2006 Certain Maritime Arrangements in the Timor Sea Treaty (CMATS) to be torn up.
“The current provisional regime is near its end. CMATS is going that is the policy of Timor-Leste,” Mr Pereira said.
Australia has claimed the dispute lands beyond the jurisdiction of the Commission, because the 2006 treaty included a clause that put on hold negotiations over a permanent maritime boundary for 50 years.
East Timor benefitted from the treaties: DFAT
Gary Quinlan, from the Department of Foreign Affairs and Trade (DFAT), said their position was to urge the commission not to disregard their treaties, “simply because one party has changed its mind”.
And Mr Quinlan told the commission that East Timor had benefited from the treaties.
“In addition to providing a stable revenue stream to Timor-Leste, the Timor Sea Treaties have enabled that country to benefit from Australia’s considerable expertise in offshore oil field regulation which has assisted to build its own capacity in oil and gas regulation,” he said.
The commission has up to a year to makes its final recommendations, but does not have the power to force Australia to adopt new boundaries.
Australia removed itself from the binding dispute resolution mechanism under the UN convention on the law of the sea in 2002, just two months before East Timor gained independence.
If East Timor wins it may be a case of a moral victory, rather than a legal one.
East Timor is asking the Permanent Court of Arbitration in The Hague to help resolve a dispute with Australia over a maritime border that cuts through lucrative oil and gas fields in the Timor Sea. But Australia has rejected the claims, saying that existing agreements are good enough.
After East Timor, or Timor Leste, became independent in 1999, it made provisional maritime border agreements with Australia.
The 2002 Timor Sea Treaty established the Joint Petroleum Development Area (JPDA), which would result in income from oil revenue being shared between both countries.
Exploitation was to continue for a period of 50 years after which a fixed boundary line was to be established.
But critics in East Timor were never happy with the arrangement, saying that they were compelled to accept deals that had been signed before independence.
Moreover, they say that Australia has not abided by agreed levels of revenue generated by the oil exploration.
Some activists even say that the current treaty “makes the poorest nation in Asia the largest donor of foreign aid to the richest”, in the words of the Australia East Timor Assocation Incorporated.
“What Timor Leste claims is very simple, very basic, it is nothing out of this world, and that is: soonest we should agree on maritime boundaries and follow the international practise and draw a median line,” says former president José Ramos Horta, speaking at a forum of the International Peace Institute at the eve of the court case.
But there is not much faith in a positive outcome.
“I’m not very optimistic about Australia,” says former president and current minister for Planning and Strategic Investment Xanana Gusmao, who is leading the East Timorese delegation to The Hague.
“A former prime minister of the UK said ‘no permanent allies, no permanent friends, but permanent interests’. This is the mindset of powerful nations when they deal with small countries like ours.”
He is not alone in his opinion.
“From the beginning, Australia always fought in favor of Indonesia, stood by [former ruler] Indonesia until the last day, until 1999, before it changed its policy,” says Estevao Cabral a former East Timorese freedom fighter contacted by RFI.
“And on the day when Timor declared the restoration of independence, Australia pulled out from the International Court of Justice in order to avoid these kind of negotiations. I am very disappointed in Australia.”
During their opening statements yesterday, the Australians were indeed defiant.
“We contest the competence of the commission,” says Gary Quinlan, who lead the Australian delegation to the court.
“Australia’s view is that there is no proper basis on which Timor Leste is entitled to bring this claim. Doing so violates treaty commitments, specifically the 2006 treaty on certain maritime arrangements in the Timor Sea under which both countries have committed not to bring proceedings against each other on maritime boundaries.”
Australian analysts say their country is willing to discuss.
“I think Australia has been mindful of Timor Leste’s needs to seek to bring about a permanent settlement of the maritime boundaries,” says Donald Rothwell, a profess of of international law with Australia National University.
“It is respectful of its rights as a new independent state to seek to explore peaceful mechanisms for dispute settlement. I do not see this process in any way unsettling the otherwise good relations between the two countries.”
Moreover, the existing treaty helped East Timor to reconstruct after decades of war, he says.
“The treaty framework has provided a certainty and stability to enable the early exploitation of the resources, so revenue could start flowing immedeately to Timor Leste,” says Quinlan.
“The stable revenue provided by the 2002 Timor Sea Treaty was particulary important for supporting Timor Leste’s recovery from conflict and economic development in the first years of its independence.”
Thirsty visitors to Timor-Leste might expect the dominant beer will be Indonesia’s top-selling drop, Bintang.Yet the Dutch brewing giant Heineken is building a $US40 million brewery and soft drink plant in Dili (even though it also owns Bintang). It is the first time a global brand has set up as a manufacturer in Timor and is a milestone for a poor country trying to diversify into non-oil investments.
The output is aimed at a domestic market which is relatively small at about 1.2 million people but is growing.
Meanwhile, the Australian-owned $US520 million TL Cement plant and renewable-power plant is being built at Baucau east of Dili, and the Timor-Leste government has a $US290 million public-private partnership with a French company to build a new portat Tibar about 10 kilometers west of the capital.
These are all welcome signs of the Timorese economy slowly evolving. Timor has made much progress since the tumultuous end to 24 years of Indonesian occupation 1999, followed by the rapture of independence in 2002.
But the country still faces a unique economic challenge, including a sovereign-wealth fund containing about $US16 billion being whittled down over time.
The aim was to spend no more than 3 per cent of the wealth fund annually, making the fund self-sustaining based on its investment income and the value of known reserves. But budget drawdowns have exceeded this target as the government pursues national development through spending on badly needed infrastructure.
Revenue is a central challenge for whichever government is elected in 2017. Oil revenue peaked at $US3.72 billion in 2012 and is now down to about $US719 million, partly due to falls in global oil prices in recent years. Production from existing fields is forecast to end in the early 2020s and the Petroleum Fund might be depleted by 2030.
Timor hopes new oil wells will be developed. It is also looking to resolve a long-running dispute with Australia on maritime boundaries, thereby gaining a bigger share of new oil and gas reserves such as Woodside Petroleum’s Greater Sunrise field.
A positive outcome there however is still too limited. In an interview with BlueNotes,Timor-Leste Prime Minister Rui Maria de Araújo stressed his country had to “move swiftly and soon towards economic diversification” regardless of the maritime boundary dispute.
“We had to strike the right balance between preserving the longevity of the fund and also investing in effective and efficient assets within the country in order to support the economic diversification policy that,” he said.
“It’s all very well to say … because we want to preserve the value of the fund for the future, it would be cautious not to take out investment for infrastructure.”
“But on the other hand, if you don’t invest in infrastructure,” he continued, “The economic diversification process will slow down.”
“We’re trying hard to make sure the funds are being accessed through our state budget … are for things like roads, bridges, ports, airports … those basic infrastructure components of economic diversification.”
The government has ambitious plans for the multi-billion dollar Tasi Mane project on the south coast, including a liquefied LNG plant and a refinery-petrochemical complex. The related work includes a logistics base, a new seaport and airport, plus roads and bridges.
According to the ADB, the 2015 Budget cut the allocated spending on the Tasi Mane project to $US433 million between 2015 and 2019, but it still accounted for about 14 per cent of the country’s total capital spending in that period.
“As the project is focused almost exclusively on the petroleum industry, it is unhelpful in addressing the challenge of diversifying the economy, away from oil dependency,” the ADB wrote. “The industry’s capital-intensive nature also means that few domestic jobs will likely be created.”
“Moreover, because a comprehensive project cost–benefit analysis has not been prepared, it is unclear what net benefits will actually be realized.”
There are further hurdles for the Tasi Mane plan, which envisages natural gas being piped ashore along deep (and rough) seas. The Greater Sunrise partners, led by Australia’s Woodside, have a stated preference for a floating offshore LNG plant.
Similar queries have been raised over plans for the new PPP port near Dili, and whether it would make more economic sense to redevelop the existing port in the centre of the capital.
Since 2009, the Australian government has been funding a group of academics at Monash University to study economic development issues in Timor. One of their number, economist Brett Inder, argues oil produces few spill-over economic benefits apart from royalties and taxes.
Modelling by Inder and his colleagues finds a $US2 billion increase in petroleum revenues would reduce poverty from 50 per cent to 45 per cent; while a $US200 million increase in agricultural production reduced poverty from 50 per cent to 30 per cent.
Inder cites the real-life example of a local business on the outskirts of Dili which buys and processes salt, meaning hundreds of farmers each earn several-hundred dollars a year.
The salt enterprise is built around agriculture, and is a step towards manufacturing, but is harder for governments to structure compared to attracting foreign investment.
He argues low productivity is the core reason for poverty and output can be greatly increased through farmers learning and learning how to learn. Growers of coffee, Timor’s main export cash crop, are reluctant to replant and prune both coffee and shade trees and there is there is little on-farm investment.
THE TRAP OF SUBSISTENCE
Annual food shortages are common in Timor-Leste, as is early childhood malnutrition. The outlook has been worsened by the El Niño phenomenon which has only just ended after producing drought conditions in some Timorese districts.
Nevertheless, the ABD has forecast GDP growth will reach 4.5 per cent in this year, rising to 5.5 per cent in 2017.
“While the economic outlook for Timor-Leste remains bright, the country is facing declining oil royalties and this highlights the need to diversify the economy,” according to the ABD’s country director in Timor-Leste, Shane Rosenthal.
“Timor-Leste’s growing youth population brings about a real opportunity to raise long-term growth prospects by investing in human capital and encouraging broader participation in the labour market.”
Apart from being a young country, Timor is also youthful with some 60 per cent of its 1.2 million people aged less than 25. Since Independence, infant and child mortality rates have almost halved, but there is still much poverty in the rural districts that rely on subsistence agriculture.
PROPERTY RIGHTS, LAND RIGHTS
One of the problems in developing agriculture is a tangled web of land ownership. There are old Portuguese land titles, Indonesian land titles, community based customary land systems and long-term occupation. Many land titles were destroyed in the violence following the independence referendum in 1999.
ANZ’s CEO in Timor-Leste, told a recent investment conference in Dili a transitional Land Reform Act presented to the Council of Ministers was still a “work in progress” but it was increasingly easy to do business on many fronts.
These include improved company registration, continuing work on a company code, fiscal reforms, increased investment in education, a new trade and investment authority, the launch of an electronic-payments platform for all banks and a planned interchange between financial institutions in 2016/17.
“Like anywhere with opportunities like those we see in Timor-Leste, there are challenges to be aware of, and as always, solutions to be tailored,” Dennis says. “Timor-Leste is a young nation, and in the midst of a number of critical enabling reforms which will improve the attractiveness to do business in Timor Leste. .”
“You need to come here with your eyes wide open. You need a good local lawyer, a good local accountant, assistance with language if that’s a barrier, and so forth.”
“These are not unique challenges to Timor Leste, but they are nonetheless things you should consider. With the right risk appetite, there are many prospects for those willing to turn these challenges into opportunities. We certainly have, and we’ve seen our business grow consistently over time.”
An Australian business leader, Peter McMullin, has been visiting Dili since 2002 and helped establish the Chamber of Commerce and Industry of Timor-Leste. He says the investment conference was focused on more immediate opportunities rather than Tase Mane.
McMulllin has seen a “remarkable” transformation since Independence, even though more work is needed to overcome “deficits” in areas such as health and education.
“There’re quite a lot of things happening,” he told Blue Notes. “Ten years ago, you couldn’t have imagined a conference like this happening, there was no story to tell.”
“It’s a developing country making some of the right decisions. There’s a lot of things that are going to take time to resolve, but they are doing them and they are committed. You can’t say that about every developing country.”
One strength for Australian businesses are the people-to-people links of the Timorese diaspora in centres like Darwin, Melbourne and Perth. Indeed, Dili is only 80 minutes’ flying time away from Darwin, with the Tiwi Islands in between.
For example, a Timorese of Chinese descent, Jape Kong Su, came to Australia and founded a family-owned commercial property business in Darwin in 1976. After success in the Top End, the Jape group developed the Timor Plaza In Dili, an important landmark in the rebuilding of the capital, and has a big tourism project on the drawing board.
Tourism has strong potential, although the support services are under-developed and airfares are relatively expensive (via Darwin, Bali and Singapore).
There is a cult sporting event in the Tour de Timor, an international mountain-bike race, and a Dili marathon. There is also world-class diving and snorkeling, while the island sits astride the “Wallace line” which marks the zone where the fauna of Asia meets that of Australia.
For this first-time visitor, the attraction of Timor-Leste lay mostly with the people. They are friendly, proud of being independent and largely supportive of the government’s direction, but desperately keen to have paying jobs.
At first, flying into Dili feels like approaching an extension of Darwin and the Top End. Then the island appeared, through clouds, with the odd mountain peak poking through. The runway seems to start just about where the beach ends.
Downtown, Dili buzzes with scooters and motorbikes but it shuts up fairly early of an evening, The flashest buildings, like the Presidential palace, were built by Chinese money but the city is mostly low-rise, apart from a new multi-storey headquarters for the Finance ministry.
The vibe is more rural Indonesia or the Malaysian state of Sabah than a tourist destination like Bali. There are pointers to past turbulence, like the statute of Christ (“Cristo Rei“) built on a point west of Dili. It was built in the Suharto-era and is 27 metres tall (symbolising Timor then being the 27th province of Indonesia). The statue is looking past Dili, across the sea towards Jakarta.
Timor-Leste feels different, even a bit mysterious. It’s a crossroads between Southeast Asia and Melanesia, mixed with a Portuguese presence dating from 1515. The people are strongly Catholic, with an underlying strain of indigenous animism. But there is familiarity, too, with so many Timorese having ties to Australia – through family, work and study.
This visitor wants to go back, even though it can be blazing hot getting around Dili (where a suit and tie is expected for high-level meetings).
But you can regroup at the end of the day with a cold beer (or soft drink) and gaze across the Timor Sea at the brief but fiery sunset.
There’s much to be done, but good signs for the local economy.
Mark Skulley is one of Australia’s most-respected business journalists, a veteran of more than two decades at Fairfax Media including The Australian Financial Review.
All photos courtesy of Mark SkulleyPublished 4 August 2016
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.