The Greater Sunrise oil field in the Timor Gap between the Timorese coastline and Australia. (Map: Timor Hau Nian Daben.)

East Timor has been standing up to the Australian oil company Woodside Petroleum over development of gas and oil fields in the Timor Sea. But the stakes are high for the country’s viability.

Pacific Scoop:
Report – By Nicholas Jones.

East Timor will lose more than revenue if a dispute with Woodside Petroleum over where gas from the Greater Sunrise field will be processed is not resolved, says an academic researching politics in the country.

“This is going to be seen internationally as a marker of East Timor’s capacity to engage with international investment,” says Damien Kingsbury, a professor at Deakin University’s School of International and Political Studies.

“And if they get this right then people will have confidence in the possibility of doing business in East Timor. If they get it wrong that confidence will disappear,” Dr Kingsbury says.

Woodside Petroleum: High-handed approach. (Photo: Timor Hau Nian Daben.)

Australia and East Timor have agreed to split evenly the profits from the Greater Sunrise field, which lies in the Timor Sea and contains resources worth tens of billions of dollars.

But the issue of where to pipe and process gas from the field has strained relations between the neighbours.

Woodside wants to process the gas via a floating platform – the first of its kind – onto ships, while East Timor insists gas must be piped to its shores to provide local jobs and infrastructure.

But piping gas across the Timor Trough on the ocean floor would be both difficult and expensive, and seismic activity in the area would significantly increase insurance costs, Dr Kingsbury says.

‘Not in piggy bank’

“The capital for the project has to be raised by Woodside. They don’t just have it sitting in the piggy bank. And investors in the project would insist that Woodside go for the most viable option,” he says.

UPDATE: In an apparent thawing of relations, East Timor officials have announced that Woodside has promised to re-examine Dili’s demands for an onshore processing plant. (For more on this aspect, see The Age breaking news report.)

Australian Prime Minister Julia Gillard angered the East Timorese government when she said the plant’s location should be made “in the best interest of [Woodside] shareholders”.

Earlier, East Timor Prime Minister Xanana Gusmao labelled the remarks “very disappointing” and threatened to abandon the deal with Woodside in favour of Malaysia’s Petronas energy company.

Charles Scheiner, researcher at local East Timor NGO La’o Hamutuk, says while Woodside’s position is unsurprising, Gillard should consider the wider implications of hers.

“The Australian national interest in having a successful, stable neighbour may not be the same as Woodside’s, who only want to maximize shareholder profits,” he says.

These differing perspectives underline the dispute, says Auckland University associate professor Stephen Hoadley, who wrote a chapter on East Timor in the Political Handbook of the World.

Moral claim

“East Timor are saying, ‘We’re poor, we have a moral claim on as many resources as we can get. Australia is already rich, they don’t really need it – we do.”

He says Australia, in comparison, takes a very legalistic standpoint, and is careful to maintain investor confidence.

Dr Kingsbury says Woodside’s initial handling of the dispute was high-handed and alienated East Timor’s politicians.

However, he says the East Timorese government’s reaction has – fairly or not – concerned potential investors in the country.

“I know from discussions with companies that have looked at investing in East Timor that the protests over this issue in fact reinforce the perception of sovereign risk. So I think in this regard East Timor has been its own worst enemy,” he says.

Worst fallout

Dr Kingsbury, in an article for The Age newspaper, said comments from Gusmao criticising Australia reflected the worst fallout between the countries since 2005.

However, he says the relationship between the neighbours remains fundamentally strong.

Protest over Timorese rights to oil revenue. (Photo: Timor Hau Nian Daben.)

Jose Teixeira, an MP for the opposition Fretilin Party, says anti-Australian sentiment is not on the rise, nor does it exist at a substantial level in East Timor.

“I think there have been statements made by politicians who have wanted to whip things up in that regard. And I think the media has reported from a very parochial and nationalist position here,” he says.

“But I think the Timorese population should be given due credit in that they can see through that.”

Fretilin were in power in 2006 when a deal was struck with Australia allowing the joint-development of the Greater Sunrise field, known as Certain Maritime Arrangements in the Timor Sea (CMATS).

Development options

Teixeira headed the negotiations, and says while the treaty states development options are to be based on principles of commerciality, Woodside must also seek approval from the Sunrise Commission – a regulatory authority comprised of East Timor and Australia.

“So when Gillard said, ‘The company will decide in the best interests of shareholders’, yes, that’s true. But it’s equally true that it’s got to go through the process that’s approved in the treaty, including obtaining the authorisation of the regulatory authority – which involves both countries,” he says.

Australia and East Timor dispute their boundary in the Timor Sea.

East Timor argue for a boundary at the half-way point between the countries, while Australia want to maintain a border approved in 1972 with Indonesia based on the continental shelf principle.

CMATS suspended boundary negotiations for 50 years, and split the profits from Greater Sunrise equally between Australia and East Timor.

Teixeira and others accepted this, because under previous agreements East Timor would have received less than 20 percent of Greater Sunrise revenue.

Step backwards

But Scheiner says agreements including CMATS were a step backwards.

“We feel that all of Sunrise belongs to Timor-Leste under international legal principles, but that the agreements signed during the last eight years constrain Timor-Leste’s rights,” he says.

Scheiner says La’o Hamutuk is concerned about how East Timor would benefit from an onshore processing plant.

He says there is a risk that the plant could be an enclave predominantly staffed by foreigners, at odds with the local environment and culture.

La’o Hamutuk published a report in 2008 which argued East Timor’s infrastructure and law-making were insufficiently developed to maximise the benefits from Greater Sunrise.

It stated that necessary laws and institutions to protect human rights, land, environment and local economies did not exist, meaning East Timor could suffer the same “resource curse” as other nations dependent on oil income.

Scheiner says these issues are not well understood by people in East Timor, partly because of media coverage of the Greater Sunrise dispute.

“Local media sees it like a football game or a war, and rarely covers the facts – just the polemics. They’re full of misinformation, so readers here rarely have a good understanding of the substantive issues.

“And international media, with a few exceptions, make little effort to understand Timor-Leste’s rights or societal dynamics. All they see is dollars and the companies’ perspective,” he says.

China’s role

Developments such as the construction of a US$8 million Chinese-funded military headquarters have coincided with the Greater Sunrise dispute, but Dr Kingsbury rejects the notion the two are linked.

“China’s role is increasing, but it’s got nothing to do with the dispute. It’s simply to do with China’s general strategic positioning,” he says.

Dr Jian Yang from Auckland University lectures on China’s foreign relations, and says the country is growing its influence in other Pacific countries like Fiji and Tonga.

However, he says China is not in a position to challenge US-Australian dominance in the region because of “image problems” and its relatively superficial involvement with countries in the region.

Dr Kingsbury believes Woodside and the East Timorese government “are moving back together”.

“I think they’re going to resume a discussion, or at least take steps towards resuming a discussion, about how they might progress negotiations,” he says.

“I would like to think that both parties will find a way forward. It’s certainly in the interests of East Timor to have this matter sorted.”

Nicholas Jones is a Postgraduate Diploma in Communication Studies student on the Asia-Pacific Journalism course at AUT University.