East Timor to renegotiate Timor Gap Treaty

East Timor to renegotiate Timor Gap Treaty

CANBERRA (Dow Jones): Independence leader Xanana Gusmao Friday
served notice East Timor will renegotiate the terms of the Timor
Gap Treaty, which covers sharing of royalties with Australia from
energy production in the Timor Sea.

The treaty was drawn up in 1989 between Australia and
Indonesia but lapsed following Indonesia's formal withdrawal in
1999.

The terms of the treaty now are covered under a memorandum of
understanding between Australia and the United Nations
Transitional Administration in East Timor, which is overseeing
the fledgling nation's transition to full independence.

Indeed, as Gusmao confirmed, East Timor will inherit the
treaty but for now UNTAET is administering it.

"Hopefully, as soon as possible, when East Timor is
independent we will have also a team of experts to deal with this
matter," he said in answer to a question at a National Press Club
address.

Gusmao said that for the moment he is more interested in
stabilizing conditions inside East Timor before embarking on
treaty talks.

"I don't think that in this difficult situation inside the
country, we can start thinking about the future," he said. "This
future will be based on improvement on the conditions right now
on the ground."

"I will see you when we are independent to answer your
question," he added.

While royalty payments from energy production in the Timor Gap
area are still relatively small, they could rise sharply in
coming years.

According to the government agency that manages the treaty on
Australia's behalf, until mid-1999, only about A$2.5 million in
royalties had been distributed to each side.

Phillips Petroleum Co. (P), the operator of the Bayu-Undan
project in the Timor Sea, announced Oct. 26, 1999, it plans to
proceed with a US$1.4 billion development to extract liquefied
petroleum gas and condensate from the field, with production from
2004.

Royal Dutch/Shell Group (RD) and Woodside Petroleum Ltd.
(A.WPL) also are considering developing their Northern Australian
Gas Venture based on huge unexploited gas resources.

Both are in the area covered by the treaty and could provide a
major revenue stream for the desperately poor East Timor.

Right now, the boundary of the treaty grossly favors Australia
with any renegotiation possibly seeing the boundary moved in line
with international convention to the midpoint between the two
nations, significantly benefiting East Timor.