Phillips Petroleum shelves East Timor gas pipeline
Phillips Petroleum shelves East Timor gas pipeline
SYDNEY (Agencies): Phillips Petroleum announced Wednesday the indefinite shelving of plans to build a US$750 million gas pipeline between East Timor and Australia.
The decision also jeopardizes $6.5 billion worth of downstream investment in both the fledgling United Nations-administered territory and Australia.
Phillips cited East Timor's tax regime, which would be levied at a rate of more than 40 percent, as a major disincentive to continuing its involvement in efforts to exploit oil and gas reserves in the Timor Sea.
"Basically it's issues that revolve around whether or not the investment environment is being maintained in this region and at the present time, that investment environment is not attractive," a Darwin-based Phillips executive, Jim Godlove, told the Australian Broadcasting Corporation.
Australia and East Timor signed an agreement last month granting the former Indonesian province 90 percent of royalties from oil and gas reserves in the Timor Sea, which separates the two countries.
US-based Phillips Petroleum, which is the key stakeholder in several joint ventures in the area, said "certain critical legal, fiscal and taxation issues" had created an "onerous regime" for investors.
"The deferral reflects the need to resolve certain critical legal, fiscal and taxation issues arising from the Timor Sea arrangement, entered into between the governments of Australia and East Timor on July 5, before further investment can proceed in either the pipeline or in any gas or liquefied natural gas development," the company said in a statement.
Phillips has significant interests in the Sunrise, Elang- Kakaktua and Bayu Undan oil and natural gas projects.
East Timor's bloody secession from Indonesian rule in 1999 meant a previous agreement between Canberra and the Suharto regime in Jakarta dividing royalties equally was nullified.
Its economy is now largely propped up by key aid donors, such as Australia, former colonial power Portugal and the United Nations.
Under the terms of the revised agreement between East Timor and Australia, East Timor will receive more than A$7 billion (US$3.64 billion) in revenue from existing and planned developments in the Timor Sea over the 20 years from 2004.
The Australian government Wednesday said that it is disappointed by Philips' decision.
Foreign Minister Alexander Downer and Resources Minister Nicka Minchin said Wednesday the decision to defer is due to uncertainty about the legal and fiscal regime in the Timor Gap area resulting from tax proposals put forward by the United Nations Transitional Administration in East Timor.
"Australia shares many of industries' concerns," the ministers said in a statement.
"It is unfortunate that just hours after we agreed the Timor Sea Arrangement in Dili (July 5), Untaet/East Timor announced that it would use its taxation powers to recover up to an additional US$500 million in tax from the companies," they said.