Sub-sea resources vital for E. Timor

Sub-sea resources vital for E. Timor

SYDNEY (AP): Locked beneath the narrow strip of sea separating
Australia and its island neighbor Timor is enough oil and gas to
fuel a small nation.

If East Timor, the disputed territory covering half of the
island, breaks away from Indonesia and becomes a new nation, as
expected sometime next year, its political leaders will be
looking to do just that.

Securing peace in the territory, which has been wracked by
violence between separatists and the Indonesian military for 23
years of often brutal rule, and more recently by pro-
integrationist militias, is one essential element to establishing
a new nation.

Building national fortunes from what is now a small agrarian
economy dominated by commerce and government infrastructure from
the faraway Indonesian capital of Jakarta is another essential
element.

Royalties from exploitation of the resource rich Bonaparte
Basin in the Timor Sea will be crucial, even if substantial
royalty revenue is up to a decade away, analysts say.

First, East Timorese must vote against an Indonesian offer of
greater autonomy at a UN-sponsored ballot scheduled for Aug. 8.
Current President B.J. Habibie says Indonesia will let East Timor
go if the offer is rejected

Independent East Timor will depend on oil and aid.

"East Timor will have a heavy dependence on oil revenues and
foreign aid," immediately after the UN ballot, if it chooses
independence, said Dr. Michael van Langenberg of Sydney
University's School of Southeast Asian Studies.

But East Timor is excluded from the complex treaty which
assigns exploration and exploitation rights to the Timor Gap, a
hole in the territorial waters boundary between Australia and
Timor.

The Timor Gap treaty was signed in 1989 after more than two
decades of negotiations, made possible only by Australia's
controversial 1976 decision to recognize Indonesian sovereignty
over East Timor.

Despite being incomplete - it covers only oil and not gas,
which is increasingly being found - resources companies welcomed
the treaty and exploration has boomed.

Current production is small, but Australian officials say the
region is one of the richest new hydrocarbon provinces outside
the Middle East.

Capital expenditure on the region has reached some A$3.3
billion. One company estimates revenues will eventually reach
US$11 billion.

The boundaries under the treaty form a coffin-shaped zone
which divides administration and ownership among no fewer than
four national and state governments.

The northern part is administered by Indonesia, with Australia
holding rights to 10 percent of royalties on any oil found. The
southern part is administered by two Australian state
governments, and Indonesia has 10 percent royalty rights.

In between is the 23,552-square mile Zone of Cooperation, or
ZOCA, administered jointly by Australia and Indonesia, where
royalties on anything found are split 50-50.

Phillips Petroleum Co., based in Bartlesville, Oklahoma,
currently pumps 33,000 barrels a day from its Elang, Kakatua and
Kakatua North oil fields and owns the rights to exploit other
fields in the Australian zone and the ZOCA, including the Bayu-
Undan gas field, which is due to be in production by early 2003.

Australian company Woodside Petroleum Ltd. expects its A$1.37
billion Laminaria-Corallina oil project to be producing by the
end of 1999, said corporate affairs manager Geoff Wedgwood.

At least seven other finds have been made.

The foreign ministers of Indonesia and Australia have agreed
that at least some aspects of the treaty will have to be
renegotiated if East Timor becomes independent, a prospect which
worries companies with interests in the region as creating
potential uncertainty.

Jailed resistance leader Jose Alexandre Gusmao and Nobel
laureate Jose Ramos Horta, expected to be key players in any new
East Timorese government, want East Timor to replace Indonesia as
signatory to the treaty.

"If East Timor becomes independent, Indonesia ceases to be the
other signatory. Timor would have to be signatory, without
changing the content of the treaty," Ramos Horta said earlier
this year.

Analysts say it may be ten years before royalties are enough
to contribute significantly to the economy of an independent East
Timor.

"The Timor Gap treaty will have no impact for probably a
decade," said Scott Burchill, senior lecturer in international
relations at Deakin University. "But it will play a major role in
East Timor's economic development when it comes on stream."

If it becomes independent, East Timor will face an urgent need
to replace commerce and infrastructure currently funded by the
Indonesian government, van Langenberg said.

In addition to an estimated US$150 million a year from
Jakarta, East Timor's industries are coffee, sugarcane,
sandalwood and other timber. Marble is also cut from the
hillsides.

Dissident academic George Aditjondro says these industries are
currently dominated by family or friends of former authoritarian
president Soeharto, with little return to East Timor.

A newly independent East Timor must take control of these
industries and royalties from resources in the Timor Sea to avoid
complete dependence on foreign aid, van Langenberg said.

Australia, Brazil, former colonial power Portugal and others
have pledged aid if East Timor undertakes the transition to
independence.

Burchill said the amount of aid will depend on Indonesia, and
will skyrocket if Indonesia adopts a "scorched earth" policy of
withdrawal, Burchill said.

"The issue of independence for East Timor is a matter of
international law and resolution between governments," said
Wedgwood.

"But if there is no logical and consistent regime in place
people will be reluctant to spend large amounts of money in the
region."