Multinational Monitor


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by Gretchen Gordon

The CAFTA Chronicles: Strong-Arming Central America, Mocking Democracy
by Tom Ricker and Burke Stansbury

Thais Take to the Streets to Stop U.S. Trade Agenda
by Martin Khor

Drilling East Timor: Australia's Oil Grab inthe Timor Sea
by Charles Scheiner


Saving $60 Billion: Lawrence Korb's Common Sense Budget Defense Plan
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The Market for Virtue: The Impact of Corporate Social Responsibility
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Drilling East Timor: Australia's Oil Grab in the Timor Sea

Australia, one of the largest and most powerful countries in the Asia-Pacific region, recently legalized its thievery of tens of billions of dollars in resources from one of the smallest and weakest, according to critics of a new treaty.

The Treaty on Certain Maritime Arrangements in the Timor Sea (CMATS), signed with East Timor (now known as Timor-Leste), provisionally resolves a bitter maritime boundary dispute between the two nations. The January deal allows Australia to exploit oil and natural gas under the Timor Sea - oil and gas that, absent CMATS, international law experts say would belong to Timor-Leste under current international legal principles and case law.

CMATS assigns some oil revenues to Timor-Leste, and improves on previous Australian offers. Hard bargaining by Timor-Leste's government, supported by grassroots campaigns in Timor-Leste, Australia, the United States and elsewhere, increased Timor-Leste's share of the Greater Sunrise gas field, twice as close to Timor-Leste as Australia, from 18 to 50 percent. CMATS also allows Australia to develop other undersea oil and gas reserves in previously contested areas, and Timor-Leste foregoes its right to a maritime boundary until all Timor Sea petroleum has been extracted and sold.

Many believe that if Timor-Leste, the youngest and poorest nation in Asia, had held out longer, it would have received a better deal. However, according to the U.S.-based East Timor and Indonesia Action Network (ETAN), the treaty "may be the best that could be achieved at this time, given the pressures on Timor-Leste from Australia and oil companies and the tremendous economic, political, size and other disparities in an inherently unequal negotiation process."

The East Timorese watchdog organization La'o Hamutuk (Timor-Leste Institute for Reconstruction Monitoring and Analysis) called CMATS "unjust." "It does not satisfy Timor-Leste's claim for sovereignty or our people's right to all the resources in our half of the Timor Sea," charges La'o Hamutuk. La'o Hamutuk is part of the East Timorese Movement Against the Occupation of the Timor Sea, which demands that Australia respect the new nation's rights and independence.

Indonesian military forces brutally invaded Timor-Leste in 1975. The subsequent 24-year occupation, supported by Australia and the United States, took more than 100,000 East Timorese lives. In 1989, Australia and Indonesia carved up East Timor's oil reserves, signing contracts with Shell, Phillips and other multinationals. Ten years later, a UN referendum ended the illegal Indonesian occupation of East Timor, which the Indonesian military and its militia turned into scorched earth before they left. In addition to post-conflict trauma and negligible economic development, the new nation is coping with rampant illiteracy, infant and maternal mortality, and preventable disease.

After a two-and-a-half-year transition, East Timor became politically independent on May 20, 2002. Three weeks earlier, Australia withdrew from international legal processes for resolving maritime boundary disputes. On its first day of independence, East Timor signed the Timor Sea Treaty with Australia, allowing oil projects begun under the 1989 treaty with Indonesia to continue uninterrupted.

"Since 1999, Australia has continued as an occupier for Timor-Leste's territory, acting on control over the Timor Sea that it obtained through a deal with the illegal Indonesian occupier," charges La'o Hamutuk.

The Timor Sea Treaty did not resolve ownership of Greater Sunrise, the largest field claimed by both countries, although it tentatively split revenues 18 percent for Timor-Leste and 82 percent for Australia. A year later, Australia and Timor-Leste signed an agreement to formalize this division. Australian Green Party Senator Bob Brown was expelled from the Senate when he accused the Prime Minister of "blackmailing" Timor-Leste to sign this agreement. However, grassroots Timorese opposition encouraged Dili's parliament not to ratify the agreement. The CMATS Treaty requires ratification of the framework of the Greater Sunrise agreement, with the revenues divided 50-50.

As in 2003, Australia played hardball to get Timor-Leste to sign the CMATS Treaty, delaying approval of laws necessary for a bidding round on new oil exploration contracts in a joint development area until Timor-Leste had signed CMATS. Timor-Leste receives 90 percent of the revenues from the joint area, which was established by the Timor Sea Treaty.

Under CMATS, Timor-Leste and Australia will each receive half of "upstream" revenues from extracting and selling Greater Sunrise oil and gas at the wellhead. Allocation of "downstream" revenues from refining, liquifying or processing the oil and gas is yet to be determined, and both countries want Sunrise gas piped to their shores to be liquified and shipped overseas.

The location of the plant to liquify the Greater Sunrise gas will be decided by the Sunrise joint venture, led by Woodside Petroleum and including ConocoPhillips, Shell and Osaka Gas. Although the companies lean toward Australia, Timor-Leste's government believes it can convince the companies to pipe the gas the shorter distance to Timor-Leste.

Petroleum fields closer to Timor-Leste than to Australia should belong 100 percent to Timor-Leste under international law, according to most legal experts. Timor-Leste receives 90 percent of upstream revenues from Bayu-Undan, which started oil production in 2004 and began piping gas to Australia in February 2006. Another such field, Laminaria-Corallina, has provided more than a billion dollars to Australia and nothing to Timor-Leste since it began production six years ago.

"The Australian Government has continually and blatantly refused to abide by international law. Instead, it has bullied the poorest country in Asia into a series of dodgy resource sharing deals, to take billions of dollars that simply do not belong to us," says Tom Clarke of the Australian Timor Sea Justice Campaign, whose hard-hitting TV advertisements helped move the Australian government.

Australian Foreign Minister Alexander Downer frequently trumpets Australian generosity to Timor-Leste, saying that CMATS "represents an opportunity to further underpin the income and development of one of Australia's closest neighbors."

In fact, since 1999 Australia's oil revenues from contested fields dwarf Australia's economic and military aid to Timor-Leste. In 2003, La'o Hamutuk pointed out that Timor-Leste is "the largest foreign contributor to Australia's national budget."

Timorese President Xanana Gusmão was more direct a few months later. "This is a question of life or death," he said, "a question of being continually poor, continually begging or to be self-sufficient."

Timor-Leste's government still resents Australia's arrogance. When CMATS was signed, Timorese negotiator Manuel de Lemos explained, "The big picture shows that Australia stands to gain substantially from the development of the Timor Sea in general and from the downstream processing in Darwin. Our estimates show direct tax revenue of $2 billion, and in addition are the multiplier benefits from this massive industrial development in northern Australia."

De Lemos' bitterness was apparent. "It is inappropriate to characterize the result of these negotiations as a 'very generous' gesture on the part of Australia," he said. "The resources at stake in these negotiations were claimed under international law."

Although less than Timor-Leste is legally entitled to, the tens of billions of dollars from Sunrise over the next 40 years will help Timor-Leste emerge from its status as the poorest nation in Asia.

Many analysts believe that income from the Bayu-Undan field will meet Timor-Leste's budgetary needs for at least 15 years.

La'o Hamutuk and others recommend that Timor-Leste defer developing Greater Sunrise gas until then, when gas will be more important globally and command a higher price, environmental and pipeline technology will have improved, and Timor-Leste will have gained experience in managing such projects and revenue.

The Australian Department of Foreign Affairs and Trade Replies

Multinational Monitor: What is Australia's reaction to the CMATS agreement with East Timor?

Australian Department of Foreign Affairs and Trade: CMATS Treaty reflects a commitment by both governments to strengthen the relationship between our two nations, and on behalf of Australia, to promote the development and economic prosperity of one of our closest neighbors.

This new treaty embodies a creative solution suggested by East Timor and is a win-win for Australia and East Timor. It:

  • Maintains the status quo by suspending maritime claims in the Timor Sea for 50 years, along with the 2003 International Unitization Agreement,
  • Creates legal and fiscal regimes to underpin the development of the Greater Sunrise gas and oil field,
  • Splits the upstream revenue derived from the Greater Sunrise field equally between Australia and East Timor - this raises East Timor's share of the revenues from 18 percent to 50 percent and could lead to additional revenue of up to US$4 billion for East Timor over the life of the project,
  • Maintains the existing Joint Petroleum Development Area under the 2002 Timor Sea Treaty, which splits the revenue in that area 90:10 in East Timor's favor,
  • East Timor will continue to exercise fisheries jurisdiction in the water column of the Joint Petroleum Development Area, and
  • Australia will continue to regulate and authorize petroleum activities outside the Joint Petroleum Development Area and south of the 1972 Australia-Indonesia seabed boundary.

We hope this Treaty and the International Unitization Agreement can be brought into force as soon as possible so as to give the Greater Sunrise project the best possible chance of proceeding.

MM: Critics say the oil and gas to be shared rightfully belongs to East Timor under international law, because it is more closely located to Timor. What is the Australian position on this?

Australian Department of Foreign Affairs and Trade: Australia's position remains that it has sovereign rights under international law to the natural resources on our continental shelf. In any event, Greater Sunrise lies almost entirely on the Australian side of the median line.

The Timor Sea Treaty provisionally gives East Timor 90 percent of petroleum production from within the Joint Petroleum Development Area (JPDA). This is generous when compared with the 50:50 split that applied in exactly the same area under the former Timor Gap Treaty with Indonesia, especially given Australia's longstanding and valid claim to the entire natural prolongation of the Australian continent, in which all the relevant deposits lie. Development of the oil and gas resources, including the major Bayu-Undan field, is proceeding. Revenues have already started flowing, and it is estimated that East Timor could earn as much as US$15 billion in revenues from the Bayu-Undan project alone.

Under the Timor Sea Treaty and the 2003 Greater Sunrise Unitization Agreement (IUA), Greater Sunrise is apportioned on the basis that 20.1 percent falls within the JPDA and the remaining 79.9 percent falls in an area to the east of the JPDA over which Australia exercises exclusive seabed jurisdiction. This apportionment reflects the geographical location of the resources.

Notwithstanding these arrangements which would remain in effect, Australia has agreed under the CMATS Treaty to share equally the upstream government revenues from the Greater Sunrise project.

The combination of the 2002 Timor Sea Treaty, IUA (signed by both countries but not yet in force) and the CMATS Treaty will see East Timor receiving a great deal more revenue from exploitation of petroleum resources in the Timor Sea than if the maritime boundaries were simply drawn using the median line principle as between East Timor, Indonesia and Australia.

Charles Scheiner is a researcher with the Timor-Leste Institute for Reconstruction Monitoring and Analysis (La'o Hamutuk)


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