By John McBeth
Far Eastern Economic ReviewIssue of August 31, 2000
For a country-in-the-making whose leaders prefer Portuguese as a second language, it is striking that the long-term prosperity of East Timor is intrinsically bound to the economic development of Australia's Northern Territory.
Portugal's former colony can't bank on promises made by the colonial power that abandoned it 25 years ago. But Australia's "Top End" is a 750-kilometre hop across a Timor Sea whose rich reserves of oil and gas could be the new state's salvation.
The Northern Territory's sun-drenched capital of Darwin was best known 30 years ago for its prodigious beer-drinkers. Not any more. Separated from the rest of Australia by the continent's great desert--its "dead heart"--Darwin celebrated the new millennium with a 12.8% year-on-year increase in its gross state product in 1999 on the back of a big rise in offshore oil production. That was only the icing on the cake. In the past five years, heavy defence spending associated with a long-planned military re-basing to northern Australia has kept growth humming along at an average 5.6% a year, a national high.
State officials estimate the Northern Territory took in as much as $235 million serving as a forward supply base for peacemaking and peacekeeping operations in East Timor. With a resident population of 5,000 Timorese, some of whom are well-established businessmen, it also has tried to be a good midwife by helping to rehabilitate power, water and port facilities in East Timor.
Daryl Manzie, the state's minister for resources and Asian relations, sees only bigger things ahead. Later this year, work will finally begin on a 1,400-kilometre railway linking Darwin to Alice Springs and the rest of Australia. When it's completed in 2003, the $700-million project could make Darwin what it has always aspired to be--Australia's gateway to Asia.
The Northern Territory government already has completed phase one of its new East Arm port-development project, designed to handle an increasing flow of trade between Australia and Asia. Manzie says he expects the rail link will cut more than a week off the time it takes to move goods from southern Australia to Asian destinations.
Increased trade between Australia and Asia could help East Timor sell its resources. Already, under current profit-sharing arrangements, Dili stands to receive $1.7 billion in royalties and taxes over a 20-year period from Phillips Petroleum's Bayu-Undan gas and condensate field in the Timor Gap, the shared development zone Australia and Indonesia created a decade ago.
That may only be pin money compared with the benefits the new Dili government could get from the 19-trillion-cubic-foot Sunrise and Troubadour gas fields if it succeeds in renegotiating the maritime boundary between the two countries.
Timorese leaders consider the Timor Gap Treaty, which created the shared development zone, illegal. Canberra, they say, extracted major concessions from Jakarta in exchange for a deal that effectively legitimized Indonesia's annexation of the territory. Mari Alkatiri, the Timorese economics minister in the United Nations-administered transitional government in East Timor, rejects Australian control over all of its continental shelf, which extends to within 100 kilometres of the East Timorese coast. "The starting point is not to renegotiate the revenues, but the maritime boundary itself. We want it to be equidistant."
Given that it will have to provide aid to East Timor anyway, Australia is taking a sanguine approach to the issue. Foreign Affairs and Trade Secretary Ashton Calvert says Australia will be "sensible, reasonable and fair" in considering the "natural aspirations" of the new Timorese leadership.
Manzie makes it clear negotiations will be entered with an open mind: "It's not a big problem. There's no tension about it at all." Timorese officials hope to resolve the issue by the end of 2001.
Darwin's power station currently runs on gas piped from the Palm Valley field, west of Alice Springs. But the flow would most likely reverse when the estimated 40 trillion cubic feet of reserves from the Timor Sea come onshore.
"It will be huge for us," says Carole Frost, general manager of the local chamber of commerce. "It will open up new mines and specialist industries. What we want is value-added. We just don't want the gas coming ashore and going straight down the pipe."
Potential customers include Canadian methanol producer Mathonex and Australia's Multiplex. Apart from a possible export-oriented LNG plant in Darwin itself, planners foresee a 1,300-kilometre pipeline to the Queensland industrial centre of Mount Isa, and on to an existing grid through New South Wales, South Australia and Victoria.
