Global Policy Forum

Australia's Offshore Oil Grab in the Timor Gap


By Jean-Pierre Catry

Monde diplomatique
December 2004

Kofi Annan, the United Nations secretary general, told the Security Council this year that: "Limited revenue and widespread poverty within the country continue to pose severe constraints on Timor-Leste's social and economic development. Benefits from the development of the country's mineral resources are materialising more slowly than had been hoped" (1). Donor countries advise East Timor to seek loans on the basis of these future resources - loans it would not need if Australia, the richest country in the region, stopped appropriating Timor's wealth.

In 1972, when East Timor was still a Portuguese colony, Australia and Indonesia agreed a boundary dividing the waters separating their countries. At that time the continental shelf (2) was generally recognised as the basis for determining maritime frontiers. As a result Australia received 85% and left only 15% to Indonesia. Portugal rejected this arrangement and the boundary area between Australia and East Timor - the "Timor Gap" - remains unresolved.

When Portugal pulled out in 1975, Indonesia invaded and annexed East Timor. The Australian ambassador in Jakarta, Richard Woolcott, sent his government a confidential telegram that has since been made public: "Closing the present gap in the agreed sea border could be much more readily negotiated with Indonesia than with Portugal or an independent Portuguese Timor."

The UN General Assembly and the Security Council condemned the Indonesian invasion, so Australia waited until 1979, when protests had died down, before starting negotiations with the occupiers. Meanwhile the idea that territorial waters should extend for 200 nautical miles offshore had won general international acceptance. Since the countries are less than 800km apart, the boundary should have followed the equidistant median line. In 1981 Australia accepted this criterion for agreeing fishing grounds with Indonesia, but rejected it for sea-bed resources.

In 1982 the UN Law of the Sea Convention formalised the median line as the basis for such agreements. Although Indonesia stood to gain, it was not prepared to wait until 1994, when the convention came into force after ratification by 60 countries: in 1989 it signed a treaty ceding most of the resources in the Timor Gap to Australia in return for de jure recognition of its sovereignty over East Timor, a recognition that violated UN resolutions.

Portugal took Australia to the International Court of Justice (ICJ) in The Hague where proceedings lasted from 1991-95. But Indonesia refused to recognise the ICJ's jurisdiction. In the absence of one of the parties, the court declared itself incompetent to rule but warned Australia that the treaty would not be binding on an independent East Timor. Under the treaty of 1989 Australia and Indonesia created a Zone of Cooperation A (Zoca) in the Timor Gap. If the internationally-accepted median line principle had been followed, the resulting revenues would have gone entirely to East Timor. Instead, throughout most of Zoca, the governments shared royalties equally. Timor's interests were further damaged when the lateral boundaries of Zoca were drawn so as to exclude the Laminaria-Corallina field to the west and 80% of the Greater Sunrise field to the east.

The fall of President Suharto of Indonesia in 1998 opened the way to possible Timorese independence. The judicial successor state model now became crucial. If East Timor succeeded Indonesia, it would inherit the consequences of a treaty to which it had not been a party. But if the treaty was recognised as invalid, as the ICJ had anticipated, everything was up for renegotiation, including frontiers.

President Xanana Gusmí£o and Prime Minister Mari Alkatiri announced East Timor's desire to renegotiate the maritime boundary. In January 2000 the United Nations Transitional Administration in East Timor (Untaet) secured an agreement between the Australian government and Timorese representatives. East Timor would not be the successor state, a UN legal adviser announced, on the grounds that "we do not want to retrospectively legitimise, or give any legitimacy to the conclusion of the treaty, which was done by Indonesia over what is part of the territory of East Timor. So this is not a case of succession, it is a new legal instrument that we will create" (3). The terms of the 1989 treaty would be renegotiated once Timor had achieved independence.

East Timor gained that independence in May 2002, after 24 years of resistance to Indonesian occupation and a referendum organised by the UN. Before withdrawing, Indonesian troops and the militias destroyed more than 75% of its infrastructure, making it the poorest in Asia.

Meanwhile a consortium of oil companies led by ConocoPhilipps demanded a swift agreement on the Bayu-Undan field, which lies entirely within Zoca, so that they could pursue investments to exploit it. States providing aid to East Timor added to the pressure, anticipating that its income from the field, after Australia had taken its 50% share, would allow them to reduce aid after 2005.

Behind apparently generous public declarations, Australia sought to persuade the Timorese that they would lose everything if they asked for too much. As the Northern Territories minister for resource development, Daryl Manzie, told the Asia Pacific Petroleum Conference in September 2000: "We don't know if negotiations will bring up 60-40 or 50-50, but Australia is not reluctant to discuss that." He added that the field's gas reserves were of no importance to Australia, since it owned 10 times more elsewhere (4) and could exploit other fields if the Timorese refused to accept its conditions. Australia's foreign minister, Alexander Downer, remarked ominously that any revision of the share-out of royalties "plays into the overall size of the Australian aid programme in East Timor" (5).

When the Untaet official responsible for the negotiations, Peter Galbraith, supported the Timorese by threatening to take Australia back to the ICJ, the Australian government conceded 90% of the royalties from Bayu-Undan. Besides the remaining 10%, Australia also profits from the infrastructure for processing and exporting gas, which is in Darwin, and the jobs associated with it. East Timor accepted the deal. Its budget at the time - $75m, 40% of it from international aid -represented barely $94 per head of population when there was almost no infrastructure, communications, education or health. Timor's 90% of the royalties from Bayu-Undan came to $100m a year over 20 years, a significant sum.

But this 90% share applies only in the Bayu-Undan field in Zoca, now designated the Joint Petroleum development area (JPDA). The situation remains unchanged in the Laminaria/Corallina fields to the west, which Australia exploits unilaterally at 150,000 barrels per day, and in Greater Sunlight to the east. These fields would treble East Timor's reserves (6) if the frontiers were redrawn in accordance with the Timorese claim, which most experts support as legally correct. Australia continues to contest the claim on the basis of the continental shelf.

The actions of Australian politicians belie their insistence that the law is on their side. In 2000 the first assistant secretary at the international law office of the Attorney-General's department, William Campbell, declared that he was in favour of a negotiated settlement and opposed to a judicial solution under which "states lose control" (7). In March 2002, two months before East Timor's independence, Australia withdrew from the ICJ's jurisdiction and rejected arbitration by the International Tribunal for the law of the sea in Hamburg. With recourse to the courts ruled out, there remains only the law of the strongest.

Having delayed its response to the Timorese request for border negotiations until 18 months after independence, the Australian government then postponed the first meeting until April 2004. When the Timorese demanded monthly meetings, Australia claimed that lack of time and personnel made a six-month interval necessary, meanwhile collecting $1m a day from Laminaria/Corallina.

The oil companies demanded an agreement by the end of 2004 if they were to invest in Greater Sunrise. This field lies astride the eastern boundary of the JPDA, 95 nautical miles from the island of Timor and 250 from Australia, on the Timorese side of the median line. Its exploitation must be mutual. Until the boundaries are renegotiated, Australia remains the sole beneficiary of the 80% of the field lying outside the JPDA, while East Timor is entitled to only 90% of the remaining 20%; 18% altogether.

On the eve of a meeting of aid donor countries in April 2004, Gusmí£o made an exasperated appeal to public opinion: "If our larger, more powerful neighbour steals the money we need to repay loans, that will put us deeper in debt. We will be one more country on the list of debt-ridden countries all over the world." Downer took offence and accused the Timorese of blackening Australia's image. He pointed to Australian generosity in conceding 90% of the royalties from Bayu-Undan and in giving $170m in aid. Oxfam Australia has calculated that, during this period, Australia had made more than $1bn from the Laminaria/Corallina field.

A group of Australians from the Timor Sea Justice Campaign proposed that the revenues from the contested areas should be deposited in escrow accounts and allocated once new boundaries had been agreed. Their government turned a deaf ear to this and to appeals from churches. It also ignored a December 2000 report from the Australian Senate Committee on Foreign Affairs, Defence and Trade which suggested: "By acting honourably and taking account of current international law, the Australian government might not only earn the goodwill of East Timor but also of other interested parties as well as providing East Timor with an economic basis on which it might be able to reduce its dependency on foreign aid."

The oil companies announced they would abandon investment in Greater Sunrise unless Australia and Timor reached an agreement by the end of 2004. But the Timorese parliament refused to ratify any agreement unless Australia committed itself to resolving the boundary issue within five years.

October's federal elections sharpened the debate in Australia. The opposition Labour party accused the governing Liberal/National coalition of inflexibility in its dealings with East Timor and its leader, Mark Latham, promised to re-open negotiations if he was elected. Downer reacted by suggesting talks with East Timor's foreign minister, the 1996 Nobel Peace Prize winner José Ramos-Horta. Despite a poll indicating that a high proportion of Australians do not support its refusal of ICJ arbitration, the Liberal/National coalition again won the elections.

In May 2004 Ramos-Horta acknowledged that his country owed its freedom to Australia, which had led the UN International Force in East Timor in 1999. There is no guarantee that it will not need Australian support again in the future, a point emphasised by Downer when he reminded Timor that it was in danger of alienating its closest international friend (8). In August, at a joint press conference, the two ministers insisted that they were optimistic: a provisional settlement, still in need of fine-tuning, would assign more revenues to Timor without changing the boundaries.

Downer added: "For the Timorese the issues of sovereignty of course aren't unimportant but the question of how much revenue East Timor is able to extract from the Timor Sea is a very important issue for a country which is new, has got a very low per capita GDP and has to build a broader economic base."

With international tribunals excluded, Ramos-Horta seems prepared to be pragmatic. Nevertheless, he has openly acknowledged that the idea of putting aside the question of sovereignty for five, 10 or 20 years to allow discussions to focus on resource sharing is only his personal opinion (9) and that it would be up to the Timorese parliament to ratify any agreement.

More Information on the Security Council
More Information on Oil and Natural Gas
More Information on East Timor

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.