Oil windfall heads for East Timor

Every week, Manuel Mendonca travels the dubious roads around East Timor's jagged peaks and valleys on a mission: to tell his fellow citizens about the wave of oil money that will soon crash upon the shores of the world's newest nation. He's the government's one-man public-relations band, educating a largely rural population in Asia's poorest country about the complex issues involved in becoming a petrostate.

"Timor Sea oil is very important for our country and our future," says Mr. Mendonca. "People need a clear explanation so they can understand what the government has already done for this country, and what else it proposes to do. It's a great satisfaction for me to do this."

In between East Timor and Australia lies a series of lucrative oil fields in the Timor Sea, some actively pumping, others still in the planning phase.

One of them, Bayu-Undan, is expected to yield more than $3 billion over the life of the project, estimated to last about 20 years. This revenue will significantly change the face of a country that currently generates only around $25 million annually from local resources, mostly coffee.

Almost two years after the UN handed power over to the first elected Timorese government, following decades of Indonesia's authoritarian rule, East Timor remains the poorest nation in Asia and one of the very poorest in the world, with the average citizen earning about 55 cents a day.

The local economy is largely propped up by the international donor community, but East Timor now competes for aid dollars against larger and more immediate global hotspots like Iraq and Afghanistan. Oil is East Timor's best hope for true economic independence, observers say.

Oil is often a two-edged sword. Along with a windfall, places like Nigeria, Venezuela, and Angola have faced unrest and corruption. Some experts say East Timor's fledgling democracy may have trouble handling the challenges of oil development.

"The problems East Timor faces are much the same ones facing any oil-rich developing country, with the added problem of new institutions and a democratic polity only in its first years," says Benjamin Smith, an expert on extractive industries in developing countries. "Unless a way can be found to insulate the use of oil revenues from the incentives inherent to politics, it is difficult to foresee the revenues having a net positive impact."

The government is taking steps toward safeguarding the funds. "It is essential to recognize that oil and gas revenues are, for the foreseeable future, East Timor's principal government revenue," says Ron Isaacson, deputy director of the World Bank in Dili. "The government of East Timor is determined to save much of its oil and gas revenues such that future generations can benefit as much as current generations."

Exactly how much money will actually come to East Timor as a result of the Timor Sea oil is not clear right now.

East Timor's leaders, to their credit, have been studying the lessons learned from other petrostates and say they are determined not to let their country stumble down the same rocky path. Shortly after full independence in May 2002, Prime Minister Mari Alkatiri created the Timor Sea office, charged with bringing information directly to the people because of the country's limited communications infrastructure.

"Timor Sea issues are of significant importance to our future and the future of our children. The Timorese people deserve the right to know how the government is managing their future and deserve our assistance in explaining what difficulties we, as a nation, face," Mr. Alkatiri says.

Alkatiri also supported British Prime Minister Tony Blair's transparency initiative for oil-producing nations, meant to insure better accountability of oil revenues once revenues begin to pour in.

Alkatiri's personal commitment to openness was tested recently when a small American-Portuguese oil company filed a $10.5 billion lawsuit in a Washington district court against Conoco-Phillips, alleging the oil giant conspired to take away its claims to the Timor Sea fields through fraud, including an alleged $2 million bribe to Alkatiri, who vigorously denies this allegation. The case is still pending.

Meanwhile, Manuel Mendonca continues his quest to educate the Timorese almost one-by-one about their oil destiny. He travels the rough roads outside Dili to visit all of East Timor's 13 districts - tough for any traveler, but especially for Mendonca, a former independence fighter who was badly beaten by the Indonesian military during the long years of its occupation. Most of his ribs were broken - he survived, but he still feels pain. Each pothole is a trial as he spreads much-needed information around his country on the coming oil boom.

He brings a portable projector, a small generator in case of power outages, and a video produced by the Timorese government to explain some of the basics of the complex story about the oil fields. Afterward, he patiently answers every question posed by the villagers until everyone has spoken his mind - a process that usually takes hours in the sweltering tropical heat.

Other measures to familiarize the East Timorese on their looming oil wealth have come from the private sector. International nonprofits have initiated briefing seminars to local community groups and journalists.

"Personally what I learned from the seminar was ... about the curse of oil," says Joao Sarmento from La'o Hamatuk, a local nonprofit that monitors aid activities. "Many journalists took part in the seminar and I do believe that wherever they are they want to write some pieces about the issue for their respective newspapers or magazines. Isn't this some progress?"

A country's sea boundaries were once considered to extend as far as its continental shelf extended into the ocean.

But current international maritime law favors a newer formula - boundary lines extend up to 200 miles from shore, unless the distance between two nations is less than 400 miles. In that case, contemporary legal thinking suggests, a median line is drawn halfway between opposite coastlines.

Under the newer scenario, 100 percent of the rich Greater Sunrise field in the Timor Sea would belong to East Timor. But Australia is also claiming 100 percent ownership of Sunrise, under the old guideline.

East Timor's Foreign Minister Jose Ramos-Horta notes that the equidistance principle is commonly accepted by the United Nations.

"We are supremely confident of our legal standing," he says. "It is Australia that is worried about the weakness of their claims. Australia wants us to accept that their maritime boundary comes some 50 kilometers [30 miles] close to our coast. We are demanding that a median line be drawn between East Timor and Australia."

In a recent Australian TV interview, Australian Foreign Minister Alexander Downer said of East Timor's demands: "I know they have their claims, and I know they have their arguments.... But remember, we have our claims. And we want to stick with our international legal principles, principles that have served us in relation to negotiations with Indonesia, with Papua New Guinea, with New Zealand."

Two years ago, Australia pulled out of the International Court of Justice in The Hague, saying it preferred to negotiate its disputes with East Timor bilaterally. Now a team of negotiators is demanding that Australia sit down at the bargaining table every month to formally determine the boundaries between the two countries. Australia says it can hold meetings only twice a year.

While the dispute rages, Australia has been pumping oil from one of the contested fields at the rate of $1 million a day since late 1999. Each year, revenue from this small well alone exceeds four times East Timor's total annual government budget. The field is nearly extinguished.

"By the time this issue is settled, Australia could have taken all the oil," says former American diplomat Peter Galbraith, currently a senior diplomatic fellow at the Center for Arms Control and Non-Proliferation in Washington.

The pumping began just a few months after an Australian-led force squelched the militia rampage that had destroyed much of East Timor after its vote for independence from Indonesia. Many Australians who felt that their country's military action had redeemed the blemish of Australian's support for Indonesian's 24-year occupation of the tiny half-island state are now outraged by their government's seeming attitude reversal toward their neighbor.

"It is simple. Australia is the richest country in the region, East Timor is the poorest," says Australian Senator Bob Brown. "The oil and gas fields are on East Timor's side of the sea, but relying in part on deals made with Indonesian dictators, the Australian government says 'most of it is ours.' "

Bound forever by geography, however, the two countries must find a creative answer to the standoff.

"We are open to any ideas that may help us resolve this dispute with Australia," says Mr. Ramos-Horta, "enabling the two sides to reach a compromise solution soon."