A decade after independence and weeks after the departure of the United Nations mission and Australian-led peacekeepers, hydrocarbon-dependent Timor-Leste is facing up to life on its own.
It isn’t at all clear the future will be bright, given the challenges the country faces.
Around 90 percent of the country’s annual budget comes from the revenues generated from the Bayu-Undan natural gas field under the Timor Sea. But those resources are likely to be depleted by around 2024. Also likely to be gone by then will be the vital sovereign wealth fund money accrued from the underwater largesse – now almost US$12 billion – if the government keeps spending as it does.
Dismissing criticism that the country’s government was spending too much, Prime Minister Xanana Gusmao said in an interview just after winning last year’s parliamentary elections that “we need to invest now, while we can, otherwise we will remain stuck at this level, a poor country.”
The tiny half-island country hopes to boost its non-energy economy, with high hopes for sectors such as coffee and tourism. But so far, these hopes are far from being realized. In 2010, Timor-Leste’s exports, excluding hydrocarbons, amounted to just US$17 million, almost all of it from coffee.
That means the country will remain dependent on hydrocarbon exports for the foreseeable future.
The oil and gas windfall has underpinned annual economic growth of around 10 percent growth since the mid-2000s. But in another challenge to the government, that wealth hasn’t translated into prosperity for ordinary Timorese. Four out 10 people live below the poverty line and 70 percent of working age people make a living by farming or fishing, or are otherwise underemployed. The country has no real industry and most goods must be imported.
Opposition leader Mari Alkatiri touched on these challenges when addressing Dili’s parliament on Feb. 4. “Because we import almost everything, at speculative prices, we drain our resources that come mainly from non-renewable sources,” he said.
While Prime Minister Gusmao is surely right in saying that Timor-Leste needs to spend on developing and diversifying the country’s economy, just how much can it afford to spend is one key question.
La’o Hamutuk, a Dili-based think tank that specializes in monitoring the country’s development, wrote in a report last year that “If we continue on this path, by 2022 our Petroleum Fund will be empty, our oil will be almost gone, we will be repaying the principal on infrastructure loans, and twice as many young people will be entering the work force as today.”
Absent any success in building a non-hydrocarbon-based economy between now and when the Bayu-Undan field runs dry, the country’s future could well rest on the fate of another, larger gas and condensate field, Greater Sunrise, which lies 150 kilometers southeast of Timor-Leste and 450 kilometers northwest of Darwin – in waters disputed with Australia. The field is estimated to be worth around US$40 billion in revenue.
So far, however, not a cent’s worth of gas has yet been extracted from the Greater Sunrise field. Timor-Leste wants the gas to be piped to its south coast and processed there, but Australian oil and gas operater Woodside, which is the lead player in the consortium awaiting the go-ahead to extract the gas, wants, instead, to set up a floating liquefied natural gas (LNG) station in the Timor Sea.
Joint development of Greater Sunrise by Timor-Leste and Australia is governed by The Certain Maritime Arrangements in the Timor Sea (CMATS), a treaty between the two countries that offered Timor-Leste improved terms over revenues from the field in exchange for Dili agreeing to keep quiet about unresolved maritime boundaries. The problem is, a deadline related to the treaty lapsed on Feb. 23, because the two sides had not yet reached agreement on extraction plans by that deadline in the treaty.
That means either Dili or Canberra can now scrap the treaty, but whether Timor-Leste goes all out and breaks the Aussie taboo on the boundary dispute could depend on whether it expects to get a fair shake from Australia, which previously cut some sharp deals with Indonesia over the Timor Sea in the middle of Jakarta’s illegal quarter-century occupation of Timor-Leste.
In the meantime, however, Australia has undergone a mining and gas boom of its own, perhaps making it less likely to play Scrooge with its tiny neighbour over Greater Sunrise. Australian National University academic Pyone Myat Thu, who has carried out research in Timor-Leste, believes that the issue of maritime boundaries, if comes up, is unlikely to affect broader relations between the two countries, which are positive.
”One must also observe what is happening outside of the oil and gas sector,” she says. Around 10,000 Timorese work in Australia, sending vital remittances to families back home, while Australia has spent over US$100 million a year on aid to Timor-Leste since the mid-2000s.
For now, Australia and Timor-Leste are keeping quiet about whether they will scrap CMATS or not – questions sent to ministers in both countries went unanswered at the time of writing.
Timor-Leste might be tempted by the fact that most similar maritime disputes are resolved by drawing a line midway between the two countries – an outcome which would put Greater Sunrise in Timorese waters, meaning it would not have to share revenues with Australia. Those revenues would dwarf the amount of aid Australia provides Timor-Leste.
But even if Greater Sunrise ends up in Timorese waters, this does not mean that Timor-Leste will get its way on having the gas processed onshore, an outcome the Dili government says will generate much-needed spin-off effects on the wider local economy.
There are pros and cons to both solutions – the onshore facilities or the floating station. Professor Olav Bolland of Norwegian University of Science and Technology says that an onshore terminal would require skilled workers to run the operation, construction companies to build it, a supply of chemicals, spare parts and local contractors for maintenance work.
“I assume that these resources could be pulled in from other countries in the region, but I am not sure how easy that would be in Timor-Leste,” he adds.
But the floating plants – giant ships touted by advocates as cheaper than onshore facilities because they eliminate pipeline costs – remain an untested gambit. The world’s first floating LNG operation is currently being put together to tap another field off the western Australian coast.
Bolland says that “there is a risk for technical failure/problems and also a significant economic risk to go for a floating plant, simply because it has not been done before. Weather conditions are also a factor to be considered.”Show