Timor-Leste has ratified a maritime boundary treaty with Australia under which the two
countries would share royalty and revenue from offshore oil and gas in the Timor Sea. Timor-
Leste will get 80 per cent of revenue if oil and gas is piped to Australia but the share will reduce
to 70 per cent if it is processed in Timor-Leste. According to one estimate the oil and gas
deposits in Timor Sea are over $40 billion. In March 2018, Timor-Leste had signed a historic
treaty delimiting maritime borders outlining rights related to the offshore Greater Sunrise gas
field. Xanana Gusmao, the country’s chief negotiator remarked that non-ratification was costing
the country $5 million every month.
Timor-Leste had also planned an elaborate infrastructure and processing facility for gas to be piped from Greater Sunrise under the Tasi Mane project. The project cost was estimated to be about $10 billion which is too high for Timor-Leste. Also, there were fears that in case this project in implemented, there would be large scale corruption resulting in severe financial strain.
The country’s sovereign wealth fund is only $16.5 billion comprising primarily of royalty and revenue from various oil and gas fields under Production Sharing Contracts (PSC) with oil companies. Revenue and taxes from Bayu Undan, Joint Petroleum Development Area (JPDA) and Greater Sunrise projects are collected on annual basis, part of which is shared with Australia. This Petroleum Fund might dry up in a decade if the current rate of withdrawals continues which is more than investment returns. In the past there have been apprehensions over unfair sharing of oil revenue by Australia.
Under the 1982 United Nations Convention on the Law of the Sea 1982 (UNCLOS), Timor-Leste and Australia each have sovereign rights to explore and exploit offshore resources in their maritime zones up to 200 nautical miles. In the exercise of these rights, both countries may permit other entities, including petroleum and gas companies, to explore and exploit resources, while maintaining regulatory control over revenues through taxation.
Another resource rich area under Timor-Leste is the Timor Trough which lies beyond its Exclusive Economic Zone. Under an agreement, Timor-Leste has acknowledged and approved Australian jurisdiction beyond the maritime median line. As a quid pro quo Australia has allowed Timor-Leste exploration rights in the northern region of JPDA. The bone of contention is the undefined area between the northern outlying limits of JPDA and the maritime median line between the two countries.
Timor-Leste has set the frontal as well as lateral boundary with Australia. This unique distinction was achieved before it became independent from Indonesia. In 1972, Indonesia signed an agreement with Australia which outlined the seabed boundary between the two countries particularly between the median line and the Timor Trough. In 1979, Indonesia’s sovereignty over Timor-Leste was recognized by Australia, and in 1989 the two countries signed a treaty to decide about jurisdiction on the Timor Gap- the maritime area between the maritime boundaries between Australia and Timor-Leste, then province of Indonesia.
The Timor Gap Treaty between Australia and Indonesia became invalid after Timor- Leste became independent. It then negotiated to demarcate a frontal seabed and maritime column boundary. Australia having positioned itself as the harbinger of Timor’s independence withdrew from International Court of Justice’s jurisdiction on maritime boundary in order to deprive Timor-Leste of any adjudicator in case of dispute. Later, in 2004, a spying scandal rocked ties between the two countries after it was discovered that Australian security agencies had installed listening devices in Timor’s secretariat to know about their internal discussions related to maritime treaty between the two countries. The purpose of spying was to coerce Timor into signing an unfair oil and gas sharing deal.
Subsequently, in 2006, a treaty was signed putting a moratorium for five decades on negotiations related to maritime boundary. However, when the spying incident was exposed Timor-Leste went to ICJ threatening to withdraw from the agreement. As a result, in 2018, a maritime boundary settlement agreement was signed which needed ratification by the parliaments of respective country to put it into effect. Australian parliament ratified it but Timor- Leste parliament could not ratify because of political instability.
The ratification of Treaty would now pave way for establishment of a special regime for development of the Greater Sunrise Fields (a resource rich area), and provide rational revenue sharing mechanisms. This treaty would also end the unfair Timor Sea Treaty and obligates Australia to undertake economic development of Timor-Leste. Australia has been providing aid and assistance to the tune of 90 million dollars annually but critics in Timor-Leste argue that Australia used to gain a lot more from various off shore oils fields in Timor Sea because of unfair Timor Sea treaty. It is expected that the Treaty would spur economic development and as also result in equitable distribution of resources and royalty to Timor-Leste, one of the poorest countries of the world.
Dr Pankaj Jha is Associate Professor with Jindal School of International Affairs, O P Jindal Global University, Sonipat, Haryana.