Saturday, 19 May 2012

General Facts on the Timor Sea

Original Citation: 2005 ETLJ 4 General Facts on the Timor Sea

Compiled by: Dionísio Babo Soares and Francisco da Costa Monteiro

In the last couple of days, East Timor and Australia had talks on the Timor Sea issue, on what the Australian Foreign Minister, Alexander Downer, dubbed a “creative Solution”. For most of the East Timorese, information on the ongoing development on the topic remains scarcely available. This compilation aims to provide some general facts on the Timor Sea issues and is designed in a simple to way to update people on the topic.

What are the issues pertaining to the Timor Sea?

There are at least two main issues arising in relation to the Timor-Sea, namely; 1) The Permanent Maritime Boundary Delimitation; and 2) The Revenue Sharing Arrangement prior to delimitation of the Permanent Maritime Boundary.

What is the current Status?

Timor-Leste and Australia have agreed, through Timor Sea Treaty 2002, to develop petroleum resources in some of the areas in dispute by establishing the Joint Petroleum Development Area (JPDA). In this area lie the known oil and gas fields such as Elang-Kakatua, Jahal-Kuda Tasi, Bayu Undan, and 20.1% of the Greater Sunrise. Within this area Timor-Leste gets 90% of the revenue sharing and Australia gets 10%. The Timor Sea Treaty has been signed and ratified by both government and parliaments.

With the Timor Sea Treaty in place, the Bayu Undan and the Elang-Kakatua project can be continued and now these two fields are on production. Elang-Kakatua is about to be depleted in one or two years time because this field has been producing since 1998. The tax revenue from this field goes directly to the Timor-Leste national budget to be used as public funding, and the Share of First Treche Petroleum, that is revenues from the sale of Timor-Leste’s share of production, goes into a Trust Fund for Future Generations, which is about US$ 13.8 million now administered by BPA. The estimated revenue from Bayu Undan project is about US$ 3 Billion over the 20 years of the project life. The oil price for this estimation was set at US$ 20/barrel, current oil price in the world market is US$50 per barrel.

What is the problem with this temporary arrangement?

Part of the outstanding problem is that Timor-Leste, based on international law advice, is entitled to an area greater than the current JPDA (see diagram 1). The lateral boundaries east and west of the JPDA, according to modern international law, should have been extended east- and west-ward to include all Greater Sunrise field and Laminaria Corralina and Buffalo oilfields. However, Australia is currently exploiting unilaterally two oilfields Laminaria-Corralina and Buffalo and collecting the revenues without a single cent given to Timor-Leste. Australia has collected approximately US$ 1.5 Billion. It has also recently released new blocks in the disputed areas for explorations, and is pushing for ratification an agreement (IUA) that will give the right to unilateral exploitation of the disputed area to Australia.

What Australia wants?

Besides Timor Sea Treaty, Australia wants Timor-Leste to sign and ratify the International Unitization Agreement (IUA), which will set only 20.1% of the Greater Sunrise into the JPDA and attribute the remaining 79.9% to Australia’s own control.  The Government and the Parliament of Australia have signed and ratified the IUA. The Timor-Leste Government has signed it but the Parliament of Timor-Leste has not ratified, and the President of the Republic has not promulgated it. Australia has pushed for ratification of IUA.

Is International Unitisation Agreement (IUA) good for Timor-Leste’s national interest?

No! It is not good because of the following reasons:
Legally, IUA attributes the part of the Greater Sunrise, which falls in the disputed area, to Australia. This means, if Timor-Leste ratifies IUA, it agrees that the lateral boundaries claim of Timor-Leste is limited only to the current lateral boundaries of the JPDA - there is inconsistency in our claims;

Politically, IUA gives very little power to Timor-Leste (18.99%) to control the decisions relating to the project. This means that Timor-Leste will have very little power to require the companies to build a pipeline and LNG-plant in Timor-Leste.

Economical, IUA only gives Timor-Leste US$ 1.4 throughout the life of the project that is worth US$ 24 Billion. Under international law, Timor-Leste is entitled to 100% of Greater Sunrise and therefore it has the potential to receive at least US$ 12 Billion from Greater Sunrise. This does not include the multiplier effects on the economy that the project can bring along if the pipeline and LNG-plant were constructed to and in Timor-Leste.

What are the Timor-Leste’s national interests in the Timor Sea?

Timor-Leste’s national interest in the Timor Sea can be described, at least, as following:
1) to maintain the claim for lateral boundaries east and west of this current JPDA;
2) to maintain the southern maritime boundary claim to as far as the Median-Line between Timor-Leste and Australia;
3) to require the companies conducting their activities from Timor-Leste to increase local content; and
4) to require the Pipeline and Liquefied Natural Gas (LNG) processing plant for Greater Sunrise to be built to onshore Timor-Leste.

Who is Woodside Petroleum, and what is its interest in the Timor-Australia negotiation?

Woodside is the operator of the Greater Sunrise field. It is an Australian company that holds 33.4% share of the project, and wants to bring the pipeline and LNG-plant to Darwin (Australia). For the project to proceed, Woodside requires the International Unitisation Agreement to be ratified by the Parliament of Timor-Leste.

Can Timor-Leste survive economically without the development of Greater Sunrise soon?

Yes! Commening in 2007, the revenue from Bayu-Undan will significantly increase to around US$ 80 million and soon will exceed US$ 100 million per year till 2021 (see diagram 2). Even today, if the current oil price remains, the revenue to the government from Timor-Leste would double the estimated revenue which was set at around US$ 30 million. The current funding composition of the budget is around US$ 20 million from Domestic Revenues other than oil, plus US$ 30 million Revenues from oil other than FTP, plus approximately US$ 20 million from international donors, so the double increase in oil revenue should effectively give the government a surplus somewhere around  of US$ 30 Million.

Assuming government expenditure is around US$ 70-80 million and remains constant (preferably constant to avoid mismanagement and “dutch desease”) for longer, each year the government will get a surplus of US$ 30 and more from now onward.  Therefore, Timor-Leste should not feel an urgency to develop Greater Sunrise, especially if it prejudices Timor-Leste’s interest when develop it now.

Facts of the Negotiation on the Permanent Maritime Boundary:

Compiled by: Dionísio Babo Soares and Francisco da Costa Monteiro

At what stage is the negotiation on the Permanent Maritime Boundary now?

Timor-Leste and Australia are now at the sixth round of negotiations since the independence of Timor-Leste in 2002. At the first round of negotiations, which was held in Dili, Timor-Leste on the 20th to 24th April last years, Australia rejected the proposal for a biannual meeting and did not want to talk about Timor-Leste’s potential claim on the lateral boundaries which encompass the Greater Sunrise, the Laminaria-Corralina and the Buffalo gas and oilfields. The second round of negotiations is now in Canberra, Australia from 20th – 24th of September and followed by number of talks in Darwin a week later. The focus of the negotiations now is the Greater Sunrise development, which has been suspended because of the non-ratification of International Unitisation Agreement by the Parliament of Timor-Leste.

What is the “breakthrough” in this new negotiation round?
Australia and Timor-Leste are seeking a “creative solution” to the deadlock in talks between the two countries on the first negotiations round. From the media, it appears that Australia is willing to give “additional” revenue to Timor-Leste, but Timor-Leste shall surrender its sovereignty claim over the Greater Sunrise by ratifying the International Unitisation Agreement in its present form.

What is the Timor-Leste Government’s formal position on this “proposal”?

There has not been any formal declaration from Timor-Leste’s government on this matter, but from the media reports, etc, the government seems to entertain this proposal.

What is the legal position of Timor-Leste and Australia?

Timor-Leste’s legal position has been based on the United Nations Convention on the Law of the Sea which stipulates that if two Coastal States are situated less than 400 nautical miles apart, which is the case between Timor-Leste and Australia, the principle of Equidistance (medias-line) should be used in delimiting the boundary between the two states. Furthermore, modern international law suggests that Timor-Leste should be entitled to the lateral extensions more than the current lateral boundaries set in the JPDA. The current JPDA laterals boundaries were set by Indonesia and Australia based on their 1972 Treaty which contains some flaw. Since Timor-Leste was not a party to the 1972 Treaty, it can not be held accountable nor shall it accept the validity of the starting points of the west and the east laterals.

On the other hand, Australia’s legal position has been based on the argument that it is entitled to “the natural prolongation of continental shelf”. According to Australia, Timor-Leste sits on a different continental shelf (this is not true!) and that the Timor Trough, the trench with a maximum 3000 meter depth in the Timor Sea, is a clear feature that separates the two continents, Australia and Asia where Timor-Leste lies (again, is not true!). Therefore, Australia claims that the natural prolongation of the Australian continental shelf ends in the Timor Trough and thus it is entitled to all the areas in the Timor Sea under dispute. Moreover, it argues that all maritime borders with its other neighboring countries have been based on this principle and therefore Timor-Leste should follow this principle too.

Is the legal position of Timor-Leste strong?

Yes! At least 60 cases of maritime boundary dispute similar to  the Timor-Leste-Australia case have been decided based on the equidistance or median line drawing principle by international dispute settlement mechanisms (courts and arbitrations).

Of 20 cases of maritime boundary dispute resolved through bilateral negotiations, all have been decided on the basis of equidistance and the median line principle, except the case of Indonesia-Australia in 1972.

Are the Timor-Leste’s Median-Line and Lateral Boundaries claim valid under international law?

Yes! Any Coastal State is given under international law (UNCLOS) the right to claim and explore its continental shelf to as much as 200 nautical miles or more. This means both Timor-Leste and Australia have the right to claim 200 nautical miles or more of their continental shelves. However, because the sea between Timor-Leste and Australia is less than 400 nautical miles, there is an overlapping area when each country applies this right under international law. That is why there exists the overlapping claim area or the disputed area in Timor Sea. The best principle advocated by international law to resolve problems such as this is the principle of equidistance or median line drawn from the coastal baselines of each Timor-Leste’s southern coast and Australia’s northern coast.

Does the “creative solution” prejudice Timor-Leste’s national interest?

The “creative solution” will prejudice Timor-Leste’s national interest if it does not involve amendments of the articles 4, 7, 9, 10, and 11 of the International Unitization Agreement and the Timor Sea Treat article 9 Annex-E. In other words, it prejudices Timor-Leste’s national interest if, in exchange of the revenue sharing, Timor-Leste has to ratify the IUA in its current form.

Diagram 1. Timor-Leste’s potential claims:- The dashed lines are the potential claims based on international law.
Please contact ETLJ
Diagram 2. Potential Revenue from Bayu Undan Project.
Please contact ETLJ

First Published in Timor Post, Saturday 30 April 2005

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