E Timor independence day muted

Timorese troops paraded before their president

East Timor's celebrations of its second independence anniversary have been overshadowed by its continuing economic problems.

Oxfam warned on Wednesday that East Timor was at risk of becoming a failed state unless Australia allowed it a fairer share of Timor Sea oil revenues.

The row was not mentioned directly on Thursday, with Prime Minister Mari Alkitiri focusing instead on security.

The UN has reduced its role, handing policing powers to East Timor.

But persistent instability in the tiny state has meant a reduced UN presence of about 700 security and administrative personnel will remain.

TIMOR SEA TREATY Signed in 2002 by Australia and East Timor, replacing earlier treaty with Indonesia Shares revenue for 62,000sq-km Joint Petroleum Development Area (JPDA) E Timor gets 90% of revenue from JPDA Only one main gas field - Bayu-Undan - is entirely in JPDA Only 20% of a larger reserve - Greater Sunrise - in the JPDA The treaty holds until a permanent maritime border is negotiated, or for 30 years Little to celebrate

At Thursday's ceremony, President Xanana Gusmao led dignitaries and diplomats in a moment of silence in respect of the hundreds of people who died during East Timor's bloody independence vote from Indonesia in 1999, the French news agency AFP reported.

"I appeal to you all, my brothers and sisters, to help rebuild this country with the skills and capacity that we have so that there will be a bright future for the next generation.

"Show the international community and the United Nations that we can govern our own country," Mr Gusmao said.

The anniversary was overshadowed by a row over a maritime border with Australia, with the Oxfam report claiming Australia was hampering East Timor's finances by laying claim to the lion's share of Timor Sea oil fields, an allegation Australia has denied.

If a maritime boundary were set up between the two countries according to international law it would deliver "most, if not all" of these resources to East Timor, the charity said.

East Timor argues that the sea border between the two should be at the middle of the 375 miles of sea between the countries, in line with international laws.

However, Australia wants to keep the present border, at the continental shelf which at some places is just 94 miles from East Timor's coast. Most of the oil revenue is nearer to East Timor.

Canberra argues that this is in line with international law, and further points out that the two countries agreed a year ago a treaty which splits royalties 90:10 in favour of East Timor.

But this deal only holds until a permanent maritime border is negotiated, and only applies to a shared 62,000 square-km (23,900 square-mile) region - not to all the gas fields in the Timor Sea.

Australian Foreign Minister Alexander Downer told the BBC:

"We draw our international borders where we believe they belong, and we negotiate that but when it comes to the fact that Australia is richer than East Timor, that's something we deal with through our very generous aid package.

"Australia isn't going to suddenly move all its maritime borders with other countries in the teeth of a whole lot of emotional claptrap which is being pumped up by left-wing NGOs... my advice to (East Timor) is to calm down a little and think about the bilateral relationship and make sure they negotiate with an eye to international law," he said.

Little was achieved during the last round of talks over the disputed territory - negotiations are set to restart in September.

The boundary has been a long source of conflict between the two countries, with energy deposits worth an estimated $20bn in royalties at stake.

The Oxfam report highlighted the current plight of the country where one in four people live below the poverty line.