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Thursday, October 7, 1999 Published at 16:56 GMT 17:56 UK

World: Asia-Pacific

Oil: Saviour of East Timor?

By the BBC's Kieran Cooke

As East Timor moves towards full independence, there is speculation about just how this small, undeveloped territory will survive. The one hope for any new administration in Dili is the oil industry.

East Timor
East Timor has good quality coffee - some of it ends up in leading name coffee shops in the United States.

But the trade, exploited for years by the Indonesian military, is badly organised and it is likely plantations and much of the industry's infrastructure have been destroyed during the mayhem of recent weeks.

East Timor also has marble - but again this is unlikely to contribute much to the economy, in the short term at least.

Oil and gas

Instead, East Timor's new leaders will be looking offshore in the hope of securing their territory's economic future - to oil and gas reserves in the Timor Sea, the stretch of water that separates the territory's southern coast and northern Australia.

The Timor Sea is believed to contain considerable reserves of oil and gas.

Some industry experts have compared it to areas in the Middle East and in the North Sea.

Split gains

In a move which at the time was condemned by pro-East Timorese groups and many in the international community, Australia negotiated a treaty with Indonesia in 1989 for joint exploration and exploitation of reserves in a 24,000-square-mile area of seabed known as the Timor Gap.

Under the terms of the treaty, the exploration zone is divided into three areas - one administered by Indonesia, one by Australia and one, in the middle of the area, is administered jointly.

[ image: East Timor is largely in ruins]
East Timor is largely in ruins
Each government is entitled to a 10% share of taxes on the production of oil exploration companies in the other's zone while in the jointly administered area, taxes are split 50-50.

Early hopes of an oil bonanza have not been met. International exploration companies have so far found only a relatively-small oil field which is likely to run dry within the next two to three years.

To date only about $3m of taxes have been distributed to each government.

'Large gas reserves'

However, oil companies say they have found very large reserves of gas in the area jointly administered by the two countries, and have been planning to invest $1.5bn to exploit it.

But due to recent events in East Timor those exploration plans are on hold.

As East Timor is moving towards independence, analysts question whether the Timor Gap treaty can still be considered valid.

Leaders of the pro-independence movement in East Timor - keen to grasp at any opportunity that might ensure their territory's future economic viability - want the oil companies to stay.

Indonesia has issued conflicting messages. One senior government official said Jakarta's part in the treaty would now be merely passed on to a new independent East Timor administration.

But another Jakarta official says the treaty will have to be completely renegotiated.

He said West Timor, an integral part of Indonesia, also had a claim on waters in the Timor Sea and should have a share of the area's wealth.

The oil exploration companies are understandably nervous - they will certainly be unwilling to commit large amounts of investment funds until the treaty situation is clarified.

Big ifs

If peace can be established quickly in East Timor and if Indonesia, Australia and a newly-independent East Timor can clarify the standing of the Timor Gap treaty, then the oil companies could well stay and eventually some wealth might be transferred to Dili.

But those are big ifs in the present turbulent times.

Before too long the oil companies could be towing their drilling platforms elsewhere.

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