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Feb 12, 2013

Woodside gas deal could redraw Australia-East Timor borders

Woodside and the East Timorese government have just 10 days to strike a deal on a lucrative gas project -- or the controversial sea boundary between Australia and East Timor will be redrawn. Billions of dollars are at stake.

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Australia’s relationship with East Timor is at risk as the deadline looms on a hotly disputed and lucrative liquid natural gas project — with no resolution in sight.

West Australian-based Woodside Petroleum has until February 23 to reach an agreement with the government of East Timor over the site of processing LNG or else the arrangement between the two is likely to be stopped. This would then trigger the cancellation of Australia’s sea boundary agreements with East Timor.

At this late stage it’s unlikely Woodside will change its long-held position and accede to East Timor’s demand that the LNG be processed on East Timor’s south coast. Woodside’s preferred option is a floating processing platform at the Greater Sunrise LNG field in the Timor Sea.

The East Timorese government can cancel Woodside’s involvement in the project, valued at $20 billion, if no agreement is reached on processing by February 23. But more critically, the termination of Woodside’s contract would end Australia-East Timor agreements on the Timor Sea boundary between the two countries.

The bilateral treaty (the Timor Sea Treaty), the Certain Maritime Arrangements in the Timor Sea (CMATS) and a third document — all imposed by Australia on East Timor in 2002-3 — allocate revenues from the Joint Petroleum Development Area (JPDA) in the Timor Sea. Within the shared, now largely exhausted JPDA, East Timor receives 90% of revenues, Australia receives 10%.

However, 80% of the more important Greater Sunrise field lies outside the JPDA, where the benefits are divided evenly under the Sunrise International Unitisation Agreement (IUA).

East Timor points out the imposition of the boundary contravenes the UN Convention on the Law of the Sea, which Australia withdrew from recognising just before negotiations with East Timor. Under this convention, all of the Greater Sunrise field should be within East Timor’s exclusive economic zone.

East Timor reluctantly signed the Timor Sea Treaty, CMATS and the IUA in 2002-3 with a metaphorical gun to its head. Australia’s position, led by then foreign minister Alexander Downer, was that if East Timor did not sign the treaty Australia would simply allow the pre-existing boundary agreement with Indonesia to remain in place, East Timor would be starved of revenue from the fields and the new state would collapse just after it had gained independence.

There are still 10 days remaining for an agreement between Woodside and East Timor, but the indications are that neither side will budge sufficiently to allow the project to proceed. This will then allow the East Timorese government to cancel the agreement with Woodside and trigger the right of the East Timorese government to terminate the CMATS treaty, throwing open the issue of boundaries between the two countries.

Assuming the agreement is cancelled, East Timor is hoping for two outcomes: it can quarantine the issue of the sea boundary within the bilateral relationship, and it can renegotiate the boundary, following international convention, at the median point between Australia and East Timor.

Despite criticism of Australia in 2010, East Timor’s Prime Minister Xanana Gusmao wants a continuation of the currently close relations between the two countries. This includes Australia’s $116.7 million aid program, diplomatic support and future security arrangements. But Australia showed in 2002 that it can be brutal in its dealings with its smaller neighbours so, assuming the treaty is cancelled, the decision on whether the sea boundary issue is quarantined from the wider bilateral relationship will sit firmly with Australia.

When in 2004 Australia negotiated its sea boundary with New Zealand, it opted for the UN Convention’s median point. East Timor is hoping that, if the Timor Sea Treaty is renegotiated — presumably after the next federal election — Australia will revert to the UN Convention. Doing so, however, would mark an ethical consistency in Australia’s regional relations that has to date been absent.

*Professor Damien Kingsbury is director of the Centre for Citizenship, Development and Human Rights at Deakin University. He is co-editor, with Michael Leach, of The Politics of East Timor: Democratic Consolidation After Intervention, Cornell University Press, 2013.

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