Last week,
Timor-Leste’s Parliament briefly discussed and unanimously approved a revision to the State Budget for
2015. La’o Hamutuk and some Members of Parliament suggested
that expenditures be reduced in light of falling petroleum revenues, but few
pointed out that the main reason Timor-Leste is getting less money is because
oil and gas production are declining. Unlike the volatile oil price, production
rates will not go back up because the reserves are running out. This article
will explore the facts and implications of this reality.
During
the last couple of months,political leaders repeatedly explained that they would
not recalculate the Estimated Sustainable Income guideline in light of the
falling oil price, but they have largely ignored the more fundamental issue of
running out of oil and gas. The revised 2015 State Budget authorizes spending
$1.57 billion, unchanged from last December. If the budget is executed at the
same rate as in 2014, Timor-Leste will spend more in 2015 than ever before.
We live in one of the most petroleum-export-dependent countries on earth. In 2014, 73% of state revenues came from converting nonrenewable oil and gas wealth into cash, and another 20% was from returns on investing oil and gas income received in earlier years.
However, Timor-Leste’s oil and gas revenues are dropping rapidly, and we received 40% less revenues from them in 2014 than in 2013, mainly because the Bayu-Undan and Kitan fields are being used up. More than 75% of their non-renewable wealth has already been extracted – and this is irreversible.
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