Timor-Leste won a great victory
on 6 March, when Australia and Timor-Leste signed the
Treaty
Establishing Their Maritime Boundaries in the Timor Sea (hereinafter,
Boundary Treaty). After decades of occupation and struggle, and tens of
billions of dollars in extracted petroleum, the Australian government finally
accepted its northern neighbor’s sovereign right to a border based on current
international law. This article will examine the provisions and implications of
that agreement, its historical significance, and what is likely to happen as a
result of the precedent-setting Boundary Treaty.
La’o Hamutuk has actively
advocated for a fair maritime boundary between Timor-Leste and Australia since
we were founded in 2000, and we campaigned against prior agreements between
Australia and Timor-Leste (signed in
2002,
2003 and
2006,
all to be voided by the Boundary Treaty). However, this article does not
discuss the
long history of
campaigning, manipulation, duplicity and negotiation (
1970-2006 or
2013-2018)
which led up to the recent agreement. That fascinating story is told in many
publications and
on our web site;
today we are looking at the present and the future.
Australia has
finally recognized Timor-Leste’s national sovereignty.
Although Timor-Leste formally
restored its independence in May 2002, Australia has long prevented Timor-Leste
from settling their common boundary by withdrawing from international dispute
resolution mechanisms; deferring or banning boundary discussions in every
interim petroleum-sharing treaty; and insisting on outdated, self-serving,
“continental shelf” principles based on 75-year-old practices and the illegal
Indonesian occupation. For 14 years, Timor-Leste’s leaders conceded to
Canberra’s stubbornness by signing several agreements to enable oil and gas
production – the principal source of money for this young nation.
However, many Timor-Leste
citizens and international supporters believed that the struggle for
independence was not complete until the boundaries of the nation were defined. In
2004, Timor-Leste civil society formed the Movement Against the Occupation of the
Timor Sea (MKOTT), friends in Australia formed the Timor Sea Justice Campaign,
and activists around their world expressed their solidarity with Timor-Leste’s
rights. Our principal objections were to Australia's protracted refusal to talk
about a maritime boundary, their denial of the now-well-established “median
line” principle of drawing a boundary halfway between two coasts, and their
unyielding rejection of any third-party dispute resolution by an international
court or arbitrator. Beginning in 2013, Timor-Leste’s government added its
diplomacy and resources to the people’s struggle.
The Boundary Treaty itself
Previous arrangements
The black line on the map
represents the
1972
Australia-Indonesia seabed boundary treaty. That boundary is closer to
Indonesia (and to Timor-Leste) than it is to Australia, and remains in force. The
“Timor Gap” in the line (the yellow area recently called the Joint Petroleum
Development Area) is because Portugal declined to participate in the
negotiations, and the 1972 treaty recognized that the Gap’s endpoints may have
to be adjusted based on future negotiations with Portuguese Timor or its
successor.
The yellow area on the map is the
Joint Petroleum Development Area (JPDA), which was divided 50-50 between
Indonesia and Australia from 1991 to 1999, and 90-10 between Timor-Leste and
Australia since the
2002 Timor Sea
Treaty. Under the Boundary Treaty nearly all of it belongs 100% to
Timor-Leste, although Australia will not pay back the $2.4 billion it took in
from oil and gas fields in this area since 1999. (Timor-Leste has received
about $21.4 billion.) The JPDA’s edges delimit a petroleum revenue sharing
zone, not national territory, although its southern edge is close to the median
line between Australia and Timor-Leste.
The light green and pink area is
the “Sunrise Unitized Area” defined in a
2003 International
Unitization Agreement (IUA) between Australia and Timor-Leste [
1]. According to the 2002 treaty, Timor-Leste would get 18% of Sunrise extraction
(“upstream”) revenues; this was increased to 50% by the
2006 CMATS Treaty (which
was revoked last year), and to 70% or 80% (depending on where the pipeline
goes) by the Boundary Treaty.
The Boundary Treaty replaces the
Timor Sea Treaty and the Sunrise Unitization Agreement, which join CMATS in the
rubbish bin. However, it includes some articles to fulfill functions of these
now-defunct agreements, covering governance, revenue-sharing, applicable laws
and other topics.
Conciliation leads to compromise
Australia withdrew from
international maritime boundary dispute resolution processes two months before
Timor-Leste became independent in 2002 to avoid legal accountability. However,
they overlooked a never-used mechanism in the
United Nations
Convention on the Law of the Sea (UNCLOS, signed in 1982, ratified by
Australia in 1994 and by Timor-Leste in 2013). UNCLOS
Article
298 and
Annex
V describe a compulsory conciliation process through which one nation
can bring an unwilling neighbor into bilateral boundary discussions which are
facilitated by a team of expert “conciliators” appointed by both sides, under
United Nations auspices. The conciliators have no power to make binding
decisions; all they do is encourage the parties to listen and respond to each
other.
Timor-Leste initiated this
process in April 2016 and, although Australia initially resisted, they accepted
it by September. At the start of the conciliation, each side stated its claim;
Timor-Leste’s is red on the map, and Australia’s is orange. The conciliators
started out like marriage counselors, separately listening to each party’s
needs and concerns and relaying them to the other party, while the two sides
sat in separate rooms.
The process took a year and a
half, with 13 negotiating sessions in six cities on four continents. In August
2017, Australia and Timor-Leste agreed on the overall outlines of a boundary
and brought in the oil companies to help decide how Greater Sunrise would be
developed. Although that question remains unresolved, the
Boundary
Treaty was signed in March 2018 and is pending ratification by both
countries.
Scholars of and participants in
peaceful mechanisms for resolving international disputes are elated that the
conciliation mechanism, which lay dormant for more than three decades, has
proved its worth. Once again, Timor-Leste has made history.
The newly-established boundary
Although conciliation was under
UNCLOS provisions and the outcome complies with the Law of the Sea, the
Boundary Treaty is not a legal ruling handed down by a court or arbitrator. It
evolved through diplomatic give-and-take by each government, who argued based
on their political, legal, economic and historical preferences. Although the
conciliators facilitated the negotiations and encouraged compliance with
international law, all decisions were made by the two governments. The final
boundary compromise, shown as purple and white lines on the map, largely reflects
Timor-Leste’s median line claim for the southern part of the boundary (putting
all petroleum-containing areas of the JPDA into Timor-Leste’s territory), while
drawing lines in between the two nations’ claims for the lateral boundaries on
both sides. It delineates each country’s seabed (“continental shelf”) and water
column (“Exclusive Economic Zone - EEZ”) areas, although Timor-Leste’s eastern
and western water column boundaries are still to be negotiated with Indonesia.
All government revenues from
fields in the JPDA will go to Timor-Leste once the treaty is ratified, which
could increase Dili's take by about $100 million from Bayu-Undan’s last puddles
of oil and gas. In the unlikely event that production is restarted at Kitan or
Elang-Kakatua, or that the small Kuda Tasi or Jahal oil fields are developed,
Timor-Leste will get all the taxes and royalties (after the companies recover
their capital investment, operating costs and profits).
On the western side of the JPDA,
the southern part of the (white) lateral boundary is further west than the edge
of the JPDA. As a result, the small Buffalo field, formerly considered to be in
Australian waters, now belongs to Timor-Leste. Buffalo produced 20 million
barrels of oil from 1999 until it was decommissioned in 2005, and Australia
will keep its revenues from that time. In 2016, a new contract was signed with
the Carnarvon company, which believes that can use modern technology to extract
about 30 million more barrels. If Carnarvon’s estimates are correct, Buffalo
could generate $500 million or more for Timor-Leste over the next decade.
The larger
Laminaria-Corallina oil
field, which has already yielded more than $2 billion in revenues for Australia
and is still in production (but nearing the end of its life), remains in
Australian waters. However, the new Treaty provides for moving the northern
part of the western lateral further west after Laminaria-Corallina is
decommissioned, in order to line up with a future Indonesia-Timor-Leste
maritime boundary line. Once again, money already taken by Canberra will not be
returned.
On the other side, the central
part of the eastern edge of the JPDA has moved outwards, placing more of
Greater Sunrise and the area south of it in Timor-Leste’s waters. For the
moment, a (white) line has been drawn through the Sunrise Unified Area, placing
the northwestern 30% of the field in Australian waters, and the remaining part
in Timor-Leste. As the field is still in both countries, it will be managed
jointly; both Timor-Leste and Australia need to agree on how it will be
developed. The Treaty and conciliators offered several inducements for
Timor-Leste to accept a pipeline from Sunrise to the soon-to-be-idle LNG plant
which has been processing gas from Bayu-Undan in Darwin, including increasing
Timor-Leste’s share of Sunrise revenue from 70% to 80%, but Dili politicians
have strongly rejected this option.
As on the west, the eastern
lateral is provisional. After Sunrise has been extracted and decommissioned, it
will be shifted further east to line up with a future Timor-Leste-Indonesia
maritime boundary. In a few decades, all of the (now empty) Sunrise area could
be in Timor-Leste’s territory.
Governance agreements and Greater
Sunrise
The new Treaty re-authorizes the
existence of the “Designated Authority” (DA) created by the Timor Sea Treaty,
which has been the Timor Sea Designated Authority (TSDA, 2002-2009), National
Petroleum Authority (ANP, 2009-2015), and National Petroleum and Minerals
Authority (ANPM, 2015-present). This is a regulatory body which signs contracts
and oversees petroleum operations in Timor-Leste and jointly administered land
and sea territory, as well as encouraging further development. [
2]
Because the Sunrise Unitized Area
is still under bi-national oversight, the DA’s work in this area is overseen by
a “Governance Board” (GB) made of two representatives appointed by Timor-Leste
and one by Australia, which is tasked with deciding the most important
“Strategic Issues” relating to the Sunrise project. As the GB decides by
consensus, its numeric makeup is not important. If the GB is unable to agree on
a Strategic Issue, the DA or the Sunrise contractors may refer it to a Dispute
Resolution Committee (DRC) consisting of one representative of each country and
a third member chosen by the other two. [
3]
The Sunrise Joint Venture
(Woodside, ConocoPhillips, Shell and Osaka Gas) currently holds two contracts
with Australia and two with Timor-Leste for different parts of the Sunrise Unit
Area. Under the new Treaty, these four contracts will be replaced by a single
one between the Designated Authority and the Sunrise Joint Venture (SJV). [
4]
During the conciliation process,
the parties had hoped to agree on a Sunrise Development Concept (the basic
outline of how Sunrise is to be developed, including the location of the
pipeline and LNG plant) before the Boundary Treaty was signed, but this did not
happen. Annex B of the Treaty, which defines a Special Regime for Greater
Sunrise, refers to “the approved Development Concept” three times, but does not
explain how such a Concept is to be approved. This decision, which presumably
needs the consent of both governments and the Sunrise Joint Venture, is essential
to proceeding with the project.
In 2008, La’o Hamutuk wrote a
book
Sunrise LNG in
Timor-Leste: Dreams, Realities and Challenges (also
PDF), much of which
is still accurate (except for the fiscal analysis). A detailed assessment of
whether it would be good for the people of Timor-Leste to construct a pipeline
from Sunrise to an LNG plant in Beaçu and to build the other components of the
Tasi Mane Project, is beyond the scope of this article. The currently
politicized controversy, with accusations and disinformation, does not lend
itself to rational discussion.
Regardless of how Sunrise is
eventually developed, La’o Hamutuk is concerned that exaggerated promises of
vast revenues and economic benefits may distract from the urgent need to
diversify Timor-Leste’s economy away from oil and gas exports and processing. Even
according to the most optimistic credible projections, Sunrise will only
finance Timor-Leste’s state and economy for less than one generation. We owe it
to our children and grandchildren to think further ahead.
Before a Sunrise decision is
made, Timor-Leste needs to thoroughly and objectively weigh the financial,
economic, environmental and social benefits, costs and risks, including
realistic projections of Timorese jobs and spinoff contracts from an LNG plant,
as well as the incentives recommended by the Conciliation Commission. Although
many studies have been done, none of the published ones we have seen provide
accurate and unbiased analysis. We urge that Sunrise be developed to serve the
best interests of the people of this country, rather than those of a particular
oil company, political faction, or region. The decision is too important to be
swayed by emotional, political or personal considerations.
Closed-door discussions will
continue on the Sunrise Development Concept, and the transitional arrangements
for the Bayu-Undan and Kitan contracts will be implemented.
Before the Boundary Treaty
becomes legally effective, it must be ratified by both countries. Until then,
Australia will continue to receive 10% of Bayu-Undan revenues (about $4 million
per month).
Timor-Leste’s National Parliament
has been dissolved, and the new Parliament will not take office before June,
with the Eighth Constitutional Government a month or two later. Timor-Leste’s
new Council of Ministers and Parliament will probably ratify the Boundary
Treaty within two months after that, and we encourage public consultations and
careful analysis for consistency with Timor-Leste law.
Australia’s process could take
six months, and requires a Parliamentary Inquiry and public hearings by the
Joint Standing Committee on Treaties. We hope that there will be no unnecessary
delays.
Timor-Leste will resume
negotiating its maritime boundary with Indonesia this year, and it should be
easier than with Australia because there is probably no oil and gas under
potentially contested areas. Once this is settled, Australia and Indonesia will
be able to amend and finally ratify their draft 1997 water column boundary
(EEZ) treaty, establishing security and economic rights over their respective
water surfaces and fisheries.
However, nothing in the new
Australia-Timor-Leste Boundary Treaty disturbs the Australia-Indonesia Seabed
Treaty which has been in effect for 46 years. Although some people in Indonesia
believe that the older treaty was unfair, Australia has no legal obligation to
renegotiate it. Timor-Leste and Australia kept Indonesia informed throughout
the recent process, and Jakarta has not objected.
After Timor-Leste and Indonesia
have settled their seabed and water column boundaries, and after all the oil
and gas in relevant areas has been extracted, the lateral lines of the new
Australia-Timor-Leste boundary will be adjusted to line up with the Indonesia
boundary.
Article 10 of the new Boundary
Treaty says that Timor-Leste shall not “have a claim for compensation” for
money collected by Australia under prior treaties and agreements, which totals
around five billion dollars. However, nothing in the Treaty prevents Australia
from voluntarily returning this stolen money to Timor-Leste. The preamble of
the Treaty mentions “promoting Timor-Leste’s economic development” and being
“good neighbors and in a spirit of cooperation and friendship … in order to
achieve an equitable solution.” In this new spirit of mutual respect, it would
be appropriate for Australia to give back what it took during the nearly three
decades since it signed the Timor Gap Treaty in order to profit from
Indonesia’s brutal and illegal occupation of Timor-Leste.
-------
[
1]
Unitization is applied when an oil or gas field straddles a boundary in order
to avoid disputes over which side a given molecule of petroleum originated on.
[
2] La’o
Hamutuk is concerned that Article 6.2(c) of the new Boundary Treaty, which
allows the Designated Authority (DA) to keep fees it collects from oil
companies, contradicts RDTL
Petroleum Fund
Law No. 9/2005, which requires that all petroleum-related revenues be
deposited into the Petroleum Fund. This was convenient when the first DA was
first created before the Petroleum Fund Law was in force, but it is no longer
appropriate or legal. Although the technicalities of this issue were
considered
by the Court of Appeals in
Proc.
01/Const/09/TR, it should be re-evaluated before the DA is re-created, in
light of the good petroleum governance that Timor-Leste’s Petroleum Fund was
designed for.
[
3] People
with “any direct commercial or financial interest” in the operation of the
Sunrise project or whose appointment “would create any reasonable perception
of, or actual, conflict of interest” cannot serve on the Governance Board or
Dispute Resolution Committee.
[
4] The existing
Production Sharing Contracts (PSCs) for Bayu-Undan and Greater Sunrise, which
were signed in 2003, have never been made public. However, according to Article
30.1(a)(1) of
RDTL
Petroleum Activities Law No. 13/2005 such contracts are public documents,
and all PSCs signed since then are available. The
Extractive Industries
Transparency Initiative (EITI) standard that Timor-Leste complies with
also requires contract transparency.
In October 2017,
Timor-Leste
and Australia exchanged letters committing to revise the Bayu-Undan
and
Kitan PSCs.
The Treaty says that the contract for Buffalo will be replaced, and a new
Sunrise PSC will be signed. The companies and the fiscal terms of the contracts
will remain as before, although there may be some alterations to comply with
the new Treaty and changes in other laws. La’o Hamutuk is concerned that
contract transparency is not mentioned in any of the recent bilateral
agreements. Although the Boundary Treaty doesn't explicitly violate Timor-Leste
law in this area, it fails to inform Australia and the oil companies that the
contracts will be made public.
Everyone familiar with Timor-Leste Petroleum Law
(including the companies who participate in EITI) knows that contract
transparency is mandatory, and we expect that the new Bayu-Undan, Greater
Sunrise, Kitan and Buffalo contracts will be published. It would be a shame --
as well as an insult to RDTL national sovereignty -- if Article 9.2 of the new
Treaty (“no effect on rights and obligations arising under the Timor Sea Treaty
and IUA”, both of which predated Timor-Leste’s legislation) were used to
justify continuing violation of transparency requirements. Timor-Leste is proud
of its transparent system of managing petroleum development and revenues, and
neither Australia nor the oil companies should be allowed to sabotage it.
Relevant
documents (chronological order)
CMATS Treaty (signed
January 2006, entered into force February 2007, terminated April 2017)
(Printable
PDF)
(also
Portuguese)
