East Timor divided over how to spend badly needed oil revenue

PUBLISHED : Thursday, 28 June, 2007, 12:00am
UPDATED : Thursday, 28 June, 2007, 12:00am

As Saturday's first post-independence parliamentary vote approaches, East Timor's main parties are at loggerheads over what to do with the money put aside in the Petroleum Fund, a US Federal Reserve account in which the country has saved more than US$1.4 billion since September 2005.

Under the 'sustainable wealth rule', the Petroleum Fund law allows the government to use only a share of the interest matured by the fund or set to mature in the future.

Conversely, it demands that revenue from oil and gas be saved for the benefit of future generations.

The Fretilin party, which created the fund, wants to strengthen this law, which has been praised by donors and international organisations.

'We want to enshrine certain points into the constitution so future generations can see how important it is,' Resources Minister Jose Teixeira said.

Mr Teixeira, a Fretilin heavyweight, said the points included 'that any oil and gas revenue is paid into the account; that money can only be withdrawn via the yearly budgetary law; and that the wealth rule is maintained'.

On the other hand, the National Congress for East Timor Reconstruction (CNRT), a new party led by former president Xanana Gusmao, wants to use most of the savings for an anti-poverty drive. CNRT is expected to be Fretilin's main challenger at the polls.

The United Nations estimates that 40 per cent of East Timor's one million inhabitants live on 55 US cents a day or less.

'We want to make some adjustments to the fund, which is copied from the Norwegians' [petroleum fund],' said Dionisio Babo Soares, CNRT secretary-general.

'East Timor is a post-conflict society and not Norway. How can you talk about investing in future generations if the current generation is malnourished, does not have access to schools or hospitals and many families have no proper house, water or electricity?'

Mr Soares said the money would be used to provide people with basic needs, and the country with the necessary infrastructure for economic growth.

'We still have oil spots that will produce revenue for another 20 years or so. We can invest now and save later,' he said, adding that CNRT was prepared to use the full US$1.4 billion if needed.

A similar statement from President Jose Ramos Horta during April's presidential election campaign was firmly rejected by Mr Teixeira.

'With all due respect to the president, he does not understand how the fund works,' Mr Teixeira said. 'The local economy is not ready to absorb more money. It is like wanting to pour one litre of water in a small glass - it will overflow and it will be wasted forever.'

The need for political foresight was highlighted by monitoring group La'o Hamutuk, which estimated that East Timor would become one of the world's most oil-dependent nations by 2010, drawing 89 per cent of its economy and 94 per cent of its government revenue from oil and gas production.'

'Timor cannot be another Brunei or Norway - we simply don't have that much petroleum. But it will take extraordinary efforts to avoid being an Angola or Gabon,' said the group's report, underlining the danger of 'the resource curse' that has befallen many oil-rich and badly run African countries.

East Timor's oil and gas revenue comes from the Bayu Undan field, which is jointly developed with Australia. East Timor gets 90 per cent of the extraction revenue and Australia the refinery revenue.

From 2013, the Greater Sunrise field is expected to go into production and generate revenue of US$10 billion over its lifetime.

Energy dependence

Estimate of the percentage of East Timor's government revenue to come from oil or natural gas by 2010 94%

Source: East Timor monitor La'o Hamutuk