Research Note no. 45 2001-02
The Timor Sea Treaty: Are the Issues Resolved?
Dr Stephen Sherlock
Foreign Affairs, Defence and Trade Group
18 June 2002
Introduction
One of the most significant actions undertaken by Prime Minister Howard
at the celebrations of East Timor's independence on 20 May 2002 was the
signing of the Timor Sea Treaty between Australia and the new state of
East Timor. The Treaty provides for the two parties to share revenue from
petroleum production in an agreed area of the Timor Sea, the Joint Petroleum
Development Area (JPDA), jointly administered by both countries.
East Timor will receive 90 per cent of the revenue from production in
the JPDA and Australia will receive 10 per cent. There are two main oil
and gas fields involved: one known as Bayu-Undan, which is entirely in
the JPDA and a larger reserve called Greater Sunrise, 20 per cent of which
is in the JPDA. Thus in the latter case East Timor will receive 90 per
cent of 20 per cent of revenues, i.e. 18 per cent, and Australia will
receive the rest.
Current estimates are that the East Timor Government will receive up
to $8 billion over 20 years.(1) The resources outside the JPDA
in the area of Australian control are much larger, although many of these
reserves will not be in production for some time. Australia will also
benefit if gas reserves from the Greater Sunrise field are processed in
an on-shore facility in Darwin.
Despite the signing of the Treaty, many prominent East Timorese have
expressed their dissatisfaction with the arrangement and Mr Howard
was met by demonstrators in Dili who claimed that Australia had cheated
East Timor.
This Note explains the origins of the Timor Sea Treaty in earlier agreements
with Indonesia. It discusses the issues that remain over sea boundaries
between Australia, Indonesia and East Timor.
Background to the Treaty
The agreements and compromises in the Timor Sea Treaty have their origin
in a 1972 Seabed Agreement which delimited a seabed boundary between Australia
and Indonesia. This was based on the 1958 Convention on the Continental
Shelf which said that states should control the sea to the limits of their
continental shelf, the place where the sea floor drops away to the deep
ocean. The arrangement creates a boundary much closer to Indonesia than
Australia, giving Australia control over the major part of the Timor Sea.
Portugal (the colonial power in East Timor), argued that the boundary
between Australia and East Timor should be based on the principle of a
median (mid-way) line. Thus there was a gap in the line drawn between
Indonesia and Australia in 1972 the so-called Timor Gap.
Indonesia annexed East Timor in 1976.(2) When Australia recognised
Indonesian sovereignty in 1979, the issue of filling the 'gap' was raised.
But by this stage international law had moved on and there was growing
acceptance of the principle of equidistance, a principle which became
part of the 1982 Convention on the Law of the Sea. While Australia continued
to hold to the continental shelf argument, Indonesia pressed unsuccessfully
for a median boundary.
1989 Timor Gap Treaty
With potentially large amounts of petroleum revenue involved in the areas
in dispute, the Indonesia-Australia negotiations lasted until 1989, when
a compromise agreement was finally achieved in the Timor Gap Treaty. This
allowed for joint exploitation of oil and gas resources in the area of
overlapping claims. The Treaty set aside the issue of the maritime boundary,
based on Article 83 of the 1982 Law of the Sea Convention which allows
countries to establish practical provisional arrangements without prejudice
to negotiations on a final agreement. Indonesia and Australia were able
to reach agreement on the petroleum issue, without having to resolve the
more difficult question on the seabed boundary.
Many observers saw the Timor Gap Treaty as a model for the amicable settlement
of border disputes based on practical solutions. But the Treaty remained
controversial for those who saw it as giving legitimacy to Indonesia's
occupation of East Timor and depriving the East Timorese of their own
resource wealth.
East Timor becomes Independent
Following the end of Indonesian occupation in 1999, the UN administration
in East Timor (UNTAET) took over Indonesia's rights and obligations from
the Timor Gap Treaty so as to allow exploration and production to continue
without risk to investors. But UNTAET refused to inherit the Treaty itself
because it considered it a product of illegal occupation by Indonesia.
A new Treaty therefore had to be negotiated.
During talks between Australia and UNTAET in 2000 and 2001, UNTAET argued
that a seabed boundary should first be delimited on the basis of current
international practice. This would potentially place greater petroleum
resources within East Timor control than was the case with the Timor Gap
Treaty. UNTAET also argued that the angle of the lines drawn laterally
between the Australian and East Timor coasts maximised the area of Australian
control and disadvantaged East Timor. UNTAET also became embroiled in
a dispute with the corporation developing the Bayu-Undan oil and gas field,
Phillips Petroleum, over future taxation arrangements.
Ultimately, however, East Timor agreed to put aside the seabed boundary
issue because it did not want to jeopardise the flow of revenue that is
to come on stream within the next two to three years. Australia had refused
to agree to a new seabed boundary and new talks on a final agreement might
have brought both immediate and future investment in exploration and production
to a halt. With the East Timor Government having no other major source
of revenue (except foreign aid), it was in no position to stand on a point
of principle.
Thus UNTAET negotiated a Timor Sea Treaty which is essentially the same
as the old Timor Gap Treaty, with the important concession that East Timor
is to receive 90 per cent rather than 50 per cent of revenue from the
Joint Area. The details of how the division of revenue will be administered
are still to be finalised.
The Future
The Timor Sea Treaty has provided certainty for investors and has ensured
that the Government of East Timor will receive the income it urgently
needs to establish a viable state. But the Treaty states that nothing
within it affects the position of either party regarding a final seabed
delimitation. This unresolved issue has the potential to cause problems
for relations between the two countries in the future. Resentment may
develop as other fields in the Timor Sea come into production and if further
exploration uncovers larger petroleum resources.
East Timor is in a weak position to pursue its case further because recourse
to the International Court of Justice has been cut off by Australia's
recent withdrawal of acceptance of the Court's jurisdiction on maritime
boundary issues.(3) East Timor's only other avenue for internationalising
the issue would be to make common cause with Indonesia and pressure Australia
to recommence negotiations on a boundary based on equidistance. At present,
there is no sign of such moves occurring, but since the issue potentially
involves major economic assets, the success of future trilateral relations
between East Timor, Indonesia and Australia may depend on a final resolution.
- Oxford Analytica Daily Brief, 10 December 2001.
- Stephen Sherlock, 'A Pebble in Indonesia's Shoe: Recent Developments
in East Timor', Research Paper, no. 8, Department of the Parliamentary
Library, Canberra, 26 September 1995. Adam Cobb, 'East Timor and Australia's
Security Role: Issues Scenarios', Current Issues Brief,
no. 3, Department of the Parliamentary Library, 21 September 1999.
- Hon. Daryl Williams, Attorney-General, News Release, 25 March
2002.
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