This presentation will discuss experiences, This presentation will discuss experiences,

successes and challenges in managing oil and gas successes and challenges in managing oil and gas

revenues and companies in Timor-Leste. We hope revenues and companies in Timor-Leste. We hope

it will help Myanmar decide what to do and what to it will help Myanmar decide what to do and what to

avoid.avoid.

1.1.Timor-Leste and Myanmar compared: petroleum Timor-Leste and Myanmar compared: petroleum dependency, petroleum wealth, poverty.dependency, petroleum wealth, poverty.

2.2.Are we cursed by our nonrenewable natural Are we cursed by our nonrenewable natural resources?resources?

3.3.Timor-Leste’s Petroleum Fund: goals, Timor-Leste’s Petroleum Fund: goals, implementation and experience to date.implementation and experience to date.

4.4.Transparency in Timor-Leste: promise and reality.Transparency in Timor-Leste: promise and reality.

Timor-Leste is the second-most Timor-Leste is the second-most

petroleum-export dependent petroleum-export dependent

country in the world. country in the world.

This dominates our history, our This dominates our history, our

government, our economy … government, our economy …

and our future.and our future.

In 2011 Timor-Leste MyanmarPopulation

1.2 million, 15% urban

50 mill., 34% urban

Land area15,000 km2

8% arable, 1% irrigated

654,000 km2

15% arable, 3% irrig

Land borders 260 km 5,876 km

Coastline 783 km 1,930 km

GDP/capita $3,950 ($960 non-

oil)$830 ($770 non-

oil)

State revenues $3.4b $2.0b

State expenditures $1.1b $4.3b

Foreign debt 0 (no longer) $8.1b

All ExportsNon-petrol. exports

$3.0b$0.02b

$9.5b$5.5b

Imports $1.3b $5.5b

Population in poverty

50% 33%

Children under 5 underweight

41% 30%

In 2011Timor-Leste

Myanmar

Oil reserves remaining 520 million bbl 50 million bbl

Oil production 30 million bbl 8 million bbl

Reserve/production ratio

17 6

Gas reserves remaining 1,050 mmboe 1,870 mmboe

Gas production 32 mmboe 76 mmboe

Reserve/production ratio

33 25

Oil and gas revenues $3.0b $3.7b (?)

SWF earnings $0.28b --

Non-oil revenues $0.11b $0.25b (?)

State oil dependency 97% 92%

Economy oil dependency

76% 7%

BP lists BP lists Timor-Timor-Leste’s Leste’s 5 tcf 5 tcf as part of as part of Australia.Australia.

Source: Source: BP World BP World Energy Energy Review Review 20122012

Data (most from 2009)Timor-Leste

Myanmar

HDI rank out of 187 (and index) 147 (0.495)149

(0.483)

Life expectancy (years) 62 65

Mean years of schooling 2.8 4.0

Expected years of schooling 11.2 9.2Gross National Income (GNI) per capita $3,005 $1,535

Non-income HDI rank 156 144Maternal mortality (per 100,000 births) 370 240

Fertility rate (per adult woman) 6 2

Multidimensional poverty index .360 .154

People in multidimensional poverty 68% 32%

People in severe poverty 39% 9%

•People have lived in Timor-Leste for at least 5,000 years.People have lived in Timor-Leste for at least 5,000 years.

•Portuguese colonized nearly 500 years ago.Portuguese colonized nearly 500 years ago.– They brought Catholicism but little development or education.They brought Catholicism but little development or education.– Onshore oil exploration started in 1890s.Onshore oil exploration started in 1890s.

•Australia, then Japan, invaded in 1941-45.Australia, then Japan, invaded in 1941-45.– 40,000-60,000 Timorese killed in WWII, which didn’t involve them.40,000-60,000 Timorese killed in WWII, which didn’t involve them.

• Portugal’s military dictatorship resumed control in 1945.Portugal’s military dictatorship resumed control in 1945.– Offshore oil exploration began in the 1960s.Offshore oil exploration began in the 1960s.

•Portugal began decolonizing in 1974.Portugal began decolonizing in 1974.– After Carnation Revolution brought down Portuguese dictatorshipAfter Carnation Revolution brought down Portuguese dictatorship– TL declared independence 28 November 1975 … but 10 days laterTL declared independence 28 November 1975 … but 10 days later

•Indonesia invaded on 7 December 1975.Indonesia invaded on 7 December 1975.– Indonesia killed 100,000-200,000 Timorese in 24-year occupation.Indonesia killed 100,000-200,000 Timorese in 24-year occupation.– Timor-Gap Treaty 1989; oil production started 1998.Timor-Gap Treaty 1989; oil production started 1998.

•Referendum in 1999, then 2-½ years of UN rule.Referendum in 1999, then 2-½ years of UN rule.

•Finally independent on 20 May 2002.Finally independent on 20 May 2002.– Oil income got much larger since 2005-2007.Oil income got much larger since 2005-2007.

• About 50% of people live below the poverty About 50% of people live below the poverty line.line.

• 80% live in rural areas, largely by subsistence 80% live in rural areas, largely by subsistence farming.farming.

• Two thousand children under age 5 die from Two thousand children under age 5 die from preventable conditions every year … fifty preventable conditions every year … fifty times as many as people of all ages are killed times as many as people of all ages are killed by violence (39 in 2010).by violence (39 in 2010).

• In 2010, TL exported $16 million (coffee).In 2010, TL exported $16 million (coffee).

• In 2010, TL imported $288 million In 2010, TL imported $288 million (everything).(everything).

• State expenditures in 2012:………………………………….State expenditures in 2012:………………………………….$1,674 million$1,674 million$1,495 million $1,495 million (89%) will come from the Petroleum Fund.(89%) will come from the Petroleum Fund.

• Non-oil GDP in 2012:..……………………………………………Non-oil GDP in 2012:..……………………………………………$930 million$930 million

• GNI in 2012:…………………………………………………......GNI in 2012:…………………………………………………......$3,751 million$3,751 million$2,497$2,497 millionmillion is from exporting nonrenewable oil and gas. Together with is from exporting nonrenewable oil and gas. Together with $ 324 million$ 324 million from Petroleum Fund investments, this is 75% of our entire from Petroleum Fund investments, this is 75% of our entire economy and 97% of state revenues. It is declining and could end by 2024.economy and 97% of state revenues. It is declining and could end by 2024.

• State activities paid with oil money are about half of Timor-Leste’s State activities paid with oil money are about half of Timor-Leste’s “non-oil” economy as they are recycled through the local “non-oil” economy as they are recycled through the local economy.economy.

• Petroleum income doesn’t provide jobs or money for people – it all Petroleum income doesn’t provide jobs or money for people – it all goes to the State.goes to the State.

• Although the Petroleum Fund can improve equity between Although the Petroleum Fund can improve equity between generations, it does not guarantee good governance or eliminate generations, it does not guarantee good governance or eliminate corruption, and will not last long if current policies continue.corruption, and will not last long if current policies continue.

South Sudan is the only country which depends moreon oil and gas exports than Timor-Leste.

Oil income flows easily Oil income flows easily

(for a while), but comes (for a while), but comes

with damaging with damaging

consequences, policies consequences, policies

and practices.and practices.

• Seeing money as the solution to every Seeing money as the solution to every problemproblemIt’s easier to buy a scholarship than to build a It’s easier to buy a scholarship than to build a university.university.

• Spending without thinkingSpending without thinkingReal state expenditures are growing 28% every year.Real state expenditures are growing 28% every year.

• Lack of realistic long-term planningLack of realistic long-term planningThe Strategic Development Plan is but a dream.The Strategic Development Plan is but a dream.

• Import dependencyImport dependencyTimor-Leste has a billion-dollar non-oil trade deficit.Timor-Leste has a billion-dollar non-oil trade deficit.

• Inflation from little local productive capacityInflation from little local productive capacity (“Dutch disease” -- prices went up 17% in Dili in 2011.)(“Dutch disease” -- prices went up 17% in Dili in 2011.)Our economy cannot absorb the cash in circulation.Our economy cannot absorb the cash in circulation.

• Ignoring non-oil development and revenuesIgnoring non-oil development and revenues

• Acting as if the oil money will last foreverActing as if the oil money will last foreverBoth producing fields will be emptied by 2024.Both producing fields will be emptied by 2024.

• Borrowing today, to repay tomorrowBorrowing today, to repay tomorrowTL will borrow a half-billion dollars in the next five years TL will borrow a half-billion dollars in the next five years and billions more after that.and billions more after that.

• Wealth goes mainly to the urban elite.Wealth goes mainly to the urban elite.Most people won’t benefit from highways, airports and Most people won’t benefit from highways, airports and oil processing, but will feel the burden of loan oil processing, but will feel the burden of loan repayments.repayments.

• Petroleum sector “captures” decision-making. Petroleum sector “captures” decision-making. Few creative ideas to develop agriculture, education, Few creative ideas to develop agriculture, education, tourism, small industries, food processing, etc.tourism, small industries, food processing, etc.

The State Budget goes up 28% per year more than inflation, faster than the economy and faster than every nation except Zimbabwe.

•Spending the money as fast as it comes in.Spending the money as fast as it comes in.The Petroleum Fund separates state revenues from oil The Petroleum Fund separates state revenues from oil income.income.

•State budgets go up and down with world State budgets go up and down with world oil prices and field production.oil prices and field production.

•Money disappears before it gets to the Money disappears before it gets to the State.State.Companies deposit oil revenues directly into the Fund.Companies deposit oil revenues directly into the Fund.

•When the oil is gone, nothing will be left.When the oil is gone, nothing will be left.If invested and spent wisely, Fund earnings will continue.If invested and spent wisely, Fund earnings will continue.

• Invasion, occupation and war Invasion, occupation and war Australia steals via negotiations, companies cheat on taxes, Australia steals via negotiations, companies cheat on taxes, but this is much less bloody than before 1999.but this is much less bloody than before 1999.

We have $10 We have $10

billion in the billion in the

bank, but how bank, but how

long can it long can it

sustain us sustain us

after the oil after the oil

and gas is and gas is

gone?gone?

•DecoupleDecouple oil revenues from state spending. oil revenues from state spending.

•StabilizeStabilize against oil market price variations. against oil market price variations.

•Earn investment return for Earn investment return for sustainabilitysustainability when oil and gas are used up.when oil and gas are used up.

• Improve Improve transparencytransparency and management of and management of oil revenues, prevent corruption.oil revenues, prevent corruption.

•Ensure spending decisions are open and Ensure spending decisions are open and democraticdemocratic..

$150

$100

$50

$0

• Intended to maintain a steady flow of Intended to maintain a steady flow of revenue to the state budget.revenue to the state budget.

•3% of (Fund Balance + NPV of future oil 3% of (Fund Balance + NPV of future oil and gas revenues)and gas revenues)

•Could provide constant revenues forever.Could provide constant revenues forever.

ButBut

• Investment real return has been less than Investment real return has been less than 3%.3%.

•Population, prices and expectations grow.Population, prices and expectations grow.

•Overspending is too tempting and easy.Overspending is too tempting and easy.

In 2010, Petroleum Fund withdrawals exceeded spending. In 2010, Petroleum Fund withdrawals exceeded spending. They may again in 2012, as the entire budget will not be They may again in 2012, as the entire budget will not be executed.executed.

• A Sovereign Wealth Fund and transparency are A Sovereign Wealth Fund and transparency are not enough to prevent the resource curse.not enough to prevent the resource curse.

• It’s easy to make rules before oil money pours It’s easy to make rules before oil money pours in, but hard to follow them after it comes.in, but hard to follow them after it comes.

• People expected too much from the Fund.People expected too much from the Fund.

• Laws are not strong enough.Laws are not strong enough.

• Temptation to overspend is very powerful.Temptation to overspend is very powerful.

• Non-Government actors need to be stronger.Non-Government actors need to be stronger.

Timor-Leste officials are Timor-Leste officials are

proud of transparency, proud of transparency,

including EITI and other including EITI and other

aspects. aspects.

How well does it work?How well does it work?

1.1. Best practice Petroleum Fund Best practice Petroleum Fund and revenue managementand revenue management

2.2. EITI + PWYP, global standardsEITI + PWYP, global standards

3.3. Transparency portalTransparency portal Budget ExecutionBudget Execution ProcurementProcurement Foreign AssistanceForeign Assistance Government resultsGovernment results

4.4. Broadcast Parliamentary budget debatesBroadcast Parliamentary budget debates

5.5. Publish Council of Ministers decisionsPublish Council of Ministers decisions

These are Government claims. Practice is not These are Government claims. Practice is not consistent.consistent.

•Oil production contracts must be public.Oil production contracts must be public.

•Standard PSC – no bonuses or other Standard PSC – no bonuses or other

special payments.special payments.

•Open, transparent bidding rounds.Open, transparent bidding rounds.

ButBut

It does not apply to contracts signed It does not apply to contracts signed

before 2005, which cover the two largest before 2005, which cover the two largest

fields.fields.

Transparency portalTransparency portal

Central Bank Petroleum Fund ReportsCentral Bank Petroleum Fund Reports

ANP, IAB and MoF reports on Petroleum revenue ANP, IAB and MoF reports on Petroleum revenue managementmanagement

Budget documents & execution reportsBudget documents & execution reports

EITI reportsEITI reports

IMF, World Bank, ADB and oil company reportsIMF, World Bank, ADB and oil company reports

Televised budget debatesTelevised budget debates

Unofficial sources and leaksUnofficial sources and leaks

But the new National Oil Company But the new National Oil Company TimorGAP is less transparent and TimorGAP is less transparent and accountable.accountable.

• 2003: Prime Minister Alkatiri speaks at founding 2003: Prime Minister Alkatiri speaks at founding EITI conference in London, commits Timor-Leste.EITI conference in London, commits Timor-Leste.

• 2005: Petroleum Act and Petroleum Fund Act 2005: Petroleum Act and Petroleum Fund Act passed, with good transparency provisions.passed, with good transparency provisions.

• 2007: EITI qualification process starts; after July 2007: EITI qualification process starts; after July elections new government continues it. elections new government continues it.

• 2008: MSG active, workplan published2008: MSG active, workplan published

• Jan. 2010: first EITI report published, covering Jan. 2010: first EITI report published, covering 20082008

• July 2010: EITI certifies T-L as the third compliant July 2010: EITI certifies T-L as the third compliant country in the world (after Azerbaijan and country in the world (after Azerbaijan and Liberia).Liberia).

• March 2011: EITI report for 2009 published.March 2011: EITI report for 2009 published.

•Sharing information from EITI Multi-Sharing information from EITI Multi-

Stakeholder Working Group discussionsStakeholder Working Group discussions

•Disaggregation by time, project, and Disaggregation by time, project, and

revenue streamrevenue stream

•Truly independent certificationTruly independent certification

After 2009, La’o Hamutuk decided not to continue in After 2009, La’o Hamutuk decided not to continue in

the MSWG, as we preferred an “outside” strategy, the MSWG, as we preferred an “outside” strategy,

rather than simply to publicize EITI as the final rather than simply to publicize EITI as the final

transparency standard.transparency standard.

ButBut

•EITI reports for 2010 and 2011 areEITI reports for 2010 and 2011 arenot yet published.not yet published.

•Civil society input mostly ignored.Civil society input mostly ignored.

•Too aggregated.Too aggregated.

•Doesn’t show company cheating or Doesn’t show company cheating or penalties.penalties.

•Won’t show state-company collusion.Won’t show state-company collusion.

•No truly independent audit until No truly independent audit until 2012.2012.

•Rapid budget escalation to unsustainable Rapid budget escalation to unsustainable spending levelsspending levels

•Denial that the oil and gas will run out soonDenial that the oil and gas will run out soon

•Poor planningPoor planning

•Preference for showy mega-projectsPreference for showy mega-projects

•Neglect of human resources and non-oil Neglect of human resources and non-oil sectorssectors

• Inflation, increasing gap between rich and poorInflation, increasing gap between rich and poor

•Greed, corruption, mismanagement.Greed, corruption, mismanagement.

• Accessing and analyzing public information to Accessing and analyzing public information to understand and influence policies.understand and influence policies.State leaders, public servants, journalists, civil State leaders, public servants, journalists, civil society and citizens need to use the information.society and citizens need to use the information.

• Resisting the temptation to overspend.Resisting the temptation to overspend.

• Ensuring that children, rural poor, women and Ensuring that children, rural poor, women and other vulnerable people’s rights are other vulnerable people’s rights are respected.respected.

• Preventing the oil companies from stealing.Preventing the oil companies from stealing.

• Making the national oil company transparent Making the national oil company transparent and responsive to public needs.and responsive to public needs.

• Developing a sustainable economy.Developing a sustainable economy.

You will find more and updated information atYou will find more and updated information at

•La’o Hamutuk’s website La’o Hamutuk’s website http://www.laohamutuk.org

•La’o Hamutuk’s blogLa’o Hamutuk’s bloghttp://laohamutuk.blogspot.com/

Timor-Leste Institute for Development Monitoring and Analysis

Rua Martires do Patria, Bebora, Dili, Timor-Leste

Mailing address: P.O. Box 340, Dili, Timor-Leste

Telephone: +670 7234330 (mobile) +670 3321040 (landline)

Email: info@laohamutuk.org

You will find more and updated information atYou will find more and updated information at

•La’o Hamutuk’s website La’o Hamutuk’s website http://www.laohamutuk.org

•La’o Hamutuk’s blogLa’o Hamutuk’s bloghttp://laohamutuk.blogspot.com/

•Reference DVD-ROM available.Reference DVD-ROM available.

Timor-Leste Institute for Development Monitoring and Analysis

Rua Martires do Patria, Bebora, Dili, Timor-Leste

Mailing address: P.O. Box 340, Dili, Timor-Leste

Telephone: +670 7234330 (mobile) +670 3321040 (landline)

Email: info@laohamutuk.org The following slides include additional The following slides include additional

informationinformation

•A local organization founded in 2000A local organization founded in 2000

• Initiative of Timorese civil society and Initiative of Timorese civil society and international solidarity to improve international solidarity to improve communication with and information about communication with and information about international institutions and systems in TL.international institutions and systems in TL.

•Main research and advocacy areas:Main research and advocacy areas:– Non-renewable resources/oil Non-renewable resources/oil

dependency/economydependency/economy

– Agriculture/food sovereignty/land rightsAgriculture/food sovereignty/land rights

– Democracy/governance/justiceDemocracy/governance/justice

Countries on track to meet the MDGs spend 28% of Countries on track to meet the MDGs spend 28% of their budgets on health and education. their budgets on health and education.

Timor-Leste will spend 10.4% in 2012.Timor-Leste will spend 10.4% in 2012.

• Human security is health care, Human security is health care, food, education, employment, food, education, employment, housing, etc.housing, etc.

• 50 times as many children under 50 times as many children under five die from avoidable conditions five die from avoidable conditions as people are killed by violence.as people are killed by violence.

• These children are not helped by These children are not helped by police, soldiers or judges, but the police, soldiers or judges, but the UN and donors see everything UN and donors see everything through a conflict lens.through a conflict lens.

• We must diversify our economy to We must diversify our economy to prepare for when our oil runs out prepare for when our oil runs out and we cannot pay for imports.and we cannot pay for imports.

Category Imports ExportsBalanc

e

Goods$289

(DNE reports)$17

(96% coffee)-$272

Other goods(extra-legal)

$200 (LH est.)

$0.3(LH est.)

-$200

Services$505

(2009, from BPA)

$3(LH est.

remittances)-$502

Total excluding oil and gas

$994 $20 -$974

Petroleum receipts(to state)

--$2,016

(incl. $294 Petrol. Fund interest)

$2,016

Total $994 $2,036 $1,042

Ships bringing thousands of tons Ships bringing thousands of tons of imported rice wait to unload of imported rice wait to unload at Dili Port, November 2008. at Dili Port, November 2008.

Timorese agriculture productsTimorese agriculture products

The Petroleum Fund shall contribute The Petroleum Fund shall contribute

to a wise management of the to a wise management of the

petroleum resources for the benefit of petroleum resources for the benefit of

both current and future generations. both current and future generations.

The Petroleum Fund shall be a tool The Petroleum Fund shall be a tool

that contributes to sound fiscal policy, that contributes to sound fiscal policy,

where appropriate consideration and where appropriate consideration and

weight is given to the long-term weight is given to the long-term

interests of Timor-Leste’s citizens.interests of Timor-Leste’s citizens.

““The Timor-Leste Transparency Model The Timor-Leste Transparency Model

was the first to go beyond the Extractive was the first to go beyond the Extractive

Industries Transparency Initiative with a Industries Transparency Initiative with a

five-pillar 360° transparency modality five-pillar 360° transparency modality

across government. What we lacked in across government. What we lacked in

structure, we made up for in innovation, structure, we made up for in innovation,

leading global good practice even by leading global good practice even by

international standards.”international standards.”

-- Finance Minister Emilia Pires, May 2012-- Finance Minister Emilia Pires, May 2012

Inter-generational equity is forgotten in the rush to spend.

• Petroleum revenue has been higher than expected, due Petroleum revenue has been higher than expected, due to higher oil prices.to higher oil prices.

• The Petroleum Wealth will not last for ever. Thus, it is The Petroleum Wealth will not last for ever. Thus, it is important to save some of the money in order to important to save some of the money in order to allocate resources both to the current and future allocate resources both to the current and future generations. generations.

• That is the reason why the Petroleum Fund was That is the reason why the Petroleum Fund was established in 2005 and the decision of limiting the established in 2005 and the decision of limiting the annual spending to 3% of the Petroleum Wealth.annual spending to 3% of the Petroleum Wealth.

• The fiscal envelope of the Government’s budget is The fiscal envelope of the Government’s budget is limited by the domestic revenue (taxes, fees and limited by the domestic revenue (taxes, fees and charges) and the Estimated Sustainable Income.charges) and the Estimated Sustainable Income.

• The Estimated Sustainable Income has been more than The Estimated Sustainable Income has been more than 90% of the revenue on the State Budget – it actually 90% of the revenue on the State Budget – it actually determines the whole budget and what the Government determines the whole budget and what the Government is able to spend on social services, infrastructure etc.is able to spend on social services, infrastructure etc.

• Petroleum revenue is Petroleum revenue is not income in the not income in the usual sense – it is a usual sense – it is a conversion of wealth conversion of wealth from one form to from one form to another.another.

• Government Government petroleum revenue is petroleum revenue is different from other different from other tax revenues.tax revenues.

• Revenue from the Revenue from the petroleum sector petroleum sector shows greater shows greater variations over time. variations over time.

Sustainable expenditure benefiting both current and future generations

Spending of petroleum revenue (real terms)

Time

Value of the petroleum wealth (Petroleum Fund + petroleum reserves)

Time

Petroleum reserves

Petroleum Fund

Petroleum Petroleum revenues + revenues + return on return on investmentsinvestments

PetroleumFund

Sustainable Sustainable IncomeIncome

Domestic Domestic revenuesrevenues

ExpenditureExpendituress

StateBudget

The saving ruleOver time spend an amount that is sustainable for the Fund to eternity

Last year, we thought we were richer:Last year, we thought we were richer:

ESI = .03 * (Balance in FP + expected future petroleum ESI = .03 * (Balance in FP + expected future petroleum revenues)revenues)

•Includes only projects with approved field development plans.

•Uses prudent assumptions for oil production and prices.

•Anticipated revenues “discounted” to Net Present Value.

Withdrawn above ESI 321 928.9 923.3 971.2 593.6

550.7

Total withdrawal from Petroleum Fund 1,055 1,594.2 1,564.5 1,588.3 1,185.0

1,127.8

2012$665m

• The ESI was increased in 2011 because the Government used less prudent oil prices.

• It fell in 2012 because oil production predictions dropped, and because withdrawals in 2011 were $321m more than ESI.

• It has been exceeded every year since 2009, and the 2012 budget will spend $1,494m from the Fund, more than twice ESI.

•Population Population is increasing 2.4% per year, doubling in less is increasing 2.4% per year, doubling in less than 29 years (the post-war “baby boom” will than 29 years (the post-war “baby boom” will become parents).become parents).

•Inflation Inflation According to the National Statistics According to the National Statistics Department, consumer prices in Dili increased Department, consumer prices in Dili increased 17.4% from December 2010 to December 17.4% from December 2010 to December 2011. 2011.

People’s needs and desires will People’s needs and desires will increase as the country develops.increase as the country develops.

11.2%

Timor-Leste is struggling to find jobs for 15,000 Timor-Leste is struggling to find jobs for 15,000 people who will enter the work force in 2012.people who will enter the work force in 2012.

In 2024, it will be around 30,000 each year, and the In 2024, it will be around 30,000 each year, and the oil will be gone. Today’s youth will have children of oil will be gone. Today’s youth will have children of their own.their own.

•Laws passed since 2009 have paved the way Laws passed since 2009 have paved the way for Timor-Leste to take out foreign loans. for Timor-Leste to take out foreign loans.

•The 2012 Budget starts borrowing with $160 The 2012 Budget starts borrowing with $160 million, including $43.1 million to be spent this million, including $43.1 million to be spent this year.year.

•The Government recently signed $103 million The Government recently signed $103 million in loan contracts with Japan and the ADB.in loan contracts with Japan and the ADB.

•During the next four years, the Government During the next four years, the Government plans to borrow nearly half a billion dollars.plans to borrow nearly half a billion dollars.

• What will the money be used for?What will the money be used for?

• How much needs to be repaid? When?How much needs to be repaid? When?

• Do we have to use the money to buy things Do we have to use the money to buy things from the country which gave the loan?from the country which gave the loan?

• If we can’t repay, what are the consequences?If we can’t repay, what are the consequences?

• Do we have to make payments before Do we have to make payments before meeting our people’s needs?meeting our people’s needs?

• In many countries, money from borrowing In many countries, money from borrowing gives benefits mainly to rich people, but the gives benefits mainly to rich people, but the repayments impact on the poor.repayments impact on the poor.

• Implementing the SDP will require Implementing the SDP will require billions of dollars more in loans, billions of dollars more in loans, probably at commercial rates.probably at commercial rates.

• Even at concessional rates, repaying Even at concessional rates, repaying a loan will permanently reduce a loan will permanently reduce money in the Petroleum Fund. The money in the Petroleum Fund. The yen loan makes us hostage to a yen loan makes us hostage to a strong dollar.strong dollar.

• TL’s oil and gas are small and non-TL’s oil and gas are small and non-renewable, and future oil prices are renewable, and future oil prices are unpredictable.unpredictable.

• TL will have to make loan repayments TL will have to make loan repayments before spending money on people’s before spending money on people’s needs or developing other sectors.needs or developing other sectors.

• Our children and grandchildren will Our children and grandchildren will inherit our debt.inherit our debt.

• In 2010, TL began working on the South Coast In 2010, TL began working on the South Coast Petroleum Corridor.Petroleum Corridor.

• During 2011, TL spent $19 million, and total project During 2011, TL spent $19 million, and total project costs will be more than $2 billion (much more if costs will be more than $2 billion (much more if Timor-Leste pays to build the refinery, gas pipeline Timor-Leste pays to build the refinery, gas pipeline or LNG plant).or LNG plant).

• The 2012 The 2012 budget budget allocates allocates $164 million $164 million (including (including for the for the Supply Base Supply Base and and highway). highway).

• It makes TL more dependent on the oil and gas It makes TL more dependent on the oil and gas sector.sector.

• It neglects sustainable sectors (agriculture, tourism, It neglects sustainable sectors (agriculture, tourism, small industries and others).small industries and others).

• Nearly all the money spent will go to foreign Nearly all the money spent will go to foreign companies, providing hardly any local jobs or companies, providing hardly any local jobs or contracts.contracts.

• It will create social conflict, take up valuable land, It will create social conflict, take up valuable land, displace people, worsen health and degrade and displace people, worsen health and degrade and endanger the environment. endanger the environment.

• We wonder if it will provide a reasonable return on We wonder if it will provide a reasonable return on investment.investment.

The Government has made many unrealistic The Government has made many unrealistic promises to local communities about jobs and promises to local communities about jobs and other benefits.other benefits.

1989: Australian and Indonesian foreign ministers toast the signing of the Timor Gap Treaty while flying over the Timor Sea.

• Australian companies began exploring Sunrise in the early Australian companies began exploring Sunrise in the early 1970s, after Australia and Indonesia divided our maritime 1970s, after Australia and Indonesia divided our maritime resources without involving Portugal. In 1989, they closed the resources without involving Portugal. In 1989, they closed the “Timor Gap” to share illegally occupied resources in the Joint “Timor Gap” to share illegally occupied resources in the Joint Development Area.Development Area.• The 2006 CMATS treaty The 2006 CMATS treaty bans maritime bans maritime boundaries discussion boundaries discussion for 50 years. It divides for 50 years. It divides Sunrise upstream Sunrise upstream revenues 50-50.revenues 50-50.

• Australia put its greed Australia put its greed for oil before respect for oil before respect for its sovereign for its sovereign neighbors or neighbors or international law.international law.

• Based on UNCLOS , TL Based on UNCLOS , TL owns everything north owns everything north of the median line.of the median line.

• The project is stalled because Timor-Leste and the The project is stalled because Timor-Leste and the companies do not agree on how it should be developed.companies do not agree on how it should be developed.

• Woodside and its partners Shell, ConocoPhillips and Woodside and its partners Shell, ConocoPhillips and Osaka Gas believe a floating LNG plant in the sea is the Osaka Gas believe a floating LNG plant in the sea is the most profitable.most profitable.

• Timor-Leste wants a pipeline from Sunrise to Beaçu, to Timor-Leste wants a pipeline from Sunrise to Beaçu, to get more tax revenues and anchor the Tasi Mane project.get more tax revenues and anchor the Tasi Mane project.

• Under contracts and Under contracts and treaties, the treaties, the companies can companies can choose the path, but choose the path, but both governments both governments need to approve it.need to approve it.

• TL can cancel CMATS TL can cancel CMATS next year if the next year if the parties haven’t parties haven’t agreed yet.agreed yet.

No history of democracy or self-governmentNo history of democracy or self-governmentTradition of resistance -- not constructive criticism, Tradition of resistance -- not constructive criticism, coalition-building, alternatives of compromise -- with coalition-building, alternatives of compromise -- with decisions handed down from above.decisions handed down from above.

New public service with little experience of New public service with little experience of honesty, good governance or accountabilityhonesty, good governance or accountabilityLimited number of skilled people requires dual roles, Limited number of skilled people requires dual roles, reducing oversight and increasing appearance of reducing oversight and increasing appearance of nepotism.nepotism.

Just-invented government structures lack adequate Just-invented government structures lack adequate oversight and separation of powers, with unclear and oversight and separation of powers, with unclear and conflicting responsibilities.conflicting responsibilities.

TL has lived through bad examplesTL has lived through bad examplesInefficient Portuguese bureaucracy; corrupt and violent Inefficient Portuguese bureaucracy; corrupt and violent Indonesian occupationIndonesian occupation

History of confusing government services with personal History of confusing government services with personal favors (corruption, patronage, nurturing local contractors)favors (corruption, patronage, nurturing local contractors)

UN missions focused on short-term fixes, with UN missions focused on short-term fixes, with inexperienced and unqualified “experts”inexperienced and unqualified “experts”

Donors and advisors promote private-industry, “free trade” Donors and advisors promote private-industry, “free trade” economic modeleconomic model

The UN, WB, ADB and IMF are not transparent or The UN, WB, ADB and IMF are not transparent or accountableaccountable

Few effective checks and balancesFew effective checks and balancesWeak mechanisms to control corruptionWeak mechanisms to control corruption

Political parties are weak and inexperienced, few Political parties are weak and inexperienced, few alternatives or compromises offeredalternatives or compromises offered

Media don’t do independent research or question officialsMedia don’t do independent research or question officials

Civil society has limited education and experienceCivil society has limited education and experience

Can learn from the mistakes and Can learn from the mistakes and

successes of other oil-producing successes of other oil-producing

countries.countries.

People are nationalistic and ready to People are nationalistic and ready to

defend national sovereignty, unity and defend national sovereignty, unity and

independence.independence.Many NGOs and civil society groupsMany NGOs and civil society groups

Use of U.S. dollar reduces inflation risk.Use of U.S. dollar reduces inflation risk.But surrenders control of exchange ratesBut surrenders control of exchange rates

•Post-colonialPost-colonial– Language controversyLanguage controversy– Land ownership in chaosLand ownership in chaos– IlliteracyIlliteracy– UnderdevelopmentUnderdevelopment– People never lived under rule of lawPeople never lived under rule of law– Never had power to make decisions for ourselvesNever had power to make decisions for ourselves– ““To Resist is to Win” – lobbying and persuasion uselessTo Resist is to Win” – lobbying and persuasion useless– Internalized Portuguese and Indonesian traditionsInternalized Portuguese and Indonesian traditions– Bureaucracy, corruption, “entitlement,” military Bureaucracy, corruption, “entitlement,” military

companiescompanies– Incorporating returned exiles, collaboratorsIncorporating returned exiles, collaborators– Public officials all just learning their jobsPublic officials all just learning their jobs– Skilled people gone: education, health, governanceSkilled people gone: education, health, governance– Getting neighboring countries to respect sovereigntyGetting neighboring countries to respect sovereignty

•Post-conflictPost-conflict– Pandemic Post-Traumatic Stress DisorderPandemic Post-Traumatic Stress Disorder

– Infrastructure and property destroyedInfrastructure and property destroyed

– No experience of predictability or long-term planningNo experience of predictability or long-term planning

– PovertyPoverty

– High birth rateHigh birth rate

– Domestic violenceDomestic violence

– Respecting veterans; dealing with collaboratorsRespecting veterans; dealing with collaborators

– Police and military come from different sides.Police and military come from different sides.

– Leading in peacetime requires a different skill set.Leading in peacetime requires a different skill set.

– Differences of opinion are personalized. Loyalty and Differences of opinion are personalized. Loyalty and betrayal paramount; long memoriesbetrayal paramount; long memories

•Domination by patriarchal and political Domination by patriarchal and political systemssystems

•Responsible for household: water, fuel, Responsible for household: water, fuel, food.food.

•Berlaki (Bride-price)Berlaki (Bride-price)

•Colonial and Church traditionsColonial and Church traditions

•Domestic violenceDomestic violence

•Many children in each familyMany children in each family

•2012 election law: ¹2012 election law: ¹//33 of new MPs are of new MPs are womenwomen

• Many mechanisms, little success.Many mechanisms, little success.

• ¾ of those indicted by SCU safe in Indonesia¾ of those indicted by SCU safe in Indonesia

• 99% of crimes (those committed between 99% of crimes (those committed between 1975 and 1998) have not been investigated1975 and 1998) have not been investigated

• Gap between leaders and populationGap between leaders and population

• ““Transitional justice” doesn’t touch major Transitional justice” doesn’t touch major perpetratorsperpetrators

• Continuing impunity has lasting consequencesContinuing impunity has lasting consequences

• Long work to achieve an international tribunalLong work to achieve an international tribunal