La’o Hamutuk

Bulletin  |  Surat Popular  |  Topic index  |  Reports & Announcements  |  Updates
Reference  |   Presentations  |  Mission Statement  |  LH Blog  |  Search  |  Home

Timor-Leste buys into the Sunrise Oil and Gas Project

30 October 2018. Updated 16 March 2019

Contents of this page

Most of the graphics on this page can be enlarged by clicking on them.

The Greater Sunrise oil and gas field in the Timor Sea has been the subject of exploration, controversy, and negotiations since it was discovered in 1974. In particular, the question of where to liquefy the natural gas -- converting it into LNG which can be shipped to overseas customers -- has been vociferously debated since Indonesia was forced out of Timor-Leste in 1999.  La'o Hamutuk has followed the issue since 2000, publishing facts and analysis to advocate for Timor-Leste's national sovereignty and for policy decisions which advance the well-being of the people of Timor-Leste.

History and background

In 2008, La'o Hamutuk published a book Sunrise LNG in Timor-Leste: Dreams, Realities and Challenges, which is on-line in English and Bahasa Indonesia, with a summary in Tetum. The report includes a history of relevant events from 1970 through 2008. In 2008 we also published a primer on LNG Basics and an article on potential benefits from Sunrise LNG in Timor-Leste. Our previous web page on the Sunrise project discusses events through 2015.

Sunrise is also a key factor in the Tasi Mane project, especially the proposed gas liquefaction (LNG) plant in Beacu.

The Sunrise controversy is entangled in the troubled history of maritime boundary negotiations between Timor-Leste and Australia. Follow this link for information and documents on events from 2012 to 2016, or this one for developments since then. which includes many more articles and links for the process leading up to signing the Boundary Treaty on 6 March 2018.

 

Barossa also wants Darwin LNG

Until 2015, the Sunrise Joint Venture's preferred option was to process the gas at a floating LNG plant, new technology which they believed was the most profitable. However, as Bayu-Undan nears the end of its productive life, they now want to pipe Sunrise gas to Darwin and liquefy it in the soon-to-be-available existing LNG plant there, which is majority-owned by ConocoPhillips. According to the analysis done for the boundary Conciliators, this would be much more profitable than processing the gas in Timor-Leste.

However, the time window for this option is limited because ConocoPhillips, Barossa project would also like to tap into the Bayu-Undan pipeline and use the Darwin LNG plant.

On 8 March, after the boundary treaty was signed, ConocoPhillips and Santos began promoting Barossa more assertively, perhaps to pressure Timor-Leste's government to quickly agree to Sunrise gas being processed in Darwin. Six weeks later, ConocoPhillips announced that Barossa is beginning Front-End Engineering Design, and a contract for the design was awarded in June 2018. The Barossa joint venture hopes to make a Final Investment Decision by the end of 2019 and bring gas to Darwin by 2023.

The Sunrise project is operated by Woodside (Australia), which has a 33.44% share in the project shared with joint venture partners ConocoPhillips (USA, 30%), Royal Dutch Shell (UK/Netherlands, 26.56%) and Osaka Gas (Japan, 10%). They estimate that the field contains 5.13 trillion cubic feet of recoverable natural gas and 226 million barrels of condensate (oil), which some analysts believe will sell for about $50 billion. After paying for capital investment, operating costs and company profit, this might generate $5-20 billion in tax and royalty revenue to Timor-Leste. If Timor-Leste becomes a part-owner of the project, we will share in the profits, as well as in the responsibility for investment. It is not clear that the benefits to Timor-Leste will be more than the costs.

For many years, Sunrise has been stalled because Timor-Leste’s government has insisted that its natural gas be piped to Timor-Leste, where it will be cooled until it becomes a liquid (Liquefied Natural Gas or LNG; see 2008 primer) that can be loaded onto tanker ships and sold to overseas customers.  However, the Joint Venture companies believe that other ways of making LNG – either through a pipeline to Australia (Darwin LNG or DLNG) or on a floating platform above the field (FLNG) – will be more profitable and less risky. ConocoPhillips wants to process the gas in Darwin, perhaps because it is the principal owner of the soon-to-be-idle LNG plant there (see box at right); they persuaded Shell, Woodside and Osaka Gas to support their position. Before that, the Joint Venture had preferred FLNG; Timor LNG was always the third choice for all the partners.

Timor-Leste’s government believes that spinoff jobs, contracts and local economic development on the Tasi Mane coast will more than compensate for the higher costs and risks of bringing the gas here, but this view is not shared by Australia, the Sunrise Joint Venture, or the UN Conciliation Commission that facilitated the Boundary Treaty. La’o Hamutuk and experts we have consulted are not convinced that the benefits to Timor-Leste are greater than the costs, and we have repeatedly asked the managers of the project for the assumptions and data that make them so optimistic (see below).


2018 Boundary Treaty changes ownership, establishes Sunrise special regime

 

Before and After the Boundary Treaty

 


Until the maritime boundary was settled in 2018, the Sunrise and Troubadour fields (yellow circle) were 20% in the Joint Petroleum Development Area (JPDA) defined by the 2002 Timor Sea Treaty, and 80% in disputed waters administered by Australia.

 


Under the new boundary, there is no JPDA and about 70% of Greater Sunrise is in Timor-Leste's territory.

 


The above map is from the now-obsolete 2003 International Unitization Agreement (IUA), showing part of Greater Sunrise (left of the black diagonal line) inside the JPDA, and the rest in waters attributed to Australia under the CMATS treaty. It was covered by four Production Sharing Contracts (purple numbers), but the orange and green areas were to be developed as a single unitized project.

 


Under the 2018 Boundary Treaty, the JPDA and IUA cease to exist. A single contract will cover the entire field, even though approximately 70% of it is in Timor-Leste and 30% in Australia.

On 3 March 2018, Forbes published Overblown Expectations for East Timor's Greater Sunrise Oil and Gas, which estimates that Timor-Leste could receive about $8 billion in revenues if the gas is processed through a pipeline to Darwin, but that a pipeline to Timor-Leste would make the project economically unviable. A few days later, the Australian Financial Review and others expected that the new treaty would support the Sunrise gas project (in Darwin).

On the eve of the 6 March signing, ABC revealed a leaked letter Xanana had written to the Conciliation Commission the week before. Mr. Gusmão blasted the Commission's "lack of impartiality" for comparing the Darwin and Timor LNG options. A few days later, The Australian wrote that Xanana Gusmao’s Timor Sea rant is an own goal [score for the other team] for his needy nation.

The Treaty between Timor-Leste and Australia Establishing their Maritime Boundaries in the Timor Sea was signed in New York on 6 March 2018. The Permanent Court of Arbitration, which served as the secretariat for the conciliation process, issued a 50-page press package, including the 30 August 2017 Comprehensive Package Agreement (which has an "Approach on the Greater Sunrise Development Concept" and an action plan), the text of the treaty (with five annexes) (also Portuguese), and a Paper on the Comparative Development Benefits of Timor-LNG and Darwin-LNG.

The Treaty replaces the Timor Sea Treaty and the Sunrise International Unitization Agreement, defining the limits of the national territories of both nations for the first time. However, Sunrise is still on both sides of the border; the new line crosses the field in an arbitrary location, chosen to put approximately 70% of it in Timor-Leste's territory and 30% in Australia's. This boundary may be readjusted after Timor-Leste and Indonesia settle their maritime border and Sunrise has been emptied and decommissioned. Although negotiators were unable to reach agreement on where Sunrise gas would be processed, the Treaty establishes a Greater Sunrise Special Regime to govern its joint development.

On 21 March, La'o Hamutuk published a comprehensive article The Timor-Leste-Australia Maritime Boundary Treaty (also PDF, abridged blog and Tetum). International media covered the signing extensively, and many articles are linked to from our web page on the treaty process. Although the negotiators had hoped to resolve the Sunrise question before the Treaty was signed, they were unable to. Because Sunrise straddles the boundary established by the new treaty, Timor-Leste will receive 70% of the government revenues from extracting Sunrise oil and gas if the gas is processed in Timor-Leste, and 80% if it is processed in Australia.

In May 2018, the Conciliation Commission published a comprehensive Report with 28 Annexes, describing how the Conciliators got Timor-Leste and Australia to agree on a maritime boundary treaty. The Commission recommended "that the Parties continue their discussions regarding the development of Greater Sunrise with a view to reaching agreement on a concept for the development of the resource."

Like any treaty, this one needs to be ratified by both Parliaments. Australia began its process in late March, with a National Interest Analysis. Their Parliamentary Committee received many submissions, including from La'o Hamutuk (also Tetum), and published its report in August.

Although Timor-Leste's National Parliament has not yet begun its ratification process, La'o Hamutuk sent them an unsolicited submission (Tetum original) on 6 August recommending, among other things, that Government, Parliament and the public should conduct a rigorous and objective assessment of the Tasi Mane Project's fiscal, social, economic and environmental costs, benefits and risks before spending more money on it.

Timor-Leste will buy out ConocoPhillips for $350 million

On 25 June 2018, Natural Gas Daily reported that East Timor restarts Sunrise talks after elections. On 22 July, the Australian Financial Review cited Woodside CEO Peter Coleman calling for a 'fresh start' on the Sunrise LNG negotiations. A few days later, Timor-Leste government news agency Tatoli reported that Timor-Leste was preparing to bring the Sunrise gas pipeline to its south coast. On 27 July, Timor-Leste's Parliament approved the new Government's program, which includes Sunrise LNG in Timor-Leste. On 21 August, Timor-Leste's Council of Ministers reappointed Xanana Gusmão as Special Representative for concluding the treaty ratification and the Greater Sunrise agreements.

On 6 August, Interfax Natural Gas Daily reported that Timor-Leste is considering buying out the oil companies who hold the Greater Sunrise contract. On 13 September, the Australian Financial Review reported that Timor-Leste was considering bidding US $5 billion to buy out ConocoPhillips share of the Greater Sunrise field.

On 28 September, negotiators from the Timor-Leste government and ConocoPhillips agreed that Timor-Leste will pay $350 million to purchase ConocoPhillips’ share of the Joint Venture to develop the Greater Sunrise oil and gas field. Timor-Leste will own 30% of this project, together with Woodside, Shell and Osaka Gas. On behalf of the state, TimorGAP will participate in project decisions, be responsible for 30% of the investment, and be entitled to 30% of the company share of the profits. The deal was announced by ConocoPhillips and by Timor-Leste, and La'o Hamutuk wrote an article (also Tetum) explaining its significance for the nation and describing the next steps to bring the gas pipeline to Timor-Leste.

GMN TV was given exclusive access to the signing ceremony, and produced a 22-minute program (29 MB Tetum video). On 5 October, the lead story on their evening news was La'o Hamutuk and FONGTIL questioning whether the deal is good for Timor-Leste (9MB Tetum video).

The buyout was widely covered in international media, including Timor-Leste buys ConocoPhillips stake in Greater Sunrise consortium (LUSA, 28/9), East Timor buys ConocoPhillips’ Greater Sunrise share for A$484m (Australian Financial Review, 30/9), Woodside considers options as ConocoPhillips sells Sunrise LNG stake to East Timor Government (West Australian, 1/10), ConocoPhillips sells stake in Sunrise gas field to East Timor (Reuters, 1/10) and Timor-Leste buys A$484 million stake in Greater Sunrise fields and pushes for LNG pipeline (also radio broadcast) (ABC News 2/10).

The media soon became more analytical: Timor-Leste one step closer to LNG ambitions but hurdles remain (Platts S&P Global, 2/10), East Timor stake buy brings Sunrise gas field a step closer (Reuters, 2/10), Timor-Leste determined on Sunrise, (Upstream, 4/10) and Why Timor-Leste took its A$484 million Greater Sunrise gamble (Crikey, 9/10).


What else has to happen to bring the pipeline to Timor-Leste?
 

Learning from experience

 

Papua New Guinea had high hopes that their $19 billion LNG project would greatly increase government revenues, jobs, and household incomes, as predicted in a 2008 study by the ACIL Australian consultants for Exxon.

 

 

Unfortunately, after four years of operation, it has become clear that these predictions were wildly optimistic, as described in two reports by Jubilee Australia (click on a cover to download a report).

TimorGAP also hired ACIL, whose 2016 report about the Tasi Mane project and 2017 report on Greater Sunrise predict major benefits to Timor-Leste. Should Timor-Leste risk billions of dollars without deeper analysis?

Timor-Leste buying participation in Greater Sunrise is one step in a long process which may eventually bring a gas pipeline to Beaçu. Although many Timorese citizens are proud of our political leaders for persuading or paying the oil companies to accept this position, the issue has financial, economic, environmental and social consequences which will be longer-lasting and more impactful than temporary patriotic emotion.  It is not yet clear that the Sunrise pipeline will be good for the people of Timor-Leste. The nation needs and deserves a detailed, objective analysis, with complete public information, about the costs, benefits, risks, and impacts of the entire Greater Sunrise and Tasi Mane projects before we disburse billions of dollars of public funds to oil companies, contractors, brokers and other individuals and companies.

La’o Hamutuk has serious doubts that such an analysis will prove that the benefits of bringing the Sunrise pipeline to Timor-Leste are enough to justify its huge costs, risks and social impacts.  But even if they are, the recent agreement to purchase ConocoPhillips’ 30% share is insufficient to ensure that the pipeline will come here.

  1. Under the Sunrise Joint Venture rules, each other partner – Woodside, Shell, or Osaka Gas – has the right to “pre-empt” another buyer. In other words, if ConocoPhillips wants to sell its 30% share, one of these companies could purchase it to prevent it from going to someone else. Media reports indicate that Woodside may exercise this power, which would prevent Timor-Leste from buying the share from ConocoPhillips. However, on 6 November Xanana (Tetum video) showed reporters letters Timor-Leste had received from the companies which, according to LUSA, confirm that the companies will not exercise their pre-emption rights.

  2. Australian and Timor-Leste government regulators will have to approve the purchase. The sales contract and Joint Venture agreement must also be approved by the Council of Ministers and reviewed by the Audit Court. On 10 October, Timor-Leste's Council of Ministers approved a resolution with was promulgated as Government Resolution 20-2018 (Port.) of 24 October (English), to approve the contract acquiring ConocoPhillips' share of Sunrise and transferring those rights to TimorGAP and its subsidiaries.

  3. Timor-Leste will have to pay $350 million to ConocoPhillips early next year, sort of a down payment on much larger financial obligations in the future (see #5 below).  The $350 million – more than twice as much as Timor-Leste spends each year to educate our children – will be taken out of the Petroleum Fund as part of the 2019 State Budget which the Government proposed to Parliament in November, according to TimorGAP President Francisco Monteiro in Tatoli and Independente.

  4. Even after Timor-Leste owns  a 30% share of Greater Sunrise, it will need to persuade Shell and Woodside to approve a pipeline to Timor-Leste, which may reduce the profitability of the project. Most Joint Ventures require unanimous approval for a major decision like this one.

    Without ConocoPhillips, the Sunrise JV will have less financial resources and technical and administrative expertise, and other partners may ask for compensation to accept the increased cost and technical and security risks of a deep-water pipeline to a new LNG plant in Beaçu, as well as the additional infrastructure and regulatory support that it will require. On 18 October, the Australian Financial Review quoted Woodside executives that they prefer to invest in the upstream development at the field itself, rather than in the pipeline and LNG plant, as elaborated by Interfax. A few days later, Xanana responded that Woodside's reluctance to invest will be better for the project.

    Potential buyers for the LNG will also have to approve the development option and will want assurances that the price, continuity of supply, and security of operation meet their needs.

  5. Timor-Leste will need to pay at least 30% of the capital costs to develop the Sunrise field, which will be several billion dollars. This investment is not only for the pipeline and LNG plant, but for drilling exploratory and production wells, building the infrastructure to process oil and gas at the field (probably including a Floating Production Storage and Offloading [FPSO] vessel to store and sell oil from Sunrise), operational infrastructure, and other costs. If this money is borrowed, Timor-Leste will have to pay it back with interest.

    Although everyone hopes that this investment can be recovered a few years after the field starts production in 6-12 years, the money will need to be paid up front, and recovery is not certain. On 22 October Xanana Gusmão told a television audience (1.5 MB Tetum video) that Sunrise will start making money for Timor-Leste in 2026.

  6. After the partners and governments agree and the capital investment financing has been secured, the Joint Venture has to design and build the project, subject to regulatory and environmental approval and best practice.

On 20 November, analyst Juvinal Dias wrote Oinsa TL bele sukat oportunidade hose sosa asoens ConocoPhillips nian iha JV Sunrise in the Neon Metin blog.

Buying Shell's 26.56% for $300 million more

On 21 November 2018, Timor-Leste and Shell signed an agreement for the Government to purchase Shell's 26.56% of the Sunrise project for $300 million, bringing Timor-Leste's total share to 56.56%, with a corresponding obligation to pay more of the development costs. The company and government issued a joint press release, and the deal was reported by LUSA (also Tetum), Interfax and Reuters. A decade ago, Shell had hoped to develop its new Floating LNG technology with the Sunrise Project, but the availability of the Darwin LNG plant and Timor-Leste's insistence that the gas be piped to Beaçu has made that virtually impossible.

Once the deals go through, Timor-Leste will own the majority of the Greater Sunrise joint venture, and TimorGAP might become the operator of the project.

After the Shell sale was announced, Australian media ABC and the Lowy Interpreter published articles questioning the wisdom of the project. FRETILIN leader Mari Alkatiri called for a national debate on buying into the Joint Venture.

International financial and oil industry commentators also wrote about the sale, including Zacks Equity Research on why Shell sold, and ENB Slugcatcher on the likelihood of Timor-Leste also buying out Woodside.

The Council of Ministers approved the deal with Shell on 28 November, but Government Resolution 5/2019 didn't become effective until it was published in the Jornal da Republica on 30 January 2019.

Many in Timor-Leste celebrate, regardless of costs

 


The onshore LNG plant is part of the Government's vision for a Tasi Mane petroleum industry corridor in southwestern Timor-Leste.

 


If a pipeline is built to Timor-Leste, it will have to be routed across the deep Timor Trough and will land near Beaçu, as the map below from TimorGAP shows.

Chief Negotiator Xanana Gusmão returned to a hero's welcome in Timor-Leste on 8 October, calling on everyone to unite to bring the Sunrise pipeline to Timor-Leste, which he said it was clear would happen.

In mid-October, the Wall Street Journal published Tiny East Timor Bets Big on Oil and Gas, and ABC Radio interviewed La'o Hamutuk's Carly Munnelly about the project (audio).

On 22 October, Xanana was interviewed in GMN-TV's Grand Intervista program about g7+ and the Sunrise buyout (55-minute Tetum video on YouTube; Sunrise discussion starts 21 minutes in). To facilitate access, you can download a lower-resolution video (34 MB) of the Sunrise portion. GMN's evening news also broadcast a two-minute excerpt of the key points (1.5 MB video, Tetum/English transcript). In response to those who question the cost or feasibility of the project, the Chief Negotiator said "I don't care" and encouraged viewers to trust that "I will win" and prove the naysayers wrong, as he did in the struggle for Timor-Leste's independence. A few weeks later, Xanana acknowledged that Sunrise could cost Timor-Leste $2.5 billion for the upstream work that the joint venture will do, plus another $5 billion for the pipeline and LNG Plant. With the 21 November purchase of Shell's 27% share, the nation's share of the upstream costs alone could be over $4 billion.

Timor-Leste's Government is preparing the General State Budget for 2019. On 22 October, the acting Minister of Finance announced that the budget will be larger than expected, and TimorGAP President Francisco Monteiro said it will include $350 million for Sunrise buyout, as well as $24 million more for the Ministry of Petroleum and Minerals, twice as much as MPM's average allocation during the past six years.  As presented to Parliament on 8 November, the proposed budget law doesn't have much detail:

The budget proposal was sent to Parliament before the Shell deal was signed, but Parliament has not gotten very far in discussing it, largely because the Government has yet to provide much of the supporting documentation. On the floor of Parliament, the budget was amended to include the $300 million for Shell's participation, which put the 2019 General State Budget over $2 billion, the largest in the nation's history. However, after a Presidential veto the entire $650 million was removed, and the government is trying to take it directly from the Petroleum Fund (see below).

Timor-Leste will have to invest at least 14 billion dollars more (and perhaps much more) in capital expenditures to implement the Sunrise and Tasi Mane projects, and 90% of these costs have never been mentioned in published State Budget forecasts, which go through 2023. La'o Hamutuk has roughly estimated them as follows, in millions of U.S. dollars:

Some political leaders have suggested that most of this money should be invested directly by the Petroleum Fund, rather than taken as an expenditure through the General State Budget approved by Government and Parliament. Although Article 15 of the Petroleum Fund Law (as revised) allows up to 5% of the Fund (about $800 million) to be invested in "other eligible investments" approved by the Minister of Finance (which could include petroleum projects), the article also requires that all investments must be located outside of Timor-Leste. However, the Government may ask Parliament to revise the Petroleum Fund Law to enable risky, non-traditional investments of a larger portion of it within the national territory.

During the last week of October 2018, the first LNG shipment left the new Ichthys LNG plant in Darwin, two years late and $6 billion over budget. Although Ichthys is somewhat larger than Greater Sunrise, its $40 billion capital investment cost illustrates the scale of this kind of project. With INPEX construction finished and the workers returned to their homes elsewhere, Darwin is experiencing economic problems, as exemplified by a sharp drop in house values.

Following a few days in Timor-Leste in late November, Australia's Assistant Minister for the Pacific Anne Ruston said that "this is a commercial decision for the Timor-Leste government, and we have to respect that decision" (summary, audio).

Weakening governance to grease the Sunrise buy-in

On 22 October, Timor-Leste's government asked Parliament to amend Petroleum Activities Law no. 13/2005 (official Portuguese) which was enacted after extensive consultation and has provided governance, transparency and checks and balances over the country's contracting with oil companies for the last 13 years. The proposed amendment (Portuguese and English, with explanations) would allow the State to participate in a joint venture with a share larger than 20%, as well as eliminating preventive oversight of petroleum-related contracts by the Audit Chamber of the High Administrative, Tax and Audit Court. As explained by Government, this amendment is intended to smooth the way for Timor-Leste's participation in the Greater Sunrise project.

Parliament was asked to consider it during a four-day holiday weekend, and the process is being rushed through. If it passes, it will be retroactive to 27 September, before the buyout deal was signed with ConocoPhillips.

The first five of the six new clauses in the law would remove a perceived 20% limit in the portion of a petroleum project that Timor-Leste or its public companies can own. However, this does not seem necessary, as that limit has never constrained the State from owning more than 20% of a project. TimorGAP is already a 50% partner (with Timor Resources) in two onshore Production-Sharing Contracts (PSCs), the 100% owner of PSC S0-15-01 in the exclusive maritime area, and a 24% partner (with Eni and Inpex) of PSC JPDA 11-106 in the offshore Joint Petroleum Development Area. There is no 20% limit in current law for Timor-Leste buying into a project; that number only applies to participation which must be written into a new Production-Sharing Contract to allow the State to opt-in to a petroleum project without paying.

Many believe that the real reason behind this amendment is to remove Audit Court oversight not only of petroleum contracts but of loan agreements and other "contracts ... for the conduct of [petroleum operations]" which will be signed as the Sunrise project moves forward. Some Timor-Leste politicians have become impatient with the governance and transparency requirements written in to the State's petroleum laws. In recent years, the Audit Court has knocked back the $719 million procurement contract for the Suai Supply Base (although this was overturned on appeal), and a contract to borrow $50 million from the Chinese Ex-Im Bank to rehabilitate Dili's drainage system. However, ZEESM's 2014 enabling legislation exempted its contracts from prior Audit Court review, so there is an unfortunate precedent.

Since Timor-Leste's current creditors are not interested in lending money for the Tasi Mane project, it is likely that Timor-Leste will seek financing of the multi-billion Sunrise and Tasi Mane investments from China, which has led to concerns about a "debt trap."  In other countries, including Sri Lanka and Angola, the difficulties in repaying loans from China have increased poverty, reduced democracy and sacrificed national sovereignty -- consequences reminiscent of the global debt crisis to the IMF and World Bank in the late 1990s.

Many of the negotiations and concessions in relation to the Tasi Mane and Sunrise projects have been done without public transparency, accountability or oversight by the responsible government agencies. As Timor-Leste leaders ask to pour billions of dollars from the national treasury into projects with dubious financial, economic or social return, these checks and balances are even more essential. Many countries which depend on extracting petroleum have been cursed by squandering their people's money on ill-conceived projects, which is why it is crucial to have expert analysis of project contracts carried out by State agencies which do not have a personal stake in pursuing them regardless of the costs and benefits.

In their brief analysis of the proposed amendment, the Parliamentary Plenary Support Division (DIPLEN) wrote "On the basis of available evidence, it is not possible to identify and quantify the financial costs resulting from the approval of this law." We believe that the costs are far too great, and call on Parliament to reject the proposed changes. While we don't yet know how many billions of dollars will be spent on the Sunrise and Tasi Mane projects (including debt service and possible default), the costs to fiscal responsibility, democracy and accountability are clear.

Parliament Committees C and D began considering the proposed revision on 6 November with a four-hour, closed-door hearing with Chief Negotiator Xanana Gusmão (reported by LUSA, Tatoli, Parliament, RTTL Video), in which he reportedly threatened MPs who did not support the project. After the hearing, Xanana told journalists that the $350 million purchase should be invested directly by the Petroleum Fund, rather than included as an expenditure item in the State Budget, but cooler heads prevailed as this is not allowed under current law.

Also on 6 November, the Council of Ministers increased the total appropriations for the 2019 State Budget from $1.3 billion to nearly $1.9 billion. Government made its budget proposal to Parliament on 8 November, and the $1.827 billion they asked for includes $350 million to pay for ConocoPhillips' part of Sunrise.

La'o Hamutuk and the NGO Forum wrote a joint submission (Tetum) to Parliament on 7 November, which was reported by LUSA in Portuguese. The Core Group on Transparency also made a submission (also with FONGTIL). The civil society groups urged Parliament not to approve the law.

On 7 November, Parliament held another hearing with representatives of the Central Bank and the Audit Court (Tatoli). On 13 November, Parliament Committees C and D issued a report recommending approval of the law. Their report included annexes with submissions from the Petroleum Fund Consultative Council, FONGTIL/CGT, La'o Hamutuk and TimorGAP.

During the Parliamentary plenary, an additional clause was added to the law, stating that "The Petroleum Fund may be applied (invested) directly in Petroleum Operations, in the national territory or abroad, through the execution of commercial transactions, through Timor Gap, EP, pursuant to Article 15.4 of [the Petroleum Fund Law]." This clause in the Revision of the Petroleum Activities Law potentially contradicts several clauses in Article 15 of the Petroleum Fund Law, which states that it can only be invested abroad, that no more than 5% can be in non-financial instruments, and that no more than 3% can be invested in any one company. The last-minute changes are highlighted in yellow in this final version, which was not publicly available until La'o Hamutuk obtained and published it several weeks later.

On 14 November, the Parliamentary plenary completed the process of debate and approval of the law, with 37 votes in favor, 22 against and no abstentions. FRETILIN issued a press release explaining why they voted against it.

The proposed law was sent to the President of the Republic, who had 30 days to decide whether to promulgate or veto it. A delegation from La'o Hamutuk and the NGO Forum met with the President on 27 November to encourage him to veto. The meeting was reported by the President's office, Tatoli, RTTL-TV, GMN TV and other media. The next day, the President said he was still studying the issue.

On 30 November, Prime Minister Taur Matan Ruak said that this is not an easy decision for the President, but that the Timorese people must be brave enough to accept the risk (Tetum audio).

On Saturday, 8 December, Chief Negotiator Xanana Gusmão, accompanied by ANPM President Gualdino da Silva and TimorGAP President Francisco Monteiro, gave an all day 'seminar' to a capacity crowd at Dili Convention Center. They explained the history of the maritime boundary dispute with Australia, the legal implications of the new boundary treaty, and their optimistic projections for the economic benefits from the Greater Sunrise pipeline and the Tasi Mane Project. No questions or discussion were allowed, although most of the presentations are linked to from the previous sentence.

On 11 December, President Francisco Guterres 'Lú Olo' vetoed the proposed amendments to the Petroleum Activities Law and sent it back to Parliament. Skip down for information on the veto and Parliament's efforts to override it.

Paying for Sunrise Participation through the State Budget, or not

Parliament began debating the 2019 State Budget in plenary on 6 December with a speech by the Prime Minister and a consolidated Committee Report, and the debate will continue until the 22nd. The Sunrise project is one of the most controversial issues. In its Recommendations to Government, Parliament's Economic Committee D suggested: "Committee D and all Members of Parliament still have no access to independent studies of recognized quality on the feasibility of the Timor-Leste petrochemical pipeline project (pipeline, LNG plant and refinery). In the light of conflicting information on its feasibility, the Committee appeals once again for the Government to provide, albeit with conditions due to the special sensitivity of the subject, any credible, independent studies about the subject. On the other hand, the Committee - and certainly all Members of the National Parliament - would like to have access to any cost-benefit studies (including periods of production and deadlines) for alternative strategies for the exploitation of Greater Sunrise (at least those originally proposed by the oil companies -- referring to the pipeline to Darwin or the floating platform -- and the one proposed by the Government) since up to now such a comparative study has not been available to us -- which would greatly help us make a decision on the present and future allocations of resources."

During the budget debate, Government distributed a USB memory stick to members of Parliament, which included:

On 20 December, Parliament approved an amendment to add $300 million to the 2019 budget for purchasing Shell's participation in the Sunrise Joint Venture, bringing the total to more than $2.1 billion. The budget was approved by a 40-25 vote in Parliament on 22 December. The President consulted widely, as described on our budget page, before he vetoed the proposed budget on 23 January, explaining his reasons to Parliament.

On 31 January, Parliament amended the budget law by removing the $650 million to buy participation in the Sunrise joint venture, and passed the revised $1.48 billion budget by 40-25. The President promulgated the new version on 7 February.

Changes to Petroleum Activities Law vetoed, overridden, promulgated and taken to court

On 11 December, President Francisco Guterres 'Lú Olo' vetoed the proposed amendments to the Petroleum Activities Law, as provided in article 88.1 of Timor-Leste's Constitution. He sent the law back to Parliament for reappraisal with a five-page letter (text, including English), citing as the fundamental reason to avoid distorting and diluting the investment rules of the Petroleum Fund by allowing direct investment in broadly-defined 'Petroleum operations" carried out through commercial transactions, reducing its liquidity. The President told Parliament that this would jeopardize financial and institutional stability of the sovereign wealth fund, opening the way for whatever political force is in power to use the Fund as it chooses.

His public explanation (Tetum and Portuguese) gave the following reasons:

  1. To clarify the difference between spending and investments, and to protect the sustainability of Timor-Leste's Petroleum Fund.
  2. To ensure that legislative policies are clear, dynamic, prudent and transparent.
  3. To strengthen good practice by maintaining prior court reviews of contracts.
  4. To maintain the primacy of the rule of law, which is important for the construction of the state.
  5. Because Parliament should not retroactively revise laws to cover acts which have already taken place.

The veto stimulated vociferous, often uninformed, debate among Timorese politicians and local media. On 14 December, Xanana Gusmão responded in a two-hour interview on GMN TV, which you can watch on YouTube.

Parliament finished debate and voting on the 2019 State Budget before discussing the Presidential veto.

International media continued to report on the Sunrise buy-in, including Macauhub (Dili takes control of Greater Sunrise project in huge gamble), Upstream (Legislative delay slows progress on Sunrise) and Argus media (Viewpoint: PNG, East Timor face different LNG outlooks).

On 8 January 2019, Special Representative Xanana Gusmão, accompanied by the Prime Minister and representatives from ANPM and TimorGAP, went to Parliament to explain the Sunrise buyout (Parliament press release). The presentation and handouts largely repeated the public presentation on 8 December, although this time questions were permitted, and the opposition asked many. Gusmão "guaranteed" that the $13 billion necessary to build the in-field infrastructure, pipeline and LNG plant would not come from the Petroleum Fund, but may be borrowed.

You can watch most of the all-day debate on RTTL via YouTube (part 1, part 2, part 3);

Following sharp questioning from the opposition, he angrily offered to cancel the project (video excerpt). FRETILIN leader Mari Alkatiri responded in the media that his party is not against developing Greater Sunrise, but wants to do it sustainably.

On 10 January, Parliament discussed the Presidential veto of the amendment to the Petroleum Activities Law (debate rules), with statements from CNRT and FRETILIN, and Fretilin walked out. The remaining Deputies voted 41-1 to override the veto, as described by Parliament, LUSA and Tatoli (Tetum). Adriano do Nascimento from Partidu Demokratiku cast the only vote to uphold the veto, and gave three reasons:

  1. I don't agree to invest or withdraw from the Petroleum Fund directly to Timor Gap as in article 22.6;

  2. I don't agree to exclude the role of Tribunal de Contas to do prior audits as in article 22.7;

  3. I don't agree with AMP because they don't listen to or accommodate the President's suggestions in his veto letter.

The Timor-Leste Media Development Center publishes daily English summaries of articles in the local media. Here are a few recent summaries relating to Greater Sunrise project.

La'o Hamutuk is concerned that many public statements by politicians and articles in the media on the Sunrise project contain errors and/or disinformation, or omit important issues. Therefore, we have published Misinformation and facts about the Greater Sunrise project (PDF or blog) and Informasaun sala no faktu sira kona-ba projetu Greater Sunrise (PDF ka blog) to help improve understanding of this complex topic.

As a majority of MPs voted to override the veto, the President was required to promulgate the law within eight days. He did so on 17 January, noting that "This promulgation does not mean a political or legal judgment favorable to said Decree and, even less, that it can be interpreted as an inhibitor of any claim for abstract review of its constitutionality and legality, under the terms provided for by Article 150 of the Constitution of the Republic." The law was published in the Jornal da República as Law No. 1/2019 of 18 January.

On 30 January, 23 Members of Parliament asked the Court of Appeals for an abstract review of the constitutionality and legality of Law No. 1/2019, amending the Petroleum Activities Law. Their 180-paragraph petition (Portuguese original) raised several concerns, including:

  • Although not stated in its title, the new law violates the Petroleum Fund Law, which has 'reinforced value' because it is required by article 139 of the Constitution (CRDTL) which specifies mandatory financial reserves. Unlike the current law, the Petroleum Fund Law, as well as its 2011 revision, were enacted after extensive public consultation.

  • Investing the Petroleum Fund within Timor-Leste's territory violates the investment rules in Articles 14 and 15 of the Petroleum Fund Law, as well as the prerequisites for establishing 'other eligible instruments' for investment. That law cannot be amended or overridden using a law with a different title and stated objective, 'a ploy to get through the window that which did not come through the door'.

  • The term 'petroleum operations' used in the law is over-broad and could apply to virtually any business.

  • By extending state participation in petroleum operations and using money from the Petroleum Fund outside of the state budget process, this law violates Parliament's exclusive power to legislate on the budget system, creating an unconstitutional dual budgetary system and investment procedure and violating the rules of budgetary unity, since the Petroleum Fund finances most of the state budget.

  • Excluding petroleum operations agreements from prior review of the Audit Court undermines the transparency of the Petroleum Fund and creates financial risks, violating CRDTL article 139.

  • Allowing the Prime Minister to decide on the use of the Petroleum Fund violates CRDTL article 116, which empowers the Council of Ministers to decide on increases and decreases in revenue and expenditure, and therefore violates the principles of separation of powers and collegiality.

  • The law's 'blank check' from the Petroleum Fund to the Government will endanger the income, sustainability and security of the Petroleum Fund, by applying it to non-liquid investments of uncertain return, violating the safeguards written into the Petroleum Fund Law.

  • Referencing the 2018 Maritime Boundary Treaty before it becomes part of Timor-Leste's legal system (neither country has yet ratified it) is illegal and violates Parliament's exclusive power to ratify treaties, under CRDTL articles 9.2 and 95.2(a).

  • Making this law retroactive to 28 8September 2018 violates CRDTL article 3, especially since the Treaty has not been ratified, and the legislative process cannot be used to harmonize contracts which have already been entered into.

  • The Presidential veto was overridden under the wrong constitutional article, and should have required 2/3 of those present, since this law deals with 'basic matters of domestic and foreign policy', as defined in CRDTL articles 95.2(p) and (q).

While the court is deciding the case, the amendments to the Petroleum Activities Law are technically in force. After the President of Parliament said that Petroleum Fund withdrawals would happen soon, Fretilin's Parliamentary delegation stated the move would be in "bad faith."  After some confusion over the Government's position, on 15 February the Prime Minister's office clarified that the process of purchasing Sunrise participation would proceed before the court has decided: "Until the Court says stop!, the Government's activities will continue normally."

On 8 March, the Court of Appeals made a decision. Their opinion, provided to Parliament on 12 March with a dissent from judge Maria Natercia Gusmão, said that incorporation of the non-ratified Maritime Boundary Treaty was unconstitutional, but that the other amendments to the Petroleum Activities Law could stand, and could override provisions in the Petroleum Fund Law. It was covered by Tatoli (also Parliamentary reaction), LUSA, and RTTL TV (videos of newscast and interview with Court President). Two days later, the President of the Court acknowledged some errors in editing and clarity, but the substance of the decision is unchanged, and a corrected version will be released next week. There may be an appeal.

Efforts continue to transfer money from the Petroleum Fund to TimorGAP

However, the Government is taking steps to remove legal protections which would prevent the Petroleum Fund from being used to buy into the Greater Sunrise Joint Venture. On 18 February, the Prime Minister asked for time to present a new Petroleum Fund investment policy to Parliament.

On 20 February, the Council of Ministers approved a resolution on rules and criteria for the selection, management and evaluation of Petroleum Fund investments, which would enable investing in domestic petroleum operations through TimorGap. Government Resolution 10/2019 was published on 27 February.

On 21 February, the acting Minister of Finance presented the new Petroleum Fund investment policy (original Portuguese) to the Parliamentary plenary, with extensive questions and debate (Part 1 and part 2 on YouTube, over two hours), as reported by RTTL-TV and GMN-TV. The new policy would allow 5% of the Petroleum Fund (about $800 million) to be invested in TimorGAP, while reducing the percentage of the PF invested in stocks from 40% to 35%. TimorGAP must use the investment to exploit known oil and gas fields which are commercially competitive and will contribute to development and diversification of the national economy. TimorGAP will pay 4.5% interest on the investment (LUSA reported that this can be paid eight years late, although that's not in the policy) and comply with reporting requirements.

A few days later, legal experts urged the government not to implement the new policy before the court rules on the changes the Petroleum Activities Law.

On 7 March, Prime Minister Taur Matan Ruak told journalists that Timor-Leste would pay ConocoPhillips and Shell before 18 March (also RTTL video). To doubters, he said "The biggest risk for Timorese people is death. Why did we confront death? For Independence! Why can't we take on risk? One who isn't brave enough, they will never succeed in their life, neither as an individual or a people."

On 13 March, the day after the Court's ruling was announced, the acting Minister of Finance told journalists that she had already instructed the Central Bank (BCTL) to transfer the $650 million to TimorGAP. The Central Bank said they are working on it, and the Minister said that TimorGAP and BCTL had already signed a protocol to enable the transfer.

Two aspects of the deals, and the haste to pay for them, have not received much public attention:

  1. Petroleum Fund investments in stocks and bonds earn approximately 5% return per year. Therefore, if Timor-Leste pays ConocoPhillips after the 31 March deadline, the return from leaving the money in the Fund will pay for the fine, so it is essentially cost-free. On the other hand, paying the $350 million two weeks earlier than necessary will be a gift of about $670,000 from Timor-Leste to ConocoPhillips. Paying Shell 54 weeks early is giving them about $15.6 million, about the same as the annual budget of the Ministry of Agriculture and Fisheries.

  2. TimorGAP's budget is almost entirely financed by the transfer it receives from the General State Budget. The new investment policy says that TimorGAP will pay 4.5% annual interest to the PF on the $650 million 'investment' to buy into the Sunrise joint venture. If those payments are not delayed, this amount -- about $30 million per year -- will be covered by tripling the subsidy that TimorGAP gets from the State Budget until TimorGAP begins to receive oil revenues. In other words, this money will be withdrawn from the Petroleum Fund, transferred through the Ministry of Petroleum and Minerals to TimorGAP, and then returned to the Petroleum Fund.
        However,
    LUSA cited an unnamed source that the interest can be paid eight years late. If this is correct, the unpaid interest will add to the $650 million investment that the PF has in TimorGAP, bringing it to $924 million after eight years of compounded 4.5% interest. This will almost certainly exceed the 5% of the PF allowed for "other eligible investments" like TimorGAP, creating a new violation of the Petroleum Fund Law and the investment policy.

 

Woodside is willing to operate an LNG plant in Beaçu, but not to invest in it

On 13 February, Woodside released its Annual Report for 2018, listing Greater Sunrise in its 2027+ "Horizon III" timeframe. The report describes last year's events relating to Sunrise:

"The new [maritime boundary] treaty provides a pathway to the development of Greater Sunrise, provided the underlying arrangements, including the new Greater Sunrise PSC and agreed fiscal regime, are on terms and conditions equivalent to the existing regime and give the Sunrise Joint Venture the fiscal and regulatory certainty necessary for a commercial development to proceed. Negotiations between the two Governments and the Sunrise Joint Venture on the new Greater Sunrise PSC commenced in November 2018."

In a conference call with journalists the same day, CEO Peter Coleman was asked if Woodside was going to sell their stake in Sunrise. He responded

"We’ve been very clear that we’re not a seller in Sunrise. ... I’ve got to balance that up against going and finding alternative resources, that Sunrise is a keeper for us. We have been working with the Timorese on development plans and how we minimize our risk exposure on the capital side. And that’s where the concept of an onshore plan came from that the Timorese would fund.  We’re happy to invest in the offshore, but we’re certainly not comfortable in putting any significant capital into an onshore development at this point. But we’ve also offered that, if Shell and ConocoPhillips do exit, then we would be the technical operator for the onshore part of it."

On 5 March, Woodside COO Meg O'Neill said that now is the time to build new LNG projects. Three days later, Woodside CEO Peter Coleman explained that LNG prices are currently very low, but that he expected them to pick up in a few years. Although he described a number of LNG projects the company is planning for the next several years, he did not mention Greater Sunrise.

Who else might invest in Sunrise?

In an interview with LUSA on 8 March, TimorGAP President Francisco Monteiro explained that much of the up to $12 billion to develop the wells at the Sunrise field would not come from the Petroleum Fund, but from undisclosed other financing. He also argued for faith: “As a young country without experience in many areas, including this one, if there is no trust, we will never do anything.” A second article based on the same interview described the process by which TimorGAP will take over the Sunrise project.

On 11 March, Timorese jurist Manuel Tilman explained to GMN that developing the Sunrise project could cost $18 billion, and that the $0.65 billion to be paid for ConocoPhillips' and Shell's shares of the joint venture was not sufficient to bring the pipeline to Timor-Leste.

On 11 March, Timor-Leste's Ambassador to Australia Abel Guterres said that Timor-Leste would look to China for capital if Australia, the U.S., Japan and Korea were unwilling to finance the project. On 15 March, ANPM President Gualdino da Silva and Ambassador Guterres addressed a $99/person "Timor-Leste Breakfast" at the Australasian Oil & Gas (AOG) conference in Perth, accompanied by TL Cement's James Rhee and Mateus da Costa of ANPM. They told industry participants that the buyouts from Shell and ConocoPhillips would be completed soon, and invited investors in the upstream project and the Beacu LNG plant.

Improving public understanding

La'o Hamutuk encourages decision-makers, Members of Parliament and citizens to decide about the Sunrise project based on facts and verified information, rather than political assertions, disinformation or wishful thinking. We are circulating information through various media to improve public understanding, including:

Links

For more information, see these relevant web pages:

 

The Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)
Institutu Timor-Leste ba Analiza no Monitor ba Dezenvolvimentu
Rua D. Alberto Ricardo, Bebora, Dili, Timor-Leste
P.O. Box 340, Dili, Timor-Leste
Tel: +670-3321040 or +670-77234330
email: 
laohamutuk@gmail.com    Web: http://www.laohamutuk.org    Blog: laohamutuk.blogspot.com