25 March 2018

The Timor-Leste-Australia Maritime Boundary Treaty

Timor-Leste won a great victory on 6 March, when Australia and Timor-Leste signed the Treaty Establishing Their Maritime Boundaries in the Timor Sea. After decades of occupation and struggle, the Australian government finally accepted its northern neighbor’s sovereign right to a border based on current international law. La’o Hamutuk has published a comprehensive article (also PDF) on the new agreement, which this blog summarizes.

Australia had prevented Timor-Leste from settling their common boundary since before the restoration of independence. From 2000 to 2013, Timor-Leste’s leaders conceded to Canberra’s stubbornness by signing agreements to enable oil and gas production – the young nation’s principal source of money. However, many felt that the struggle for national independence was incomplete without defined boundaries. In 2004, Timor-Leste civil society formed the Movement Against the Occupation of the Timor Sea (MKOTT) and friends in Australia formed the Timor Sea Justice Campaign, with support from activists around the world. Five years ago, Timor-Leste’s government has added its diplomacy to the people’s struggle.

The black line on the map represents the 1972 Australia-Indonesia seabed boundary treaty, which remains in force. The yellow area is the Joint Petroleum Development Area (JPDA), which was divided 50-50 between Indonesia and Australia from 1991 to 1999, and 90-10 between Timor-Leste and Australia since 2002. Under the Boundary Treaty nearly all of it belongs 100% to Timor-Leste, although Australia will not pay back the $2.4 billion it has taken in from this area.

The light green and pink is the “Sunrise Unitized Area”.  Under the 2002 Timor Sea Treaty, Timor-Leste was to get 18% of Sunrise upstream revenues; this was increased to 50% in 2007, and to 70% or 80% (depending on where the pipeline goes) by the new Boundary Treaty.

Conciliation leads to compromise

Australia withdrew from international maritime boundary dispute resolution processes just before Timor-Leste became independent in 2002. However, they overlooked a never-used mechanism in the United Nations Convention on the Law of the Sea (UNCLOS). UNCLOS Article 298 and Annex V describe a compulsory conciliation process through which one nation can bring another into bilateral boundary discussions which are facilitated by “conciliators” appointed by both sides, under United Nations auspices. The conciliators cannot make binding decisions; their role is to encourage the parties to listen to each other.

Timor-Leste initiated this process in April 2016 and, although Australia initially resisted, they accepted it by September. The conciliators started out like marriage counselors, listening to each party’s views and relaying them to the other party, while the two sides sat in separate rooms.

The process took a year and a half, with 13 sessions on four continents. In August 2017, Australia and Timor-Leste agreed on the overall outlines of a boundary and brought in the oil companies to help decide how Greater Sunrise would be developed. Although that question remains unresolved, the Boundary Treaty was signed in March 2018.

The Boundary Treaty is not a legal ruling handed down by a court. It evolved through diplomatic give-and-take, with each government arguing for and compromising on its positions. Although the conciliators facilitated the negotiations and encouraged compliance with international law, all decisions were made by the two governments. The final boundary compromise, shown as purple and white lines on the map, largely reflects Timor-Leste’s median line claim for the southern part, while drawing lines in between the two nations’ claims for the lateral boundaries on both sides. It delineates each country’s seabed and water column areas, although Timor-Leste’s boundaries with Indonesia are still to be negotiated.

Three oil and gas fields have been commercially developed in the JPDA: Elang-Kakatua was shut down in 2007, Kitan closed in 2015, and Bayu-Undan has 2-3 years of production remaining. Many other exploration contracts have been signed and relinquished the JPDA, with 70 test wells drilled over the last three decades, so that there are probably no undiscovered, significant, commercially-viable, oil and gas reserves (other than Greater Sunrise).

All new government revenues from the JPDA will go to Timor-Leste once the treaty is ratified, which could increase Dili's take by about $100 million from Bayu-Undan’s last puddles of oil and gas.

On the western side of the JPDA, the southern part of the (white) lateral boundary is further west than the edge of the JPDA. As a result, the small Buffalo field now belongs to Timor-Leste. Buffalo produced 20 million barrels of oil from 1999 until it shut down in 2005, and Australia will keep those revenues. In 2016, a new contract was signed with a new company which hopes to use modern technology to extract about 30 million more barrels. If they do, Timor-Leste could receive $500 million.

The larger Laminaria-Corallina oil field, which has generated more than $2 billion for Australia and is nearing the end of its productive life, remains in Australian waters.

On the western side, the central part of the eastern edge of the JPDA has moved outwards, placing more of Greater Sunrise and the area south of it in Timor-Leste’s waters. For the moment, a (white) line has been drawn through the Sunrise Unitized Area, placing 30% of the field in Australia and 70% in Timor-Leste. As the field is still in both countries, it will be managed jointly; both nations need to agree on how it will be developed. The Treaty and conciliators offered several inducements for Timor-Leste to accept a pipeline from Sunrise to the soon-to-be-idle Darwin LNG plant (which has been processing Bayu-Undan gas), but Dili politicians reject this option.

Both lateral boundaries are provisional. They will be shifted outwards to line up with a future Indonesia-Timor-Leste boundary after Laminaria-Corallina (on the east) and Sunrise (on the west) have finished their productive lives.

Governance agreements and Greater Sunrise

The new Treaty re-authorizes the “Designated Authority” (DA), currently the National Petroleum and Minerals Authority (ANPM). This regulatory body signs contracts and oversees petroleum operations in Timor-Leste and jointly administered land and sea territory, as well as encouraging further development.

Because the Sunrise Unitized Area is still under bi-national oversight, the DA’s work there is overseen by a “Governance Board” (GB) which will rule on “Strategic Issues” relating to the Sunrise project, making decisions by consensus.  If the GB cannot agree, the DA or the Sunrise contractors may use a Dispute Resolution Committee (DRC) consisting of one representative of each country and a third member chosen by the other two.

Under the new Treaty, the four 2003 Greater Sunrise contracts will be replaced by a single one between the Designated Authority and the Sunrise Joint Venture (Woodside, ConocoPhillips, Shell and Osaka Gas). La’o Hamutuk hopes that it, as well as new contracts for Buffalo, Kitan and Bayu-Undan will comply with transparency requirements in Timor-Leste law.

The parties were unable to agree on a Sunrise Development Concept (including the location of the pipeline and LNG plant) before the Boundary Treaty was signed. Annex B of the Treaty defines a Special Regime for Greater Sunrise, referring to “the approved Development Concept,” but does not say how it is to be approved. It presumably needs the consent of both governments and the Sunrise Joint Venture.

In 2008, La’o Hamutuk wrote Sunrise LNG in Timor-Leste: Dreams, Realities and Challenges, most of which  is still accurate.  A detailed assessment of whether it would be good for Timor-Leste to pipe Sunrise gas to Beaçu is beyond the scope of this article. The currently politicized controversy, with accusations and disinformation, does not encourage rational discussion.

Regardless of how Sunrise is developed, La’o Hamutuk worries that exaggerated promises of vast economic benefits may distract from the urgent need to diversify Timor-Leste’s economy away from oil and gas.

Before a Sunrise decision is made, Timor-Leste needs to objectively weigh the financial, economic, environmental and social benefits, costs and risks. Although many studies have been done, none of the published ones we have seen provide accurate and unbiased analysis. Sunrise should be developed to serve the interests of the people of this country, rather than a particular oil company, political faction or region.

According to the most optimistic credible projections, Sunrise can finance Timor-Leste for less than one generation. We owe it to our children and grandchildren to think further ahead, and not to be swayed by emotional, partisan or personal considerations.

What happens now?

Closed-door discussions will continue on the Sunrise Development Concept, and the transitional arrangements for the Bayu-Undan and Kitan contracts will be implemented.

Before the Boundary Treaty becomes legally effective, it must be ratified by both countries. Until then, Australia will continue to receive 10% of Bayu-Undan revenues (about $4 million per month).

Timor-Leste’s next Council of Ministers and newly-elected National Parliament can probably ratify the Treaty by September, and we encourage consultation and consistency with Timor-Leste law. Australia’s process may also take six months, and requires a Parliamentary Inquiry. We hope that there will be no unnecessary delays.

Timor-Leste will resume negotiating its maritime boundary with Indonesia this year, and it should be easier than with Australia. Once this is settled, Australia and Indonesia will be able to amend and ratify their draft 1997 Water Column Boundary Treaty.

However, nothing in the new Australia-Timor-Leste Boundary Treaty disturbs the Australia-Indonesia Seabed Treaty which has been in effect for 46 years. Although some in Indonesia feel that the older treaty was unfair, Australia has no obligation to renegotiate it.

The new Boundary Treaty says that Timor-Leste shall not “have a claim for compensation” for money already collected by Australia, around five billion dollars. However, the Treaty cites “good neighbors and in a spirit of cooperation and friendship … in order to achieve an equitable solution.” In this new climate of mutual respect, Australia should return what it took during the nearly 30 years that it profited from supporting Indonesia’s brutal and illegal occupation of this country.

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