The Double Digit disappears

Liga ba artigu ida ne'e iha Tetum

Timor-Leste’s leaders often boast that the country’s non-oil Gross Domestic Product (GDP) is growing more than 10% per year faster than global inflation – that is, at “double-digit rates.” For example, last week the Prime Minister told potential investors in Malaysia that “Since 2007, our average growth rate has been 11.9% and the Asian Development Bank predicts double digit rates of growth will continue into the future.”

However, the World Bank’s East Asia Pacific Economic Update (Timor-Leste section), released yesterday, tells a different story, as do the ADB’s Asian Development Outlook (Timor-Leste section) published last week, the IMF’s Article IV Report on Timor-Leste from December 2013, and the RDTL Ministry of Finance’s analysis two months before that.  It’s not a very optimistic story, but it’s true and should be a key input into policy-making.  As this table from the World Bank shows, in 2015 Timor-Leste will be the fifth-fastest growing country in the region. Last October's WB report had us in second place.

When Timor-Leste’s Ministry of Finance proposed the 2014 State budget last October, it reduced its earlier estimate of 2012 GDP growth from 10.6% to 8.1%, as well as reducing its projection for 2013 growth from 10.6% to 8.2%. For past years, international agencies use the Government’s figures, so they followed suit.

The Ministry also lowered projections for future growth. The international agencies make their own projections, and they lowered them even more than the Government did. The IMF and World Bank now predict that non-oil GDP growth will decline gradually, to 7.7% by 2015. After that, they expect Government spending to increase, especially on large infrastructure projects, which will stimulate more rapid GDP growth. Sadly, nobody anticipates significant growth in the productive GDP (agriculture and manufacturing) for at least the next several years.

Overestimating future GDP growth could cost Timor-Leste many millions of dollars. Last October, the invitation to build and operate the Tibar Port told potential bidders that “Timor-Leste’s economy is growing strongly and IMF predicts real non-oil GDP growth of at least 10%, over the next 5 years.”  Companies have now been pre-selected, and bids for this Public Private Partnership will be invited this month. If port traffic turns out to be less than expected (the recent revisions of GDP estimates would reduce it by 16% or more), Timor-Leste may have to compensate the company for its reduced income.

The following table lists GDP growth figures from various sources and dates, newest first.

Estimates and projections for Timor-Leste’s real non-oil GDP annual growth
No.	Source	Date used	2011	2012	2013 (est)	2014 (proj)	2015 (proj)	2016 (proj)
-3a	Total GDP (including oil) [3] RDTL Nat'l Accounts 2000-2012	7/14	7.9%	-10.4%
-3	RDTL Nat'l Accounts 2000-2012	7/14	14.7%	7.8%
-2	ADB Pacific Economic Monitor	7/14				8.0%	8.0%
-1	IMF Article IV Consultation (2014)	6/14		7.7%
0	IMF World Economic Outlook	1/14 4/14	12.1%	9.3%	8.4%	9.1%	8.8%	9.9%
1	World Bank EAP Economic Update	4/14		8.3%	8.1%	8.0%	7.7%	8.6%
2	ADB Asian Development Outlook	4/14	12.1%	8.2%	8.0%	8.5%	8.5%
3	IMF Article IV Report	12/13	12.0%	8.3%	8.1%	8.0%	7.7%	8.6%
3a	Total GDP (including oil) [3] IMF Article IV Report	12/13	7.3%	5.7%	-3.2%	-6.9%
4	RDTL 2014 State Budget	10/13 3/14	12.0%	8.2%	8.0%	8.8%
5	Hamburg Port Consulting (IFC) [2]	1/13 10/13	10.6%	10.9%	10.4%	9.9%	10.8%	11.5%
6	World Bank EAP EU	10/13	10.8%	10.6%	10.4%	10.2%	11.5%
7	ADB Asian Development Outlook	4/13	10.8%	10.6%	10.0%	10.0%
8	RDTL 2013 State Budget	12/12 4/13	10.8%	10.6%	10.4%
9	IMF Article IV	1/12	10.6%	10.0%	10.0%	10.0%	10.0%	10.0%
Notes: 1.     Rows are in reverse chronological order, most recent first. Where two dates are given, the report was re-issued. Rows 6-9 have been replaced by newer studies. 2.    Row 5, based on outdated forecasts, is still being used to plan the new container port at Tibar. 3.    Except for Rows -3a and 3a, all figures are real (inflation-corrected) growth in non-oil GDP.  These rows also includes the GDP from oil and gas production, which comprises more than 75% of the total and has been declining since 2012 as the reserves are used up. It is expected to continue to decline as Bayu-Undan production drops to zero over the next six years. 4.    Line 0 was added after this blog was originally posted, as the IMF released its data the following day. 5.   Lines -3a through -1 were added in July 2014, as newer reports were published by IMF, ADB and DGE.
Table compiled by La’o Hamutuk based on referenced documents. April 2014

GDP is not a good way to measure equitable economic development. GDP counts dollars, not people, so poor people are not represented.  An economy can have high GDP growth at the same time that more and more people are living in poverty -- indeed, that is Timor-Leste's situation since 2007. In addition, rapid population growth reduces GDP's benefits for each individual or family, and national inflation has been much higher than global inflation, separating "real" GDP from its purchasing power for poor and middle-class people.

More than three-fourths of Timor-Leste's 2011 GDP comes from exporting non-renewable oil and gas reserves, which also provide around 93% of State income. However, the non-oil GDP discussed above excludes this part of the GDP, unlike statistics for other countries. The World Bank explains that non-oil GDP is "Timor-Leste’s preferred measure of economic activity" because it is more responsive to policy decisions than oil, which is extracted by foreign companies and sold on the global market. Timor-Leste's oil revenues peaked in 2012 and will decline over the next decade, so that total GDP growth will be negative during most of that time, as foreshadowed in line 3a of the above table.

Another problem is that the non-oil GDP is largely derived from State spending (of oil money). In fact, without government-driven construction, public administration, and large parts of trade and real estate, non-oil GDP is not growing at all.  Productive sectors -- agriculture and manufacturing -- were larger in 2003 than in 2011 (the latest available data), even without adjusting for population.

The day after we posted this article, the IMF  published an updated World Economic Outlook, estimating slightly higher GDP growth for Timor-Leste than other recent reports, but still under 10%, as shown in Line 0 of the table above. However, the IMF says that figures after 2011 are estimates (even though they were updated in January 2014) and some of them are not consistent with more verifiable data.

How many reports will it take to get Timor-Leste's decision-makers and private sector to focus on the difficult, unglamorous task of developing agriculture, light industry, appropriate tourism and food processing to reduce our 98% trade deficit and create an economy which doesn't depend on spending dwindling oil reserves? There isn't much time left.

Labele evita produsaun petróleu atu tun

Link to this blog in English

Kampu Kitan iha Area Konjunta ba Dezenvolvimentu Petróleu ne’e deskobre iha 2008, no kampu ne’e mak úniku ida ne’ebé hetan dezde halo esplorasaun barak hafoin Tratadu Tasi Timor ne’ebé ilegál vigora iha 1991.  Dezde 2007, na’in ba Kontratu Fahe Produsaun Kitan nian JPDA 06-105 mak operadór sira hanesan, Eni (40%, hosi Italia), Inpex (35%, Japaun) no Talisman Resources (25%, Canada).

Tinan kotuk, kompañia sira hotu rende ba area kontratu tomak 06-105, úniku de’it la inklui parte ba kampu Kitan nian. Eni, Inpex no TimorGAP asina Kontratu Fahe Produsaun foun, PSC, JPDA 11-106, atu esplora ba hodi buka kampu mina-rai adisionál balu ne’ebé bele fó lukru, maski susar atu hetan rezerva boot.

Kitan hahú nia produsaun ba petróleu iha 2011, no atinje nia produsaun másimu maizumenus loron neen hafoin loron produsaun primeiru. Kitan selu maizumenus tokon $900 no taxa sira ba Timor-Leste dezde Outubru 2011, maski kampu petróleu no gas Bayu-Undan selu dala sanulu ba Timor-Leste kompara ho nia durante períodu ne’ebé hanesan. Maski nune’e reseita Kitan nian ne’e signifikante, hodi taka fatin ba maizumenus 1/3 hosi osan sira ne’ebé Governu Timor-Leste gasta hosi Fundu Petrolíferu durante tempu ne’ebá.

Infelizmente, produsaun petróleu hosi Kitan hahú ona tun loloos dezde tinan rua kotuk nee, hanesan hatudu hosi liña mean iha gráfiku ne’ebé mai hosi Relatóriu Annual 2012 Autoridade Nasionál Petróleu (ANP). Kampu mina-rai tomak la’o hanesan ne’e – tanba bainhira foti sai petróleu hosi rai okos, nune’e rezerva ne’ebé sei iha ne’e nia presaun sei menus, hodi halo susar liu atu supa sai rezerva hirak ne’e. Barra iha gráfiku ne’e reprezenta gas ne’ebé sai hamutuk ho petróleu, maibé Kitan laiha gas ne’ebé natoon ba kompañia sira atu fan hodi hetan lukru, tanba ne’e mak sira sunu de’it gas ida nee ba iha atmosfera.

Indikasaun seluk tan ba produsaun Kitan ne’ebé atu tun mak montante hosi bee ne’ebé haketak hosi mina-matak bainhira sai hamutuk, ne’ebé sa’e hela husi fatór 10 durante 2012. ANP seidauk publika sira nia dadus ba 2013, maibé ohin loron provavelmente Kitan prodús ona bee barak duke mina-rai.

Bee ne’ebé sa'e hanesan ne’e iha Bayu-Undan halo ConocoPhillips no nia parseiru sira iha tinan kotuk halo projesaun ida ne’ebé tun maka’as liu ba reseita futuru hosi Bayu Undan, hodi redús tiha reseita ne’ebé espera atu hetan iha futuru hosi kampu ida ne’e maizumenus ho montante billaun $8, ka besik metade, no hein katak kampu ne’e sei remata nia produsaun iha 2021, tinan hat lalais liu kompara ho estimatizasaun anterior nian, hanesan hatudu iha grafiku hat ne'e husi Livru 1 OJE 2014. Produsaun iha Bayu-Undan sa'e boot liu iha 2007 no reseita sira boot liu iha 2012. Reseita sira ne’e tun lalais liu – royalty petróleu durante trimester ikus iha 2013 ne’e iha 43% ki’ik liu kompara ho trimester ikus iha 2011. Produsaun gas nian ne’e konstante liu – gas ne’e limita hosi kapasidade kadoras no planta LNG – maibé sei monu tun tan iha tinan balu oin mai.

Maski produsaun Kitan nia dadus ba 2013-2014 seidauk bele hetan, maibé pagamentu projetu ne’e ba Timor-Leste nia Fundu Petrolíferu ne’e tun ba maizumenus tokon $15 kada fulan, menus ¼ hosi sira nia valor iha inísiu 2013. Reseita too ona iha nia másimu iha Janeiru 2013, nia mai ikus liu kompara ho produsaun másimu nian, tanba presu mina-rai ne’ebé as iha merkadu mundiál no tanba Kitan selu taxa ki’ik to’o Setembru 2012, bainhira investimentu kompañia sira nian rekupera ona.

Livru 1 hosi OJE 2014 RDTL nian hein katak Kitan atu fó tokon $430 tan ba iha reseita estadu molok produsaun remata iha 2016; ida ne’e dala ruma bele akontese kari posu rua tan iha Kitan bele fornese mina-rai barak liu no menus bee, maski liu 2/3 hosi reseita kampu ne’e nian ita hetan ona.

Kompañia sira iha konsorsiu Kitan nian hatene katak kampu ne’e sei tun lalais liu kompara ho ida ne’ebé sira ekspeta. Tuir Relatóriu Annual Talisman nian iha 2013, “Durante 2013, Kitan iha Australia (sic) hetan impaktu hosi asuntu lala’ok posu nian, nudár rezultadu ida, Kompañia halo revizaun ida ne’ebé atu hatún estimasaun ba rezerva ne’ebé atu rekopera no halo gravasaun ba despeza ba hadi’ak sasán at nian tokon $55 molok kua hosi taxa (tun ba tokon $27 bainhira kua ona ba taxa).” Dezde Talisman hetan ¼ hosi kampu, ida ne’e reprezenta rezerva ida ba estimasaun redusaun nian ba Kitan tokon $22o iha 2013, ne’ebé sei redús Timor-Leste nia reseita maizumenus besik tokon $100.

Kontribuisaun boot hosi Kitan ba Timor-Leste loloos atu serve hanesan manu canary ida iha minériu fatuk karvaun nian, ho nia rezerva ne’ebé tun ne’e bele sai alerta ida ukun na’in sira ba realidade ida katak ita nia riku soin petróleu no gas ne’ebé naun renovavel sei la dura ba tempu ida ne’ebé naruk liu. Ulun boot sira tenke adopta polítika sira ne’ebé realistiku no halo esforsu ida ne’ebé sériu tebes atu dezenvolve ekonomia lokál ida ne’ebé produtivu atu troka rekursu petróleu no gas, duke nafatin sadere an ba mehi furak kona-ba posibilidade ba deskrobevimentu iha futuru. Alternativu sira ne’ebé klaru katak halo ita ta’uk duni.

Oil production inevitably declines

Liga ba artigu ida ne'e iha Tetum

The Kitan oil field in the Joint Petroleum Development Area of the Timor Sea was discovered in 2008, and is the only commercially valuable field  discovered since the flurry of exploration after the illegal Timor Gap Treaty came into effect in 1991. Since 2007, Kitan Production Sharing Contract JPDA 06-105 has been owned by the operator, Eni (40%, from Italy), Inpex (35%, Japan) and Talisman Resources (25%, Canada).

Last year, the companies gave up all of the 06-105 contract area except the part immediately over the Kitan field.  Eni, Inpex and TimorGAP signed a new PSC, JPDA 11-106, to explore for additional profitable oil fields, although large reserves are unlikely.

Kitan began producing oil in 2011, and reached its peak of production about six months later. Kitan has paid about $900 million in royalties and taxes to Timor-Leste since October 2011, although the Bayu-Undan oil and gas field paid Timor-Leste ten times as much during the same period. Nevertheless, Kitan's earnings are significant, replacing about one-third of the money Timor-Leste's Government spent from the Petroleum Fund during that time.

Sadly, oil production from Kitan has been declining steadily for the last two years, as shown by the red line on this graph from the 2012 Annual Report of the National Petroleum Authority (ANP). Every oil field is like this -- as oil is removed from the ground, the remaining reserve has less pressure, making it more difficult to extract. The bars on the graph represent gas which comes out with the oil, but Kitan does not have enough gas for the companies to sell it profitably, so they just flare (burn) it off into the air.

Another indication of declining Kitan production is the amount of waste water which emerges mixed with the oil, which went up by a factor of 10 during 2012. The ANP has not yet published 2013 data, but today Kitan probably produces much more water than oil.

A similar increase in water from Bayu-Undan led ConocoPhillips and its partners to significantly downgrade their projections of future Bayu-Undan revenues last year, reducing expected future revenues from that field by about $8 billion, or nearly half, and expecting the field to end production by 2021, four years earlier than previously estimated, as shown in these graphs from 2014 Budget Book 1. Bayu-Undan production peaked in 2007 and revenues peaked in 2012. They are dropping fast -- oil royalties during the last quarter of 2013 were 43% lower than during the last quarter of 2011. Gas production is more constant -- it is limited by the capacity of the pipeline and LNG plant -- but will fall precipitously in a few years.

Although Kitan production data for 2013-14 is not yet available, the project's payments into Timor-Leste's Petroleum Fund have fallen to about $15 million per month, less than a fourth of their value in early 2013. Revenue peaked in January 2013, later than the peak of production, due to higher world oil market prices and because Kitan paid lower taxes until September 2012, when the companies' investment had been repaid.

Book 1 of the RDTL 2014 General State Budget expects Kitan to provide $430 million more in state revenue before production ends in 2016; this might be possible if two new wells at Kitan extract more oil and less water, although more than 2/3 of the field's revenues have already been received.

The companies in the Kitan joint venture know that the field is running out more rapidly than expected.  According to Talisman's 2013 Annual Report, "During 2013, Kitan in Australia (sic) was impacted by well performance issues and, as a result, the Company made a downward revision to estimated recoverable reserves and recorded an impairment expense of $55 million pre-tax ($27 million after tax)." Since Talisman owns one-fourth of the field, this represents a reserve estimate reduction for Kitan of $220 million in 2013, which will reduce Timor-Leste's revenues by nearly $100 million.

Kitan's biggest contribution to Timor-Leste could be to serve as a canary in a coal mine, with its imminent depletion alerting policy-makers to the reality that our non-renewable petroleum wealth will not last very long. Timor-Leste's leaders must adopt realistic policies and make a serious effort to develop a productive local economy to replace nonrenewable oil and gas reserves, rather than relying on wishful thinking about possible future discoveries. The alternatives are frightening indeed.

Update, April 2015

In the year since this blog was written, we are sad to report that revenues from Kitan have fallen even more drastically than we expected. Total Kitan revenues to Timor-Leste during 2014 were only $50.1 million, less than one-sixth of the amount received during 2013, partly due to lower oil prices but mainly because the field is nearing depletion. On 23 March 2015, INPEX announced that it was reducing its expectation of future returns from its 35% share of Kitan by $63 million mainly due to "deteriorating market environments."

Everyone has the right to free expression and access to information

Committee A of Timor-Leste's Parliament is considering a law to regulate journalists and media.  On 19 February, they invited La'o Hamutuk and the HAK Association to present and discuss our views. Click here for more information, including the text of the draft law.

La'o Hamutuk wrote a submission (Tetum or English), from which the following is abridged:

La’o Hamutuk appreciates the invitation from Committee A to discuss the draft Media Law, and we hope to help you improve this legislation so that it benefits the people and respects democratic values and human rights according to Article 40 of Timor-Leste’s Constitution and Article 19 of the International Convention on Civil and Political Rights, which we have ratified and is legally binding.

The law must not limit everyone's right to access and distribute information freely by defining only a few people as “journalists.” Although Article 17 and a few other parts of the draft law protect people’s rights, many other provisions restrict the rights and freedom for everyone to access, receive and distribute information.

Article 3 limits the Right to Information to “citizens.” This violates the Constitution and the ICCPR, which guarantee that every person (not only citizens) has freedom of speech and the right to inform and be informed impartially. “Citizen” should be changed to “everyone,” which should also be done in preamble paragraph 2, and Articles 6, 11, 13 and 22. Non-citizens should not be barred from being journalists.

Articles 4 and 13 and the definitions in 2(e) and 2(f) support freedom of the press only for professional journalists working for commercial media outlets and certified by the Press Council. They should not exclude others who seek, collect, analyze and disseminate information, which is how the law defines “journalistic activities.” This law should respect every person’s right to free expression, including students, bloggers, web-posters, civil society organizations, free-lancers, part-time reporters, discussion groups, churches, political parties, columnists, researchers, community groups and ordinary people. It should not be monopolized or controlled by for-profit media. Please remove Articles 6-8 from the Media Law and use Constitution Articles 40 and 41 as the legal basis for “journalistic activity.”

Timor-Leste should not have a Press Council, which recalls the unholy partnership between media and the Suharto dictatorship. As freedom of expression is already guaranteed by the Constitution, no Press Council is needed to regulate it. A Council of commercial media organizations and paid journalists can self-regulate their business, including with their Code of Ethics, but their processes cannot be imposed on everyone and should not involve the state, either through financial support or legal enforcement. Furthermore, no journalist should be required to join an organization in order to practice his or her Constitutional rights.

Timor-Leste’s struggle against colonialism and occupation relied on independent and unofficial media. Forty years ago, José Ramos-Horta, Xanana Gusmão, Borja da Costa and others used the Seara bulletin and Radio Maubere to educate, inform and direct the people's struggle for liberation, although they were not “professional journalists” certified by Portugal or Indonesia. Many non-Timorese journalists, including Roger East, the Balibo five, Sander Thoenes, Agus Mulyawan, Kamal Bamadhaj, Amy Goodman and Max Stahl, advanced our struggle beyond our borders; the first nine gave their lives for this country.

Unfortunately, Articles 6 and 13.8 would restrict the activities of journalists from other countries, while the law should reflect the contributions by free media toward achieving and strengthening our peaceful, democratic nation under rule of law, which respects human rights and values.

Although the preamble states that “This Act aims to ensure freedom of the press, promoting the necessary balance between the exercise of this fundamental freedom and other constitutionally protected rights and values,” the law strays far from these objectives. For more than a decade, Timor-Leste has not had a Media Law, with no problems with media and information. After nearly 500 years of repression and censorship, Timorese people can finally exercise our rights to information and free expression. We hope that this law will not move us backwards. Thank you.

At the hearing, Committee A President Carmelita Moniz assured us that this law is only intended to apply to for-profit media companies, not to everyone who engages in "journalistic activities." She also said that "citizen" doesn't only mean "citizen of Timor-Leste," so that non-citizens' rights will also be respected. We hope that the draft law is revised to make this unambiguous.

Update, 12 March: After receiving a 29-page report from Committee A on 11 March, the Parliamentary plenary voted unanimously to approve the law "in generality" but sent it back to the committee to come up with specific amendments.  See our web page for ongoing updates.