Civil society to Development Partners on Economic Sector

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Civil Society Comment to the 2015 Timor-Leste Development Partners Meeting on the Economic Sector

We would like to use this opportunity to outline our recommendations for an economic strategy which we strongly urge the Development Partners, along with the Government of Timor-Leste, to support in order to improve the quality of life for all Timorese people, today and tomorrow.

As the umbrella organization of civil society groups in Timor-Leste, FONGTIL appreciates Development Partners’ ongoing support to our country, and we hope that this assistance will succeed in helping the people of Timor-Leste.

In recent years, many Development Partners have told us that they concur with civil society’s recommendations and observations that the current development path is unsustainable. Unfortunately, we usually hear this in private conversations or read it in internal documents, rather than in public statements. We implore you not to hold back your observations about Timor-Leste policies and direction, but rather to express them clearly, openly and bravely, so as to encourage our leaders to respond to our common concerns and recommendations. Timor-Leste faces a huge challenge to emerge from dependency on limited petroleum exports, and we need all the help that we can get.

The World Bank/Ministry of Finance joint Public Expenditure Review: Infrastructure, released in March, explains that:

‘Dutch Disease’ results in a decrease in long term economic growth … The majority of the recorded economic growth can be explained by increased Government expenditure and investment, with private sector investment lagging. … Growth in sectors which are not directly reliant on Government expenditure but which rely on the existence of developed infrastructure for their production has been low. The output of the agricultural sector has declined in real terms since 2007.

Although this belatedly published report is less forthright and specific than earlier drafts, it nevertheless echoes concerns expressed by civil society. Timor-Leste has failed to develop its local productive economy to produce goods that can compete with imports, while squandering large amounts of public wealth to “invest” in infrastructure projects which are ill-conceived, overpriced, low-quality, and/or unlikely to provide significant returns. This is largely because Timor-Leste has been blessed with rentier income from oil and gas exports, avoiding the need to obtain alternative revenues or carefully manage the people’s money. The full impact of this resource curse will hit around 2026, about five years after the Bayu-Undan field, whose production peaked in 2012, runs dry.

Although we understand that Government officials would rather not see reports which question or suggest improvements to their decisions, this should not prevent you from telling the truth without self-censorship.

We also encourage the Government to be more timely, accurate and comprehensive in making data available. Although we are encouraged by the recent resurrection of the Transparency Portal, we are disappointed by the suppression of last year’s IMF Article IV report, delays in publishing the 2013 National Accounts and the removal of time comparisons from the Labor Force Survey.  We hope that the pending census and Living Standards Survey reports will be as prompt and complete as possible, to provide evidence to underpin wise, effective and prudent policy-making.

Income from petroleum and gas is declining rapidly.

Timor-Leste’s people live in one of the most petroleum-export-dependent countries in the world. In 2014, 73% of state revenues resulted from sale of nonrenewable oil and gas, and another 20% came from the return on investing the Petroleum Fund.

Unfortunately, Timor-Leste’s oil and gas production peaked in 2012. During 2014, Timor-Leste’s petroleum income was 40% less than in 2013, due to the depletion of the Bayu-Undan and Kitan reserves, as well as falling oil prices. More than three-fourths of the commercially viable oil and gas in these two fields has already been extracted.

The preceding graph shows the sharp drop in production and revenues since 2012. The dotted green line from 2015 on shows the revenue projections shared by the Ministry of Finance at their Jornadas Orçamentais workshop two weeks ago.

The Government is working hard to develop the Tasi Mane project on the south coast in hopes that an onshore petroleum industry will stimulate employment and economic development. Each year, the General State Budget allocates tens of millions of dollars to this project, while much of the local communities’ productive agricultural land will be confiscated. However, completion of the components of this very ambitious project will require investing many billions of dollars, and the likely benefits do not justify the cost, risks, and socio-environmental impacts.

The Tasi Mane Project is based on the expectation that oil and natural gas from the Greater Sunrise field will be processed on Timor-Leste’s soil. Unfortunately, the oil companies and the Government cannot agree on how to develop the field, and Australia refuses to discuss a permanent maritime boundary, so Sunrise is unlikely to begin production before the Petroleum Fund runs out. Timor-Leste’s future should not hinge on hypothetical new oil and gas discoveries, and Greater Sunrise is not large enough to pay for all the needs of our beloved land, which is still growing and developing. A decade from today, this nation may have to endure severe fiscal crisis, without enough money to pay for basic services like education, police, healthcare, water and roads.

Some of our leaders, especially those in the petroleum sector, often promise that our oil fields are not being exhausted and that undiscovered reserves are just waiting to be found, but we should not bury our heads in the sand. Timor-Leste urgently needs to find other sources of jobs, economy and revenue by developing our productive, non-oil sectors such as agriculture, tourism and small industry. Therefore, we need to rapidly and radically change our priorities to prepare for the day when our petroleum endowment has been used up.

Oil money alone is insufficient to finance our budget.

Since 2003, Timor-Leste has converted most of our oil and gas wealth into $20 billion in cash, of which $6 billion has already been spent, with a billion more to be used by the end of 2015. In addition, we have received $2.7 billion during the last 10 years in returns from investing the Petroleum Fund in international bonds and equities. At the end of March 2015, the Petroleum Fund balance was $16.82 billion, only 1.4% more than six months earlier. The minuscule increase shows that we cannot stake our future solely on the investment of the Petroleum Fund and receipts from Bayu-Undan and Kitan.

During the last seven years, the State of Timor-Leste has spent $6.6 billion, of which $5.7 billion was financed by the Petroleum Fund. Although the rapid budget escalation from 2007 to 2012 has slowed, executed expenditures during 2014 were 28% higher than in 2013, and recurrent spending increased by 26% last year. If all the projects currently designed or underway are implemented, the budget will swell even more in coming years, and this will be further exacerbated when loan repayments become due.

This is one scenario from La’o Hamutuk’s fiscal sustainability model.

If these trends continue, the Petroleum Fund balance will begin to drop in 2017 even if domestic revenues increase at double-digit annual rates, and it could be completely gone about five years after Bayu-Undan production ends in 2020.

Although Greater Sunrise may eventually produce revenue, perhaps $15 to $20 billion spread out over 20 years, this will not be enough to pay for all our needs. Our population is increasing rapidly, requiring the state to spend increasing amounts for better-quality services. In addition, it will be costly to operate and maintain physical infrastructure which is already built.

Last month, the Ministry of Finance conducted its Jornadas Orçamentais workshop, setting a total fiscal envelope of $1.3 billion for the 2016 State Budget. We greatly appreciate this effort to rein in state spending, although it will be difficult to implement without making politically difficult decisions.  We hope that Development Partners will help the Government manage public finances more efficiently, so that future state expenditures will be more effective and give better value for money. We also encourage cancelling proposed projects which, after objective and comprehensive cost/benefit/risk/feasibility analyses, are found to be unreasonable or unrealistic. This would allow money, human resources and policy space to be refocused on programs which will provide sustainable, equitable, achievable results for our population.

Timor-Leste’s non-oil GDP is not improving.

At the 2014 Development Partners Meeting, as well as in previous meetings, civil society highlighted the importance of developing local, non-oil productive sectors, including agriculture, tourism and small industry, in order to move away from dependence on impermanent oil and gas.

Reports from Development Partners and Government recognize that Timor-Leste’s non-oil economy is stagnant. Although GDP is not a good way to measure economic development (it counts dollars, not human beings, and therefore leaves out the impoverished majority), we have little other data. In 2012, our non-oil GDP was $1.246 billion, or 22% of total GDP. However, half of this non-oil GDP comes from state-spending (of oil-money) on construction and public administration. As growth in state spending has slowed, non-oil GDP growth has also slowed; total GDP has dropped as oil revenues decline. This table, in reverse chronological order, shows that Government and IFI numbers for annual GDP growth have fallen as reality catches up with projections and estimates.

Update: At the Development Partners Meeting on 6 June, Timor-Leste's Directorate-General for Statistics released its report on National Accounts 2000-2013. The new information, which we added to the above table as yellow lines, shows a sharper decline in non-oil GDP growth rates than discussed above, including more accurate calculations for 2011 and 2012. After adjusting for population, the non-oil economy didn't grow at all during 2013.

Recently available employment statistics heighten our sense of urgency.  According to the 2013 Business Activities Survey, the number of private sector jobs declined between 2012 and 2013 – while Timor-Leste’s working-age population goes up by about 18,000 every year. As the Government implements promises to make the civil service more efficient, public sector employment may also drop. The people, private sector, development partners and government should work together to create livelihoods which can sustain our families, our economy and our state. This will require more than simply allocating public contracts to local businesses.

Once more, we urge Development Partners to continue to encourage the Government of Timor-Leste to prioritize the development of the non-oil economy rather than ill-considered megaprojects that are extremely expensive, use up valuable agricultural land, damage the environment, create negligible employment, and divert resources and attention from the development of our crucial local sectors.

Productive sectors deserve more attention.

Timor-Leste’s balance of trade shows that in 2014 we spent $526 million on imported goods, while our income from non-oil exports came to only $14 million, of which 95% was from coffee. This unsustainable $511 million trade deficit was about the same as 2013.

Agriculture is the most crucial sector for Timor-Leste’s domestic economy, involving the majority of our people and producing essential food which can replace imports. Therefore, we and many others urge that the agriculture sector should be prioritized, and are worried by some urban people’s low regard for subsistence farming. However, the model being adopted by Timor-Leste does not reflect the reality or needs of the country. Since 60% of households only have between 0.5 and 2 hectares of land, and 40% of land is not level, we think that Timor-Leste should adopt a small-scale agricultural model, combined with appropriate technology. Production should reflect and respond to local needs first, expanding to exports only after local requirements are met.

Regarding tourism, we believe that Timor-Leste can benefit from tourism if we carefully preserve our natural wealth, environment and culture. Timor-Leste will be able to compete with neighboring countries to attract tourists who are searching for new experiences, to breathe in fresh air in our mountains, enjoy our traditional culture, eat local food and stay in local communities to see how Timorese people live. By following a model of sustainable tourism, local communities can benefit greatly, avoiding the destructive consequences of mass-market or elite-only visitors.

Finally, we suggest that programs to establish small industries, such as food processing and manufacturing of goods made from locally-sourced materials, will help to increase domestic production and reduce imports, and thus are crucial to diversify our economy. We respectfully ask you, as Development Partners of Timor-Leste, to work with us to implement these ideas, develop our economy and reduce dependency on diminishing oil reserves and goods imported from overseas.

Thank you.

Link to additional documents and information from the 2015 Development Partners Meeting.

How Long Will Timor-Leste’s Petroleum Fund Last? (update)

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This short paper describes La’o Hamutuk’s projections of the lifespan of Timor-Leste’s Petroleum Fund, which were summarized in our 15 April 2015 article Timor-Leste’s oil and gas are going fast. It updates the baseline scenario from La’o Hamutuk’s Sustainability Model which was last published a year ago. Since that time, world oil market prices and Timor-Leste state spending have both dropped, with effects which approximately cancel each other out, so our overall conclusion – that the Petroleum Fund may be entirely empty in about a decade – is, sadly, still valid.

After we published our April article, the U.S. Energy Information Administration (EIA) released its Annual Energy Outlook 2015, with updated projections for oil prices through 2040. Timor-Leste’s Ministry of Finance used these projections to revise its expectations of Timor-Leste’s oil and gas revenues, which were shared on page 28 of its presentation at the Jornada Orçamental budget workshop on 14 May 2015. The graph at right is revised from La’o Hamutuk’s April paper, showing the Ministry’s new revenue estimates and the green dotted line at lower right.

Timor-Leste’s Petroleum Fund currently pays for about 90% of the state budget, but its $17 billion dollars will not last very long after 2020, when the Kitan and Bayu-Undan oil and gas reserves will be used up. La’o Hamutuk’s Sustainability Model synthesizes information about government plans, oil revenue projections, and other revenues and expenditures to estimate how long the Petroleum Fund will continue to exist. Using realistic, moderate assumptions, the model shows that the Fund will only be able to support Timor-Leste for five to eight years after Bayu-Undan runs out … until about 2025.

Although this article describes only one scenario, the model can estimate outcomes from a variety of assumptions. The graph at left is based on prudent assumptions for oil prices (the average of the EIA 2015 Annual Energy Outlook low and reference cases, the same as the Ministry of Finance uses) and Petroleum Fund investment return (5% nominal). However, it projects future state spending more realistically than the Ministry does by including estimates of total construction costs for large projects currently being planned, designed or built (see below), as well as more plausible projections for recurrent spending.

This scenario assumes that the Woodside-led Greater Sunrise Joint Venture, Timor-Leste and Australia are able to agree on a Sunrise development plan, and that the oil and gas field will be developed as the companies currently prefer (with a floating LNG plant) and according to the 2007 CMATS Treaty (with upstream revenues shared 50-50 with Australia). If this does not happen, oil revenues may not resume after 2029, and the growing state budget that the graph shows after that date will not be possible.  On the other hand, if Timor-Leste is able to get a fairer share of Sunrise revenues, or if the LNG plant is built in Timor-Leste, additional revenues will reduce the severity of budget cuts, but will still not be enough to cover 90% of desired state expenditures in the 2030s.

The scenario also makes the overly optimistic assumption that non-oil (domestic) revenues will increase 16% every year from 2030 on, which is probably unachievable even with radical reprioritization of the economy and tax laws, especially after the severe cutbacks required when the Petroleum Fund runs out. However, this factor does not significantly affect how long the Petroleum Fund will last.

If we drill down to explore revenues and expenditures in more detail, we see how much oil dominates state finance. The first graph shows sources of money, while the second shows what it will be spent on, and both show the dominant role of oil and gas revenues and the Petroleum Fund.

The spreadsheet model which generated these graphs is complex, not fully documented, and frequently updated, so we do not publish every version. However, La’o Hamutuk could make it available to those who would like to examine it in depth, or to test different assumptions and scenarios. 

The numbers underlying the preceding graphs are at left -- click on the table to make them readable. Figures are in millions of U.S. dollars-of-the-day, not adjusted for inflation. Petroleum income after 2028 and ESI after 2020 include the Greater Sunrise field (gray).

The list at right shows the contribution of a few very large projects to the “Development capital” expenditure line in the previous table. It only includes megaprojects which are discussed in the Government’s Budget Books, although we have estimated the cost to build each entire project, not only the first few years shown in the Books.

This list does not include most roads, water supply, buildings, communications, future electricity or other investments, as these are done as multiple smaller projects. We assume that private investors (or private sector PPP partners) will pay for at least half of the capital investment in the refinery, LNG plant, Dili airport and Tibar Port.

We expect that more megaprojects will be built than those currently planned and announced, but we have no data on them. Their omission significantly underestimates future capital spending. On the other hand, cancellation of future ZEESM and Tasi Mane Project spending would prolong the life of the Petroleum Fund by two to three years and reduce the severity of subsequent austerity from 86% cuts from desired spending levels to 76%.

Although Timor-Leste has been a sovereign nation for more than a decade, easy revenues from exporting nonrenewable oil and gas have financed the state without having to collect much tax from other sources. However, the neglect of economic diversification that this has enabled will have severe consequences within a decade, when the undersea reserves and Petroleum Fund will be gone. The results of this model underscore the urgency of more effective state spending and increased non-oil economic activities, both to provide revenues and to produce food and necessities for Timor-Leste’s impoverished majority.

The petroleum windfall opened a window of opportunity for Timor-Leste to develop a sustainable, equitable national economy, but it is closing fast.

Celebrate/Selebra La'o Hamutuk's 15th Birthday/Aniversário

Ami konvida belun sira mai partisipa iha La’o Hamutuk nia selebrasaun aniversário ba dala 15 no diskusaun ho tema “ZEESM” iha La’o Hamutuk nia edifísiu, iha Bebora, Dili.

We would like to invite dear friends to participate in La’o Hamutuk’s 15-year anniversary celebration and a discussion on “ZEESM” at La’o Hamutuk's office in Bebora.

Thursday/Kinta, 28 May 2015

Ajenda

• 15.00-16.00: Aprejentasaun no diskusaun nakloke ho tema “ZEESM”
  Presentation and open discussion on “ZEESM”
  
  
• 16.00-16-30: “Tinan sanulu resin lima ezisténsia La’o Hamutuk nian” Liafuan husi staff no belun La’o Hamutuk nian
  “Fifteen years of La’o Hamutuk’s existence” Remarks from staff and friends of La’o Hamutuk
  
  
• 16.30-19.30: Han hamutuk no palku nakloke
  Dinner and open mike

We who invite / Ami ne’ebé Konvida: Adilsonio, Alexandra, Armindo, Charlie, Francisco, Ines, Juvinal, Luciana, Marcelino, Mariano, Maxi, Niall, Odete, Pelagio

Iha pergunta ruma kontaktu / If you have questions please contact Odete Moniz 77365675 or Inês Martins 7666095.

Rekoñese sala - Boye tenke selu fila fali tokon $3.5 ba Timor-Leste

Link to this blog in English.

Substánsia husi deklarasaun argumentu ida ne’e mak: HA'U KONSPIRA ATU DEFRAUDE
LIU HUSI HALO TRANSFERENSIA OSAN ATU EZEKUTA PLANU ELABORADA   

Ha'u hakarak deklara ha'u kulpadu ba akordu pleito ida ne’e.                  
KONKORDA NO SIMU:                                                                            
/s/ BOBBY BOYE                                    Data: 19 Marsu 2015                 

Iha 28 Abril 2015, eis asesór ba taxa petroleu iha Ministériu Finansas, Bobby Boye, rekoñese iha Tribunal Federal EUA nian katak nia halo konspirasaun atu na’ok Timor-Leste nia osan tokon $3.51 iha 2012. Ho ida ne’e, Boye bele hetan kastigu másimu to’o tinan 20 iha prizaun. Sentensa sei halo iha loron 13 Agostu. Informasaun kle’an kona-ba ninia krime, informasaun falsu kona-ba nia an rasik, no ninia istória atividade kriminál ne’ebé naruk bele asesu husi La'o Hamutuk nia website.

Boye hetan kapturasaun iha New Jersey, Estadus Unidus iha Juñu 2014 no hetan Termu Identidade Rezidénsia (TIR) enkuantu prokurador no advogadu defensór sira negósia ninia akordu pleito (plea bargain). Iha Novembru tinan kotuk, nia termina kontratu ba ninia advogadu privadu no hetan asistensia defensór públiku (ne’ebé hetan selu ho sidadaun EUA sira nia osan husi taxa) tanba ninia “inkapasidade finansiál.” Ne’e duni Defensór Públiku K. Anthony Thomas reprezenta Boye durante akordu pleito (plea bargain) iha ne’ebé Bobby Boye rekoñese katak nia halo duni krime no promete atu selu fila fali Timor-Leste.

Iha 28 Abril, Boye halo aplikasaun ba Tribunal atu permite nia rekoñese nia sala ba konspirasaun atu na'ok liu husi transferénsia eletrónika. Hafoin Boye halo abdikasaun ba direitu ba akuzasaun husi tribunal no julgamentu, nia konfesa katak nia sala duni ba Juiz Freda L. Wolfson durante minutu 40 ba ninia audiensia, hanesan haktuir iha FBI nia komunikadu imprensa. 

Iha prokurador nia akuzasaun, Boye konkorda atu, deskreve nia servisu iha Timor-Leste inklui kriasaun falsu “estabelese ona, kompañia direitu no kontabilidade multinasional” Opus & Best, ne’ebé Boye mesak mak membru uniku ba kompañia ne’e. Iha akuzasaun ne’e hatete katak 2012-2013, Boye “ho koñesimentu no intentionalmente halo konspirasaun no konkorda ho ema sira seluk, koñesidu no deskoñesidu, atu inventa skema no manobra atu lohi [Timor-Leste] liu dalan fantasia reprezentasaun no promesa sira ne’ebé konkretamente falsu no bosok…”  Sira nia objetivu mak atu “arguidu BOYE no ema sira seluk hariku sira nia an liu dalan fraude atu hetan kontratu konsultóriu sira ne’ebé lukrativu husi [Timor-Leste].” Akuzasaun la mensiona konspirador sira ne’ebé asosia ho nia iha Timor-Leste.

Boye “obriga” ninia kaben (oras ne’e divorsiadu) Ediltruda Kalikawes (ne’ebé la temi ka hetan akuzasaun) “atu kria Opus & Best nia konta email sira, inklui konta ida ba nia parseiru” ‘Dominic Lucas’ (ne’ebé mós la temi ka hetan akuzasaun -- seidauk klaru karik nia eziste ka lae). O&B nia tenderizasaun ba kontratu sira ho Timor-Leste “kompostu deklarasaun falsu lubuk ida no reprezentasaun sira ne’ebé konkretamente falsu ne’ebé ho intensaun atu fó [Timor-Leste] impresaun sala katak Opus & Best ne’e kompañia ida estabelisidu no iha lejitimidade hodi hala'o” operasaun iha kontinente lubuk ida ba tinan barak nia laran ho “talentu advogadu, kontabilista no ekonomista sira ho kualidade klase primeiru.”

Maski nune’e, prokurador sira hakerek, “Iha realidade, arguido BOYE kria Opus & Best ho objetivu atu hatama dokumentu tender falsu sira. No mós, Opus & Best la iha funsionáriu nein ida aleinde arguido BOYE…” Boye mós “selu nia [kaben] atu kria website ida ba Opus & Best ne’ebé fahe informasaun misreprezentadus lubuk ida …” Boye “esploita ninia filiasaun iha Komisaun ba Revizaun Tender ninian” atu “dirije” kontratu sira ba Opus & Best no depois halo Timor-Leste atu transfere $3,510,000 ba Boye nia konta bankária husi Juñu to’o Dezembru 2012.

Iha Abril 2013, Boye tenta atu hetan tan $250,000 husi Timor-Leste ba “Opus & Best Hong Kong.” "[Timor-Leste] rejeita proposta ida ne’e, no la kleur depois ida ne’e, arguidu BOYE husik hela [Timor-Leste]." Iha fulan Maiu nia rohan, ‘Dominic Lucas’ haruka invoice ida mai Timor-Leste husu “pagamentu ikus” ho montante $630,000 maibé Timor-Leste la selu ida ne’e.

Prokurador deskreve oinsá’ “BOYE manipula” transferénsia osan tokon $3.5 husi Timor-Leste ba Opus & Best “ba nia uzu pesoál,” inklui hodi sosa rai no uma haat, karreta luxu tolu no relójiu (ne’ebé karun tebes) rua. Hanesan parte ba ninia akordu pleito, Boye sei lakon nia direitu ba sasan hirak ne’e, inklui mós “$4,233,015.42, nu’udar total montante nia hetan husi krime ne’ebé nia halo.”

Boye rekoñese katak nia halo konspirasaun atu komete fraude transferénsia, ne’ebé bele hetan pena prizaun másimu ba tinan 20 no multa dala rua kompara ho osan ne’ebé nia na'ok husi krime ka montante osan ne’ebé vítima lakon, konforme ida ne’ebé mak nia montante boot liu. “Aleinde ne’e, BOBBY BOYE mós konkorda atu reembolsa buat hotu ne’ebé lakon nudár rezultadu husi ninia atividade kriminál ka forma husi skema, konspirasaun ka baze ba krime ne’ebé nia halo (pattern of criminal activity underlying the offense) ba [Timor-Leste] ho montante $3,510,000.” 

La'o Hamutuk hanoin katak “forma husi skema, konspirasaun ka baze ba krime" bele inklui pagamentu sira ba Boye ba servisu hotu ne’ebé nia hetan liu husi bosok sira. Aleinde ne’e karik avaliasaun impostu balun ne’ebé nia inisia hasoru kompañia mina-rai sira ikus mai sai inválidu, Timor-Leste nia despeza legal no gastus seluk halo ba prosesu ida ne’e bele sai mós parte ba forma ida ne’e, inklui funan no/ka kustu legal sira ne’ebé painél arbitrajen sei orden ba Timor-Leste atu selu ba kompañia sira. Boye karik hahú kazu hirak ne’e nudár parte ba ninia manobra atu manán konfiansa husi ulun boot Timor-oan sira, tanba nia hatene katak kompañia sira provavelmente selu uluk molok halo rekursu. Osan ne’ebé sei lakon bele liu fali tokon $3.51, no tenke ezije ba Boye atu selu hotu. Akordu pleito ne’ebé halo la taka kazu administrativu sira ka kazu sivíl sira seluk. Ami hanoin karik iha posibilidade atu espulsa Boye husi prátika legal ka karik Timor-Leste bele lori kazu sivíl ida hasoru nia.

Maski pena ba konspirasaun atu komete fraude transferénsia bele hetan másimu tinan 20 iha prizaun, akordu pleito klasifika ida ne’e nudár “ofensa nivel 24” tuir Matadalan Sentensas nian, ne’e duni toma mós konsiderasaun katak arguidu “simu ninia responsabilidade.” Bazeia ba Tabela Sentensas ninian, no depende karik sei konsidera mós Boye ne’ebé rekoñese nia sala iha 2006 ka lae, iha posibilidade nia sei hetan de’it kastigu prizaun ba tinan 4-6, ne’ebé mak sei deside iha Tribunal iha 13 Agostu.

Pájina web La’o Hamutuk nian kona ba Bobby Boye nia kazu iha informasaun ne’ebé kompletu liu no atualiza regularmente. Tuir nafatin.

Boye pleads guilty -- must repay TL $3.5 million

Liga ba artigu ida ne'e iha lingua Tetum

On 28 April 2015, former Ministry of Finance petroleum tax adviser Bobby Boye admitted in U.S. Federal Court that he conspired to defraud Timor-Leste of $3.51 million in 2012. Boye, who could receive up to 20 years in prison, will be sentenced on 13 August.  More information about his crimes, his false background, and his long history of nefarious activities is on La'o Hamutuk's website.

Boye was arrested in New Jersey, USA in June 2014 and has been under house arrest while prosecutors and defense attorneys negotiated the plea bargain. Last November, he fired his private attorney and obtained a taxpayer-paid lawyer due to his "financial inability." Public Defender K. Anthony Thomas represented Boye through the plea agreement in which Bobby Boye admitted the charges and promised to repay Timor-Leste.

On 28 April, Boye applied to the Court for permission to enter a guilty plea to one count of conspiracy to commit wire fraud. After Boye's formal waiver of his rights to indictment and trial, he pled guilty in a 40-minute hearing before Judge Freda L. Wolfson, as described in an FBI press release.

The ten pages of accusations, which Boye agreed to, describes his work in Timor-Leste, including creation of the sham "established, multinational law and accounting firm" Opus & Best, of which Boye was the sole member. It says that in 2012-2013, Boye "did knowingly and intentionally conspire and agree with others, known and unknown, to devise a scheme and artifice to defraud [Timor-Leste] by means of materially false and fraudulent pretenses, representations, and promises ...".  Their objective was "for defendant BOYE and others to enrich themselves by fraudulently obtaining lucrative consulting contracts from [Timor-Leste]." No co-conspirators in Timor-Leste are mentioned.

Boye "caused" his (now ex-)wife Ediltruda Kalikawes (who is not named or charged) "to create Opus & Best email accounts, including one for a purported partner" 'Dominic Lucas' (also not named or charged -- it's unclear if he actually exists).  O&B's bids for contracts with Timor-Leste "contained a number of false statements and material representations that were intended to give [Timor-Leste] the misimpression that Opus & Best was a legitimate, established firm" operating in several continents for many years with "first class talent of attorneys, accountants and economists."

However, the prosecutor writes, "In reality, defendant BOYE created Opus & Best for the purpose of submitting the fraudulent Bid Documents. Moreover, Opus & Best employed no one other than defendant BOYE..."  Boye also "paid his [wife] to create a website for Opus & Best which contained numerous misrepresentations ..."  Boye "exploited his membership on the Bid Review Committee" to "steer" contracts to Opus & Best and then caused Timor-Leste to wire $3,510,000 to Boye's bank account from June to December 2012.

In April 2013, Boye tried to get $250,000 more from Timor-Leste for "Opus & Best Hong Kong."  [Timor-Leste] did not accept the proposal, and defendant BOYE left [Timor-Leste] shortly thereafter." At the end of May, 'Dominic Lucas' unsuccessfully invoiced Timor-Leste for a $630,000 "final payment."

The prosecutor describes how "BOYE diverted" the $3.5 million wired by Timor-Leste to Opus & Best "for his own personal use," including purchase of four properties, three luxury cars and two designer watches.  As part of the plea bargain, Boye will forfeit these properties, cars and watches, as well as "$4,233,015.42, representing the amount of proceeds obtained as a result of the offense of conviction."

Boye admits one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison and a fine of up to twice the amount of either his ill-gotten gains or the victims' losses, whichever is greater.  "In addition, BOBBY BOYE agrees to make full restitution for all losses resulting from the offense of conviction or from the scheme, conspiracy, or pattern of criminal activity underlying the offense, to [Timor-Leste] in the amount of $3,510,000."

La'o Hamutuk believes that the "pattern of criminal activity underlying the offense" could include payments to Boye for jobs he obtained here under false pretenses. Furthermore, if some of the tax assessments he initiated against oil companies turn out not to be valid, Timor-Leste's legal and other expenditures for them could also be part of this pattern, including interest and/or legal costs that the arbitration panel could order Timor-Leste to pay to the oil companies. Boye may have initiated these cases as part of his confidence game to ingratiate himself with Timorese leaders, knowing that the companies were likely to pay and then appeal. These losses could add up to much more than $3.51 million, and Boye should be ordered to pay all of them.  The Plea Agreement does not prevent further administrative or civil cases -- we wonder if Boye will be disbarred from legal practice or if Timor-Leste will file a civil suit against him.

Although the crime of conspiracy to commit wire fraud carries a 20-year maximum sentence, the plea agreement grades it as "offense level 24" under the Sentencing Guidelines, giving him credit for "accepting responsibility." According to the Sentencing Table, and depending on whether Boye's 2006 guilty plea is considered, he could serve 4-6 years, which a judge will decide on 15 October.

La'o Hamutuk's web page on the Bobby Boye case has much more information, and is updated regularly. Stay tuned.

Mina-rai no gas Timor-Leste nian besik hotu ho lalais

Download a printable English PDF or link to this blog in English.

Semana kotuk liu ba, Parlamentu Timor-Leste halo diskusaun lalais no aprova revizaun Orsamentu Estadu ba 2015 ho unanimidade. La’o Hamutuk no Deputadu balun sujere katak tenke hamenus despeza tanba haree ba reseita mina-rai nian ne’ebé menus ona, maibé ema uitoan de’it mak hatene katak razaun prinsipál ne’ebé halo Timor-Leste nia reseita ne’e tanba produsaun mina-rai no gas hahú menus daudaun. Ne’e diferente ho folin mina-rai ne’ebé tun sa’e, nivel produsaun sei la sa’e tan ona tanba rezerva besik maran ona. Artigu ida ne’e sei esplora faktu no implikasaun sira husi realidade ida ne’e.

Durante fulan hirak ikus ne’e, lider polítiku sira esplika beibeik katak sira sei la kalkula fila fali matadalan Rendimentu Sustentável Estimadu bazeia ba folin mina ne’ebé tun, maibé ignora maka’as asuntu fundamental ida, katak mina-rai no gas besik maran ona. Revizaun Orsamentu Estadu 2015 nian autoriza gastu biliaun $1.57, mantén nafatin ho montante ne’ebé mak aprova ona iha Dezembru tinan kotuk.  Bainhira orsamentu ne’e gasta ho nivel hanesan iha tinan kotuk nian, 2014, Timor-Leste nia gastu sei aas liu hotu iha 2015 kompara ho tinan sira liu ba. 

Ita moris hela iha nasaun ida entre nasaun sira ne’ebé depende maka’as ba esportasaun mina-rai iha mundu. Iha 2014, 73% husi reseita estadu nian mai husi konversaun riku soin naun renovavel mina-rai no gas ba osan, no 20% seluk mai husi retornu investimentu husi rendimentu mina-rai no gas ne’ebé ita simu iha tinan hirak molok ne’e nian.

Maski nune’e, reseita mina-rai no gas Timor-Leste nian kontinua mihis ho lalais, no ita simu menus reseita 40% hosi mina-rai no gas iha 2014 kompara ho 2013 nian, prinsipalmente tanba kampu Bayu-Undan no Kitan komesa maran daudaun ona.  Liu 75% hosi kampu rua ne’e nia riku soin naun renovavel ne’e ita supa ona- ne’ebé irreversível.

Gráfiku iha leten ne’e hatudu dadus istóriku, inklui mós projesaun sira ne’ebé demonstra ho pontus no liña, ne’ebé la korije ho inflasaun ne’ebé mosu:

• Montante produsaun mina-rai no gas (liña metan mahar), iha barríl tokon ba tokon kada tinan.[1] Produsaun hahú iha 2003, sa’e maka’as iha 2006 no aproksimadamente konstante to’o 2013, ho produsaun másimu liu mak iha tinan 2012. Total produsaun monu 24% husi 2013 ba 2014.

Projesaun sira ba produsaun hafoin 2014 (liña metan pontillada) ne’ebé Ministériu Finansas halo ne’e bazeia ba informasaun husi kompañia mina-rai sira.[2] Sira hatudu katak produsaun tun konstantamente to’o 2020, hafoin ne’e kampu sira ne’e la profitavel ona atu hala’o operasaun.[3]

• Folin ba mina matak Brent iha merkadu global (liña mihis mean), iha presu Dolar EUA kada barríl.[4] Timor-Leste nia sorte di’ak tebes iha 2003-2008; mina-rai no gas nia presu fa’an sa’e dala tolu tanba ita nia produsaun iha tempu ne’ebá aumenta. Signifika katak Bayu-Undan halo retornu ne’ebé aas ho kusta kapitál ne’ebé uitoan – momentu ne’ebá, karik kampu ne’e mak ida ne’ebé profitavel liu iha istória ConocoPhillips nian. Presu monu iha 2009 nudár parte husi krize finanseiru global, maibé rekupera fila fali iha 2011, no presu kontinua hanesan to’o tinan 2014 nia klaran, molok monu fali tan.

Liña mean pontillada (.......) ba 2015 no 2016 ne’e hatudu senáriu referénsia daudaun husi projesaun Administrasaun Informasaun Enerjia (EIA) Estadus Unidus nian, no liña kór kafé pontillada (-----) hatudu projesaun ‘prudente’ antigu ne’ebé Ministériu Finansas uza iha Jullu tinan kotuk atu prepara Orsamentu Estadu 2015 nian. Revizaun projesaun ne’ebé prudente maizumenus $10/barríl ki’ik liu ho EIA nia senáriu referénsia ba 2015, no sei ki’ik liu tan iha tinan hirak oin mai.

• Reseita mina-rai no gas ne’ebé Timor-Leste simu (liña matak duplu), iha biliaun dolar kada tinan, hanesan hatudu iha eskala iha liman los ne’e. Kreximentu ida ne’e lalais liu bainhira  produsaun no presu mina-rai nian aumenta sa’e to’o 2008, monu iha 2009 tanba mina folin tun, no sa’e fila fali iha 2012 bainhira presu no produsaun aumenta fila fali. Maski nune’e, to’o 2014 reseita tun to’o besik metade husi nivel reseita másimu iha 2012 nian. Maski presu no produsaun menus hotu, impaktu ne’ebé boot liu mai husi produsaun menus. Maski karik presu sei sa’e fali ba liu $100/barríl, produsaun sei kontinua atu tun, no nune’e mós reseita.

Liña trasejada kór matak (.....) hafoin 2014 hatudu projesaun reseita husi Orsamentu Estadu 2015 nian, maibé ida ne’e bazeia ba projesaun presu tinan kotuk nian (liña trajesada kór kafé) ne’ebé aas liu realidade atuál ninian. Durante tinan tolu oin mai, reseita sei signifikamente menus liu duke ida ne’ebé mak Ministériu projeta ona, no liu tinan tolu ne’e, sei la iha tan mina-rai no gas barak mak hela.[5]

Osan barak liu mai husi Bayu-Undan

Bainhira halo análize ba reseita ho detallu liu ne’e sei fó hanoin kle’an liután hanesan hatudu husi gráfiku ida ne’e. Liña matak, total reseita petroleum ne’ebé tinan tinan ita simu, mak hanesan ho gráfiku ida uluk liu, ne’ebé inklui projesaun antigu Ministériu Finansas nian ne’ebé halo (projesaun) ba 2015 ba oin.  Barra sira ba kada tinan hatudu reseita ne’ebé simu husi kada kampu mina no gas:

• Bayu-Undan (majenta) fornese porsaun maioria no nudár kampu mesak ida ne’ebé sei kontinua produsaun hafoin 2016. Reseita husi kampu ne’e to’o nia másimu iha 2011 maibé iha posibilidade atu kontinua to’o maizumenus 2021.

Maski mina-rai (líkidu) mak fornese maioria reseita molok 2013, liu metade rendimentu agora husi kampu ida ne’e mai husi gas natural. Gas (bolha) ne’e fura ho volume konstante atu mantén kapasidade kadoras no planta LNG, iha tempu hanesan produsaun mina-rai komesa menus tanba presaun husi kampu ne’ebé menus. Bara ho listras diagonal hafoin 2014 mak projesaun ‘prudente’ La’o Hamutuk nian ba mina-rai Bayu-Undan no hanesan kombinadu. 

• Kitan (kinur) hahú nia produsaun mina-rai iha 2011. Reseita Kitan nian tun 85% iha 2014 tanba mina ne’ebé hela iha rezerva la dun barak ona; produsaun ne’e sei hotu iha 2016.
   
• Elang-Kakatua (mean) hahú nia produsaun mina-rai iha 1999 no fó reseita uitoan los to’o maran iha 2006. Timor-Leste la konsege atrai kompañia seluk ida atu halo operasaun iha kampu ne’e hafoin ConocoPhillips deside katak kampu ne’e la profitavel ona.
  
  
• Impostu sira ne’ebé atrazadu (listras vertikál metan) foin halo avaliasaun no rekolla husi Ministériu Finansas husi kompañia sira hahú husi 2011; tuir loloos kompañia sira tenke selu taxa sira husi projetu oin oin iha tinan sira molok 2011. Kompañia sira la konkorda ho avaliasaun sira no konsege selu maski ho protestu; karik kompañia sira manán sira nia rekursu, Timor-Leste sei tenke fó fila fali tokon $350 ka liu, ba kompañia sira.

Husi 2003 to’o 2014, Timor-Leste konverte ona ninia riku soin mina-rai no gas ba osan biliaun $20.1 ne’ebé ita gasta ona biliaun $6.0. Restu ne’ebé mak seidauk gasta rai hela iha Fundu Petróleu (FP), no investe ona iha títulu no asaun sira iha fatin sira iha mundu. Investimentu sira ne’e fó fali retornu biliaun $2.5 durante tinan 12 ikus ne’e, ne’ebé depózitu ona iha FP. Iha fin 2014, riku soin iha FP mak biliaun $16.5, menus tokon $95 kompara ho balansu iha fulan neen kotuk liu ba.     

Liña metan duplu iha gráfiku leten ne’e hatudu reseita annual husi investimentu Fundu Petrolíferu (FP), ne’ebé hatama fila fali ba  FP. Maski iha esperansa balu katak rendimentu hirak ne’e bele troka fali reseita husi mina-rai no gas hafoin kampu sira maran ona, klaru katak sei ki’ik liu no, tanba balansu iha FP la iha kreximentu tan ona, iha posibilidade ki’ik atu bele kontribui ba aumentu signifikante iha FP. Durante 2014, Fundu Petrolíferu nia investimentu fó fali reseita tokon $502, uitoan liu kompara ho tokon $932 ne’ebé Governu hasai husi FP atu finansa Orsamentu Estadu 2014 nian. Retornu real husi investimentu FP nian iha tinan kotuk mak 2.5%, ki’ik liu fali asumsaun ne’ebé mak halo iha matadalan Sustentabilidade Fundu nian.[6]

Orsamentu estadu 2015 sei hasai tokon $1,327 husi Fundu Petrolíferu, boot liu dala rua husi retornu ne’ebé hetan iha 2014. Maski rendimentu rendimentu husi investimentu FP nian depende ba merkadu finansiál global, La’o Hamutuk fiar katak tenke iha prudensia ba projesaun hirak ne’e, no liña pontillada metan ne’e hatudu ami nia estimativas. 

Senáriu ida husi La'o Hamutuk nia modelu Sustentabilidade.

Karik estadu kontinua ho tendénsia gastu hanesan agora daudaun ne’e, ho projetu sira ne’ebé planeia ona, no empréstimu sira ne’ebé sei selu fali iha futuru, klaru katak rendimentu husi mina-rai no retornu husi Fundu Petrolíferu sei la sufisiente, no balansu iha FP sei komesa atu monu. Haree ba reseita naun petrolíferu ne’ebé uitoan liu, La’o Hamutuk nia projesaun hatudu katak Fundu Petrolíferu tomak bele mamuk hahú husi 2025, ho implikasaun sériu ba atividade estadu nian hafoin tempu ne’ebá. Oinsá mak ita sei selu eskola sira, ospitál sira, polísia no manutensaun – sá tan pensaun sira, viajen sira no funsionáriu públiku sira – bainhira ita nia riku soin la iha ona?

Posibilidade katak sei iha tan riku soin mina no gas

Ema hotu hakarak atu Timor-Leste iha mina no gas barak liután, liu fali kampu tolu ne’ebé temi iha leten. Bainhira disputa kona-ba fronteira maritima ho Australia no fatin atu prosesa gas natural ne’e resolve ona, nune’e dezenvolvimentu kampu Greater Sunrise bele komesa la’o ona, no Timor-Leste bele komesa simu reseita husi dezenvolvimentu ne’e hafoin tinan lima tan. La iha ema ida mak hatene gas natural ne’e sei iha folin hira iha dékada sira oin mai ka riku soin Sunrise ne’e hira mak sei fahe ho Australia, maibé Timor-Leste bele iha total reseita husi Sunrise atu hanesan ho saida mak ita sei simu husi Bayu-Undan – entre biliaun $20-$25 – ne’ebé sei lori durasaun tinan 15-20 mak bele hetan.

Ofisiál sira iha setór petróleu iha Timor-Leste fiar maka’as tebes katak nasaun ida ne’e sei iha rezerva mina-rai no gas adisionál ne’ebé seidauk deskobre. Maski buat hotu iha posibilidade, maibé susar tebes atu hetan tan kampu ida ne’ebé boot hanesan Bayu-Undan ka Sunrise, hanesan kompañia mina-rai sira, durante kuaze metade tinan atus ida nia laran, buka ona iha ita nia area tasi okos no rai maran ne’ebé limitadu, hala’o estudu sizmiku oin-oin no koko ona esplora mós kampu 50 resin. Kitan mak kampu mesak ida ne’ebé iha folin komersiál hafoin halo esplorasaun barabarak ne’ebé deskobre iha 1990-tal bainhira hamosu Tratadu ilegál Timor Gap nian iha tempu ne’ebá. Bainhira Timor-Leste koko fa’an kontratu foun ba esplorasaun iha tasi okos iha 2006, kompañia sira ne’ebé mak involve ona iha ne’e nein ida mak halo submisaun ba tenderizasaun sira ne’ebé refere. Ami hein katak sei iha espresaun interese barak liután (husi kompañia sira) iha tenderisasaun ne’ebé sei loke iha tempu oin mai (maski prosesu ida ne’e adia bei-beik ona dezde 2010), no katak kompañia sira sei deskobre rezerva foun sira ne’ebé la hetan husi esplorasaun anterior, maibé la matenek atu halo polítika sira bazeia ba mehi sira hanesan ne’e. 

Sei lori maizumenus tinan sanulu tan atu Sunrise ka kampu sira ne’ebé seidauk identifika bele prodús reseita ruma. To’o tempu ne’ebá, Timor-Leste sei iha ema barak liu tan, no sira sei hein no presiza atu iha kualidade servisu no infrastrutura ne’ebé di’ak. Bainhira Estadu Timor-Leste bele duni fornese ida ne’e ba ninia sidadaun sira entre tempu agora ba tempu ne’ebá, no liu tan ida ne’e, entaun ita presiza hahú ho planu sira, estratéjia sira no implementasaun ne’ebé realístiku no efetivu hahú husi tempu agora.

Polítika na’in sira iha ona informasaun iha artigu ida ne’e, maibé la mosu atu hadalan desizaun orsamentál no ekonómiku sira. Asuntu importante liu mak la’ós tanba viola beibeik matadalan RSE nian, maibé oinsá Estadu Timor-Leste bele servi nia povu sira ba dékada oin mai. Promesa Lei Fundu Petróleu nian ba jerasaun sira iha futuru ne’e sei susar tebes atu bele kumpre.[7]

Notas

Timor-Leste’s oil and gas are going fast

Download a printable PDF of this article ka liga ba blog ida ne'e iha Tetum

Last week, Timor-Leste’s Parliament briefly discussed and unanimously approved a revision to the State Budget for 2015. La’o Hamutuk and some Members of Parliament suggested that expenditures be reduced in light of falling petroleum revenues, but few pointed out that the main reason Timor-Leste is getting less money is because oil and gas production are declining. Unlike the volatile oil price, production rates will not go back up because the reserves are running out. This article will explore the facts and implications of this reality.

During the last couple of months, political leaders repeatedly explained that they would not recalculate the Estimated Sustainable Income guideline in light of the falling oil price, but they have largely ignored the more fundamental issue of running out of oil and gas. The revised 2015 State Budget authorizes spending $1.57 billion, unchanged from last December. If the budget is executed at the same rate as in 2014, Timor-Leste will spend more in 2015 than ever before.

We live in one of the most petroleum-export-dependent countries on earth. In 2014, 73% of state revenues came from converting nonrenewable oil and gas wealth into cash, and another 20% was from returns on investing oil and gas income received in earlier years.

However, Timor-Leste’s oil and gas revenues are dropping rapidly, and we received 40% less revenues from them in 2014 than in 2013, mainly because the Bayu-Undan and Kitan fields are being used up. More than 75% of their non-renewable wealth has already been extracted – and this is irreversible.
The above graph shows historical data followed by dotted or dashed projections, not corrected for inflation:

• Amount of oil and gas produced (thick black line), in millions of barrels per year.[1]   Production began in 2003, increased rapidly until 2006, and was approximately constant until 2013, with the highest level in 2012. Total production dropped 24% between 2013 and 2014.

Production projections after 2014 (dotted black line) from the Ministry of Finance are based on information from oil companies.[2]  They show a steady decline until 2020, after which the fields will no longer be profitable to operate.[3]

• World market price for Brent crude oil (thin red line), in US dollars per barrel.[4] Timor-Leste was very lucky in 2003-2008; the selling price of oil and gas tripled as our production ramped up. This meant that Bayu-Undan generated high revenues with low capital costs – for a time, it may have been the most profitable field in ConocoPhillips history. Prices fell in 2009 as part of the global financial crisis, recovered by 2011, and were steady until the middle of 2014, before falling again.

The dotted red line for 2015 and 2016 shows recent reference case projections by the U.S. Energy Information Administration, and the dashed brown line shows the outdated ‘prudent’ projections (halfway between last year's low and reference cases) that the Ministry of Finance used last July to prepare the 2015 State Budget. Revised prudent projections would be at least $10/barrel below EIA’s current reference case for 2015, and even lower for subsequent years.

• Oil and gas revenues received by Timor-Leste (double green line), in billions of dollars per year, as shown on the scale at right. This increased rapidly while production and prices were going up until 2008, dropped in 2009 due to the oil price drop, and climbed again until 2012 as prices and production rose. However, by 2014 revenues had descended to about half of 2012 peak levels. Although both prices and production fell, the larger impact is from waning production. Even if prices go back up to more than $100/barrel, production will continue to decline, taking revenues with it.

The dashed green line after 2014 shows revenue projections from the 2015 State Budget, but these were based on last year’s price projections (dashed brown lines) which are much higher than current reality. During the next three years, revenues are likely to be significantly lower than the Ministry projected, and after that there won’t be much oil and gas left.[5]

Bayu-Undan provided most of the money

Analyzing the revenues in more detail gives additional insights, as shown in this graph. The green line, total petroleum revenues received each year, is the same as in the first graph, including the Ministry of Finance’s outdated projections from 2015 on. The bars for each year show the revenue received from each oil and gas field:

• Bayu-Undan (magenta) provides the largest portion and is the only field which will be in production after 2016. Its revenues peaked in 2011 but could continue until around 2021.

Although oil (liquids) provided most income before 2013, more than half of the field’s income now comes from natural gas. Gas (bubbles) is extracted at a constant rate to keep the pipeline and LNG plant at capacity, while oil production is falling due to declining field pressure. Diagonally striped bars after 2014 are La’o Hamutuk’s ‘prudent’ projections for Bayu-Undan oil and gas combined.

• Kitan (yellow) began oil production in 2011. Kitan revenues dropped 85% in 2014 because there is not much oil left in the reserve; they will end entirely in 2016.

• Elang-Kakatua (red) began oil production in 1999 and provided a little revenue until it was exhausted in 2006. Timor-Leste was unable to attract another company to operate the field after ConocoPhillips decided it was no longer profitable.

• Overdue taxes (black vertical stripes) were assessed and collected by the Ministry of Finance from the companies beginning in 2011; they should have been paid in prior years from various projects. The companies did not agree with the assessments and paid under protest; if they win their appeals Timor-Leste could have to return $350 million or more.

From 2003 through 2014, Timor-Leste converted $20.1 billion of its oil and gas wealth into dollars, of which we spent $6.0 billion. The remainder is in the Petroleum Fund (PF), invested in bonds and stocks around the globe. These investments have earned $2.5 billion over the last 12 years, which was deposited in the PF. At the end of 2014, the PF was worth $16.5 billion, $95 million less than its balance six months earlier.

The double black line on the above graph shows the annual revenues from investing the Petroleum Fund, which are re-deposited into the PF. Although some hope that these earnings could replace oil and gas revenues after the fields are exhausted, it is clear that they are much smaller and, as the Petroleum Fund’s balance is no longer growing, are unlikely to increase significantly. During 2014, the Petroleum Fund’s investments earned $502 million, far less than the $932 million the Government withdrew from the PF to finance the 2014 State Budget. The PF’s real return on investment last year was 2.5%, lower than the Fund’s sustainability guideline assumes.[6]

The 2015 state budget will withdraw $1,327 million from the Petroleum Fund, more than double what it earned in 2014. Although future PF investment earnings depend on the global financial markets, La’o Hamutuk believes they should be projected with prudence, and the dotted black line shows our estimates.

One scenario from La'o Hamutuk's sustainability model.

If current trends in state spending continue, with planned projects and loans paid for in the future, it is clear that neither oil revenues nor Petroleum Fund earnings will be sufficient, and the PF balance will start to fall. In light of small non-oil revenues, La’o Hamutuk’s projections show that the Petroleum Fund could be entirely empty by 2025, with severe implications for state activities after that. How will we pay for schools, hospitals, police and maintenance – let alone pensions, trips and civil servants – after all our wealth is gone?

In late May 2015, we wrote another blog updating our modeling of How Long Will Timor-Leste's Petroleum Fund Last? which provides more information about the previous graph.

Possibilities for more oil and gas wealth

Everyone wishes that Timor-Leste had more oil and gas than the three fields discussed above. Once long-standing differences over the maritime boundary with Australia and where to process the natural gas are resolved, development of the Greater Sunrise field could proceed, and Timor-Leste could start receiving revenues about five years later. Nobody knows what natural gas will be worth decades in the future or what fraction of Sunrise wealth will be shared with Australia, but Timor-Leste’s total revenues from Sunrise may be around what we will have received from Bayu-Undan – $20-$25 billion – spread out over 15-25 years.

Petroleum officials in Timor-Leste are optimistic that the country has undiscovered, additional oil and gas reserves. Although anything is possible, it is extremely unlikely that another field as large as Bayu-Undan or Sunrise exists, as petroleum companies have explored our limited sea and land area for half a century, conducting many seismic surveys and drilling more than 50 test wells.  Kitan is the only commercially viable field discovered after the flurry of exploration in the 1990s when the illegal Timor Gap Treaty came into effect. When Timor-Leste last offered new offshore exploration contracts in 2006, none of the companies already involved here submitted bids. We hope there will be more interest in the upcoming bidding round (which has been repeatedly delayed since 2010), and that companies will discover new reserves missed by previous explorations, but it would be foolhardy to make policies based on such dreams.

It will take at least ten years before Sunrise or any yet-to-be-discovered fields produce much revenue. By that time, Timor-Leste will have many more people, and they will expect and deserve better-quality public services and infrastructure. If the State of Timor-Leste is to be able to provide for its citizens between now and then, and even after that, we need to begin more realistic and effective planning, strategies and implementation today.

Policy-makers already have the information in this article, but it doesn’t appear to guide budgetary and economic decisions. The most important issue is not the usually-violated ESI guideline, but how the state of Timor-Leste will be able to afford services for its people over the next decade. The Petroleum Fund Law’s promise to future generations may already be impossible to keep. [7]

Notes