05 October 2012

Filling gaps in "Taxing Times"

The excellent new ABC Television Four Corners documentary Taxing Times in Timor highlights critical issues for Timor-Leste, and will open they eyes of Australians and others. The focus of the program – Timor-Leste's fight against oil companies who are ripping off this new, small, impoverished country – is important for people everywhere.

Two years ago, La'o Hamutuk researched and wrote Making the Oil Companies Pay What They Owe, which we just updated. We are writing this blog to fill some gaps in the program, especially for people who live in or want to know more about Timor-Leste.

Unfortunately, the program often reports Timorese politicians' public relations, rather than their actions or underlying facts. Nearly everyone interviewed is on the Government payroll. The few alternative voices (opposition leader Mari Alkatiri, the World Bank’s Hans Beck, La’o Hamutuk’s Charles Scheiner) are edited to unreservedly support Government policies, giving a partial picture of their views.

Prime Minister Xanana Gusmão appropriately focuses on the tremendous needs for education, nutrition, agriculture and rural roads. Unfortunately, the failure to adequately address these needs does not come from foreign advisors or lack of money, but from the Government’s own budget and implementation policies. Timor-Leste  spends much less on health and education than other developing countries. Three-fourths of our people are farmers, but only 1.4% of public spending is for agriculture. Only one-third of the money allocated for roads last year was actually used. Infrastructure mega projects – especially oil-fueled electricity and Tasi Mane oil facilities, consume the majority of public funding, with questionable returns.

The key question is not how many dollars to spend, but how to get the best value from Timor-Leste’s finite, nonrenewable resource wealth. In 2011, 46% of all state expenditures went for electricity. The $1.2 billion national electricity project costs five times what it would cost to put solar panels on every house in the country. Fuel and maintenance of the power plants and national grid will cost more than this one-time investment in solar panels which require no fuel, local grids, and little maintenance. Currently, ratepayers pay less than one-quarter of the cost of generating power, so Timor-Leste’s limited funds will subsidize affluent people who use the most kilowatt-hours.

Similarly, Timor-Leste's government will 'invest' 5-10 billion dollars in the Tasi Mane south coast petroleum infrastructure project with few spin-off benefits and no demonstrable net financial return. Investments in Timor-Leste’s human resources -- health care, sanitation, nutrition, and primary education -- would generate a more certain result. Investments for economic development should prioritize agriculture and light industry, creating jobs while producing food and products to substitute for imports.

The documentary misleads viewers by ignoring the first and largest greatest theft of Timor-Leste’s oil reserves – Australia’s continuing ‘occupation’ of 40% of our oil and gas wealth by refusing to negotiate a maritime boundary. In the map at right, everything above the green line, including the blue and orange areas with all of Greater Sunrise, Bayu-Undan, Kitan and Laminaria-Corallina, would belong to Timor-Leste under current international law.

In 2006, Australia coerced Timor-Leste's negotiators into accepting a "gag rule" in the CMATS Treaty which prohibits this government from talking about maritime boundaries in any forum. Although the treaty may expire next February, the injustice of this arrangement, compounded by the arrogance of Woodside which was vividly portrayed in the documentary, is at the heart of the controversy over the Greater Sunrise pipeline.

Timor-Leste's determination to bring this gas to our shores is deeper than the dubious economic reasons examined in La'o Hamutuk's 2008 report. It is at the core of this nation's struggle for sovereignty. ConocoPhillips, Woodside, Shell and other companies drilled for oil in Timor-Leste's maritime territory during the illegal Indonesian occupation, and their current tax evasions continue this pattern of stealing from the Timorese people. 

Timor-Leste’s total oil and gas wealth is limited, totaling $40-$50 billion, so $3 billion in unpaid taxes is significant. But at current spending and economic growth trends, these reserves – which finance more than 95% of State activities and two-thirds of our entire economy -- could be used up in about 12 years. We welcome the billions which will be recovered through more effective tax collection – but they can only delay bankruptcy by one or two years.

Four Corners persuaded a fairly new World Bank official to acknowledge that the Bank faulted itself for encouraging Timor-Leste not to spend unsustainably. This does not accurately reflect the 232-page review by the Bank’s Independent Evaluation Group (9 MB), which rated the “overall outcome” of the Bank’s support to Timor-Leste during 2000-2010 years as “moderately unsatisfactory.” The Bank’s IEG found only one sector of the Bank’s work “highly satisfactory” -- “assistance to Timor-Leste in securing its petroleum revenues and managing them transparently.” On the other hand, the IEG concluded that the Bank was “unsatisfactory” on poverty and unemployment alleviation, youth unemployment and disaffection, legislation, private sector development and agriculture.

A seven-page response from Finance Minister Emilia Pires is appended to the IEG’s report, praising the Bank’s openness and methodology, while pointing out the shortage of concrete data. However, the Minister praised as a “contribution to data enhancement” a 2010 “Poverty assessment” by the Bank which “demonstrated a 9% reduction in poverty [from 50% in 2007 to 41% in 2009] … as a result of newly exercised social and expansionary fiscal policies.” The Government and others cited this number repeatedly, but the Bank had invented it with a questionable statistical “imputation” which did not measure poverty.

Unfortunately, both the Government and the Bank were wrong about 2009, and the poor are still with us. The Government's as-yet-unreleased 2011 Household Income and Expenditure Survey, based on people’s actual living situations, confirms that the Bank’s prediction of reduced poverty in 2009 was erroneous.  The sad reality is that in 2011 about 50% of Timorese families were below the poverty line, just as in 2007, which means that about 70,000 more people are in poverty.

Government spending has increased eight-fold since 2007, with total expenditures of about $4 billion. The GDP growth from this deluge of dollars – mostly flowing to foreign companies – has enriched a few people, barely touching the impoverished rural majority. We need inclusive, sustainable, equitable development.

In this democratic, sovereign nation, Timor-Leste’s officials choose what advice to follow. We hope they base their decisions on objective, comprehensive, long-term, fact-based analysis, and not on self-serving agendas or unrealizable fantasies. La’o Hamutuk believes that the Four Corners team shares this goal, but unfortunately the latter part of Taxing Times in Timor does not reflect it.


  1. COMMENT: Four Corners didn't include criticisms by Mari Alkatiri, Hans Beck and Charlie Scheiner of the Tasi Mane development plans or of the TL government's action to pursue petroleum companies' unpaid taxes, in "Taxing Times", that's quite true. However we didn't need to edit them out, as this article cheekily suggests, because none of these three 'alternative voices' expressed criticisms of these matters. Of course these voices would have all sorts of criticisms of other aspects of Timor's progress. So it is worth remembering that the focus of the 4Corners report was petroleum companies and their unpaid taxes and unresolved pipeline development plans. The story was not aiming to be an overall situation report on every element of Timorese society, government, business, environment, corruption, politics, budgets, and more. That was never going to be possible in a single report, and was never the aim.
    Four Corners also has not ignored Australia's theft of Timor's oil as the article suggests - we did a entire program on that very topic in a story entitled 'Rich man, poor man'. Take a look, it's linked on the 'Taxing Timor' resources web page. La'o Hamutuk argues that Timor Leste's leaders should "base their decisions on objective, comprehensive, long-term, fact-based analysis, and not on self-serving agendas or unrealizable fantasies". Seems reasonable; but it would be irresponsible if Four Corners was blamed if they do not.

    1. Thanks, Peter, for your comment. We didn't mean to "blame" Four Corners for the behavior of politicians (or oil companies), but were simply trying to add context and background that the program didn't have space for. And, of course, we agree wholeheartedly with the Timor-Leste Government and Four Corners in supporting Timor-Leste's efforts to ensure that oil companies pay their full tax obligations.

      I don't have a recording of the interview you did with me, but I'd be surprised if I didn't express doubts about the Tasi Mane project. La'o Hamutuk has been consistent on this for years -- including in a submission we gave to Timor-Leste's Parliament this morning (English translation at http://www.laohamutuk.org/econ/OR12/SubLHOR2012en.pdf). For more comprehensive information on Tasi Mane, see http://www.laohamutuk.org/Oil/TasiMane/11TasiMane.htm.

      Why not post longer versions of some of your other interviews on the ABC/4Corners website, as you did with the interviews with Xanana Gusmao and Emilia Pires?

      -- Charlie

    2. Hi Charlie, I got a little carried away with responding to the response to the story and included you with people not critiquing the Tasi Mane developmenet plans - that's just plain silly and plainly wrong. From memory you did make solid criticisms of the plans on the south coast along the lines of what you have submitted and put on your website. Apologies for suggesting otherwise.
      Best, Peter

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