25 June 2015

Oil running out is reality, not propaganda

Download this letter as a PDF in Tetum or English.

An open letter to their Excellencies, Members of Parliament Sra. Brigida Correia, Sr. Arão Noe, Sra. Jacinta Abu Pereira and Sr. Adriano do Nascimento
Dili, 15 June 2015

On 13 April, CJITL published an article titled Timor-Leste Will ‘Sink’ in 2016 when Kitan Oil Field will be empty (Timor Leste Sei ‘Mout’, Tinan 2016 Kampu Mina Kitan Sei Maran). The article was based on an interview with La’o Hamutuk researcher Charles Scheiner, who said that, “there is a possibility that Timor-Leste’s money will run out in the future, because the State depends mainly on oil revenues to sustain the country’s economy. The country might sink because there hasn’t been enough investment to develop sustainable sources of revenue”.  On 17 April, La’o Hamutuk published Timor-Leste’s Oil and Gas are Going Fast.

After these articles were published, some Members of Parliament did recognize that our oil will indeed run out eventually. However, others responded by saying that people should not believe La’o Hamutuk’s analysis. Deputada Brigida Correia said that “La’o Hamutuk NGO’s staff are not technical people who can know when the oil will run out. They don’t do clear research...”

La’o Hamutuk’s goal is simply to help the public to know accurate information about petroleum and gas reserves and production, as well as about Timor-Leste’s fiscal policies, based on facts and evidence, rather than listening to political speeches which lack solid factual basis. We would like to take this opportunity to point out that La’o Hamutuk’s articles and commentary are based on data and reports published by the National Petroleum Authority (ANP), Extractive Industries Transparency Initiative (EITI), the Ministry of Finance, and the Central Bank of Timor-Leste (BCTL).

This is why we are convinced that our oil and gas will run out, which will impact the future sustainability of Timor-Leste’s economy:
  • The Bayu-Undan oil field, which began production in 2003, reached peak production levels in 2012, after which it began to decline, with production expected to end in 2020. The Ministry of Finance’s report in Book 1 of the original 2015 General State Budget, Table, page 60 (English version), confirms that production in the Joint Petroleum Development Area (JPDA) will fall to zero by 2021. It also says that by 2018 production levels will have fallen to half the production level during 2006-2013. This document also shows that as of 2015, 75% of these natural resources have already been converted into financial assets.

  • The Kitan oil field began production in 2011. Revenue from Kitan dropped 85% between 2013 and 2014, because the reserve is almost depleted. Kitan will provide revenue only until 2016, according to Book 1 of the 2015 General State Budget.

  • During 2014, revenues from oil and gas were 40% lower than in 2013. This happened because total production of oil and gas fell by 24% between 2013 and 2014, as well as due to the fall in the price of Brent crude on the world market. The income from these reserves has already dropped drastically.

  • After 2016, only Bayu-Undan will provide revenue to Timor-Leste, but it will not be at 2012 levels. Unless the Greater Sunrise gas field is developed quickly, there won’t be any oil and gas fields furnishing revenue to Timor-Leste after 2020.

  • Furthermore, the recently-published Ministry of Finance/General Directorate of Statistics (DGE) National Accounts 2000-2013 report shows that oil GDP between 2012 and 2013 fell sharply. Although this report shows a small increase in non-oil GDP, this will become increasingly difficult to maintain as Government and development partners’ spending decreases.
Additionally, we recall that companies drilled many test wells companies in the JPDA and Timor-Leste’s exclusive area since Timor-Leste restored its independence in 2002, but unfortunately, Kitan was the only commercially viable discovery.

Today, a few oil companies are still looking for new fields in the Timor Sea. The Kuda Tasi/Jahal field does contain petroleum, but at this point the companies do not believe it contains enough recoverable oil to justify their investment.

The ANP publishes monthly production data on their website which is consistent with what La’o Hamutuk and the Ministry of Finance have published. During 2014, the JPDA produced an average of 136,000 barrels per day, compared with 179,000 bbl/day in 2013, and 202,000 bbl/day in 2012.

We understand that people working in the petroleum sector are responsible to promote their sector in order to encourage oil companies to invest. However, political decision-makers should not confuse these public relations with the reality that our non-renewable oil resources will run out. We emphasize that Timor-Leste is not an oil-rich nation.

Although Timor-Leste’s petroleum leaders often say that more oil and gas will be found, we should consider that the oil companies have more information and more objective analysis than the ANP or TimorGAP about the potential of the natural resources in the Timor Sea. We would like to share a few points about the history of oil exploration in Timor-Leste:
  • Kitan is the only commercial discovery since 1997, even though many test wells and extensive seismic exploration have been conducted.

  • In 2006, when the Government held bidding rounds for new offshore exploration in the JPDA and Timor-Leste’s exclusive area, no companies already involved in the area submitted bids. This is the only bidding round Timor-Leste has held so far.

  • Since 2010, the Government has planned to hold another bidding round, but oil companies have not shown interest, so it has been repeatedly postponed. We should not hold a bidding round if no companies want to participate.
La’o Hamutuk is a Timor-Leste institute that was founded in 2000 by Timorese and international activists who, during the Indonesian military occupation, stood in solidarity with all the people of Timor-Leste in their fight for independence.

La’o Hamutuk’s principal role is to monitor and analyze the development process in Timor-Leste, with the vision that “The people of Timor-Leste, women and men, of current and future generations, will live in peace and contentment. They will control a transparent, just and sustainable development process which respects all people’s cultures and rights. All citizens will benefit from Timor-Leste’s resources, and will accept the responsibility for protecting them.” The people of Timor-Leste should actively participate in the development process, giving ideas and suggestions and helping make decisions that are transparent and accountable.

This vision compels us to facilitate communication between the people and our leaders by researching, analyzing and sharing accurate, fact-based information which relates to Timor-Leste’s people’s lives.

We believe that everyone has the right to objective and clear information which reflects reality. La’o Hamutuk’s fundamental principle to provide this kind of information to Timor-Leste’s people.

Thank you.
Juvinal Dias    Charles Scheiner    Pelagio Doutel    Adilson da Costa    Niall Almond
Natural Resources and Economy Researchers at La’o Hamutuk

07 June 2015

Sosiedade Sivíl ba Enkontru Parseiru Dezenvolvimentu - Ekonomia

Komentáriu Sosiedade Sivíl ba Enkontru Parseiru Dezenvolvimentu Timor-Leste iha 2015

Setór Ekonomia

Ho oportunidade ida ne’e, ami hakarak foka sai ami nia rekomendasaun atu bele dezenvolve estratéjia ekonómiku ida ba Timor-Leste, ne’ebé ho maka’as ami husu ba Parseiru Dezenvolvimentu, hamutuk ho Governu Timor-Leste, atu suporta hodi bele hadi’ak kualidade moris ba povu Timor-Leste tomak, ohin no aban-bainrua nian.

Nudár sombriña ba organizasaun sosiedade sivíl sira iha Timor-Leste, FONGTIL apresia ba esforsu hosi Parseiru Dezenvolvimentu sira ne’ebé kontinua fó suporta ba nasaun ida ne’e, no ami espera katak tulun sira ne’e bele ajuda duni povu Timor-Leste.

Durante ne’e, Parseiru Dezenvolvimentu barak mak konkorda ho ami nia observasaun no rekomendasaun sira katak dalan dezenvolvimentu ohin loron nian ne’e la sustentável. Infelizmente, normálmente ami rona ida ne’e iha konversa privadu ka lee iha ita-boot sira nia dokumentu internal nian, duke rona ka hare iha ita-boot sira nia deklarasaun iha públiku. Ami enkoraja ita-boot sira atu lalika subar realidade moris ne’ebé ita-boot sira hare no hatene kona-ba diresaun polítika Timor-Leste nian, maibé sai nakloke no barani liu tan, hodi nune’e bele ajuda ami nia na’i-ulun sira atu bele responde ba ami nia preokupasaun no rekomendasaun sira. Timor-Leste enfrenta dezafiu barak atu bele hasees-an hosi dependensia ba esportasaun petróleu ne’ebé limitadu tebes, no ami presiza tulun hotu atu enfrenta dezafiu ida ne’e.

Banku Mundial no Ministériu Finansas nia relatóriu konjunta kona ba Public Expenditure Review: Infrastructure ne’ebé publika iha fulan Marsu liu ba, esplika katak:
Moras Olanda hamenus kresimentu ekonomia ba tempu naruk nian … maioria kona-ba kresimentu ekonomia ne’ebé hetan bele esplika hosi hasa’e despeza no investimentu Governu nian, ho investimentu setór privadu nian ne’ebé la’o neineik. ...... Kresimentu iha setór sira ne’ebé la direitamente depende ba despeza Governu nian maibé depende ba dezenvolvimentu infrastrutura sira ne’ebé eziste ona atu halo produsaun sei nafatin ki’ik. Dezde 2007, setór agrikultura nia produsaun totál tun ona.
Maski relatóriu ida ne’e la ko’alia direitamente ka espesífiku hanesan esbosu anterior sira, ami hare katak hanoin ida ne’e hanesan mós ho preokupasaun sira ne’ebé organizasaun sosiedade sivíl sira foti dezde tinan hirak liu ba, bainhira Timor-Leste falla atu dezenvolve nia ekonomia lokál ida ne’ebé bele prodús sasán sira ne’ebé bele kompete ho sasán importasaun nian, no mós fakar povu nia osan barak hodi “investe” ba projetu sira ne’ebé folin karun, kualidade fraku, no hare ba sei la fornese retornu ne’ebé signifikante.. Buat sira ne’e akontese tanba Timor-Leste prefere liu atu sadere nia moris ba rendimentu “rentista” hosi mina-rai no gas, evita nesesidade atu hetan rendimentu alternativu ka la kuidadu hodi jere povu nia osan ho kuidadu. Impaktu ida ne’ebé boot liu hosi ”malisan rekursu” ida ne’e sei kona Timor-Leste maizumenus 2026, tinan lima hafoin kampu mina-rai Bayu-Undan, ne’ebé nia produsaun másimu nian iha 2012 ne’e sai maran tiha.

Maski ami komprende katak dala barak Governu lakohi atu hare ita-boot sira nia relatóriu sira ne’ebé foka sai duvida ka sujere mudansa ba iha sira nia desizaun, maibé ida ne’e la signifika katak ita boot sira atu labele hateten loloos no halo sensura ba realidade ne’ebé Timor-Leste enfrenta hela.

Ami mós enkoraja Governu atu publika dokumentu sira ho pontualidade, loos no kompletu. Maski ami kontente katak Portal Transparensia foin lalais ne’e hahú fali, maibé ami triste katak Governu prevene atu publika IMF nia relatóriu Article IV tinan kotuk, no mós Konta Nasional hosi 2013 seidauk publika no Governu hasai komparisaun ho tinan pasadu hosi Labor Force Survey. Ami espera katak relatóriu sensu no Living Standards Survey sei publika ho lalais, kompletu no loos, atu fornese evidénsia hodi ajuda Governu atu bele halo polítika ida ne’ebé matenek no fo rezultadu di’ak.

Rendimentu petróleu no gas sei kontinua tun.

Povu Timor-Leste moris iha nasaun ida, entre nasaun sira seluk ne’ebé depende maka’as ba esportasaun petróleu iha mundu. Iha 2014, 73% reseita estadu nian ne’e mai hosi fan petróleu no gas, no 20% seluk mai hosi retornu investimentu Fundu Petrolíferu nian.

Infelizmente Timor-Leste pasa ona nia rendimentu no produsaun másimu iha 2012. Durante 2014, Timor-Leste nia rendimentu hosi petróleu menus 40% kompara ho rendimentu ne’ebé ita hetan iha 2013, tanba rezerva petróleu no gas hosi kampu Bayu-Undan no Kitan hahú mihis ona no tanba presu mina-rai ne’ebé tun. To’ ohin loron, liu 74% hosi rezerva kampu rua ne’e ita supa hotu ona.

Gráfika ida ne’e hatudu produsaun no reseita ida ne’ebé tun maka’as dezde 2012, no liña pontilhada verde hosi 2015 hatudu sai projeksaun reseita nian ne’ebé fahe hosi Ministériu Finansas iha sira nia workshop ba Jornadas Orcamentais iha semana rua liubá.

Daudauk ne’e, Governu halo esforsu ida ne’ebé maka’as atu harii infrastrutura petróleu nian iha kosta súl Timor-Leste nian ho esperansa katak indústria petróleu iha rai maran Timor-Leste nian ne’e bele sei estimula dezenvolvimentu kampu servisu no ekonomia nian. Kada tinan, Orsamentu Jerál Estadu nian tinan-tinan aloka ona osan tokon barak ba projetu ida ne’e, no mós sei foti rai produtivu komunidade nian ba agrikultura nian. Maski nune’e, atu kompleta komponente sira hosi projetu ambisiozu ida ne’e, ita sei presiza investimentu osan billaun barak tan, no hare ba nia benefísiu la justifika nia kustu, risku no impaktu sosiu-ambiental nian.

Timor-Leste dezeñu projetu Tasi Mane ida ne’e bazeia ba espetasaun katak petróleu no gas natural hosi kampu Greater Sunrise nian ne’ebé nia prosesamentu sei halo iha rai maran Timor-Leste nian. Infelizmente, kompañia ho Governu Timor-Leste seidauk iha konkordansa oinsá atu dezenvolve kampu ne’e, no Australia lakohi atu diskute fronteira maritima ida ne’ebé permanente, nune’e kampu ne’e la hahú produsaun molok Fundu Petróliferu maran ona. Timor-Leste labele sadere nia ami nia futuru ba posibilidade deskobrimentu foun ba kampu mina-rai seluk, no Greater Sunrise, maski depois disputa ne’e rezolve ona, ne’ebé sei la fornese reseita natoon atu finansia ita nia rai doben ida ne’e, ne’ebé sei la’o hakat hela no dezenve hela. iha dékada ida oin mai, nasaun ida ne’e sei bele hasoru krize finansiál ida ne’ebé ita labele evita ona, sei la iha osan atu selu ba servisu báziku hanesan edukasaun, polísia, saúde, bee moos no estrada sira.

Ukun na’in sira, espesialmente sira ne’ebé servisu iha setór petróleu, fila-fila hateten katak kampu mina-rai rua ne’e sei la maran no hein hela atu hetan tan rezerva foun, maibé ita labele nega realidade ida ne’e ita hasoru hela. Timor-Leste iha ona urjénsia atu buka fontes servisu, ekonomia no rendimentu ida liu hosi husi dezenvolve setór ekonomia produtivu naun petróleu hanesan agrikultura, turizmu no indústria ki’ik. Nune’e, husi ohin ba oin, ita presiza duni mudansa ida ne'ebé radikál liu iha diresaun nasaun ne’e nian hodi prepara an atu ba hasoru tempu oin mai ne’ebé sei laiha rendimentu mina-rai.

Osan Mina-rai la to’o atu finansia ita nia orsamentu.

Hosi 2003 to ohin loron, Timor-Leste konverte ona nia riku soin billaun $20 ne’ebé ita gasta ona billaun $6, no billaun ida tan sei gasta iha tinan 2015 nia rohan. Aleinde ne’e mós, ita hetan liu tokon $2.7 durante tinan sanulu hosi investimentu Fundu Petroleu iha ekidade no obligasaun internasional nian. Iha Marsu 2015 nia rohan, ita nia Fundu Petrolíferu nia saldu hamutuk billaun $16.82 kompara ho saldu billaun $16.58 iha Setembru 2014 nian. Ne’e aumentu de’it 1.4%, hodi hatudu ba ita katak ita labele ona atu depende ba investimentu Fundu Petrolíferu no reseita hosi kampu Bayu-Undan no Kitan nian.

Durante tinan hitu kotuk ne’e, Timor-Leste gasta ona billaun $6.6, ne’ebé billaun $5.7 ne’e finansia hosi Fundu Petróliferu. Maski eskalasaun orsamentu ne’ebé lalais hosi 2007-2012 la’o neineik, maibé despeza ne’ebé ezekuta durante 2014 sa’e 28% kompara ho tinan 2013, no despeza rekurrente nian sa’e 26%. Karik projetu sira ne’ebé dezeñu ona ka la’o hela daudauk ne’e implementa duni, orsamentu sei sa’e maka’as iha tinan sira oin mai, no ida ne’e sei sai at liu tan bainhira ita selu ita nia tusan.

Karik gastu estadu ida ne’e nafatin la’o tuir lala’ok orsamentál nian ohin loron, Fundu Petrolíferu sei automatikamente tun maka’as iha 2017, maski ita bele hetan kresimentu double digit ba rendimentu doméstiku anuál nian, no Fundu ne’e sei hotu duni lalais tinan lima hafoin produsaun hosi Bayu-Undan remata iha 2020.

Maski ikus mai Greater Sunrise bele fó osan, provavelmente entre billaun $15-$20 durante tinan 20, maibé ida ne’e sei la natoon atu finansia Timor-Leste nia orsamentu estadu. Ita nia populasaun ne’ebé aumenta maka’as, ne’ebé sei presiza estadu atu gasta osan barak tan ba fornesimentu servisu sira ne’ebé ho kualidade di’ak. Aleinde ne’e, sei gasta osan barak tan mós atu funsiona no halo manutensaun ba infrastrutura fíziku sira ne’ebé ita harii ona.

Iha fulan kotuk, Ministériu Finansas halo sira nia Jornadas Orçamentais atu deside envelope fiskál ba 2016 hamutuk ho billaun $1.3. Ami apresia tebes ba pasu di’ak ida atu hamenus despeza estadu nian, maski ida ne’e sei difisil atu implementa lahó halo desizaun polítiku ida ne’ebé difisil mos. Ami espera katak Parseiru Dezenvolvimentu sira bele ajuda Governu hodi hadi’ak liu tan jestaun finanseiru públiku nian atu nune’e, despeza estadu nian iha futuru bele efikás liu tan no mós tau valor ba despeza ne’ebé ita halo. Ami mós espera katak osan sira ne’ebé bele poupa tan liu hosi kansela tiha proposta projetu sira ne’ebé hafoin halo analiza ba kustu, benefísiu, risku no estudu viabilidade nian ne’ebé objetivu no kompletu, ne’ebé hetan katak laiha razaun ka la realistiku atu implementa, hodi nune’e bele aloka fali osan, rekursu umanus no espasu polítika ba programa ne’ebé fó rezultadu sira ne’ebé sustentável, ekitavel no realistiku mai ami nia populasaun.

Non-oil GDP kontinua estagnadu.

Iha enkontru Parseiru Dezenvolvimentu iha 2014, no mós enkontru sira seluk antes, ami sempre subliña katak importante tebes atu dezenvolve setór ekonomia produtivu hanesan agrikultura, turizmu no indústria ki’ik hodi bele troka ekonomia mina-rai ne’ebé sei hotu iha tinan lima oin mai.

Ami hare katak Parseiru Dezenvolvimentu sira nia relatóriu sira, inklui Governu nian, rekoñese duni katak Timor-Leste nia setór ekonomia naun petróleu stagnadu. Maski GDP la’ós meius ne’ebé di’ak atu sukat dezenvolvimentu ekonómika (tanba meius ne’e sukat osan de’it, la sukat povu, liu liu povu kiak ne’ebé barak), maibé ami la iha dadus seluk. Iha 2012, ita nia GDP naun petróleu iha billaun $1,246 ka 22% hosi total GDP Timor-Leste nian. Maski nune’e, metade hosi númeru GDP naun petróleu ne’e mai hosi despeza estadu (osan mina-rai) ba konstrusaun no administrasaun públiku nian. Bainhira kresimentu iha despeza estadu nian neineik, kresimentu GDP naun petróleu nian mós neineik; GDP total tun tanba rendimentu petróleu mós tun. Tabela iha liman los hatudu karak Governu no Instituisaun Finansial Internasionál sira nia figura ba GDP naun petróleu no GDP total nia kresimentu ne’ebé tun tanba realidade tuir duni projeksaun no estimatizasaun nian.

Foin lalais, ami haree estatístika sira kona-ba empregu ne’ebé halo ami sente urjénsia boot liu. Tuir Peskiza kona ba Atividade Negósiu iha Timor-Leste 2013, empregu iha setór privadu tun tiha durante 2012-2013, no iha tempu hanesan povu Timor-Leste ne’ebé tama ba kampu servisu na’in tinan-tinan hamutuk ema na’in 18,000. Bainhira Governu implementa sira nia promete sira atu hadi’a sira nia servisu funsionáriu públiku sira, nune’e funsionáriu iha setór públiku bele tun. Povu sira, parseiru dezenvolvimentu sira no Governu mós tenke servisu hamutuk hodi kria empreza sira ne’ebé mak bele suporta ita nia família, ekonomia no estadu. Ida ne’e difisil liu duke fahe kontratu estadu nian ba kompañia privadu lokál sira.

Dala ida tan, ami bolu parseiru dezenvolvimentu sira nia atensaun atu kontinua bolu governu Timor-Leste atu fó liu prioridade ba dezenvolve setór ekonomia naun petrolíferu ne’ebé produtivu duké dezenvolve infrastrutura no megaprojetu sira ne'ebé karun, sei foti rai agrikultura barak, estraga ambientál, kria kampu servisu uitoan no halo Timor-Leste hodi lakon nia oportunidade atu dezenvolve nia setór importante.

Setor produtivu ne'ebé importante atu dezenvolve

Iha 2014 Timor-Leste nia balansu komérsiu hatudu katak nasaun ki’ik ne’e gasta tokon $526 atu importa sasán merkadorias sira, no ita nia rendimentu hosi atividade esportasaun iha de’it tokon $ 14 ne’ebé 95% mai hosi fan kafé. Ita iha defisit merkadoria iha 2014 hamutuk tokon $511, númeru ida ne’ebé atu hanesan ho figura iha 2013.

Agrikultura maka setór produtivu importante ida ne'ebé bele dudu ekonomia Timor-Leste nian, tanba setór ne’e envolve povu barak liu no prodús ai-han ne’ebé importante loos atu bele hamenus dependensia ba ai-han importa. Tanba ne'e ami konkorda ho ema barak nia hanoin katak setór Agrikultura tenke sai prioridade, no mós ami preokupa kona-ba ema balun hosi sidade la apresia toos na’in subsistensia. Maibé modelu dezenvolvimentu agrikultura ida ne'e oras Timor-Leste adopta la refleta Timor-Leste nia realidade no nesesidade. Ho rai agrikultura ne'ebé ki’ik, 60% uma kain iha rai entre 0.5-2.0 há, 40% rai lolon, modelu agrikultura ida ne'ebé ami hanoin soi liu ba Timor-Leste mak modelu agrikultura familiar eskala ki’ik kombina ho aplikasaun teknolojia no siénsia ne'ebé apropriadu. Produsaun tenke orienta ba responde nesesidade uma laran, rai laran hafoin mak rai li’ur.

Kona ba turizmu ami fiar katak Timor-Leste sei hetan benefísiu boot liu husi setór turizmu bainhira ita preserva didi’ak ita nia riku soin natural no kulturál sira. Timor-Leste sei iha liu vantajen atu kompete ho nasaun viziñu sira atu atrai turista sira ne'ebé hakarak koko esperiénsia foun, dada iis anin fresku iha foho sira, asiste kultura tradisionál sira, koko hahán lokál no moris hamutuk ho komunidade lokál. Ho modelu turizmu ne'e, komunidade sira sei hetan benefísiu liu, no bele evita perigu sira hosi turizmu masa no bainaka ‘elite’ sira.

Ami hanoin katak programa atu harii indústria ki’ik sira hanesan prosesamentu ai han, halo fábrika ki’ik sira ne’ebé nia material primer bele mai hosi Timor-Leste, aumenta produsaun rai laran, no hamenus importasaun nudár polítika diversifikasaun ekonomia ida ne’ebé urjente. Ami husu ita-boot sira, nudár parseiru ba dezenvolvimentu ba Timor-Leste atu mós adopta prinsípiu dezenvolvimentu ekonomia lokál duke depende ba sasán importasaun hosi rai li’ur.

Obrigado barak. 

Civil society to Development Partners on Economic Sector

Liga ba komentariu ida ne'e iha Tetum or this article as printable PDF.

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.

03 June 2015

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

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.