Australia bows to East Timor over oil and gas rights

Australia has bowed to East Timor's demands and agreed to give the fledgling state 90 per cent of revenues from oil and gas reserves in the Timor Sea, after a year of negotiations.

The framework agreement, which is to be incorporated into a new treaty when East Timor achieves full independence next year, was approved by its interim cabinet yesterday.

The deal represents a huge boost for the finances of the impoverished former Indonesian province as it prepares for its first post-independence elections next month.

The Australian Foreign minister, Alexander Downer, said that East Timor would receive more than Aus$7bn (about £2.6bn) over the 20 years from 2004 from existing and planned exploration in the disputed Timor Gap area. Australia will receive about $1bn in royalties over that period. Revenues from the Timor Gap were split equally between Indonesia and Australia under a treaty that has been void since the East Timorese voted for independence in August 1999.

Mr Downer and the Australian Industry minister, Nick Minchin, are to travel to the East Timorese capital, Dili, today to sign the agreement.

Mr Downer told the Australian Broadcasting Corporation that the government "took the view that we wanted to be generous to East Timor because it's in our interests that East Timor does have a good and steady flow of revenue from the Timor Sea oil and gas reserve".

Australia led a multi-national peace-keeping force that restored order in the territory after pro-Indonesian militias went on a violent rampage following the independence ballot. Lauded for the way that it championed the East Timorese cause, it then faced a conflict between self-interest and a desire to have an economically stable northern neighbour.

East Timor's interim foreign minister, Jose Ramos-Horta, welcomed the agreement, which he said would inject about $400m into the economy by 2004. "I am very pleased that the two sides have been able to reach this historic agreement," he said. "This is extremely important to help the economy, to stabilise the situation politically. Without this kind of money, we would not be able to generate employment. Obviously in the first few years of independence, it's very important that there will be jobs to stabilise the situation."

The deal was also welcomed by Philips Petroleum, which is one of the commercial driving forces behind the oil and gas exploration. "This is a very important step forward," said Jim Godlove, a Darwin-based executive. "It is our hope that this framework agreement will provide a secure legal and fiscal level that supports continued investment."

Meanwhile, relations between Australia and Indonesia are recovering their traditional warmth after a state visit by President Abdurrahman Wahid and as the bitter memory of East Timor fades, analysts say.

"Two swallows don't make a spring, but the ice has been broken," said Richard Woolcott, a former head of Australia's Department of Foreign Affairs and Trade. He said Mr Wahid's visit to Canberra last week, the first by an Indonesia president in 26 years, cleared the way for further meetings between leaders of the two countries.