Young, Restless–But Not Failed Yet

January 08, 2010

By Anthony Anderton

But he says the current government has no strategy for developing new industries, and is also neglecting the agriculture sector.

His concerns could prove to be well-founded. The IMF notes Timor-Leste is currently one of the world’s most oil dependent nations, with more than 95 percent of government revenue coming from oil. Government spending has underpinned recent economic expansion, but aside from oil and gas, there are no other sectors generating significant new jobs or growth.

At current values, and based on a price of $60 per barrel, the IMF forecasts the Fund will be worth more than $13 billion in 2024, and will generate long term annual ESI of just under $400 million. However, future downward fluctuations in oil prices, serious production disruption or lower investment yields are a risk, the IMF says.

There’s widespread confidence that other projects, including Greater Sunrise, will be operating before then. Greater Sunrise, a joint field development between Timor-Leste and Australia’s Woodside, has estimated reserves worth more than $90 billion.

And although the involved parties are locked in a dispute over how to develop the resource, Kingsbury says it would not anyway be a disaster even if Greater Sunrise does not proceed as planned. ‘Timor-Leste doesn’t need extra oil income, its struggling to spend the money it has now,’ he says.

One risk is that future governments will withdraw amounts above the ESI, a rate which the IMF notes is a benchmark rather than a legal requirement. In 2009, the IMF noted that government withdrawals from the Fund were likely to be above ESI for the first time, though it said this could be justified if the government is able to create a sufficient return.

But Drysdale says although the Petroleum Fund has worked satisfactorily thus far, Timor-Leste lacks the experience and institutional capacity to maintain this performance. ‘I don’t see how they’re going to avoid the resource curse in the future,’ she says. ‘Timor-Leste doesn’t have the bureaucracy or the institutions to spend the money wisely…Timor-Leste isn’t yet resource cursed, but they have conflict, corruption and institutional weaknesses and they need to deal with these.’

In The Dragon’s Shadow

One of Dili’s newest attractions is the sprawling Presidential Palace. Tourists and locals can sign in at the gate and wander freely around the expansive grounds. There’s even a children’s playground. Inside the cool, air-conditioned main building you can inspect a life-size replica of a dinosaur and peruse glass case displays on Timor-Leste’s history and culture. The Palace complex is impossible to miss–it occupies a prominent location on the corner of the busy main road from downtown Dili to the international airport.

The Palace is just one of many indicators of the Chinese largesse directed toward Timor-Leste, assistance that is raising questions about Chinese motives.

China donated the new Ministry of Foreign Affairs complex and will soon build new headquarters for the Ministry of Defence and the Timorese Army. Hundreds of Timorese officials and technicians, meanwhile, have travelled to the East Asian nation on training exchanges. China is also involved in small-scale agriculture projects and during last year’s food crisis donated 8,000 tonnes of rice. In addition, as if to underscore its growing interest in the tiny nation, a large new Chinese embassy is taking shape on the Dili waterfront.

There’s no question China wants a role in developing Timor-Leste’s substantial gas and oil reserves. In 2008, its largest resources firm, Petro China, conducted a reportedly inconclusive seismic survey of onshore resources, while the recent awarding of major government contracts to Chinese firms for the supply of naval patrol vessels and to build a heavy oil power plant have added to China’s rising profile.

It’s a relationship with deep roots. Chinese traders first arrived in Timor-Leste 500 years ago to trade in sandalwood, and a vibrant Chinese community has remained in Timor-Leste ever since. In 1975, China recognised Timor-Leste’s audacious first bid for independence, and for the next two decades maintained support for Timorese independence. Furthermore, in 2002, China was the first nation to officially recognise the newly independent Timor-Leste.