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DATE=11/8/1999 TYPE=BACKGROUND REPORT TITLE=EAST TIMOR - INDONESIA OIL NUMBER=5-44722 BYLINE=STEPHANIE MANN DATELINE=WASHINGTON INTERNET=YES CONTENT= VOICED AT: INTRO: As East Timor goes through its transition from Indonesian province to independent country, one important question arises: How will the new state earn a viable income? Some income can be expected from coffee, fish, and timber. But most analysts agree the most promising potential source of revenue for East Timor comes from offshore oil and gas reserves. As V- O-A's Stephanie Mann reports, profits from exploiting those resources are now being divided between Indonesia and Australia. TEXT: In 1992, Indonesia and Australia signed a treaty that divides the waters between Timor island and Australia into three zones for the purpose of extracting oil and gas resources. The Timor Gap Treaty stipulates the share of the revenues earned by each party in the three zones. // OPT // In the area closest to Australia, that country takes 90-percent of the profits and Indonesia takes 10-percent. In the zone closest to East Timor - which was then an Indonesian province - Indonesia earns 90-percent and Australia 10-percent of the profits. In the middle zone, the two countries split the profits 50 - 50. //END OPT// Ten-years ago there were hopes that Timor Gap waters might yield oil production on a par with Kuwait, which produces two-and-one-half million barrels a day. But exploration in Timor Gap has not come close to those initial expectations. An Indonesian energy expert at the East-West Center in Hawaii, Wawan Prawiraatmadja (pra-weer-ah-AHT-mah-jah) says only the middle zone is yielding oil and gas at this time. // WAWAN ACT ONE // So far, it is very discouraging. Current production is only about 30-thousand barrels per day. And it is going to decline. But they say there are some reserves found for about 300 to 400-million barrels, and about three-point-five trillion cubic feet of gas. . For a company, it can be quite significant, but for a country, it is not really that significant. // END ACT // Mr. Wawan says the maximum oil production that might be expected in 10-years would be 300-thousand barrels a day. But he says in the immediate future, oil production is likely to decline as reserves are depleted at the current sites. So, Mr. Wawan says East Timor should not expect huge profits right away. // WAWAN ACT TWO // From the current production, Indonesia has been getting as much as three-million U-S dollars [for] almost a year... So, I think it is about two-million to three-million U-S dollars a year of income that can be expected by the East Timorese. But the current production, I understand, is going to decline. So, until the next find is going to be produced - which is not going to be until the year 2003 (or) 2004 - there is not much income that can be expected. // END ACT // Another Indonesia specialist who closely follows energy issues, James Clad, says Timor Gap gas reserves are more promising than the oil reserves. But in both cases, he says profitability is complicated by the need for significant initial investments. // CLAD ACT ONE // The amount of investment required, the period of time required to get this on line is significant enough and long enough so that the East Timorese can not rely on this as some kind of magic wand to fix their economic problems right away. // END ACT // Mr. Clad is a professor at Georgetown University and the director of Cambridge Energy Research Associates, a Washington-based firm that advises energy companies. He says the long-term potential for East Timor to profit from oil and gas exploitation is pretty good if the new state takes Indonesia's place in the Timor Gap Treaty. // CLAD ACT TWO // It is all a question of the intention of the parties. For example, if the maritime boundaries with Indonesia and East Timor are not clear, then Indonesia may take the view that it sees the Timor Gap Treaty as not something that can pass without alteration to the new independent East Timorese government. It is really for Indonesia to be cooperative in this regard so that the new government of East Timor and the Australian government simply announce that they are respecting the treaty and all its particulars. // END ACT // Mr. Clad says it is not yet known if new treaty negotiations will be needed. Wawan Prawiraatmadja (of the East-West Center) says he expects Indonesia will allow East Timor to simply take over its place in the Timor Gap treaty. // OPT // He points out that income from Timor Gap has not been significant for Indonesia, which produces one-and-one-half-million barrels a day at its other oil fields. Mr. Wawan also says oil companies do not care whether their contracts are with Indonesia or East Timor, as long as revenue sharing arrangements continue unchanged. // END OPT // But Mr. Clad cautions that political transitions underway in both Indonesia and East Timor can affect the way the oil issue is resolved. In Jakarta, the new government of President Abdurrahman Wahid has not decided all its policy directions, and in East Timor, the political shape of the new government has not been determined. Mr. Clad says oil companies and financial investors will be watching closely to decide if the possibility for secure profits outweighs the political risks. (SIGNED) NEB/SMN/RAE 08-Nov-1999 13:06 PM EDT (08-Nov-1999 1806 UTC) NNNN Source: Voice of America .

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