Oil Windfall Heads for East Timor ; Asia's Poorest Nation Is Developing Offshore Fields That, in the Coming Years, Will Yield Billions of Dollars

Article excerpt

Every week, Manuel Mendonca travels the dubious roads around East Timor's jagged peaks and valleys on a mission: to tell his fellow citizens about the wave of oil money that will soon crash upon the shores of the world's newest nation. He's the government's one-man public-relations band, educating a largely rural population in Asia's poorest country about the complex issues involved in becoming a petrostate.

"Timor Sea oil is very important for our country and our future," says Mr. Mendonca. "People need a clear explanation so they can understand what the government has already done for this country, and what else it proposes to do. It's a great satisfaction for me to do this."

In between East Timor and Australia lies a series of lucrative oil fields in the Timor Sea, some actively pumping, others still in the planning phase.

One of them, Bayu-Undan, is expected to yield more than $3 billion over the life of the project, estimated to last about 20 years. This revenue will significantly change the face of a country that currently generates only around $25 million annually from local resources, mostly coffee.

Almost two years after the UN handed power over to the first elected Timorese government, following decades of Indonesia's authoritarian rule, East Timor remains the poorest nation in Asia and one of the very poorest in the world, with the average citizen earning about 55 cents a day.

The local economy is largely propped up by the international donor community, but East Timor now competes for aid dollars against larger and more immediate global hotspots like Iraq and Afghanistan. Oil is East Timor's best hope for true economic independence, observers say.

Oil is often a two-edged sword. Along with a windfall, places like Nigeria, Venezuela, and Angola have faced unrest and corruption. Some experts say East Timor's fledgling democracy may have trouble handling the challenges of oil development.

"The problems East Timor faces are much the same ones facing any oil-rich developing country, with the added problem of new institutions and a democratic polity only in its first years," says Benjamin Smith, an expert on extractive industries in developing countries. "Unless a way can be found to insulate the use of oil revenues from the incentives inherent to politics, it is difficult to foresee the revenues having a net positive impact."

The government is taking steps toward safeguarding the funds. "It is essential to recognize that oil and gas revenues are, for the foreseeable future, East Timor's principal government revenue," says Ron Isaacson, deputy director of the World Bank in Dili. "The government of East Timor is determined to save much of its oil and gas revenues such that future generations can benefit as much as current generations."

Exactly how much money will actually come to East Timor as a result of the Timor Sea oil is not clear right now.

East Timor's leaders, to their credit, have been studying the lessons learned from other petrostates and say they are determined not to let their country stumble down the same rocky path. Shortly after full independence in May 2002, Prime Minister Mari Alkatiri created the Timor Sea office, charged with bringing information directly to the people because of the country's limited communications infrastructure.

"Timor Sea issues are of significant importance to our future and the future of our children. The Timorese people deserve the right to know how the government is managing their future and deserve our assistance in explaining what difficulties we, as a nation, face," Mr. Alkatiri says.

Alkatiri also supported British Prime Minister Tony Blair's transparency initiative for oil-producing nations, meant to insure better accountability of oil revenues once revenues begin to pour in.

Alkatiri's personal commitment to openness was tested recently when a small American-Portuguese oil company filed a $10. …