Background When Timor-Leste's Petroleum Act (also Portuguese) was enacted as Law No 2005/13 five years ago, one of the most important changes made during the year-long public consultation was the addition of Article 22 "State Participation in Petroleum Operations," which allows a state-owned National Oil Company (NOC) to participate in joint ventures for exploring and exploiting petroleum resources in Timor-Leste. Article 8 of the Model Production-Sharing Contract under the Petroleum Act allows an NOC to become a partner in petroleum exploration in Timor-Leste's joint and exclusive areas, with up to a 20% share, without investing its own money. The NOC must declare its interest within 60 days of when a company declares a field as a "commercial discovery" after exploration finds profitable quantities of oil and/or gas. This does not apply to the Bayu-Undan and Greater Sunrise fields, for which contracts were signed before the Petroleum Act became law. When the Kitan field was declared commercial in 2008, Timor-Leste had not yet formed its NOC, so there was no opportunity for state participation. However, the Government hopes to create an NOC by the end of 2010 so that it can participate in future discoveries. Excerpts from La'o Hamutuk's 2007 Submission La’o Hamutuk supports the creation of a strong, well-managed, citizen-owned national oil company for Timor-Leste. Such an institution can help develop our resources and our capacity to manage them, as well as maximizing the financial benefit to the people of Timor-Leste. In addition, a transparent, accountable, democratically-controlled national oil company will respond to the needs and wishes of our own people, rather than to investors from overseas. It will prioritize Timor-Leste’s long-term interests, rather than daily share prices or quarterly dividends. However, in other countries, national petroleum companies are often a pathway to disaster. Such companies can be used to evade responsibility for pollution or remediation for environmental damage caused by profit-making foreign companies (such as Texaco selling its interests in Ecuador to Petroecuador). They can enable flouting laws about safety or communication with local people (such as NNPC in Nigeria). If not carefully regulated, a national oil company can be far more dangerous than a privately owned one which is accountable to stock exchange or government regulators in countries where its stock is traded. In addition, La'o Hamutuk made some suggestions which are still relevant: PETROTIL should be established by Parliamentary law, not by a Decree-Law secretly debated in the Council of Ministers. PETROTIL should be a government agency, not a semi-autonomous empresa público. Its expenditures should be exclusively through the normal government budget. Revenues from petroleum-related activities by PETROTIL are required to be deposited in the Petroleum Fund, and cannot be diverted by the agency. PETROTIL workers should have the same rights and benefits as other public servants in Timor-Leste. PETROTIL must be at least as transparent and accountable as a publicly traded, investor-owned oil company in a rich democracy. Its standards of corporate governance need to be spelled out and mandatory. It needs to consult with the public and local communities who will be affected by its operations, Profit-sharing for PETROTIL’s Board and employees should not be allowed; it is inappropriate in a public company and violates the Petroleum Fund Act. PETROTIL should comply with normal government tender processes.
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History In 2007, the previous Government drafted a National Oil Company decree law (also Portuguese) and held two rounds of public consultation on draft statutes for what was then called PETROTIL. La'o Hamutuk and others raised a number of serious concerns, and the election intervened before the law was passed. Our main points, which are still valid, are described in the box at right: The AMP came into office in mid-2007, promising to create a national oil company quickly. In May 2009, the State Secretariat for Natural Resources organized a two-day workshop for officials and civil society with speakers describing national oil company experiences in Mexico, Indonesia, Trinidad, Thailand, Norway and Papua New Guinea (links to presentations below). The first visible follow-up came almost a year later, and the Government hopes to pass a Decree-Law establishing a National Oil Company by the end of 2010. If that happens, the new NOC will be able to participate if commercial quantities of petroleum are discovered at Cova or in Block K, where Eni and Reliance hope to drill test wells this month. A July 2010 draft of the law was circulated informally. In October, the State Secretariat of Natural Resources began a more formal public consultation in the districts. More than 60 people participated in an all-day public consultation on 18 November discussing newer drafts of the laws to create the PETRONATIL national oil company (also Tetum) and the Institute for Petroleum and Geology (also Tetum). After many questions and controversies were raised, SERN asked people to submit comments by 24 November, as they hope to present the two laws to the Council of Ministers on 30 November. La'o Hamutuk's submission on PETRONATIL highlights the following points: - National oil companies are dangerous, and we should learn from failures as well as successes.
- The public consultation process is inadequate.
- PETRONATIL should be established by Parliamentary law, not decree-law.
- PETRONATIL should serve the people of Timor-Leste.
- This Decree-Law must be written clearly.
- PETRONATIL should follow the rules for state agencies.
- PETRONATIL needs to be transparent and accountable.
- PETRONATIL should be designed to prevent corruption.
- PETRONATIL should not be given more power than it needs.
- PETRONATIL’s profits must be paid into the Petroleum Fund, not reinvested in the company.
- PETRONATIL should not be empowered to borrow or issue bonds.
Our submission on IPG recommends that it be established during 2011 as a directorate within the State Secretariat for Natural Resources, rather than as an autonomous Instituto Publico. At their 16 December meeting, the Council of Ministers "analysed the proposal to create the Timor-Leste oil company that will detain and manage, with a managerial framework and principles, the property assets of the Timor-Leste State, in the oil sector." With exploratory drilling underway in both Eni's and Reliance's blocks, the government hopes to establish PETRONATIL in early 2011, with the help of $2 million allocated for in the proposed state budget for 2011, which was increased to $2.5 million in the final budget. In La'o Hamutuk's submissions to Parliament on the Budget we urged them to use the "power of the purse" to compel Government to create Petronatil with a Parliamentary Law. Following the consultation, the Government made some changes to the draft PETRONATIL Law, although we have not been allowed to see them. We understand that Government will be more involved in NOC strategic decisions. PETRONATIL will not borrow without Government approval, although Timor-Leste will be better protect from liability for PETRONATIL's debts. Petronatil officials will have to declare their assets. Since both Eni's and Reliance's exploratory wells came up dry, the time pressure to establish PETRONATIL has relaxed a bit, but SERN still wants it to have it operational by April 2011. That way it will be ready to participate in mid-stream and downstream operations on the South Coast (the supply base, refinery and possible fabrication yard and LNG plant in the Tasi Mane project), even if new exploration and production doesn't happen for some time. As of February 2011, the draft IPG decree-law has been put on the back burner, with SERN giving priority to other concerns.  On 25 May, the Council of Ministers approved (also Tetum or Portuguese) the decree-law to create Timor-Leste's national oil company, now called TIMOR GAP – Timor Gas & Petroleum, E.P. (Empresa Publica). The Council approved the legislation (also Portuguese) after extensive discussion on how TIMOR GAP will relate to the Petroleum Fund. La'o Hamutuk wrote a letter to the President (Tetum original) suggesting some issues that he should consider as he decides whether to promulgate or veto the legislation. On 1 June, the President told Diario Nasional (Tetum) that he had received our concerns about creating TIMORGAP without a Parliamentary law, but had not received the decree-law for promulgation. He received it a few days later.
The President's legal staff invited La'o Hamutuk to discuss our concerns, and we followed up the meeting with a written submission on 14 June, concluding that "on balance, this decree-law will damage Timor-Leste’s economic development, political democracy and equitable use of its non-renewable resources. Therefore, we urge the President of the Republic to utilize his powers under Article 88.4 of the Constitution of RDTL to veto this legislation, and to ask the Government to repair its defects and submit it to Parliament for enactment ... after the 2012 election." On 20 July, the President declined to follow our recommendation and signed the decree-law without any public announcement. It was published as Decree-Law No. 31/2011 in the Jornal da Republica (Port.) on 27 July 2011. On 2 September, the Government appointed Eastlog PTE (also Portuguese) to build the Suai supply base, which is expected to cost around $300 million. Once it is built, TimorGAP will own and operate it. La'o Hamutuk's web pages on the Tasi Mane project and 2012 budget have more details. On 28 September 2011, the Council of Ministers approved (also Tetum) Government resolution 29/2011 naming Francisco da Costa Monteiro as Chairman of the Board of Directors and Executive Director of TimorGAP - Timor Oil and Gas E.P. The following week, TimorGAP's new agreement with Malaysian Helicopter Services was useful, as SERN and TimorGAP officials flew to Suai to meet with concerned local residents and fly over proposed sites of the Supply Base and Nova Suai. On 17 October, SERN Despacho No. 106/GSERN/X/2011 named Antonio Jose Loyola de Sousa, Dino Gandara Rai and Norberta Soares da Costa to four-year terms as members of the board. A month later, Dili's new Timor Plaza luxury shopping mall celebrated TimorGAP's imminent arrival: "Given the prominence of TimorGAP as the national oil company, it was important to find a prestigious location for the new offices. 'Frankly speaking, there was no other choice but the Timor Plaza,' Monteiro said, 'Given the nature of TimorGAP’s operations, we have to be professional and presentable.' " On 17 February 2012, local newspapers included an advertisement for 22 positions with TimorGAP relating to several components of the Tasi Mane project, as well as an interview with TimorGAP President Francisco Monteiro (Tetum) explaining that "TimorGAP will be directly involved in oil exploration." Francisco stated that they would be involved in both upstream and downstream operations and services, as well as the Suai Supply Base, Betano refinery, and LNG pipeline and Beacu LNG plant. Legislation Older versions | |
