RDTL Transitional Budget for July-December 2007
|the fiscal deficit (accounting for the General Government Sector and the Autonomous Agency Sector) amounts to 85.6m;|
|the Government will finance $40m of that deficit from a withdrawal from the Petroleum Fund and the remainder from the cash in the Treasury Account;|
|subsidies flowing from the General Government Sector to the Autonomous agency sector amount to $15.3m for the transition period|
|the Government estimates a cash balance of $63.7 m in the Treasury Account at 31 December 2007|
General budget of the State Transition Period ($m)
|Taxes and Royalties||519.2|
|Petroleum Fund Interest||37.0|
|Other Petroleum Revenue|
|Direct Budget Support|
|Salaries and Wages||19.0|
|Goods and Services||55.0|
|Capital and Development||4.4|
|Operational Subsidies for Autonomous Agencies||15.0|
|Capital Investment for Autonomous Agencies||0.3|
|General Government Budget Balance||470.6|
|Subsidies from General Government||15.3|
|Autonomous Agencies Charges||3.6|
|Salaries and Wages||0.4|
|Goods and Services||16.0|
|Capital and Development||0.3|
|Current Transfers -|
|Autonomous Agencies Budget Balance||0.0|
|Total Expenditure - Whole of Government||108.0|
|Whole of State Fiscal Balance||470.7|
|Whole of State Fiscal Balance Non Petroleum||(85.6)|
|Petroleum Fund Requirement|
|Cash Required from the Petroleum Fund||40.0|
|Cash Required from existing Treasury Account Cash Balances||45.6|
Estimated Cash Flow into the Treasury Account ($m)
This figure assumes the carry over is fully extinguished by payments by 31 December 2007.
|Treasury Account Cash Balance at Beginning of Year (Post Transfer to PF)||228.2|
|Non Petroleum Revenue||22.5|
|Liabilities From Previous Fiscal Years||118.8|
|Current Year Expenditure||108.0|
|Carry over to Following Year||-|
|Transfers Required from the Petroleum Fund to Cover Fiscal Deficit||40.0|
|Treasury Account Cash at End of Year||63.7|
The 2006-07 budget year finished on 30 June 2007, from the 1st of July the operations of Government have been financed via a 1/12th regime. These expenditures are based on the salaries and goods and services which were appropriated in the 2006-07 review of the General Budget of the State, as legislated by the UNTAET regulation 2001\13.
The total revenue for the budget of the transition period 1 July to 31 December is estimated at $579m. The petroleum revenue comprises of 96 per cent of the total revenue. The current forecast for total revenue in 2008 calendar year budget will be $1,312m.
Total Revenue 2006-07 to 2011 ($m)
|Total Petroleum Revenue||556.2||1,265.9||1,214.0||1,161.4||1,104.0|
|Total Non Petroleum Revenue||18.9||39.0||40.1||41.8||43.4|
|Autonomous Agency Revenue||3.6||7.3||7.6||7.9||8.2|
Currently there is only one field in operation in the Joint Development Area. The Bayu-Undan field is still in its early stage and it is expected that it will generate revenue to the government for up to 20 years. The production so far and projected production for the years ahead is generally in accordance with the schedule outlined in the 2006/07 Budget. The current oil prices are generally higher than assumed, but are subject to volatility.
Estimated Petroleum Revenue 2006-07 to 2011 ($m)
|Total Petroleum Revenue||556.2||1,265.9||1,214.0||1,161.4||1,104.0|
|Additional Profit Tax||38.1||310.4||226.8||176.7||165.5|
|Value Added Tax||2.8||4.6||5.7||4.6||4.6|
|Petroleum Fund Interest||37.0||106.0||149.0||189.0||226.0|
The estimated petroleum revenue for the Fiscal Year 2006/07 was $683.3m in the 2006/07 Budget and adjusted to $841.5m in the Mid-Year Budget 2006/07. The actual revenue for 2006-07 was $1,004.5m due to higher oil prices than anticipated. Assuming that oil prices (West Texas Intermediate) will average $65 and $62 during 2007 and 2008 respectively, the total petroleum revenue for the transition period is estimated at $556m and the petroleum revenue for the calendar year 2008 at $1,266m.
The Petroleum Fund as of 30 June 2007 was $1,394m. By the end of 2007 the Petroleum Fund is estimated at $1,910m. The Fund is expected to increase steadily in the medium term. The current forecast shows the total value of the Fund by 2008 of $2,906m and by 2011 of $5,550m.
The Petroleum Fund 2006-07 to 2011 ($m)
This assumes that the Government will avail itself fully of the sustainable income in the period from 2008 to 2011.
|Petroleum Fund, Opening Balance||650||1,394||1,910||2,906||3,845||4,728|
|Total Petroleum Revenue, Exc. Interest||956||519||1,160||1,065||972||878|
|Petroleum Fund, Closing Balance||1,394||1,910||2,906||3,845||4,728||5,550|
Petroleum Wealth and Estimated Sustainable Income
The total Petroleum Wealth is estimated at 8,900m as of 1 July 2007. In addition to the total value of Petroleum Fund, the Petroleum Wealth consists of Net Present Value of future petroleum revenue of $7,500m.
The sustainable income for the budget during the transition 1 July to 31 December is estimated at $133m. According to the Petroleum Fund Law the sustainable income shall be 3% of the Petroleum Wealth.
Even if oil prices used in this calculation are lower than current market prices, it should be noted that the calculations are based on prices that are significantly higher than seen only few years ago.
Revenue to the Petroleum Fund 2002 to 2025
The figures represent undiscounted revenues to the Petroleum Fund, whereas Petroleum Wealth represents the Net Present Value of the future revenues and the current balance of the Petroleum Fund.
|Average WTI oil price||Production||Total Petroleum Revenues|
|$/Barrel||million barrels oil equivalent||$million|
|Total from 1 July 07||752||9,353|
Petroleum Revenue and Sustainable Income 2002 to 2025
Review of methodology
The Petroleum Fund Act presupposes that the nominal yield on a US Government bond should be used when calculating the present value of the future cash flow from the petroleum sector. In August 2007 this rate was about 4.5 per cent, which has been chosen as the discount rate for the calculations.
Using a risk free interest rate when calculating the present value of future revenue has implications for the assumptions used, when estimating the cash flow. There should be a substantial likelihood that the cash flow will materialize. Hence we have based the calculations on the operator’s so-called P90 estimate, i.e. the production that will be achieved with 90 per cent likelihood. There are no similar price estimates available. We have, however, decided to use the low price case of a respected forecaster as a basis for making the price assumptions. Oil price assumption in the 2006/07 budget papers were based on forecasts made by International Energy Agency (IEA). IEA does not disclose the low price scenario. Prices are therefore based on Annual Energy Outlook 2007 published by the US Government’s Energy Information Administration. If the present value of the cash flow were to be calculated by using a risk adjusted interest rate, it would be appropriate to use the forecast for the expected production (rather than “P90”) and an expected price. This way of calculating the petroleum wealth would not lead to a materially different value when compared to the method described in the Petroleum Law.
There are a range of risks and uncertainties in any forecast of petroleum revenues. The most sensitive assumption is oil price, meaning that the forecast of petroleum revenues changes substantially even from a relatively small change in assumed oil prices. Other uncertainties include LNG contract volume and pricing terms, condensate and LPG spot sales prices relative to oil prices, operating costs and inflation. The Ministry of Finance has endeavoured to adopt prudent assumptions in all cases.
Table 3.5 shows the sensitivity of petroleum revenues, petroleum wealth and sustainable income to changes in production and prices.
Sensitivity Analysis of Petroleum Revenue 2006-07 to 2011 ($m)
The Budget is based on the Base analysis. The low price is based on oil prices at $10 pbbl lower than assumed by MoF officials, high price is based on oil prices at $10 higher ppbl higher than assumed by MoF officials. Expected production is based on the figures the provided by the operators.
|Low Price||MoF Case||High Price||Expected Production|
|Petroleum Receipts 1 July 2007 to 31 Dec 2024||6,803||9,353||11,941||11,937|
|Petroleum Wealth at 30 June 2007||6,914||8,868||10,841||10,333|
|Estimated Sustainable Income||104||133||163||155|
Actual and Predicted Oil Price Forecasts to 2016
There is a risk, however small, that there might be an event on Bayu Undan field that will cause a deferral of the revenue stream. Such deferral may last for months, years or even indefinitely, depending on the event. Furthermore, oil prices are very volatile, and it should not be ruled out that oil prices fall to or below the price assumptions used in the calculations of the Petroleum Fund.
In calculating the Petroleum Wealth only fields in production are included. As there is no development plan for Greater Sunrise yet, potential Timor-Leste revenues from this field are not included in the Petroleum Wealth, nor are potential revenues from the acreages opened for exploration.
Total Measures for 2007 Budget for the Transition Period (excerpts)
|Sal & Wages||Goods & Services||Minor Capital||Cap & Dev||Trans||Total|
|Total Measures for the Office of the Prime Minister and the Presidency of the Council of Ministers||(25)||963||-||-||700||1,638|
|Remove the Office of the Timor Sea to merge with the Timor Sea Designated Authority||(6)||(120)||-||-||-||(126)|
|Total Measures for the Secretary of State for Natural Resources||40||416||11||50||-||517|
|New Directorate of National Administration and Finance||6||20||-||-||-||26|
|Additional capital to complete a laboratory in Hera||-||-||-||50||-||50|
|Extractive Industries Transparency Initiative||-||-||11||-||-||11|
|New National Directorate of Natural Resources Planning||6||64||-||-||-||-|
|New Office of the Secretariat of State (including Technical advisers)||15||165||-||-||-||180|
|Incorporation of the Geology and Mineral Resources Directorate from the Ministry of Natural Resources||7||21||-||-||-||28|
|Incorporation of the Petroleum and Gas Directorate from the Ministry of Natural Resources||6||47||-||-||-||53|
|Intensive english training for staff in the Petroleum and Gas Division||-||99||-||-||-||99|
|Total Measures for the Secretary of State for Energy Policy||31||94||31||-||-||156|
|New Division for Research into Renewable Energy Policy (transferred from Natural Resources)||7||592||-||-||-||599|
|New Office for the Secretariat of State of Energy Policy||15||7||-||-||-||22|
|New Division for Research into Alternative Energy Policy (formerly in Natural Resources)||7||18||-||-||-||25|
|New Finance and Administration Directorate||2||4||31||-||-||37|
|Move Management of EDTL contract to Ministry of Infrastructure (formally included in the Division for Research into Renewable Energy Policy)||-||(577)||-||-||-||(577)|
|Technical advisers on renewable and alternative energy issues||-||50||-||-||-||50|
The Office of the Secretary of State for Natural Resources is the Government’s main body responsible for mineral and natural resources, including oil and gas, as well as the activities of the mining, petroleum and chemical industries.
The main activities in the Secretary of State for Natural Resources will involve:
|designing policies and drafting the necessary laws and regulations for the areas under its responsibility;|
|setting up contacts with international investors so as to attract investment to the national territory, in the areas under its responsibility;|
|drafting laws and regulations on matters pertaining to its area of responsibility;|
|monitoring the implementation of international treaties in its area of responsibility;|
|determining, in view of market trends, the conditions for the exploration of resources;|
|ensuring a transparent management of resources, in line with international practice;|
|managing oil resources and the activities of the petroleum industry according to the legislation on oil;|
|authorizing and supervising production sharing contracts, licenses and approvals;|
|promoting new explorations of oil resources and develop those already in existence;|
|maintaining an information database on oil operations and resources;|
|measuring and verify oil production and reserves;|
|setting up a monitoring and inspection program to ensure that the operators perform according to the terms of their licenses, and according to the law and the regulations;|
|licensing mining operators; and|
|setting up collaboration and coordination mechanisms with other Government bodies responsible for related areas.|
The Secretary of State for Natural Resources, Minerals assumes many responsibilities which previously sat under the former Ministry for Natural Resources, Minerals and Energy. Structural changes include the:
|establishment of a new National Directorate of National Administration and Finance;|
|establishment of a new National Directorate of Natural Resources Planning;|
|establishment of a new Office of the Secretariat of State (including international advisers to provide specific technical advice); and|
|incorporation of the Geology and Mineral Resources Directorate from the former Ministry of Natural Resources, Minerals and Energy; and|
|incorporation of the Petroleum and Gas Directorate from the former Ministry of Natural Resources|
The Secretary of State will be provided with additional funding to conduct intensive english courses for staff working in the Petroleum and Gas Division in order to assist them in their business dealings which are mainly conducted in the english language.
Additional capital and development funding has been provided to finalise outstanding works at the laboratory in Hera.
The Secretary of State for Natural Resources will also commence the establishment of a body to ensure Timor is consistent with the Extractive Industries Transparency Initiative (EITI).
2007 Budget for the Transition Period Secretary of State for Natural Resources
|Sal & Wages||Goods & Services||Minor Capital||Cap & Dev||Transfers||Total|
2007 Staffing Profile Secretary of State for Natural Resources
The Office of the Secretary of State for Energy Policy is the Government’s main body responsible for energy resources.
The main activities in the Office of the Secretary of State for Energy Policy will involve:
|defining and proposing to the Government guidelines on energy policy;|
|executing and ensuring the implementation of the policy approved by the Government under the previous sub-paragraph;|
|developing the legal and regulatory framework for the activities connected with energy resources;|
|promoting contacts with international investors so as to attract external investment to the areas under its responsibility;|
|regulating, in coordination with other ministries, operators in the area of power generation;|
|developing studies on the capacity of energy resources and alternative energies;|
|maintaining an information databank on energy operations and resources;|
|coordinating and promoting the management and updating of the infrastructures in the areas of power generation; and|
|ensuring the coordination of the energy sector and stimulating complementarity among its various modes, as well as their competitiveness, so as to better satisfy the users;|
The Secretary of State for Energy Policy is a new Secretary of State and as a result many of the measures involve the creation of a new administrative structure which incorporates some areas from the former Ministry of Natural Resources, Minerals and Energy Policy as well as the creation of some new work units. These include:
|transferring the Division for Research into Renewable Energy Policy from the former Ministry for Natural Resources, Minerals and Energy Policy;|
|creation of a new Office for the Secretariat of State of Energy Policy;|
|transferring the Division for Research into Alternative Energy Policy from the former Ministry for Natural Resources and Energy Policy;|
|creation of a new Finance and Administration Directorate; and|
|movement of the Management of EDTL contract to the Ministry of Infrastructure (formally included in the Division for Research into Renewable Energy Policy),|
The Secretariat of State will also receive additional funds to employ some technical advisers to provide the Secretary of State with advice on policy issues on renewable and alternative energy sector.
2007 Budget for the Transition Period Secretary of State for Natural Resources
|Sal & Wages||Goods & Services||Minor Capital||Cap & Dev||Transfers||Total|
2007 Staffing Profile Secretary of State for Natural Resources
East-Timor is rich in natural and mineral resources, including oil and gas. Some of these resources are already being exploited but most of it is not and is still waiting to be developed for the benefit of the economical and social development of the country.
This Government advocates a clear policy in the use of the natural and mineral resources, taking into account the country’s context, privileging the national role players, creating jobs and promoting the sustainable development, through the planning, coordination and harmonization of cross-cutting policies, taking into account the need to render compatible the environment preservation, the management of natural and mineral resources and the improvement of the population’s quality of life.
Only a National Development Strategic Plan can guide the controlled and efficient use of the revenues deriving from those resources and can guarantee a safe investment plan to generate new revenues. For that purpose, it is fundamental management transparency of that process and that transparency can only exist if the natural resources matter is not exclusive of the governing parties and of the politicians in power.
Another fundamental aspect is to combat political parties’ one sided decision in this sector, both in the organizations working this matter and in the control mechanisms that should essentially comply with technical and professional competences recognition criteria.
The Government undertakes the obligation to do the natural resources management guaranteeing their sustainability in order to develop a macro-economic framework that protects the this generation’s interests and safeguard the interests of future generations; thus it is going to define, in its National Development Plan, the priorities that should be addressed right away and is also going to define the time and amount for saving, with a clear investment plan of the revenues deriving from the natural and mineral resources to generate new revenues which will promote an irreversible economic growth of East- Timor.
To achieve that goal, the Government will give priority to the following aspects:
|Establish an integrated program for human resources development in this sector. Which will include the granting of student grants and the creation of a Geology and Oil Institute, in close articulation with National University;|
|Proceed, in articulation with the sector authorities and under the coordination of the State Secretary for Natural Resources, with a reform that will include the remodelling of the technical staff and management staff allocated to the sector;|
|Promote the approval of Laws and Regulations to respond to the real needs of the country;|
|Establish policies and create national sustainable management mechanisms that enable the Government to exercise an effective supervision, regulation and control in this area;|
|Regulate the activities and establish international agreements, favourable to the creation of jobs for the Timorese;|
|Promote and attract the investment in the oil sector in national territory, with the purpose of bringing the pipeline to East-Timor;|
|Promote environment protection policies in the exploitation of mineral resources;|
|Formulate, in cooperation with the Secretary of State for the Energy Policy;|
|Establish a National Oil Company;|
|Develop studies and geological surveys in the whole territory, with the purpose of producing a new geological map of the country and do the first mineral and oil resources inventory “onshore”;|
|Create mechanisms so that the Oil Sector becomes gradually separated from political issues;|
|Promote transparency and rigour in this sector through the creation of a “Initiative for Transparency, of the IV Constitutional Government”, denominated: “East-Timor Transparency Model”;|
|Create a “Non-Renewable Natural Resources Commission”, composed by members appointed by the five largest political parties, this Commission should be autonomous and will operate as an organization of a consulting nature, submitting recommendations to the Sovereignty Bodies;|
|Maintain a population information policy about this sector development, as a strategic matter for the national development.|
The Timorese society in its economical development scope can never be disconnected from energy exploitation and consumption, in its quantitative and qualitative form, deriving from the different production sources.
Thus, it is fundamental to define a clear energy policy that conciliates the different interests of the market, within a competitive scope and respecting the environment quality, avoiding disorderly industrialization without any appropriate regulations.
The energy sector, is one of the most complex economy sectors of the country, affecting the whole population; despite the country being very rich in terms of energy sources and alternative energy, it continues to be totally dependent of external sources, namely the import of fuels and gas for domestic use.
The general overview of the Country is characterized by the almost non-existence of power supply infrastructures which results in the insufficient supply to the population. The implementation of a global, adjusted and by phases plan will contribute to the widespread distribution of energy in the whole country, with strong impact in the improvement of the quality of life of people and in the promotion of the investment and industrial growth, potential sources of Job creation and revenues for the State.
This Government undertakes to do in a short-term:
|To analyse the already developed studies and projects about hydro-electrical plants, biomasses, bio-gas, gas, oil from the Timor sea, with the purpose of developing the exploitation and production of energy to produce electricity and other domestic uses, with special emphasis for Gas Seep Aliambata, the project of the hydro-electrical dams of Ira Lalaro, Ainaro and Maununo, as well as bio-masses;|
|Establish control and inspection models and regulating standards of the projects already carried out or to be carried out;|
|Prepare legislation that regulates and unifies the study, exploitation and production studies on renewable or non-renewable energy sources;|
|Speed up the Ira Lalaro energy project;|
|Monitor the bio-masses activities and the Gariwai mini-hydro-electrical plant;|
|Establish an electrical power network for Oe-Cusse Ambeno, based on the use of alternative energies.|
The major power policy guidelines of this Government are mostly based in the search for renewable alternative energies to assure the required power for domestic and industrial consumption, taking into account the environment preservation, proceeding with the following objectives:
|Reduce the intensity of energy dependence, minimizing the import flow, through the use of alternative and renewable energy sources, such as: hydro-electrical, bio-masses, bio-gases, solar energy, turbines, wind kinetic energy; chemical energy stored in vegetables and microorganisms, potentially abundant in the country;|
|Promote the good multi-purposes hydro-electrical use for the production of energy and the good use of water;|
|Regulate the exploitation of alternative or renewable energy sources, also contributing for the uniformization and integration of several projects to be developed in the country in this field;|
|Supply/provide energy to the population living in isolated areas;|
|Assure the benefit of the country’s energetic richness to future generation, through the definition and preservation of “obligatory reserves”, both from renewable sources and from nonrenewable sources;|
|Create adequate regulations so that the national operators will play a relevant paper in the energy resources exploitation;|
|Develop balanced safety standards, with the purpose of the exploitation, production, supply and provision continuity;|
|Develop training programs for operators and consumers, also encouraging the consumption environmentally cleaner energies;|
|Adapt investment programs of electrical power network operators with the purpose of interlinking the decentralized production; In order to promote national competitiveness, the Government undertakes the obligation to create conditions to provision the market, liberalizing it (improving the services and promoting cooperatives and the privatization of the sector), carry out feasibility studies on energy production for the national and international market and finally create foreign investment attracting mechanisms.|
The Government hereby assumes the commitment to develop an environmental policy, oriented by the principles of enduring development, by integrating in a harmonious fashion the environmental, economic and socio-cultural component. Taking into account that this half island is prosperous in terms of natural resources, we face the challenge to value them and promote a land management and planning policy that does not depreciate our natural landscape.
We will promote a clear policy to protect the maritime life, in particular corals, in order to avoid their destruction and to make them tourist attraction centres in the future.
As reforestation is also urgent, it is necessary to educate the populations to avoid the continuous destruction of the environment and inculcate earth and nature protection values.
In its national development plan, the Government proposes to carry out studies for the preservation of forests in order to encourage a systematic and ordered culture of native wood types of commercial value, as well as studies to introduce new types of wood, so as to create self-sufficiency by reducing to the maximum extent, the import of this good.
The development of the Country must be harmoniously and ecologically balanced, and because of that, the economic growth, along with the Defense of natural and environmental values is a national mission which all of the Timorese must carry out. The sustained development aims at the progress tailored to the needs to Man, representing an ecological and humanistic experience to allow the Timorese to have a better standard of living.
So, the environmental policy to be followed by the 4th Government shall be based on the principles of sustainability, mainstreaming, integration, equity and participation.
The objective of preserving and defending the natural heritage of a Country is one of the most elementary obligations this Government has before future generations.
The Government plans to promote the environmental area as an essential, integral and indispensable driver in the strategy of medium/long term development, in order to eliminate the negative connotation from the area of environment, in terms of the restrictions imposed on the economic growth policies.
As the development of the Country currently stands, there is the need to enhance the environmental patterns in the different fields as an indispensable condition to improve the living standards of the Timorese. The environment must abandon the marginal role that has been played, to become a common denominator in the definition of global and sectoral policies.
The ultimate objective is precisely to provide citizens with a greater and better quality of life, therefore promoting the rational management of natural resources, the protection of the environment, the Defense and recovery of the architectural and cultural heritage and the preservation of the areas with high landscape and ecological value.
An effective promotion of the natural resources and the implementation of real initiatives in the field of environment shall allow the citizens to reach decent levels of quality of life, irrespectively of the area in which they live in the national territory.
To achieve these objectives, the following measures should be taken:
|Definition of an environmental policy and natural resources with a view to the integration of the environmental component in the different sectoral policies, based on principles of sustainability, mainstreaming, integration, equity and participation, enhancement of natural resources that sets the agricultural and forestry development within the framework of nature conservation. Consequently, a National Plan shall be elaborated to implement that Policy;|
|Elaboration of the Basic Environment Law and consolidation of the legislation concerning the current and also the potential Protected Areas, the Evaluation of Environmental Impacts and Control of Pollution, in order to make it possible to give an adequate response in terms of environmental policy. In particular, the legislation concerning the environmental impact studies is aimed primarily at analyzing certain activities and projects that, due to their own dimension or nature, represent added pressures on the environment, in the stage prior to licensing;|
|Adoption of legislative measures, namely of the penal nature, with regard to the Defense of environment, privileging the Defense of landscape, of natural resources and environment in general;|
|Adaptation or replacement of the existing different legal environmental instruments that affect the current legal system, in order to provide an environmental legal framework adapted to the reality of East-Timor;|
|Implementation of the Multilateral Environmental Agreements signed by East-Timor, respectively the 3 Rio Conventions (UNFCCC – United Nations Framework Convention for Climate Changes, UNCBD – United Nations Convention for Biological Diversity, and UNCCD – United Nations Convention for Desertification). As this is one of the most critical and fundamental areas of environmental intervention and also a cross-cutting issue from the definition of global policies to the implementation of projects of national and local application, the Government shall provide the necessary means to manage the sector and therefore fulfill the responsibilities and interests of East- Timor as an effective member of the conventions;|
|Encouragement of the participation of citizens and all stakeholders with a view to make it possible to easily have access to information on environment. Awareness campaigns shall be launched targeted to the population and a programme of environmental education shall be promoted, inside and outside the educational system, which allows for the awareness and training of the citizens in the different fields of environment.|
|In particular at local level, where the environmental awareness is extremely necessary the Government shall encourage environmental awareness plans that involve environmental focal points, in order to stimulate the link between the Central Government, Districts and “Sucos”;|
|Elaboration and implementation in the Country of a National Surveillance Network of the quality of environment, by making use of technical and computer tools for the purpose. Laboratory and technical tools shall be progressively reinforced to analyze and evaluate the Water, Soil and Air Quality;|
|Implementation of the system of Pollution Control through the approval of relevant legislation and implementation of an Environmental Licensing System;|
|Promotion of the elaboration of a National Policy of Waste Management and, subsequently the elaboration of a National Plan for its correct implementation, investing on the preventive actions of waste production;|
|Promotion and development of integrated systems of collection, treatment, enhancement and final disposal of waste per type (for example, waste oils, metals and plastics);|
|Encouragement of collection, separation and recycling actions and initiatives to recover the waste that is liable to be enhanced;|
|Focus on the definition of a National Policy, Strategy or Plan to Preserve Nature and Biodiversity, in consultation with the international agreements signed by East-Timor, and which takes into account cynegetic species, animals’ rights in general, trade of plants and animals, protection of grooves of trees, preservation of biotypes and protection of rare/protected plants;|
|Promotion of the Defense of the National System of Protected Areas, by articulating the policies of environment and Land Planning.|
|Approval of new legislation on Protected Areas, by reviewing and updating the UNTAET rules and regulations;|
|According to the legislation approved, new protected areas throughout the Country should be created.|
1. The new Government will give top priority to resolving Timor-Leste’s political and security crisis. Achieving stability, however, also means reviving the stagnant economy and tackling the country’s alarming social problems. This paper and its attachments concentrate on how this socio-economic revival can be initiated. The paper and the sector notes accompanying it have been prepared by The World Bank Group (including the World Bank and IFC) and the ADB as a service to the new Government, and are offered in a spirit of friendship and commitment to the country’s future.
5. Timor-Leste’s petroleum reserves are the key to the country’s prosperity and independence. Total petroleum savings amounted to US$1.4 billion on June 30, 2007, with approximately US$100 million in new revenues each month. Mindful of the problems that many countries rich in natural resources have experienced---wasteful spending, widespread corruption---the previous Government created a petroleum management structure which is seen as an international ‘best practice’ model. First, petroleum revenues are deposited in a Petroleum Fund managed by the Banking and Payments Authority (BPA). Because oil and gas reserves will not last forever, BPA then invests all the proceeds to ensure that Timor-Leste will maintain the real dollar value of its petroleum earnings in perpetuity; and interest income of the Petroleum Wealth is passed on to the Government Budget. At present, over US$300 million is sustainably available for the Budget each year.
6. It is vital that the current petroleum revenue management arrangements are preserved. It is equally important that the revenues allocated to the budget are invested in programs that build the nation’s capital and enhance productivity in non-oil sectors---that is to say, in investments in infrastructure and human development (education, health and social protection—paragraph 15), increasing delivery of services.
7. It is recommended that the petroleum savings policy be preserved and the current framework further strengthened to ensure continued transparency and the preservation of the country’s oil wealth.
Since independence, Timor-Leste has made tremendous progress in creating the institutions of the state essential for running the economy. However, economic performance in terms of growth, employment generation, and poverty reduction has been disappointing. With limited immediate prospects for private investment, Government spending is the main source of economic growth in the short-term. With petroleum revenue increasing, the state is no longer as constrained as previously in public investment and spending. Limited capacity, however, remains the key constraint to the execution of planned investments and productive spending of resources. Measures to enhance execution capacity together with efforts to develop a social safety net will be important in the short term for bolstering economic growth and providing support to the vulnerable. To promote growth over the medium term, steps to improve conditions for private investment and entrepreneurship will be necessary.
• Growth in petroleum income. Timor-Leste now has large budgetary and external surpluses and faster-than-anticipated accumulation of savings in the petroleum fund. This provides an important resource base to develop the economy and reduce poverty. The growth of petroleum revenue has meant that “sustainable” budget spending - spending that can continue in perpetuity - is presently estimated at over $300 million per year. This figure will likely grow once resources from the Timorese share of the Greater Sunrise field come on stream, but may vary according to world energy prices.
• Economic outcomes over the past five years have been weak. The non-oil economy has stagnated and unemployment and poverty are high and rising. Virtually all Timorese earn their livelihood in the non-petroleum sectors of the economy. However, per capita income in the non-oil economy is stagnant in real terms since 2002. At the same time, national income per person, including the oil sector, has doubled due to increased revenue from petroleum (Table 1). About 40% of the population was estimated to be poor in 2001, and has likely increased significantly, given the decline in real non-oil per capita incomes during 2001-2006.
Table 1. Timor-Leste: Key Economic Indicators
|Output and Prices|
|GDP (non-oil) real growth rate, %||-6.7||-6.2||0.3||2.3||-1.6|
|Inflation, % change||9.5||4.2||1.8||0.9||5.7|
|GNI, at current prices, $ million||352||349||507||692||847|
|Oil and gas income||9||13||168||342||492|
|Non-oil GDP per Capita, $||385||364||356||356||351|
|GNI per Capita, $||395||378||532||704||835|
|External Sector, $ million|
|Foreign Income, net||4||4||43||83||117|
|o/w: Oil and gas royalty and interest||2||2||39||79||115|
|Current Transfers, net||123||134||246||363||460|
|o/w: Oil and gas tax revenue||7||11||129||264||377|
|o/w: International assistance||116||123||118||100||82|
|Current Account Balance||-128||-85||103||292||411|
|Capital and Financial Account||148||103||18||49||71|
|o/w: Official capital transfers||59||44||41||41||44|
Fiscal Operations (Central Government Budget, cash basis, fiscal year (July-June)), $ million
Total Revenue, inc. grants
Oil and gas revenue
Capital expenditure 1/
Overall Fiscal Balance
Memo: Cumulative Oil and Gas Savings
e = estimate, p = preliminary;
1/ $10.5 million of the $15.7 million capital expenditure for FY2005-06 was for the capitalization of the BPA
Sources: Timor-Leste authorities, IMF, and World Bank
Timor-Leste's petroleum revenues and savings arrangements will ensure the country's economic future. The savings arrangements allow for sufficient and sustainable funds to be used each year to fund the state budget, but to date Government has had trouble spending the annual budget. Timor-Leste’s petroleum revenues amounted to USD1.2 billion as of March 31, 2007, and are increasing at a pace of USD 100 million/month since January 2007. While providing resources for the country’s development, petroleum revenues also pose economic and governance challenges. International experience shows that countries rich in natural resources often experience more wasteful spending and corruption than other countries. To avoid this “resource curse,” Timor-Leste adopted arrangements for good management of petroleum revenues for the benefit of current and future generations.
• Maintaining petroleum revenue management arrangements. These arrangements provide the basis for good governance of petroleum revenues. Saving for the future is important because petroleum resources will not last forever. At the same time effective spending from these revenues is necessary to develop and grow the non-petroleum economy, provide services, and reduce poverty.
• Developing Greater Sunrise. Through the Treaty on Certain Maritime Arrangements in the Timor Sea (CMATS), which entered into force in February 2007, Timor-Leste and Australia agreed to share 50/50 the revenues from the Greater Sunrise gas field. However, an agreement on how to develop the field has not yet been reached. This is largely due to discussions regarding where a pipeline from the field will go. Timor-Leste should establish an informed, consensus position on Sunrise development in preparation for such discussions. Commercial, social, and economic aspects should be taken into account.
• Reorganizing the Sector. In April 2007 the Oil and Gas Directorate put out for public comment draft legislation on a successor agency to the Timor Sea Designated Authority. Draft legislation on the creation of a national oil company was also put out. In line with the process followed for Timor-Leste’s overall petroleum legislation, broader consultation and engagement with sector legal experts on scope and governance arrangements for these entities are warranted.
All petroleum revenues that come to Timor-Leste are deposited in a Petroleum Fund managed by the Banking and Payments Authority (BPA). The Fund is governed by the Petroleum Fund Law, which spells out the formula for calculating the amount of “estimated sustainable income” that can be transferred from the Fund each year to finance the state budget. Estimated sustainable income is the amount that can be withdrawn from the Fund in perpetuity without decreasing the country’s petroleum wealth. Each year the amount of sustainable income is verified by an independent auditor. If the country follows this savings rule, it will have money available to finance its budget forever. Money from the Fund can only be transferred after approval of the annual budget by the Parliament and can only go to the budget.
Timor-Leste's petroleum management arrangements are designed to maintain transparency and accountability. The BPA issues quarterly reports on the Petroleum Fund, including its balance, any transfers, and its investments. These are publicly available. According to the law, an internationally recognized auditor must complete an independent, external audit of money received by the Fund each fiscal year. The auditor’s report must be published. Made publicly available in July 2007, the first Annual Report, including the Fund’s audited financial statements, and the quarterly reports are available from the BPA or at www.bancocentral.tl/PF/Reports.asp . An Investment Advisory Board advises the Government on the investment strategy and management of the Fund. An independent Consultative Council, including civil society and private sector representatives, advises Parliament on the Fund.
The former Ministry of Natural Resources, Minerals and Energy Policy (MNRMEP) and now possibly the Secretary of State for Natural Resources is responsible for petroleum resources in Timor-Leste’s territory. The TSDA, a joint Timorese/Australian agency, is responsible for petroleum resources in the Joint Petroleum Development Area (JPDA) in the Timor Sea. The JPDA is governed by the 2002 Timor Sea Treaty (TST), under which Timor- Leste and Australia agreed to split JPDA revenue 90/10 in favor of Timor-Leste. According to the 2002 Timor Sea Treaty after three years the TSDA would be folded into an Oil and Gas Directorate or become a different Timorese agency.
In developing Greater Sunrise, Timor-Leste has favored the pipeline coming to its south coast along with the establishment of an LNG plant. Woodside, the main operator of the field, and Australia have favored the pipeline going to Darwin (where there is an existing LNG plant). Woodside and its joint venture (JV) partners (ConocoPhillips, Shell, and Osaka Gas) aim to prepare a preliminary development plan for Sunrise by September 2007. The plan will require agreement by the Governments of Timor-Leste and Australia. If Timor-Leste insists on a development concept that differs from what the JV believes to be in the JV’s commercial interest, the JV may require compensation from Timor-Leste.
In addition to the Petroleum Fund Law, a Petroleum Law, Model Production Sharing Contract (PSC), and Petroleum Tax Law were adopted in 2005. This completes the legal framework governing the exploration and development of petroleum resources in Timor- Leste’s territory. These laws are in line with international good practice. Timor-Leste is also implementing the Extractive Industries Transparency Initiative (EITI).
Timor-Leste’s petroleum production is currently primarily from the Bayu Undan gas field in the JPDA. Bayu Undan is estimated to generate about USD9.4 billion in accumulated revenue for Timor-Leste over the next 15-20 years. Greater Sunrise is estimated, on a very preliminary basis, to generate around USD24 billion in revenues over the life of the field, half of which would go to Timor-Leste. As Sunrise is not under production its revenue projections are not yet included in sustainable income estimates now produced for the budget. Exploration rights in Timor-Leste’s territory were awarded in 2006 to ENI and Reliance. While this could be another source of petroleum revenue, a commercial discovery must first be found and development concepts agreed before production starts/revenue flows. This is likely to take several years.
Timor-Leste Production Profile, 1999-2041 (million barrels of oil equivalent)*
*At this stage, Sunrise profiles should be considered as very broadly indicative only.
Timor-Leste Projected Petroleum Revenue Profile, 1999-2041** (USD million)
**Projections are extremely sensitive to oil price assumptions, to which LNG prices are linked
The Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)