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Excerpts from
TFET Report and technical Appendix

April 26, 2004

Presented at May 2004 Timor Leste Development Partners Meeting (Donors' Conference)

PETROLEUM TECHNICAL ASSISTANCE PROJECT I

TF050894, USD0.24 million

Project Overview – April 2004
Project Closed – December 2003

Ratings

Development Objectives: Satisfactory
Implementation Progress: Highly Satisfactory

Project Objectives

The objectives of the first Petroleum Technical Assistance Project were to provide (i) just-in-time support to the Government of Timor-Leste in its negotiations with oil companies and neighboring countries for the development of the Bayu-Undan natural gas/liquids condensate field; (ii) technical and fiscal advice on negotiations with neighboring countries related to the development of the Sunrise natural gas field; and (iii) financial advice on projected Bayu-Undan and Sunrise revenues.

Project Description

Timor-Leste has substantial petroleum potential, and revenues from oil and gas will permit the Government to finance a modest public sector in the medium- to long-term. The prospect of future revenue depends critically on the successful outcome of a set of difficult, complex negotiations with international oil companies and neighboring countries, and on the ongoing drafting of sector legal, contractual, and fiscal arrangements. Given Timor-Leste’s limited institutional and human resource capacity to conduct such negotiations and to draft a legal framework for the sector, the project financed expert industry consultant services to support the Government’s Timor Sea Office (TSO) in these tasks.  The ultimate objective was to strengthen the capacity of Timor-Leste’s petroleum sector.

Project Achievements

The project, administered by the World Bank, became effective December 10, 2002 and closed on December 31, 2003. The project supported a consulting appointment for legal assistance to the TSO on development of the Bayu-Undan field and a consulting appointment for financial analysis on projected Bayu-Undan and Sunrise revenues. With the ratification of the Timor Sea Treaty in March 2003, development of the Bayu-Undan field is proceeding, now under Petroleum technical Assistance II.

Consultant services financed under the project supported work towards agreements reached earlier last year with the Australian Government and ConocoPhillips on the development plan, downstream agreements, and production sharing contract for the Bayu-Undan gas project.

The International Unitization Agreement and Memorandum of Understanding with the Australian Government for the Greater Sunrise field were signed in March 2003, on the basis of negotiations conducted by the Timor Sea Office negotiating team. Project activities were completed in June 2003 and an audit of project accounts and financial statements of expenditure was carried out at the end of October 2003. After audit fees were disbursed, the project closed.

A second TFET-funded Petroleum Technical Assistance Project (USD 1.7 million) became effective in July 30, 2003. It continues support to—and capacity building of—Timor-Leste’s petroleum sector.

The chart below shows actual versus target disbursements; the table below shows project expenditures by category.

Petroleum Technical Assistance Project I
Actual vs. Revised Disbursements Targets as of April 6, 2004

horizontal rule

PETROLEUM TECHNICAL ASSISTANCE PROJECT II
TF052428, USD1.70 million

Project Overview – April 2004

Project Objectives

The objective of the second Petroleum Technical Assistance Project is to assist the Government of Timor-Leste in supporting the development of its petroleum sector through the strengthening of two critical Government agencies, the Timor Sea Office (TSO), under the Office of the Prime Minister, and the Ministry of Planning and Finance (MOPF).

Project Description

Timor-Leste has substantial petroleum potential, and revenues from oil and gas will permit the Government to finance a modest public sector in the medium to long-term. Timor-Leste’s petroleum sector is expected to provide revenues accounting for up to 50 percent of GDP and 85 to 90 of Government revenues and foreign exchange. Against this background, technical assistance to Timor-Leste in the petroleum sector has been significantly under-funded. This project follows on from the achievements of the First Petroleum Technical Assistance Project and provides for more extensive support to the sector. Specifically the project strengthens petroleum sector management, petroleum revenue management, the legal, technical, financial and auditing capabilities, and the media and outreach functions of the TSO and MOPF, through the provision of technical assistance. Also provided is training to local staff of the TSO in English and petroleum economics and commercial practices, and to local staff of the Timor Sea Tax Division (TSTD) of the MOPF in tax accounting and auditing. The project finances the acquisition of information technology and communications office equipment for the TSTD, and provides logistical and operational support to the TSO and the TSTD in petroleum negotiations, petroleum policy oversight, management, information outreach, and auditing functions.

Project Status

The project, administered by the World Bank, became effective July 30, 2003 and is expected to close June 30, 2005. Three resident international staff have been engaged under the project to support the TSO - a Coordinator of the Timor Sea Office (Project Director), a Media Director and a Financial Manager. A resident Legal Advisor to the TSO completed her assignment in February 2004 and a local Legal Officer is currently being recruited. The TSTD is currently in the process of recruiting an Outside Tax Audit Advisor. Funds have been allocated for a resident Petroleum Revenue Advisor position and a resident Tax Legal Advisor position (TSTD) within the MOPF.

Project funds have been used to support ongoing operating costs of the both agencies, including extensive international travel to attend negotiations and to conduct audits of Timor Sea taxpayers. In December, the TSO sent one local staff member to attend meetings with PETRONAS in Kuala Lumpur. The Project is funding English language training for three members of the TSO and has funded training in Jakarta for officials from the TSTD and training in the UK for one local staff member of the TSO “Understanding the Natural Gas and LNG Industry”. Essential office furniture has been purchased for the TSTD and computer equipment will be procured in the coming months. Arrangements have been made to rent fully serviced offices in Perth for the use of TSTD staff when they are required to carry out the Government’s work there.

In January 2004, members of TSO and TSTD traveled to Perth, with other Government officials and advisors, to meet with Conoco Philips to obtain the latest Bayu Undan production estimates and receive capacity building on a revenue forecasting model.

The project has supported a consulting appointment for legal assistance to the TSO on drafting a new Petroleum Mining Code and Model Production Sharing Contract (PSC) for the Joint Petroleum Development Area (JPDA) and a new Petroleum Law and model contract for the Timor-Leste’s onshore regime. This legal drafting work is in its final stages and final drafts, together with draft petroleum taxation legislation, will be opened for public comment in May. The project also supports a consulting appointment for continuing financial advice to undertake computer modeling in support of the TSO Petroleum Fiscal Advisor’s medium and long-term Timor Sea revenue projections and to assist in the design of the new fiscal arrangements for the future project.

Other developments that are related to project activities include ongoing discussion with Woodside Energy on the development of the Jahal and Kudatasi field and the development plan for the Great Sunrise field.

The Project also funded the TSO’s extensive outreach and community consultation campaign relating to petroleum issues, including revenue management, transparency, revenues and maritime boundaries. This has involved extensive visits to Timor-Leste’s districts, speaking at universities, as well as at NGO fora and on the radio. Also, the Project recently funded the publication of five pages of information on Timor Sea issues in the children’s magazine “Lafaek”, which is distributed to schools throughout the country.

The chart below shows actual versus target disbursements; the table below shows project expenditures by category.

Petroleum Technical Assistance Project II
Actual vs. Revised Disbursements Targets as of April 6, 2004

The Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)
Institutu Timor-Leste ba Analiza no Monitor ba Dezenvolvimentu
Rua D. Alberto Ricardo, Bebora, Dili, Timor-Leste
P.O. Box 340, Dili, Timor-Leste
Tel: +670-3321040 or +670-77234330
email: 
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