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Sunrise LNG in Timor-Leste: Dreams, Realities and Challenges

A Report by La’o Hamutuk
Timor-Leste Institute for Reconstruction Monitoring and Analysis

February 2008

Chapter 5. Employment and Infrastructure

Link to Index and Table of Contents

Contents of this file

5.1. Development linkages and the national infrastructure

Conclusion


As stated above, local leaders hope and expect that many jobs will result from an LNG plant in Timor-Leste. The national government is similarly aware of the acute need for employment if living standards and economic productivity are to increase. The great majority of Timor-Leste’s citizens live from subsistence agriculture at very low productivity. Any substantive growth in per capita incomes in the non-oil part of Timor-Leste’s economy will involve people moving from subsistence agriculture into higher value-added activities, such as more productive agriculture for local or export markets, manufacturing, or public sector activities (health, education, and infrastructure). More productive forms of agriculture would be possible in combination with lower transport costs (in both money and time) to bring products to market, but in addition, growth in the non-farming private sector will likely be needed for people to move out of subsistence farming. Indeed the private non-farming sector already generates more of Timor-Leste’s Gross Domestic Product than the agricultural sector, in spite of the latter employing many times more people. [89]

This means that jobs created by an LNG project could help Timor-Leste people move from agricultural work to other sectors, which the government is hoping will provide economic growth in Timor-Leste’s non-oil GDP. [88, pages 21-27] In addition to providing jobs and developing individual capacities, the construction and operation of an LNG plant can provide the impetus and start-up funding for small businesses of various kinds, as subcontractors for goods or services to the LNG project. This would develop corporate capacity as well as individual skills, and could be extremely valuable as Timor-Leste diversifies its economy in the future.

What employment effects, then, ought we to expect? As Chapter 3 suggests, there are three ways in which an LNG plant might increase employment. The first is during construction, where a large number of workers are needed, but for a short amount of time. The second is during operation—that is, the workers who run and manage the plant and provide necessary support services. Finally, if there is an increase in demand for local or national goods and services—we discussed above which sectors could potentially benefit—this would translate into increased employment in those sectors. Examples include hotels, restaurants, office supply and operations, printing, security, low-skill construction, cleaning, waste disposal, road-building, and dredging.

Primary effects

Construction

 

 

Figure 16. The estimated number of workers at the construction site month-by-month during the construction of the Snøhvit LNG plant at Melkøya in Norway. The lower-skill jobs are denoted by pink (concrete wall construction) and grey (painting) bars. The graph shows the number of people estimated to be working at any one time, so that when we count workers from all shifts, the number of jobs could reach 1,800 in the peak months. [97]

  
 
 

Figure 17. Projected employment during the construction of the first LNG train at the LNG plant in Darwin, Australia. This is the only train built to date. [66]

The construction of an LNG plant takes three to six years. At the peak, more than one thousand workers may be needed, but many for less than a year. The Snøhvit LNG project in Norway, constructed between 2002 and 2007, employed around 1,800 during the peak period of construction (see Figure 16). The Wickham Point LNG project in Darwin, which liquefies natural gas from the Bayu-Undan field in the JPDA, projected a peak of near 1,200 jobs for a single five million tons per annum (mtpa) liquefaction train, and near 1,600 for staggered construction of two 5-mtpa trains (over a three-year period for each train; see Figure 17 and [66]). The expansion of Atlantic LNG in Trinidad and Tobago, which involved adding a new 5.2-mtpa liquefaction train, storage tank, and jetty to the existing capacity of 9.6 mtpa, was reported in December 2005 to have logged more than 14 million worker-hours, with the storage tank still to be built. At 2,000 hours/year, this corresponds to 7,000 worker-years; the workforce peaked at 3,500. [10] Trinidad and Tobago has more workers than the other two examples; this may be partly caused by contractors’ economizing on labor in countries with high labor costs, as well as the higher productivity of labor in developed countries reducing the amount of manpower needed for a given task. Therefore, the construction of an LNG facility in Timor-Leste could tend towards the higher end of the range.

As these cases illustrate, the construction of an LNG facility employs a large number of people for a short period of time. This presents an opportunity as well as a challenge. Even short-term work would be welcome by many Timorese, yet it is not certain how many of the construction jobs would go to Timorese workers. Many of these are high-skilled jobs that require extensive training, and the short period of construction does not allow time to learn high-skilled jobs. This includes not only engineering and management positions, but also skill-intensive manual work like specialized welding. Furthermore, no Timorese company would be able to supply manpower at this scale, whereas the world’s large construction companies are used to bringing in thousands of foreign workers to construction sites for short periods. For these reasons, the contractors for the construction job may find it easier to build a construction camp to house the workers they need, whom they would bring in from countries like the Philippines. To increase the number of Timorese employees, the contractors should be required to recruit locally and to prepare skilled Timorese workers before construction starts. If plant construction doesn’t begin until it is needed to replace Bayu-Undan gas (about 2015, see Chapter 9.1 and Figure 25), this would allow more time for future workers to receive training and on-the-job experience, especially if the RDTL Government and oil companies work together.

We make recommendations for how to prepare for this challenge in Chapter 9. Even with the best preparation, however, the bulk of the work will be done by people from abroad. In Darwin, where the skill levels are relatively high, only 25% of the construction workforce was projected to be obtained locally. [66] Similarly, at Snøhvit, from the total construction work, only about 800 worker-years would be sourced locally.

Operation

The number of operating personnel is much lower than the number of workers needed for construction. Gas liquefaction is an extremely capital-intensive activity—very little labor is involved in the process once construction is completed. So during normal operations, the LNG facility will not employ many people, about 40 permanent personnel per mtpa capacity.

 

Box 14. Permanent jobs at other LNG plants

 

Darwin LNG in Australia (3.2 mtpa) was projected to have 120 permanent jobs.

Snøhvit LNG in Norway (4.1 mtpa) estimates 180 permanent personnel will be employed. Of these, 70-80 jobs involve maintenance and clerical work and ten are for remote operation of offshore seabed drills, not for the liquefaction plant.

Atlantic LNG in Trinidad and Tobago has increased its permanent employment from 120 in 1999 for its first train (three mtpa), to 600 with four trains (for a total of 14.8 mtpa) by the end of 2005.

If a Timor-Leste LNG facility is built with a capacity of five to seven mtpa, we may therefore expect 200-350 permanent jobs. Most of these jobs, however, require very high skill levels, as they involve manipulating advanced technological equipment. Very few Timorese as yet possess such skills, and most do not even have the education level that would enable them to train for the specific requirements of LNG plant operation. If an LNG plant were to open today, hardly any of the skilled positions would be given to Timorese citizens initially, although the three decades of plant operation provides enough time for people to enter relevant professions and gain the required skills and experience, provided that the companies and the government provide the necessary support. There are nevertheless jobs that will require less skill, such as cleaning and simple maintenance tasks, security, catering, and secretarial services, which could more easily be filled by Timorese citizens.

To maximize the number of permanent jobs held by Timorese, the operator of the LNG plant must be required and given incentives to employ Timorese nationals. This can be promoted through different methods, from tax subsidies to outright quotas. To maximize national employment, the appropriate government authorities must develop local content and national employment policies in advance of signing contracts, as well as the capacity to facilitate and monitor the implementation of the commitments made my the operator. The operator must try to employ as many locals as possible, and indeed the government should make sure to award the right to develop and run the LNG plant to companies who are genuinely concerned about local content.

At present, Timor-Leste has no legislation or model for a contract governing a downstream project. However, the production-sharing contracts (PSCs) for the upstream operations of Bayu-Undan, as well as the Model PSC for future upstream petroleum projects in Timor-Leste, require operators to give preference to employing Timor-Leste nationals. Although the Sunrise upstream PSCs have not been made public, we hope that they contain a similar provision, and it must also be included in contracts for future downstream projects in Timor-Leste. The contractual requirement for training is less clear, although this would also be essential in order to increase the number of qualified Timor-Leste citizens.

Secondary effects

An LNG facility on Timor-Leste’s coast may increase employment through its demand for goods and services in the local community (see Local economic activity above) and the “multiplier effect” of that demand. The demand will in the first instance be for the goods and services immediately useful to the plant and those who work there. This includes for example food products for the catering, hospitality services like hotels and restaurants for those workers who are not native to the area (which will be virtually all), driving and other transport services, and simple mechanical repairs. If the local economy manages to absorb this spending (that is, to supply the goods and services in demand), many people employed in these activities will see their incomes rise and/or become more secure. That will in turn create spin-off effects on other sectors in the economy as these people spend their higher incomes on goods and services they need, and so on.

How many such jobs would there be? It is limited both by the demand side and on the supply side: On the demand side, there is only so much extra demand the injection of purchasing power from the LNG plant can generate. On the supply side, the ability to meet the demand and jobs being create is constrained by, again, the skills in the population (for example in providing international-standard hotel services), but also by the lack of good distribution networks, both physical (roads and other transport infrastructure) and logistical (such as the ability to guarantee regular and high-quality deliveries of food products to the plant).

In the Norwegian case, the number of jobs created in the local community is estimated to be about the same as the number directly employed at the facility [97], although some of these jobs also require high skill levels. Again, as long as the local population lacks skills and experience, the more technical auxiliary jobs will not be given to Timorese.

Figure 18. Very approximate estimate of the numbers of jobs for Timorese and international workers in Timor-Leste over the lifetime of a 5.3 mtpa Sunrise LNG plant. These include workers at the plant, those providing food and housing (hospitality) for international workers and local businesses which receive subcontracts, but does not include follow-on industries that could develop from the LNG plant.

This graph illustrates how jobs would be allocated if the recommendations in this report regarding education and local content are implemented, and if the numbers in the text are accurate. It assumes four local hospitality jobs for every ten international workers.

5.1  Development linkages and the national infrastructure

As the previous two subsections suggest, the degree to which an LNG facility can be integrated into the national economy partly depends on how much Timor-Leste’s human capacity and physical infrastructure enable such integration. This subsection addresses how the construction and operation of an LNG plant can be managed to help develop both of these conditions, so that the facility will be drawn into the local economy as much as possible. These ideas are merely illustrative, and we encourage the central government, district administrations and local community leaders to be creative in addressing this challenge.

Building Timorese expertise

Very few Timorese have the skills to perform the more advanced jobs that an LNG facility requires.  (By way of illustration, in September 2007 the incoming Secretary of State for Natural Resources estimated that he needs 100 technically skilled people to work in his Secretariat, but that only twenty qualified Timorese were available, although more than 80 others are currently studying abroad in relevant fields. [67]) There are at least three reasons, however, why it is realistic to develop a pool of Timorese with such skills. First, it can be done in time to be useful for the project. If some of the most talented Timorese high-school graduates are given strong post-secondary education in mathematics, physics, engineering, and languages, they can then be trained for the jobs available at the facility and be fully qualified within six or seven years. Since construction may take four years, and that the start of construction will not take place for several years, there is time to do this if one starts today, and even more time if the project is postponed. Second, the LNG facility will operate for many decades. Even if no Timorese are employed in high-skilled jobs at the start of operations, that can be achieved in the medium term. Finally, it has been done elsewhere. Both Qatar and Trinidad and Tobago, for example, have policies to increase the proportion of nationals employed at their LNG facilities. (RasGas, the company that runs the Ras Laffan LNG facility in Qatar, reported at the end of 2004 that 53.1% of its employees were Qatari nationals, and 27.9% of them held permanent positions. This is ahead of the schedule set by their long-term “Quality Qatarization” strategic plan and program. [71]  Trinidad and Tobago’s “Vision 2020” is that “By the year 2020, Trinidad and Tobago will be a united, resilient, productive, innovative and prosperous nation with a disciplined, caring, fun-loving society, comprising healthy, happy and well-educated people and built on the enduring attributes of self-reliance, respect, equity and integrity.” Sectoral subcommittees have explored how to accomplish this, and the Energy Subcommittee’s report discusses how employment and local subcontractors can benefit from the LNG industry. [28] )

Such training can to a large extent be provided by the companies operating the plant. But the government will also have to ensure that skilled trainees are available. One way of doing this, in addition to improving the schools overall, is to make Timorese preparation for technical employment a national priority. One could imagine how the lure of a technical position at the LNG plant would motivate many secondary school students to study hard—for example, scholarships for engineering studies could be made available to high school students who perform best in an annual national competition. Certainly the government will have to provide resources to schools so that they can fulfill the promise, but this suggestion indicates one way to produce qualified Timorese workers within eight years.

Improving local schools and universities is a long-term process. Government should make an effort to increase teaching quality and knowledge by hiring experienced foreign teachers and lecturers, who have had access to a wider range of experience and information than most local professors. The Portuguese and Brazilian vocational training schools are good initiatives, but local schools and higher education institutions should be enabled too.

With the right preparation on the educational front, the operating company could be required to steadily increase the percentage of Timorese workers, and to devise practical training programs for qualified Timorese. This would give Timor-Leste an economic and human asset that would both spread the benefits more widely than an enclave facility and last long after the gas wells at Greater Sunrise have run dry. If Timor-Leste complements its facilities with a competent workforce, it could become an attractive location for liquefying other gas reserves from the region even after the Sunrise project is completed—becoming a regional LNG hub. Several undeveloped gas fields, including Abadi, Evans Shoal and Caldita, are close enough to Sunrise or to Timor-Leste to make it plausible to process their gas in a Timor-Leste LNG plant. (see Appendix 1.)

Currently, unemployment is very high, and there are not many jobs available. In addition, few people of Timor-Leste have had access to higher education. Article 50.1 of the Constitution promises every Timorese woman and man the right and the duty to work in his or her freely chosen profession. However, the country has much work to do before we can enjoy this right, including developing a strong legal framework. UNTAET Regulation 2002/5 is still Timor-Leste’s labor code, but it does not effectively guarantee people’s right to employment. During the last five years, the Ministry of Labor and Solidarity did not effectively implement its responsibility to match jobseekers with employers, and the new government has removed the mandate for labor from this ministry, assigning it to the State Secretariat for Vocational Training and Employment.

Harnessing the construction phase

The jobs available during construction will use a variety of skills, from very basic to more complex. Those who receive training or jobs during the construction phase may find the experience helpful in getting jobs in future construction projects in Timor-Leste or abroad. The operation phase of the plant requires only a few hundred employees, with specific education and training. Hardly any Timorese will get these jobs during early years of plant operation, unless a great effort is undertaken to empower people with the necessary skills.

Efforts to avoid the enclave problem should begin at the start of planning for construction. Timor-Leste should promote positive side benefits for itself from the construction at every opportunity. As we discuss elsewhere in this report, the construction phase will only last a few years and could significantly intrude into the local human and natural environment. It does, however, also lend itself to benefits that can be harnessed with proper planning. For the duration of the construction process, Timor-Leste will have in its territory a large quantity of two resources it is sorely lacking: The physical machinery and inputs for heavy infrastructure construction; and the human skills required to employ them. It would be a terrible waste not to make maximal use of these resources to advance Timor-Leste’s development. There are two main ways to harness them:

First, in addition to constructing the pipeline/LNG facility itself, the contractors could be employed for other infrastructure development. To some extent, this could be infrastructure that supports the facility, such as upgrading the roads to the nearest large towns (making it possible for staff to live there and for local supplies to be transported efficiently) and improving air transport, communications, water and electricity for the plant, the workers, and, most importantly, people who live in the region. But more extensively, the presence of capable contractors could be used to carry out infrastructure projects only peripherally related to the LNG facility itself. The degree to which this should be financed through the LNG project itself would have to be negotiated, but clearly it could be a requirement for subcontractors that they should stay in the country after completing the LNG plant (or arrive earlier) so as to carry out other projects within their capacity, while receiving adequate compensation. Furthermore, it is important that any such additional infrastructure contracts be completely transparent and fairly priced. This means that non-LNG infrastructure work should be under separate contracts from work on the LNG plant, and should be carried out on competitive commercial terms to avoid incentives for corruption.

We observe that infrastructure investments in Timor-Leste have often been delayed by governmental difficulties with disbursing funds and managing projects, rather than by a lack of money. It seems quite feasible, therefore, to pay foreign contractors to do more work than just building the LNG plant. For example, contractors will be building ports for construction and for LNG tankers, they could also be contracted to upgrade the commercial port in Dili or elsewhere. Similarly, the company contracted to set up the power station at the liquefaction facility could also be hired to build smaller power stations elsewhere in the country. These examples are merely illustrative. The main point is that the construction of a pipeline/LNG complex should not be treated separately from the general infrastructure development in the country; rather, it should be integrated into a national master plan for infrastructure.

The second way in which the presence of experienced contractors can be harnessed for Timor-Leste’s development is through training and skills transfer. As a capable construction sector will remain crucial for Timor-Leste’s future, training programs should be an integral part of the large-scale construction of the LNG plant. If contractors and subcontractors were required to train a certain number of local workers before undertaking their construction project, the skills of the Timorese construction workforce would receive a valuable boost. This would also make subcontractors more willing to hire local workers for their construction jobs, as they would have trained them—contractors could even be required to employ the best of those they train, which would give them a strong incentive to provide quality training. Appropriate design of training requirement policies could, therefore, create a virtuous cycle of mutually enforcing incentives.

Incorporating the facility into the national infrastructure

We have already mentioned how the road access to the facility will determine the extent to which the staff are present in the local communities and nearby towns, rather than being helicoptered in from abroad and living in isolation from the rest of the country. Better roads will also make it easier for Timorese people and products to access the plant site, increasing the possibilities for Timorese goods and services to be purchased, sub-contracted or hired as part of the project. By the same token, a complementary approach to avoiding the enclave problem is to find ways to physically integrate the pipeline/LNG complex into the rest of Timor-Leste’s infrastructure. Here we address some possibilities for linking the physical plant with the general economic infrastructure. These are illustrative examples rather than outright recommendations; our general point is that if an LNG facility is built, it should be planned with a view to making it a connected part of the national infrastructure and not just a stand-alone project.

Linking the pipeline/LNG facility to Timor-Leste’s domestic energy infrastructure

Considerable economies of scale could be reaped by designing the power plant to also provide power to the domestic grid, relative to building an entirely separate power plant for that purpose, not to mention that the contractors would already be in place to build the plant. What this would require is serious advance planning to prepare the building and upgrading of the electricity grid, so that it is ready to be connected to the power plant when power becomes available.

Another way to connect the LNG facility with domestic energy infrastructure would be to make use of a small portion of the feeder gas from Greater Sunrise for household fuel needs. Diverting a very small share of the gas before liquefaction would be sufficient to provide households in the region a steady source of household fuel — which would reduce pressures for deforestation and indoor air pollution from firewood — at least for the duration of Sunrise production. Again, this would require detailed advance planning so that a gas distribution network can be built to be ready for when the gas starts to flow. Another option would be to bottle a small portion of the natural gas or liquid petroleum products from Sunrise (which is estimated to contain around 300 million barrels of condensate) for household fuel use, replacing wood and LPG currently imported from Indonesia.

Expanding the scope of the LNG tanker port

The pipeline/LNG complex will include a construction dock and a port for LNG tankers, where the liquefied gas will be pumped from storage tanks to cryogenic containers on large tankers, which ship the LNG to regasification plants in customer countries. This will be have to be a deep-water port where the LNG tankers can moor (Snøhvit LNG, for example, assumes a required harbor depth of about 16.2 meters below lowest astronomical tide). As with power generation, economies of scale will be gained if the LNG harbor can also include a commercial port. The construction of the LNG plant should be planned, to the greatest degree possible, with a view to the total infrastructure development of Timor-Leste.

Developing auxiliary industries

The infrastructure and material resources involved with an LNG facility could spur the development of other businesses. In Darwin, for example, the Bayu-Undan plant is stimulating the creation of a factory which will produce Australia’s entire need for helium. [58] Some have suggested that natural gas could be the feedstock for a fertilizer factory in Timor-Leste [17], and other chemical industries could convert natural gas to liquid fuels. More concrete or visionary illustrations are beyond the scope of this report, but they should be considered early in the project’s planning stages.

Conclusion

 

Existing requirements for Timorese employment

 

Model PSC (article 5.4): “Each Contractor shall comply with the proposals which accompanied its application under Article 13 of the Act for this Agreement in respect of training, employment and the acquisition of goods and services, and otherwise shall:

(a)  give preference to the acquisition of goods and services from persons based in Timor-Leste, provided they are offered on competitive terms and conditions;

(b) with due regard to occupational health and safety requirements, give preference in employment in Petroleum Operations to nationals of Timor-Leste”.

Bayu-Undan PSC (section 5.2): “The contract operator … shall …

(h) give preference to goods and services which are produced in Australia or Timor-Leste, or provided by subcontractors operating out of Australia or Timor-Leste, provided they are offered on competitive terms and conditions compared with those available from other countries

(i)   give preference to the employment of Timor-Leste nationals and permanent residents, having due regard to safe and efficient activities, and good oilfield practice”.

 

 

 

Box 15. Local content with ENI

 ENI, a large Italian oil company, was awarded offshore exploration contracts in RDTL’s exclusive maritime area in 2006. ENI has opened an office in Dili, as its initial step to implement its $9.6 million commitment to Local Content. ENI explained that they want to support capacity-building for the Timorese (training, education and internships), provide goods and services, support infrastructure, and technology transfer. ENI is approaching community-based organizations and local NGOs and soliciting proposals to receive funding from the company (although if ENI finds oil or gas some or all of this will be recovered from revenues paid to the government of Timor-Leste). ENI claims that this spending will provide opportunities for Timorese businesses and people to participate in their exploration program in sustainable and economic ways. [41]

How many Timorese get jobs at the LNG plant will depend very much on the training policies the government implements before construction starts, as well as the extent to which contractors are required to include local content. Ideally, the expertise of foreign contractors should be used not just to construct the facility but also to train local workers, and this could be made part of the requirement for being allowed to build. The Production Sharing Contracts (PSCs) that apply to Timor-Leste’s upstream petroleum projects (the 2005 Model PSC for future upstream projects including those licensed in June 2006, and the Bayu-Undan PSC; for Sunrise, neither government nor the companies have made the PSC public) are not sufficient in that regard. They do require contractors to give preference to local job seekers and locally sourced goods and services provided they are competitive, but they demand little in the way of training or otherwise creating a competitive supply of skilled workers, goods or services in Timor-Leste.

Article 18 of the Sunrise International Unitization Agreement (IUA) gives employment and training preference inside the Unit Area to nationals or permanent residents of both countries, but says nothing about downstream facilities.

The new Government in Timor-Leste is discussing a Petroleum Optimization Law, which will revise the draft regulation on Local Content Policy, a mechanism to encourage companies to use local workers and suppliers of goods and services to help strengthen Timor-Leste’s economy. The Government is also providing scholarships for Timorese to study in relevant fields, and considering requiring contractors to implement a Social Responsibility Concept – which will require them to do more for Timorese development than existing contracts and laws. [67] As this regulation is finalized, it needs to consider how a project like the Sunrise LNG plant can best be used to help develop other sectors of our economy.

 

Continue to Chapter 6. Impact on the Social and Natural Environment

Go back to Chapter 4. In Timor-Leste or For Timor-Leste

Return to Table of Contents

 

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: 
info@laohamutuk.org    Web: http://www.laohamutuk.org    Blog: laohamutuk.blogspot.com