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The La’o Hamutuk Bulletin Vol. 2, No. 5: August 2001

Phillips Petroleum and Canberra Play an Old Game

Once again, greedy oil companies and their allies in the Australian government are trying to take advantage of East Timor. And, once again, they are wrong.

The latest controversy concerns an announcement on 26 July by Phillips Petroleum, a U.S.-based oil company, and its fellow investors in the Timor Gap. In a letter to U.N. Secretary-General Kofi Annan, Phillips expressed its dismay that East Timorese leaders will not guarantee them the same tax rates they received from the Indonesian occupation authorities. For this reason, Phillips and its partners are delaying "indefinitely" the construction of a US$500 million pipeline that would carry natural gas from the Bayu-Undan field to Darwin.

A spokesperson for Australian Foreign Minister Alexander Downer criticized the East Timorese position for reportedly trying to extract a further US$500 million from oil companies involved in the Timor Gap. While acknowledging East Timor's right to decide its own tax policies, he claimed that East Timor's position contradicts a signed promise by East Timorese leaders Xanana Gusmão, José Ramos Horta and Mari Alkatiri in October 1999. Reportedly, this agreement stated that taxation rates would be no higher than those under the Indonesian authorities. "We think it's important that [East Timor] holds up its original commitment," stated Downer's spokesperson.

Rightfully, UNTAET head Sergio Vieira de Mello publicly expressed strong disapproval of Phillips Petroleum and various Australian government officials. And lead negotiators for the recently-signed memorandum of understanding on the new Timor Gap Treaty, Mari Alkatiri and Peter Galbraith, voiced their support for de Mello's position, with Minister Alkatiri characterizing the concerns of the oil companies and Canberra as "misdirected."

Phillips and Canberra are attempting to hold East Timor hostage to supposed "promises" made in the immediate aftermath of a campaign of murder and destruction by the Indonesian military and its militia proxies. In doing so, they are trying to maintain a fiscal regime very favourable to the interests of the oil companies, a position gained because of Indonesia's desire to gain international acceptance of its illegal annexation of East Timor. In this regard, Phillips and Canberra are trying to institutionalise the result of a criminal act, one in which they were partners in crimes.

As former Political Affairs minister, Peter Galbraith argued, "In October 1999, while Dili was still in smoldering ruins, East Timorese leaders indicated to the companies that they welcomed their continued investment in the Timor Sea. At the time, the leaders were not aware of the unfair investment incentives, which lay hidden in company contracts." For this reason, asserted Galbraith, "it is ludicrous now to assert that East Timor is obliged to give the companies the benefit of the same unfair fiscal incentives that were offered to them by the Indonesians and Australians", ones "offered to attract companies to invest in a territory which belonged neither to Indonesia nor Australia."

There is too much money involved in the Timor Gap for Phillips Petroleum and its allies to not stay involved. The question is, under what conditions will they be involved? As the past conduct of Phillips and its allies in aiding Indonesia's subjugation of East Timor demonstrates, they are not defending any principle; they are simply trying to ensure high profits. The East Timorese leadership is correct to insist upon a set of tax policies that is significantly more favourable to East Timor.

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
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