[Kabar-indonesia] East Timor Zealously Guards a Looming Lifeline: Oil and Gas [+Tangguh update]

[JoyoNews at aol.com]

also: update: BP, lenders sign 2.6 billion 
dollar loan deal on Tangguh LNG project

East Timor Zealously Guards a Looming Lifeline: Oil and Gas

By JIM GOMEZ
Associated Press Writer

DILI, East Timor, August 1 (AP) - East Timor's ramshackle capital is
dotted with rundown buildings, old cars and squalid camps packed with
thousands of people waiting to return home after months of violence.
But billions of dollars in largely untapped oil and gas reserves lie
just off the coast of Asia's newest and poorest nation.

East Timor is zealously guarding its nascent oil and gas industry,
seen as a potential lifeline following centuries of colonial rule and
foreign occupation that crippled it politically and economically. It
is determined not to follow the path of several other mineral-rich
countries that failed to prosper.

The tiny country created a petroleum fund last year to protect its
mineral wealth for future generations, which was lauded by the World
Bank and other international institutions. The government has vowed
not to spend the money, which so far pools income from two offshore
fields, on golden palaces and limousines but on roads, schools and
health.

Rules that govern the fund -- currently $600 million and growing --
limit how much the government can withdraw, and theoretically ensure a
sustainable annual income for the nation of less than 1 million
inhabitants for decades to come.

"It's the absolute best way of preserving the nation's wealth," said
Roger White, a British expert advising East Timorese energy officials
under an eight-year consultancy program funded by a grant from Norway.

"It is to prevent the difficulties that many oil rich nations have had
-- either that their money is spent badly or when the oil and gas
resources are gone, there is nothing left," he said.

East Timor was plunged to the brink of civil war in May when
then-prime minister Mari Alkatiri -- the fund's architect -- dismissed
600 soldiers, sparking clashes between rival security factions that
spilled into gang warfare, looting and arson attacks. Alkatiri was
forced to resign as prime minister in July amid allegations that he
helped fuel the unrest, something he denies.

At least 30 people were killed and another 150,000 fled homes in the
capital, Dili, highlighting the country's continued political
instability seven years after it voted for independence from
Indonesia.

East Timor survived largely on international aid when it first became
a new nation in 2002, following two years of U.N. administration,
earning almost nothing from its nascent petroleum industry.

Australia has been drilling for oil and gas for several years in an
offshore field that includes Bayo Undang, located on contested waters
between the two nations. After East Timor became independent, it was
able to negotiate a considerably higher share in oil and gas revenues.

Twenty million dollars in royalties from the Bayo Undang field were
rolled into the petroleum fund. Today it's worth more than $600
million, thanks to production at the Bayo Undang and Elenka Katua
fields, soaring oil prices and interest payments, Alkatiri said in an
interview with The Associated Press.

With an estimated 12 trillion cubic feet of natural gas beneath the
Timor Sea -- slightly smaller than the reserves found under Brunei --
the fund is expected to keep growing.

A treaty signed with Australia in January to develop the Greater
Sunrise gas field -- the largest in the Timor Sea -- is expected to
earn East Timor $4 billion over the expected 30-year life of the
project.

Abraao de Vasconselos, general manager)of the Banking and Payments
Authority, which manages the petroleum fund, said the money is
invested in U.S. Treasuries and each government withdrawal requires
parliamentary approval.

"The idea is to protect the fund for future generations," he said.

But others noted that East Timor's ability to hold on to oil and gas
as a lifeline depends largely on the ability of the government --
which is for the first time trying to tap into the resource fund to
pay for the 2006-2007 budget -- to effectively manage the revenues.

That means building an effective government and private work force by
improving health and education, and investing in agriculture,
infrastructure and rural development, said Jose Teixeira, Minister for
Natural Resources, Minerals and Energy.

"Nothing will replace prudent economic and financial management," he said.

It also means avoiding pitfalls of other oil-rich developing nations
like Chad, which saw a similar petroleum fund collapse after the
government eased restrictions on spending of the oil money.

The World Bank responded by suspending $124 million to the Central
African country, though the two sides have since signed an interim
agreement restoring the loans.

Some critics at home wonder why East Timor is not taking advantage of
its oil and gas reserves more quickly to rev up its economy and get
people -- who earn an average of less than a dollar a month -- back to
their homes.

"If we have the money, let's use it and not beg" from other countries,
said Mario Carrascalao, a former East Timor governor. "It's not the
way, we have to be responsible."

But White noted that East Timor, which was colonized for centuries by
Portugal before coming under Indonesian occupation in 1975, needs to
build an efficient bureaucracy before it can exploit the economic
potential of its petroleum resources.

"There are very few experienced bureaucrats," he said. The country has
had to start from scratch building all apparatus of government and
does not necessarily know how to spend the money wisely, he added.

"It's the birth pains of a new nation," White said.

The recent instability also highlighted the risks of doing business in
East Timor.

The government was forced to postpone signing oil and gas exploration
contracts in other offshore areas with Italian oil and gas giant Eni
SpA and India's Reliance Petroleum Ltd., said White. Gangs barged into
a building that contains the offices of several senior energy
officials and looted computers and supplies, he said. Several local
staffers have yet to return to work, he added.

The deals are still on, Teixeira said, and they may be signed in the
next few weeks.

"We were just within three weeks of signing these big contracts and
having enormous work for the good of the country and now it's just
waiting," White said. "It's an absolute tragedy."

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Agence France-Presse
August 1, 2006

BP, lenders sign 2.6 billion dollar loan deal on Tangguh LNG project

A consortium led by BP has signed a 2.6 billion dollar loan agreement with a 
range of lenders to finance the Tangguh LNG plant being constructed in 
Indonesia's remote Papua province.

The massive project is expected to provide employment to more than 6,000 
workers and contribute some 12 billion dollars to state budget revenue in 
Southeast Asia's largest economy over the next 10 to 20 years.

Tangguh draws its natural gas supplies from six fields with proven reserves 
of 14.4 trillion cubic feet in the Bintuni area of Papua.

The consortium led by British oil and gas major BP signed the deal with the 
Japan Bank for International Cooperation (JBIC), Asian Development Bank (ADB) 
and several international commercial banks.

"The loan signing agreement today will ensure BP is able to begin delivering 
LNG to its customers in 2008 as scheduled," energy minister Purnomo 
Yusgiantoro said after witnessing the signing ceremony.

Of the total 2.6 billion dollars, JBIC is providing 1.2 billion, ADB is 
giving 350 million and seven banks in a consortium are providing a further 1.066 
billion dollars.

BP Indonesia president Anne Drinkwater said the Tangguh LNG consortium 
expects to secure a total of 3.5 billion dollars.

"The balance of the loan financing, amounting to 900 million dollars, is 
hoped to be finalized by the end of this year," she said.

Drinkwater said the cost of the whole Tangguh LNG plant -- for drilling, 
production facilities, pipelines and two facilities that purify and liquify gas -- 
is estimated to reach 5 billion dollars. The remainder of the funds are to be 
provided by the BP-led consortium. 

She said the construction of the project, which began in March last year, is 
44 percent complete.

The project has secured long-term LNG sales to four customers, including some 
2.6 million tones per annum (mtpa) to the Fujian LNG project in China.

Drinkwater said the LNG plant will initially produce at least 7.6 mtpa.

Robert Bestani, director general of ADB's private sector department, said he 
expected the project would help reduce poverty in Southeast Asia's largest 
economy.

"The project encourages clean energy use around the region. At the same time, 
it will increase revenue flows to the national, provincial and local 
governments. These funds can accelerate social and economic development and reduce 
poverty," Bestani said.

Minister Purnomo said the project was forecast to provide employment to more 
than 6,000 workers.

Kardaya Warnika, chairman of oil and gas regulatory body BP Migas, said he 
expected the project to contribute approximately 12 billion dollars to state 
budget revenue over the next 10 to 20 years.

BP Indonesia holds a 37.16 percent stake in the Tangguh project, while 
China's CNOOC Ltd owns 16.96 percent and MI Berua BV has a 16.30 percent stake.

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Joyo Indonesia News Service
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