Thursday 16th August 2001, [and affet comment]
JIM GODLOVE, PHILLIPS PETROLEUM: Our belief is that we have anywhere from a month to maybe two or three months at the outside in order to secure the customers for Timor Sea gas.
PETER GALBRAITH, UN NEGOTIATOR: They’re
the ones that are making the investments.
They’re the ones who want these issues resolved, or so they say to us. And we’re prepared to have a dialogue whenever they’re prepared to have a dialogue.
ALAN KOHLER (abc): Given the high stakes
involved for everybody, it’s hard to believe they’re not having a dialogue.
But three weeks after Phillips put the Timor Sea gas project on hold the two sides still haven’t spoken.
UN negotiator Peter Galbraith is staying with his father, renowned economist JK Galbraith, in Vermont, USA, and the head of Phillips Petroleum, Jim Godlove, is in the midst of an election campaign in Darwin. But they’re not the only ones for whom there are high stakes in these stalled negotiations.
There’s also the Australian people, especially those living in Sydney and Adelaide.
PETER DOBNEY, ENERGY USERS ASSOCIATION:
The gas reserves in south-eastern Australia are located mainly in the Cooper
Basin and in Bass Strait.
Cooper Basin is running down now.
Bass Strait, they’re still finding new reserves, although they’re quite small in comparison to the original find.
So Timor Sea will become important, very important.
MICHAEL SWEENEY, ENERGY ADVISER: There’s a big need for gas-fired power generation, a growing need for peak demand in NSW, and particularly in SA, where there has been electricity shortages.
ALAN KOHLER: Is it possible that, if the Timor Sea gas doesn’t come onstream, doesn’t get piped into south-east Australia, that electricity prices and gas prices will rise in those places?
MICHAEL SWEENEY: Yes, there’s every possibility
There is a growing supply-demand imbalance.
And if there isn’t a new entrant that can supply significant volumes of gas, then you could expect to see some upward pressure on gas prices.
ALAN KOHLER: Just as important as the need to replace dwindling Cooper Basin gas reserves is the fact that there are only two suppliers of gas in Australia.
PETER DOBNEY: At the moment we’ve got virtually
duopoly. We’ve got, as I said, the gas out of Bass Strait, there’s
a joint marketing agreement there, between Esso and BHP, and that hasn’t
been able to be broken up till now.
And we’ve got Santos coming out of the Moomba field.
And the pricing is always very similar.
So what we need is another gas supply to give that some extra pressure on maintaining downward prices.
ALAN KOHLER: As we reported a month ago
on the 7:30 Report, Australia is facing electricity shortages unless about
$20 billion worth of new power stations are built over the next decade.
Because of the pressure to reduce greenhouse emissions, new coal power stations are out of the question.
That means that most of the electricity has to come from gas-powered stations like this one behind me.
With that in mind, Australia’s power companies have been lining up to talk to Phillips and have been anxiously watching the progress of negotiations with East Timor.
JIM GODLOVE: Clearly, the customers in south and south-east Australia represent a very significant base for, a base of customers that are very interested in purchasing Timor Sea gas.
PETER DOBNEY: If we’ve got lower priced gas coming in from the Timor Sea that will flow through into lower priced electricity.
ALAN KOHLER: Is there anything that the Australian Government could or should do to get the project off the ground?
PETER DOBNEY: Yes, I think they need to
facilitate some discussions between the parties.
At the moment there’s a bit of a stand-off between them. We need to see that come together to bring some benefits to Australia rather than all the benefits going offshore.
ALEXANDER DOWNER, FOREIGN MINISTER: We
are doing everything we can to encourage a satisfactory settlement, believe
We’re not putting out a lot of press releases about it but we’re doing a lot behind the scenes.
ALAN KOHLER: The impasse is due to this
letter, signed by Xanana Gusmao, Jose Ramos-Horta and Mari Alkitiri on
20 October 1999. The key sentence promised that East Timorese tax
would be no more onerous for the contractors than existing policies.
In effect, Peter Galbraith is now saying that they did not know what they were signing.
PETER GALBRAITH: This was the 20th of October
Dili was burning.
And the Timorese had assumed that the terms of the Timor Gap Treaty were reasonable and fair, commercial terms.
They had no idea that the companies were getting $2.27 back for every dollar they invested before there was profit sharing. They didn’t know what was in those contracts.
So they were surprised, we were surprised.
The negotiators agreed that these terms were completely unreasonable.
ALEXANDER DOWNER: Mr Galbraith was himself, albeit briefly, a diplomat. You can’t conduct international relations, nor can you, as a sophisticated country, conduct negotiations with major companies on the basis that, when you sign an agreement, you then some months later turn around and say you didn’t really know what you were signing.
ALAN KOHLER: Jim Godlove’s message is simple—go back to the 1999 letter.
JIM GODLOVE: We’ve had a commitment to
this project, a steady commitment, for the past five years.
We want to be successful.
But obviously at this point in time we are experiencing some difficulties, difficulties that we believe were fully avoidable, and difficulties that can be overcome, so long as the previous commitments are honoured.
PETER GALBRAITH: Our goal in all these
negotiations has been to try to maximise the revenues for the government
and people of East Timor from resources that belong to East Timor.
East Timor is a desperately poor country, and the oil and gas of the Timor Sea has the ability to double the gross national product of East Timor.
ALEXANDER DOWNER: I have a sense that, if Peter Galbraith is going to stick with his present position, then the gas pipeline simply won’t go ahead, that will be the end of it.
It is rather unbelievable that a foreign affairs minister (Downer) could be saying: ‘We are doing everything we can to encourage a satisfactory settlement, believe me’, then declare that: ‘if Peter Galbraith is going to stick with his present position, then the gas pipeline simply won’t go ahead, that will be the end of it’.
It is clear from Jim Godlove: ‘we are experiencing some difficulties, difficulties that we believe were fully avoidable, and difficulties that can be overcome, so long as the previous commitments are honoured’ is talking about the letter that was signed in October 1999 by Xanana, Horta and Alkatiri. This was undoubtedly done with the best of intentions, to encourage Phillips, but clearly it was done without full knowledge of the terms of the agreements the Australians had signed withy Phillips under the old Timor Gap Treaty. This treaty was illegal, attempting to exploit oil and gas from an area which did not belong to them, but rather to East Timor, then under military occupation by Indonesia supported by Australia). As such, the terms apparently gave Phillips extra inducements to invest, way beyond normal international agreements. In essence, East Timor would have to find at least $500m to give Phillips, or forgo $500-600m return. For a country with a budget of about $60m, this is ridiculous.
Australians for a Free East Timor position is that Phillips and the Australian government should recognise that the October letter was signed under pressure if not duress, in circumstances which were unreal, the country destroyed, and the signatories had not been provided with those details about which the issue now turns, apparently. In a court of law, that signing would not stand up. In a matter of commonsense, East Timor leaders were supporting the primacy of the Phillip’s Company to continue developing the resource of Bayu Undan. Australia and Phillips agreed to the unreasonable terms when their deal was illegal. East Timor, in the middle of their first democratic election as a nation, does not have the mandate to even negotiate at this point.
Thus as a matter of commonsense, Australia and Philips should agree to split the $500m or so 50:50 between each other, and get on with the project. Both have this in their power.
The NT election tomorrow was called on the basis of the present Conservative government which has been in power continuously for at least 26 years in the NT being better able to deliver the Timor Sea gas to Darwin. Since then Phillips has postponed its commitment ‘indefinitely’, and Shell plans an offshore LNG platform, with a smaller pipeline, maybe, to Darwin.
I guess Shell could also dump the occasionaly shipload into East Timor. It is sad and ironic that East Timor is being deforested for fuel wood partially as a result of kerosene not coming in for cooking stoves, and spends itself broke paying for diesel for outmoded power stations, yet it has this energy resource just offshore, and some onshore.
[affet = Australians for a Free East Timor, based in Darwin, Northern Territory - BD]
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