East Timor pins hope on energy deal

Timor's nationhood celebrations have been enjoyed by both the young ...

DILI, East Timor (CNN) -- East Timor may be the world's newest nation, but it is also one of the world's poorest.

Much hope for the tiny country's future is being placed on oil and gas reserves underneath the Timor Sea between Australia and the new nation.

A treaty signed Monday between the two nations establishes the basis for the exploitation of these reserves with the lion's share of the revenue going to East Timor.

... and the old.

East Timor will receive 90 per cent of the oil and gas revenue from the Timor Sea Treaty, a potential income of tens of billions of dollars.

While the revenue split may seem generous, many East Timorese argue they should receive the entire income from the resource.

Under today's standards on international sea-bed borders, the entire resource should be in East Timor territory, they argue.

Australia will also benefit from plans to process the gas onshore in the northern Australian city of Darwin.

However, the oil is not expected to start flowing for at least another three years with the cash not coming in until some time after that.

Despite the treaty signing commercial issues remain unresolved.

Dr. George Quinn, East Timor expert at the Australian National University in Canberra, told CNN he regarded revenue from the Timor Sea oil and gas reserves as "very uncertain."

CNN NewsPass VIDEO CNN's Atika Shubert reports on the concerns and celebrations in East Timor after its new government was sworn in. (May 20) Play video CNN's Maria Ressa has more on former U.S. President Bill Clinton's visit to the world's newest nation, East Timor (May 20) Play video   CNN NewsPass VIDEO CNN's Atika Shubert reports on how observers are rating the performance of the United Nations as it hands over administrative duties to a newly independent East Timor. Play video • East Timor video archive    IN-DEPTH East Timor: Birth of a nation    WEB MOVIE Flash intro: A new nation    RESOURCES Photo gallery: Voices of Timor  Photo gallery: Countdown to a new nation    PROFILES • Xanana Gusmao  • Jose Ramos-Horta  • Bishop Belo    EAST TIMOR • Timeline: Road to nationhood  • Country profile

"There is the question of when it comes onstream and how much revenue it will provide; 2005 has been mentioned, but that is by no means certain," he said, adding that technical and contractual issues still need to be resolved.

According to the budgets prepared for the donors' meetings in Dili on May 14-15, East Timor's oil income is projected to be $20 million this year, or 5.3 percent of the country's GDP of $371 million.

That projection rises to $36 million in 2003, $78 million in 2004 and then $103 million each in 2005 and 2006, by which time it will account for 25 percent of GDP.

The International Monetary Fund says the budget projections use a conservative oil and gas revenue path that has been discounted by 25 percent to incorporate "possible downside risks to prices and/or production delays."

That reflects some of the commercial doubts surrounding the resource.

As a result of these uncertainties, aid agencies say, East Timor will remain heavily dependent on outside aid and the continued goodwill of the international community.

Leading the new East Timorese government is Chief Minister Mari Alkatiri, the head of the dominant Fretilin party.

After his own swearing in Monday he pledged to build a "solid, transparent government" for the new nation -- one that would not tolerate corruption, collusion and nepotism.

Among its priorities, he said, would be education and health care -- two areas seen as vital for improvement if East Timor is to build a healthy and dynamic workforce.

On top of that, the new government will have to work hard on job creation schemes -- essential for a country in which as much as 70 percent of the population are thought to be unemployed.

Although the United Nations has now handed power to the East Timorese administration, the world body has made clear that it will remain a strong influence in East Timor as the country continues to rebuild itself.

Speaking to reporters after his arrival Sunday, Annan said the military component of the U.N. presence was expected to hand over to the East Timorese Defence Force (ETDF) by 2004.

However, he said the United Nation's development agencies would continue their presence in the country for "the indefinite future."

Much of the East Timor is still reeling from the devastating violence that followed the 1999 referendum on independence from Indonesia.

In the capital itself reconstruction efforts are well underway, with new hotels, shops and restaurants opening almost every day.

However, much of the rest of the country remains largely untouched and aid agencies say there is a lot of work to do before East Timor is able to stand on its own economically.