Timor-Leste: Gusmão government reverts to Tasi Mane petroleum project
Jul 30, 2023
Despite the adoption in early May this year of a new development plan by the last Timorese government, incoming Prime Minister Xanana Gusmão has declared that his government will implement the Strategic Development Plan adopted when he was Prime Minister in 2011. His calls for unity ring very hollow when he ignores the serious work of his predecessors.
On May 3, 2023, the Council of Ministers approved the 2023-2028 Readjusted Strategic Development Plan, and recommended it to the next Parliament and government. This new plan adjusted the 2011 plan for the impacts of climate change and the pandemic, and elaborated the diversified economic development goals required if the petroleum development pathway is no longer viable.
Gusmão’s National Congress for Timorese Reconstruction (CNRT) had an historic high 41.6 per cent vote in the May 21, 2023, parliamentary elections. Winning 31 seats in the 65-member parliament, CNRT formed a parliamentary majority with the support of the Democratic Party (PD) which won 6 seats.
However, it took Prime Minister Gusmão until July 1 to organise his ministry, who were sworn in that day by President Jose Ramos Horta. Everyone celebrated a peaceful transition of power from the outgoing Taur Matan Ruak government.
The remaining 8.9 per cent of the vote was shared between 12 other parties.
There were 890,145 registered voters, and the turnout was 79.28 per cent, and the number of valid votes cast was 98.13 per cent of these, or 692,521.
Source: Court of Appeal proclamation. June 5, 2023
This is the first Timorese election where FRETILIN was not the party with the greatest number of votes. A major factor was the imbalance in campaign spending between CNRT and FRETILIN.
Following the May election setback, FRETILIN has undertaken an extensive review.
During the election campaign Gusmão called for a re-start of project to create an onshore petroleum industry on the south coast, known as Tasi Mane, associated with the development of the Greater Sunrise Gas Fields. FRETILIN supported urgent diversification of the petroleum-dependent economy.
Despite Gusmão and Ramos Horta’s current rhetoric about uniting the country to meet its development challenges, Gusmao’s strategy is to destroy FRETILIN as a political force, by peeling off key FRETILIN figures in a series of elections. This started in 2006-07 with the FRETILIN Mudança group, which disappeared entirely in this year’s election, then with former army commander Taur Matan Ruak in the 2012 Presidential election, and with Lere Anan Timur, the next army commander, in the 2022 Presidential election.
The new Gusmão government has won on that key election issue of the development path for the country and will now attempt to invest the country’s entire Petroleum Fund and take on debt to develop the Greater Sunrise gas fields and Tasi Mane.
However, Woodside Petroleum, which owns 33.3 per cent of the Greater Sunrise Joint Venture, does not agree with Gusmão’s Tasi Mane plan, and wants the Greater Sunrise gas to be processed at an existing LNG plant in Darwin. While President Ramos Horta has told Australia that his government will turn to China if Woodside persists, it is unclear that China, which has been asked before, would finance the project.
Australia’s Foreign Minister, Senator Penny Wong, visited Timor-Leste on July 7, 2023, before Prime Minister Gusmão announced his development plan. She promised to increase economic support, cooperate on Greater Sunrise, and to develop a respectful long term relationship.
“That means listening carefully to your interests and priorities,” said the Foreign Minister.
“That means being a partner who will support the sustainable growth of your economy and deliver the greatest wealth and security for your people. And avoiding the risks of unsustainable lending that have hobbled other countries.
“That is why Australia is so deeply committed to working with Timor-Leste to realise the development of Greater Sunrise.
“But before I talk about the future of Greater Sunrise, I want to acknowledge some of the past. There have been past instances in which Australian governments have acted in ways that Timorese people – and many Australians – found disappointing.
“Timor-Leste was right to initiate compulsory conciliation, as you were entitled to do under the United Nations Convention on the Law of the Sea. The Australian Government should not have formally challenged the competence of the Conciliation Commission, when a broader, more understanding approach was needed that reflected the unique relationship we had with such a close neighbour.
“It was not in the spirit of our friendship, from our struggle together in World War Two to our support for your young nation after independence,” said Minister Wong.
According to the Australian government, there are 4,680 Timorese workers currently in Australia, employed across rural and regional areas, remitting 37.5 million dollars each year to their families in Timor-Leste. Senator Wong also committed $2 million to assist Timor-Leste in its bid for full membership of the Association of South East Asian Nations (ASEAN).
Tasi Mane and beyond 2030
According to an industry source, the cost of developing production at Greater Sunrise is US$14 billion, of which Timor-Leste would have to pay 56.7 per cent or US$7.98 billion.
The on-shore processing and petrochemical project -Tasi Mane – is calculated to cost US$18 billion. All of this would have to be financed by Timor-Leste. So the total investment required from Timor-Leste would be US$25.98 billion, at a minimum.
But before any of this could happen, the three Joint Venture Partners have to agree – Woodside (33.3 per cent), Timor Gap EP (56.7 per cent) and Osaka Gas (10 per cent). This is the first major hurdle that the Gusmão government would have to overcome.
According to the revived 2011 Strategic Development Plan:
“To bring petroleum development to our shores and provide a direct economic dividend from petroleum industry activities, supporting infrastructure will be developed on the south coast of Timor-Leste. This will be led by the Tasi Mane Project, a multi-year development of three industrial clusters on the south coast which will form the backbone of the Timor-Leste petroleum industry. The project will involve development of a coastal zone from Suai to Beaço and will ensure that required infrastructure is in place to support a growing domestic petroleum industry. Tasi Mane will include the Suai Supply Base cluster, the Betano Refinery and Petrochemical Industry cluster, and the Beaço LNG-Plant cluster.” (p. 138)
The National Budget for 2023, worth US$2.16 billion, supported the FRETILIN priority for fighting poverty and child malnutrition and improving food security. Compared to the previous year, this Budget also reduced spending by 8 per cent, or US$264 million.
The Budget is largely financed from the Petroleum Fund, which stood at US$16.338 billion at the start of 2023. The sustainable withdrawal was calculated at US$490 million, but the actual withdrawal will be US$1.346 billion, indicating a continuing unsustainable drawdown on the Petroleum Fund.
According to the State Budget, the Bayu-Undan gas-liquids field was expected to end production in 2022, so petroleum revenue is estimated to be just US$115.2 million in 2023 and beyond.
Under the current spending trajectory, there is a risk that Timor-Leste will hit a fiscal cliff in 2034 at which point around US$1.6 billion worth of spending cuts may be necessary. This would result in a large shock to GDP, likely resulting in large rises in unemployment and large falls in incomes, the provision of public services and ultimately living standards.
It would also result in a shortage of US dollar currency, unless Timor-Leste devises its own currency by then.
Modest spending cuts, tax increases and economic growth, however, would see the Petroleum Fund continue to operate until 2045, allowing more time for sustainable economic transition away from petroleum.
Now that Gusmão is resuming the Tasi Mane project, and having to pay Timor-Leste’s share of the development cost of the Greater Sunrise fields, all of the Petroleum Fund and much more would be committed in the next few years.