Hardball or a fair deal?

timorgap_map2-sm.jpgThe East Timor-Australia maritime boundary issue is in the news again, with the Financial Times running an article quoting Timor Leste Prime Minister Mari Alkatiri as hoping that an agreement might be able to be reached by July. Apparently Australia has increased its offer for a share of royalties in the huge Greater Sunrise gas field from $3 billion to $4 billion, in return for East Timor agreeing to leave the overall issue of the maritime boundary unresolved for another 100 years.

The Greater Sunrise field is estimated to have reserves of a bit over $6 billion (although it isn’t unusual for reserves to be found to be larger than first estimates). Thus the Australian offer is on its face attractive, given that the great bulk of the Greater Sunrise field is within Australia’s maritime boundary under the agreement negotiated with Indonesia in 1989. However, downstream processing is much more valuable than mere royalties, so a deal which just gives East Timor the lion’s share of royalties but leaves effective control of the field with Australia and which results in the gas being piped to Darwin, would in fact be a good outcome for Australia.

But is the 1989 agreement with Indonesia a fair one? I blogged at some length about the maritime boundary issue in two posts (here and here). Together I think they provide a reasonably detailed (and accurate AFAIK) overview of the issues.

The issue has also provoked a guest post from Stan of South Pacific Federation Project over at The Currency Lad’s blog. With due respect to Stan, his post is a bit simplistic and credulous, mostly accepting the spin put out by DFAT and therefore concluding that Australia’s position in international law is “strong”. In fact it’s much more complicated than that, although I don’t really disagree with a conclusion that Australia’s position is probably fairly strong in a realpolitik (if not international law) sense.

As I concluded in this post, East Timor in fact probably has quite a strong case for a new maritime boundary at the mid-point between the two countries. But that doesn’t really do East Timor all that much good in net financial terms, as the accompanying map clearly shows. It’s really the position of the lateral (or perpendicular) boundary that will determine who gets the lion’s share of royalties. The Greater Sunrise field is the green patch at top right of the “Timor Box” (or Timor Gap), overlapping only slightly into the Box, while the much smaller Bayu Undan field (currently being developed and piped to Darwin) is wholly within the Box and roughly at its centre left side.

The result of agreeing to fix the horizontal boundary at the mid-point between Australia and East Timor (for which there is a strong case in international law) rather than at the edge of Australia’s continental shelf which is much closer to East Timor, would be that East Timor would be entitled to control the whole of the smaller Bayu Undan field. But Australia has already agreed to cede 90% of royalties for Bayu Undan. Agreeing to a mid-point boundary would do nothing at all to increase East Timor’s share of Greater Sunrise royalties beyond the earlier Australian offer of an 18% share. Hence the current Australian offer of a $4 billion total payment still looks generous (although it’s a payment for postponing territorial claims for a century as well as a share of immediate royalties).

So why is East Timor still arguing? Essentially because they also assert that the lateral/perpendicular boundaries should be shifted sideways to give them more maritime territory. But there are some major problems with this stance:

(1) Indonesia would inevitably re-open the maritime boundary issue for adjacent areas and would also claim a mid-point horizontal boundary. At the moment Indonesia is taking the view that it did a deal back in 1989 and that both parties should stick to it. Indonesia’s claim to a horizontal mid-point boundary would be just as strong as East Timor’s.

(2) East Timor’s claim to adjustment of the perpendicular/lateral boundary does not appear to be very strong. Generally the principles (in my fairly non-expert understanding) are that such a boundary would be drawn at right angles to East Timor’s coastline unless there are very exceptional major irregular geographical features (e.g. huge bays or peninsulas) which suggest some different angle. It isn’t at all obvious that East Timor has any such exceptional geographical features, so that the current lateral boundary negotiated with Indonesia seems a very fair one. In fact arguably it’s more than fair, in that it includes in the Box a part of Greater Sunrise that would have been excluded had the lines been drawn at right angles.

(3) Thus, it simply wouldn’t make sense for either Australia or East Timor to proceed to international arbitration on the maritime boundary. The most probable outcome of such an arbitration would be that the horizontal boundary would be fixed at the mid-point between Australia and both East Timor and Indonesia, while the lateral boundaries would be left where they are. The net practical result would be that Australia would lose out completely on any share of both Greater Sunrise and Bayu Undan, while East Timor would gain an additional 10% of the smaller Bayu Undan field, but would be only be entitled to around 18% of Greater Sunrise royalties with Indonesia retaining the lion’s share. It’s extremely unlikely that Indonesia would make the sort of generous offer to East Timor over Greater Sunrise that Australia has put on the table (no doubt because Australia is aware of the dangers from Indonesia inherent in the situation).

(4) Australia can afford to leave Greater Sunrise undeveloped for as long as it takes to achieve an outcome it can live with. East Timor can’t. It is one of the world’s poorest nations and is totally dependent for its survival on achieving a solution to the maritime oil and gas issues. Australian negotiators know this very well, and aren’t going to concede much more than they’ve already put on the table.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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Rex
Rex
2022 years ago

I agree with you completely Ken. I support the Australian Government playing hardball on the perpendicular boundary. While I have every sympathy for East Timor, they have in my view no grounds for arguing for an ajustment to that perpendicular boundary. Further to do so must surely involve changes in Indonesian boundaries, and this may well prove problematic for Australia in the future.

The Politics of course is a different story. The simplistic picture painted by Bob Brown and Co is that Australia is dudding East Timor. It is no way as simple as that, and East Timor is playing pretty loose with the truth themselves in order to gain advantage.

Stan
Stan
2022 years ago

Sounds good to me Ken, with perhaps just one omission. (I accept that I could be completely missing something here, so take this for what it’s worth.)

In seems to me that UNCLOS gives weight to both the continental shelf boundary and an EEZ boundary. Maybe not equal weight, but that’s something for lawyers and negotiators to argue about.

EEZs do seem to pretty much always be midpoint agreements. So that part of East Timor’s claim seems strong. Continental shelf boundaries do not ‘naturally’ fall midway between two countries, so that part of Australia’s claim is also strong. The thing is, it doesn’t seem that overlapping boundaries are practical or supported by international precedent. (Say for example East Timor controlled the EEZ above the sea bed and Australia controlled the continental shelf below, East Timor could quite rightly invoke ‘pollution controls’ on drilling through its EEZ to the minerals and effectively control the drilling.) So a boundary that incorporates both the EEZ and the continental shelf has to be found, or at least mechanisms for sharing the wealth in agreed joint areas which could be used as an alternative to a fixed boundary. On my reading, UNCLOS provides guidance on assessing both sorts of claims that doesn’t say that one necessarily trumps the other. (But again, I’m not a lawyer).

The long and the short of this is that I don’t believe East Timor (or Indonesia) would have much chance of obtaining a boundary midway between the two countries unless there were concessions or compensations in some other area. Likewise, Australia is not likely to get a boundary down the centre of the Timor Trench. Unless the countries involved would really like to leave this in the hands of a court and accept that neither is going to get what they’re asking for, negotiations are the only way out. UNCLOS seems to suggest as much as well.

I probably could have said as much in my post, but I already thought I had forced enough opinions down my reader’s throats. Here’s another anyway. Happy to be educated on the shortcomings of it.

Dave Ricardo
Dave Ricardo
2022 years ago

The border with Indonesia poses a problem? Easy, peasy. Give West Timor to East Timor for the life of the oil field, which should be about the same length of time that Indonesia occupied East Timor.

If the Indonesians don’t like the idea, threaten to withdraw their tsunami aid.

Ken Parish
Ken Parish
2022 years ago

Dave

A nice glib line, but it doesn’t make a lot of sense. For a start, the Greater Sunrise field is on the east side of the Timor Gap, so ceding West Timor to Timor Leste (for however long) wouldn’t give it any greater claim to those revenues or any additional maritime territory to the east.

Secondly, West Timor is predominantly Muslim whereas East Timor is predominantly Catholic, and integrating the two would cause major cultural and other difficulties and likely serious bloodshed and ongoing civil strife and instability.

Thirdly, Australia gave generous foreign aid to Indonesia over the tsunami not only because we’re thoroughy nice people, but because it’s in our economic self-interest to do so. As this article (http://www.aph.gov.au/library/pubs/rn/1999-2000/2000rn05.htm) highlights, Australia always enjoyed healthy trade surpluses with Indonesia until the Asian economic meltdown of 1997. It’s in our own interest to help Indonesia regain economic health so it again becomes a prosperous market for Australia’s products. Threatening to halt tsunami aid would be just plain dumb.

Fourthly, our relationshiop with Indonesia is inter-dependent in a whole range of ways, not least national security. We need Indonesian co-operation to deal effectively with the terrorism threat, and to minimise the flow of asylum seekers and illegal immigrants (as we discovered in the wake of the 1999 ET events, when Indonesia decided to exact retribution on Australia by waving refugee vessels through, creating significant border control and domestic political problems for us). Antagonising Indonesia just doesn’t make sense, any more than it does for Indonesia to antagonise Australia. No doubt that’s one of the realpolitik reasons why Indonesia ISN’T currently jumping up and down demanding maritime boundary changes, despite the fact that international law probably favous its position to a much greater extent than those of Australia or East Timor.

Better by far for Australia to try to stitch up a generous but realistic deal with East Timor and let sleeping dogs lie on the Indonesian maritime boundary issue.

Stan
Stan
2022 years ago

Ken

I’m on a rapid learning curve as a result of your second post which mentions the work of Dean Bialek. Seems a very important point of view, which as you say, weakens the Australian position somewhat. A good find. I’m just a little confused with the Four Corners report which mentions that Bialek “broadly supports the Australian position”.

Link here:

http://www.abc.net.au/4corners/content/2004/s1142799.htm

For interest, another great map of the area in question can be found at this link (though the analysis is a little bit more partisan):

http://www.etan.org/lh/bulletins/bulletinv4n34.html

Stan
Stan
2022 years ago

I think this is what Four Corners was getting at:

“[…] While the principle of natural prolongation remains valid at international law to support Australia’s claim of a shelf out to the Timor Trough, it is increasingly subject to the preference for a median line where there is less than 400 nm between opposite states.

Hence, the negotiation and settlement of a permanent shelf boundary would most likely result in a horizontal line somewhere between the equidistant line and the Timor Trough (the south and north extremities of the JPDA). This would have the effect of depriving East Timor of the 90% of Bayu-Undan production it is now promised, and might also jeopardize Australia’s long-standing reliance on the natural prolongation argument, thereby compromising its position in current boundary negotiations with New Zealand [Which have now concluded.] ”

http://www.aph.gov.au/house/committee/jsct/timor/subs/sub38.pdf

Still, it does leave the Australian position a lot weaker than I had initially supposed. Thanks for that.

Ken Parish
Ken Parish
2022 years ago

Stan

Yes, I think you’re right. But I’ll try to locate some journal material on Bialek’s views and I’ll email it to you if I find it.

Stan
Stan
2022 years ago

Thanks. Being a good exercise for me – learnt a few things – which is supposed to be one of the benefits of blogging.

Batavia Bob
Batavia Bob
2022 years ago

Dave, Indonesia would tell us to take out tsunami aid and shove it. You could offer them billions; they would never cede to such a cockemamy suggestion.

Better for both Indonesia and East Timor to keep Indonesia out of the equation.

Martin Pike
2022 years ago

Largely concur Ken.

First I read the Petrotimor legal opinion, which was very persuasive. However that was what it was intended to be; upon reading the Hillary Charlesworth take it became apparent that the former deliberately left out some major legal arguments (1) in favour of Australia retaining the continental shelf position, given it asserted this a long while back and (2) suggesting the lateral boundary moves are based on weak legal grounds.

I think Australia wants revenue, every country wants revenue, but our real *need* is to keep our long and contentious maritime boundary intact. East Timor wants land/sea, but its real *need* is revenue.

Which suggests a cash for claim deal is the only sensible way forward.

More at this new Australian international relations poliblog.

=)