Macau, China, 14 Sept – East Timor’s transition to oil producer has been “significant” but the economy has become one of the most dependent on “black gold” in the world.
This is the conclusion of researcher Tobias Rasmussen in his study “East Timor’s Petroleum Fund: Achievements and Challenges,” published in July by the IMF’s Asia department, which warns of the effects of the government’s easy access to fund revenue, which “reduces the pressure for accountability.”
“Even if withdrawals [from the Fund] are made within the estimated sustainable income (ESI), the large increase in government spending that has been made possible, could cause cost pressures and crowd out activity in other areas of the economy,” warned Rasmussen.
In 2009, for the first time, withdrawals from the fund will be more than the ESI, based on the balance of the fund and expected future revenue, and there is the risk that funds will be channelled towards unviable projects, or even if they do generate a return, inflationary pressures would be created that could lead to a loss in economic competitiveness.
Despite this, according to the researcher, the Fund, the cornerstone of the strategy for the sector and even for the development of the country “has generally been working well” and “significantly increases” the possibility that East Timor’s resources “will turn out to be a blessing rather than a curse,” although it “does not solve all problems.”
“East Timor had a remarkable start as a petroleum producer. Oil and gas revenue has grown far beyond expectations and has fundamentally changed the economic outlook for one of the poorest countries in the world. Few countries have experienced an expansion in revenue of a magnitude that compares to that of East Timor,” he said.
The Petroleum Fund, into which goes the revenue from joint exploration with Australia in the Timor Sea, reached US$4.75 billion in March this year, around nine times the value of the country’s non petroleum economy.
It has generated an annual return of 5.2 percent, being used entirely for US government bonds, although the investment strategy is being reviewed, to include applications of greater risk and return.
In 2007, gas and oil revenue represented three quarters of the country’s total revenue, making it “one of the most petroleum dependent countries in the world,” said Rasmussen.
“Although small from a global perspective, East Timor’s oil resources are massive compared to its small and underdeveloped economy,” he said.
The country’s oil potential has been known for a long time, although the commercial extraction of hydrocarbons is currently limited to the Joint Petroleum Development Area (JPDA), in the Timor Sea, shared with Australia.
Here, the only field in production is Bayu-Undan, operational since 2004, with estimated oil reserves of 700 million barrels, which should run out in 2022.
Currently, preparations are underway for the development of the Kitan field, which has reserves of approximately 40 million barrels, and should become operational by 2010-11.
More promising is the development of “Greater Sunrise,” fought long and hard over by the two neighbouring countries, which could start production in 2013, with revenue to be split 50/50.
Within East Timor’s exclusive jurisdiction work is ongoing both onshore and offshore, which could lead to important discoveries in the next few years. (macauhub)