The Timor-Leste Government is currently building on the principles implemented by the United Nations in building a framework for managing the modest amount of revenues that have begun to come to us from the Timor Sea.

In designing this framework, we are seeking to implement the principle of inter-generational equity. It is the aim of my government to preserve for the next generation the wealth from our oil and gas resources.

Timor-Leste has in place an interim petroleum revenue management policy of saving the royalties from the Joint Petroleum Development Area. All payments received are also published annually and accounted for in the national budget for full transparency.

However, we are now looking to introduce a permanent petroleum fund for the management of our oil and gas wealth. It will be based on the model adopted by Norway with additional safeguards. We call this model “Norway-plus”.

The key principle governing the management of this petroleum fund will be that only the sustainable income from our petroleum wealth will be available for current expenditure. Sustainable income is the revenue roughly equivalent to the real interest rate on the estimated wealth that is both in the seabed and in the fund. This principle would mean that the fund would retain, on average, about half the petroleum revenue earned each year.

Revenue from the JPDA is expected to be very volatile over the next 20 years. In some years we will earn in the hundreds of millions, in others much less than that. As a result, in some years we will need to save nearly all of the revenue, while in others we will need to use most of it. The essential point is that, if we want to generate sufficient capital to earn income for future generations, we will need to save an average of 50 per cent of our revenue from the Timor Sea.

In designing this fund, the emphasis is very much on having capital available for the future. This means our investment strategy will be low risk, and the funds will be invested internationally. Government investment for our domestic needs will come from the National Budget.

This fund will be subjected to a full set of transparency and accountability measures. It will have oversight from a board of prominent citizens, which will be required to report to the National Parliament on how much revenue has been retained in the fund.I would now like to turn to the legal framework that Timor-Leste is establishing to facilitate investment in, and development of, its resources.

Establishing a legal framework to develop our petroleum resources

Regulatory regime:

The current petroleum regime in Timor-Leste is more complex than in most countries. This is unsatisfactory for my government and also for the industry. It reflects the fact that part of Timor-Leste’s petroleum lies in an area that is subject to a provisional arrangement with Australia – that is the Timor Sea Treaty which established the Joint Petroleum Development Area, or JPDA.

Regulatory and fiscal regimes for both Timor-Leste’s JPDA and non-JPDA areas are currently being drafted with technical assistance from experts from many countries, and from within the petroleum industry.

The working group has considered petroleum regimes in other countries, with a view to creating a petroleum regime for Timor-Leste that is internationally competitive, stable, transparent and fair. A key feature of the contractual arrangements will be a “pro-forma” production sharing contract (PSC) for the JPDA, and potentially for outside the JPDA.

The regime for awarding petroleum development rights in both the JPDA and non-JPDA areas will be based on competition between companies. It is contemplated that such rights will be awarded after a competitive bidding process. The Ministry of Development and Environment of the Timor-Leste Government, or the Timor Sea Designated Authority will be obligated to consider all bids. If the Ministry or the Designated Authority wished to grant rights to explore for or exploit petroleum without a bidding process, it would have to publish an explanation for doing so.

The Ministry and the Designated Authority may grant rights only to companies that have the financial capability, and technical knowledge and ability, to carry out the authorized activities concerned. In choosing between companies so qualified, they are mandated to consider required proposals relating to the training and preferential employment of Timor-Leste nationals, and to the use of Timor-Leste goods and services, as well as relating to the protection of the marine environment, and occupational health and safety.

Petroleum companies will not be required to pay “signing bonuses” to the Ministry or the Designated Authority when they receive authorizations. The draft laws and contracts include various measures – including provision for auditing and arbitration of disputes – that are designed to ensure that Timor-Leste’s petroleum is exploited in a fair and transparent manner.

The Ministry and the Designated Authority will be required to exercise their powers and discharge their functions so as to promote the sustainable and long-term economic development of Timor-Leste (and Australia, in the case of the Designated Authority). They must also give due consideration to concerns of petroleum companies and other interested parties.

The Timor-Leste regulatory law sets out ethical obligations and limitations (for example, regarding the disclosure of information, conflict of interest, corrupt practices, etc.) with respect to Government officials so as to ensure that they exercise their functions in a fair and transparent manner.

Both the JPDA and non-JPDA regimes contemplate petroleum companies making their books and accounts available for auditing.

It is expected that the working group will finalize these draft laws in the coming months. They will then be made available for public comment – including, importantly, from the petroleum industry – and then submitted to the Council of Ministers and Parliament thereafter. We expect these laws to be passed by the end of the year.

While these laws are being drafted, an interim regime applies to petroleum exploration and development in the JPDA.

But there has also been a tremendous amount of interest expressed by the petroleum industry in exploring for and developing Timor-Leste’s resources in areas outside the JPDA. Therefore, I am pleased to announce that the Timor-Leste Government will soon open bidding for pre-exploration seismic data acquisition rights in Timor-Leste in onshore and some of our offshore areas.