Timor-Leste in 2018
Timor-Leste started 2018 in political chaos and ended the year with a return to the confrontational politics of the past. What appeared to be the cooperation between key parties CNRT and Fretilin in the ‘government of national unity’ between 2015-17 was shattered following the 2017 elections.
The political stalemate that arose under the 2017 minority Fretilin government saw Timor-Leste enter 2018 with a majority opposition alliance blocking the government’s budget and calling on the president to install it in office. President Francisco Lu-Olo Guterres – president of Fretilin and elected with key cross-party support in the final months of government of national unity – refused. Instead, he called fresh elections for May 2018.
These elections returned the opposition ‘Alliance of Change for Progress’ (AMP) as the new government. However, following allegations of corruption against eight proposed ministers, President Guterres refused to swear them in.
Three other proposed ministers refused to be sworn in support of their colleagues, leaving Timor-Leste without ministers of finance, health and natural resources, among others, at the time of writing. President Guterres also refused to promulgate the government’s proposed 2019 budget. The government in turn refused to approve a visit by President Guterres to the Vatican, saying that domestic matters took precedence.
President Guterres’ rejection of the budget reflected concern over Timor-Leste’s financial sustainability and his opposition to the government’s use of funds from Timor-Leste’s central bank to further its ambitious Tasi Mane-Greater Sunrise plan. The government required an unavailable two-thirds majority to over-rule the veto.
The government intended to establish an LNG processing plant on Timor-Leste’s Tasi Mane south coast to kick-start a petro-chemical industry to provide jobs and income into the country’s future. However, the Greater Sunrise joint venture partners rejected the proposal as not feasible, among other issues, to build a 150 kilometre-long undersea pipeline which would have to cross the deep sea Timor Trough.
The government in 2018 spent US$350 million to purchase of ConocoPhillips 30 per cent stake in the Greater Sunrise LNG field. In late November, an agreement was reached for the Timor-Leste government to buy Royal Dutch Shell’s 26.56 per cent stake in Greater Sunrise for $300 million, bringing the government’s total holding in the project to a controlling 56.56 per cent. Timor-Leste’s 2005 Petroleum Activities Law (III.22.3) restricts the state to a maximum of 20 per cent equity in the project.
The government could, therefore, sell some of its stake to a new partner, possibly from China or South Korea. The government also spent US$304 million on a 30km highway linking the southern towns of Suai and Zumalai as part of the project.
Remaining Greater Sunrise partners, Woodside Petroleum and Osaka Gas oppose the idea of a south coast processing facility. If it was to proceed, this could leave the cost of development, around US$ five billion, to the Timor-Leste government, or to new partners.
The government’s purchase of a controlling stake in Greater Sunrise followed the establishment of a permanent maritime boundary between Australia and Timor-Leste in March 2018. The agreement allocated 70 per cent of the revenue from the Greater Sunrise field to Timor-Leste if the LNG is processed there, or 80 per cent if it is processed on an off-shore facility.
Processing the LNG on shore has been a key ambition of government Special Representative, Xanana Gusmao. As Timor-Leste’s key political figure, Gusmao coordinated opposition to the former Fretilin minority government and brought together the parties of the 2018 AMP government.
The governments that Gusmao led or effectively controlled since 2007 have spent well beyond sustainable withdrawals from the country’s US$17 billion petroleum (sovereign wealth) fund. Successive budgets have spent between two and three times sustainable limits, meaning the government has drawn on capital as well as interest from the fund.
Income into the fund is reducing as oil fields in the Timor Sea dry up, with the last field expected to close by 2022. The Petroleum Fund currently pays for 95 per cent of all state activities, which in turn supports more than 70 per cent of all economic activity. Yet at current rates of government spending, the Petroleum Fund will be fully depleted before the end of the 2020s.
This outlook has led – and in part been exacerbated by – the Timor-Leste government to gamble on investing in Greater Sunrise and the Tasi Mane project. However, the high cost of this development set against a limited financial reserve and its questionable prospects of success have also motivated Fretilin and the incumbent president to be more financially cautious.
Historical disputes between Xanana Gusmao and the parties he has been able to bring into alliance against Fretilin characterised their fractious relations until 2015 and again from mid-2017. In 2018, those relations also became marked by an increasingly stark difference in approaches to how best secure Timor-Leste’s challenged future.