[TimorLesteStudies] New report: La'o Hamutuk: Sunrise LNG in Timor-Leste: Dreams, Realities and Challenges

Bu Wilson Bu.Wilson at anu.edu.au
Wed Feb 20 11:44:07 EST 2008

La'o Hamutuk. 2008.Sunrise LNG in Timor-Leste: Dreams, Realities and


Executive Summary

Petroleum will be the most important factor in Timor-Leste’s economy and
government budget for the foreseeable future. Revenues from oil and gas
already comprise 50% of the country’s Gross National Income (GNI) and supply
more than 90% of its government revenues. To date, this is entirely from
offshore, upstream development, with downstream processing done in other
countries. It is the hope of many Timorese, including the Timor-Leste
government, that Timor-Leste will soon receive revenues from downstream
(refining, processing and gas liquefaction). The most likely near-term
possibility for this is an undersea pipeline from the Greater Sunrise gas
field to the shore of Timor-Leste, with a liquefaction plant and Liquefied
Natural Gas (LNG) tanker port to process the gas and ship it overseas. 

People are imagining the wonderful things that will happen if the pipeline
comes onshore in Timor-Leste: it will stimulate local economic development,
spin off to boost the local and national economy, and create employment
opportunities for Timorese workers. However those dreams and expectations
will be difficult to realize in Timor-Leste in the current context of the
new nation.

The government’s Petroleum Act and Petroleum Fund Act set out a legal
framework outlining the transparent and prudent management of petroleum
revenue and currently Timor-Leste has more than one billion U.S. dollars in
the Federal Reserve Bank of the United States. Despite this, over half of
the population continues to live in poverty, unemployment is widespread,
infrastructure is weak, trust in security has broken and the laws that
should protect human rights, land, economy and environment are not yet in
place. The causes of these problems – fragility and inexperience of state
institutions, lack of human resources, inability to execute the budget –
must be overcome before a project like the Sunrise LNG plant can be used
safely and effectively to benefit current and future generations.

The research

In 2006, La’o Hamutuk began to research the implications of the development
of an LNG processing plant in Timor-Leste. The research was conducted over
four months and involved interviews with communities, traditional and local
government leaders, oil companies and key government and civil society
players in the petroleum sector. With the assistance of outside technical
and economics experts, we reviewed relevant documents to conduct an
environmental and social analysis of the proposed project, learning from
similar projects in other countries, and their people’s experiences with oil
and gas development. 

The purpose of this report is to explore the benefits and costs, the risks
and opportunities that a pipeline and LNG plant could bring to Timor-Leste,
so that our citizens and leaders will be better informed as they consider
whether such development would be beneficial for the country. We tried to
identify specific actions to maximize benefits and minimize risks to ensure
that Timor-Leste gains more from this project than it will lose. We do not
attempt to predict what the development decision will be. Rather, we
hypothesize that Australia, Timor-Leste, and the companies decide to build a
pipeline to Timor-Leste and an on-shore LNG plant on the south coast. If
this were to happen, Timor-Leste’s people need to know the advantages and
disadvantages of such a project, and our government needs to take actions
now to maximize the gains and minimize the dangers. 

In order to make this report useful and understandable by people with
limited technical knowledge of the oil and gas industry, we have included an
extensive glossary of technical and economic terms used in this report in
Appendix 7.

Findings and recommendations

The consequences of landing natural gas and constructing and operating a gas
liquefaction and LNG shipping facility in Timor-Leste depend largely on a
number of factors. Firstly, to land natural gas from the Greater Sunrise
field in Timor-Leste, the government will have to secure the agreement of
Australia’s government and the Sunrise joint venture companies, and find
companies that are willing and able to construct, operate, and responsibly
decommission the pipeline and LNG facility. 

In a best case scenario, such a plant could provide employment and training
to Timorese employees, boost the economy of the country and the region where
it is located, and provide increased tax revenues for the government, which
can in turn be used for the benefit of all Timor-Leste’s people. However,
the outcome could also be much bleaker. The facility could become an
enclave, physically situated on the coast of Timor-Leste, but with few or no
jobs for Timorese citizens, no money going into the local community, and
indeed no integration at all with the rest of society­ neither economically,
socially, or in terms of infrastructure such as road connections. In short,
it could be “in” Timor-Leste, but not “with” Timor-Leste. The worst scenario
is a plant that displaces the local population, impinges on their sacred
places and harms the natural environment, and is staffed by foreigners who
live in self-contained living quarters near the plant, without any positive
interaction with the rest of the country. It is easy to see that this would
cause deep grievances and frustrations in a population that is already
struggling with poverty and a history of colonialism and violence.

Which scenario prevails will depend on the actions of all parties involved
in preparing for the arrival of the pipeline, plant, and port; during the
construction of the facilities; and throughout the life of the project. The
government, petroleum companies, local authorities, local communities,
traditional leaders, and civil society, including non-governmental
organizations and individual Timorese citizens will each have a role in
this. To ensure that this project maximally benefits the people of
Timor-Leste, and that the negative impacts are minimized, we must all be
prepared for the opportunities and challenges that an LNG project will

Dreams, expectations and realities

Timor-Leste’s people have high expectations that petroleum revenue will
improve their lives and that the processing of petroleum will provide them
with employment opportunities, attract local economic development and
extract investment. In informal and formal discussions with communities,
people expressed their hopes that petroleum revenues should be used for
national development: improving agriculture, improving the health system,
improving the quality of education, and improving the infrastructure so
their children can go to school, receive adequate health care, have access
to media and have better opportunities than they themselves had. 

However, if we look around the world, petroleum development is often not a
blessing, but a curse. The global record shows that many countries rich in
petroleum wealth are low in Human Development index, have high poverty
levels, authoritarian systems, environmental degradation, militarism, human
rights violations and corruption. Although oil can bring money, it also
brings problems. In countries like Timor-Leste, where our economy and
government are dependent on petroleum income (90% of GDP and 95% of
government revenues come from oil and gas), these dangers are even harder to
avoid. It is critical to manage both the money and the industry well, and
good models are hard to find.

Timor-Leste’s leaders have often stated their commitment to learn from the
experiences of other countries to avoid the “resource curse.” However, this
commitment needs to be more than only a political statement, and should be
implemented in laws and regulations, and with strong public institutions. So
far, the Government appears to have been successful in petroleum
development, by establishing some basic legal foundations, However it is too
early to be know if such steps will ensure prosperity for future generations
of Timorese and much work is still to be done in order to realize the dreams
and expectations. Since the Government has committed to bringing the
pipeline onshore to Timor-Leste, there are several steps which should be
taken now:

1. Timorese people must be well-informed about the government’s plans for
LNG development. Communities should be told of the risks associated with the
development as well as the benefits and consultation should be held to
ensure the informed voice of Timorese women and men is represented in
decisions. Local people should be given the chance to choose what is best
for them. 

2. A legal foundation should be in place which incorporates; respecting land
rights, assessing and protecting the environment, guaranteeing sacred
places, managing pollution and disasters, enforcing transparency and public
consultation, safeguarding workers’ rights and safety, and preventing
conflicts of interests. More than five years after independence, Timor-Leste
has not enacted laws to ensure the above, and without them we are vulnerable
to violations of our rights. In addition to passing the laws, enforcement
and monitoring systems and personnel must be in place. Sanctions must be
severe enough to ensure companies comply by these laws, and a judicial
system must have the capacity to fairly and expeditiously resolve any
disputes or violations. 

3. The Government must initiate programs to equip Timorese people to
undertake higher-skilled jobs in the companies involved in the LNG project,
as well for those who will regulate it on behalf of the Government.
Training, scholarships, apprenticeships, and education should begin at the
pre-secondary level to prepare people for work in petroleum and related
industries. The sooner and better this is done, the more Timorese will get
jobs that would otherwise go to foreigners. The Government should require
companies to hire and train Timorese workers and facilitate the flow of
information on recruitment, so that companies can find the people they need
for positions and people have information to apply for the jobs that they
are qualified for. 

4. We can avoid the worst by being ready. The hydrochloric acid leak at the
port in April 2007 clearly illustrated how unprepared Timor-Leste is to
handle even a simple accident contained to central Dili. The recently
repaired Motale’e bridge to Beaçu (see Appendix 6) exemplifies how difficult
it is for us to maintain and repair even simple infrastructure. With a major
industrial facility like an LNG plant, the infrastructure needs are far more
complex and critical; the consequences of a badly-handled accident would be
much more devastating. To respond adequately Timor-Leste needs developed
planning, procedures, interagency coordination, emergency medical response,
communications and deployment systems which can deal with the worst that
could happen. 

5. In order to maximize spin-off benefits, the LNG project needs to be
integrated into local economic development plans. The plant requires water
and electricity, for which it has to build its own supplies, and the
construction of these facilities could also benefit the community, either by
utilizing the contractors who build the plant infrastructure to build
infrastructure for the country at the same time, or by constructing roads,
docks, generators or similar infrastructure to serve both the plant and the
local population. In order to ensure maximum and sustainable spin-off
benefits, the Government must conduct specific, far-sighted planning, as
well as stimulate and develop the capacity of local businesses. 

La’o Hamutuk believes that it would be to Timor-Leste’s advantage to extend
the period of Sunrise production by reducing the rate at which gas is
extracted and liquefied. Timor-Leste will get more spin-offs from operating
than from construction, and a longer project lifetime allows for more
“Timorization.” Timor-Leste would also benefit if the project started later,
giving us more time to prepare to receive its benefits. 

Fiscal and economic issues

An LNG plant could potentially be of major fiscal and economic benefit for
Timor-Leste. In addition to significant downstream tax revenues and some
employment, we could receive secondary economic effects in local and
national business booms through sub-contracts for construction, and a
general increase in economic activity. However, under the current
circumstances, Timor-Leste will not gain as much as many people are
expecting. The project runs a risk of becoming an enclave, with no spin-off
benefits to Timor-Leste, and therefore several measures are needed to
maximize fiscal and economic impact:


1. Downstream tax revenues could be as much as four billion dollars over the
lifetime of the project under the current tax laws, the most important being
a 30% corporate income tax. A reduction of this tax to 10%, as currently
proposed, would mean a huge (approximately 2 billion dollars) loss in
revenues, and we recommend that the government reconsider the implications
the proposed tax reform would have on a project of this scale and any other
future projects. 

2. The Government should integrate the LNG project with local economic
development plans. Feasibility studies should be conducted on using
electricity from the plant’s power generator for the national grid, and
whether the construction dock can be adapted to become a commercial port.
These studies need to be translated into a concrete plan with budget
allocation, to be implemented by relevant ministries. These measures will
not only serve the plant, but will also boost economic development in the
south coast region. 

3. The Government should increase efforts to develop the local private
sector. This should include provision of subsidies and loans (for instance
through a special investment fund for small Timorese businesses to establish
and develop business activities), an increase in business information and
development services as well as training in project acquisition and
management (with special attention to construction and hospitality
services). The juridical and social security of the private sector should be
improved requiring a review of Investment Law, Land and Property Law. This
should include incentives for setting up local businesses and the promotion
of the creation of cooperatives through the establishment of a Cooperative
Supporting Institution. 

4. Contracts, laws and other policies should encourage the oil companies to
give preference to sourcing workers, products and services from Timor-Leste,
in general terms, increasing local content. For instance, a requirement
could be that local content steadily increases over the operational period
of the project, reaching 85% or more after 20 years. Both the Government and
companies should establish coordination mechanisms to promote local content
before the project begins to ensure that such objectives are met. 


Employment opportunities created by an LNG plant could assist Timorese
people in shifting from subsistence agricultural work into more lucrative
agricultural production and stimulate employment in other sectors including
manufacturing and public sector projects such as health, education and
infrastructure. This would serve to stimulate the economy and develop
corporate and individual skills for Timorese people.

However the dreams of many people that bringing the pipeline to Timor-Leste
will provide job opportunities for many Timorese workers may be illusory as
most of the well-paying jobs require a level of technical expertise that
currently doesn't exist in Timor-Leste. During the two to four year
construction phase, there will be opportunities for short-term work for
local people, but during the following 40 years of operation, the plant will
require very few people, mostly with specialized skills. Indirect employment
opportunities through demand for goods and services would also be limited by
the localized demand for these goods and services and the localized current
capacity to meet this demand. As Timor-Leste has experienced under UNTAET
administration, a high international presence does not ensure economic
growth if wages are spent overseas and products consumed are imported. In
addition, Timor-Leste’s current labor laws do not ensure the rights and
protection of those employed to adequately protect workers from

Whether Timorese get jobs at the LNG plant will depend very much on the
training policies the government manages to implement before the
construction period, as well as the extent to which contractors are required
to utilize local resources. Ideally, the expertise of foreign contractors
should be used not just to construct the facility but also to train local
workers, and this could be made part of company contractual requirements.


5. The government and companies should identify the specific job skills
required for a LNG project – from construction through to decommissioning –
and begin to prepare now. The development of Timorese skills should include
local education, providing scholarships, on-the-job training and
internships. The government should increase investment in technical
education and training, encourage local educational institutions to expand
on relevant subjects, and give scholarships for Timorese in specific areas
of mechanical and civil engineering and the hospitality and services

6. To increase Timorese employment over the multi-generational lifetime of
the project, the Government needs to improve vocational education in
Timor-Leste, including a review and reorientation of the technical and
vocational education curriculum to enable adequate and flexible response to
demand, and an increase in the quality of teaching in existing schools.
Furthermore, the existing engineering faculty within the national and
private universities in Timor-Leste should receive significant assistance to
increase capacity, quality and facilities to anticipate the project’s needs.

7. To protect those who will be employed by the project, the Labor Code and
other Health and Safety Regulations should be revised to clearly stipulate
regulations related to working hours and shifts, secondary benefits, health
and safety measures, working in hazardous environments, as well as
regulations related to injuries and death. The Government must have
effective mechanisms to enforce, regulate and arbitrate labor laws and

Social and cultural issues

Although the project promises positive effects, it also carries risks of
negatively affecting Timor-Leste’s people. A national-interest endeavor,
such as the LNG project, endangers local community land rights, threatens
livelihoods of communities, and could destroy existing sacred places and
infrastructure reflecting traditional values of the community. A huge influx
of foreign workers further threatens local economies such as fisheries and
agriculture, and could increase the vulnerability of women, elders, and

Women in Timor-Leste stand to gain less from the positive impacts of
possible LNG development and suffer more from the negative. Timorese women
play a crucial role in the economic and social management of the family and
comprise a significant proportion of subsistence farmers. Although women’s
rights as equal to men are enshrined in the constitution, women continue to
face challenges in accessing these rights including limited rights to land
tenure, livelihoods, health services, and education. 


8. Land and property rights must be clarified, with recognition of
individual and collective ownership over land and traditional systems of
tenure. If the project requires land from individual or community owners, or
negatively impact on their livelihoods, the Government should have in place
an effective, transparent and adequate compensation system. This requires
revisions of Land and Property Law and regulations on protected areas. Any
decision for a plant location should be preceded by a coordinated
assessment, of local social and cultural traditions, sacred places, land and
water use and other related factors, with concrete recommendations to
mitigate the project’s negative impact. This assessment should have
extensive involvement of local civil society and be part of the formal
Environmental Impact Assessment discussed below.

9. Company contractual requirements should include mechanisms to resolve
disputes that may arise due to the influx of foreign workers with a priority
to respect local values and customs as well as the obligation to obey
national judiciary law and respect Timor-Leste’s courts and arbitration
procedures. To minimize conflicts between the community and foreign workers,
and to channel community voices and facilitate dispute resolutions, a
coordination mechanism should be established which includes representatives
from the company, workers, government, and civil society. 
10. All institutions, bodies, and committees should take special
consideration of gender issues, so as not to perpetuate discrimination
against and the victimization of women. This ranges from women-focused
business training and scholarship preferences, to mechanisms to avoid wage
differentiation and sexual exploitation of women. All assessment teams,
coordination teams and liaison teams, at all levels and stages, must be

Environmental issues

An LNG Project will introduce many new environmental problems. The project
could double Timor-Leste’s carbon dioxide emissions to the atmosphere and
will generate significant amounts of polluting materials, such as hydrogen
sulfide, oils, garbage, sanitary water, and other waste. 

Although an LNG plant would be less harmful to the environment than a
processing plant for oil or coal, pollution impacts of the plant include the
release of increased greenhouse emissions from burning gas, possible methane
leakages and waste discharge polluting Timor’s oceans and rivers. The RDTL
has drafted a Protection Control Law which would mitigate the risk of
pollution through the issuing of licenses requiring companies to conduct
Environmental Management Plans however to date; this legislation has not
been passed.

In addition to pollution, LNG development will also impact on the
environmental stocks present in Timor. Use of land and waters for
construction, operation and the needs of an influx of laborers will lead to
the loss of vegetation cover and habitats for animals. The associated
increase in demand for water can also reduce the water table, leading to the
degradation of environmental resources for future generations of Timorese. 


11. The Government should revise the Law on Environmental Impact Assessment
and, related to this, develop proper guidelines for conduct of an EIA for an
industrial project. An EIA should include a detailed Environment Management
Plan spelling out pollution management and mitigation, disaster management
plans, and detailed mechanisms for minimizing negative cultural and social
impacts. To enable proper evaluation of a submitted EIA, the Government
should establish a joint coordination mechanism among ministries and
departments, increase capacity of these departments, and include
non-governmental recognized expertise (both national and international). The
Environmental Impact Assessment process should include informed local
consultation and consent, as well as the opportunity for civil society
organizations and local community leaders to give input to and modify the
Management Plan. 

12. A Pollution Control law should specify limits to pollutants, including
CO2 and other greenhouse gases, chemicals which affect sea, ground water and
soil quality, as well as issues like flaring and noise pollution. The law
needs to be detailed on requirements for waste disposal and treatment of
various types of waste, so that regulatory and monitoring bodies can enforce
it, and public and private waste disposal and treatment facilities can be

13. A base law on the environment, incorporating pollution control and
environmental impact assessment laws should also define conditions for
decommissioning of projects and constructions after their operational period
has ended, to ensure that Timor-Leste is not left with toxic materials or
dangerous structures after the company leaves. Plans on decommissioning
should be part of the contract and the EIA. 

14. Each law developed should spell out or refer to specific sanctions
and/or penalties and the legal processes of conduct if regulations are
violated, which are severe enough to compel compliance. Contractual
agreements should exist stipulating that the operating companies obey these
laws. It is therefore necessary that laws and regulations are in place
before the onset of the project, and that Timor-Leste has the personnel and
the mechanisms necessary to identify violations and expeditiously enforce
the law. 

Bu Wilson
Regulatory  Institutions Network (RegNet) 
College of Asia and the Pacific, RSPAS
Australian National University 
Canberra   ACT   0200 

T: 02 6125 3194 
F: 02 6125 1507
M: 0407 087 086 
E: Bu.Wilson at anu.edu.au


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