Fed: Timor Gap pipeline could be abandoned: Downer

AAP General News (Australia)
08-22-2001
Fed: Timor Gap pipeline could be abandoned: Downer

By Karen Polglaze

CANBERRA, Aug 22 AAP - East Timor risked causing the abandonment of a proposed $1.5
billion Timor Sea gas pipeline if it insisted on new tax arrangements, Foreign Minister
Alexander Downer warned today.

Speaking after he and Resources Minister Nick Minchin met with Phillips Petroleum executives
Jim Mulva and Jim Godlove, Mr Downer said the Australian government and the company were
singing the same tune.

But Australia could only assist in negotiations between Phillips and East Timor, as
the agreement between Australia and East Timor on sharing resource royalties in the Timor
Sea did not include company tax regimes.

Phillips Petroleum has indefinitely deferred its pipeline to Darwin, citing changed
company tax arrangements in East Timor as the cause.

East Timor's negotiator Peter Galbraith had proposed additional taxes costing the company
$US500 million, Mr Downer said.

"This proposal for additional taxes ... will simply lead to Phillips abandoning the
project," he told reporters.

East Timor had the right to impose whatever tax regime it wanted.

But Mr Downer again urged the emerging nation to stick with a written commitment leaders
Xanana Gusmao, Mari Alkatiri and Jose Ramos Horta signed in 1999.

This promises the tax regime under any new arrangement with Australia would be no more
onerous than it had been under the previous Timor Gap Treaty between Australia and Indonesia.

Mr Downer said Phillips had assessed the development calculating that level of tax
and said the project was not viable under the new tax regime.

"That is beyond our jurisdiction, we're not responsible for East Timor's tax system,
but it's our view that it's inimical to the interests of the East Timorese to continue
to press that because it runs the risk of destroying the whole project," he said.

The government had been talking to the East Timorese and further intensive talks were
planned, Mr Downer said.

"Our challenge is to convince ... the East Timorese that this isn't a bluff (by Phillips),"

he said.

"Alternative projects will be developed and this will not be one which will go ahead
and ultimately the losers will be the East Timorese people."

Mr Downer pointed out that a resolution of the tax issue was unlikely before the results
were announced from East Timor's August 30 constituent assembly elections.

He urged Phillips to talk to the East Timorese.

The framework agreement between Australia and East Timor splits royalties from oil
and gas reserves in the area known as the Timor Gap 90:10 in East Timor's favour.

However, Australia is likely to also benefit from downstream developments worth many
billions of dollars.

AAP kjp/was/br

KEYWORD: TIMOR GAP NIGHTLEAD

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