Economic Impact in Timor-Leste
The deep relationship between Timor-Leste and the Bayu-Undan joint venturers has contributed significantly to Timor-Leste’s financial stability. A central tenet of this relationship is the promise of a stable fiscal regime that enables the joint venturers to receive a return on their investment even in times of relatively low oil and gas prices, while Timor-Leste receives an increased share of profits in times of high prices through the application of an additional profits tax. This promise of stability by Timor-Leste gave the joint venturers the confidence to invest the billions of dollars necessary to develop the Bayu-Undan field. We operate in a volatile global economy, in which movements in commodity prices have the potential to significantly impact the progress of any project. The strategic negotiations a decade ago meant the project could be undertaken, even though oil prices were at an all-time low.
Not long after construction, however, oil and gas prices rose. This resulted in the Bayu-Undan joint venturers paying the additional profits tax from early 2007. Since that time, the Timor-Leste and Australian governments have received approximately 70 per cent of the benefit from higher oil and gas prices, of which Timor-Leste receives 90 per cent. To date, the Bayu-Undan joint venture has paid over $19 billion into the Timor-Leste Petroleum Fund, far beyond the $3 billion initially anticipated over the life of the project.
Petroleum Fund of Timor-Leste
The prudent management of Timor-Leste’s petroleum resources for the benefit of current and future generations is underpinned by the Petroleum Fund of Timor-Leste. The Fund provides a mechanism to assist Timor-Leste to sustainably manage its petroleum revenue; define asset allocation and risks; manage receipts associated with petroleum wealth; regulate transfers to the state budget for government expenditure; and provide for government accountability.
Extractive Industries Transparency Initiative (EITI)
ConocoPhillips endorses the Extractive Industries Transparency Initiative (EITI) which seeks to ensure that natural resource wealth is an engine for sustainable economic growth that contributes to sustainable development and poverty reduction. In 2003, the Timor-Leste Prime Minister and ConocoPhillips declared their joint intention to support the EITI, which aims to create transparency around payments made by oil and gas companies to governments and the revenue governments receive from these companies.