Australia accused of leaving East Timor on brink of ruin

There was little to celebrate as East Timor marked the second anniversary of its independence yesterday, with Oxfam warning that the tiny nation risks becoming a "failed state" unless Australia shows more generosity towards its neighbour.

There was little to celebrate as East Timor marked the second anniversary of its independence yesterday, with Oxfam warning that the tiny nation risks becoming a "failed state" unless Australia shows more generosity towards its neighbour.

A report by the aid agency and its Australian arm, Community Aid Abroad, criticised Australia's approach to a dispute about ownership of rich gas and oil reserves beneath the Timor Sea, which divides the two nations. Canberra's attitude, it said, "could push East Timor to the brink of becoming a failed state, through no fault of its own".

The former Indonesian province regards the offshore fields as the key to its economic salvation. But Australia has been dragging its feet in talks that could give it billions of dollars from exploration of the fields.

The report's author, James Ensor, said that Australia was "not displaying good faith" in the negotiations. "The vast oil and gas reserves of the Timor Sea provide East Timor with a window of opportunity for providing for its people and future generations," Mr Ensor said. "The next three years are critical to the country's future prospects."

The oil and gas fields lie much closer to East Timor but, under a deal struck between Canberra and Jakarta in 1989, a maritime boundary was set along Australia's continental shelf, giving it control of 85 per cent of the seabed. East Timor's new leaders want the border redrawn halfway between the two countries, in accordance with international law.

If the boundary was redrawn, East Timor estimates it would earn $12bn (£6.7bn) over the next 30 years, as opposed to $4.4bn at present. It says it would spend the money on health, education and infrastructure.

President Xanana Gusmao said in a speech yesterday: "We will continue to forge better relations with Australia, but we will not have to sacrifice our interests for this. We want to affirm here that we continue to firmly re-vindicate only what, according to international law, we can admit or conclude to be ours. It is not our intention to claim more than one gram or one millimetre of what does not belong to us."

The Oxfam reportsaid that fewer than half of the nation's 760,000 people could read or write, while 41 per cent were living below the poverty line and one in 10 children would die before the age of five.

The World Bank's representative in East Timor, Sarah Cliffe, said yesterday that the oil and gas reserves were "critical" to the country's future. "Timor, at least at this point, does not have a resource base to exist as an independent state," she said.

Australia, which has been accused of cheating East Timor out of A$1m (£391m) a day in disputed royalties, says that the latter already receives a 90 per cent share of the revenue. But Mr Ensor said yesterday that, in reality, that figure only applied to "one slice of a larger Timor Sea oil and gas field cake".

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