Timor-Leste’s state-owned gas company Timor Gap has rejected reports it is set to take a $16bn loan from China’s Exim bank to finance the Greater Sunrise project.
Background: Timor-Leste Takes Control of Greater Sunrise
The Timor-Leste government recently took majority ownership of the project after buying out its former partners — ConocoPhillips and Shell — with the aim of ensuring the gas is piped to its shores instead of Australia’s. It is now seeking finance partners to develop the untapped reserves in the Timor Sea, estimated to be worth around US$50bn.
The Disputed Report
The Australian reported that Timor Gap was set to borrow $15.9bn from China’s state-owned Exim bank under a commercial loan, sparking alarm from some observers over whether that would allow a Chinese military presence just 500km from Darwin.
Timor Gap told Guardian Australia it is talking to China, but is also canvassing investors and financial institutions in the US, Australia, and other countries about financing the Tasi Mane project.
“The statements that Timor Gap is about to sign a finance deal with China Exim Bank is incorrect, as much as the suggestion that we rejected a competitive offer from US pension funds.” — Timor Gap spokesman
Timor-Leste’s Position on Investment Partners
Jose Ramos Horta, a former president and prime minister of Timor-Leste, said the country was “still actively searching for multiple partners and investors.”
“Xanana [Gusmao’s] strong preference is for several different investors including Australia, US, Korean, Indonesian, French, etc,” said Horta, who was travelling with former president Gusmao at the time.
Preferred investor countries cited by Gusmao include:
- Australia
- United States
- South Korea
- Indonesia
- France
Expert Analysis: Is a Chinese Loan Realistic?
Dr Ryan Manuel, a Hong Kong-based China academic, said there had been no mention of the reported loan in Chinese media — which was unusual for such an “extraordinarily large” amount.
“This to me sounds much more like the East Timorese saying … well we run the show now, and if you don’t like us we’ll go to China,” he told Guardian Australia.
Manuel said the prospect of large Chinese investment in Greater Sunrise should be of interest to the Australian government because it suggested Timor-Leste was being pushed diplomatically by China.
- From a commercial standpoint, a large-scale Chinese investment was considered unlikely given Timor-Leste’s majority ownership and the absence of foreign partners to conduct risk assessment.
- China’s Exim Bank is a policy bank — lending at that scale would be expected to produce policy outcomes for Beijing.
The Gas Pipeline Dispute
Arrangements between Australia and Timor-Leste were not fully determined when the maritime border treaty was signed in March 2018, after decades of fractious negotiations.
A key sticking point remained over where the gas would be processed:
| Position | Preferred processing location |
|---|---|
| Australia | Darwin (domestic facility) |
| Timor-Leste | Tasi Mane (south coast facility) |
Private operators and energy experts supported piping the gas to Darwin, but Timor-Leste — led by Gusmao — was adamant it go to the already-constructed Tasi Mane facility on the remote south coast. In recent years the country has invested heavily in infrastructure in the region, including sea and air ports, some with Chinese involvement.
Dili-based human rights organisation La’o Hamutuk warned the combined cost of these projects, the required pipeline, and the ConocoPhillips and Shell buyouts could total as much as what remains in the country’s sovereign wealth fund.
Belt and Road and “Debtbook Diplomacy” Concerns
The Australian’s report stated that Timor-Leste’s loan would fall under China’s Belt and Road Initiative. There is growing concern among foreign policy observers about poorer countries being caught in China’s “debtbook diplomacy” if they are unable to repay loans and are forced to make concessions.
A notable precedent: in 2010 Sri Lanka was forced to hand over the Hambantota port to China under a 99-year lease when it was unable to repay its debt.
A leaked 2008 US diplomatic cable described China’s approach to Timor-Leste as distributing “goodies with few strings attached” and offering little encouragement for good governance, though it noted the country was — at that time — “strategically unimportant to Beijing.”
Economic Pressures Driving the Decision
Timor-Leste faces severe economic pressure as reserves from current resource projects, which provide up to 80% of the country’s revenue, are expected to run out within a few years. Greater Sunrise is not expected to be developed in time to cover the resulting revenue gap.
In April 2019, Guardian Australia revealed Australia continued to draw millions of dollars in oil revenue from projects the treaty had determined belonged to Timor-Leste, due to an agreement that treaty terms would not apply until ratification.
Source: The Guardian