Asia Pacific | FOCUS

Twenty years after independence, China eager to help cash-strapped East Timor

Bloomberg, AFP-JIJI

The runway at the Xanana Gusmao International Airport on East Timor’s southern coast is deathly quiet apart from roosters crowing on nearby farms. Built in 2017 to accommodate a $12 billion energy project, it is now barely being used — the only scheduled flight last Saturday was canceled.

“I’m very proud of the airport, and I really want more flights to come here,” said operations manager Moises de Jesus, 25, as a few cleaning staff idly polished the tiled floors of the 2-year-old airport. “Ultimately the government will handle organizing us to get more business, but for now we’re waiting.”

Twenty years on from a referendum that brought independence from Indonesia after a brutal quarter-century conflict killed an estimated 100,000 people, East Timor’s birthing pains are evident everywhere.

The nation on Friday marked 20 years since a U.N.-backed vote ended a decades-long occupation by Indonesian forces and paved the way for it to become an independent nation.

On Aug. 30, 1999, nearly 80 percent of East Timorese voted to split from Indonesia, which had invaded the former Portuguese colony in 1975. Joy over independence quickly turned to terror as Indonesian security forces and proxy militias went on a scorched-earth rampage. They destroyed infrastructure and forced hundreds of thousands to flee to other parts of Indonesia.

The families of those who died say there has been little justice. “The Indonesian military and militias murdered people who chose to make this an independent nation,” said Vital Bere Saldanha, 48, who lost four brothers in the post-vote chaos. “The fight for freedom wasn’t easy.”

East Timor, a mainly Catholic country of 1.3 million people, was recognized internationally as an independent state in 2002.

With almost half its 1.2 million people living in poverty, the aging war heroes still in charge are now betting big on a risky energy project that could draw one of the world’s youngest nations into a wider geopolitical tussle between the West and China.

Gusmao, the first president, is currently the chief negotiator of the Greater Sunrise liquefied natural gas development. Fitch Solutions estimates that the project, which has been under negotiation for more than a decade, has enough reserves to yield $50 billion in revenue at today’s prices — more than 15 times the country’s gross domestic product.

But there is one big problem: Gusmao, 73, has insisted the project be built onshore to create much-needed jobs. For energy giants, that is unfeasible because it requires laying pipeline across a trough to depths of 3,300 meters (11,000 feet). Royal Dutch Shell PLC and ConocoPhillips have given up on the project after more than two decades, selling their stakes back to the government last year. The clock is now ticking for East Timor to find international funding so work can start before its existing oil cash cow — a separate nearby gas field — becomes defunct as soon as 2021.

“You could imagine Xanana Gusmao will try to play the political card and could trade Chinese funding and Western funding off each other,” said Saul Kavonic, a Sydney-based energy analyst at Credit Suisse Group AG who has visited and studied the proposed site. “While he’s proven very good at playing that card, on pure commercial terms it’s more of a struggle to see where that money will come from.”

The U.S. and China have stepped up competition for influence in emerging economies throughout Asia, with the Trump administration warning countries to avoid becoming indebted to Beijing. Assistant Secretary of State David Stilwell plans to join ceremonies commemorating the referendum in Dili, the capital, on Friday.

It is not unusual for Timor to be in the sights of great powers.

In the mid-1700s, the lure of sandalwood and beeswax led the Portuguese to establish a colony in the island’s eastern half. Portugal abandoned the territory in 1975, paving the way for Indonesia’s invasion and the war that followed.

Stunningly beautiful and offering world-class diving, the country has nevertheless failed to reap tourism dollars as it struggles to shake off its war-torn reputation. Revenue from East Timor’s only producing oil field, Bayu-Undan, supplies 95 percent of national revenues, according to the local think tank La’o Hamutuk.

The nation will get some relief with completion of a long-stalled oil and gas maritime boundary treaty with Australia; La’o Hamutuk estimates the previous arrangement cost East Timor $5 billion in lost revenue.

The new deal was formalized in Dili on Friday by Australian Prime Minister Scott Morrison. But the need to find more cash is acute: The research group says the government is spending “unsustainable amounts” on infrastructure and has been forced to draw on its only insurance policy, the Petroleum Fund, which is in jeopardy of being erased within 10 years.

While higher government spending will help gross domestic product expand a forecast 3.9 percent this year and 4.9 percent by 2021, the World Bank warns that the withdrawals from the Petroleum Fund and declining petroleum production will threaten the government’s finances.

“The costs of Greater Sunrise will outweigh its benefits, and that’s already happening because the government is focusing the nation’s attention and funds on the project at the expense of developing other industries, like agriculture and tourism,” said Berta Antonieta, 28, a researcher at La’o Hamutu. Still, she said, “I wouldn’t say East Timor will go through a period of being a failed state.”

Part of the reason is China, which has poured money into East Timor in recent years. It has financed everything from the presidential palace to a $490 million deep-water port near Dili to an electricity grid that has given power to at least 80 percent of the population. And it has also spent a significant amount of cash near the proposed location of the on-shore part of the Greater Sunrise project, known as Tasi Mane. China has built the first leg of a new four-lane highway linking the airport in Suai with other southern coastal towns that will host the LNG plant, a petrochemical refinery and a supply base. And in April, state-owned company Timor Gap signed a $943 million contract with a China Railway Construction Corp. unit for a new port to help facilitate the main LNG plant.

“China will always take the interests of developing countries into account,” said Wang Huiyao, a Beijing-based adviser to China’s Cabinet and the founder of the Center for China and Globalization. “If they need investment, China will always look into opportunities even if there are risks.”

Timor Gap, which is responsible for developing the onshore part of Tasi Mane, says it is arranging $9 billion of the $12 billion needed to fund the Greater Sunrise project, and it is agnostic about where the money will come from. It has denied media reports that the funds will come from the Export-Import Bank of China.