East Timor not entitled to Bayu-Undan gas pipeline tax, Australia warns

The Australian government has written to East Timor to warn that the East Timorese are not entitled to tax the natural gas pipeline from the Bayu-Undan gas-condensate fields in the Timor Sea to the Darwin LNG plant operated by ConocoPhillips.

The letter, signed by Treasurer Joe Hockey and Industry Minister Ian Macfarlane, states that only Australia can tax the pipeline’s activities because it had “exclusive jurisdiction” under the Timor Sea Treaty.

The letter was apparently sent as an attempt to restart a constructive discussion over the treaty. Instead it has fueled an already volatile situation.

Australia and East Timor are currently in dispute over the Treaty with East Timor incensed at revelations that Australia bugged East Timor’s government offices in Dili during the original treaty negotiations. The espionage has been a trigger for East Timor to force arbitration in the International Court of Justice in The Hague to have the Treaty declared void.

East Timor now says that the recent letter about pipeline taxes gives it grounds to launch another round of arbitration about the treaty.

The country alleges that ConocoPhillips owes it hundreds of millions of dollars in tax revenue and it has a taxing right over income generated by the pipeline. East Timor and ConocoPhillips are currently in the middle of arbitration proceedings in Singapore over the alleged debt.

East Timor’s Petroleum Minister Alfredo Pires and the country’s Finance Minister Emilia Pires have written back to Australia saying that at no point has Australia raised objections to East Timor exercising its right to tax the pipeline even though Australia was aware East Timor was doing so.

East Timor’s legal advisors say the position stated in the Australian letter triggers a dispute under the Timor Sea Treaty. Australia has been attempting to have the current arbitration in The Hague thrown out on the grounds that the dispute mechanism under the treaty had not been activated.

The East Timorese say the letter has opened the door the Australians had been trying to close.

The East Timorese are concerned that Australia is waging a wider campaign over ownership of Timor Sea oil and gas reserves. Australia says the letter was simply an attempt to restart a constructive discussion and ensure there is clarity around tax arrangements in the Timor Sea.

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