Timor Gap Treaty

Officially known as the Treaty between Australia and the Republic of Indonesia on the zone of cooperation in an area between the Indonesian province of East Timor and Northern Australia, the Timor Gap Treaty is a treaty between the governments of Australia and Indonesia signed on December 11, 1989. It provided for the joint exploitation of petroleum resources in a part of the Timor Sea seabed which were claimed by both Australia and Indonesia.

The signatories to the treaty were then Australian Foreign Affairs Minister Gareth Evans and then Indonesian Foreign Minister Ali Alatas. The treaty entered into force on February 9, 1991.

The portion of the seabed was known as the Timor Gap as it formed a break or gap in the Australian-Indonesia maritime border which had been earlier agreed to because of the Portuguese colony of East Timor. After the Indonesia invasion and annexation of the colony in 1975-1976, East Timor was made a province of Indonesia and both Australia and Indonesia began negotiations to solve issues arising over claims to the seabed in the area. Critics argued that the negotiations and ultimate signing of the treaty affirmed Australia's "de jure" recognition of the Indonesian invasion and annexation of East Timor.

The treaty was no longer in force when East Timor seceded from Indonesia in 1998. A new treaty to replace the Timor Gap Treaty was negotiated, resulting in the Timor Sea Treaty.

Effects of the treaty

Text of treaty

Part I: Zone of Cooperation

Article 1: Definitions

Article 2: The Zone

1. A Zone of Cooperation is hereby designated in an area between the Indonesian Province of East Timor and northern Australia, which comprises Areas A, B and C.

2. Within the Zone of Cooperation activities in relation to the exploration for and exploitation of petroleum resources shall be conducted on the following basis:

:a) In Area A, there shall be joint control by the Contracting States of the exploration for and exploitation of petroleum resources, aimed at achieving optimum commercial utilization thereof and equal sharing between the two Contracting States of the benefits of the exploitation of petroleum resources, as provided for in this Treaty;

:b) In Area B, Australia shall make certain notifications and share with the Republic of Indonesia Resource Rent Tax collections arising from petroleum production on the basis of Article 4 of this Treaty; and

:(c) In Area C, the Republic of Indonesia shall make certain notifications and share with Australia Contractors' Income Tax collections arising from petroleum production on the basis of Article 4 of this Treaty.

3. Nothing contained in this Treaty and no acts or activities taking place while this Treaty is in force shall be interpreted as prejudicing the position of either Contracting State on a permanent continental shelf delimitation in the Zone of Cooperation nor shall anything contained in it be considered as affecting the respective sovereign rights claimed by each Contracting State in the Zone of Cooperation.

4. Notwithstanding the conclusion of this Treaty, the Contracting States shall continue their efforts to reach agreement on a permanent continental shelf delimitation in the Zone of Cooperation.

Part II: Exploration and exploitation in the Zone of Cooperation

Article 3: Area A

1. In relation to the exploration for and exploitation of petroleum resources in Area A, the rights and responsibilities of the two Contracting States shall be exercised by the Ministerial Council and the Joint Authority in accordance with this Treaty. Petroleum operations in Area A shall be carried out through production sharing contracts.

2. The Joint Authority shall enter into each production sharing contract with limited liability corporations specifically established for the sole purpose of the contract. This provision shall also apply to the successors or assignees of such corporations.

Article 4: Area B and Area C

1. In relation to the exploration for and exploitation of petroleum resources in Area B Australia shall:

:(a) notify the Republic of Indonesia of the grant, renewal, surrender, expiry and cancellation of titles made by Australia being exploration permits, retention leases and production licences; and

:(b) pay to the Republic of Indonesia ten (10) per cent of gross Resource Rent Tax collected by Australia from corporations producing petroleum from Area B equivalent to sixteen (16) per cent of net Resource Rent Tax collected, calculated on the basis that general company tax is payable at the maximum rate.

2. In relation to exploration for and exploitation of petroleum resources in Area C the Republic of Indonesia shall:

:(a) notify Australia of the grant, renewal, surrender, expiry and cancellation of petroleum exploration and production agreements made by the Republic of Indonesia; and

:(b) pay to Australia ten (10) per cent of Contractors' Income Tax collected by the Republic of Indonesia from corporations producing petroleum from Area C.

3. In the event that Australia changes the basis upon which the Resource Rent Tax or general company tax is calculated or that the Republic of Indonesia changes the basis upon which Contractors' Income Tax is calculated, the Contracting States shall review the percentages set out in paragraphs 1(b) and 2(b) of this Article and agree on new percentages, ensuring that the relative shares paid by each Contracting State to the other in respect of revenue collected from corporations producing petroleum in Area B and Area C remain the same.

4. In the event of any change occurring in the relevant taxation regimes of either Contracting State, the Contracting States shall review the formulation set out in paragraphs 1(b) and 2(b) of this Article and agree on a new formulation, ensuring that the relative shares paid by each Contracting State to the other in respect of revenue collected from corporations producing petroleum in Area B and Area C remain the same.

5. With regard to Area B and Area C, the Contracting States shall enter into necessary administrative arrangements to give effect to the sharing arrangements in the two Areas as provided in paragraph 1(b) and paragraph 2(b) of this Article at the time that production from either Area commences. In particular, the arrangements shall provide for the manner in which such a share shall be paid from one Contracting State to the other Contracting State. A Contracting State when making a payment to the other Contracting State shall provide information on the basis on which the relevant payment was calculated.

6. The Contracting States shall take necessary measures to ensure the timely and optimum utilization of the petroleum resources in Area B and Area C.

Part III: The Ministerial Council

Article 5: The Ministerial Council

Provisions for the setting up of a Ministerial Council, equal representation from both sides on the council, alternating chair for the council and for the use of consensus in decision making by the council.

Article 6: Functions of the Ministerial Council

The Ministerial Council has overall responsibility for all matters relating to the exploration and exploitation of the petroleum resources in Area A of the Zone of Cooperation and such other functions relating to the exploration for and exploitation of petroleum resources as the Contracting States may entrust to it.

The Ministerial Council is also to ensure the achievement of the optimum commercial utilization of the petroleum resources of Area A and can authorize the Joint Authority to enable this to occur.

Part IV: The Joint Authority

See also

*Timor Gap
*Timor Sea Treaty

Further reading

* Francis M. Auburn, David Ong and Vivian L. Forbes (1994) "Dispute resolution and the Timor Gap Treaty" Nedlands, W.A. : Indian Ocean Centre for Peace Studies, University of Western Australia. ISBN 1863423451 Occasional paper (Indian Ocean Centre for Peace Studies); no. 35.
* Dubois, B. (2000) " [The Timor Gap Treaty : where to now?" [ based on initial research by Monique Hanley and Kirsty Miller] . Fitzroy, Vic.: Community Aid Abroad, Oxfam in Australia. Briefing paper (Community Aid Abroad (Australia)) ; no. 25.
* Robert J. King, “Certain Maritime Arrangements in the Timor Sea, the Timor Sea Treaty and the Timor Gap, 1972-2007”, submission to the Australian Parliament’s Joint Standing Committee on Treaties’ Inquiry into the Treaty on Certain Maritime Arrangements in the Timor Sea, March 2007. Downloadable at: www.aph.gov.au/house/committee/jsct/6_7_february2007/subs/sub6.pdf