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Summary of the EEDP Workshop on Setting Up a National Oil Company in Timor-Leste

Core Content

The EEDP Workshop, held in Dili from 28–29 May 2009, focused on the establishment of a National Oil Company (NOC) in Timor-Leste. The discussions aimed to explore the governance, financial structure, and development strategies for the NOC, with the goal of ensuring effective management and long-term sustainable development of the country’s oil and gas sector.

Main Viewpoints and Key Information

1. Importance of a National Oil Company

• The NOC is seen as a critical institution for ensuring that Timor-Leste benefits from its own oil resources rather than being dependent on foreign companies.
• A national oil company is expected to play a role in resource control, knowledge transfer, and increasing state revenues.

2. Challenges and Opportunities

• Weaknesses:
  • Low level of economic development and poverty reduction remains a priority.
  • Lack of trained human resources.
  • Government control over the sector may limit the NOC’s autonomy and efficiency.
• Strengths:
  • Support from the population for the sector and its involvement in decision-making.
  • A clear, detailed legal framework is being developed.
  • The NOC can learn from the experiences of other countries.
  • The country has a strategic location and potential for international collaboration.

3. Governance Principles

• Clear roles and responsibilities: The relationship between the NOC and the government must be well-defined to avoid power struggles and overlapping functions.
• Sustainable development: The NOC should be focused on supporting long-term national development, not just profit-making.
• Accountability and transparency: There should be mechanisms for auditing and reporting, and the information related to the sector should be accessible and understandable.
• Enablement: The NOC must be empowered to operate efficiently, with the government providing necessary support and resources.

4. NOC Mission and Objectives

• The NOC should have a specific mission, such as resource control, knowledge transfer, and infrastructure development.
• There was debate on whether the NOC should have a broad mission (including social programs) or a narrow one focused on its core business.
• The consensus leaned towards a mission that supports national development while maintaining a clear separation from government functions.

5. Case Studies and Lessons Learned

• Mexico: The 2008 Energy Reform shifted power back to the government, giving PEMEX a clearer mandate and more financial freedom.
• Trinidad and Tobago: Emphasized the importance of developing local capacity and creating a clear national vision.
• Papua New Guinea: Highlighted the need for a well-defined legal structure and the challenges of having multiple NOC entities without a coordinated strategy.
• Thailand (PTT): Demonstrated the benefits of listing the NOC to gain financial independence and reduce government dependency.
• Statoil: Showcased a gradual approach to building competence, starting with capacity development, then moving to operational capability, and finally internationalization.

6. Financial Structures and Funding

• Two main models were discussed:
  • Government-owned (left model): Funding comes from the government budget, which may limit financial flexibility.
  • Listed (right model): Access to commercial capital and financial freedom.
• Timor-Leste is likely to follow the government-owned model, which requires careful management to avoid inefficiencies and ensure sufficient funding.
• Start-up capital and long-term financial sustainability are major concerns, with the need to introduce performance incentives and ensure access to capital through bonds, loans, or reserve funds.

7. Capacity Building

• Training and education are key to developing a competent workforce.
• Local content provisions should be included in the legal framework to ensure national participation.
• Collaboration with international partners is encouraged, but it must be balanced with the development of local institutions and expertise.

8. Transparency and Accountability Mechanisms

• The establishment of a Supreme Petroleum Council (SPC) is recommended to ensure transparency and accountability in the sector.
• In countries like Kuwait and Saudi Arabia, the SPC plays a vital role in reviewing and approving NOC decisions.
• Timor-Leste currently has a consultative Petroleum Fund Consultative Council, which lacks decision-making authority.

Conclusion

The workshop emphasized the need for a clear and detailed legal framework, strong national participation, and transparency in governance. The NOC should be strongly directed by the people and the state, with a specific mission that supports sustainable development and the transfer of knowledge and skills to the local population. While the government-owned model is likely to be adopted, there is a need for financial freedom, performance incentives, and capacity building to ensure the NOC can operate efficiently and contribute to national development. The role of the NOC should be distinct from the government, with a focus on commercial operations and national empowerment.