DILI, East Timor - A US$390 million power project tendered to Chinese investors
was to be the defining action of the Parliamentary Majority Alliance (AMP)
coalition government, with the infrastructure seen as crucial for improving
livelihoods and attracting foreign investment to this impoverished island
It was announced in October that the Chinese Nuclear Industry 22nd Construction
Company had been awarded the tender to build two power generating stations -
one in Manatuto district in central Timor and another on the country's south
coast - and an electricity grid, with the project budgeted over four years.
That ambitious deal is fast coming undone, raising new questions
about China's commercial diplomacy in the region. The project was dealt a legal
blow when the Court of Appeal on October 27 upheld a petition submitted by 16
members of parliament, many from the opposition Revolutionary Front for an
Independent East Timor (FRETILIN) party.
The court ruled in line with their complaint that the budget was
unconstitutional and illegal because the money for the China-tendered deal
would entail a withdrawal beyond the amount permitted by existing laws
governing the country's oil revenue-financed sovereign wealth fund, known as
the Petroleum Fund.
The controversy represents the latest botched government-to-government deal in
the region to ensnare Chinese business interests. Beijing's commercial
diplomacy hit a snag in the Philippines this year when a Chinese state-linked
firm contracted to build infrastructure for broadband telecommunications came
under fire on allegations the company paid kickbacks to high-ranking government
officials to pave the way for the deal.
No such allegations have surfaced around East Timor's power plant deal. But the
controversy has made clear how hard at work Beijing's soft power commercial
diplomacy is in oil-and-gas rich East Timor. China was the first country to
establish diplomatic relations with the country after it achieved independence
in 2002 and has since been a major donor to the oil-and-gas rich nation,
providing everything from food to military equipment.
Chinese assistance went towards building a new building for the government's
Ministry of Foreign Affairs and an elaborate new presidential palace is on the
way. The two structures have represented the biggest construction projects the
capital, Dili, has seen, according to locals. A huge new Chinese Embassy is
also on the cards.
In a seeming quid pro quo, Chinese investors may obtain 50-year land leases in
East Timor, where most other foreigners are limited to 30-year deals. That's
encouraged Chinese investment, witnessed in the growing numbers of Chinese-run
businesses in Dili ranging from electronics stores to restaurants to bars.
Despite its slim national coffers, East Timor donated $500,000 to China in
September for relief efforts in Sichuan province, hit by a severe earthquake
Relations between the two countries go beyond the commercial. In April, East
Timor agreed to buy two Chinese naval vessels to improve its ability to patrol
its sovereign waters, where it loses millions of dollars every year to fishing
poachers and smugglers. Before turning to China, Dili had only two aging
Portuguese boats to patrol the country's 870 kilometers of coastline.
Some analysts have suggested that East Timor is moving closer to China
precisely because of Australia's unwillingness to accommodate Timorese
strategic development, including a reluctance to help the small nation
establish a naval force. Australia has until now taken the lead in patrolling
East Timor's territorial waters. The two countries dispute the boundaries of
the oil-and-gas rich Greater Sunrise field in the Timor Sea, but reached a
joint revenue-sharing agreement in January 2006.
Australian energy company Woodside Petroleum plans a $14 billion Greater
Sunrise project, with the aim of piping gas to Darwin, in the north of Western
Australia, or build a floating plant. Timor wants the gas piped to its own
soil. Neither side is prepared to back down and now it seems East Timor is
cozying with China to bolster its negotiating position. President Jose
Ramos-Horta was quoted as saying he would "prefer to forgo Greater Sunrise than
surrender to the dictates of a bunch of oil executive millionaires".
Ian Storey, a security analyst at the Institute of Southeast Asian Studies,
notes, "China gave a lot of support to the Timor independence movement in the
second half of the 1970s, so there are friendly feelings. China has been
looking into energy deals with East Timor for the past few years."
John Virgoe, Southeast Asia project director for International Crisis Group,
said, "I think China should be congratulated for providing aid to [East Timor].
It would be better if the aid were more focused on relieving poverty and
sustainable development than on prestige projects - but China is still early on
the learning curve when it comes to foreign assistance."
Nor are China's interests limited to East Timor. "[China] is also stepping up
its engagement across the Pacific region as a way of extending its regional
profile," Virgoe said.
The circumstances surrounding the power project are raising new questions about
how China conducts its business in the region. Tibor van Staveren, a researcher
for La'o Hamutuk, a non-governmental organization that monitors development
issues in East Timor, translated the Appeal Court's recent ruling against the
power plant project tendered to Chinese investors.
The verdict said the deal "violates Timor-Leste's [East Timor] constitutional
prohibition against secret budgets and parliament's power to oversee budgetary
The government has withdrawn $300 million from the Petroleum Fund this year,
according to La'o Hamutuk. This year's state budget was $686.8 million, but the
court's ruling now limits that amount to $391 million.
In August, the government proposed to increase the budget by 122% to about $800
million. The revised budget was discussed in parliament and the budget line for
the extra $390 million for the Chinese tendered power plants was voted down.
Yet the $390 million earmark still went through after an alleged mix up with
the paperwork, said Staveren.
Staveren also noted the speed of the tendering process for the heavy-fuel-oil
power plant - three months from when the tender was announced to the contract
"A project like this would normally need almost a year to get through a concept
stage and the drawing of technical specifications, to send out tenders,
evaluate tenders and do an environmental impact study. They rushed it," said
Staveren. "For a project like this, the [tender] documents would be the size of
a telephone book - these were five pages."
The government remains adamant that the tendering process was legitimate.
Secretary of State for Electricity, Water and Urbanization Januario da Costa
said, "The tendering process was announced through the Internet. It was not
done too fast. Fourteen companies offered their quotations."
Of the international companies that initially bid for the contract, one was
rejected for a late submission and nine others were struck off for not
complying with the full proposal. The five remaining proposals, according to a
government media release, were then submitted to a committee comprising the
National Procurement Director, two electrical engineers, and international
advisers from the Ministry of Finance and the Ministry for Infrastructure.
Information about the company that won the bid, Chinese Nuclear Industry 22nd
Construction Co, was not made readily available by the government. The Chinese
company started as a construction outfit building elements mostly for nuclear
power plants, La'o Hamutuk noted. It also built apartment complexes and roads
and was involved in construction for the Three Gorges dam project in China.
As part of the deal, the Chinese company would have maintained management
control of the plant for five years before handing it over to the Timorese.
Critics note the technology the government proposed for the plants - two heavy
fuel oil power stations - was an unusual move for a signatory to the Kyoto
agreement on greenhouse gas emissions. Others have suggested hydropower would
have been a more efficient energy strategy for the power-starved country.
Matt Crook is a East Timor-based freelance journalist. He may be reached