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Taxing times in Timor

Four Corners - October 1, 2012

(Footage of US secretary of state, Hillary Clinton, arriving for a visit in Timor Leste)

Kerry O'Brien, presenter: For a country struggling to find to its feet, a friendly visit from the US Secretary of State is always welcome.

Hillary Clinton: Hello, and how are you my friend? I am so happy to be here, I can't tell you how happy I am.

But while major governments might wish East Timor well, the country's leaders claim big, foreign corporations aren't paying a fair price for Timor's gas and oil.

(Footage from Four Corners program plays)

On Australia's doorstep a classic battle of David and Goliath. And it seems true to the legend that this David will not be bullied.

Welcome to Four Corners.

The deck was stacked against East Timor for a long time, first a colonial master, Portugal; the swallowed up violently against its will by Indonesia. Ultimately it paid the price of its independence in blood, and a society ripped apart, its economy in tatters.

East Timor's one big roll of the dice, its one way out of extreme poverty was to buy a future for its people with massive seabed oil and gas reserves, which might last 20 years or more. But the government is now locked in an almighty battle with the big international companies they're in partnership with to get to their fair share of the bonanza.

Four Corners will tonight reveal some of the games big oil appears to have played. And the sophisticated arsenal developed by one of the world's poorest countries to recoup hundreds of millions of dollars in back taxes.

Two corporations that feature in the program, Woodside Petroleum and ConocoPhillips, have declined to be interviewed on camera.

The reporter is Andrew Fowler.

(Footage of Alfredo Pires boarding helicopter)

Andrew Fowler, reporter: As he prepares to board a helicopter in the East Timor capital, Dili, Alfredo Pires the country's minister for natural resources is only too aware what's expected of him. He's on his way to one of the poorest villages in East Timor.

(Footage of children performing for Alfredo Pires plays)

Children (singing): It's I it's I who builds East Timor. It's I who builds East Timor, bam, bam, bam....

Andrew Fowler: The village has been preparing for the minister's visit for days.

(Children sing)

He has great plans to develop the area.

(Footage of Alfredo Pires and Andrew Fowler on board the helicopter before take-off)

Steward: Good to see you on board our helicopter.

Andrew Fowler: As a qualified geologist, Pires could be pulling in a six figure salary anywhere in the world.

Steward: Please switch of your mobile phones and....

Andrew Fowler: Instead he's returned home, one of a new breed of highly educated Timorese determined to re-build their country.

Alfredo Pires, Minister of Petroleum and Mineral Resources: Did you hear the Russian?

Alfredo Pires: I think having grown up in Australia, under the culture of fair go and a fair crack of the whip I think that also helped a lot to make that decision and to give what we can to others.

Andrew Fowler: There's no doubt he has a big job ahead of him. And no better example of the immensity of the task than the trip we're taking in this UN helicopter.

(Footage of East Timor from the helicopter)

We're on our way to Suai, on the far south coast of Timor.

The 180 kilometre journey will take less than half an hour. By four wheel drive it's a dangerous seven hour trip. Hardly surprising that fixing the roads to this remote part of the country is one of Pires's biggest priorities.

From the air you get a hint of the problems. It's not just the lack of roads. There's precious little infrastructure, even basics like water, sanitation and electricity.

Steward: Welcome to Suai...

Andrew Fowler: East Timor is ranked as one of the poorest nations in South East Asia.

(Footage of road from car plays)

And on the south coast there's even less. The road we're travelling on will take us to the poorest of the poor. It's hard to believe, but the East Timor government has grand plans for this area.

(Footage of welcome dance for Alfredo Pires at village plays)

The plan is to lift the people out of poverty but at the same time maintain their cultural traditions.

Alfredo Pires: They have a piece of land where they grow corn about once or twice a year. Probably makes $1,300, $1,400 a year.

Andrew Fowler: That's about $4 a day per family.

Pires and his government are convinced that such subsistence farming and poverty can be banished forever. But he is acutely aware of one of the biggest problems.

Alfredo Pires: No false promises.

Andrew Fowler: No false promises. No.

Young man in village: We promise you we will do our best.

Andrew Fowler: The government is already delivering on one promise though: education.

Children: We are children and we are the future of this country.

Andrew Fowler: And learning English, the language of commerce and trade as Pires calls it, will help them get jobs in the new industry the government hopes to attract to the area.

Children: 'Cause only education can change our lives.

(Footage of Alfredo Pires talking to locals at the beach in Suai plays)

Andrew Fowler: Down on the beach, Minister Pires details his grand plans for the south coast, including a deep water port here near Suai.

Alfredo Pires (at beach): (Points out area on map)... with a draft of 20 metres.

(On Four Corners): When a supply base is ready the goods and services will have to come out there. We have a world standard facility there, I am sure we able to attract other people to come and use those services.

So the initial impact, especially if there's a supply base related to an industrial estate, then we could talking, we could talk about quite a few jobs.

(Computer images of highway plans is shown)

Andrew Fowler: There are plans too for a four lane highway, connecting the port to an oil refinery.

(Computer images of proposed gas processing plant are shown)

And further up the coast, if the government wins a standoff with Australia's Woodside Petroleum, a gas processing plant fed by a pipeline from the development of the Greater Sunrise field in the Timor Sea.

Alfredo Pires (at beach in Suai): There's a few sacred sites here, we're going to have to design it to respect that.

Andrew Fowler: For the local people it's a welcome opportunity to get paid work.

Youth (subtitled): As the youth of this area, we would like to get jobs if they open a supply base here.

(Footage of man opening oil wellhead plays)

Andrew Fowler: It's not as though the south coast hasn't had the whiff of development before. This old oil wellhead, long abandoned, can still put on a show.

(Picking up oil from the ground at the wellhead): Right here the oil is bubbling to the surface. It's rich and sticky and has a very distinctive smell. The smell of money.

(Footage of East Timor landscape plays)

This time the Timorese have a real stake in the development of the resource. But the wealth isn't here on land, it's out there in the Timor Sea.

(Map of Timor Sea is showing the Joint Petroleum Development Area maritime border.)

Deep below the ocean floor lie two massive oil and gas deposits. They're worth billions of dollars.

(Bayu Undan with pipeline to Darwin is marked on the map)

One, Bayu Undan, is already piping gas to Darwin.

(Greater Sunrise is marked on the map)

The other is known as Greater Sunrise. It's a treasure trove yet to be tapped. It's the gas from this field that East Timor believes holds the key to the country's future wealth.

Xanana Gusmao, Timor Leste Prime Minister: We are a new country, a small country, a small population and we have resources. The fundamental problem is how to manage these resources to benefit the people. This is the very crucial for the future of this nation.

Andrew Fowler: Xanana Gusmao believes the full value of the nation's resources can only be realised if the gas is piped to the south coast. It's a plan that has cross-party political support.

Former Prime Minister, Mari Alkitiri, believes the pipeline plan will benefit East Timor.

Mari Alkitiri, Secretary-General, Fretilin: It will be good if Timor Leste can be a new hub of oil and gas. And not only be a producer but be a hub. This is what we struggle for.

Andrew Fowler: So what are the benefits of it being a hub and not just taking the money?

Mari Alkitiri: It's a development of – for infrastructure, development of knowhow, development of technical skills, everything. And even, even development of the country as a whole

(Map of Timor Sea showing Greater Sunrise gas field and possible Woodside pipelines to East Timor and Darwin is shown)

Andrew Fowler: But Woodside has plans of its own. It doesn't want to build a gas pipeline from the Greater Sunrise Field to East Timor. It has examined the possibility of piping the gas all the way to Darwin.

(Computer images of proposed Woodside floating platform are shown)

But Woodside's preferred option now is to build a floating platform, where the gas can be processed at sea. The disagreement over how to exploit the Greater Sunrise Field has caused great tension between East Timor and Woodside.

Don Voelte, CEO, Woodside Petroleum 2004-11 (at press conference): By objecting to Sunrise being built, they must be objecting to promoting the quality of life and improving the livelihood of their people. And I don't get it. I just don't understand it.

(Footage of Woodside AGM plays)

Francisco Monteiro, CEO, Timor Gas and Petroleum: We were wondering you know how can an oil s company executives ever say that to a legitimate government, and particularly another foreign government, you know. That's unacceptable in any kind of judgement that one would have.

(Footage from Don Voelte's press conference plays)

Xanana Gusmao: Everybody say that for poor countries, for under-developed, give them ownership, give them capacity to run their own business. It means essentially respect to the others. If we have this kind of environment, respect, we can have a deal

Kerry O'Brien: When Woodside's CEO, Don Voelte travelled to East Timor in 2010 Prime Minister Xanana Gusmao refused to meet with him. But the company pressed on.

Don Voelte (to press, 2010): It's the beginning of next week when we deliver to the regulator the very thick and very detailed field development plan for consideration with the governments of Timor Leste and Australia.

Andrew Fowler: The plan was to be delivered to Timor's National Petroleum Authority. Woodside had agreed to provide an even handed appraisal of all options for the development of the Greater Sunrise field.

(18 May 2010: Footage of people arriving for meeting between Woodside and the Timor Leste government)

Brendan Augustin, Woodside's East Timor manager, a former department of foreign affairs officer, and Jon Ozturgut, a senior company vice-president from the Perth head office, brought the plan with them.

What happened next was extraordinary.

Gualdino da Silva, President, National Petroleum Authority: The discussions like were still in the middle of discussions. And then Mr Jon Ozturgut was like sitting next to me and then just walk off without saying anything, just like that. So that was something that was really unpleasant to see of course.

(Footage of Jon Ozturgut leaving the meeting plays)

Andrew Fowler: As Jon Ozturgut made his way out Gualdino da Silva, and his staff, was stunned.

Gualdino da Silva: Jon walk out and then followed by Brendan.

Reporter (to Jon Ozturgut): Where are you running sir?

Andrew Fowler: It's what Ozturgut left behind that was important: the incomplete development proposal. It did not include the complete details of the option to build the pipeline to East Timor.

Andrew Fowler: So what do you think they hoped to achieve by leaving the report in your room?

Gualdino da Silva: I think what they would like to achieve at that time was to ensure that – to say that we had actually accepted the field development plan.

Andrew Fowler: But da Silva's staff spotted the files, and stuffed them into the hands of the Woodside driver.

(Footage of staff member handing files to Woodside driver plays)

Ozturgut put on a brave face, but the message sent to Woodside was clear: Timor Leste was still pushing ahead with the pipeline to the south coast.

If leaving the files behind was an attempt to force the government to accept what Woodside wanted, it wasn't successful. Just across town Woodside would come up against another tough opponent.

Francisco Monteiro (showing Andrew Fowler around TimorGAP's offices): Basically the gas business unit and...

Andrew Fowler: Francisco Monteiro, the CEO of East Timor's national gas and petrol company, known as TimorGAP.

Monteiro knows a thing or two about Woodside Petroleum, and in particular the Sunrise project. It's his PhD thesis, and he temporarily put it to one side to help his country.

Francisco Monteiro (talking to staff member): Can you zoom into the Suai area and the area of Suai supply base itself.

Andrew Fowler: Monteiro's job is to develop a detailed plan of the south coast development area and make sure the pipeline gets built.

(Francisco Monteiro shows the Suai supply base area on computer)

Francisco Monteiro:... and Suai airport to be rehabilitated.

Andrew Fowler: Woodside's argument has been simple. They say there is a huge trench between the field and the Timor coast which the pipe can't cross.

(to Francisco Monteiro): There's a lot of controversy about the pipeline with Woodside arguing originally that the trench, the Timor trench was too deep to send a pipeline across.

Francisco Monteiro: Well, first of all it's not a trench, to be correct and technically.

Andrew Fowler: So what is it?

Francisco Monteiro: To us, it's a trough and maybe this is this is not a semantic kind of argument. This is really something substantial.

(Francisco Monteiro shows Andrew Fowler map of the area the pipeline would have to cross)

Francisco Monteiro: This part is 3,020s.

Andrew Fowler: Monteiro says he has the evidence to prove his point, as he pours over the maps pointing out the relative depths of the ocean and how the pipeline could avoid the steepest parts.

Francisco Monteiro (pointing out area on map): Since 2007, we carried out a number of studies, started off with a pre-feasibility studies, subsequently followed with bathometric studies, mapped out the whole seafloor there. And eventually we found out that technically it's possible. So it's feasible to lay the pipeline across that Timor trough.

(Graphic of Woodside's public presentation material plays)

Andrew Fowler: At public presentations Woodside showed a trench, like an underwater slice of the Grand Canyon; huge cliffs plunging to the depths. A pipeline seemed like an impossible engineering feat. By stretching the vertical scale it exaggerated the slope of the trough.

If it had shown the trough true to scale it would look like this (trough graphic is shown true to scale) a wide open undersea valley of mainly gentle slopes.

Alfredo Pires: It looked pretty scary. They had very steep slopes, you wouldn't want to put there. So the average person would immediately raise their hands and say 'look let's get out of here.'

I remember, it's a clear example the idea that there were slopes all the way up to 45 degrees that we would have to tackle if the pipeline was coming from Greater Sunrise to Timor Leste, which is true. But we weren't told that you can actually just deviate those 45 degrees and go by something much much less steep.

Andrew Fowler: Four Corners requested an interview with Woodside Petroleum, but the company declined. In a statement Woodside said the graph had been "sized to fit in the presentation".

(Map of Joint Petroleum Development Area is shown)

East Timor had already missed the potential benefits of having a gas pipeline come ashore.

In 2002 it signed an agreement with the giant US energy company ConocoPhillips to pipe gas from the giant Bayu Undan field to Darwin.

The creation of an LNG (Liquid Natural Gas) hub greatly boosted Darwin local economy, creating thousands of jobs.

With the gas going to Darwin, ConocoPhillips was about to reap an even richer reward. Without telling East Timor the company built a $50 million dollar helium plant. This had never been in the agreement.

It was only by chance the Government found out what ConocoPhillips was up to. At a trade fair the plant owner began boasting to an East Timorese official.

Francisco Monteiro: When they were asked where will the gas come from? Saying 'from Bayu Undan' and everyone's like 'what? We are the owners of that resources, we are the managers and administrators and managers of those resources. And how could we not informed and be asked our permissions?' And on top that should also share the revenues of these resources.

And so it's unbelievable that these things happen without our knowledge.

Andrew Fowler: The amount at stake, around $16 million, so far.

The East Timorese believe that because it was their resource they should get a cut.

Emilia Pires, Minister for Finance: If someone is making revenues off helium from the Bayu Undan gas then we should be entitled to our share. But we haven't had it; we haven't received anything so far, therefore we are investigating.

(Footage of Pierre Prosper arriving for a meeting with Alfredo Pires plays)

Andrew Fowler: Pierre Prosper is a lawyer for a highly regarded Washington DC law firm, an expert in diplomacy and international law. The East Timor government hired him to help fight their case. He understands only too well what's going on with the helium.

Pierre Prosper, Legal Adviser to East Timor government: What we're discovering is that everyone's making money. The owners of the pipeline, the operators are making the money, all the way up and down the chain. Australia is making money because they have now a taxpayer that's in their territory, the jobs that come with it.

The only entity or body that is not making money, is not receiving any benefits, is Timor. Timor is not recouping or able to recoup a single cent from that operation while everyone else is. And we look at that as a not only a significant problem, one that is just unfair, but it's really unjust from our view.

Andrew Fowler: Yet again the East Timor government had discovered it needs to keep a close watch on the activities of its new business partners.

Four Corners can reveal that the amount of money involved in disputed, unpaid taxes leaves the sum involved in the possible helium rip-off looking like loose change.

(Footage of riots in East Timor plays)

While East Timor was burning and trying to recover from years of instability, petroleum companies took the opportunity to effectively keep hundreds of millions of dollars from the East Timorese.

Charlie Scheiner is a researcher at an independent organisation which monitors government income and expenditure. He's closely investigated the oil companies and the tax they pay.

Charlie Scheiner, Researcher, L'ao Hamutuk: They are looking of course to maximise their own profit. And when Bayu Undan started significant production in 2004, and it's increased since then, the government here did not have either the capacity or the interest, it's not clear, to do detailed independent audits of ConocoPhillips tax returns.

And so ConocoPhillips did what a lot of taxpayers do, especially rich ones, they pushed the margin. And each year when they take a little bit more questionable deductions and it doesn't get challenged, they take a little more the next year and the next year.

Andrew Fowler: In a cramped upper floor Dili office, a special task force is locked away in a secure location, combing through the financial records of the oil and gas companies.

It's using sophisticated forensic accounting techniques, and some of the world's most highly qualified experts to chase the money trail. It's a massive task, digging back through thousands of financial transactions and reports.

But the East Timorese have only been able to do this level of forensic auditing since 2011. For almost a decade the companies kept their books off-shore in Australia, away from the prying eyes of East Timor's finance department, and its minister.

Emilia Pires: When I became minister all I knew is that I was not allowed or my people were not allowed to go to Australia and check the – and do auditing to the companies. Because most of the companies that are in the oil business are situated in they have their headquarters in Australia.

Andrew Fowler: So why are the books held in Australia and not here?

Emilia Pires: Because they are their headquarters were there.

Andrew Fowler: So you couldn't get access to the books?

Emilia Pires: And we couldn't go to Australia to do auditing because it's like going to somebody else's country.

Andrew Fowler: In desperation the East Timor government tried to persuade the Australian Government to help.

Emilia Pires: We had a lot of talk with the tax department in Australia, trying to do a memorandum of understanding and so that we could allow we were allowed to go there and do the auditing etc. But it didn't work out successfully. And so when it didn't work out successfully so I said OK, bring them – bring the books over to Timor Leste. And so the books – the companies were forced to bring the books to Timor Leste.

Andrew Fowler: Only in 2010 did East Timor get the right to have the books of the companies held in Dili. And it was only then that the task force began uncovering just how much money the nation calculated it's owed in unpaid taxes.

Four Corners has been told that so far 28 cases of unpaid taxes have been settled. And there are many more to come.

Emilia Pires: Well, since we start auditing and we really started auditing in beginning of 2011. So within a year and a half you know since then to now, we've recovered or collected about $362 million just in the auditing exercise.

We are at the moment, our tax department is actually looking at the overall oil industry and asking the companies to justify their expenditure. And as of today, if they do not provide us all the justification there's a potentiality of going up to $3 billion.

Andrew Fowler: $3 billion?

Emilia Pires: $3 billion.

Andrew Fowler: The task force has also uncovered some extraordinary cases of what it says is unaccountable expenditure.

Andrew Fowler: Are there any examples that you can cite at the moment of somebody who's making a tax claim but can't produce the documents?

Emilia Pires: Well, we are in the process of do some issuing some assessments on some cases, yes, that they are not able to give us the paperwork, the justification. We have been asking lots, we have been asking for a long time.

Andrew Fowler: Can you tell me about those?

Emilia Pires: I am not allowed to speak at the moment because we are in the process.

Andrew Fowler: Emilia Pires may be coy about what's happening in the future but several cases are already before the courts and in the public arena.

(Excerpt from Woodside Petroleum corporate video plays)

Voiceover: Woodside is now a global force in energy supply...

Andrew Fowler: Even before Australia's own Woodside Petroleum has sunk a gas production well it's been hit with a bill for a capital gains tax and penalties.

Voiceover:.... Woodside oil over 50 years ago...

Andrew Fowler: During a 16 month investigation auditors discovered that Woodside had sold a share in an uncommercial gas field to Italian firm, ENI, one of its joint venture partners.

According to the East Timor government, Woodside paid a capital gains tax of $24.9 million.

Woodside, which Four Corners understands is appealing the ruling, said it actually made a $26 million loss.

(End excerpt from Woodside corporate video)

(Excerpt from ConocoPhillips corporate video plays)

Voiceover: It's time...

Andrew Fowler: Over at ConocoPhillips Australasia, East Timor's tax investigators have handed the company a $6.5 million bill for a single year, challenging its tax write off for decommissioning oil drilling and production equipment.

Voiceover:... deep water, oil sands and LNG...

Andrew Fowler: The East Timor tax office wrote to ConocoPhillips explaining: "The decommissioning cost... has not yet been approved." The letter pointedly added: "Any deactivation costs... will not be deductible for tax purposes."

Voiceover: It's time, for ConocoPhillips.

(End ConocoPhillips corporate video excerpt)

Emilia Pires: For you to decommission you need to have approval from the regulatory body. And then you can deduct that money from us like so you don't have to pay tax. You cannot do it the other way around. And unfortunately the company did it, yeah, the other way around. And therefore we as a tax agency we need – we have to act.

Andrew Fowler: After subsequently paying approximately $79 million in back tax and penalties for failing to get permission for the decommissioning, ConocoPhillips and its partners are now appealing the case in court.

(To Emilia Pires): Were they taking advantage of you?

Emilia Pires: I have a feeling that in the past, yes, because I mean they knew more than we did, and they knew that we were weak.

(ConocoPhillips corporate video of Bayu Undan plays)

Andrew Fowler: In yet another case, ConocoPhillips, which heads a joint venture partnership with among others, Australia's Santos, and Tokyo Electric and Gas, has been caught out 'cost shifting'.

The company has sought permission to drill for gas in a dry field known as Phoenix, which it described in its application as lying "outside the Bayu Undan discovery area".

ConocoPhillips was given approval to drill on the condition that: "costs may only be recovered from income derived from the ultimate successful development of the Phoenix Prospect." And not from the profits of the existing Bayu Undan field.

Emilia PIRES: No revenue, no deduction. But if you get revenue, OK, fine, you know, you deduct. But they insisted they went and then they spent like 71 days in exploring that field and came out with nothing because it was a dry field. But they still deducted from the Bayu Undan from us, $32 million.

So when we went to do this auditing looking back and etc, we were 'no, no you shouldn't do that because it was very clear that you were not meant to do that. You go there at your own risk and then you charge us. You shouldn't, no, you can't do that.' And so we made an assessment on them and charged penalties.

Andrew Fowler: What do you think that that says about the company that will have an agreement with you and then break it and do exactly what the agreement says they would not do: to charge expenditure against the profits of another field? What does that say to you?

Emilia Pires: Well, again... Well, obviously they are not doing the right thing by us. But why do they do it? I cannot, I mean you should ask them because all I can tell you is that if you don't do the right thing you get caught. And they're getting caught now.

Andrew Fowler: ConocoPhillips has a reputation of doing more than most to reduce its tax bills. A large number of its political lobbying efforts in the US are related to tax. And ConocoPhillips' parent company has many subsidiaries registered in tax havens.

Andrew Fowler: Just explain to me the process by which you're making the companies explain their profits and also the charges that they are setting against those profits. What are you actually doing?

Emilia Pires: When we are doing an auditing we are asking them OK, show us the receipts. Tell us, if you say that this cost you, just as an example, $100 million then give me the receipts for $100 million. And they're struggling. They're not able to give us that, the total cost of what they said they claim that they've spent. Now that's a bit of a problem.

Andrew Fowler: Four Corners requested an interview with ConocoPhillips Australasia but the company refused.

In a statement the company said: ConocoPhillips "has paid and is up to date with all taxes assessed... but is challenging the basis on which those assessments have been made."

Australia is also a tax recipient from the companies operating in the joint production area between Timor and Australia. So Australia too stands to gain if the companies are being found to be underpaying their tax through elaborate schemes.

While Four Corners was in Dili, the Australian ambassador and a senior Australian government official sought a meeting with the finance minister.

Emilia Pires: The ambassador came to see me with another lady from the Ministry of Resources, Energy and Tourism in Australia. I think the Australian National Audit Office has done an audit in Australia. But they needed some access, some extra information from Timor Leste to verify the accuracy of some of the findings, and so they came to see me.

Andrew Fowler: What sort of information were they asking you for?

Emilia Pires: Well, I didn't understand very well, but I think it was a lot of it on the royalties. But I do audit on taxes, not royalties. But they were asking me for information for auditing on royalties, the production in the field, etc.

Andrew Fowler: Four Corners has since discovered that the Australian National Audit Office investigation is looking into the accuracy and completeness of petroleum revenue from the Timor Sea received through taxes and royalties. We've also been told that the investigation has nothing to do with companies not paying their tax.

How to manage the oil money has always been the big issue for East Timor. It feared the potentially corrupting influence of the billions of dollars flowing into the country.

In 2009 it established an anti-corruption watchdog, headed by another PhD graduate from Australia, human rights lawyer, Aderito Soares. He only took the job because he was guaranteed he would be independent.

Aderito Soares, Commissioner, Anti-Corruption Commission: We never get any call from other authorities to stop any investigation. I assure you, even not from Prime Minister or from former president or from other entities to say that 'commissioner, don't do that'. We never experienced that, and I hope that this will go as I said you know for in the future.

And I assure you that I think no, I think for public land some people kind of doubt, but we have been doing this work in the last two years and I think we're quite – I think they respect the independency of this institution.

(Footage of Alfredo Pires and Pierre Prosper in a meeting plays)

Alfredo Pires: So the airports, all the helicopters you see in the current airport...

Pierre Prosper: Well I see the government as going as far as is, it can to be corruption free and transparent. They've instituted many mechanisms that give great visibility into how they receive money and how they spend money. In fact, many of the rules are so stringent that documents, contracts and so forth are, are made available to the general public for examination. So everyone knows who's contracting with the government, who is receiving money and what they're doing with that money.

It's proud of the fact that it's independent. It's proud of the fact that it's becoming a stronger democracy, and it's trying to become an example to the world.

Andrew Fowler: Back in 2005 East Timor became just that, an example to the world. It knew that it needed money to build the country and for people to live on as well. It decided to take a bold step.

When the billions of dollars from the oil and gas bonanza began pouring in, the government of Timor Leste did a very smart thing. Unlike other countries which have frittered away their petro dollar wealth Timor Leste would be different. It set up a sovereign wealth fund and locked the money away.

The idea was East Timor would live on the income from the fund and keep the capital safe for future generations. But the trouble was there wasn't enough money in the fund to produce a big enough income. The back taxes would have helped.

Pierre Prosper: What the client in Timor has been doing is really going back and assessing all the previous years of tax returns. They were able to discover over $300 million of back taxes that had not been paid or either been improperly deducted. So our job has been to, to as you say, chase the dollars and find that money and put it back into the government coffers so that it goes to where it needs to go.

Andrew Fowler: A combination of not enough tax money, and the fund not producing enough income, forced the government to act. It raided the fund to build up East Timor's broken infrastructure and to help alleviate poverty.

Xanana Gusmao: Don't talk to me about malnutrition, don't talk to me about education, don't talk to me about the roads, don't talk to me about agriculture. I just lock the money in safe in some coffer?

Andrew Fowler: The World Bank and others argued against drawing down too much money from the sovereign wealth fund.

Emilia Pires: They don't understand. They are a multilateral institution. I mean how many of them has governed countries? I once upon a time also worked for the World Bank and I'm now in the minister of finance's hot seat and I have to look at it from my point of view and says OK, now that I'm here, what am I going to do? If I don't spend then things don't move.

If the public sector is the motor of the economy and the public sector is not functioning, is not spending, well, what do you expect? People will have no jobs on the ground. There's no economy moving and so what will happen? Crisis will happen. And this is what happened to us.

Andrew Fowler: Eventually The World Bank changed course and supported the government's use of the fund, but only after a damning report blamed much of East Timor's failure on the Bank's policy.

(To Hans Beck): How bad were those mistakes of the past?

(Four Corners): Hans Beck is the World Bank's acting country manager for East Timor.

Hans Beck, Acting Country Manager, World Bank: Well Timor Leste has made tremendous progress in the last 10 years, drawing down money from the fund and channelling that into through budgets to meet pressing development needs in education, in health, in agriculture, for example. And through that achieving in the last five years for instance, 12 per cent average growth rates, which is remarkable in this region if not the world if you like.

Andrew Fowler: But according to your own internal report they only got there at that level because they disregarded the advice that was coming from the World Bank. Poverty already at twice the rate of Indonesia rose significantly through most of the evaluation period and declined only after 2007 when the government, against the Bank's advice, increased spending using petroleum resources. And that's your own report.

Hans Beck: As I said there was a lot of... and that's an independent evaluation group report which provided a lot of valuable lessons that have been incorporated in, as I said, our own strategies, work with the government and the government's own relationship with us. So it's a helpful report, and we took it very much to heart.

Andrew Fowler: And the changed policy worked. According to the World Bank the economy is now growing strongly and the infant mortality rate has nearly halved.

If there's one lesson the Timorese have learned over the years, it's to rely on no-one but themselves. If the tax take had been higher in the first place it's arguable that East Timor may not have had to raid the sovereign wealth fund.

Emilia Pires: All the money that comes from the oil goes to this petroleum fund, which is our sovereign wealth fund

Right now we depend very much on it. It nearly finances like 90, probably 95 per cent of our budget from the oil revenues. So it is that money that's allowing the economy to move at the moment.

Andrew Fowler: The petroleum minister is only too aware of the problems facing his country.

(Footage of Alfredo Pires and Andrew Fowler walking through power station plays)

Alfredo Pires: What the engineers tell me at the moment we are...

Andrew Fowler: This power station is part of $1 billion electrification program, much of the money drawn from the sovereign wealth fund.

Alfredo Pires: Right now we've got the major capital, so Dili is running on this one. And other towns, Bacau, the northern suburbs, as we are spreading out the towers on the south coast. And this will all be linked together. So future industries, all will be enjoying energy from this plant.

Andrew Fowler: There's the potential for an added bonus. The plant runs on diesel at the moment, but it can quickly be converted to cheaper gas from the Greater Sunrise Field, if the pipeline comes ashore in East Timor.

For the people of this battered country many questions remain. Will the gas resource be piped ashore? Will the companies pay their taxes? Will there be jobs for all?

Certainly people like Victor De Araujo and his wife Maria hope the government gets it right. They and their four children live a meagre existence.

Victor supported the struggle for independence but now all he wants is work. He gets casual jobs, but nothing permanent.

Victor de Araujo (subtitled): My wish and desire is that I have a job to support my family. That's why during the Indonesian times we fought for our independence, because we didn't have work. But since independence we still haven't seen much change.

Andrew Fowler: Having won the war the East Timorese are looking for a peace dividend. Instead they have a new fight on their hands as the government tries to bring jobs and industry to some of the poorest parts of the country.

(Footage of Alfredo Pires in Suai plays)

There's no doubt collecting all the tax revenue that's due, will help provide the lifeline East Timor needs as it struggles to turn itself into a modern nation.

Pierre Prosper: Around the world, multinational companies always fight for their interests. And they fight tooth and nail, it's their job, they have shareholders, they have a board to answer to.

And in our case we're in a fight. And it's expected, we're not offended by it, it's part of the process. And we, we expect the fight to get harder, because we are talking about a lot of money. But, but what has changed here is that Timor is fighting back.

Alfredo Pires: As a young country we have come to learn very quickly. It's a tough game and what I usually tell the young Timorese who are now coming into this area is that there is no Mother Theresa's in the in the oil and gas game. So don't expect that people are going to hand things out for you. You're just going to have to smarten up and defend your rights to the best of your abilities.

Xanana Gusmao: I believe that companies will be aware that they have to pay. Under the rules, under the laws they have to pay the tax.

Kerry O'Brien: Small it may be, but East Timor is most certainly a nation of fighters.

As we've said, Woodside and ConocoPhillips declined to be interviewed on camera for the story. But you'll find their statements in response to our questions on the program website.

Next week on Four Corners, on the front line with the rebel forces in Syria. It's an extraordinary insight into a bloody civil war that shows no sign of ending.

Until then, goodnight.

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