26209 June 10, 2003 Integrated Safeguards Data Sheet (Initial) Section I - Basic Information Date ISDS Prepared/Updated: 06/10/2003 A. Basic Project Data (from PDS) I.A. 1. Project Statistics Country: Timor-Leste Project ID: P082942 Project: Second Petroleum Technical Assistance Grant Task Team Leader: Charles P. McPherson Authorized to Appraise Date: 12/10/2002 IBRD Amount ($m): Bank Approval: 6/26/2003 (planned) IDA Amount ($m): Trust Fund Amount ($m): 1.70 (TFET) Managing Unit: EASEG Lending Instrument: Technical Assistance Grant Status: Lending/Special Financing (TF'ET) Sector: Oil & Gas (LC) (100%) Therne: Other Economic Management (P) .A.2. Project Objectives (From PDS): The proposed project will provide support to two key Government of Timor-Leste divisions involved in overseeing petroleum sector development: (1) the Timor Sea Office (TSO) in the Office of the Prime Minister; and (2) the Ministry of Planning and Finance (MOPF), specifically, the Timor Sea Tax Division (TSTD) and, separately, a petroleum revenue management function. The objective of the project is to ensure continued and enhanced functioning of these critical agencies over the next 24 months in support of an orderly, beneficial development of the petroleum sector. The grant will focus on maintaining and increasing capacity in core functions, including the retention and/or recruitment of essential international advisers, the provision of programmed and just-in-time technical assistance, critical operating costs (e.g., travel for essential negotiations and tax audits), and the provision of selected infrastructure for basic office functions (TSTD). I.A.3. Project Description (From PDS): Over the next several years Timor-Leste's petroleum sector is expected to provide revenues accounting for up to 50 percent of GDP and 85 to 90 percent of government revenues and foreign exchange. These figures will drive future poverty reduction programs, facilitate economic recovery, and allow for donor exit. Against this background, technical assistance to Timor-Leste in the petroleum sector to date has been significantly under-funded, amounting to a mere 0.2 percent of the budget and less than three percent of donor flows. In the near-term, a considerable shortfall relative to needs exists. Although issues related to the entry into force of the Timor Sea Treaty and signing of the Greater Sunrise Unitisation Agreement have been resolved, challenges facing Timor-Leste's petroleum sector are daunting; they include: complex ongoing and new negotiations with companies and governments (on the development of the Greater Sunrise field and Jahal and Kudatasi fields, among others); agreement of a new petroleum mining code and model production sharing contract for the Timor Sea Treaty area; oversight of the development of Bayu-Undan, a major liquids and liquefied natural gas project; maritime boundary negotiations; increasingly significant tax compliance issues; the development of minimum technical capacity; the design and implementation of a sustainable adrninistrative framework for the sector; a growing need for domestic and international public information outreach programs; and transparent and efficient management of petroleum revenues to ensure that they contribute to the development of the people of Timor-Leste. Thus, in line with vital needs, the proposed project will provide support to two key government divisions involved in overseeing petroleum sector development: (1) the Timor Sea Office (TSO) in the Office of the Prime Minister; and (2) the Ministry of Planning and Finance (MOPF), specifically, the Timor Sea Tax Division (TSTD) and, separately, a petroleum revenue management function. The TSO has been the lead agency on all sector policy and strategic topics and has conducted all international negotiations; the TSTD is now facing rapidly escalating oversight demands; and there currently exists no office in the Government charged specifically with the critical task of implementing a petroleun revenue management strategy. Funding for these areas will focus on maintaining and increasing capacity in core functions, including the retention and/or recruitment of essential international advisers, the provision of programmed and just-in-time technical assistance, critical operating costs (e.g., travel for essential negotiations and tax audits), and the provision of selected infrastructure for basic office functions (TSTD). Technical assistance support to Timor-Leste' s petroleum sector to date has already generated significant returns. By means of example, relying on funds provided in part by the first Trust Fund for East Timor (TFET)-funded Petroleum Technical Assistance Project, the TSO negotiating team successfully shifted more than USD 200 million in value to the Timor-Leste Treasury in the negotiations on the Greater Sunrise Unitisation Agreement and an estimated USD 300 million to the Treasury in the Bayu-Undan negotiations, assuming these projects proceed as currently scoped. Without the critical technical assistance provided under the first Petroleum Technical Assistance Project, it is unlikely that Timor-Leste would have realized such gains. Similarly, the few visits to petroleum company headquarters in Perth already taken by the TSTD have boosted company tax compliance considerably. The selection of activities for funding over the next 24 months under the proposed project has been closely coordinated with the other donor programs in the sector (see Section D, 2). These programs remain relatively limited, however, and are still fragmented. During implementation and over the next 24 months, the Bank will continue to work with the Government and other donors to develop a more strategic, sustainable approach to funding medium- and longer-term activities related to petroleum sector development. Project components (see Annex 1): Project Component Performance Indicator Mid-Term Completion Technical Assistance (via Engagement of indicated consultants (detailed in Completed Consultant Services) project Procurement Plan) _ Training Definition and implementation of training for TSO Completed (petroleum economics) and TSTD (accounting/auditing) Office infrastructure Acquisition of office infrastructure (TSTD) Completed Technical Assistance (via Demonstrable expansion of information outreach, Completed Consultant Services) especially local outreach and including inside Govenmment and National Assembly_ Technical Assistance (via Start up of negotiations on new development Negotiations Consultant Services) projects (Jala and Kuda Tasi) started Technical Assistance (via Start up of negotiations on maritime boundaries Negotiations Consultant Services) started Technical Assistance (via Presentation of draft model contracts and new Completed Consultant Services) Petroleum Mining Code to National Assembly Technical Assistance (via Evidence of expanded tax audits Completed Consultant Services) I Technical Assistance (via Presentation of draft petroleum revenue Completed Consultant Services) management legislation to National Assembly In addition, a Petroleum Mining Code included in the Timor Sea Treaty permits the Designated Authority to issue environmental regulations. The Code, and associated regulations to be issued under the Treaty, prevent the Designated Authority from issuing contracts unless companies can show their ability to meet the environmental standards established; oblige companies to protect the environment in and around the contract area; and empower the Designated Authority to make a company pay for the remedy of any environmental damage. Furthermore, the Production Sharing Contract concluded with the Bayu-Undan operator ConocoPhillips and its joint venture partners requires the joint venture to: develop an Environmental Management Plan to be approved by the Designated Authority; prevent pollution of the marine environment; and pay for the costs associated with clean-up of any pollution from petroleum operations within the contract area. The Production Sharing Contract also requires the contractor to submit to the Designated Authority a plan for decommnissioning the project. This plan must include: steps reasonably required to prevent hazard to the environment, and environmental, engineering, and feasibility studies reasonably necessary to support the plan. As a Category C project, an Environmental Assessment will not be undertaken. It is considered that the existing environmental regime and successor regime, as described above, will provide adequate safeguards with respect to the environment. During project implementation, World Bank experts will review these regimes and provide feedback to the Govemment as necessary. Since successful development of Timor-Leste's petroleum resources, which the proposed project would support, will have environmental implications, the possibility of preparing a strategic Environmental Impact Assessment will be explored with the Government during project implementation. Though the Timor Sea contains areas of overlapping boundary claims by Timor-Leste and neighboring countries, the Projects in Disputed Areas Safeguards are not invoked under the proposed project. The overlapping boundary claims could become the object of maritime boundary negotiations, and the proposed project provides Timor-Leste with the possibility of expert advice and support in this area. The project does not, however, involve any activity in a disputed zone. The World Bank's other Safeguard Policies are not relevant to the proposed project. Il.D. lb. Describe any potential cumulative impacts due to application of more than one safeguard policy or due to multiple project component. N/A II.D. Ic Describe any potential long term impacts due to anticipated future activities in the project area. See lI.D.la above. II.D.2. In light of 1, describe the proposed treatment of alternatives (if required) N/A HI.D.3. Describe arrangement for the borrower to address safeguard issues See lI.D.la above. II.D.4. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people. N/A E. Safeguards Classifwation (select in SAP). Category is determined by the highest impact in any policy. Or on basis of cumulative impacts from multiple safeguards. Whenever an individual safeguard policy is triggered the provisions of that policy apply. I SI. - Significant, cumulative and/or irreversible impacts; or significant technical and institutional risks in management of one or more safeguard areas 1X S2. - One or more safeguard policies are triggered, but effects are limited in their impact and are technically and institutionally manageable [ ] S3. - No safeguard issues [ ] SF. - Financial intermediary projects, social development funds, community driven development or similar projects which require a safeguard framework or programmatic approach to address safeguard issues. F. Disclosure Requirements Environmental Assessment/Analysis/Management Plan: Expected Actual Date of receipt by the Bank N/A Date of "in-country" disclosure N/A Date of submission to InfoShop N/A Date of distributing the Exec. Summary of the EA to the Executive N/A Directors (For category A projects) Resettlement Action Plan/Framework: Expected Actual Date of receipt by the Bank N/A Date of "in-country" disclosure N/A Date of submission to InfoShop N/A Indigenous Peoples Development Plan/Framework, Expected Actual Date of receipt by the Bank N/A Date of "in-country" disclosure N/A Date of submission to InfoShop N/A Pest Management Plan: Expected Actual Date of receipt by the Bank N/A Date of "in-country" disclosure N/A Date of submission to InfoShop N/A Dam Safety Management Plan: Expected Actual Date of receipt by the Bank N/A Date of "in-country" disclosure N/A Date of submission to InfoShop N/A If in-country disclosure of any of the above documents is not expected, please explain whv Signed and submitted by Name Date 4J)OtO3 Task Team Leader: Charles P. McPherson Project Safeguards Specialists 1: Robert D. Croaks Project Safeguards Specialists 2: Cyprian F. Fisiy Project Safeguards Specialists 3: ! Apnroved by: Name Date Regional Safeguards Coordinator: Glenn S. Morgan -11,0 3 Regional Safeguards Unit Director: Maria Teresa Serra 9 Ave,> Sector Manager/Director Junhui Wu/Christian Delvoie 6 61 I Z