East Timor: Renewable energy in the Asia Pacific: a legal overview (3rd edition) - East Timor
Carbon Markets and Renewable Energy Update (Australia)

EAST TIMOR

PROFILE

East Timor (officially known as the Democratic Republic of Timor-Leste) was a Portuguese colony for nearly 500 years. Following a period of Indonesian occupation, East Timor emerged as the first newly created sovereign state of the 21st century. Despite being one of the poorest countries in the world, East Timor has built a strong foundation for ongoing stability and is making positive steps towards development. In 2012, both the UN and International Stabilisation Force withdrew from the country following successful presidential and parliamentary elections, which saw Taur Matan Rauk become president and a Xanana Gusmão-led coalition take office. The current government has set a target of East Timor becoming an upper middle income country by 2030.

ELECTRICITY INDUSTRY OVERVIEW

• East Timor has approximately 80MW of installed electricity capacity, of which 19MW is in the capital, Dili.
• Dili has an electrification rate of 85%, yet rural electrification rates range from between 5% and 18%, with estimates of total nation-wide electrification at just 22% (one of the lowest electrification rates of any country in the world). Only Dili and Baucau have a constant electricity supply, though power outages are common.
• The majority of East Timor's power supply is based on imported oil for diesel power generation, while fuel wood supplies the majority of energy used by East Timorese.
• Nearly all of the electricity grid was destroyed during the Indonesian withdrawal in 1999.
• The East Timor Government has commissioned a new 150kV, 715km long transmission line. The line will circumvent the country linking the Hera Generating Station, the Betano Generating Station, nine substations and the Dili control centre. This infrastructure is essential to achieve the Government's aim of providing 100% of households with electricity by 2015 and is the largest construction project in the country's history.
• In its five year legislative agenda (2012 – 2017), the Gusmão Government committed to the continued upgrade and expansion of the national grid. An additional 10 substations have also been proposed to deal with an expected increase of 210MW in generating capacity.

Electricity laws

• There have been a number of attempts to commence electricity regulation by the United Nations Transitional Administration in Timor-Leste (UNTAET) and now the East Timorese Government. These include:
• • UNTAET Directive No. 2001/10 on Fees and Charges for Electricity and Related Services;
  • UNTAET Directive No. 2002/07 on Amendment on the Schedule of Fees and Charges for Electricity and Related Services; and
  • Government Decree Law No. 13/2003 establishing the Bases for the National Electricity System (the Basic Law).
  • UNTAET Directive No. 2002/07 sets a connection fee of US$10 to US$100 depending on the type of premises power is supplied to. It also sets a tariff of US$0.117 for each kWh of electricity supplied.
  • The Basic Law is the main legal regime for the energy sector. It is a more comprehensive regime than the UNTAET Directives in that it creates a national electricity system that goes beyond consumer- focussed regulations.
  • Perhaps the most important aspect of the Basic Law is its provision for the establishment of a Universal Service Operator (USO) for the generation, distribution and transmission of electricity. The Basic Law is not prescriptive as to what type of utility company the USO will be. When established, the USO will have public utility status bringing with it various public and private rights, responsibilities and duties.
  • The Basic Law provides that if a private body corporate is appointed as the USO, it must be through a concession contract. Concession contracts must be announced and open to an international tendering process.
  • Other key points of the Basic Law include the:
  • • appointment of a Regulatory Authority (however government ministries and the State Secretariat for Energy Policy (SSEP) currently act as de factoregulators);
    • establishment of binding producers after a tendering process by the Regulatory Authority;
    • establishment of non-binding producers who may obtain either domestic or commercial licences; and
    • establishment of tariff regulations governing the "criteria and methods for formulating and fixing tariffs and rates for electricity".

Distribution

• The state-owned Electricidade de Timor-Leste (EDTL) has a monopoly on the supply and distribution of electricity to Dili and 11 district capitals. EDTL is largely funded by donor countries including Australia, Japan, Norway and Portugal.

International assistance

• The World Bank has funded two projects aimed at improving electricity supply, including financing the repair of the Comoro power station and work on Dili's power distribution infrastructure.
• The Asian Development Bank is also actively involved in financing projects in the country.

RENEWABLES INDUSTRY OVERVIEW

• Despite a lack of regulation, the East Timorese Government aims to have at least half of its energy needs met from renewable energy sources by 2020. It is estimated that the country will need an additional 50MW to 100MW of renewable energy generation capacity to meet this target.
• In its five year legislative agenda, the Government identified renewable energy and rural electrification as its two key energy priorities. The Government has earmarked remote areas like Atauro and Oecussi Ambeno to take precedence in solar and wind installations.
• In August 2012, the Prime Minister announced his new cabinet. Januário Pereira is now the Secretary of State for Electricity (which includes renewable energy) whilst policy in the energy sector generally will be within the remit of Alfredo Pires, who takes up the newly created position of Minister of Petroleum and Natural Resources. The Ministry of Finance also plays an active role in many large renewable energy developments, well led by Minister Emília Pires.
• In a Council of Ministers meeting on 9 May 2012, the Council was presented with a Renewable Energy Master Plan for the Development of Electricity in East Timor. The report concluded that the country has vast potential for renewable energy production and that by 2020 it is expected that at least 50% of national energy needs will be provided by renewable energy. Analysts have suggested this will cost US$600 million.
• A report produced by the Asian Development Bank regards hydropower and wind as the most promising renewable energy sources for East Timor. However, cheap stand-alone solar PV systems are seen as a solution to rural electrification for houses that cannot be connected to the grid.
• NGOs have been actively involved in East Timor. For instance, the Alternative Energy Association of Australia has sent volunteers to install solar and wind installations in schools, hospitals, offices and other community buildings.
• Renewable energy feasibility research has been undertaken by government organisations (for example, the SSEP), as well as international development groups like the Norwegian Agency for Development Cooperation and the Netherlands Development Organisation.

Hydropower

• In 2009, the Government commenced a national program to install hydropower plants.
• HydroTimor oversees the development of hydropower in the country.
• East Timor has a total potential of between 80MW and 252MW of hydro capacity, with the 27MW Ira Lalaro hydropower project deemed to be the most feasible project.
• The steep topography of East Timor prevents the construction of artificial reservoirs for hydropower electricity generation.
• Micro and mini hydropower projects may become an interim power source for villages unlikely to be connected to the national grid within the next 10 to 15 years.

Wind energy

• Studies have shown that there is great potential for wind power generation (approximately 72MW) in East Timor given the high coastal wind speeds and favourable seasonal conditions.

Solar energy

• East Timor has high rates of solar radiation and is accordingly well-suited to solar PV installations.
• It is estimated that between 10,000 and 50,000 solar PV systems will be needed for households that will not be connected to the national distribution network or micro grids in the next 15 years.
• Capital subsidies will be needed to reduce start-up costs, however operation and maintenance costs are low.

Biomass energy

• The majority of energy in rural and remote areas is sourced from biomass fuels.
• 78MW of biomass, biogas and waste-to-energy projects are currently being developed by the Government.

CURRENT ISSUES IN THE RENEWABLES INDUSTRY

• Infrastructure shortages are a major hindrance to development across all sectors in East Timor, including renewable energy.
• East Timor will require financial support either from the Asian Development Bank, a foreign government or a NGO to construct a viable renewables industry. An alternative would be for the Government to consider guaranteed feed-in tariff rates, as has occurred in other Asia Pacific jurisdictions.
• The current practice of using wood fuels for cooking and heating has led to widespread deforestation.

RENEWABLES LAWS

• There is no renewable energy governance as such in East Timor, despite a Draft Base Law for Renewable Energy being proposed in 2010. Under the East Timorese Constitution a "draft law" indicates that the National Parliament has granted legislative authorisation to the Government. However, draft laws terminate when a legislative term ends, which occurred recently. Whether the Draft Base Law for Renewable Energy will be reissued under the new government remains to be seen.

GOVERNMENT INCENTIVE PROGRAMS

• The Private Investment Law No. 14/2011 offers various incentives for a company involved in foreign investment, including:
• • income and sales tax exemption to the value of 100% for up to 10 years depending on the location of the project;
  • customs import duty exemption to the value of 100% in relation to all capital goods and equipment used in the construction/management of the project for a period of up to 10 years depending on the location of the project; and
  • the possibility of negotiating a special investment agreement, which defines a special legal regime for a particular project because given its scale or corresponding economic, social, environmental or technological impact, is of great interest to East Timor.

MAJOR PROJECT/COMPANIES

• The Government has committed to complete construction on the Lariguto wind farm as well as the Bobonaro wind farm and connect them to the national grid.
• The Government has also vowed to establish a solar centre in Hera and conduct feasibility studies on thermoelectric power and biomass fuel options in Manatuto, Viqueque and Lautem.
• The Gariuai mini hydropower station which opened in 2008 was the first hydropower facility with an installed capacity of 0.3MW. The plant, which is located in Baucau, is projected to produce 1.5GWh annually of electricity.
• The Ira Lalaro hydropower project has the potential to meet a significant amount of East Timor's electricity needs. It is considered the most cost effective hydropower project, in part due to the Ira Lalaro lake which would provide natural storage for the plant.
• Other hydropower projects are run-of-river type plants at Gleno, Belulic and Laclo.
• A 10MW to 15MW wind power project was identified in Foho Bagarkoholau, 10km south of Dili.

FOREIGN INVESTMENT/OWNERSHIP

• The Private Investment Law No. 14/2011 establishes a legal framework to attract and promote foreign investment. Article 8 of the law establishes a presumption that foreign investment is permitted in any sector unless the investment in the relevant sector is specifically prohibited or restricted from foreign ownership or operation by the State. Article 10 sets a minimum foreign investment amount for access to the incentives and benefits established under the law at US$1.5 million (50% of such investment must be in cash).
• In 2011, East Timor's Parliament established the National Investment Agency to further streamline and encourage foreign investment.

RELEVANT INTERNATIONAL TREATIES

• East Timor ratified the United Nations Framework Convention on Climate Change in 2006 and the Kyoto Protocol in 2008. The country is a non-annex one party so it does not have any binding emissions target.
• Despite declaring its intentions to join the Association of South East Asian Nations (ASEAN) and despite support for its bid from Indonesia, East Timor has thus far failed in its bid to join the ASEAN community.

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