DILI - Dili's gleaming new Presidential Palace and Foreign Ministry, gifts from China, stand in stark contrast to nearby burned-out buildings and are symbols of how the energy-hungry superpower is growing closer to tiny, oil-rich East Timor.

In the 10 years since the independence vote that led to a split from Indonesia, China has spent more than $53 million in aid to East Timor, also known as Timor Leste.

While that is just a fraction of the $760 million in Australian government aid, China has raised its profile in dusty Dili in several other ways.

It is building big and showing generosity such as its donation of 8,000 tonnes of rice during a recent food crisis. Noticeable projects such as a new Ministry of Defense building, houses for soldiers and schools are underway as are scholarships and training programmes for civil servants.

In all, China is sending a very public message that it is serious about strengthening bilateral ties with East Timor, which many analysts put down to its desire to diversify strategic energy interests.

Loro Horta, who is a China expert at Singapore's Nanyang Technological University and is the son of East Timor's President Jose Ramos-Horta, said that the aid is linked to China's desire for energy and infrastructure contracts.

The Chinese are desperate for oil, every single drop for them counts and they are definitely looking to Timor as potential to meet that need, he told Reuters in a phone interview, adding that he estimated the total value of investments by Chinese companies in East Timor to be less than $400 million.

East Timor is one of Asia's poorest and least developed countries, but it has enormous oil and gas reserves.

The Bayu Undan gas field is expected to reap $12-15 billion by 2023, the country's Natural Resources Minister, Alfredo Pires, told Reuters in an interview.

Bayu Undan is already the subject of a deal between Australia and East Timor but other, untapped reserves still need development partners.

Another oil field, Kitan, has an estimated 40 million barrels of recoverable light oil, Pires said, and the Greater Sunrise field contains around 300 million barrels of condensate and 9.5 trillion cubic feet of gas, according to the United Nations.

Lucrative opportunities also exist in the minerals sector, including copper, gold, silver and marble, and for big-ticket infrastructure projects as East Timor tries to reverse years of under-investment.

Pires said Spain, China and Australia are all keen on a piece of the Timor resources pie, while East Timor expert Damien Kingsbury from Deakin University said the United States and the United Kingdom are also interested.


China and East Timor's links date back centuries. Hakka Chinese traders sailed there more than 500 years ago looking for sandalwood, rosewood and mahogany. Many stayed on, forming an overseas Chinese community as in many other parts of Asia.

Today, Dili's main street is lined with buildings, some of which display Chinese script, families can be seen praying at a Confucian temple in downtown Dili, while Chinese traders run appliance stores on busy streets.
Chinese labourers are already at work on one of two heavy oil power plants which are under construction after Dili in 2008 awarded the Chinese Nuclear Industry 22nd Construction Company a $360 million contract to build the power plants and a national power grid. East Timor also paid $28 million for two petroleum vessels from China.

Loro Horta said China is also angling for big ticket infrastructure contracts such as a pipeline that East Timor wants built from its Greater Sunrise oil field to a proposed processing plant on land. He said Chinese oil giant PetroChina has already done studies and is keen to drill.

In 2004, PetroChina did a seismic study and said they didn't find much. But then, two years ago, I heard from Alkatiri and from my father the President, that they were willing to drill but they want exclusivity rights, he said.

Yang Donghui, a spokesman for the Chinese ambassador in Dili, said that the first phase of the seismic investigation was completed as an aid project, but that a proposed second phase investigation became the subject of commercial talks between the East Timor government and PetroChina.

Maybe the company asked some rights, if they do the investigation. We think it is normal and just a commercial issue, no company can put so much money to do something and do not consider the result, said Yang Donghui.

China's ambassador to East Timor, Fu Yuancong rejected speculation that China's interest in the fledgling nation is driven by a desire to gain an advantage when East Timor is handing out contracts to develop its billion-dollar oil and gas fields.

All this assistance from China to Timor Leste is full of sincerity and without any selfishness, unlike what the Western media has speculated. The Chinese government never bore any political strategy in Timor Leste, he said through a translator.

He also said that his government was in energy talks with Dili.

The Timor Leste government always expresses its will to have co-operation with China in this field. After I took my position, the leaders of Timor Leste talked with me many times to say they would like to invite Chinese companies to have some oil exploration in future, he added.

The Timor Leste government should give a concrete project for co-operation.

And as stability has slowly returned to Dili, Fu said his government has encouraged a new generation of Chinese entrepreneurs to move to East Timor.

The growing Chinese presence is part of their natural expansion into Southeast Asia and I think Timor is not really their priority, said Loro Horta, at Singapore's Nanyang Technological University.

But they are definitely keeping an eye on it. The Chinese are very patient people and they think very long term. (Editing by Sara Webb and Megan Goldin)