Australian negotiators said they were ‘perplexed and disappointed’ at East Timor’s rejection of a compromise deal on seabed boundaries agreed in Darwin last month.

Woodside had said if the two nations could not reach agreement by Christmas the lucrative Sunrise project would probably be scrapped. East Timorese Prime Minister Mari Alkatiri has said he is still willing to engage in negotiations but as yet there are no plans to resume negotiations.

Alkatiri said Australia had been unwilling to facilitate East Timorese participation in the development and processing of the resources.

“We have put a number of possible means of resource-sharing on the table,” Alkatiri said.

“We were willing to be flexible in terms of their implementation. Unfortunately we were told categorically that none of these possible means of resource-sharing could be contemplated.”

One of the world’s poorest nations, East Timor is struggling to develop a viable economy. It believes the rich oil and gas deposits in the Timor Gap should lie almost wholly within East Timorese territory and has refused to recognise the boundaries negotiated by Australia and Indonesia in the 1970s.

If the boundary was equidistant between the two countries, East Timor claims it would get three times the revenue from the fields.

Australia rejects Timorese claims that the sea boundary should be halfway between the two countries and has withdrawn from the International Tribunal for the Law of the Sea, which could be used to challenged the initial Timor Sea Treaty signed in May 2002.

Government sources said East Timor was offered ‘billions’ in additional tax revenue – somewhere between $3 billion and $4 billion in exchange for deferring discussions for 100 years over the maritime boundary.

But East Timor refused to budge on the offer, which would have given it about half of the estimated $10 billion in oil royalties from the Greater Sunrise project. Under existing arrangements, it gets less than 20 per cent of revenues.

East Timor also wants the $3 billion gas processing plant and pipeline servicing Greater Sunrise to be built on its land, rather than at Darwin, Australia’s preferred location. The spin-off benefits of the processing plant could amount to $22 billion over 30 years, East Timor argued.

But Australia has said that the plant’s location would be a commercial decision for Woodside.