PH scrambles to draft oil exploration deal with China ahead of Xi visit

By on November 19, 2018

Days before a state visit by Chinese President Xi Jinping, the Philippine government is scrambling to draft a deal for joint oil exploration in the South China Sea that will be acceptable to China, the South China Morning Post reported.

The problem is, not only has the appointment of a new Philippine foreign affairs secretary muddied the waters, but what China finds “acceptable” may violate the 1987 constitution, according to legal experts.

These problems throw a spanner in the works for Chinese Foreign Minister Wang Yi, who for the past year has been urging Philippine President Rodrigo Duterte to shelve the countries’ dispute over the South China Sea and approve the “joint development” of oil and gas resources.

For his part, Duterte had appeared amenable to Wang’s advances, having likened joint development to “co-ownership”, and in July last year Wang met the Philippines’ then foreign affairs secretary, Alan Peter Cayetano, to flesh out a deal.

A draft framework of this deal was supposed to have been approved in September, but Typhoon Mangkhut delayed matters and by the time Wang had finally made it back to Manila, Duterte had a new foreign secretary – Teodoro Locsin Jnr, a lawyer, seasoned legislator and the Philippines’ former permanent representative to the United Nations.

At first, it appeared Locsin would merely inherit a finished draft of the deal from Cayetano and the agreement would go ahead as planned.

Just before resigning to run for Congress, Cayetano told reporters: “I still have the whole day to finish this draft but I can say it’s looking good legally, morally and from the point of view of protecting territorial rights and economic rights … it’s looking good.”

Wang arrived in Davao City on October 28, in time to attend Cayetano’s 48th birthday bash that night. He met Locsin the next day.

To the unseasoned observer, Wang’s comments after speaking to Locsin might suggest all was still well.

“China is ready to further discuss with the Philippines the joint development of oil and gas in the South China Sea, to shelve differences and pursue joint development,” said Wang.

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But to South China Sea expert and University of the Philippines law professor Jay Batongbacal, the phrase “China is ready to further discuss” was a giveaway that any deal remains a long way off.

“I don’t think they’re ready to sign anything,” said Batongbacal, who heads UP’s Institute for Maritime Affairs and Law of the Sea. “It is more likely that [during Xi’s visit] the Philippines and China will instead sign some kind of general statement or ‘framework’ … with legal and implementation details left out for later.”

Comments from Locsin a week after his meeting with Wang appear to give weight to Batongbacal’s observation.

Commenting on an Al Jazeera report that Filipino fishermen were worried over an imminent gas deal, Locsin tweeted to his 653,040 followers on November 2: “What gas deal? There’s talk; there’s always talk; but no draft nor hints of one at all – or it’s been kept from the DFA [Department of Foreign Affairs].”

On Monday, Locsin was back on Twitter: “As I said, there is no gas deal; particular gas deals may be down the road; but no road so far.”

However, he also hinted that should a deal be signed, the foreign office would not be involved: “When one comes along, that belongs to [the Department of Energy and Department of Justice], not the DFA.”

Energy Secretary Alfonso Cusi on Wednesday said there was “no exploration deal that I know of” involving disputed territory , but said there “may be” discussion of such a deal and that he would “defer to the better judgment of the president if exploration deals will be taken up”.

While such comments appear to be blanket denials, Locsin’s reference to the Department of Energy (DOE) is significant.

One way China could bypass Locsin’s department would be for state-owned China National Offshore Oil Corporation (CNOOC) to buy a chunk of Forum Energy (mainly owned by Philippine listed PXP Energy Corporation). Forum acquired from the DOE ‘Service Contract No. 72’, which gives it the right to explore and extract oil and gas in an area that includes Reed Bank in the South China Sea.

According to acting Supreme Court Chief Justice Antonio Carpio, who has made the South China Sea conflict a personal focus, CNOOC does not only want 50 per cent ownership of Forum but “sovereignty” over the Reed Bank.

He said its ambitions would contravene both the Philippines’ constitution and the July 2016 decision by the International Tribunal for the Law of the Sea (ITLOS), which ruled in favour of Manila in its sovereignty dispute with Beijing in the South China Sea.

“I think the DFA has not found a formula for joint development with China that complies with the constitution and does not waive Philippine sovereign rights under the arbitral ruling,” said Carpio, who helped prepare Manila’s case for the tribunal.

He said sovereignty could only be drawn from land features or from the “territorial sea”, which the UN Convention on the Law of the Sea (UNCLOS) defines as the belt of coastal waters up to 12 nautical miles from a country’s baseline.

“Reed Bank is totally submerged, high tide or low tide, and outside any territorial sea,” since it is 85 nautical miles from Philippines’ Palawan coast, Carpio said.

However, since Reed Bank is well within the Philippines’ 200 nautical mile exclusive economic zone, UNCLOS gave it “sovereign rights”, or exclusive rights, over mineral, gas and marine resources there. Reed Bank is 595 nautical miles from China’s nearest land mass, Hainan, according to the tribunal’s ruling.

Carpio, the most senior justice of the Supreme Court, added that China’s concept of “setting aside the dispute and pursuing joint development” there was “a trap”.

He pointed to an undated post on China’s Ministry of Foreign Affairs website titled, “Set Aside Dispute and Pursue Joint Development”.

Its second to last paragraph states that, as far as the Chinese government is concerned, the first element in a joint development is: “The sovereignty of the territories concerned belongs to China.”

“In short, if we accept China’s concept, then we accept China’s sovereignty over the disputed territories. This is a trap. We cannot negotiate based on China’s concept.”

Last month, Wang said that China was open to discussing joint development “without prejudice to each other’s sovereign claims”, insisting it was neither a rival nor a threat to the Philippines.

Batongbacal agreed that China’s plan would violate the constitution.

He said that China, through CNOOC, wanted at the minimum “a 50-50 sharing of costs and expenses”. For China, he said, that was already a concession because “they say they own everything”, but such an arrangement violated the constitution which requires that “production costs are born 100 per cent by the contractor, zero per cent by the Philippines; while ownership of resources remains 100 per cent owned by the Philippines”.

However, even without a deal, China would come out on top, the professor said. “What most people don’t realise is that all that China needs from us right now is that we don’t explore and exploit the West Philippine Sea,” Batongbacal said. “That’s all. As long as we are not doing that, they’re happy, OK?”

Batongbacal, a member of the Asia Maritime Transparency Initiative, said China did not yet need to extract oil while the Philippines did. “The more important thing for China is to stop Manila from exploring,” he said. “And to encourage that, they have announced 10 agreements that are ready for signing worth 743 billion pesos or roughly US$14 billion.” ■

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