Retired Supreme Court senior associate justice Antonio Carpio welcomed the Duterte government’s recent decision to resume oil and gas exploration in the West Philippine Sea – under the condition that Philippine laws will be followed to ensure the protection of the country’s rights in the vital waterway. 

Carpio, a staunch defender of the West Philippine Sea, said joint exploration can be possible with the foreign companies, including Chinese entities, only through the service contract system of the Philippine government. 

The Philippines “must remain firm on this,” he stressed, since “this preserves the sovereign rights of the Philippines in its exclusive economic zone (EEZ) in the WPS as the Service Contract is governed by Philippine law.”

“This is the only way that the Philippines, as well as Vietnam, Malaysia, Brunei, and Indonesia, can justify to their people that their governments are not ceding their sovereign rights to China,” Carpio said in his column on the Philippine Daily Inquirer on Thursday, October 22. 

Why service contracts matter

Observing the service contract system is crucial because these expressly recognize that the area for activities falls within Philippines sovereignty or sovereign rights. 

“There is also an express acknowledgment in the Service Contract that the oil and gas belong to the Philippines,” Carpio said. 

Under this system, income sharing arrangements see service contractors paid 40% of the net proceeds for services rendered in extracting oil and gas and for providing capital and technology. The Philippine government receives the remaining 60% of net proceeds as owner of the resources. 

With regards to joint exploration between the Philippines and China, Carpio cited, for example, a possible commercial agreement between the China National Offshore Oil Corporation (CNOOC) and Forum Energy, which currently holds an exploration permit covering Recto Bank (Reed Bank) in the West Philippine Sea. 

Carpio said CNOOC and Forum Energy can enter into commercial agreement, “with CNOOC acting either as subcontractor, equity partner, or both of Forum Energy.” This would be acceptable because CNOOC would be entering though a service contract. 

For this reason, Carpio earlier said the Philippines would be “safe” with the current oil and gas deal with China since it observed the service contract scheme.

Specifically, the memorandum of understanding and terms of reference on the oil and gas deal between the Manila and Beijing stated that China “authorizes China National Offshore Oil Corporation as the Chinese enterprise for each Working Group,” while the Philippines “will authorize the enterprise(s) that has/have entered into a service contract with the Philippines,” or the Philippine National Oil Company-Exploration Corporation (PNOC-EC) “as the Philippine enterprise(s) for the relevant Working Group.”

‘South China Sea solution’

Beyond the Philippines and China, Carpio said seeing such an arrangement push through holds value because it may be the “solution” to the South China Sea dispute.

On Thursday, Carpio said that the setup would likewise be a “huge win for China” as it is expected to offer the same scheme to Malaysia and other Southeast Asian states like Brunei and Indonesia. 

More than this, Carpio said “China will win something even far more valuable – the friendship of all the peoples of these ASEAN coastal states.” – Rappler.com