It’s back to step one for China and its much-awaited joint development of oil and gas with the Philippines.

In October, after Foreign Minister Wang Yi visited Manila, the Global Times, a subsidiary of People’s Daily, the mouthpiece of China’s Communist Party, heralded: “China and the Philippines are poised to bring their economic cooperation into a new era, and they have a fair chance to achieve the first ground-level implementation of the joint development of oil and natural gas in the South China Sea.” 

But when Beijing and Manila signed a Memorandum of Understanding (MOU)  on November 20 during President Xi Jinping’s visit, they pushed back the timetable of China by a year as the two governments have yet to craft an arrangement on joint exploration. The MOU gives the two governments 12 months to finalize this.

While the MOU does not specify an area to explore, China has always set its sights on Reed Bank (Recto Bank) in the West Philippines Sea.

The international arbitral tribunal that decided the maritime case of the Philippines against China declared Reed Bank to be within the Philippines’ Exclusive Economic Zone (EEZ). This means that the Philippines has exclusive rights over the resources in the area and countries that want to explore in the Reed Bank should ask the permission of the Philippines and abide by its laws. 

The key question for the Philippines is: Will China recognize Philippine sovereign rights over Reed Bank and work within our country’s laws? 

Shades of JMSU 

In the lead up to Xi’s arrival, Manila buzzed with reports about the signing of a “framework agreement”  on joint oil exploration with Beijing. It was to cap the Chinese President’s historic visit. 

If it pushed through, it would have marked the resurrection of an arrangement similar to the Joint Marine Seismic Undertaking (JMSU), a controversial agreement with China and Vietnam to survey and drill for oil in Reed Bank inked in 2004 during the term of President Gloria Arroyo.

Initially, Arroyo sealed a deal with China but Vietnam protested vehemently. To appease Vietnam, Manila and Beijing included Hanoi in what became a tripartite agreement.

The constitutionality of the JMSU was questioned before the Supreme Court in 2008 but the case is still pending. Only the first phase of the JMSU, a survey, was implemented. The second phase was meant to start exploitation.

This was the closest Manila and Beijing came to forging a joint development agreement in Reed Bank.

Enter Locsin

It appears that Teodoro “Teddyboy” Locsin Jr’s  appointment as foreign secretary saved the day for the Philippines, at least temporarily. Backed by his legal staff, Locsin downgraded the MOU simply to an “agreement to negotiate” from the Chinese preference to get the project going.

This is in contrast to President Rodrigo Duterte’s stance: He has always been vocal about entering into a partnership with China in exploring for oil. 

But Locsin  said he had not received any orders from the President to conclude such a deal. He pointed to “other forces within the government” pushing for it without identifying them. 

DFA rescues MOU 

We compared the final MOU to two draft versions of which we obtained copies – a Chinese draft and a Department of Foreign Affairs (DFA) draft – and it looks like Locsin and his team hijacked the document and rescued it from China’s grip.

Here are the key changes the DFA made in the MOU:

• From one that reflects China’s desire to “conduct joint oil and gas exploration…” it has been turned into an agreement to “negotiate…arrangements to facilitate oil and gas exploration and exploitation…consistent with applicable rules of international law.”
• DFA took out references to “joint exploration” and instead used “cooperation  arrangements” which is broader as it includes service contracts.
• DFA inserted this crucial sentence: “The Philippines will authorize the enterprise/s that has/have entered into service contract with the Philippines…” to explore for oil and gas.
• In keeping with the MOU as a first step, DFA took out the China-proposed sections on “outcome sharing,” on “arrangements for… bilateral cooperation including joint exploitation,” and “contract signing.” 

Service contract

This seemingly innocuous phrase – service contract – asserts Philippine rights over Reed Bank, among others, because it explicitly states that “all petroleum, crude oil, crude, natural gas…belong to the State” and that “their exploration, development, exploitation…is the under full control and supervision” of the Department of Energy (DOE).

A model service contract on the DOE website further says: “…the CONTRACTOR…agrees to be subject to the laws and decrees of the Government and other rules and regulations of the DEPARTMENT in the implementation of the Contract.”

The DOE routinely enters into service contracts with energy companies in non-contested areas.

Supreme Court Justice Antonio Carpio, who has studied these maritime issues extensively, said that the MOU, in its current form, is not conceding Philippine sovereign rights.

However, he called for vigilance and caution so that the final shape of the MOU hews to Philippine law: “Joint means you’re partners in exploring, but the Constitution says the State shall have full control and supervision in the exploration and development of our natural resources. (If it’s) joint, you’re no longer in full control – half control is given to another party, (so) we should avoid joint development.”

The challenge, though, for the DFA, which has the arbitral ruling on its side, is to expand its sights beyond China and explore arrangements with large energy companies from other countries. If ever, this would be Locsin’s sequel to his high-wire act of foiling a deal with China.

In November next year, or earlier, we will know if the assertive and acerbic Foreign Secretary will have been able to walk  the wire. – Rappler.com