When President Duterte traveled to Hainan, China, in April to attend the Boao for Asia Forum, he and President Xi Jinping agreed during a bilateral meeting to pursue cooperation in offshore oil and gas exploration in the South China Sea/West Philippine Sea. This agreement in Hainan followed an earlier meeting between Filipino and Chinese officials in Manila, where they agreed to pursue confidence-building measures, such as joint initiatives in the disputed waters, including oil and gas exploration and marine scientific research.
Foreign Secretary Alan Peter S. Cayetano said later that both sides are “finding a common legal framework to conduct joint exploration and surveys” in the contested waters. For his part, Chinese Foreign Minister Wang Yi said the two countries will “in a prudent and steady way advance cooperation on offshore oil and gas exploration.”
Given the Philippine economy’s growing demand for power and the projected depletion of the natural gas supply in the Malampaya facility by 2030, the government must now redouble its efforts in finding new energy sources. We should, therefore, be able to tap what is believed to be rich oil and gas deposits in the West Philippine Sea for our own benefit.
A joint exploration arrangement between the Philippines and China, so long as this is covered by commercial agreement, is legally acceptable.
The Constitution allows the government to jointly explore and develop our natural wealth with foreign-owned corporations provided that it retains full control and supervision of these resources.
Section 2, paragraph 1 of Article XII of the 1987 Constitution provides that “the exploration, development and utilization of natural resources shall be under the full control and supervision of the State.”
It says the government “may directly undertake such activities, or it may enter into coproduction, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 percent of whose capital is owned by such citizens…. Such agreements may be for a period not exceeding 25 years, renewable for not more than 25 years, and under such terms and conditions as may be provided by law.”
Further on, the Constitution allows the President to “enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources.”
Our Department of Energy (DOE) acted along this direction when it entered into a contract with a consortium, led by Shell Philippines Exploration B.V., to operate the natural gas facility in Malampaya.
This arrangement has proven to be highly beneficial for the country. The Malampaya consortium for the 2002-2013 period alone has remitted a total of P173.28 billion to the government as its share from the net proceeds from petroleum operations.
Acting Chief Justice Antonio Carpio has clarified that even if the use and enjoyment of our EEZ (exclusive economic zone) is reserved exclusively to Filipino citizens, it does not mean that Chinese companies cannot participate in the exploitation of oil and gas in our EEZ, as they can act as technical and financial contractors of the Philippine government or Filipino companies under Philippine law.
As long as the constitutional limitations under Article XII are observed, the government can proceed to jointly explore our waters with foreign firms through commercial agreement.
As for the constitutional requirement of “full control and supervision by the State,” this is already complied with considering that the petroleum blocks located in the West Philippines Sea are covered by Petroleum Service Contracts (PSCs) entered into by the DOE, on behalf of the Philippine government, with service contractors under the terms provided by the Oil Exploration and Development Act (OEDA).
These service contracts are in the nature of technical or financial assistance that is allowed under the Constitution. Such forms of assistance for the large-scale exploration, development and utilization of petroleum may be entered into with foreign corporations as expressly permitted under the Philippine Constitution and the OEDA.
In fact, any such joint use or exploration without any issue of sovereignty will even strengthen the Philippines’s position on the arbitral award granted by the UN tribunal because we would be exercising our rights gained under the award.
The important thing to take into account is to make sure that any commercial agreement we enter with China will not undermine the Constitution and the gains we have made in the UN tribunal. Cayetano has already dispelled concerns on a possible cooperation agreement infringing on the Philippines’s sovereign rights when he earlier gave assurances that the government would consult legal experts to make sure any pact with China would not violate the Constitution or any of our laws.
“Whatever we do will not only be in accordance with the Constitution but also the Unclos [UN Convention on the Law of the Sea],” Cayetano said, referring to the international treaty signed by 160 states, including the Philippines and China, which allows coastal nations the right to explore, manage and exploit resources within 200 nautical miles from their shores.
His latest statement on “finding a common legal framework” with China further allayed concerns over this matter.
According to studies, the resource potentials covered by the PSCs in the West Philippine Sea are larger than the Malampaya gas field. If the area covered by the West Philippine Sea PSCs is developed, our economy would certainly benefit and Filipinos would also immediately enjoy lower electricity costs.
E-mail: ernhil@yahoo.com