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West Philippine Sea: Joint development with China?


Richard Javad Heydarian

Richard Javad Heydarian

By Richard Javad Heydarian


In a major sign of improved bilateral relations, not to mention our desperation to develop alternative sources of energy, Department of Energy (DOE) Secretary Alfonso Cusi recently announced a “win-win solution” in the West Philippine Sea.

Thus, the PNOC Exploration Corp, in partnership with China National Offshore Oil Corporation (CNOOC) and Jadestone Energy Inc. are set to develop Calamian project off the island of Palawan. China’s CNOOC is expected to hold a majority 51 percent share.

To get to the bottom of the legal intricacies of the issue, I consulted the University of the Philippines’ Dr. Jay Batongbacal, arguably the foremost maritime law expert in the country. The following are excerpts from our exchanges:

Q. Heydarian: Is the proposed Calamian project (Service Contract 57) even legal?

Batongbacal: SC 57 covers an area outside of China’s 9-dash line/historic rights claim area. There is, therefore no dispute that it is within the Philippines’ jurisdiction, whether Exclusive Economic Zone (fisheries resources) or Continental Shelf (petroleum resources).

Q. Heydarian: How is the proposed deal different from the Camago-Malampaya project (SC 38)?

Batongbacal: It should be seen from a perspective no different from how we would look at SC 38, or the Camago-Malampaya project, located further south of SC 57.CNOOC’s purchase of 51% of a stake in SC 57 is allowed under current law, in the same way that Shell and Chevron were allowed to purchase 45% each of the Camago-Malampaya Project.

Q. Heydarian: But what about the “60/40” constitutional restriction on joint development (JD) projects?

Batongbacal: DOE has interpreted the 60/40 requirements of the 1987 Constitution to apply only to the final profit oil out of production less the costs. It has not been applied to the equity/ownership of the project.The Supreme Court, in the case of L’Bugal B’laan Tribal Association et al v. Ramos et al, decided in December, 2004, interpreted the 1987 Constitution liberally, allowing up to 100% foreign ownership of service contracts that fall under the category of “financial and/or technical assistance agreements (FTAA) for exploration and development of petroleum, minerals, and mineral oil resources.”

As a result, at present there is nothing inherent unconstitutional/illegal in CNOOC’s buying a stake in a service contract for an area that is not disputed, i.e., outside China’s claim areas, whether they be on land, or at sea.

Q. Heydarian: Is this a “joint” development project to begin with?

Batongbacal: CNOOC’s purchase of a stake (called “farming in”) in SC 57 is NOT a case of joint development. It is unilateral development by the Philippines, but with CNOOC basically acting as a sub-contractor.Joint development (JD) in disputed areas is a different matter.

JD elsewhere in the world has always been justified and used to address disputes, but in those cases, the disputes were “legitimate” in the sense that both sides could legally claim EEZ/CS unilaterally, but their claims overlapped.

In the WPS, China’s claim has already been declared by an international tribunal to be invalid, and hence, the fundamental condition for JD (overlapping legitimate claims) is absent. And JD agreement by the Philippines with China therefore will not be consistent with the Award, nor with UNCLOS. It can only be justified as a purely political accommodation, not a legally-warranted arrangement. However, if the Philippines makes the political accommodation, it can contradict its legal position as affirmed by the arbitration.

Q. Heydarian: Should we consider joint development at all?

Batongbacal: Given the present situation, simply deciding to agree to JD within the area of the 9- dash line would benefit China, regardless of the equity/sharing formula. The Philippines would thereby be implicitly acquiescing to China’s claim to some kind of rights to share in the natural resources within Philippine jurisdiction.

Although Justice Antonio Carpio has opined that joint development in the 200-nautical mile EEZ is constitutionally prohibited, it is necessary to distinguish. In reserving the nation’s marine wealth exclusively to Filipinos, the 1987 Constitution expressly mentions the territorial sea, archipelagic waters, and EEZ specifically. It does not mention the continental shelf, where petroleum/mineral/mineral oils are found. This omission creates a loophole, which could be argued to be in favor of foreign participation in exploration/development for these 3 specific resources within the continental shelf.

However, this loophole has not yet been specifically addressed, and there is a pending case before the Supreme Court, which may tackle this question directly and possible close the loophole.

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