Supreme Court Senior Associate Justice Antonio Carpio on Wednesday brushed aside assurances from the Palace, insisting that China could seize the country’s natural gas deposits in the Reed or Recto Bank if the Philippines defaults on its $62-million Chinese loan.
Presidential Spokesman Salvador Panelo had earlier claimed that these fears were misplaced, since Recto Bank is “public property” that could not be sold or given away unless converted into patrimonial property by law.
But Carpio said Wednesday that a 1972 law already covers the oil and gas deposits in Recto Bank, which the Permanent Court of Arbitration declared in its 2016 ruling as part of the Philippines’ exclusive economic zone—making it the country’s patrimonial property.
The government has in fact already granted a service contract to Forum Energy to exploit the gas in the area pursuant to section 8 of the Oil & Exploration Development Act of 1972, Carpio said.
The law states that “the (service) contract may authorize the contractor to take and dispose of and market either domestically or for export all petroleum produced under the contract subject to supplying the domestic requirements of the Republic of the Philippines on a pro-rata basis.”
“This law proclaims the oil and gas covered by a service contract as subject to sale to the market— which makes such oil and gas patrimonial,” the associate justice said.
“The power to reclassify from public domain to patrimonial is a legislative power. The President’s power to so reclassify was merely delegated by Congress,” Carpio added.
Carpio also disputed the argument of administration officials that the loan amount for the Chico River irrigation project is relative small and it would be unlikely for the government to default on the loan.
“The total loan from China will be from $12 billion to $24 billion. If all loan agreements will follow the Chico River template, that will be a huge problem,” Carpio said.
He suggested that future loan agreement with China must not include patrimonial assets of the country as collateral, saying they are “not standard in official development assistance loans.”
Carpio also reiterated that the Philippines would be in a disadvantageous position in case of dispute because the contract provides for arbitration to be held in Beijing and conducted by the China International Economic and Trade Arbitration Commission, using CIETAC arbitration rules.
“Also, there must be public bidding of the projects to the present system where China pre-selects three Chinese contractors and the Philippines can bid our the project only among the three Chinese contractors,” Carpio said.
A 2013 report from the United States Energy Information Administration said Reed Bank could hold up to 5.4 billion barrels of oil and 55.1 trillion cubic feet of natural gas.
In 2010, the Philippines awarded the service contract to extract resources in Reed Bank to London-based Forum Energy Plc., more than 60 percent of whose shares is owned by Philex Petroleum Corp. (Philex).
China, however, does not recognize the PCA decision and had previously granted exploration rights to state-owned China National Offshore Oil Corporation.
In an interview over the ANC news channel, Panelo shot back, accusing Carpio of being “unpatriotic” for finding loopholes in the agreement and letting the Chinese know about them.
Panelo also insisted that “there is no collateral” in the loan agreement.
The deal, he said, merely allows the loan to be paid off with revenue from natural gas yields.
This agreement is not onerous because Manila “will never default” on its debt anyway, he added.
Justice Secretary Menardo Guevarra on Wednesday also dismissed fears that China might take over the Recto Bank if the Philippines fails to pay its P3.69-billion loan for the Chico River Pump Irrigation Project.
“I think we’re just really jumping the gun. It seems we are too well ahead of what may happen. I think we really don’t have much to worry about,” Guevarra said.
The Justice secretary noted that the loan to fund the Chico River project is too small for the country to default on its payment.
“I don’t think we even have to think about that problem in the future because the intention of the government is to honor all of its loan obligations,” Guevarra said.
Guevarra said the Department of Finance has already given assurances that the country will not default on its loan obligations and that there is nothing unusual about the loan contract entered into with Beijing.
“It’s something like a template that has been used in so many other loan agreements. So, I guess we are just really worrying too much,” he added.
Senator Joel Villanueva sided with Carpio, saying China might end up controlling the country’s resources and critical assets, But Senator Panfilo Lacson said this would never happen.
“Malacañang should never use our patrimonial assets as collateral,” Villanueva said.
“We are essentially putting the future generation in a bind when we are entering into long-term agreements,” he added.
But Lacson said this would not happen because an existing law, Presidential Decree 1177, provides for automatic appropriation of funds to service the country’s loan obligations, both the interest and the principal.
“So, that provision on patrimonial property being held to pay for these debts, will never happen because the existing law requires automatic appropriation,” Lacson said.
“Therefore, this exposure of our patrimonial property to foreclosure is just theoretical because in point of fact, we are obligated to pay from funds in the treasury even without need of appropriation by virtue of PD 1177,” he said.
Senator Francis Pangilinan, meanwhile, said the pro-China provisions in the load agrement were “downright ridiculous and one-sided.”
He insisted that no party in the private sector would propose or ever agree to such lopsided terms.
“When a contract entered into is manifestly and grossly disadvantageous to the government, it is a corrupt practice under our anti-graft laws. This should serve as a warning for all those who intend to pursue this project under such terms,” Pangilinan said.
Senator Risa Hontiveros also assailed the onerous provisions of the loan agreement and warned Malacañang that entering into such deals constitutes treason.
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