"The oil and gas exploration with China may not be as simple as Secretary Cusi proposes."
The Philippines’ decision to unilaterally proceed with the joint exploration for gas and oil in the South China Sea may not appear as simple as Department of Energy (DOE) Secretary Alfonso Cusi would propose.
First, the decision to halt the exploration was a unilateral decision made by the previous administration. Second, events have been superseded by the signing of a Memorandum of Agreement on November 20, 2018 between China’s Foreign Minister Wang Yi and Secretary of Foreign Affairs, Teodoro Locsin.
The thing that complicates public understanding is the decision by Secretary Alfonso Cusi to include non-states. Officially, the deal is between China’s CNOOC and the Philippines PNOC-EC to explore oil and gas in West Balabac in Northwest of Palawan and the area known as the Reed Bank or Recto Bank, as locally denominated.
Although the unilateral decision by President Duterte to allow the resumption of exploration technically excludes a co-principal, the invitation made by Secretary Cusi to private oil companies could affect the agreement between the two sovereign states, the sharing of the parties in regard to service contract, and the overlapping claim of exclusive economic zone (EEZ) between sovereign states.
Non-states or oil companies that have been awarded service contracts by the Department of Energy can claim prior right to explore, develop and utilize oil and gas in these areas. Service Contract 58 is located in West Balabac; Service Contract 72 covers Recto Bank, also known as Reed Bank; while Service Contract 75 is in Northwest Palawan.
According to the US Energy Information Administration, Reed Bank is estimated to contain 5.4 billion barrels of oil and 55.1 trillion cubic feet of natural gas. Reed Bank holds the world’s biggest natural gas deposit in the world. Among those oil companies buying to carry out exploration with PNOC-EC from the Philippine side are Pangilinan’s PXP Energy Corp., London-based Forum Ltd., and Dennis Uy’s Udenna Corp.
Although it is PNOC-EC that takes charge in the search for oil and gas, in truth the Philippines has never undertaken such exploration without having to enter into a service contract with foreign oil companies. The 2001 joint venture agreement to explore, develop, and utilize the country’s first locally extracted natural gas in Malampaya was an outrageously lamentable experience.
The PNOC-EC awarded to Shell and Chevron the exploration and production of natural gas but woefully got the shorter end of the deal. Shell was accused of trying to bring down the tax it has to pay.
Despite the hoot of economic independence, the country signed the contract that reduced PNOC-EC as a mere overseer. The Department of Energy practically acted as tax collector to whatever amount the foreign two oil companies were willing to part as their share. We cannot complain because we were given our “freedom” and “democracy.”
Section 2, Article XII of the ballyhooed Cory Aquino Constitution was made a toilet paper; that instead of a 60-40 sharing on the basis that “all natural resources found therein are owned by the State,” the PNOC ended as “sharecropper.”
Shell and Chevron each got a whopping share of 45 percent with the DOE actually getting less than 10 percent much that foreign oil concessionaires did not include the tax for their operations thereby netting the country something like 3 percent!
The production of natural gas accorded foreign oil companies, power generation plant operators and the politicians their bonanza. They decided our energy policy on what was most profitable to them. To cite the basic structural changes initiated in the production of natural gas:
First, power plant producers in the name of deregulation were allowed to sell their electricity to various distribution utilities. Since most of them also own the big distribution utilities, practically they sold what they produced thereby abolishing the standing policy of NAPOCOR as the sole generator of electricity.
Second, in the name of the newly enacted Clean Air Act, the DOE ordered the dismantling of all diesel-powered generation plants in favor of natural gas generated plants. Underneath was the demand by oil concessionaires to capture bulk consumers. The Lopez-owned First Gas benefited in the shift to natural gas to assure concessionaires they will not suffer a shortfall in production.
Third, the politicians collaborated with the oligarchs in ordering the closure of the country’s coal mining, thereby halting our local coal production and the displacement of thousands of miners in the industry.
For Cusi to unilaterally proceed in inviting non-states in exploring, developing and exploiting our mineral resources in the same area by insisting prior existing service contracts is tantamount to nullifying the agreement signed between Wang Yi and Locsin witnessed by President Xi and President Duterte. Such reckless decisions could destroy our image before the international business community unless Cusi is pursuing a totally different agenda of wanting to sabotage the agreement.
It is not the unilateral decision to resume the oil exploration that makes our relations with China icy. Rather, it is a collateral attempt by the Philippines to include non-states to a bilateral agreement signed by two sovereign states. Surely, China will not take that deviation lightly, for it sees no justifiable reason why we have renege from an agreement made favorable to us.
First, the 60-40 agreement is in accordance with the Constitution. Second, the agreement covers not a portion of our territory where we could rightly claim sovereignty, but a part of our exclusive economic zone, which came about after the ratification of the UN Convention on the Law of Seas (UNCLOS) in 1978.
Prior to UNCLOS, our boundaries were demarcated by the Treaty of Paris on December 10, 1898. Our claim over these areas is by virtue of being part of our EEZ where we can only claim sovereign right to mine and extract mineral resources.
Should Cusi pursue his calibrated attempt to derail the agreement in favor of non-state entities with them getting the bigger portion of the sharing, China could make it hard for the Philippines. Some could sense the country might use the US military bases as its leverage to exact more bargains. Such posturing could trigger a sharp reaction no different to what China did in driving us out of the Panatag Shoal.
If this happens, our oil and gas exploration will be forced to move inward into our territory. By then, we will be negotiating with these foreign oil companies on the basis of what is rightfully provided in Section 2 of Article XII of the Constitution, unless we again bow down to their lopsided demand using as template the agreement we signed with Shell and Chevron for the exploitation of natural gas deal, which today, is about to be depleted.