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Key facts about proposed PHL-China joint exploration in West PHL Sea

One of the most important geopolitical developments in recent weeks has gone largely unnoticed.

A few weeks ago, Energy Secretary Alfonso Cusi recently announced a “win-win solution” in the disputed waters of the West Philippine Sea (WPS).

According to the proposed plan, the PNOC (PNOC) Exploration Corp will partner with China National Offshore Oil Corporation (CNOOC), with a third-party Jadestone Energy Inc. maintaining a minority stake.

The joint venture is expected to develop Calamian project off the island of Palawan. Crucially, CNOOC is expected to hold a 51 percent majority stake.

To better understand the implications of the proposed deal, I consulted the country’s leading maritime law expert, Jay Batongbacal.

Following are some of our exchanges:

Q. Heydarian: Is the project (Service Contract 57) even legal, isn’t this against our Constitution? How is the proposed deal different from the Camago-Malampaya project (SC 38)?

Batongbacal: SC 57 covers an area outside of China's 9-dashed lines/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). Thus, 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.

Although Supreme Court Senior Associate 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.

Q. Heydarian: Wait, but I thought there is a “60/40” constitutional restriction on joint development (JD) projects? Is this even a JD to begin with?

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.

In fact, 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 located on land, or, alternatively, at sea.

Q. Heydarian: If not JD, then what is this project all about?

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-dashed lines 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.

Richard Javad Heydarian is resident political analyst at GMA Network and author of “The Rise of Duterte: A Populist Revolt Against Elite Democracy” (Palgrave Macmillan).