In a sign of growing maritime assertiveness by the Philippines, President Rodrigo Duterte has lifted a years-long moratorium on energy-exploration activities in the South China Sea.
It marked a dramatic departure from his earlier call for “co-ownership” of disputed resources with China as “a prudent and steady way” of managing the maritime spats.
The decision came only a month after the Beijing-friendly Filipino leader took a surprisingly tough stance in his first United Nations’ General Assembly speech, on September 22, where he reiterated that the country’s claims in the area are “beyond compromise” and he will “firmly reject attempts to undermine it.”
In a statement last week, Philippine Energy Secretary Alfonso Cusi announced a “resume to work” notice had been issued to companies, which have been designated service contractors for energy exploration activities in three different blocs – named SC 59, 72, and 75 – within the Philippines’ exclusive economic zone.
“The lifting of the suspension places the service contractors under a legal obligation to put capital into the contract areas and hire Filipino engineers and technical workers,” he said, while emphasizing the country’s urgent need to develop new energy resources with the depletion of the Malampaya gas field, a cornerstone of the country’s energy security.
One of the blocs up for grabs is the hydrocarbon-rich Reed Bank, which falls within China’s “nine-dash line.” The Philippine energy secretary acknowledged ongoing negotiations with China over resource-sharing in the area, but defended the decision to unilaterally develop the area since it was made “in good faith and with full regard of the ongoing negotiations between the Philippines and China, and Forum Ltd and the China National Offshore Corp (CNOOC).”
In response, China’s foreign ministry spokesman Zhao Lijian sounded a cautious note, expressing his country’s “hope and belief that the two sides will meet each other halfway, promote joint development and continue to make positive progress.”
The decision comes as a major disappointment for Beijing, which had hoped to extract long-term geopolitical concessions from the newfound ally in Manila. But the dearth of Chinese big-ticket investments and growing tensions in the South China Sea have undercut Duterte’s ability to push for controversial and potentially unconstitutional resource-sharing agreements with Beijing.
The Philippine constitution largely treats the country’s 200 nautical mile Exclusive Economic Zone (EEZ) as an extension of the country’s territorial waters. The 2016 Arbitral Tribunal ruling at The Hague, which was initiated by Manila under the aegis of the United Nations Convention on the Law of the Sea (UNCLOS), also rejected much of China’s expansive claims in the South China Sea.
Nevertheless, Duterte initially endorsed a joint development agreement with China to lure massive investments and avoid conflict in the area. In 2018, then Philippine Foreign Secretary Alan Peter Cayetano hailed a “golden period” in bilateral relations during a visit to Beijing, vowing to explore a “suitable legal framework”, which would turn the disputed areas “into a source of friendship and cooperation between our two countries.”
During his visit to Manila before the end of that year, President Xi Jinping oversaw the signing of a preliminary agreement in the hope of finalizing a joint development agreement (JDA) in Reed Bank.
Following Duterte’s fifth visit to China last year, Philippine Ambassador to Beijing Jose Santiago Santa Romana announced the two countries would form joint committees, including both key government agencies as well as energy companies, to iron out the agreement before the end of 2019.
Almost a year later, however, there are growing signs that the negotiations with China have hit a roadblock. On one hand, Duterte’s latest Foreign Secretary, Teodoro Locsin Jr, has taken an increasingly tough stance in the South China Sea, while publicly expressing his reservations about any resource-sharing agreement with Beijing.
Only months into his new position, the former Philippine Ambassador to the UN and longtime broadcaster publicly lashed out at Malacanang for a lack of transparency in its negotiations and, crucially, potentially agreeing to a Chinese-dictated draft agreement.
“Palace Com[munications] doesn’t care if it is a Chinese draft? I fu*k*n* care!”, he tweeted in late-2018, emphasizing his official prerogative to oversee any draft agreement to ensure its legality and the Philippines’ national interest.
“A framework or architecture for gas and oil in our part of the sea demands the draft be MINE…MIO…FILIPINO,” he added.
Earlier this year Locsin, along with key members of the defense establishment, also successfully convinced the Filipino president to not only rescind his decision to abrogate the Philippines’ Visiting Forces Agreement (VFA) with the United States, but to also take a more assertive stance in the South China Sea.
In July, for the first time, the Duterte administration officially emphasized the finality and binding nature of the 2016 arbitral award in the South China Sea. In his statement, Locsin praised the international ruling, which rejected China’s nine-dash line claims, “[its] great significance and consequence to the peaceful settlement of disputes in the South China Sea and to the peace and stability of the region at large.”
Locsin also reportedly drafted Duterte’s historic speech at the UN last month, where the Filipino president reiterated that “the award is now part of international law, beyond compromise and beyond the reach of passing governments to dilute, diminish or abandon.”
Speaking just after an address by Chinese President Xi Jinping, Duterte declared: “We firmly reject attempts to undermine [the award].”
The Philippines’ hardening stance has received a boost from key allies, with US Secretary of State Mike Pompeo announcing in July a major policy statement on the South China Sea.
In a major shift in the US position, the Trump administration dropped any pretense to ‘neutrality’ by squarely siding with much of its treaty ally’s claims in the area, while lambasting China’s expansive claims and maritime assertiveness as “illegal” and contrary to international law.
More recently, Europe’s three leading powers, France, Germany and the United Kingdom, also invoked the Philippines’ arbitral award in an unprecedented joint note verbale to the UN, where they similarly questioned China’s expansive claims in the area.
Duterte acknowledged this in his UN speech, where he welcomed “the increasing number of states that have come in support of the award and what it stands for – the triumph of reason over rashness, of law over disorder, of amity over ambition.”
Growing desperation, however, is also a major driving force. The Malampaya gas field has been a source of more than 20% of the country’s electricity generation over the past two decades, but it’s expected to run out by 2024.
Last month, Philippine Senator Sherwin Gatchalian, chairman of the Senate energy committee, warned of an impending energy crisis.
“We’re racing against time. If we fail to act now, we could be experiencing anew a debilitating rotational brownout by 2024 once our power supply from the Malampaya gas field is depleted,” he said, calling for a comprehensive national energy security plan.
By lifting the moratorium on energy exploration in the South China Sea, the country seeks to develop new hydrocarbon resources. PXP Energy Corp, a Hong Kong-listed company led by local mogul Manuel Pangilinan, operates Service Contract 75, while Service Contracts 59 is operated by the Philippine National Oil Company-Exploration Corp.
The crucial and much-delayed one, however, concerns Reed Bank, which falls under Service Contract 72, led by Forum, a UK company with local backing.
“With the impending depletion of our natural gas reserve in Malampaya, it is the department’s position that there is an urgent imperative to resume exploration, development and production activities within our EEZ to ensure continuity of supply of indigenous resources in the country,” Cusi said.