Oil-deals backdrop to Aquino-Hu summit

By Al Labita

MANILA - Oil exploration and future production contracts in the west Philippine sea, the maritime area Manila claims in the contested South China Sea, will be a hot issue when President Benigno Aquino makes his first official visit to meet Chinese President Hu Jintao in Beijing this month.

Aquino, who has locked horns with Beijing over recent incidents between Philippine and Chinese vessels around the contested Spratly Islands chain, was formally invited by Hu and will be accompanied by senior foreign affairs and defense officials, underscoring the importance Manila has placed on the trip.

"For me, it is important to talk to everyone, especially the other side," Aquino told a press forum last week, referring to China. "Maybe we can reach an agreement. After all, we cannot just

 
ignore this matter when people's lives may be at stake."

Unlike Aquino, Hu has remained reticent on the highly sensitive Spratlys issue, leaving China's talking to senior diplomats, politburo officials and mouthpiece media. The Aquino-Hu meeting comes amid Manila's plans to auction off as many as 15 oil exploration contracts worth US$7.5 billion, a move that has drawn Beijing's protests.

"There could well be a high price to pay for any misjudgment on the South China Sea issue by countries like the Philippines," a strongly-worded China Daily editorial said this month.

The oil exploration deals Manila will shortly tender cover 10.3 million hectares in shallow and deep waters within the basins of Northwest Palawan, East Palawan, Sulu Sea, Mindoro-Cuyo, Cagayan, Central Luzon and Cotabato provinces.

Their reserves are estimated at 5 billion barrels of oil and 38 trillion cubic feet of gas, enough to meet at least 30% of the Philippines' energy needs, officials have said. The contracts, to be awarded soon, have drawn interests of prospecting oil firms from United Kingdom, Australia, Canada, United States and other countries.

Two state-linked Chinese oil entities - China National Offshore Oil Company (CNOOC) and China Union Global Holdings Ltd - have also joined the bidding, says Manila's Department of Energy.

Both are firming up joint-venture talks with the state-run Philippine National Oil Co Exploration Corp, particularly in areas off the coast of oil-rich Palawan province, west of Manila.

"In terms of their financial, legal and technical qualifications, we don't see any problems," says energy undersecretary Jose Layug.

CNOOC and China Union Global Holdings, along with other foreign oil exploration firms, filed their applications for the exploration blocks even before the current tensions over the Spratlys flared up, he adds.

The high stakes bilateral meeting comes amid Washington's appeals for a negotiated peaceful settlement of the simmering maritime dispute which pits China versus four different Southeast Asian claimants, as well as Taiwan.

Though not a claimant, the US has said it views freedom of navigation and trade flows in the South China Sea as a part of its national interest. The Aquino-Hu dialogue will coincide with the annual meeting of the US-Philippines Mutual Defense Treaty Board meeting in Hawaii.

Top US and Philippine defense officials are expected to tackle geopolitical issues, including the Spratlys dispute and China's growing military posture in the South China Sea. Last week China put its first aircraft carrier on sea trial, raising concerns among its Asian neighbors about its naval ambitions.

In that context, Aquino's trip to China may be viewed by some as kowtowing to Beijing's insistence that disputes with other claimants be handled on a bilateral rather than multilateral basis, as suggested by Washington and taken up by the Association of Southeast Asian Nations (ASEAN). Critics view China's insistence on bilateral talks as a "divide and conquer" strategy.

Should Aquino and Hu fail to reach an accord during their talks, Manila has indicated it would seek the arbitration of the United Nations International Tribunal for the Law of the Sea. The UN set up the tribunal to resolve disputes over the interpretation of the 1994 UN Convention on the Law of the Sea (UNCLOS). The Philippines and China are both among the convention's signatories.

"The Philippines is prepared to defend its position in accordance with international law consistent with UNCLOS," Philippine foreign affairs secretary Albert del Rosario said. China's territorial claim over South China Sea, on the other hand, is based on its "nine-dash line" map which forms a ring around the entire sea area.

If left unchallenged, del Rosario has warned, China's claim could threaten the freedom of navigation and unimpeded trade and commerce of other nations. Aquino is also expected to raise during his Beijing visit the reported Chinese intrusions into the Philippine-claimed part of the South China Sea.

Citing satellite photos provided by the US as part of their defense cooperation ties, Manila claims to have recorded at least seven incidents involving Philippine and Chinese ships and aircraft since February. The incidents, which triggered the diplomatic spat, have ranged from Chinese naval personnel shooting on Filipino fishermen to Chinese harassment of an oil exploration vessel owned by British firm Forum Energy Plc.

Forum, which has cried foul over China's scare tactics, has been exploring for oil in the Spratly's Reed Bank, 80 nautical miles off Palawan province. Reed is within the Philippines' 200 nautical miles exclusive economic zone as provided for under UNCLOS, and it is 575 nautical miles from China's nearest territory, the island of Hainan.

Based on Forum's surveys, Reed has the potential to yield 96 billion cubic meters of natural gas and 440 million barrels of oil. The figures are greater than the natural gas reserves of the $130 billion Malampaya project in Palawan province that is being developed by oil multinational Shell under a contract with the Philippine government.

In another incident, a Philippine military aircraft, while patrolling the west Philippine sea, was buzzed over by a foreign plane believed by Manila to be from China. China has also built structures in the Philippine-claimed Iroguois Reef-Amy Douglas Bank near Palawan, which Philippine navy frogmen have dismantled.

While the Philippines clearly does not want full-blown hostilities to break out over the Spratlys, Aquino says his government will do whatever it takes to protect its territory "at all costs and by all means", implying some US military support. "What is ours is ours and what is disputed can be shared," he said.

Al Labita is a Manila-based journalist.

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