As expected, Chinese President Xi Jinping rejected the arbitral award during his meeting with President Duterte in Beijing on Aug. 29. However, the two leaders agreed to resolve the controversy peacefully and diplomatically.
In continuing the negotiations, I believe that, as pointed out in my column on Aug. 18, we should refer to the Chinese “Note,” dated April 13, 2009, addressed to the Secretary General of the United Nations impliedly recognizing our entitlements in our exclusive economic zone (EEZ), and to the Memorandum of Agreement (MoA) reached in November last year, in which China consented to a 60-40 sharing in our favor in the exploration, development and utilization (EDU) of the natural resources buried in our EEZ.
A constitutional way to implement this 60-40 sharing was made two decades ago (way before the arbitral award was issued) when the Philippines entered into a joint venture with a foreign consortium led by Shell to extract natural gas from the Malampaya area some 50-80 kilometers northwest of Palawan, well within our EEZ which measures 200 nautical miles (370 kilometers) from our western baselines.
Under this joint venture, the foreign consortium advanced all expenses needed and undertook all the risks of failure, but shared the fruits of success with 60 percent of the net revenues going to us and the balance of 40 percent to the consortium.
The venture has produced enough natural gas to fuel about 30 percent of our country’s electric power needs plus cash of nearly $800 million yearly, or a total of about $10 billion since it started operations in 2001, aside from the 10-percent share the Philippine National Oil Company (PNOC) gets as the only Filipino member of the consortium. This project could be replicated by a new consortium to be led by a Chinese company.
Other than this Shell model, Chinese companies may invest in other ways allowed by the relevant provisions of our Constitution which, for easy understanding, were stratified by La Bugal-B’laan v. Ramos (Dec. 1, 2004), as follows:
1) All the natural resources in our country are owned by the Philippine state. Except for agricultural land, natural resources cannot be alienated.
2) At all times, the EDU of our natural resources shall be under the full control and supervision of the state.
3) Nonetheless, the state may undertake these EDU activities, either (a) directly and solely by itself, or by (i) co-production, (ii) joint venture, or (iii) production-sharing agreements with Filipino citizens or corporations in which at least 60 percent of the capital is owned by such citizens.
4) Small-scale utilization of our natural resources may be allowed by law in favor of Filipino citizens only.
5) For the large-scale EDU of “minerals, petroleum and other mineral oils,” the President may “enter into agreements with foreign-owned corporations involving either technical or financial assistance” (FTAAs).
To sum up, the EDU of our natural resources may be undertaken by the state itself or in tandem with Filipinos or Filipino corporations, except in two instances; first, small-scale utilization may be allowed by law only to Filipinos; and second, the large-scale EDU of “minerals, petroleum and other mineral oils” may be undertaken via FTAAs with foreign-owned corporations.
The La Bugal-B’laan decision, which I had the honor of writing for the Court, interpreted liberally, not literally, the constitutional provisions on FTAAs, and gave the President wide discretion to attract foreign investments and expertise in extracting our country’s hidden wealth to help save our people from sheer hunger, deadly disease and grinding poverty.
This liberality is justified “given the nature and complexity of such agreements, the humongous amounts of capital and financing required for large-scale mining operations, the complicated technology needed, and the intricacies of international trade, coupled with the State’s need to maintain flexibility in its dealings, in order to preserve and enhance the country’s competitiveness in world markets.”
To stress and to repeat, all these EDU activities are subject to the overarching constitutional caveat that “full control and supervision” must always remain with the Philippines.
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