Philippines weighs China energy deal in disputed South China Sea, says Beijing pledged won't occupy new territory

The Philippines Foreign Affairs Secretary Alan Peter Cayetano said any joint ventures would conform to Philippine law and wouldn't lead to the loss of Philippine territory. PHOTO: EPA

MANILA (BLOOMBERG, REUTERS) - The Philippines is considering potential ways to jointly develop oil and gas resources in the South China Sea with China, which has assured the Philippines it will not occupy new features or territory in the contested waterway, Philippine Cabinet ministers told a parliamentary hearing on Tuesday (Aug 15).

Any joint ventures would conform to Philippine law and wouldn't lead to the loss of Philippine territory, Foreign Affairs Secretary Alan Peter Cayetano told a House of Representatives hearing in Manila. Shortly afterwards, he sought a closed-door meeting with legislators, citing national security.

"If we can come up with a commercial deal better than Malampaya in the disputed areas, how can any Filipino argue with that?" Cayetano said. He was referring to the country's largest gas field, which is set to run out of supply in 2024.

The remarks are the latest indication of warmer ties between the Philippines and China after years of tension under the prior administration of Benigno Aquino. Since taking power last year, President Rodrigo Duterte has sought closer investment and trade links with Beijing, including over resources in the South China Sea.

Also on Tuesday, , the Philippine defence minister said China has assured the Philippines it will not occupy new features or territory in the South China Sea, under a new status quo brokered by Manila as both sides try to strengthen their relations.

The minister, Delfin Lorenzana, told the same congressional hearing that the Philippines and China had reached a "modus vivendi", or a way to get along, in the South China Sea that prohibits new occupation of islands.

"There is status quo now that is happening in the South China Sea brokered by the secretary of Foreign Affairs," he told lawmakers late on Monday. "According to him, the Chinese will not occupy new features in the South China Sea nor they are going to build structures in Scarborough Shoal," he said, referring to a prime fishing ground close to the Philippines that China blockaded from 2012 to 2016.

"It would be a very serious thing if China will occupy any of the islands." Lorenzana did not comment when lawmakers, citing reports from the military, told him five Chinese ships had showed up almost 5 km off the Philippine-held Thitu Island in the Spratly archipelago on Saturday.

Congressman Gary Alejano told Reuters that Chinese fishing boats had blocked a Philippine marine surveillance ship in the area two days ago. Thitu Island is the largest of nine reefs and shoals the Philippines occupies in the Spratlys.

The military's public affairs chief, Colonel Edgard Arevalo, declined to comment until the armed forces had the "whole picture on the current situation".

Philippine President Rodrigo Duterte has berated traditional ally the United States over several issues since he took office just over a year ago, while courting China for its business and investment and avoiding the rows over maritime sovereignty that dogged his predecessors.

China claims almost the entire South China Sea. Brunei, Malaysia, the Philippines, Taiwan and Vietnam also have conflicting claims in the area.

China has built seven islands upon reefs in disputed areas, three of which, experts say, are capable of accommodating fighter jets. They have runways, radars and surface-to-air missiles which China says are for defence.

One of the manmade islands is Subi Reef, visible some 24 km away by the small community of Filipinos who since the 1970s have lived on Thitu.

Alejano, a former Marine Corps officer who led a failed coup against the government of Gloria Macapagal Arroyo in 2003, urged the government to lodge a diplomatic protest and tell China to leave Philippine territory in the Spratlys.

Former President Aquino brought China before an international arbitration tribunal over its claims to 80 per cent of one of the world's most strategic waterways, and won. He also strengthened the Philippine alliance with the US to try to check China's expansion in the South China Sea, where it has built a series of artificial reefs, creating a platform to assert its claims.

'Going Nowhere'

Duterte isn't ignoring the arbitration award, and will bring it up at a later time as the Philippines builds mutual trust with China, Cayetano said.

"There was no opportunity to talk to China because we had consistent confrontations with them," he said. "We won the legal part, but on the ground we were going nowhere."

Last month, Chinese Foreign Minister Wang Yi backed the idea of joint energy ventures with the Philippines in disputed waters, saying it was "full of political wisdom." Unilateral development could lead to tensions and hurt both countries, Wang told reporters during a visit to Manila.

Any deal may also impact Vietnam, which rejects China's expansive sea claims as a basis for jointly developing energy resources. The BBC reported last month that Vietnam had ordered Repsol SA, a Madrid-based oil-and-gas company, to halt activities in the South China Sea after China threatened to attack Vietnamese bases in the Spratly Islands.

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