On Nov. 20, 2018, the Philippines and China entered into a Memorandum of Understanding (MOU) on Cooperation on Oil and Gas Development. Premised on the Charter of the United Nations, the United Nations Convention on the Law of the Sea (UNCLOS), and the 2002 Declaration of Conduct of Parties in the South China Sea, the two governments agreed to negotiate on an accelerated basis (i.e., within 12 months of its signing) arrangements to facilitate oil and gas exploitation in “relevant maritime areas.”

Under Section III of the MOU, the two governments intend to establish an Inter-Governmental Joint Steering Committee and Inter-Entrepreneurial Working Groups.

The Committee will be co-chaired by the Foreign Ministries, and co-vice chaired by the Energy Ministries, with the participation of relevant agencies of both governments, and with equal number of members nominated by the two governments. Under the same section, the Committee is responsible for negotiating and coming up with cooperation arrangements and the maritime areas (or cooperation areas) to which they will apply. The Committee will also decide on the number of Working Groups to be established and for which part of the cooperation area each Working Group will be established (working area).

More specifically, each Working Group will consist of representatives from enterprises authorized by the two governments. For this purpose, China will authorize the China National Offshore Oil Corp. (CNOOC) while the Philippines will authorize enterprises that have entered into service contracts with the Philippine Government with respect to the applicable working areas. Should there be none, the Philippine National Oil Company-Exploration Corp. (PNOC-EC), will be the Philippine enterprise authorized to represent it in a particular Working Group.

The MOU is without prejudice to the respective legal positions of both governments with respect to their claims in the disputed sea and will not create rights or obligations of both parties under international or domestic laws.

It can be observed that the MOU is an effort by both parties to peacefully settle their conflicting territorial claims. Still, any joint development agreement that may be entered into with respect to the relevant maritime areas will inevitably have to be measured against the yardstick of the 1987 Constitution.

Section 2, Article XII of the 1987 Constitution provides that the exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. Moreover, it mandates the State to protect the nation’s marine wealth in its archipelagic waters, territorial seas, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.

Nonetheless, it gives the President authority to enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils, subject to certain safeguards. In the 2004 case of La Bugal B’laan Tribal Association v. DENR, the Supreme Court held that the language of Section 2, Article XII of the Constitution should be interpreted as allowing the President to enter into an agreement to explore, develop, and utilize minerals, petroleum and other mineral oils even with a 100% foreign owned corporation. It further held that this type of agreement should not be restricted to one that is merely for financial or technical assistance.

The Supreme Court, however, reminded that the State must still retain full control and supervision over the exploration, development, and utilization of these resources. In particular, the Supreme Court held that while the foreign contractor may be allowed a certain degree of management prerogative, the State must still be able to direct, restrain, regulate, and govern the affairs of the foreign contractor.

There are those who opine that a joint development agreement with China can hurdle Constitutional issues in view of this ruling in La Bugal. However, a conclusion is not as easily arrived at as it may seem. In this regard, it is apt to quote Professor Jay L. Batongbacal’s assessment of the MOU as published in the website of Asian Maritime Transparency Initiative, thus:

“… the MOU… still does not address the specific challenges and restrictions posed by the Philippine Constitution and legislation… It also does not address the constitutional and legal requirement of ‘sole control and supervision by the State’ of natural resource exploration and exploitation. Unfavorable answers to these questions may lead to the conclusion that Philippine sovereignty and sovereign rights will indeed be compromised. These can be finally determined only when the parties agree on the actual cooperation arrangements for specific areas.”