Aquino Open to China Sea Oil Deal Separate From Territory Spat

Philippine President Benigno Aquino said he’s open to an agreement with China that would allow companies to exploit oil and gas resources while the governments separately resolve South China Sea border disputes.

Aquino said his administration may split the issues to “have a political discussion on one side” and “have commercial issues on another side,” speaking in a May 4 interview at Malacanang Palace in Manila. “So long as our sovereignty is respected, we are open to partner with them.”

The U.S. ally has resisted joint exploration in some offshore areas claimed by China, increasing tensions as the countries compete for energy resources. The exploration unit of Philex Mining Corp. (PX), the Philippines’s biggest metals producer, last month said the dispute will probably delay plans to exploit what may be the country’s biggest gas field.

Aquino, 52, has championed the Philippine territorial claims even while saying the country can’t compete militarily with China, which trails only the U.S. in defense spending. A war over the resources would leave the Philippines in tatters and ordinary people would suffer, he said.

“We now have an energy source within the region, not subject to the current turmoil that is being experienced and has to be completed in the Middle East,” Aquino said. “Doesn’t it redound to everybody to get these resources online at the soonest possible time?”

Energy Need

Estimates of oil and gas reserves in the South China Sea vary, with some Chinese studies suggesting it contains more oil than Iran and more natural gas than Saudi Arabia, according to the U.S. Energy Information Administration. China surpassed the U.S. as the world’s largest energy user in 2010, while the Philippines wants to reduce its near-total reliance on imports.

Ships from the two nations have been locked in a monthlong standoff over a land feature in the South China Sea claimed by both countries, the latest among incidents in the waters that have “increased dramatically” in the past several years, the International Crisis Group said in an April report. Last year, a Chinese surveillance vessel chased away a survey ship doing work for Forum Energy Pcl, the U.K.-based unit of Philex Mining.

The U.S. will transfer a second Coast Guard cutter to the Philippines this year, Defense Secretary Leon Panetta said in Washington on April 30 during talks with Philippine counterparts. Coastal patrol vessels and maritime radar will be supplied under a long-term modernization plan, according to two U.S. officials who spoke with reporters in Washington last week on condition of anonymity to discuss diplomatic matters.

Zero Fighters

In the interview at the palace’s Ramos Room, Aquino said the military’s capabilities have been “very, very severely diminished,” noting that the Philippines has zero fighter jets and that most ships are older than he. The room was named after Fidel Ramos, who in 1986 as armed forces vice chief of staff withdrew support from dictator Ferdinand Marcos and backed Aquino’s mother, Corazon, for the presidency. Ramos succeeded Corazon Aquino as president, serving from 1992 to 1998.

“We have no capability,” Aquino said. “We have minimum responsibilities to protect the endangered species, protect our coasts, protect our exclusive economic zone. We need the wherewithal to do that.”

The president flagged Philippine success in other areas in the interview, with economic growth likely surpassing 5.2 percent in the first quarter, the most since 2010. He said a forthcoming mining-policy overhaul may also resuscitate a stalled Xstrata Plc (XTA) gold-copper project valued at $5.9 billion.

Rejecting Cooperation

Aquino didn’t elaborate on how an agreement with China on developing would work. Last year, his government submitted a proposal for joint development near the disputed Spratly and Paracel islands, while rejecting cooperation in waters closer to its shores. China has repeatedly called for shelving disputes in favor of joint development, with the latest appeal coming from Foreign Minister Yang Jiechi in March.

Aquino’s assertiveness in the South China Sea has rankled some neighbors in the Association of Southeast Asian Nations that are concerned about maintaining good ties with China, Ernest Bower and Gregory Poling, analysts at the Center for Strategic and International Studies in Washington, said in a May 4 report. The 10-member bloc has resisted Philippine calls to take a common stand on territorial disputes.

“Some countries in the region worry that the Philippines may be rolling the dice with China and pulling the United States into territorial disputes,” Bower and Poling wrote. “Asean unity on the South China Sea remains uncertain.”

Contrast With Arroyo

Aquino has taken a more aggressive stand than his predecessor, Gloria Arroyo, who had signed an agreement on joint seismic surveys in disputed waters between the Philippines, China and Vietnam. That accord was abandoned on concerns over corruption and whether it complied with the constitution.

Aquino has sought bids to develop two areas in the South China Sea claimed by China, though has yet to receive any ahead of the July 31 deadline, Energy Secretary Jose Almendras said. The Philippines has pushed China to clarify how its so-called nine-dash map of the sea complies with the United Nation’s law of the sea, while China says the law has no jurisdiction over its claims.

“We recognize the fact that it’s difficult for the Chinese government having stated the nine-dash position of theirs in 2009, to suddenly come to an agreement that says they’re relinquishing any portion of the area,” Aquino said. “The issue of loss of face to an Asian is very, very important.”

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net; Joel Guinto in Manila at jguinto1@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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