MANILA -- (UPDATED) Supreme Court Senior Associate Justice Antonio Carpio on Friday warned China could seize natural gas deposits in Reed Bank (Recto Bank) if the Philippines is unable to pay the US$62-million Chinese loan for the Chico River Irrigation Loan Agreement.
The loan agreement was signed by the government with China on April 10, 2018 but critics have warned of the allegedly onerous deal.
Carpio joined those who cautioned the government against proceeding with the project during a talk at the Pamantasan ng Lungsod ng Maynila on Friday.
“In case of default by the Philippines in repayment of the loan, China can seize, to satisfy any arbitral award in favor of China, ‘patrimonial assets and assets dedicated to commercial use’ of the Philippine Government,” he said.
Patrimonial assets refer to properties owned by the Philippines in its private capacity and not for public use, public service, or intended for development of national wealth.
WAIVER OF RIGHTS
Carpio showed photos of several paragraphs under the loan agreement in his slides.
Under Article 8, paragraph 8.1 of the loan agreement, the Philippines “irrevocably waives any immunity on the grounds of sovereign or otherwise for itself or its property in connection with any arbitration proceeding…or with the enforcement of any arbitral award.”
The only exceptions under the agreement are assets used by the country’s diplomatic or consular mission, assets of a military character and under the control of the Philippines’ military authority or defense agency, and those “located in the Philippines and dedicated to a public or governmental use (as distinguished from patrimonial assets and assets dedicated to commercial use).”
Carpio said the term “patrimonial assets and assets dedicated to commercial use” includes the oil and gas in the Philippine exclusive economic zone (EEZ) in the West Philippine Sea, including the gas fields in the Reed Bank.
The 2016 Tribunal in the South China Sea Arbitration ruling declared that the Reed Bank or Recto Bank is within the Philippine EEZ.
An EEZ is an area within 200 nautical miles from the country’s baseline where a country can explore and exploit any resources; carry out any search, excavation or drilling operations; conduct any research; and construct, maintain or operate any artificial island, off-shore terminal, installation or other structure or device.
WHAT’S AT STAKE
A 2013 report from the United States Energy Information Administration claimed Reed Bank could hold up to 5.4 billion barrels of oil and 55.1 trillion cubic feet of natural gas.
In 2010, the Philippines awarded the service contract to extract resources in Reed Bank to London-based Forum Energy Plc. (FEP), more than 60 percent of whose shares is owned by Philex Petroleum Corporation (Philex).
China, however, also granted exploration rights to state-owned China National Offshore Oil Corporation (CNOOC).
In 2012, CNOOC turned down Philex’s Manuel V. Pangilinan’s offer of a farm-in agreement because such an arrangement could be interpreted as CNOOC accepting the Philippines as “owner” of Reed Bank.
The Philippine Department of Energy imposed a moratorium on drilling in the area in 2014 on account of Manila’s case against Beijing in the at the PCA in The Hague.
DISADVANTAGEOUS ARBITRATION PROVISIONS
In his talk on Friday, Carpio warned that Chinese law governs the loan agreement and that the arbitration, in case of dispute, shall be held in Beijing to be conducted by the China International Economic and Trade Arbitration Commission (CIETAC) using CIETAC arbitration rules.
He said the Philippines stands no chance of winning the arbitration because China will always have a majority in the 3-member arbitration panel.
He pointed to a provision in the arbitration clause where the chairman of CIETAC, a Chinese government official, will appoint the presiding arbitrator in case no common candidates are submitted in the list of arbitrators both countries are required to submit.
“The award of CIETAC is final and binding…The Philippines expressly waived any sovereign immunity on the ‘enforcement of any arbitral award,’” he said, explaining that the Chinese Government may enforce that ruling in the Philippines.
Carpio also slammed the confidentiality clause under the agreement, noting that the Philippine Constitution recognizes the right to information and access to documents and papers of the public on matters of public concern.
Government officials have maintained the loan agreement for the Chico River project is not a debt trap and was properly screened by the Investment Coordination Committee composed of key Cabinet members.