2011 October Oil and Gas Exploration Issues in the South China Sea Lessons for the Philippines From Oil & Gas Fiscal Regimes, Oil Wealth Development Policy September 2011 Toronto University

8/3/2019 2011 October Oil and Gas Exploration Issues in the South China Sea Lessons for the Philippines From Oil & Gas Fiscal Regimes, Oil Wealth Development Policy September 2011

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Oil & Gas Fiscal Regimes, Oil Wealth Development Policy

and Oil & Gas Exploration Policy in Conflict Maritime Areas:

Lessons for Oil and Gas Exploration in the South China Sea for the Philippines

Rommel C. Gavieta MA (URP), MSc (Eng)

Research Associate, York Center for Asian Research (Canada)

Associate Professiorial Lecturer III (MBA Program) De La Salle University (Philippines)

October 2011

South China Sea Panel Discussion

2011 Canadian Council for South East Asian Studies

Munck Center, Toronto University

Toronto, Canada


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Introduction to the Philippine Energy Sector


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Introduction to the Philippine Energy Sector

Philippines has 8% reliance on Natural Gas for

Primary Energy and 29% reliance on NG for PowerGeneration

Philippines is on the verge of developing substantialoil and gas deposits on its eastern and westernoffshore coast

Needs to attract O&G Exploration Investors andneeds to learn from the lessons from its

squandered natural resources such as timber,

gold and iron ore.


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Prospective Oil and Gas Field Map of the Philippines

Malampaya O&G Field was developed by ShellPhilippines Exploration BV (SPEX), which holds 45%;Texaco Philippines, which holds 45%; and the Philippine

National Oil Company Exploration Corp. , which holds10%.

$4.5-billion project is expected to produce NG that wouldgenerate a total of 2,700 Mw for 20 years or 30% of thePhilippines entire power generation requirements.

Project revenues: $6.7billion for the O&G exploration investor $0.67billion for Philippine Oil company $10billion for the Philippine Government

Estimated Oil and Gas reserves: 3.5 trillion cubic foot(2008):

Existing Malampaya: 3.7 trillion cubic foot for 2,700 MW NG

power plants in San San Lorenzo, Sta Rita and Ilijan.

Near Future Development San Martin: 74 BCF in recoverable reserve. Sampaguita: estimated 3.5 to 5 Tcf of natural gas.


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Fiscal Regimes Issues in Attracting Investment forOil and Gas Exploration


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Fiscal Contractual Structure

It is critical that the fiscal regime be designed to

secure the maximum revenue for the government,while providing for the investors sufficient incentiveto undertake exploration and development.

At present average global fiscal system isregressive and front-end-loaded in favour of thegovernment in Oil & Gas exploration


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Oil and Gas Fiscal Regimes for On-Shore and Shallow Oil &

Gas Exploration

Phases since 1974:

1974 1984: strong increases in government take:Due to increase sin oil prices and reduction in acreage

through nationalizations

1984 2003: decreases in government take:

Due to decrease in oil prices and Expansion of acreage(political and technological)

2003 2008: increases in government take:

Due to Increase in oil prices and also greater volatility ofoil and gas prices and No more new acreage

2009 - 2010:

In the short term there is a downward pressure on

government take due to the financial crisis.

The main trends in the structure of the oil and gas

government take are the following:

Reduction of corporate income tax rates Globalization of VAT

Possible wider introduction of carbon taxes

Reduction of import duties and cost base taxes

More emphasis on price sensitive fiscal features

Less emphasis on taxation structures that over-

encourage capital investment

Transition to fiscal structures designed for

expensive oil and gas resources.


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Fiscal Regime for Deep Sea Oil & Gas Exploration

Daniel , P. , Goldsworthy, B., Maliszewski, W., Mesa Puyo, D. andWatson, A.; Evaluating Fiscal Regimes for Resource Projects: AnExample from Oil Development; International Monetary Fund;September 2008; Unpublished

Omorogbe, Yinka, Prof Department of Public & International law,University of Ibadan; Fiscal Regimes; Nigerian Extractive

Industries Transparency Initiative (NEITI) , Civil Society CapacityBuilding Workshop; Nigeria; July 2005 ; Unpublished


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Comparative Fiscal Regimes for Offshore Oil & Gas

Exploration in South East Asia


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Fiscal Oil Regime Philippines

The Philippine Fiscal oil Regime has been describe to be one of the most attractive in South East Asia

This is policy set under Presidential Decree (P.D.) 87 otherwise known as the " Oil Exploration andDevelopment Act of 1972, the following incentives are provided for petroleum service contractors:

Income Sharing

Service fee of up to 40% of net production

FPIA grants of up to 7.5% of the gross proceeds for service contract with minimum Filipino company

participation of 15%

Cost reimbursement of up to 70% gross production with carry-forward of unrecovered costs

Taxes

Exemption from all taxes except income tax

Exemption from all taxes and duties for importation of materials and equipment for petroleum

operations

Special income tax of 8% of gross Philippine income for subcontractors

Special income tax of 15% of Philippine income for foreign employees of service contractors and

subcontractors Income tax obligation paid out of government's share

FDI Inflow and outflow

Easy repatriation of investments and profits

Free market determination of crude oil prices, i.e., prices realized in a transaction between

independent persons dealing at arms-length


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Oil Wealth Management Policy Issues


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Linkage between Natural Resource and Economic

Development

Converting Natural Capital Into Financial and Human Capital

Long-term funds are especially important due to the nature of non-

renewable resources like oil and gas. Once this natural capital is used up, it is

gone forever.

Economic rent from this natural capital should be converted into financial

and human capital to create long-term benefits. This means investing

resource revenues into long-term funds and programs and infrastructure to

benefit present and future generations.

Source: Taylor, A; Grant, J; Holroyd, P; Kennedy, M; Mackenzie, K; Achieving a Win-Win From Oil and Gas Developments in the Northwest

Territories; The Pembina Institute Sustainable Energy Solutions; January 2010


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Ineffective Oil Wealth Management

Poor or worsening governance. The number of tax payers contributing to government revenue is

postulated to affect governments sense of accountability in pursuing policies that benefit society at large.

When two or three very large tax payers contribute the majority of total government income, it is easierfor government not to account for these revenues full.

Economic impact of oil boom on other sectors. Unless foreign earnings are kept offshore and not brought

into the country (this is called sterilizing), a sudden increase in foreign exchange income results in currency

appreciation (in Cambodia this would mean the riel becoming stronger relative to the U.S dollar)

Relaxing market discipline and slowing down economic reform. Large inflows of income during a boomeases pressure for reform and weaken fiscal discipline. Rather than using the extra income to implement

reform, government uses the oil wealth to continue protectionist measures that are market-distorting.

Misuse of oil revenues. Large oil revenues allow government to pursue misguided policies that benefit

powerful and entrenched urban vested interests, enable overspending through job creation in a bloated

public sector and investment in large and inefficient public-sector firms, and, in times of boom, they can

also be used as collateral to increase borrowing.

Intensified conflicts. Where there is already ethnic or fractional strife, competition for resource

revenues exacerbates it, as past and present experience in Angola, Nigeria, and Iraq demonstrates.

Resource abundance tends to be associated with greater frequency or duration of civil war.

Competitive manufacturing versus protected industrialization. Resource-poor countries have tended to

embark on competitive manufacturing earlier than resource-rich countries.

Source; Oil and Gas: A Blessing or A Curse? http://siteresources.worldbank.org/INTOGMC/Resources/cambodia_oil_gas_newsletter_2.pdf
http://siteresources.worldbank.org/INTOGMC/Resources/cambodia_oil_gas_newsletter_2.pdfhttp://siteresources.worldbank.org/INTOGMC/Resources/cambodia_oil_gas_newsletter_2.pdf


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Norways Oil Management Regime

Norways approach to oil wealth management deserves the attention it has received in other resource-

rich countries around the world. Norways approach has several key features:

Oil and gas reserves within Norwegian jurisdiction were defined by law as common propertyresources, thereby clearly establishing the legal rights of the Norwegian people to the resource

rents.

Government set aside 80% of the resource rent in a stare pension fund which is managed by the

Norges Bank (around $400 billion or $85,000 per Norwegian) on behalf of the Ministry of Finance.

This maintains a distance between politicians and the fund. The fund constitutes net government

wealth.

For all these reasons, Norway was able to avoid rent seeking and related problems that have

afflicted other oil exporting countries Iran, Libya, Mexico, Nigeria, Russia, Saudi Arabia, Sudan,

Venezuela, etc.

Source: Norways wealth: Not just oil, Thorvaldur Gylfason, 6 June 2008; http://www.voxeu.org/index.php?q=node/1199
http://www.voxeu.org/index.php?q=node/870http://www.voxeu.org/index.php?q=node/1199http://www.voxeu.org/index.php?q=node/1199http://www.voxeu.org/index.php?q=node/870http://www.voxeu.org/index.php?q=node/870http://www.voxeu.org/index.php?q=node/870


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Netherlands Oil Management Regime

Dutch disease is a concept that purportedly explains the apparent relationship between the

increase in exploitation ofnatural resources and a decline in the manufacturing sector.

The claimed mechanism is that an increase in revenues from natural resources (or inflows of foreign

aid) will make a given nation's currency stronger compared to that of other nations (manifest in

an exchange rate), resulting in the nation's other exports becoming more expensive for other

countries to buy, making the manufacturing sector less competitive.

While it most often refers to natural resource discovery, it can also refer to "any development that

results in a large inflow offoreign currency, including a sharp surge in natural resource

prices, foreign assistance, and foreign direct investment".[1]

The term was coined in 1977 by The Economistto describe the decline of the manufacturing sector

in the Netherlands after the discovery of a large natural gas field in 1959
http://en.wikipedia.org/wiki/Natural_resourceshttp://en.wikipedia.org/wiki/Secondary_sector_of_industryhttp://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/Competitivehttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Foreign_aidhttp://en.wikipedia.org/wiki/Dutch_diseasehttp://en.wikipedia.org/wiki/The_Economisthttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Slochterenhttp://en.wikipedia.org/wiki/1959http://en.wikipedia.org/wiki/1959http://en.wikipedia.org/wiki/Slochterenhttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/The_Economisthttp://en.wikipedia.org/wiki/Dutch_diseasehttp://en.wikipedia.org/wiki/Foreign_aidhttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Competitivehttp://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/Secondary_sector_of_industryhttp://en.wikipedia.org/wiki/Natural_resources


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Malaysian Oil Wealth Management Regime

Oil and gas is a significant contributor to government revenue, comprising more than 40% of

federal revenue annually.

Due to Malaysias heavy dependence on oil and gas, some fear we may be subject to the resource

curse. From 1960 to 1990, per capita incomes in resource-deficient countries grew two to three

times faster than in resource-dependent countries.

Pure subsidies for fuel will not be sustainable for much longer, especially in light of depleting oil and

gas reserves.

Worryingly, the National Trust Funds RM3.8 billion is unlikely to be enough to sustain current

rates of government expenditure once current reserves are exhausted.

Complicating matters is the governments opacity in the oil and gas industry; despite being

completely state-owned, Petronas does not report to Parliament, and makes very limited

information available about its operations and revenue.

Regional states with oil and gas reserves have publicly raised the issue of royalties, saying they

should be paid a larger share directly, rather than relying primarily on the National government to

funnel revenue back into the state.


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Types of Oil Wealth Generated Sovereign Wealth Funds

The International Monetary Fund identified five different types of sovereign wealth funds that could be

used by governments. These funds include:

stabilization funds, where the primary objective is to insulate the budget and the economy againstcommodity (usually oil) price swings;

savings funds for future generations, which aim to convert non-renewable assets into a morediversified portfolio of assets;

reserve investment corporations, whose assets are often still counted as reserve assets, and areestablished to increase the return on reserves;

development funds, which typically help fund socio-economic projects or promote industrialpolicies that might raise a countrys potential output growth; and

contingent pension reserve funds, which provide (from sources other than individual pensioncontributions) for covering unspecified pension liabilities on the governments balance sheet. Thesame article provides a list of benefits associated with these funds, including:

helps to avoid boom-bust cycles;

facilitates inter-generational savings and wealth transfer;

provides for greater portfolio diversification and a greater focus on returns relative to traditionalreserve funds.

Taylor, A; Grant, J; Holroyd, P; Kennedy, M; Mackenzie, K; Achieving a Win-Win From Oil and Gas Developments in the Northwest Territories; The

Pembina Institute Sustainable Energy Solutions; January 2010


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Oil and Gas Exploration in Conflict Maritime Areas


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Geopolitics and Lessons from the North Sea

The Atlantic Ocean is between Great Britain, Scandinavia, Belgium, and the Netherlands. An epeiric (or

"shelf") sea on the European continental shelf, it connects to the ocean through the English Channel in the

south and the Norwegian Sea in the north.

In 1958, the Continental shelf convention and some disputes on the rights to natural resource exploitation the

national limits of the exclusive economic zones were ratified. Five countries are involved in oil production in

North Sea. All operate a tax and royalty licensing regime. The respective sectors are divided by median lines

agreed in the late 1960s:

United Kingdom - The Department of Energy and Climate Change grants licenses. The UK government

annually solicits new entrants to the United Kingdom Continental Shelf (UKCS) thru licensing rounds with

less demanding terms and the fallow acreage initiative, where non-active licenses have to be relinquished.

Norway - The Norwegian Petroleum Directorate (NPD) grants licenses.

Denmark - The Danish Energy Authority (DEA) administers the Danish sector.

Netherlands - The Dutch sector is located in the Southern Gas Basin and shares a grid pattern withGermany.

Germany - Germany shares Oil and gas basin with the Netherlands. Germany has the smallest sector in the

North Sea.
http://en.wikipedia.org/wiki/Atlantic_Oceanhttp://en.wikipedia.org/wiki/Great_Britainhttp://en.wikipedia.org/wiki/Scandinaviahttp://en.wikipedia.org/wiki/Belgiumhttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Epeiric_seahttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Continental_shelfhttp://en.wikipedia.org/wiki/English_Channelhttp://en.wikipedia.org/wiki/Norwegian_Seahttp://en.wikipedia.org/w/index.php?title=Continental_shelf_convention&action=edit&redlink=1http://en.wikipedia.org/wiki/Exclusive_economic_zonehttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Department_of_Energy_and_Climate_Changehttp://en.wikipedia.org/wiki/Norwayhttp://en.wikipedia.org/wiki/Norwegian_Petroleum_Directoratehttp://en.wikipedia.org/wiki/Denmarkhttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Denmarkhttp://en.wikipedia.org/wiki/Norwegian_Petroleum_Directoratehttp://en.wikipedia.org/wiki/Norwayhttp://en.wikipedia.org/wiki/Norwayhttp://en.wikipedia.org/wiki/Department_of_Energy_and_Climate_Changehttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Exclusive_economic_zonehttp://en.wikipedia.org/w/index.php?title=Continental_shelf_convention&action=edit&redlink=1http://en.wikipedia.org/wiki/Norwegian_Seahttp://en.wikipedia.org/wiki/English_Channelhttp://en.wikipedia.org/wiki/Continental_shelfhttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Epeiric_seahttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Belgiumhttp://en.wikipedia.org/wiki/Scandinaviahttp://en.wikipedia.org/wiki/Great_Britainhttp://en.wikipedia.org/wiki/Atlantic_Ocean


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Geopolitics and Lessons from the Artic Sea

Circumpolar in character reflecting the competing and complementary interests of the eight states that

surround the Arctic Ocean: Canada, Denmark (Greenland), Finland, Iceland, Norway, Russia, Sweden, and

the United States.

During the Cold War, arrangements frequently featured groupings of the states such as the grouping

between Canada and the United States concerning the defense of North America, between northern

member states of NATO (Canada, Denmark, Iceland, Norway, and the United States), or between

Nordic countries (Denmark, Finland, Iceland, Norway, Sweden).

In 1996 the Arctic Council, a Canada-led intergovernmental forum, was launched with the eight

circumpolar states. Since then it has functioned as the pre-eminent circumpolar association

through which issues and concerns related to the environment, sustainable development, and

social and economic matters are discussed.

In May 2008, five of the circumpolar countries (Canada, Denmark, Norway, Russia and the United

States) met in Greenland and agreed to allow the procedures established by UNCLOS to determine

the competing claims being made. However, the USA which has not ratified the UNCLOS may

undermine the effectiveness of the Agreement.

The Arctic Council values and promotes a division of interest and consider the multiplicity of

organizations as advantageous. Hence, the success of the Arctic Council is not based on addressing

issues such as security and defense that is highly divisive and undermine any well-placed intentions

for establishment of the joint development zones.


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Geopolitics and Lessons from the South China Sea

There are several reasons as to why the South China Sea is of strategic importance:

Critical trade route: Much of the trade between Europe and the Middle East and East Asia passes from theIndian Ocean through the Malacca Strait , then up through the South China Sea to China, South Korea, andJapan. Japanese and South Korea defense planners in particular do not want this trade route dominated byChina. Japan has shown a strong interest for guaranteeing the freedom of trade.

Oil reserves and fishery resources: The surrounding seas are believed to contain significant hydrocarbonresources. On 24 December 1989, China made public that it estimated the Spratleys contained 25 billion cubic

meters natural gas, 105 billions barrels of oil, and 370,000 ton of phosphor.

Geo-political strategy: The strategic location of the South China Sea as an important sea-line-of-communications adjacent to choke points of Malacca and Singapore Straits is becoming a zone of competitionbetween China and the United States. The Spratly area has military, economic, and strategic importance for allthe parties in the conflict. Apart from that, China is seeking naval preponderance in the South China Sea.However, Beijing denies that it has a policy to fill the power vacuum that was created after the departure of theUnited States. The United States is clearly trying to get back into South East Asian geopolitics after a decade of

neglect by the Bush administration which focused more on Afghanistan, Iraq, and the wider Middle East. Duringthis time, China stepped up its influence in South East Asia through increased trade, investment, and use of soft

power. The United States is weary of China's intentions and are taking steps to counter China's strategy.


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Chinese Territorial Policy

Chinese Territorial Policy make concessions when It served Chinas broader and longer term strategic

benefits . Conversely, China is non-compromising, heavy handedness and assertiveness when it

served Chinas broader and longer term strategic benefit .

Chinas approach to the South China Sea dispute reflected a re-orientation of Beijings diplomacy in

Southeast Asia, which is characterize as charm offensive or soft power. Tensions declined when

China & ASEAN signed the Declaration on the Conduct of Parties in the South China Sea (DOC) in

2002.

The DOC has been ineffective in managing the dispute in the South China Sea. Howerver, the DOC

does seem to serve as a stepping stone for further discussion and policy deliberation among the

claimant countries.

Source: Li Mingjiang, Chinas South China Sea Policy: Claims and Changing Contexts; Conference on the South China Sea : Towards a Region of Peace,Cooperation & Progress; Foreign Service Institute, Diplomatic Academy of Vietnam and the National Defense College; July 5-6, 2011, Manila; Unpublishedhttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progress

Variants in Chinese approaches

China and Vietnam : Compartmentalization of the South China Sea Tension

China and Philippines: Soft power and territorial defense China and Malaysia: bilateralism and multilateralism

China and Taiwan: Joint development thru a Multilateralism mechanism

China and ASEAN: Signed the Declaration on the Conduct of Parties in the South China Sea (DOC) in

2002.

Source: Thayer, C; Security Cooperation in the South China Sea: An Assessment of Recent Trends ; Conference on the South China Sea : Towards a Region ofPeace, Cooperation & Progress; Foreign Service Institute, Diplomatic Academy of Vietnam and the National Defense College; July 5-6, 2011, Manila; Unpublished
http://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trung-tam-du-lieu-bien-dong/cat_view/168-the-south-china-sea-toward-a-region-of-peace-cooperation-and-progresshttp://nghiencuubiendong.vn/trun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Philippine Initiative: Zone of Peace, Freedom, Friendship

and Cooperation (ZoPFF/C)

A rules-based approach therefore provides the key to securing our claims and advancing the peaceful

settlement of disputes for all in the SCS.

The primacy of international law, particularly the United Nations Convention on the Law of the Sea

(UNCLOS), is the cornerstone on which Philippine territory and maritime entitlement is defined in the

SCS. It is this principle and the requirements of UNCLOS that governed the passage in 2009 of the

Philippine Archipelagic Baselines Law (R.A. 9522).

International law is also the guidepost by which the Philippines engages parties -- claimants and non-claimants

alike -- towards a peaceful and just resolution of disputes and the guarantee of freedom of navigation in the SCS.

To reinforce this goal, a framework is proposed to transforms the SCS from an area of dispute to a Zone of Peace,Freedom, Friendship, and Cooperation (ZoPFF/C) by a segregation of disputed relevant features from theundisputed waters of the SCS consistent with UNCLOS.

In the words of President Aquino, ZoPFF/C is a modality for ensuring that "what is ours is ours, and with what isdisputed, we can work towards joint cooperation.

Source: A Rules-Based Regime in The South China Sea By: Albert F. Del Rosario, Secretary of Foreign Affairs;http://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairs
http://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairshttp://dfa.gov.ph/main/index.php/newsroom/dfa-releases/3140-a-rules-based-regime-in-the-south-china-sea-by-albert-f-del-rosario-secretary-of-foreign-affairs


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Territorial Claimants of the South China Sea

South China Sea

Last Updated: March 2008


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South China Sea Resources

Source: http://archive.unu.edu/unupress/unupbooks/80a04e/80A04E0a.htm
http://archive.unu.edu/unupress/unupbooks/80a04e/80A04E0a.htmhttp://archive.unu.edu/unupress/unupbooks/80a04e/80A04E0a.htm


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South East Asian Experience in Managing Territorial

Disputes

The Cambodian dispute settlement have

involved informal cocktail parties, involvingrelevant official personalities, later ends upinformal agreement.

The Southern Philippines dispute settlementinvolved informal mediation efforts by Indonesiaand Malaysia, Libya and by Organization of

Islamic Countries (OIC),

The Straits of Malacca dispute settlement,which has been on the agenda for the last 40years has been solved by the creation ofCooperative Mechanism that is supported by thelittoral states around the Strait of Malacca anduser states as assisted by the InternationalMaritime Organization (IMO).

The South China Sea issues is being managedinformally by the workshop process that has lastedfor more than 20 years. The workshop on the SouthChina Sea was not intended to solve territorial disputesamong the various Claimants, but aimed to achieve:

(1) devising cooperative programs, in which allparticipants can take part so that the parties learnedthe use of cooperation in view of heir habits ofconfrontation in the past,

(2) promoting dialog among the directly interestedparties, so that they could find out solution to theirproblems, and

(3) to develop confidence building process so thateveryone will feel comfortable with one another.

Experiences with regard to the South China Sea issuesindicated that technical cooperation is relativelyeasier to achieve than resources distribution, andmore difficult with regard to the territorial as well assovereignty and jurisdictional issues.


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Policy Recommendations

P l f Eff ti Fi l R i i Att ti Oil &


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Proposals for an Effective Fiscal Regime in Attracting Oil &

Gas Exploration Investments

An oil & gas exploration investor is more likely to invest in a country with a fiscal regime that provides a 90

percent government take while allowing a rate of return of 20 percent than a fiscal regime that provides a

50 percent government take while permitting only a 10 percent rate of return.

The more appropriate measures of the attractiveness of a fiscal regime are:

Rate of return permitted to the investor on development based n peer group Profit-to-investment ratio of development (a measure of the capital efficiency and therefore a guide to where a

company should direct its capital) Exploration cover ratio (a guide to whether it is worth investing in trying to discover hydrocarbons in the first place)


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Oil Wealth Management

Developing country like the Philippines to use surplus income to plug deficit spending in

the short term.

Multi-lateral Agencies like the IMF and the ADB should assume leadership in promoting

long term benefits of oil wealth management, managing public fiscal policy and

ensuring sustainability of oil wealth in the long term.

Learn from the Philippines experience in squandered natural resource wealth fromforestry and mineral resources and from the Malaysian and Dutch Oil Wealth

Management Policy.


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Policy for Management Territorial Disputes

Two pronged policy approach in managing territorial disputes in the West Philippine Sea

(South China Sea)

Apply South East Asian lessons in Managing Territorial Disputes

Push for the ASEAN to adopt the Philippine Initiative for a Zone of Peace, Freedom,

Friendship and Cooperation (ZoPFF/C) for the formulation of the Joint Development

Zones (JDZ)s in the use of the South China Sea

Continue dialogues with the PROC on a direct bilateral basis

Sustain military build-up of arms capability of the Armed Forces of the Philippines

Apply International Law in Managing Territorial Disputes without appearing to be siding

with the US and or Japan

Assert Philippine rights under the Commission on the Limits of the Continental Shelf

(CLCS) on the applicability of the UNCLOS in the South China Sea

Assert Philippine rights under the International Seabed Authority (ISBA) for rights tothe ocean seabed beyond UNCLOS .


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The End


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Chinese Overseas Development Assistance in the Philippines


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Chinese Foreign and ODA Policy Linkages

Major Sea-Lanes Transiting Southeast Asia Chinas GDP has

grown four times since 1978, making China the worlds sixth

largest economy by some measures. China is now the worlds

second largest importer of oil. Ninety percent (90%) of Chinas

imported oil is estimated to come by sea. In addition, China alsoconsumes half the worlds cement, a third of the worlds steel, a

quarter of the worlds copper, and a fifth of the worlds aluminum.

South China Sea Dispute the South China Sea, this vast body ofwater is an abundant source of aquatic resources and is thought tohold extensive oil resources. Earlier reports have estimatedreserves to hold 100 billion barrels of oil and 25 billion cubicmeters of natural gas in the region around the Spratly Islands.(Vaughn, Bruce and Morrison, Wayne M; China-Southeast AsiaRelations: Trends, Issues, and Implications for the United States;

Congressional Research Service The Library of Congress; OrderCode RL32688; Updated April 4, 2006)

Soft Diplomacy Policy Approach with ODA Financing: The 15thAnnual ODA Portfolio Review of the National Economic andDevelopment Authority reported that China is funding threeprojects worth $459.99 million as of December 2006. While still farbehind traditional leading donors, China is increasingly becomingone of the important foreign sources of development funds in thecountry. Last year it accounted for 5 % of total ODA loan

commitments of $9.51 billion, ranking fifth behind Japan, the AsianDevelopment Bank (ADB), the World Bank and the UnitedKingdom.

Spratly Island Joint Marine Seismic Undertaking


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Spratly Island Joint Marine Seismic Undertaking

and the North Luzon Railways Project

The Joint Marine Seismic Undertaking (JMSU)refers survey for oil in the Spratly Islands as

signed last March 14, 2005 by the PNOCExploration Corporation (PNOC-EC), ChinaNational Offshore Oil Corporation (CNOOC) andVietnam Oil and Gas Corporation(PetroVietnam).

The JMSU covers an area of 142,886kilometers west of Palawan.

The first phase was between September 1 toNovember 16, 2005 covering 11,000 linekilometers. The Chinese seismic vessel M/VNan Hai 502 conducted the survey. Datagathered from the first phase of the survey wasprocessed in Vietnam. Data interpretation wasdone in Manila by the PNOC-EC.

The second phase of seismic acquisition,

covering 11,800 kilometers, started October2007. It was supposed to be completed January2008.

A condition for the finalization of the NorthLuzon Railway Project is the finalization of theJMSU.

The Geology and Mineral Resources Ministry of thePeople's Republic of China (PRC) has estimated that theSpratly area holds oil and natural gas reserves of 17.7billion tons (1.60 1010 kg), as compared to the 13billion tons (1.17 1010 kg) held by Kuwait, placing it asthe fourth largest reserve bed in the world.

Chinese ODA administration Policy
http://en.wikipedia.org/wiki/Kuwaithttp://en.wikipedia.org/wiki/Kuwait


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Chinese ODA administration Policy

Chinese ODA Tied Loan program is modeled afterthe old Japanese ODA Tied Loan Model whereJapanese firms often came up with projects for Tied

Loan financing, it takes the project to a RecipientCountry which would then request it from theJapanese Govcernment as a Donor Country. If theJapanese government agreed, it would ask thosesame firms to implement the project.

It is not clear that such a tight system yet exists inChina but they may be moving toward such a

system. In the first several decades of its aid-giving,the Japanese government used its assistance tosecure needed raw materials imports, promote itsexports, strengthen its business sector and ensurefriendly relations with countries whose products andmarkets were potentially important to the Japaneseeconomy. China appears to be moving in the samedirection. However, the Japanese never actually

located their aid program in their Ministry ofEconomy, Trade and Industry, although untilrecently, that ministry had a considerable say over

Japans aid.

East Asia Pacific Sub-Saharan Africa and Philippines Statistics


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East Asia Pacific, Sub-Saharan Africa and Philippines Statistics

Peoples Republic of China foreign policy

is consistent with the theory of defensiverealism. China is trying to secure its Asian

sphere of influence and acquire what itsees fit as necessary to defend adeveloping nation.

Freed from threatening Russian forces tothe north and Soviet client Vietnam to thesouth, China is expanding its strategic

reach by claiming rights over the wholeSouth China Sea and increasing itsinfluence in Southeast Asia. China isdemanding a free hand in East Asia fromother powers in South East Asia.

Chinas foreign policy motives in Afraica:Oil, commercial outlet for Chinese goodsand diplomatic support.

Click on the indicator to view a

definition

2000 2005 2000 2005 2000 2005

Population, total 1.8 billion 1.9 billio n 668.9 millio n 752.6 millio n 75.8 millio n 83.1million

Population growth (annual %) 0.9 0.9 2.6 2.3 2 1.7

GDP (current US$) 1.7 trillion 3.0 trillion 341.7 billion 630.8 billion 75.9 billion 98.4 billion

GDP growth (annual %) 7.6 9 3.5 5.7 6 5

GDP per capita (current US$) 944.44 1,578.95 510.84 838.16 1,001.32 1,184.12

Time required to start a

business (days)

.. 55 .. 61.5 .. 48

Foreign direct investment, net

inflows (BoP, current US$)

45.1billion 96.9 billion 6.8 billion 16.6 billion 2.2 billion 1.1billion

Long-term debt (DOD, current

US$)

418.7 billion 400.2 billio n 172.7 billion 176.7 billio n 50.8 billio n 54.7 billion

Total debt service (% of

exports of goods, services

and income)

11.4 6.1 11.4 8.8 14.3 16.7

Official development

assistance and official aid(current US$)

8.6 billion 9.5 billio n 13.2 billion 32.6 billio n 575.2 millio n 561.8 millio n

Workers' remittances and

compensation of employees,

received (US$)

16.7 billion 45.0 billion 4.6 billion 8.8 billion 6.2 billion 13.6 billion

IMF Debt & Reserve Related

Indicator of External Vulnerability

(50% limit debt to GDP ratio)

24.63% 13.34% 50.54% 28.01% 66.93% 55.59%

East Asia

Pacific

Sub-Saharan

Africa

Philippines

People

Source: World Development Indicators database, April 2007

People

Economy

States and markets

Global links

People

Economy

States and markets

Documents

2011 October Oil and Gas Exploration Issues in the South China Sea Lessons for the Philippines From Oil & Gas Fiscal Regimes, Oil Wealth Development Policy September 2011 Toronto University