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Philippines' Duterte says Xi offering gas deal if arbitration case ignored

Credit: REUTERS/Eloisa Lopez

Philippine President Rodrigo Duterte said his Chinese counterpart has offered Manila a controlling stake in a joint energy venture in the South China Sea, if it sets aside an international arbitral award that went against Beijing.

By Martin Petty

MANILA, Sept 11 (Reuters) - Philippine President Rodrigo Duterte said his Chinese counterpart has offered Manila a controlling stake in a joint energy venture in the South China Sea, if it sets aside an international arbitral award that went against Beijing.

Duterte said Chinese President Xi Jinping told him during their recent meeting that if he ignored the Permanent Court of Arbitration's 2016 ruling, China would agree to be the junior partner in a joint venture to develop gas deposits at the Reed Bank, located within Manila's Exclusive Economic Zone (EEZ).

"Set aside the arbitral ruling," Duterte was quoted as telling reporters late Tuesday in remarks provided by his office on Wednesday.

"Set aside your claim," he said, quoting Xi. "Then allow everybody connected with the Chinese companies. They want to explore. If there is something, they said, we will be gracious enough to give you 60%, only 40% will be theirs. That is the promise of Xi Jinping."

China's foreign ministry and its embassy in Manila did not immediately respond to requests for comment on Duterte's remarks.

The tribunal in The Hague clarified maritime boundaries and the Philippines' sovereign entitlements, and in doing so, invalidated China's claims to almost the entire South China Sea. China does not recognise the ruling.

Duterte has sought to befriend Xi, hoping to secure billions of dollars of investment, avoiding challenging China over its activities in the South China Sea, including its militarised artificial islands.

BIG SETBACK

Any agreement to forget the arbitral award and team up with China would be a major setback to other claimants, especially Vietnam and Malaysia, which like the Philippines have experienced repeated challenges from China's coastguard inside their EEZs.

The United States has called that bullying and coercion aimed at denying rivals' access to their energy assets.

Duterte did not say if he had agreed to Xi's offer, but said the part of the arbitral award that referred to the EEZ "we will ignore to come up with an economic activity".

The tribunal said the Philippines had legal rights to exploit gas deposits that China also claims at the Reed Bank, about 85 miles (140km) off the Philippine coast.

The Philippines only accessible gas resources at the Malampaya fields are set to run out by 2024.

A joint project with China has been talked about for decades, but has gone nowhere because of their competing claims. Joint activity could be deemed as legitimising the other side's claim, or even relinquishing sovereign rights.

Philippine Foreign Secretary Teodoro Locsin on Wednesday told news channel ANC that a preliminary agreement between China and the Philippines would avoid stating which country was entitled to the gas.

"It's very clear - no legal position is compromised if we enter into this agreement," Locsin said, adding that putting aside the arbitration case was immaterial, because an international court had already made its decision.

"It's final and binding," he added.

(Additional reporting by Ben Blanchard in BEIJING. Editing by Lincoln Feast.)

((martin.petty@tr.com; +63 2841 8937))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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