This paper was prepared by Atty. Ishak V. Mastura, LL. M. Petroleum Law and Policy (Centre for Energy, Petroleum and Mineral Law and Policy, University of Dundee, Scotland, U.K., 2007). Atty. Mastura is the Chief Operations Officer of IAG Development Consulting Inc. (IDCI), the business and development consulting firm of IAG. Visit www.idci.com.ph to learn more.

 

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INTRODUCTION

 

Mining  has a  long  history  in  the  Philippines  going  back  to  antiquity  when  its inhabitants mined for gold and other valuable minerals.  This Southeast Asian country comprises an  archipelago  of 7,100  islands  divided  into  three  geographic  regions,  Luzon,  Visayas  and  Mindanao.  The  country  has  rich mineral resources forming part of the “Pacific Rim of Fire”, which  is  so called because of the intense volcanic activity at  the  margins  of  the  tectonic  plates  and  is  well-known  for  epithermal  gold,  porphyry  copper-gold,  and  volcanic-hosted  massive  sulfide  deposits.”

 

Principal minerals found in the Philippines include gold, copper, nickel, chromite and manganese. The Philippines  has  reserves  of  about  7  billion  metric  tons  of  metallic  minerals  and  52  billion  metric  tons  of  non-metallic  minerals  making  it  among  the  countries  with  the  richest endowment in gold, copper and nickel.  Despite its  abundant  mineral  resources,  the  Philippines    never  realized its   full potential.  The  mining  regime  of  the  Philippines  follows  the  Regalian  Doctrine  in  which  all  mineral resources of the country are owned by the State.  Similar  to  other  countries  that  were  colonized,  its  past  colonial  experience under  Spain  and  then America has  given  the  Philippines  a  decidedly  nationalistic  view  of  the  exploitation  and development of its mineral resources so that the general rule in the mining regime of  the  country  is  that  the  exploitation  of  mineral  wealth  is  reserved  for  Filipinos.  Hence,  the  1987  Philippine  Constitution  limits  the  full  participation  of  foreigners  to  financial or technical assistance in large-scale mining projects.

 

In  1995,  in  an  effort  to  revitalize  the  mining  industry,  the  Philippine  government  enacted  a  new  mining  law.  The Philippine Mining Act of 1995 provides  for  mineral  tenure  and  mining  rights under  an  Exploration  Permit,  Mineral  Agreement  (i.e. Mineral  Production  Sharing,  Co-Production  and  Joint  Venture)  allowing  maximum 40%  foreign  equity,  and Financial  or  Technical  Assistance  Agreement  (FTAA)  for  100% foreign equity in mining.

 

PHILIPPINE MINING LAW

 

The  1987  Philippine  Constitution  states:  “All  lands  of  the  public  domain,  waters,  minerals,  coal,  petroleum,  and  other  minerals  oils,  all  forces  of  potential  energy,  fisheries,  forests  or  timber,  wildlife,  flora  and  fauna,  and  other  natural  resources  are  owned by the State.”  Unlike some other constitutional mining provisions that simply declare  only  general  mining  principles to  be  implemented  in mining statutes,  the Philippine Constitution  itself  specifies  that the State may directly undertake  mining activities or enter into co-production,  joint venture or production sharing agreements.  For  large-scale  mining,  the  government  has  the  option  under  the  Constitution  to  enter  into  financial or technical assistance agreements  with  100%  foreign-owned entities. In  case  a  mining  agreement or  FTAA is  obtained  right  from  the  start  of  mining  activity, the exploration right is already integrated  into the mining agreement similar to  the  unified  concession  of  Peru  where  a  single  license  provides  for  both exploration and mining rights.

 

MINERAL RIGHTS

 

Minerals are owned by the State in most countries.  There are three main ways used by governments in  granting  mineral exploration authorisation and mineral exploitation rights (the combination of which is the essence of mineral rights).  The first is based on  a  grant  of  title  to  the  minerals  a licensing  system  defined  by  a Mining Law and national  regulation.  Second, host governments  might  use  only  a  mining  agreement which  becomes  the  mining  law  that  governs  that  project.    Third, and  by  far  the  most  widespread  method,  is the  hybrid  system  in  which  the  mining  title  (and  national regulations) and mining agreement are used simultaneously or in turn.  The  difficulty  is  in  determining  exactly  the  nature  of  mineral  rights  granted  by  governments.    Agreements  and  structures  vary  so  that  it  is  difficult  to  determine  whether a specific contractual or regulatory arrangement is a concession, a license, or a  permit.  Sometimes these terms are used  interchangeably.  Having contractual form  does  not  in  itself  indicate  the  material  substance  of  the  mineral  rights  because  hybrid  forms  now  predominate.  Whether  mineral  rights  are  called  licenses,  permits,  leases,  concessions  or  contract  rights,  what  is  essential  is  that  the  nature  and  status of those  rights  are  determined  in  a  legal  act  that  is  binding  on  the  state  and  other  parties.

 

Types of Mineral Rights

 

Because  of  the  prevalence  of  the hybrid  approach  to  the  grant  of  mineral  rights  by  governments, myriad   labels   have   increasingly been   utilized   to   describe   these arrangements.  The  difficulty  with  labeling  mineral  rights  is  that  host  governments  may negotiate varying terms for agreements over time.  Having said that, among the most   common mineral   contracts   or   agreements granting  mineral   rights are concessions, production-sharing contracts,  joint  venture  contracts,  contracts  of  work,  service contracts and technical assistance contracts.

 

In   the   traditional   concession,   the   State’s   role   was   limited   to   granting the concessionaire access to large areas with exclusive  mining  rights  including  complete  control  over  the  disposition  of  mineral  resources,  in  exchange  for  a  production royalty.  In the Philippine context, a concession is described as follows:  “[T]he  concessionaire  makes  a  direct  equity  investment  for  the purpose  of  exploiting  a  particular  natural  resource  within  a  given  area. Thus,  the  concession  amounts  to  complete  control  by  the  concessionaire  over  the  country's  natural  resource,  for  it  is  given  exclusive and plenary rights to exploit a particular resource at the point  of  extraction.  In  consideration  for  the  right  to  exploit  a natural  resource,  the  concessionaire  either  pays  rent  or  royalty,  which is a fixed percentage of the gross proceeds.”

 

The  modern  concession  is  similar  to  what  is  described  above  but  a  more  complicated  fiscal regime consisting of taxes and royalty. The  joint  venture  is  a  participation  agreement  between  the  State  and  the  miner,  which may  be  an  equity  joint  venture  or  contractual  joint  venture.    In  equity  joint  ventures, the  State  participates  as  an  equity  partner  in  the  mining  venture  while  in  contractual  joint  ventures,  the  miner  is  limited  to  a  contractual  right  for  financial  compensation.  In production-sharing contracts, the State and the miner share in the production of the mining  venture  with  the  miner  shouldering  the  management,  the  expense and risk of exploration and the development and utilization  of  the  mineral  resources,  while being entitled to cost recovery and a profit from production. 

 

Service  contracts  are  akin  to  production  sharing  contracts  in  the  sense  that  the contractor  funds  all  the  capital  expenditures  and  operating  costs,  but  differ  with  the production sharing contract in that the contractor does not share in the production, but is  paid  a  fee  for  service  or  from  a  portion  of  the  value  of  production.    Service  contracts  may  be  interchanged  with  contracts of work, but one author argues that the distinction  between  the  two  is  that:    “In  a  contract  of  work,  the  contractor  works  independently  of  the  contracting  State  or  its  national  enterprise,  while  the  contractor  in  a  service  contract  undertakes  to  work  under  the  supervision  or  control  of  the  other  contracting party.”

 

In the Philippines context:  “A service contract is a contractual arrangement  for  engaging  in  the  exploitation  and  development  of  petroleum,  mineral,  energy,  land  and  other  natural  resources  by  which  a  government  or  its  agency,  or  a  private  person  granted  a  right  or  privilege  by  the  government  authorizes   the   other   party (service   contractor)   to   engage   or participate  in  the  exercise  of  such  right  or  the  enjoyment  of  the  privilege,   in   that   the   latter   provides   financial   or   technical resources,  undertakes  the  exploitation  or  production  of  a  given resource, or directly manages the productive enterprise, operations of   the   exploration   and   exploitation   of   the   resources   or   the disposition of marketing or resources.”

 

In  technical  assistance  agreements,  the  contractor  provides  technical  services  for  the  execution  of  a  project  for  a  specified  fee,  “without  any  ownership  in  any  form  in  the  production of the enterprise.” The structure of a technical assistance agreement has been  referred  as  the most  radical  departure  from  the  traditional  concession  since  it  completely relegates the miner from the status of owner to that of contractor.

 

MINERAL RIGHTS UNDER THE PHILIPPINE MINING LAW

 

The  mineral  rights  in  the  Philippines,  which  has  a  civil  law  system,  are  based  on  a  mining  agreement  with  the  basic  principles,  terms  and  conditions  of  the  agreement  provided by the mining law.  RA 7942 states that for purposes of mining operations, a mineral agreement may take the following forms – mineral production sharing agreement, co-production agreement or joint-venture agreement. 

 

FTAAs   are   excluded   from   the   enumeration   of authorized forms of mineral agreements.  However, the FTAA is  defined under  the  Mining  Act  as  a  contract  involving  financial  or  technical  assistance  for  large-scale  exploration,  development,  and  utilization  of  mineral  resources   In  essence,  it  is  a  mining  contract  allowing  100%  foreign  equity  in  mining  investments  in  the  country.  But  if  we  look  at  its  ordinary  meaning,  the  term  is  deceptive  and  diverges  from  the  accepted  usage  of  the  term “financial or technical assistance” in the natural resources industry. 

 

Because  of  its  nomenclature,  the  FTAA  has  caused  confusion  in  the  past  and continues to do so.  One recent magazine article described the FTAA as:  “Basically a concession  agreement,  the  FTAA  is  a  contract  involving  financial  or  technical assistance   for   large-scale   exploration,   development   and   utilization   of   mineral resources.   The  FTAA  provision  of  the  Mining  Act  allows  foreign  companies  to  have  full  control  of  mining  projects.”   The  Mining  Journal  remarked  about  the  Mining Act  when  it  was  first  passed  that:    “Most  importantly,  the  new  act  abolishes  the  leasehold  system  for  acquiring  mining  rights  and,  through  the  FTAA,  allows  100%  foreign  ownership  in  large-scale  mining  projects.  In  a  much  later  article  referring to FTAA, the Mining Journal  clarified  that:  “Under  the  revised  mining  law,  the  old  leasehold  system  has  been  replaced  with  a  service  contract  scheme  whereby  the  government  gives  a  qualified  contractor  the  exclusive  rights  to  conduct  exploration  and  develop  and  operate  a  mine  in  the  contract  area  for  25  years,  renewable  for  the  same period.”

 

In  the  case  of  the FTAA,  there  is  some  truth  to  the  claim  that  it  is  just  a  new  name  given  for  the  original  service  contracts,  which  was  the  means  of granting mineral rights  to  foreign  corporations  under  the  1973  Constitution.    As previously stated, the Philippine service contract was basically a version of the concession with production-sharing element.  An FTAA has a very large potential contract area of 81,000 hectares.    It has a long duration of up to fifty years.    The FTAA provides limited real property right over mineral resources.    As  written  in  the  Mining  Act,  there  is  even  no  clear  production  sharing  with  the  State. These are some characteristics which it shares   with   the concession.    But   the   State ownership   of   minerals,   the   heavy involvement  of  the  government  in  mining  operations,  the  reporting  requirements  and  the requirement of area relinquishment are characteristics of service contracts.  Hence, the  FTAA  is  actually  a  hybrid  system  just  like  the  Indonesian  Contract of Work.    Just  like  in  Indonesia, it can be said that the FTAA  allows  the  government  to  continue  claiming  control  and  supervision over the country’s mineral resources, while opening  the  door to foreign investments in its development.

 

MINING IN THE AUTONOMOUS REGION IN MUSLIM MINDANAO (ARMM)

 

While the ARMM has a lot of mineral potential according to the national geological maps, this has not been exploited because of its long history as a conflict -affected area.  The discussion above on the Philippine Mining Law and legal regime is relevant to the ARMM because for the most part mining in the Philippines is governed by the Constitution and the ARMM cannot deviate much (if at all) from the national laws implementing those Constitutional provisions on mining in the country, which have become entrenched as well in legal jurisprudence arising from cases filed in the Supreme Court.

 

According to the data from the ARMM Regional Board of Investments, mining and quarrying accounts for 18% of registered investments in the ARMM with agriculture consisting the bulk of registered investments at 40% followed by downstream and renewable energy investments at 24%.  

 

The biggest bone of contention in the ARMM legal framework for mining is what constitutes “strategic minerals” which issue arose of the 1996 GRP-MNLF Peace Agreement.  The ARMM for the most part has asserted that “strategic minerals” only refers to sources of “potential energy” and fossil fuels in accordance with a vague enumeration found in the expanded ARMM Organic Act (RA 9054).  National government has asserted at one time or another that it is the national government that ought to define what consists of “strategic minerals” to include metals and metallic minerals.  However, national government has not gone to the extent of cancelling Mineral Production Sharing Agreements (MPSA) that have been issued by the ARMM Department of Environment and Natural Resources.  The ARMM has not issued any new MPSAs from the first few that it issued particularly for nickel mining in Tawi-Tawi province. 

 

The issue on “strategic minerals” has affected even the issuance of Environmental Compliance Certificate for mining in Tawi-Tawi because the national Department of Environment and Natural Resources came out with Department Order No. 2012-7, classifying nickel as one of the strategic minerals within the national government’s purview.

 

This issue of “strategic minerals” has been done away with in the recently passed Bangsamoro Organic Law (BOL) by removing any distinctions regarding minerals but the BOL is now very explicit that mining and mineral resources in the Bangsamoro-ARMM are subject to the Constitution and national laws.  Hence, the Bangsamoro cannot pass any legislation in its parliament that would contravene the Philippine mining laws and legal regime.

 

The current ARMM government has also imposed the 5% regional wealth tax on gross sales provided by the ARMM Revenue Code on mining activities, which makes mining relatively more expensive in the ARMM than in other areas of the country.  Mining has significantly contributed to the regional government’s own sources of revenues so that taxes, fees and charges grew from P52.9 million or 8.1% of the total internally generated revenues in 2013 to P267.8 million in 2014 due to the higher collection of the regional wealth tax, which was raised from ½ of 1% to 5% of gross sales, so that taxes, fees and charges jumped four-fold in 2014, constituting 31.2% of the sources of revenues of the regional government. 

 

With the increase in national excise taxes for mining from 2% to 4% in the recent tax reform law of the national government and the 5% regional wealth tax, government take for mining in the ARMM is now 9% of gross sales, which is double that of what miners pay in other mining areas in the country. Whether this makes the region less attractive to mining investors really depends on a variety of factors depending on the particular mineral resources found in the region and the quality of mineral reserves. 

 

So far, the biggest and most active mining area in the ARMM is in the far flung Province of Tawi-Tawi, where the MPSA of “SR Languyan” in Languyan Municipality has spawned contractors for the mining of nickel ore, which are exported raw for processing in China. 

 

Recently, this year, 2018 the ARMM regional government initiated the enactment of the ARMM mining code entitled “An Act Providing for Responsible Mining of the Autonomous Region in Muslim Mindanao, and for Other Purposes” principally authored by Assemblyman Hannibal Tulawie of Sulu. The legislation is expected to be passed and signed into law before the end of this year, 2018.  As anticipated there is no significant deviation from the Philippine Mining Law except that the Regional Wealth Tax is now imposed in addition to the share of the ARMM regional government from the national taxes on mining.  The Regional Wealth Tax according to some quarters did not have legal basis and some have argued that the ARMM Revenue Code was not sufficient basis for its imposition on mining so this legislation is supposed to cure that perceived legal defect even though no one has actually questioned the tax in court. 

 

However, unlike in the national mining laws and legal regime, under the proposed ARMM mining law the grant of mining license in the ARMM must have the concurrence of the legislative branch of government, i.e. the Regional Legislative Assembly, and no longer the sole prerogative of the executive branch, i.e. the ARMM Regional Governor.  This concurrence by the legislative for mineral licenses will probably be carried over in the BOL because the structure of government under the BOL is parliamentary, wherein the executive and legislative branches are fused or joined.  This extra layer of consent from the legislative branch for mining to take place may both be a boon and a bane depending on whether mining becomes a significant economic activity and source of revenues for the regional government.

 

OVERVIEW OF THE PHIILIPPINE SERVICE CONTRACT

 

Presidential Decree (PD) 87 or “The Oil Exploration and Development Act of 1972” established the Service Contract regime for petroleum exploration and production in the country.  It was later amended in 1983 by PD 1857 providing for better incentives to contractors for deep water exploration and development.  In the Philippine Service Contract, service and technology are furnished by the contractor for which it shall be entitled to the stipulated fee while financing is provided by the government to which all petroleum produced shall belong, but where the government is unable to finance petroleum exploration operations and if the contractor shall furnish services, technology as well as financing, the proceeds of the sale of the petroleum produced under the contract shall be the source of funds for payment of the service fee and operating expenses due the contractor.[1]

 

Aside from the basic provisions of the law on limitation of cost recovery up to 70% of gross proceeds and profit sharing of profit oil of 60% for the government and 40% for the contractor, all the other terms and conditions of the contract are negotiable.  Current Service Contracts cover a seven-year exploration with the first two years of the work program devoted in conducting geological and geophysical studies and drilling of one exploration well.  In practice, the Philippine Service

 

OIL A CATALYST FOR PEACE OR SEEDS OF INTENSIFIED CONFLICT

 

The ARMM has some of the biggest untapped petroleum resources in the Philippines.  Two of the most highly prospective Petroleum Sedimentary Basins in the country lie within the territorial jurisdiction of the ARMM, i.e. the Sulu Sea Basin and the major portion of the Cotabato Basin.  According to the Philippine Department of Energy, the offshore Sulu Sea Basin has a potential 203 MMBOE, while the land-based Cotabato Basin has a potential 159 MMBOE with 29 BCF of gas already discovered.[2] 

 

The hydrocarbon prospectivity of the ARMM is borne out by the fact that in previous years three Service Contracts (SC) still at the exploration stage have been awarded by the Philippine government in the offshore Sulu Sea Basin in the waters surrounding the Sulu Archipelago.  SC 41 with an area of 4,820 square kilometers is operated by Australian company, Tap Oil.[3]  SC 64 with an area of 12,600 square kilometers is operated by Malaysian company, Ranhill Berhad.[4]  Perhaps the most intriguing is SC 56 operated by Malaysian-based Mitra Energy Ltd., wherein ExxonMobil signed a 50% farm-in agreement in the past.[5]

 

This vote of confidence by ExxonMobil has significant value considering that oil analyst Daniel Yergin calls it “no question, the gold standard, the company all others measure themselves against.”[6]  ExxonMobil is known for its penchant for long-range thinking and having a 10-year strategy and planning horizon, which bodes well for the Sulu Sea acreage.[7]  The Sulu Sea Basin overlaps the Sandakan Basin on the Malaysian side of the Sulu Sea and as one Mitra Energy Ltd. geologist said about SC 56 “the integration of well and seismic models in a robust analysis of the prospectivity of the SC 56 has led to the upgrading of the Sandakan Basin for deepwater exploration. The “elephants” are waiting to be tested.”[8] On the other hand, natural gas reserves or oil equivalent are said to be found in the geophysical terrain of the Cotabato Basin, the heart of which is the Liguasan Marsh and the Pulangi River Delta, and by virtue of anecdotal evidence and actual discovery of 29 BCF of gas, it is suggested that it is more gas prone rather than suitable for oil discovery.[9]

 

The ability of Moro insurgents to disrupt any oil-related activities has been proven when in June 1997 there was a reported kidnapping of 43 PNOC personnel conducting seismic survey in the Cotabato Basin, and although the MILF denied that the alleged kidnappers were their fighters they were said to have run to the MILF’s Camp Raja Muda provoking a military offensive on the camp.[10]  Earlier in February of that year, two employees of the PNOC were also kidnapped and released.  The activities of the PNOC in the Cotabato Basin were stopped altogether when President Estrada launched his “all-out war” against the MILF in 2000.  Even offshore oil sites are not immune to seaborne attacks.  The MILF has seaborne resources and it demonstrated its maritime capability in February 2000, when they attacked the vessel Our Lady Mediatrix, killing forty persons and wounding fifty.[11]

 

Hence, the Philippine Human Development Report 2005 realizes the key importance of the peace process with the MILF in resolving development and security issues in the country by concluding that:

 

“Addressing the root causes of rebellion in Mindanao would also address the root causes of terrorism there. The armed conflict on the Moro front had better evolve in this direction, for the sake of human security and human development in Mindanao and the rest of the Philippines. Of the three tracks constituting the current form of evolution of this conflict, the MILF track seems to be a linchpin of the broader Mindanao peace process and the legitimate fight in defense against terrorism. This is because this track is still evolving. In the MNLF track, the final peace agreement has encountered problems in implementation, some of which may be due to the inadequacy of the agreement itself. The third track, the nature of the terrorist problem with the Abu Sayyaf, does not partake of peace negotiations. The MILF track is the key link that merits priority.”[12]

 

For the international community, which has become increasingly concerned about the terrorist “black hole” in Mindanao, an International Crisis Group report likewise concluded that a peace agreement with the MILF providing for a genuine and fully implemented autonomy for the Moros is a sine qua non for winning the long-term war on terror in Mindanao.[13]

 

It follows that the key to the potential hydrocarbon bonanza in Mindanao is the completion of the Mindanao peace process as this will remove a lot of risks and uncertainty in their development. 

 

Can oil be that catalyst?

 

Oil can be a catalyst for peace since the Philippines also needs to develop the petroleum resources of the Bangsamoro to facilitate its economic growth which has not been high enough to cope with a growing population and high poverty levels plus natural and man-made disasters.  Out of its estimated oil consumption of 335,000 barrels of oil per day, the Philippines imports 312,000 barrels of oil per day.[14]  Unless alleviated, this high import dependence and high energy intensity of GDP and continuing high oil prices would be bound to undermine economic growth, increase inflation and weaken the balance of payments.[15]  If worse comes to worst in the coming years and oil prices stay or go higher, the Philippines would be prone to instability as opposition to rising fuel prices mounts.[16]  The Philippines is also highly indebted with debt at nearly two-thirds of GDP.  An infusion of export revenues from oil and gas and self-sufficiency in energy would surely assuage a lot of the country’s problems.

 

The experience of the Sudan peace process is salutary.  One Newsweek article about the role of oil in the peace settlement in Sudan said:

 

“According to a source familiar with Sudan’s long conflict, it is no accident that the government and its longtime enemy, the Southern People’s Liberation Army (SPLA), began serious peace talks about three years ago, when the oil bounty was becoming apparent.  Nor is it a surprise that negotiators for the two sides made an unexpected push to finish the deal late last year – when oil prices hovered near record highs of close to $50 a barrel.  ‘Oil has been the most important factor in the push for peace in the north-south deal’, says the source, an African diplomat long involved in the peace negotiations.”[17]

 

Another observer noted that “In the south, I think the existence of oil was a powerful force behind the settlement, because the government realized it couldn’t fully exploit the oil while the fighting was going on.”[18]  Most of the producing oilfields of Sudan are in the South so that they had been subject to steady SPLA attacks.  As the oil production and oil prices rose, it became an economic bonanza such that according to a Sudanese representative to the UN “Oil was a factor and a negotiating tool.  We knew there would be a great deal more to share in the future.”[19]  It is also mentioned that the Southern Sudan peace process was successful largely because of U.S. pressure.  “It’s because America and other countries need the oil,” according to the media source.[20]

 

Also in Darfur, Sudan, oil is seen to lubricate peace.  Observers are optimistic that the promise of large profits from oil could provide a reason for the Khartoum government, rebels and foreign governments to work towards peace.[21]  However, one observer warned that “There’s several rebel groups, dividing like cells….They don’t seem to have a very coherent and sophisticated view of what their demands are.  Oil could help them focus their demands or it could further fragment them.”[22]  Which sentiment I think is fair warning to the Moro rebel groups in Mindanao.  One recent opinion in the papers gave an unverified report that there is now an ongoing “turf war” in Mindanao among the Moros in the MILF, MNLF and ARMM government for access and control of mineral resources, not only in the Liguasan Marsh, but also in the Sulu Sea and other parts of Mindanao.[23]

 

Sadly, the general experience regarding the correlation between petroleum and conflict is negative.  Petroleum and the rents it generates are a central mechanism for prolonging violent conflict and only rarely as in Sudan a catalyst for resolution.[24]  One study provides that point-source resources or those which are concentrated in a small area far from the capital produce secession movements, while diffuse resources or those which are scattered over a larger area far from the capital produce “warlordism.”[25] 

 

In the case of the Bangsamoro areas, the probable petroleum resources are both point-source as in the Liguasan Marsh and diffuse as in the Sulu Sea but both far from the capital and hence we foresee the persistence of the phenomena of secession movements and “warlordism” (exemplified by small armed groups like the Abu Sayyaf and the political clans) co-existing. 

 

The bad news according to studies is that petroleum being an unlootable resource – that which cannot be easily appropriated by individuals or small groups such as diamonds – is more likely to ignite separatist conflicts, and exacerbate grievances over the distribution of resource wealth.[26]  Moreover, in cases where the resource is obstructuble such as petroleum traveling through a pipeline (except when oil is offshore), it provides rebel groups with unceasing flow of extortion opportunities.[27]  Anticipating that its resources being obstructuble are subject to holdups, governments tend to act preemptively by using terror and repression against local people.[28]

 

Hence in our case, where the MILF control the onshore Cotabato Basin, the development of petroleum resources therein without substantial work on the implementation of the twin 2013-2014 Comprehensive Agreement on the Bangsamoro/Framework Agreement on the Bangsamoro (CAB/FAB) peace agreement will likely exacerbate and prolong the conflict by providing means of extortion or financing for disgruntled insurgents but increased government repression can also be expected if there is petroleum development without an acceptable implementation of the peace agreements by various constituencies in Mindanao. 

 

In the Sulu Sea Basin, even though the petroleum resources are offshore, they straddle the border between the Philippines and Malaysia wherein small groups of saboteurs can crisscross the border to evade pursuit and hide in the numerous islands and islets in the area.  The Sulu Sea is notorious for the kidnap-for-ransom activities and piracy of the Abu Sayyaf wherein they were successful for a number of years in boarding vessels and kidnapping crew members.[29]  The sea has never deterred Moro insurgent activities, the Moros being a “maritime people” and renowned seafarers for centuries.  For much of the 1970s, 80s and 90s both the MNLF and MILF were linked to several attacks on maritime vessels.[30]

 

Another ominous research conducted on oil and violent conflict found that violent conflict was most likely to occur when:  a) oil revenues accounted for a substantial percentage of government income, b) oil fields are located in a region with a distinct ethnic or religious identity, c) the country had experienced ongoing unresolved conflicts within the past decade, d) economic destitution is pervasive in the region, and e) weak government and ineffective institutions are incapable of managing revenues.[31]  The Bangsamoro areas fit all the categories in the list except the first so there is more likelihood of continuing violent conflict in those areas in case oil is found.  But it also reinforces the strategic imperative of a genuine implementation of the CAB/FAB peace agreement with the MILF as the starting point of peace and development.    

 

A Nigerian Oil Scenario?

 

If the petroleum in the Bangsamoro areas is exploited without a deliberate and well-prepared effort of addressing security issues not only in the sense of physical security but also relating to governance and human security as provided for, among others, in the implementation of peace agreements with the MNLF and the MILF, a likely scenario is that – with warring political clans, rebel groups and militias, corrupt security forces, the presence of foreign terrorists, the proliferation of small arms, the prevailing culture of impunity and the possibilities of competition for illegal oil wealth through “bunkering” (i.e. theft of oil), as well as, opportunities for corruption of revenues it brings – oil will foster in the same “resource curse”,[32] poverty, misery and chaotic conditions found in the Niger Delta.[33] 

 

One caveat of what may happen in the Bangsamoro areas goes this way, “It is important to note that illegal oil bunkering is probably the most significant accelerator of conflict in the Niger Delta [and] one day’s worth of illegal oil bunkering in the Niger Delta will buy quality weapons for and sustain a group of 1,500 youths for two months.”[34]  A worse scenario that may also be replicated is an earlier communal uprising of the Ijaw tribe in Delta State in 2003 to demand self-determination and recompense for past grievances regarding oil, which killed scores of people and temporarily shut-off 40% of the country’s output.

Under the BOL, petroleum resources are supposed to be jointly awarded by the Bangsamoro government and the national government. But national laws and procedures of the national Department of Energy must be followed.  Under those national laws the national Department of Energy is the lead agency and the ultimate responsibility for signing of petroleum licenses rests with the President of the Philippines.

 

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[1] Dimagiba, V., “Service Contract Concepts in Energy”, The Philippine Law Journal, Vol. LVII, September 1982, pp. 321-322.

[2] Cotabato Basin at http://www.doe.gov.ph/petroleum/cotabato_basin.htm and Aberga, E., The Sulu Sea /East Palawan Basins Resource Assessment at http://www.ccop.or.th/ppm/document/PHWS1/Sulu%20Sea%20Resource%20Assessment.pdf

[3] Philippines to Hold Public Contracting Round on Oil Exploration, December 15, 2006 at http://www.rigzone.com/news/article.asp?a_id=39192

[4] Ranhill and Phil-Mal Awarded SC 64 in the Sulu Sea, December 05, 2006 at http://www.petroengineers.com/news/article.asp?a_id=38730

[5] ExxonMobil Inks Deepwater Deal Off the Philippine Islands, December 05, 2006 at http://www.petroengineers.com/news/article.asp?a_id=38822

[6] Contreras, J., “Multiple Personality”, Newsweek Special Edition Issues 2007, December 2006-February 2007, p. 36.

[7] Ibid, p. 36.

[8] De Silva, S., Sandakan Basin:  From Wildebeest to Zebra - Where are the Elephants?,  2006 AAPG International Conference, Perth, Australia, November 5-8, 2006 at http://aapg.confex.com/aapg/2006int/techprogram/A106444.htm. The richest oil and gas fields are categorized as “elephants” as opposed to “economic”, “large”, “big” or “giant” fields.

[9] Arnado, J. and Arnado, M.,  Casualties of Globalization, Economic Interest, War and Displacement along Ligawasan Marsh Philippine, Social Science Research Council’s Program on Global Security and Cooperation, Manila, November 2004, pp. 36-38.  The study states that:  “While the marsh residents do not have technical know-how on recognizing natural gas, their actual contacts with this fuel confirms the presence of natural gas.  Focus group discussions with residents reveal stories of people being able to produce fire by lighting up matches near the natural gas ‘pockets’.  In fact, some residents have rigged improvised pipes to the source and in this way have tapped the natural gas for their daily cooking.” Moreover, the same study says that PNOC Exploration Corporation gives an unverified estimate of potential reserves of up to 1.7 trillion cubic feet of natural gas in the Cotabato Basin.

[10] Gutierrez, E. and Guialal, A., “The Unfinished Jihad:  The Moro Islamic Liberation Front and Peace in Mindanao”, in Kristina Gaerlan and Mara Stankovitch (eds.), Rebels, Warlords and Ulama, A Reader on Muslim Separatism and the War in the Southern Philippines, Institute for Popular Democracy, Quezon City, 2000, pp. 268-270.

[11] Banlaoi, R., “Maritime Terrorism in Southeast Asia, The Abu Sayyaf Threat”, Naval War College Review, Autumn 2005, Vol. 58, No. 4.

[12] Supra note 14, p. 80

[13] Southern Philippines Backgrounder:  Terrorism and the Peace Process,  ICG Asia Report No. 80,  Singapore/Brussels, July 13, 2004, p. 26.

[14] CIA World Factbook Philippines at https://www.cia.gov/cia/publications/factbook/print/rp.html

[15] Donnelly, R., “Coping with dear oil”, Asia Today International, 2006, p. 20 at http://www.efic.gov.au/attachments/db/efi/110.pdf

[16] Ibid.

[17] Polier, A., “Sudan:  A Catalyst for Peace, Oil has played a major role in ending Sudan’s civil war”, Newsweek, February 21, 2005.

[18] Gidley, R., “Oil discovery adds new twist to Darfur tragedy”, Reuters AlertNet, June 15, 2005 at http://www.alertnet.org/thefacts/reliefresources/111885496661.htm

[19] Supra note 131.

[20] Supra note 132.

[21] Supra note 132.

[22] Supra note 132.

[23] Supra note 112.

[24] Gary, I. and Karl, T., Bottom of the Barrel, Africa’s Oil Boom and the Poor, Catholic Relief Services, June 2003, p. 24.

[25] Ross, M., “Oil, Drugs, and Diamonds:  The Varying Roles of Natural Resources in Civil War”, in Karen Ballentine and Jake Sherman (eds.), The Political Economy of Armed Conflict, Beyond Greed and Grievance, International Peace Academy, Lynne Rienner, London, 2003, pp. 53-54.

[26] Ibid, pp. 64-65.

[27] Ibid, p. 62.

[28] Ibid.

[29] Raymond, C., “Piracy in Southeast Asia:  New Trends, Issues and Responses”, Harvard Asia Quarterly, Vol. IX, No. 4, Fall 2005.

[30] Shie, R., Ports in a Storm?  The Nexus Between Counterterrorism, Counterproliferation, and Maritime Security in Southeast Asia, Issues & Insights Vol. 4 No. 4, Pacific Forum CSIS, Honolulu, July 2004, p. 11.

[31] Shankleman, J.  “The Role of Business in Peace Making:  A Case Study of the Oil Industry”, USIP Fellow Project Report, July 8, 2004 at http://www.usip.org/fellows/reports/2004/0708_shankleman.html

[32] Supra note 138, p. 21. “Negative development outcomes associated with petroleum and other minerals are known as ‘resource curse.’  Essentially, this refers to the inverse association between growth and natural resource abundance, especially minerals and oils.”

[33] See Rivers and Blood:  Guns, Oil and Power in Nigeria’s Rivers State, A Human Rights Watch Briefing Paper, February 2005.

[34] Mahtani, D., “Oil giant shell admits it fuels Nigeria violence”, The Sydney Morning Herald, June 14, 2004.