Rushed oil search by ‘MVP’ firm triggered hostile stance toward China

  • Reading time:11 mins read

IT was the rush by an “MVP” firm to implement its tight program to extract oil and gas in Recto Bank in 2011 that triggered a chain of events which, under President Aquino 3rd, resulted in making China the Philippines’ de facto foe. Aquino was well on the way to cutting off diplomatic and economic relations with China had President Duterte not come along and stopped that disastrous foreign-affairs stance.

By “MVP” I of course refer to Manuel V. Pangilinan, who has run the First Pacific conglomerate for decades for its main owner, the Indonesian Anthoni Salim. The group has very successfully, and skillfully, made the public believe that it is owned by Pangilinan that it is even referred to by business journalists as the “MVP group.”

The MVP firm is Forum Energy, acquired by the Salim group in 2008 through its Philex Mining’s PXP Energy Corp. Forum was given in 2010 authority to explore and drill for oil in a part of Recto Bank (known as “Reed Bank” internationally), called Service Contract 72.

Just a few weeks after Albert del Rosario assumed office as foreign affairs secretary in February 2011, Forum in March sent the ship MV Veritas Voyager to explore locations to sink appraisal wells. However, two patrol boats of China’s Marine Surveillance Force approached the ship and forced it to withdraw, telling it to stop its activities at Recto Bank, claiming it was under its jurisdiction as it was allegedly part of China’s Nansha Islands. For us, it is both part of the Kalayaan Island group that Marcos annexed in 1978 and within our 200-kilometer exclusive economic zone (EEZ), as defined in a law that President Arroyo asked to be enacted in 2009.

Recto Bank is important to them: The two as they appear in First Pacific 2018 report.

It was a colossal conflict-of-interest situation, unquestioned during Aquino’s entire administration, but which most probably resulted in its antagonistic stance towards China. How could del Rosario be objective in undertaking our relations with China when much of his socioeconomic status has been due to his directorships in, and business deals with, Salim firms? Other than Pangilinan, he is the only Filipino director in the conglomerate’s command and income center, the Hong Kong-based First Pacific Co. Ltd.

Stopped dead
Could he have been an objective foreign affairs secretary when a project of the Salim conglomerate that he is a member of, which would have made it a huge oil producer, was stopped dead in its tracks by China?

The question that intrigues me: Did del Rosario tell Pangilinan that it was all right for Voyager to explore at Reed Bank, in his familiar arrogant tone: “Of course, Recto Bank is ours, go ahead with your exploration.” Of course, if Forum had managed to do so, Philex shares — and those of the entire Salim conglomerate — would have gone through the roof.

It was after Voyager was shooed away from Recto Bank that the Aquino administration became very antagonistic with China.

Aquino totally reversed his predecessor Gloria Arroyo’s stance of seeking collaborative ways of exploring for oil at Reed Bank, given the sovereignty issues there. Rather than the Aquino-del Rosario’s obstinate what-is-ours-is-ours stand, Arroyo respected that others also claim what we think is ours.

She had agreed to a cooperative undertaking to determine the extent of oil in the Spratlys, which includes Recto Bank, through a so-called joint marine seismic undertaking signed in 2005. The agreement involved the Philippine National Oil Corp., the China National Offshore Oil Co. and Vietnam Oil and Gas Corp. Vietnam’s participation was significant as most scholars believe that its claim to the Spratlys is far superior to ours and China’s.

The Yellows and the Reds vehemently opposed the undertaking and filed a case at the Supreme Court, claiming it violated the Constitution that banned any joint exploration of Philippine territory. That suit forced Arroyo not to extend the agreement when it ended in 2008 — which became an opportunity for Salim’s Forum Energy to get government clearance for it to explore for oil in Recto Bank.

A US think tank* — linked to the Central Intelligence Agency — summarized the moves Aquino undertook in his hostile stance against China after the Recto Bank incident:

“Prompted by Chinese actions at Reed Bank, Aquino has promised an additional $255 million for the AFP on top of the 2011 defense budget. According to reports, the extra budgetary resources will come from royalties generated by the sale of gas from the offshore Malampaya field which lies close to Sampaguita but is not claimed by China. The AFP has asked that the extra money be used to purchase air defense radars, communication facilities, long-range patrol aircraft and fast patrol boats. As a priority, $700,000 has been allocated to upgrade the runway on Pag-asa.

“In addition to Aquino’s assurances of extra funding, the United States has promised to accelerate maritime capacity-building support for the AFP. This policy was first outlined by Deputy Assistant Secretary of Defense Robert Scher in 2009, in testimony before Congress on how Washington aimed to ‘prevent tensions in the South China Sea from developing into a threat to US interests.’

“In January, Assistant Secretary of State Kurt Campbell said he was examining ways the United States could help ‘increase the Philippines’ maritime capacity’ and a month later Admiral Willard promised that the Pacific Command would continue to cooperate with Manila in ‘safeguarding its territorial integrity and security.’ As part of these efforts, later this year the United States will transfer a refurbished 3,250-ton cutter to the Philippine Coast Guard.

“The vessel will be deployed to the Western Command area and will boost the Philippines’ monitoring and interdiction capabilities in the South China Sea. The United States also seems to have provided political support to the Aquino government in its dispute with the PRC. According to press reports, following the Reed Bank incident, US Secretary of State Hillary Clinton telephoned her Philippine counterpart, Albert del Rosario, to discuss how to improve maritime security in Asia.”

An analogy, which would give you an idea what these developments and statements meant: You and your neighbor are both claiming an adjacent land. He sends people to do soil analysis, which is normally a preliminary work for constructing a house there. You drive him off. Then you learn your relatively poor neighbor is not just seriously arming himself but got a richer resident to arm him and back him. What would you do?

BRP Gregorio del Pilar
That US cutter mentioned previously was of course the renamed BRP Gregorio del Pilar (which became a Navy ship and not a Coast Guard asset) that tried to arrest Chinese fishermen at Scarborough Shoal the following year. That was a huge boo-boo as it meant militarizing the dispute — “PH warship accosts helpless fishermen,” Chinese press howled — prompting the Chinese leadership to bear down on the shoal, and eventually fooling del Rosario to order our vessels to withdraw, in effect giving up Philippine sovereignty over it. That gave Aquino and del Rosario more reason to demonize China.

After the incident, Aquino publicly challenged China, blustering in his 2011 state of the nation address a few months later: Malinaw ang pahiwatig natin ngayon sa buong mundo: Ang sa Pilipinas ay sa Pilipinas. Kapag tumapak ka sa Recto Bank, para ka na ring tumapak sa Recto Avenue.” Aquino even telegraphed his government’s plans which would be implemented only two years later, purportedly because, as del Rosario would put, it is the “last resort against Chinese incursions into our territory: ”Pinag-aaralan na rin po natin ang pag-angat ng kaso sa West Philippine Sea sa international tribunal for the Law of the Sea.” That of course riled China which decrees that territorial disputes must be settled only bilaterally.

With those kinds of statements, Aquino closed off any possibility of win-win approaches to exploring and drilling for oil in the South China Sea. With that kind of belligerent stance, what do you think the Chinese leadership would do?

Ironically, it is the same Recto Bank where a Filipino fishing boat collided with — was rammed by, the Yellows are shouting — an alleged Chinese vessel, which incident they are struggling to turn into a casus belli against China, and at the same time pull down Duterte’s political support.

But that really is a small incident compared to the mammoth problem we face at Recto Bank, which is how to profit from its oil and gas — if ever it is conclusively proved that it exists there at commercial quantities — given the fact that we are probably the weakest militarily among the nations that claim it as theirs — China, Vietnam and Taiwan.

The Salim conglomerate though is optimistic, and was ecstatic over the ruling of the arbitral court in the suit that the Philippines filed against China, which del Rosario had pushed for and hailed as the country’s victory over a “bully.” In its 2018 annual report, First Pacific noted:

“On 12 July 2016, the Permanent Court of Arbitration made a favorable decision confirming that PXP’s service contracts, particularly SC 72, are within the Philippines’ EEZ. PXP, through Forum, will take guidance from the Philippine government in respect of any future activity in SC 72 and other areas covered by the court’s decision. Upon the lifting of the moratorium, Forum will have 20 months to drill two wells as part of its work commitment under SC 72.”

The conglomerate reported that it was on its way to finally undertake the oil exploration it rushed in 2011:

“In Manila on 13 February 2018, the Philippines and China held their second bilateral consultation meeting on their territorial dispute over the West Philippine Sea. The two countries have agreed to set up a special panel to discuss joint exploration for oil and gas in the disputed waters while sidestepping the question of sovereignty.

“On 20 November 2018, the Philippines and China signed a memorandum of understanding (“MOU”) on oil & gas development that will pave way for the two governments to create an intergovernmental steering committee. The committee will endeavor to agree on cooperation agreements within 12 months of the signing of the MOU.”

It looks to me that the recent Recto Bank incident will be used by the Yellows to stop such a cooperation. It may do well for Salim to tell his director del Rosario to shut up already.

*Story Ian, “China and the Philippines: Implications of the Reed Bank Incident,” China Brief, Vol. 11, Issue 8. May 6, 2011. The publication is a newsletter of the Jamestown Foundation, which was founded by a Soviet defector, and helped by CIA director William Casey.




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