Anwar’s Dilemma Over Malaysia-China O&G Cooperation in South China Sea

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The maritime disputes between China and coastal states, including Malaysia, in the South China Sea (SCS) have been a flashpoint that has raised tensions over the years.

One solution proposed to resolve this has been joint development arrangements (JDA) between competing nations to exploit the vast energy resources in disputed waters, while shelving sovereignty claims to the distant future.

However, this option is controversial and a political minefield which Prime Minister Anwar Ibrahim will have to leverage all his political skills and capital to navigate safely through.

The territorial disputes in the SCS, which involve China, Taiwan, Brunei, Malaysia, the Philippines and Vietnam, are seemingly intractable, with the danger of it spiraling out of control into military conflict. It is further complicated by the US and its allies taking sides with competing states against its adversary China.

The disputes concern overlapping sovereignty claims over both land features and exclusive economic zones (EEZ), but more importantly it is a matter of who gets to exploit the oil and gas (O&G), and marine resources.

Under its nine-dash line policy unveiled since the 1940s, China claims 90% of the SCS, cutting into the EEZ of Asean states including Malaysia. It has taken action to press its claims by building artificial islands and military installations on it, as well as having its naval vessels patrol the disputed waters.

Case in point – China has sent its naval vessels to “monitor” Petroliam Nasional Bhd (Petronas) as it undertakes exploration activities within Malaysia’s EEZ, part of which China also claims.

Chinese coast guard vessels have been sighted near Petronas’ Kasawari gas development off Sarawak, which holds an estimated 3.2 trillion cubic feet (tcf) of gas reserves and which is slated to start production later this year.

It is expected to produce 900 million standard cubic feet per day (mmscfd) of gas and 3.5 million barrels of condensate per day. Kasawari certainly represents a bonanza for the nation.

Cooperation over conflict?

The idea of JD in the SCS is not exactly new as it has been suggested as a solution to the Spratly Islands disputes since the 1980s.

In fact, China was one of the earliest proponents of pursuing JD while shelving territorial disputes. Chinese leader Deng Xiaoping made his proposal for solving disputes over the Spratly Islands in 1986 and 1988 with leaders of the Philippines.

China and Vietnam agreed to conduct follow-up joint inspection in waters outside the Tonkin Gulf, according to a joint statement in November 2017. China and the Philippines signed the memorandum of understanding on Cooperation on Oil and Gas Development in November 2018.

In fact, China and the Philippines are slated to have joint O&G preparatory talks on exploration in the SCS, in Manila later this month.

So, is the JD approach with China a viable option for Malaysia?

Prime Minister Anwar Ibrahim appears amenable to this when he told parliament last month that Malaysia was “open to negotiations with China” about its concerns over energy activities carried out by Petronas in the contested area.

However, Perikatan Nasional chairman Muhyiddin Yassin subsequently slammed Anwar for his openness to negotiating with China over the SCS issue, adding it could “threaten the nation’s sovereignty”.

So, a JDA with China is a political hot potato that Anwar will have to deal with sooner or later.

Analysts say ‘No deal’

FMT Business reached out to analysts on this issue and the feedback was that JD was not in Malaysia’s best interest.

James Chin, professor of Asian studies at the University of Tasmania, said a JDA is politically unacceptable for the simple reason that the premise of having sovereignty is whether you can access the natural resources.

“By doing a JD, you are sort of recognising China has a stake indirectly and that is dangerous. The bottom-line is we cannot run away from the Chinese shadow, so, it is a question of getting Asean together,” he told FMT Business.

“However, China has been very successful in dividing the Asean nations as it refuses to negotiate on the nine-dash line with Asean collectively,” he said, noting China is only willing to conduct bilateral negotiations.

Universiti Malaya security and strategy analyst Collins Chong Yew Keat said a JDA would not work as China will carve the biggest pie for itself by leveraging on its far superior hard power and economic grip on these claimants.

“It will not be acceptable, even in the domestic political scene, as it will be seen as yet another move by Malaysia bowing to Chinese demands at the expense of our energy resources, and territorial integrity,” he told FMT Business.

He, however, acknowledged there are existing JDAs with companies from nations that have no direct claim on the disputed territories, such as Shell. “Joint exploration with an existing claimant is never the way to go.”

In the same vein, Bait al-Amanah foreign affairs head Fikry Rahman opines that Malaysia will not pursue a JDA with China since it will give it an advantage in the dispute over its nine-dash line claim, which Malaysia does not recognise.

The contrarian view

S. Rajaratnam School of International Studies adjunct senior fellow James M Dorsey has a different take on the JD option, adding “there’s nothing wrong with commercial partnerships that are mutually beneficial”.

However, he acknowledged the complications that could arise with joint development in a disputed area. “Various issues will arise such as which jurisdiction would the contract be under. Will it follow China’s law or Malaysia’s?

“If Malaysia were to negotiate a joint venture in disputed waters, and agree this is will be under Chinese law and jurisdiction, then that will be interpreted as a concession to the Chinese, and vice versa.”

Dorsey also said Malaysia doesn’t want to be seen to be choosing sides in the US-China rivalry, whilst China wants to get its way without escalating the conflict. “Making territorial concessions will be a difficult thing for Anwar to do, considering matters relating to territorial claims have significant opposition from the Malaysian public.”

FMT Business reached out to Petronas for its comment on JD in the SCS. However, the national oil company declined to comment.

JDA has basis in international law

While analysts and politicians may oppose it, JDA has been undertaken by various countries including even Malaysia over the decades.

The concept of JD first appeared in international law in the 1970s, and it may trace its international legal basis back as early as the 1958 Geneva Convention on Continental Shelf, according to an article in Asian Yearbook of International Law entitled ‘Joint Development in the South China Sea: Is the Time Ripe?’, published in 2016.

The concept of shared resources and cooperation in developing them are also reflected in the 1982 United Nations Convention on the Law of the Sea (UNCLOS), it added.

Today’s politicians forget that Malaysia has an open attitude toward JDAs. In 2005, China premier Wen Jiabao and Prime Minister Abdullah Ahmad Badawi signed a joint communiqué that stated both China and Malaysia welcome concrete cooperation in the SCS under guidelines of shelving the dispute for joint development.

In 2011, deputy foreign affairs minister A. Kohilan Pillay stated, “Joint development of natural resources [in the SCS] may be an interim measure that could be taken by countries with overlapping claims over the area”.

In 2013, Prime Minister Najib Razak called for the SCS claimants to jointly develop resources to avoid conflict, and prevent “extra-regional states” getting involved.

Malaysia has also carried out JDAs with neighbouring countries, such as the 1979/1990 Malaysia-Thailand JDA, and the 1992 Vietnam-Malaysia JDA.

In April 2021, Malaysia, via Petronas, signed an agreement with Brunei to jointly develop two offshore oilfields. The Gumusut-Kakap and Geronggong-Jagus East fields straddle the two countries’ maritime boundary.

So, while his opponents await for his next move, if Anwar opts for a JDA with China, he can point to the fact his predecessors were favourable to the idea and that Malaysia has cooperated with other nations to jointly develop energy resources.

Source: Free Malaysia Today