ASEAN Beat | Politics | Southeast Asia

Why the Philippines Needs to Establish a Sovereign Wealth Fund

The country needs to ensure that its bounty of offshore wealth benefits the people, not just a privileged elite.

By Mark Manantan, Emerson M. Sanchez and Jayson S. Lamchek for
Why the Philippines Needs to Establish a Sovereign Wealth Fund

Anticorruption protesters take to the streets in the Philippine capital Manila on October 4, 2013.

Credit: Flickr/Freedom II Andres

The Filipino tycoon Dennis Uy, a top donor of President Rodrigo Duterte’s campaign and his family friend from childhood, earlier this year acquired almost half of the non-operating interest in the Malampaya gas fields, a strategic asset supplying 30 percent of the Philippines’ electricity. The acquisition is one of many businesses purchased and government contracts clinched by Uy under Duterte’s presidency.

Uy’s rapidly growing fortune contrasts with the apparent lack of a concrete plan to ensure that the country’s considerable offshore natural resource wealth improves the lives of the masses of the Filipino people, rather than just accruing to a privileged elite. The impending development of the Benham Rise, a vast underwater area rich in minerals that the United Nations determined in 2012 to be part of the Philippines, underscores the need for a comprehensive vision for managing and redistributing such wealth.

In countries as diverse as Norway and East Timor, revenues from natural resources are managed and invested by the state via sovereign wealth funds intended for the benefit of current and future citizens. In the Philippines, both China’s energy ambitions and a history of plunder of natural resource wealth by politicians and their close associates underline the importance of discussing the transparent and equitable management of Benham Rise.

Benham Rise, renamed the Philippine Rise by the government of the Philippines in 2017, was recognized in 2012 by the U.N. Commission on the Limits of the Continental Shelf as forming a part of the Philippines continental shelf. This confirmed that the Philippines had sovereign rights with regard to the exploration and exploitation of natural resources, potentially including methane hydrates (natural gas encrusted in ice) on the surface and subsoil of the Rise. The promise of enormous resources in the vast submarine formation, larger than the island of Luzon, could fuel the development of the Philippine economy. But it could also be squandered by short-sighted elites or mismanaged through lack of policies for avoiding the “resource curse,” the well-known paradox in which resource-rich countries perform worse economically than resource-starved countries.

China’s investment in deep sea mining has positioned the rising superpower as the industry’s current global leader. And it is the China-friendly government of Rodrigo Duterte which now gets to decide on whether to mine the Benham Rise. Policies that maximize benefits for Filipinos, and also take into consideration environmental concerns, will be essential for the wise management of the resources that lay beneath Benham Rise.

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Duterte has controversially partnered with China to conduct research and exploration in the Benham Rise. The Philippines has been actively conducting exploration in the area since 2004, mainly focused on bathymetric and hydrographic surveys, in addition to fisheries research led by the Department of Environment and Natural Resources and Department of Agriculture. In 2014 and 2016, two oceanographic research cruises were organized by the Department of Science and Technology and the Bureau of Fisheries and Aquatic Resources, with the participation of the University of the Philippines, De La Salle University, and Siliman University. Filipino researchers have also initiated cooperation with their counterparts in South Korea and Japan for an initial exploration of the seabed. For years, Chinese applications for marine scientific research in the Benham Rise have been rejected by the Philippine government for having failed to comply with Philippine government requirement that Filipino scientists accompany foreign researchers. This changed when Duterte announced that it was welcoming Chinese research expeditions as part of a series of agreements that strengthened the country’s relations with China.

Secrecy envelops the Duterte administration’s executive decisions over Chinese activities and potential investments in the Benham Rise. The idea of a joint seabed development in the Benham Rise between China and the Philippines was floated in 2018 but the agreement did not materialize. Relatedly, in 2018, China Telecom signaled its intention to install submarine cable lines to support the Philippine government’s National Broadband plan and free wi-fi project, raising national security concerns about China’s control of strategic Philippine assets. While pollsters affirm Duterte’s popularity, Filipinos also reportedly remain very wary of Beijing’s designs in the country.

Beyond the China element, there is also the problem with official plunder as it pertains to the Philippines’ first successful natural gas discovery, the Malampaya gas field, which lies to the west of the Palawan island. Since 2001, Malampaya has been operated by the oil giant Shell in partnership with Chevron and the state-owned Philippine National Oil Company. The government’s share, known as the Malampaya Fund, has been the subject of considerable scandal. In 2014, the Philippines’ Office of the Ombudsman dismissed 18 officials and employees of the provincial government of Palawan over the anomalous use of the province’s share in the fund, which was worth 2.57 billion pesos (around $53 million). Convicted Filipino racketeer Janet Napoles, the subject of the largest corruption investigation under the Benigno Aquino administration, has also dipped her snout into the Malampaya Fund. The fund was the source of the single biggest contract Napoles obtained from the government, worth some 900 million pesos ($18.6 million). How can we prevent this kind of resource plunder from happening in the case of the Benham Rise?

One possible answer is a sovereign wealth fund. If managed properly, these types of fund can help manage the proceeds of non-renewable natural resources in a way that avoids the most destructive impacts of political corruption. Touted internationally as a defense against the “resource curse,” the concept hasn’t yet taken root in wider public discussions in the Philippines. While a Senate bill proposed the establishment of a sovereign wealth fund in 2016, the proposal gathered dust and was not refiled after the 2018 Congressional elections. There are currently two Senate bills that aim to create a Benham Rise Development Authority, designed to coordinate policies and activities in line with the Philippines’ assertion of sovereignty over these resources, but they make no mention of creating such a fund. Government policy towards the Benham Rise could also be more convincingly sold as pro-Filipino rather than one-sidedly pro-Chinese if it incorporates a wider public discussion as to how its resources will be translated into concrete benefits for the people. With this in mind, Filipino leaders would do well to consider the idea of a sovereign wealth fund.

Mark Manantan is the founder and strategic director of Bryman Media.

Emerson M. Sanchez is a PhD candidate at the Centre for Deliberative Democracy and Global Governance at the University of Canberra. He has conducted research on natural resource politics, social movements, and peacebuilding in the Philippines.

Dr. Jayson S. Lamchek is honorary fellow at the Australian National University (ANU) College of Law and specializes in human rights in the Philippines and Indonesia.

All views expressed are entirely personal.