MANILA (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.

FILE PHOTO: Philippine President Rodrigo Duterte gestures during his fourth State of the Nation Address at the Philippine Congress in Quezon City, Metro Manila, Philippines July 22, 2019. REUTERS/Eloisa Lopez/File Photo

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.”

Chinese Foreign Ministry spokeswoman Hua Chunying did not give specifics at a briefing on Wednesday on the exchange between the presidents, but said Xi noted that cooperation would yield greater progress in exploiting the sea’s resources.

Hua said Duterte had expressed willingness to hasten maritime oil and gas exploration and development cooperation between China and the Philippines. With regard to some “specific situations,” working groups between the two sides would consult closely, she said.

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 recognize 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 militarized 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 the competing claims. Joint activity could be deemed as legitimizing 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.