The present petition for mandamus and prohibition assails the constitutionality of Republic Act No. 7942,
[5]
otherwise known as the PHILIPPINE MINING ACT OF 1995, along with the
Implementing Rules and Regulations issued pursuant thereto, Department
of Environment and Natural Resources (DENR) Administrative Order 96-40,
and of the Financial and Technical Assistance Agreement (FTAA) entered
into on March 30, 1995 by the Republic of the Philippines and WMC
(Philippines), Inc. (WMCP), a corporation organized under Philippine
laws.
On July 25, 1987, then President Corazon C. Aquino issued Executive Order (E.O.) No. 279
[6] authorizing the DENR Secretary to
accept,
consider and evaluate proposals from foreign-owned corporations or
foreign investors for contracts or agreements involving either technical
or financial assistance for large-scale exploration, development, and
utilization of minerals, which, upon appropriate recommendation of the
Secretary, the President may execute with the foreign proponent. In
entering into such proposals, the President shall consider the real
contributions to the economic growth and general welfare of the country
that will be realized, as well as the development and use of local
scientific and technical resources that will be promoted by the proposed
contract or agreement. Until Congress shall determine otherwise,
large-scale mining, for purpose of this Section, shall mean those
proposals for contracts or agreements for mineral resources exploration,
development, and utilization involving a committed capital investment
in a single mining unit project of at least Fifty Million Dollars in
United States Currency (US $50,000,000.00).[7]
On
March 3, 1995, then President Fidel V. Ramos approved R.A. No. 7942 to
“govern the exploration, development, utilization and processing of all
mineral resources.”
[8] R.A. No. 7942 defines the modes of mineral agreements for mining operations,
[9] outlines the procedure for their filing and approval,
[10] assignment/transfer
[11] and withdrawal,
[12] and fixes their terms.
[13] Similar provisions govern financial or technical assistance agreements.
[14]
The law prescribes the qualifications of contractors
[15] and grants them certain rights, including timber,
[16] water
[17] and easement
[18] rights, and the right to possess explosives.
[19]
Surface owners, occupants, or concessionaires are forbidden from
preventing holders of mining rights from entering private lands and
concession areas.
[20] A procedure for the settlement of conflicts is likewise provided for.
[21]
The Act restricts the conditions for exploration,
[22] quarry
[23] and other
[24] permits. It regulates the transport, sale and processing of minerals,
[25] and promotes the development of mining communities, science and mining technology,
[26] and safety and environmental protection.
[27]
The government’s share in the agreements is spelled out and allocated,
[28] taxes and fees are imposed,
[29] incentives granted.
[30] Aside from penalizing certain acts,
[31] the law likewise specifies grounds for the cancellation, revocation and termination of agreements and permits.
[32]
On April 9, 1995, 30 days following its publication on March 10, 1995 in
Malaya and
Manila Times, two newspapers of general circulation, R.A. No. 7942 took effect.
[33]
Shortly
before the effectivity of R.A. No. 7942,
however, or on March 30, 1995, the President entered into an FTAA with
WMCP covering 99,387 hectares of land in South Cotabato, Sultan Kudarat,
Davao del Sur and North Cotabato.
[34]
On
August 15, 1995, then DENR Secretary Victor O. Ramos issued DENR
Administrative Order (DAO) No. 95-23, s. 1995, otherwise known as the
Implementing Rules and Regulations of R.A. No. 7942. This was later
repealed by DAO No. 96-40, s. 1996 which was adopted on December 20,
1996.
On January 10, 1997, counsels for petitioners sent a letter
to the DENR Secretary demanding that the DENR stop the implementation
of R.A. No. 7942 and DAO No. 96-40,
[35] giving the DENR fifteen days from receipt
[36] to act thereon. The DENR, however, has yet to respond or act on petitioners’ letter.
[37]
Petitioners
thus filed the present petition for prohibition and mandamus, with a
prayer for a temporary restraining order. They allege that at the time
of the filing of the petition, 100 FTAA applications had already been
filed, covering an area of 8.4 million hectares,
[38]
64 of which applications are by fully foreign-owned corporations
covering a total of 5.8 million hectares, and at least one by a fully
foreign-owned mining company over offshore areas.
[39]
Petitioners claim that the DENR Secretary acted without or in excess of jurisdiction:
I
x
x x in signing and promulgating DENR Administrative Order No. 96-40
implementing Republic Act No. 7942, the latter being unconstitutional in
that it allows fully foreign owned corporations to explore, develop,
utilize and exploit mineral resources in a manner contrary to Section 2,
paragraph 4, Article XII of the Constitution;
II
x
x x in signing and promulgating DENR Administrative Order No. 96-40
implementing Republic Act No. 7942, the latter being unconstitutional in
that it allows the taking of private property without the determination
of public use and for just compensation;
III
x
x x in signing and promulgating DENR Administrative Order No. 96-40
implementing Republic Act No. 7942, the latter being unconstitutional in
that it violates Sec. 1, Art. III of the Constitution;
IV
x
x x in signing and promulgating DENR Administrative Order No. 96-40
implementing Republic Act No. 7942, the latter being unconstitutional in
that it allows enjoyment by foreign citizens as well as fully foreign
owned corporations of the nation’s marine wealth contrary to Section 2,
paragraph 2 of Article XII of the Constitution;
V
x
x x in signing and promulgating DENR Administrative Order No. 96-40
implementing Republic Act No. 7942, the latter being unconstitutional in
that it allows priority to foreign and fully foreign owned corporations
in the exploration, development and utilization of mineral resources
contrary to Article XII of the Constitution;
VI
x
x x in signing and promulgating DENR Administrative Order No. 96-40
implementing Republic Act No. 7942, the latter being unconstitutional in
that it allows the inequitable sharing of wealth contrary to Sections
[sic] 1, paragraph 1, and Section 2, paragraph 4[,] [Article XII] of the
Constitution;
VII
x x x in recommending
approval of and implementing the Financial and Technical Assistance
Agreement between the President of the Republic of the Philippines and
Western Mining Corporation Philippines Inc. because the same is illegal
and unconstitutional.[40]
They pray that the Court issue an order:
(a) Permanently enjoining respondents from acting on any application for Financial or Technical Assistance Agreements;
(b) Declaring the Philippine Mining Act of 1995 or Republic Act No. 7942 as unconstitutional and null and void;
(c)
Declaring the Implementing Rules and Regulations of the Philippine
Mining Act contained in DENR Administrative Order No. 96-40 and all
other similar administrative issuances as unconstitutional and null and
void; and
(d) Cancelling the Financial and Technical Assistance
Agreement issued to Western Mining Philippines, Inc. as
unconstitutional, illegal and null and void.[41]
Impleaded
as public respondents are Ruben Torres, the then Executive Secretary,
Victor O. Ramos, the then DENR Secretary, and Horacio Ramos, Director of
the Mines and Geosciences Bureau of the DENR. Also impleaded is
private respondent WMCP, which entered into the assailed FTAA with the
Philippine Government.
WMCP is owned by WMC Resources International
Pty., Ltd. (WMC), “a wholly owned subsidiary of Western Mining
Corporation Holdings Limited, a publicly listed major Australian mining and exploration company.”
[42] By WMCP’s information, “it is a 100% owned subsidiary of WMC LIMITED.”
[43]
Respondents,
aside from meeting petitioners’ contentions, argue that the requisites
for judicial inquiry have not been met and that the petition does not
comply with the criteria for prohibition and mandamus. Additionally,
respondent WMCP argues that there has been a violation of the rule on
hierarchy of courts.
After petitioners filed their reply, this
Court granted due course to the petition. The parties have since filed
their respective memoranda.
WMCP subsequently filed a
Manifestation dated September 25, 2002 alleging that on January 23,
2001, WMC sold all its shares in WMCP to Sagittarius Mines, Inc.
(Sagittarius), a corporation organized under Philippine laws.
[44] WMCP was subsequently renamed “Tampakan Mineral Resources Corporation.”
[45]
WMCP claims that at least 60% of the equity of Sagittarius is owned by
Filipinos and/or Filipino-owned corporations while about 40% is owned by
Indophil Resources NL, an Australian company.
[46] It further claims that by such sale and transfer of shares, “WMCP has ceased to be connected in any way with WMC.”
[47]
By virtue of such sale and transfer, the DENR Secretary, by Order of December 18, 2001,
[48]
approved the transfer and registration of the subject FTAA from WMCP to
Sagittarius. Said Order, however, was appealed by Lepanto Consolidated
Mining Co. (Lepanto) to the Office of the President which upheld it by
Decision of July 23, 2002.
[49] Its motion for reconsideration having been denied by the Office of the President by Resolution of November 12, 2002,
[50] Lepanto filed a petition for review
[51]
before the Court of Appeals. Incidentally, two other petitions for
review related to the approval of the transfer and registration of the
FTAA to Sagittarius were recently resolved by this Court.
[52]
It
bears stressing that this case has not been rendered moot either by the
transfer and registration of the FTAA to a Filipino-owned corporation
or by the non-issuance of a temporary restraining order or a preliminary
injunction to stay the above-said July 23, 2002 decision of the Office
of the President.
[53] The
validity of the transfer remains in dispute and awaits final judicial
determination. This assumes, of course, that such transfer cures the
FTAA’s alleged unconstitutionality, on which question judgment is
reserved.
WMCP also points out that the original claimowners of
the major mineralized areas included in the WMCP FTAA, namely,
Sagittarius, Tampakan Mining Corporation, and Southcot Mining
Corporation, are all Filipino-owned corporations,
[54]
each of which was a holder of an approved Mineral Production Sharing
Agreement awarded in 1994, albeit their respective mineral claims were
subsumed in the WMCP FTAA;
[55]
and that these three companies are the same companies that consolidated
their interests in Sagittarius to whom WMC sold its 100% equity in
WMCP.
[56] WMCP concludes that
in the event that the FTAA is invalidated, the MPSAs of the three
corporations would be revived and the mineral claims would revert to
their original claimants.
[57]
These
circumstances, while informative, are hardly significant in the
resolution of this case, it involving the validity of the FTAA, not the
possible consequences of its invalidation.
Of the
above-enumerated seven grounds cited by petitioners, as will be shown
later, only the first and the last need be delved into; in the latter,
the discussion shall dwell only insofar as it questions the effectivity
of E. O. No. 279 by virtue of which order the questioned FTAA was
forged.
I
Before going into the substantive issues, the procedural questions posed by respondents shall first be tackled.
REQUISITES FOR JUDICIAL REVIEW
When
an issue of constitutionality is raised, this Court can exercise its
power of judicial review only if the following requisites are present:
(1) The existence of an actual and appropriate case;
(2) A personal and substantial interest of the party raising the constitutional question;
(3) The exercise of judicial review is pleaded at the earliest opportunity; and
(4) The constitutional question is the
lis mota of the case.
[58]
Respondents claim that the first three requisites are not present.
Section
1, Article VIII of the Constitution states that “(j)udicial power
includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and
enforceable.” The power of judicial review, therefore, is limited to the
determination of actual cases and controversies.
[59]
An
actual case or controversy means an existing case or controversy that
is appropriate or ripe for determination, not conjectural or
anticipatory,
[60] lest the decision of the court would amount to an advisory opinion.
[61] The power does not extend to hypothetical questions
[62]
since any attempt at abstraction could only lead to dialectics and
barren legal questions and to sterile conclusions unrelated to
actualities.
[63]
“Legal standing” or
locus standi
has been defined as a personal and substantial interest in the case
such that the party has sustained or will sustain direct injury as a
result of the governmental act that is being challenged,
[64] alleging more than a generalized grievance.
[65]
The gist of the question of standing is whether a party alleges “such
personal stake in the outcome of the controversy as to assure that
concrete adverseness which sharpens the presentation of issues upon
which the court depends for illumination of difficult constitutional
questions.”
[66] Unless a
person is injuriously affected in any of his constitutional rights by
the operation of statute or ordinance, he has no standing.
[67]
Petitioners
traverse a wide range of sectors. Among them are La Bugal B’laan
Tribal Association, Inc., a farmers and indigenous people’s cooperative
organized under Philippine laws representing a community actually
affected by the mining activities of WMCP, members of said cooperative,
[68] as well as other residents of areas also affected by the mining activities of WMCP.
[69]
These petitioners have standing to raise the constitutionality of the
questioned FTAA as they allege a personal and substantial injury. They
claim that they would suffer “irremediable displacement”
[70]
as a result of the implementation of the FTAA allowing WMCP to conduct
mining activities in their area of residence. They thus meet the
appropriate case requirement as they assert an interest adverse to that
of respondents who, on the other hand, insist on the FTAA’s validity.
In view of the alleged impending injury, petitioners also have standing to assail the validity of
E.O. No. 279, by authority of which the FTAA was executed.
Public
respondents maintain that petitioners, being strangers to the FTAA,
cannot sue either or both contracting parties to annul it.
[71] In other words, they contend that petitioners are not real parties in interest in an action for the annulment of contract.
Public
respondents’ contention fails. The present action is not merely one
for annulment of contract but for prohibition and mandamus. Petitioners
allege that public respondents acted without or in excess of
jurisdiction in implementing the FTAA, which they submit is
unconstitutional. As the case involves constitutional questions, this
Court is not concerned with whether petitioners are real parties in
interest, but with whether they have legal standing. As held in
Kilosbayan v. Morato:
[72]
x
x x. “It is important to note . . . that standing because of its
constitutional and public policy underpinnings, is very different from
questions relating to whether a particular plaintiff is the real party
in interest or has capacity to sue. Although all three requirements are
directed towards ensuring that only certain parties can maintain an
action, standing restrictions require a partial consideration of the
merits, as well as broader policy concerns relating to the proper role
of the judiciary in certain areas.[”] (FRIEDENTHAL, KANE AND MILLER,
CIVIL PROCEDURE 328 [1985])
Standing is a special concern in
constitutional law because in some cases suits are brought not by
parties who have been personally injured by the operation of a law or by
official action taken, but by concerned citizens, taxpayers or voters
who actually sue in the public interest. Hence, the question in
standing is whether such parties have “alleged such a personal stake in
the outcome of the controversy as to assure that concrete adverseness
which sharpens the presentation of issues upon which the court so
largely depends for illumination of difficult constitutional
questions.” (Baker v. Carr, 369 U.S. 186, 7 L.Ed.2d 633 [1962].)
As earlier stated, petitioners meet this requirement.
The challenge against the constitutionality of
R.A. No. 7942 and DAO No. 96-40
likewise fulfills the requisites of justiciability. Although these
laws were not in force when the subject FTAA was entered into, the
question as to their validity is ripe for adjudication.
The WMCP FTAA provides:
14.3 Future Legislation
Any
term and condition more favourable to Financial &Technical
Assistance Agreement contractors resulting from repeal or amendment of
any existing law or regulation or from the enactment of a law,
regulation or administrative order shall be considered a part of this
Agreement.
It is undisputed that R.A. No. 7942 and
DAO No. 96-40 contain provisions that are more favorable to WMCP,
hence, these laws, to the extent that they are favorable to WMCP, govern
the FTAA.
In addition, R.A. No. 7942 explicitly makes certain provisions apply to pre-existing agreements.
SEC. 112. Non-impairment of Existing Mining/Quarrying Rights.
– x x x That the provisions of Chapter XIV on government share in
mineral production-sharing agreement and of Chapter XVI on incentives of
this Act shall immediately govern and apply to a mining lessee or
contractor unless the mining lessee or contractor indicates his
intention to the secretary, in writing, not to avail of said provisions x
x x Provided, finally, That such leases, production-sharing
agreements, financial or technical assistance agreements shall comply
with the applicable provisions of this Act and its implementing rules
and regulations.
As there is no suggestion that WMCP has
indicated its intention not to avail of the provisions of Chapter XVI
of R.A. No. 7942, it can safely be presumed that they apply to the WMCP
FTAA.
Misconstruing the application of the third requisite for
judicial review – that the exercise of the review is pleaded at the
earliest opportunity – WMCP points out that the petition was filed only
almost two years after the execution of the FTAA, hence, not raised at
the earliest opportunity.
The third requisite should not be taken
to mean that the question of constitutionality must be raised
immediately after the execution of the state action complained of. That
the question of constitutionality has not been raised before is not a
valid reason for refusing to allow it to be raised later.
[73]
A contrary rule would mean that a law, otherwise unconstitutional,
would lapse into constitutionality by the mere failure of the proper
party to promptly file a case to challenge the same.
PROPRIETY OF PROHIBITION
AND MANDAMUS
Before the effectivity in July 1997 of the Revised Rules of Civil Procedure, Section 2 of Rule 65 read:
SEC. 2. Petition for prohibition.
– When the proceedings of any tribunal, corporation, board, or person,
whether exercising functions judicial or ministerial, are without or in
excess of its or his jurisdiction, or with grave abuse of discretion,
and there is no appeal or any other plain, speedy, and adequate remedy
in the ordinary course of law, a person aggrieved thereby may file a
verified petition in the proper court alleging the facts with certainty
and praying that judgment be rendered commanding the defendant to desist
from further proceeding in the action or matter specified therein.
Prohibition is a preventive remedy.
[74] It seeks a judgment ordering the defendant to desist from continuing with the commission of an act perceived to be illegal.
[75]
The petition for prohibition at bar is thus an appropriate remedy. While the execution of the contract itself may be
fait accompli,
its implementation is not. Public respondents, in behalf of the
Government, have obligations to fulfill under said contract.
Petitioners seek to prevent them from fulfilling such obligations on the
theory that the contract is unconstitutional and, therefore, void.
The
propriety of a petition for prohibition being upheld, discussion of the
propriety of the mandamus aspect of the petition is rendered
unnecessary.
HIERARCHY OF COURTS
The
contention that the filing of this petition violated the rule on
hierarchy of courts does not likewise lie. The rule has been explained
thus:
Between two courts of concurrent original
jurisdiction, it is the lower court that should initially pass upon the
issues of a case. That way, as a particular case goes through the
hierarchy of courts, it is shorn of all but the important legal issues
or those of first impression, which are the proper subject of attention
of the appellate court. This is a procedural rule borne of experience
and adopted to improve the administration of justice.
This Court
has consistently enjoined litigants to respect the hierarchy of courts.
Although this Court has concurrent jurisdiction with the Regional Trial
Courts and the Court of Appeals to issue writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus
and injunction, such concurrence does not give a party unrestricted
freedom of choice of court forum. The resort to this Court’s primary
jurisdiction to issue said writs shall be allowed only where the redress
desired cannot be obtained in the appropriate courts or where exceptional and compelling circumstances justify such invocation. We held in People v. Cuaresma that:
A
becoming regard for judicial hierarchy most certainly indicates that
petitions for the issuance of extraordinary writs against first level
(“inferior”) courts should be filed with the Regional Trial Court, and
those against the latter, with the Court of Appeals. A direct
invocation of the Supreme Court’s original jurisdiction to issue these
writs should be allowed only where there are special and important
reasons therefor, clearly and specifically set out in the petition.
This is established policy. It is a policy necessary to prevent
inordinate demands upon the Court’s time and attention which are better
devoted to those matters within its exclusive jurisdiction, and to
prevent further over-crowding of the Court’s docket x x x.[76] [Emphasis supplied.]
The
repercussions of the issues in this case on the Philippine mining
industry, if not the national economy, as well as the novelty thereof,
constitute exceptional and compelling circumstances to justify resort to
this Court in the first instance.
In all events, this Court has
the discretion to take cognizance of a suit which does not satisfy the
requirements of an actual case or legal standing when paramount public
interest is involved.
[77] When the issues raised are of paramount importance to the public, this Court may brush aside technicalities of procedure.
[78]
II
Petitioners
contend that E.O. No. 279 did not take effect because its supposed date
of effectivity came after President Aquino had already lost her
legislative powers under the Provisional Constitution.
And they
likewise claim that the WMC FTAA, which was entered into pursuant to
E.O. No. 279, violates Section 2, Article XII of the Constitution
because, among other reasons:
(1) It allows foreign-owned
companies to extend more than mere financial or technical assistance to
the State in the exploitation, development, and utilization of minerals,
petroleum, and other mineral oils, and even permits foreign owned
companies to “
operate and manage mining activities.”
(2) It allows foreign-owned companies to extend both technical
and financial assistance, instead of “
either technical
or financial assistance.”
To
appreciate the import of these issues, a visit to the history of the
pertinent constitutional provision, the concepts contained therein, and
the laws enacted pursuant thereto, is in order.
Section 2, Article XII reads in full:
Sec.
2. All lands of the public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, fisheries,
forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural
lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be
under the full control and supervision of the State. The State may
directly undertake such activities or it may enter into co-production,
joint venture, or production-sharing agreements with Filipino citizens,
or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may be
provided by law. In cases of water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water
power, beneficial use may be the measure and limit of the grant.
The
State shall protect the nation’s marine wealth in its archipelagic
waters, territorial sea, and exclusive economic zone, and reserve its
use and enjoyment exclusively to Filipino citizens.
The Congress
may, by law, allow small-scale utilization of natural resources by
Filipino citizens, as well as cooperative fish farming, with priority to
subsistence fishermen and fish-workers in rivers, lakes, bays, and
lagoons.
The President may enter into agreements with
foreign-owned corporations involving either technical or financial
assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general
terms and conditions provided by law, based on real contributions to the
economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of local
scientific and technical resources.
The President shall
notify the Congress of every contract entered into in accordance with
this provision, within thirty days from its execution.
THE SPANISH REGIME
AND THE REGALIAN DOCTRINE
The first sentence of Section 2 embodies the
Regalian doctrine or
jura regalia. Introduced by Spain into these Islands, this feudal concept is based on the State’s power of
dominium, which is the capacity of the State to own or acquire property.
[79]
In its broad sense, the term “jura regalia”
refers to royal rights, or those rights which the King has by virtue of
his prerogatives. In Spanish law, it refers to a right which the
sovereign has over anything in which a subject has a right of property
or propriedad. These were rights enjoyed during feudal times by the king as the sovereign.
The
theory of the feudal system was that title to all lands was originally
held by the King, and while the use of lands was granted out to others
who were permitted to hold them under certain conditions, the King
theoretically retained the title. By fiction of law, the King was
regarded as the original proprietor of all lands, and the true and only
source of title, and from him all lands were held. The theory of jura regalia was therefore nothing more than a natural fruit of conquest.[80]
The Philippines having passed to Spain by virtue of discovery and conquest,
[81] earlier Spanish decrees declared that “all lands were held from the Crown.”
[82]
The
Regalian doctrine extends not only to land but also to “all natural wealth that may be found in the bowels of the earth.”
[83]
Spain, in particular, recognized the unique value of natural resources,
viewing them, especially minerals, as an abundant source of revenue to
finance its wars against other nations.
[84] Mining laws during the Spanish regime reflected this perspective.
[85]
THE AMERICAN OCCUPATION AND
THE CONCESSION REGIME
By the
Treaty of Paris of December 10, 1898,
Spain ceded “the archipelago known as the Philippine Islands” to the
United States. The Philippines was hence governed by means of organic
acts that were in the nature of charters serving as a Constitution of
the occupied territory from 1900 to 1935.
[86] Among the principal organic acts of the Philippines was the Act of Congress of July 1, 1902, more commonly known as the
Philippine Bill of 1902, through which the United States Congress assumed the administration of the Philippine Islands.
[87]
Section 20 of said Bill reserved the disposition of mineral lands of
the public domain from sale. Section 21 thereof allowed the free and
open exploration, occupation and purchase of mineral deposits not only
to citizens of the Philippine Islands but to those of the United States
as well:
Sec. 21. That all valuable mineral deposits in
public lands in the Philippine Islands, both surveyed and unsurveyed,
are hereby declared to be free and open to exploration, occupation and
purchase, and the land in which they are found, to occupation and
purchase, by citizens of the United States or of said Islands: Provided,
That when on any lands in said Islands entered and occupied as
agricultural lands under the provisions of this Act, but not patented,
mineral deposits have been found, the working of such mineral deposits
is forbidden until the person, association, or corporation who or which
has entered and is occupying such lands shall have paid to the
Government of said Islands such additional sum or sums as will make the
total amount paid for the mineral claim or claims in which said deposits
are located equal to the amount charged by the Government for the same
as mineral claims.
Unlike Spain, the United States
considered natural resources as a source of wealth for its nationals and
saw fit to allow both Filipino and American citizens to explore and
exploit minerals in public lands, and to grant patents to private
mineral lands.
[88] A person
who acquired ownership over a parcel of private mineral land pursuant to
the laws then prevailing could exclude other persons, even the State,
from exploiting minerals within his property.
[89] Thus, earlier jurisprudence
[90] held that:
A
valid and subsisting location of mineral land, made and kept up in
accordance with the provisions of the statutes of the United States, has
the effect of a grant by the United States of the present and exclusive
possession of the lands located, and this exclusive right of possession
and enjoyment continues during the entire life of the location. x x x.
x x x.
The
discovery of minerals in the ground by one who has a valid mineral
location perfects his claim and his location not only against third
persons, but also against the Government. x x x. [Italics in the original.]
The
Regalian doctrine and the American system, therefore, differ in one essential respect. Under the
Regalian theory, mineral rights are not included in a grant of land by the state; under the American
doctrine, mineral rights are included in a grant of land by the government.
[91]
Section 21 also made possible the concession (frequently styled “permit”, license” or “lease”)
[92] system.
[93]
This was the traditional regime imposed by the colonial administrators
for the exploitation of natural resources in the extractive sector
(petroleum, hard minerals, timber, etc.).
[94]
Under
the concession system, the concessionaire makes a direct equity
investment for the purpose of exploiting a particular natural resource
within a given area.
[95] 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.
[96]
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.
[97]
Later
statutory enactments by the legislative bodies set up in the
Philippines adopted the contractual framework of the concession.
[98] For instance, Act No. 2932,
[99]
approved on August 31, 1920, which provided for the exploration,
location, and lease of lands containing petroleum and other mineral oils
and gas in the Philippines, and Act No. 2719,
[100]
approved on May 14, 1917, which provided for the leasing and
development of coal lands in the Philippines, both utilized the
concession system.
[101]
THE 1935 CONSTITUTION AND THE
NATIONALIZATION OF NATURAL RESOURCES
By the Act of United States Congress of March 24, 1934, popularly known as the
Tydings-McDuffie Law, the People of the Philippine Islands were authorized to adopt a constitution.
[102]
On July 30, 1934, the Constitutional Convention met for the purpose of
drafting a constitution, and the Constitution subsequently drafted was
approved by the Convention on February 8, 1935.
[103] The Constitution was submitted to the President of the United States on March 18, 1935.
[104]
On March 23, 1935, the President of the United States certified that
the Constitution conformed substantially with the provisions of the Act
of Congress approved on March 24, 1934.
[105] On May 14, 1935, the Constitution was ratified by the Filipino people.
[106]
The 1935 Constitution adopted the
Regalian doctrine,
declaring all natural resources of the Philippines, including mineral
lands and minerals, to be property belonging to the State.
[107] As adopted in a republican system, the medieval concept of
jura regalia is stripped of royal overtones and ownership of the land is vested in the State.
[108]
Section 1, Article XIII, on Conservation and Utilization of Natural Resources, of the 1935 Constitution provided:
SECTION
1. All agricultural, timber, and mineral lands of the public domain,
waters, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, and other natural resources of the Philippines belong
to the State, and their disposition, exploitation, development, or
utilization shall be limited to citizens of the Philippines, or to
corporations or associations at least sixty per centum of the
capital of which is owned by such citizens, subject to any existing
right, grant, lease, or concession at the time of the inauguration of
the Government established under this Constitution. Natural resources,
with the exception of public agricultural land, shall not be alienated,
and no license, concession, or lease for the exploitation, development,
or utilization of any of the natural resources shall be granted for a
period exceeding twenty-five years, except as to water rights for
irrigation, water supply, fisheries, or industrial uses other than the
development of water power, in which cases beneficial use may be the
measure and the limit of the grant.
The nationalization
and conservation of the natural resources of the country was one of the
fixed and dominating objectives of the 1935 Constitutional Convention.
[109] One delegate relates:
There
was an overwhelming sentiment in the Convention in favor of the
principle of state ownership of natural resources and the adoption of
the Regalian doctrine.
State ownership of natural resources was seen as a necessary starting
point to secure recognition of the state’s power to control their
disposition, exploitation, development, or utilization. The delegates
of the Constitutional Convention very well knew that the concept of
State ownership of land and natural resources was introduced by the
Spaniards, however, they were not certain whether it was continued and
applied by the Americans. To remove all doubts, the Convention approved
the provision in the Constitution affirming the Regalian doctrine.
The adoption of the principle of state ownership of the natural resources and of the Regalian doctrine
was considered to be a necessary starting point for the plan of
nationalizing and conserving the natural resources of the country. For
with the establishment of the principle of state ownership of the
natural resources, it would not be hard to secure the recognition of the
power of the State to control their disposition, exploitation,
development or utilization.[110]
The
nationalization of the natural resources was intended (1) to insure
their conservation for Filipino posterity; (2) to serve as an instrument
of national defense, helping prevent the extension to the country of
foreign control through peaceful economic penetration; and (3) to avoid
making the Philippines a source of international conflicts with the
consequent danger to its internal security and independence.
[111]
The
same Section 1, Article XIII also adopted the concession system,
expressly permitting the State to grant licenses, concessions, or leases
for the exploitation, development, or utilization of any of the natural
resources. Grants, however, were limited to Filipinos or entities at
least 60% of the capital of which is owned by Filipinos.
The
swell of nationalism that suffused the 1935 Constitution was radically
diluted when on November 1946, the Parity Amendment, which came in the
form of an “Ordinance Appended to the Constitution,” was ratified in a
plebiscite.
[112] The Amendment
extended, from July 4, 1946 to July 3, 1974, the right to utilize and
exploit our natural resources to citizens of the United States and
business enterprises owned or controlled, directly or indirectly, by
citizens of the United States:
[113]
Notwithstanding
the provision of section one, Article Thirteen, and section eight,
Article Fourteen, of the foregoing Constitution, during the effectivity
of the Executive Agreement entered into by the President of the
Philippines with the President of the United States on the fourth of
July, nineteen hundred and forty-six, pursuant to the provisions of
Commonwealth Act Numbered Seven hundred and thirty-three, but in no case
to extend beyond the third of July, nineteen hundred and seventy-four,
the disposition, exploitation, development, and utilization of all
agricultural, timber, and mineral lands of the public domain, waters,
minerals, coals, petroleum, and other mineral oils, all forces and
sources of potential energy, and other natural resources of the
Philippines, and the operation of public utilities, shall, if open to
any person, be open to citizens of the United States and to all forms of
business enterprise owned or controlled, directly or indirectly, by
citizens of the United States in the same manner as to, and under the
same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the
Philippines.
The Parity Amendment was subsequently
modified by the 1954 Revised Trade Agreement, also known as the
Laurel-Langley Agreement, embodied in Republic Act No. 1355.
[114]
THE PETROLEUM ACT OF 1949
AND THE CONCESSION SYSTEM
In the meantime, Republic Act No. 387,
[115] also known as the Petroleum Act of 1949, was approved on June 18, 1949.
The
Petroleum Act of 1949 employed the concession system for the
exploitation of the nation’s petroleum resources. Among the kinds of
concessions it sanctioned were exploration and exploitation concessions,
which respectively granted to the concessionaire the exclusive right to
explore for
[116] or develop
[117] petroleum within specified areas.
Concessions may be granted only to duly qualified persons
[118]
who have sufficient finances, organization, resources, technical
competence, and skills necessary to conduct the operations to be
undertaken.
[119]
Nevertheless, the Government reserved the right to undertake such work itself.
[120]
This proceeded from the theory that all natural deposits or occurrences
of petroleum or natural gas in public and/or private lands in the
Philippines belong to the State.
[121]
Exploration and exploitation concessions did not confer upon the
concessionaire ownership over the petroleum lands and petroleum
deposits.
[122] However, they
did grant concessionaires the right to explore, develop, exploit, and
utilize them for the period and under the conditions determined by the
law.
[123]
Concessions
were granted at the complete risk of the concessionaire; the Government
did not guarantee the existence of petroleum or undertake, in any case,
title warranty.
[124]
Concessionaires
were required to submit information as maybe required by the Secretary
of Agriculture and Natural Resources, including reports of geological
and geophysical examinations, as well as production reports.
[125] Exploration
[126] and exploitation
[127] concessionaires were also required to submit work programs.
Exploitation concessionaires, in particular, were obliged to pay an annual exploitation tax,
[128]
the object of which is to induce the concessionaire to actually produce
petroleum, and not simply to sit on the concession without developing
or exploiting it.
[129] These
concessionaires were also bound to pay the Government royalty, which was
not less than 12½% of the petroleum produced and saved, less that
consumed in the operations of the concessionaire.
[130]
Under Article 66, R.A. No. 387, the exploitation tax may be credited
against the royalties so that if the concessionaire shall be actually
producing enough oil, it would not actually be paying the exploitation
tax.
[131]
Failure to pay the annual exploitation tax for two consecutive years,
[132] or the royalty due to the Government within one year from the date it becomes due,
[133]
constituted grounds for the cancellation of the concession. In case of
delay in the payment of the taxes or royalty imposed by the law or by
the concession, a surcharge of 1% per month is exacted until the same
are paid.
[134]
As a
rule, title rights to all equipment and structures that the
concessionaire placed on the land belong to the exploration or
exploitation concessionaire.
[135] Upon termination of such concession, the concessionaire had a right to remove the same.
[136]
The
Secretary of Agriculture and Natural Resources was tasked with carrying
out the provisions of the law, through the Director of Mines, who acted
under the Secretary’s immediate supervision and control.
[137]
The Act granted the Secretary the authority to inspect any operation of
the concessionaire and to examine all the books and accounts pertaining
to operations or conditions related to payment of taxes and royalties.
[138]
The same law authorized the Secretary to create an Administration Unit and a Technical Board.
[139] The Administration Unit was charged,
inter alia, with the enforcement of the provisions of the law.
[140]
The Technical Board had, among other functions, the duty to check on
the performance of concessionaires and to determine whether the
obligations imposed by the Act and its implementing regulations were
being complied with.
[141]
Victorio
Mario A. Dimagiba, Chief Legal Officer of the Bureau of Energy
Development, analyzed the benefits and drawbacks of the concession
system insofar as it applied to the petroleum industry:
Advantages of Concession.
Whether it emphasizes income tax or royalty, the most positive aspect
of the concession system is that the State’s financial involvement is
virtually risk free and administration is simple and comparatively low
in cost. Furthermore, if there is a competitive allocation of the
resource leading to substantial bonuses and/or greater royalty coupled
with a relatively high level of taxation, revenue accruing to the State
under the concession system may compare favorably with other financial
arrangements.
Disadvantages of Concession. There are,
however, major negative aspects to this system. Because the
Government’s role in the traditional concession is passive, it is at a
distinct disadvantage in managing and developing policy for the nation’s
petroleum resource. This is true for several reasons. First, even
though most concession agreements contain covenants requiring diligence
in operations and production, this establishes only an indirect and
passive control of the host country in resource development. Second,
and more importantly, the fact that the host country does not directly
participate in resource management decisions inhibits its ability to
train and employ its nationals in petroleum development. This factor
could delay or prevent the country from effectively engaging in the
development of its resources. Lastly, a direct role in management is
usually necessary in order to obtain a knowledge of the international
petroleum industry which is important to an appreciation of the host
country’s resources in relation to those of other countries.[142]
Other liabilities of the system have also been noted:
x
x x there are functional implications which give the concessionaire
great economic power arising from its exclusive equity holding. This
includes, first, appropriation of the returns of the undertaking,
subject to a modest royalty; second, exclusive management of the
project; third, control of production of the natural resource, such as
volume of production, expansion, research and development; and fourth,
exclusive responsibility for downstream operations, like processing,
marketing, and distribution. In short, even if nominally, the state is
the sovereign and owner of the natural resource being exploited, it has
been shorn of all elements of control over such natural resource because
of the exclusive nature of the contractual regime of the concession.
The concession system, investing as it does ownership of natural
resources, constitutes a consistent inconsistency with the principle
embodied in our Constitution that natural resources belong to the state
and shall not be alienated, not to mention the fact that the concession
was the bedrock of the colonial system in the exploitation of natural
resources.[143]
Eventually, the concession system failed for reasons explained by Dimagiba:
Notwithstanding
the good intentions of the Petroleum Act of 1949, the concession system
could not have properly spurred sustained oil exploration activities in
the country, since it assumed that such a capital-intensive, high risk
venture could be successfully undertaken by a single individual or a
small company. In effect, concessionaires’ funds were easily
exhausted. Moreover, since the concession system practically closed its
doors to interested foreign investors, local capital was stretched to
the limits. The old system also failed to consider the highly
sophisticated technology and expertise required, which would be
available only to multinational companies.[144]
A shift to a new regime for the development of natural resources thus seemed imminent.
PRESIDENTIAL DECREE NO. 87, THE 1973
CONSTITUTION AND THE SERVICE CONTRACT SYSTEM
The promulgation on December 31, 1972 of Presidential Decree No. 87,
[145]
otherwise known as The Oil Exploration and Development Act of 1972
signaled such a transformation. P.D. No. 87 permitted the government to
explore for and produce indigenous petroleum through “
service contracts.”
[146]
“Service
contracts” is a term that assumes varying meanings to different people,
and it has carried many names in different countries, like “work
contracts” in Indonesia, “concession agreements” in Africa,
“production-sharing agreements” in the Middle East, and “participation
agreements” in Latin America.
[147] A functional definition of “service contracts” in the Philippines is provided as follows:
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.[148]
In
a service contract under P.D. No. 87, service and technology are
furnished by the service contractor for which it shall be entitled to
the stipulated service fee.
[149] The contractor must be technically competent and financially capable to undertake the operations required in the contract.
[150]
Financing is supposed to be provided by the Government to which all petroleum produced belongs.
[151]
In case the Government is unable to finance petroleum exploration
operations, the contractor may furnish services, technology and
financing, and the proceeds of sale of the petroleum produced under the
contract shall be the source of funds for payment of the service fee and
the operating expenses due the contractor.
[152]
The contractor shall undertake, manage and execute petroleum
operations, subject to the government overseeing the management of the
operations.
[153] The
contractor provides all necessary services and technology and the
requisite financing, performs the exploration work obligations, and
assumes all exploration risks such that if no petroleum is produced, it
will not be entitled to reimbursement.
[154] Once petroleum in commercial quantity is discovered, the contractor shall operate the field on behalf of the government.
[155]
P.D. No. 87 prescribed minimum terms and conditions for every service contract.
[156] It also granted the contractor certain privileges, including exemption from taxes and payment of tariff duties,
[157] and permitted the repatriation of capital and retention of profits abroad.
[158]
Ostensibly, the service contract system had certain advantages over the concession regime.
[159]
It has been opined, though, that, in the Philippines, our concept of a
service contract, at least in the petroleum industry, was basically a
concession regime with a production-sharing element.
[160]
On January 17, 1973, then President Ferdinand E. Marcos proclaimed the ratification of a new Constitution.
[161]
Article XIV on the National Economy and Patrimony contained provisions
similar to the 1935 Constitution with regard to Filipino participation
in the nation’s natural resources. Section 8, Article XIV thereof
provides:
Sec. 8. All lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils, all forces of
potential energy, fisheries, wildlife, and other natural resources of
the Philippines belong to the State. With the exception of
agricultural, industrial or commercial, residential and resettlement
lands of the public domain, natural resources shall not be alienated,
and no license, concession, or lease for the exploration, development,
exploitation, or utilization of any of the natural resources shall be
granted for a period exceeding twenty-five years, renewable for not more
than twenty-five years, except as to water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of
water power, in which cases beneficial use may be the measure and the
limit of the grant.
While Section 9 of the same Article
maintained the Filipino-only policy in the enjoyment of natural
resources, it also allowed Filipinos, upon authority of the Batasang
Pambansa, to enter into service contracts with any person or entity for
the exploration or utilization of natural resources.
Sec.
9. The disposition, exploration, development, exploitation, or
utilization of any of the natural resources of the Philippines shall be
limited to citizens, or to corporations or associations at least sixty
per centum of which is owned by such citizens. The
Batasang Pambansa, in the national interest, may allow such citizens,
corporations or associations to enter into service contracts for
financial, technical, management, or other forms of assistance with any
person or entity for the exploration, or utilization of any of the
natural resources. Existing valid and binding service contracts for
financial, technical, management, or other forms of assistance are
hereby recognized as such. [Emphasis supplied.]
The
concept of service contracts, according to one delegate, was borrowed
from the methods followed by India, Pakistan and especially Indonesia in
the exploration of petroleum and mineral oils.
[162]
The provision allowing such contracts, according to another, was
intended to “enhance the proper development of our natural resources
since Filipino citizens lack the needed capital and technical know-how
which are essential in the proper exploration, development and
exploitation of the natural resources of the country.”
[163]
The original idea was to authorize the government, not private entities, to enter into service contracts with foreign entities.
[164]
As finally approved, however, a citizen or private entity could be
allowed by the National Assembly to enter into such service contract.
[165] The prior approval of the National Assembly was deemed sufficient to protect the national interest.
[166]
Notably, none of the laws allowing service contracts were passed by the
Batasang Pambansa. Indeed, all of them were enacted by presidential
decree.
On March 13, 1973, shortly after the ratification of the
new Constitution, the President promulgated Presidential Decree No. 151.
[167]
The law allowed Filipino citizens or entities which have acquired lands
of the public domain or which own, hold or control such lands to enter
into service contracts for financial, technical, management or other
forms of assistance with any foreign persons or entity for the
exploration, development, exploitation or utilization of said lands.
[168]
Presidential Decree No. 463,
[169]
also known as The Mineral Resources Development Decree of 1974, was
enacted on May 17, 1974. Section 44 of the decree, as amended, provided
that a lessee of a mining claim may enter into a service contract with a
qualified domestic or foreign contractor for the exploration,
development and exploitation of his claims and the processing and
marketing of the product thereof.
Presidential Decree No. 704
[170]
(The Fisheries Decree of 1975), approved on May 16, 1975, allowed
Filipinos engaged in commercial fishing to enter into contracts for
financial, technical or other forms of assistance with any foreign
person, corporation or entity for the production, storage, marketing and
processing of fish and fishery/aquatic products.
[171]
Presidential Decree No. 705
[172]
(The Revised Forestry Code of the Philippines), approved on May 19,
1975, allowed “forest products licensees, lessees, or permitees to enter
into service contracts for financial, technical, management, or other
forms of assistance . . . with any foreign person or entity for the
exploration, development, exploitation or utilization of the forest
resources.”
[173]
Yet another law allowing service contracts, this time for geothermal resources, was Presidential Decree No. 1442,
[174]
which was signed into law on June 11, 1978. Section 1 thereof
authorized the Government to enter into service contracts for the
exploration, exploitation and development of geothermal resources with a
foreign contractor who must be technically and financially capable of
undertaking the operations required in the service contract.
Thus,
virtually the entire range of the country’s natural resources –from
petroleum and minerals to geothermal energy, from public lands and
forest resources to fishery products – was well covered by apparent
legal authority to engage in the direct participation or involvement of
foreign persons or corporations (otherwise disqualified) in the
exploration and utilization of natural resources through service
contracts.
[175]
THE 1987 CONSTITUTION AND TECHNICAL
OR FINANCIAL ASSISTANCE AGREEMENTS
After
the February 1986 Edsa Revolution, Corazon C. Aquino took the reins of
power under a revolutionary government. On March 25, 1986, President
Aquino issued Proclamation No. 3,
[176]
promulgating the Provisional Constitution, more popularly referred to
as the Freedom Constitution. By authority of the same Proclamation, the
President created a Constitutional Commission (CONCOM) to draft a new
constitution, which took effect on the date of its ratification on
February 2, 1987.
[177]
The 1987 Constitution retained the
Regalian doctrine.
The first sentence of Section 2, Article XII states: “All lands of the
public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the
State.”
Like the 1935 and 1973 Constitutions before it, the 1987
Constitution, in the second sentence of the same provision, prohibits
the alienation of natural resources, except agricultural lands.
The
third sentence of the same paragraph is new: “The exploration,
development and utilization of natural resources shall be under the
full control and supervision of the State.” The constitutional policy of the State’s “full control and supervision” over natural resources proceeds from the concept of
jura regalia,
as well as the recognition of the importance of the country’s natural
resources, not only for national economic development, but also for its
security and national defense.
[178]
Under this provision, the State assumes “a more dynamic role” in the
exploration, development and utilization of natural resources.
[179]
Conspicuously
absent in Section 2 is the provision in the 1935 and 1973 Constitutions
authorizing the State to grant licenses, concessions, or leases for the
exploration, exploitation, development, or utilization of natural
resources. By such omission, the utilization of inalienable lands of
public domain through “license, concession or lease” is no longer
allowed under the 1987 Constitution.
[180]
Having omitted the provision on the concession system, Section 2 proceeded to introduce “unfamiliar language”:
[181]
The
State may directly undertake such activities or it may enter into
co-production, joint venture, or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens.
Consonant with the State’s “full supervision and control” over natural resources, Section 2 offers the State two “options.”
[182]
One, the State may directly undertake these activities itself; or two,
it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or entities at least 60% of whose
capital is owned by such citizens.
A third option is found in the third paragraph of the same section:
The
Congress may, by law, allow small-scale utilization of natural
resources by Filipino citizens, as well as cooperative fish farming,
with priority to subsistence fishermen and fish-workers in rivers,
lakes, bays, and lagoons.
While the second and third
options are limited only to Filipino citizens or, in the case of the
former, to corporations or associations at least 60% of the capital of
which is owned by Filipinos, a fourth allows the participation of
foreign-owned corporations. The fourth and fifth paragraphs of Section 2
provide:
The President may enter into agreements with
foreign-owned corporations involving either technical or financial
assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general
terms and conditions provided by law, based on real contributions to the
economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of local
scientific and technical resources.
The President shall notify
the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution.
Although
Section 2 sanctions the participation of foreign-owned corporations in
the exploration, development, and utilization of natural resources, it
imposes certain limitations or conditions to agreements with such
corporations.
First, the
parties to FTAAs. Only the
President, in behalf of the State, may enter into these agreements, and only with
corporations.
By contrast, under the 1973 Constitution, a Filipino citizen,
corporation or association may enter into a service contract with a
“foreign person or entity.”
Second, the
size of the
activities: only large-scale exploration, development, and utilization
is allowed. The term “large-scale usually refers to very
capital-intensive activities.”
[183]
Third, the
natural resources subject of the activities is restricted to
minerals, petroleum and other mineral oils, the intent being to limit service contracts to those areas where Filipino capital may not be sufficient.
[184]
Fourth,
consistency with the provisions of statute. The agreements must be
in accordance with the terms and conditions provided by law.
Fifth, Section 2 prescribes certain
standards for entering into such agreements. The agreements must be
based on real contributions to economic growth and general welfare of the country.
Sixth, the agreements must contain
rudimentary stipulations for the
promotion of the development and use of local scientific and technical resources.
Seventh, the
notification requirement.
The President shall notify Congress of every financial or technical assistance agreement entered into within thirty days from its execution.
Finally, the
scope
of the agreements. While the 1973 Constitution referred to “service
contracts for financial, technical, management, or other forms of
assistance” the 1987 Constitution provides for “agreements. . .
involving
either financial or technical assistance.” It bears
noting that the phrases “service contracts” and “management or other
forms of assistance” in the earlier constitution have been omitted.
By virtue of her legislative powers under the Provisional Constitution,
[185]
President Aquino, on July 10, 1987, signed into law E.O. No. 211
prescribing the interim procedures in the processing and approval of
applications for the exploration, development and utilization of
minerals. The omission in the 1987 Constitution of the term “service
contracts” notwithstanding, the said E.O. still referred to them in
Section 2 thereof:
Sec. 2. Applications for the
exploration, development and utilization of mineral resources, including
renewal applications and applications for approval of operating
agreements and mining service contracts, shall be accepted and processed and may be approved x x x. [Emphasis supplied.]
The
same law provided in its Section 3 that the “processing, evaluation and
approval of all mining applications . . . operating agreements and
service contracts
. . . shall be governed by Presidential Decree No. 463, as amended,
other existing mining laws, and their implementing rules and
regulations. . . .”
As earlier stated, on the 25
th
also of July 1987, the President issued E.O. No. 279 by authority of
which the subject WMCP FTAA was executed on March 30, 1995.
On
March 3, 1995, President Ramos signed into law R.A. No. 7942. Section
15 thereof declares that the Act “shall govern the exploration,
development, utilization, and processing of all mineral resources.”
Such declaration notwithstanding, R.A. No. 7942 does not actually cover
all the modes through which the State may undertake the exploration,
development, and utilization of natural resources.
The State,
being the owner of the natural resources, is accorded the primary power
and responsibility in the exploration, development and utilization
thereof. As such, it may undertake these activities through four modes:
The State may directly undertake such activities.
(2)
The State may enter into co-production, joint venture or
production-sharing agreements with Filipino citizens or qualified
corporations.
(3) Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens.
(4)
For the large-scale exploration, development and utilization of
minerals, petroleum and other mineral oils, the President may enter into
agreements with foreign-owned corporations involving technical or
financial assistance.
[186]
Except to charge the Mines and Geosciences Bureau of the DENR with performing researches and surveys,
[187] and a passing mention of government-owned or controlled corporations,
[188]
R.A. No. 7942 does not specify how the State should go about the first
mode. The third mode, on the other hand, is governed by Republic Act
No. 7076
[189] (the People’s Small-Scale Mining Act of 1991) and other pertinent laws.
[190] R.A. No. 7942 primarily concerns itself with the second and fourth modes.
Mineral
production sharing, co-production and joint venture agreements are
collectively classified by R.A. No. 7942 as “mineral agreements.”
[191]
The Government participates the least in a mineral production sharing
agreement (MPSA). In an MPSA, the Government grants the contractor
[192] the exclusive right to conduct mining operations within a contract area
[193] and shares in the gross output.
[194] The MPSA contractor provides the financing, technology, management and personnel necessary for the agreement’s implementation.
[195] The total government share in an MPSA is the excise tax on mineral products under Republic Act No. 7729,
[196] amending Section 151(a) of the National Internal Revenue Code, as amended.
[197]
In a co-production agreement (CA),
[198] the Government provides inputs to the mining operations other than the mineral resource,
[199]
while in a joint venture agreement (JVA), where the Government enjoys
the greatest participation, the Government and the JVA contractor
organize a company with both parties having equity shares.
[200] Aside from earnings in equity, the Government in a JVA is also entitled to a share in the gross output.
[201] The Government may enter into a CA
[202] or JVA
[203] with one or more contractors. The Government’s share in a CA or JVA is set out in Section 81 of the law:
The
share of the Government in co-production and joint venture agreements
shall be negotiated by the Government and the contractor taking into
consideration the: (a) capital investment of the project, (b) the risks
involved, (c) contribution of the project to the economy, and (d) other
factors that will provide for a fair and equitable sharing between the
Government and the contractor. The Government shall also be entitled to
compensations for its other contributions which shall be agreed upon by
the parties, and shall consist, among other things, the contractor’s
income tax, excise tax, special allowance, withholding tax due from the
contractor’s foreign stockholders arising from dividend or interest
payments to the said foreign stockholders, in case of a foreign national
and all such other taxes, duties and fees as provided for under
existing laws.
All mineral agreements grant the
respective contractors the exclusive right to conduct mining operations
and to extract all mineral resources found in the contract area.
[204] A “qualified person” may enter into any of the mineral agreements with the Government.
[205] A “qualified person” is
any
citizen of the Philippines with capacity to contract, or a corporation,
partnership, association, or cooperative organized or authorized for
the purpose of engaging in mining, with technical and financial
capability to undertake mineral resources development and duly
registered in accordance with law at least sixty per centum (60%) of the capital of which is owned by citizens of the Philippines x x x.[206]
The
fourth mode involves “financial or technical assistance agreements.”
An FTAA is defined as “a contract involving financial or technical
assistance for large-scale exploration, development, and utilization of
natural resources.”
[207] Any
qualified person with technical and financial capability to undertake
large-scale exploration, development, and utilization of natural
resources in the Philippines may enter into such agreement directly with
the Government through the DENR.
[208]
For the purpose of granting an FTAA, a legally organized foreign-owned
corporation (any corporation, partnership, association, or cooperative
duly registered in accordance with law in which less than 50% of the
capital is owned by Filipino citizens)
[209] is deemed a “qualified person.”
[210]
Other
than the difference in contractors’ qualifications, the principal
distinction between mineral agreements and FTAAs is the maximum contract
area to which a qualified person may hold or be granted.
[211]
“Large-scale” under R.A. No. 7942 is determined by the size of the
contract area, as opposed to the amount invested (US $50,000,000.00),
which was the standard under E.O. 279.
Like a CA or a JVA, an FTAA is subject to negotiation.
[212]
The Government’s contributions, in the form of taxes, in an FTAA is
identical to its contributions in the two mineral agreements, save that
in an FTAA:
The collection of Government share in
financial or technical assistance agreement shall commence after the
financial or technical assistance agreement contractor has fully
recovered its pre-operating expenses, exploration, and development
expenditures, inclusive.[213]
III
Having
examined the history of the constitutional provision and statutes
enacted pursuant thereto, a consideration of the substantive issues
presented by the petition is now in order.
THE EFFECTIVITY OF
EXECUTIVE ORDER NO. 279
Petitioners argue that E.O. No. 279, the law in force when the WMC FTAA was executed, did not come into effect.
E.O.
No. 279 was signed into law by then President Aquino on July 25, 1987,
two days before the opening of Congress on July 27, 1987.
[214] Section 8 of the E.O. states that the same “shall take effect
immediately.” This provision, according to petitioners, runs counter to Section 1 of E.O. No. 200,
[215] which provides:
SECTION 1. Laws shall take effect after fifteen days following the completion of their publication either in the Official Gazette or in a newspaper of general circulation in the Philippines, unless it is otherwise provided.[216] [Emphasis supplied.]
On
that premise, petitioners contend that E.O. No. 279 could have only
taken effect fifteen days after its publication at which time Congress
had already convened and the President’s power to legislate had ceased.
Respondents, on the other hand, counter that the validity of E.O. No. 279 was settled in
Miners Association of the Philippines v. Factoran, supra. This is of course incorrect for the issue in
Miners Association was not the validity of E.O. No. 279 but that of DAO Nos. 57 and 82 which were issued pursuant thereto.
Nevertheless, petitioners’ contentions have no merit.
It
bears noting that there is nothing in E.O. No. 200 that prevents a law
from taking effect on a date other than – even before – the 15-day
period after its publication. Where a law provides for its own date of
effectivity, such date prevails over that prescribed by E.O. No. 200.
Indeed, this is the very essence of the phrase “unless it is otherwise
provided” in Section 1 thereof. Section 1, E.O. No. 200, therefore,
applies only when a statute does not provide for its own date of
effectivity.
What is mandatory under E.O. No. 200, and what due process requires, as this Court held in
Tañada v. Tuvera,
[217] is the publication of the law for
without
such notice and publication, there would be no basis for the
application of the maxim “ignorantia legis n[eminem] excusat.” It would
be the height of injustice to punish or otherwise burden a citizen for
the transgression of a law of which he had no notice whatsoever, not
even a constructive one.
While the effectivity clause of
E.O. No. 279 does not require its publication, it is not a ground for
its invalidation since the Constitution, being “the fundamental,
paramount and supreme law of the nation,” is deemed written in the law.
[218] Hence, the due process clause,
[219] which, so
Tañada
held, mandates the publication of statutes, is read into Section 8 of
E.O. No. 279. Additionally, Section 1 of E.O. No. 200 which provides
for publication “either in the Official Gazette or in a newspaper of
general circulation in the Philippines,” finds suppletory application.
It is significant to note that E.O. No. 279 was actually published in
the Official Gazette
[220] on August 3, 1987.
From a reading then of Section 8 of E.O. No. 279, Section 1 of E.O. No. 200, and
Tañada v. Tuvera, this Court holds that E.O. No. 279 became effective
immediately upon its publication in the Official Gazette on August 3, 1987.
That
such effectivity took place after the convening of the first Congress
is irrelevant. At the time President Aquino issued E.O. No. 279 on July
25, 1987, she was still validly exercising legislative powers under the
Provisional Constitution.
[221] Article XVIII (Transitory Provisions) of the 1987 Constitution explicitly states:
Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress is convened.
The
convening of the first Congress merely precluded the exercise of
legislative powers by President Aquino; it did not prevent the
effectivity of laws she had previously enacted.
There can be no question, therefore, that E.O. No. 279 is an effective, and a validly enacted, statute.
THE CONSTITUTIONALITY
OF THE WMCP FTAA
Petitioners submit that, in accordance with the text of Section 2, Article XII of the Constitution, FTAAs should be limited to “
technical or
financial
assistance” only. They observe, however, that, contrary to the
language of the Constitution, the WMCP FTAA allows WMCP, a fully
foreign-owned mining corporation, to extend more than mere financial or
technical assistance to the State, for it permits WMCP to manage and
operate every aspect of the mining activity.
[222]
Petitioners’
submission is well-taken. It is a cardinal rule in the interpretation
of constitutions that the instrument must be so construed as to give
effect to the intention of the people who adopted it.
[223]
This intention is to be sought in the constitution itself, and the
apparent meaning of the words is to be taken as expressing it, except in
cases where that assumption would lead to absurdity, ambiguity, or
contradiction.
[224] What the
Constitution says according to the text of the provision, therefore,
compels acceptance and negates the power of the courts to alter it,
based on the postulate that the framers and the people mean what they
say.
[225] Accordingly,
following the literal text of the Constitution, assistance accorded by
foreign-owned corporations in the large-scale exploration, development,
and utilization of petroleum, minerals and mineral oils should be
limited to “technical” or “financial” assistance only.
WMCP
nevertheless submits that the word “technical” in the fourth paragraph
of Section 2 of E.O. No. 279 encompasses a “broad number of possible
services,” perhaps, “scientific and/or technological in basis.”
[226] It thus posits that it may also well include “the area of
management or operations
. . . so long as such assistance requires specialized knowledge or
skills, and are related to the exploration, development and utilization
of mineral resources.”
[227]
This
Court is not persuaded. As priorly pointed out, the phrase “management
or other forms of assistance” in the 1973 Constitution was deleted in
the 1987 Constitution, which allows only “technical or financial
assistance.”
Casus omisus pro omisso habendus est. A person, object or thing omitted from an enumeration must be held to have been omitted intentionally.
[228]
As will be shown later, the management or operation of mining
activities by foreign contractors, which is the primary feature of
service contracts, was precisely the evil that the drafters of the 1987
Constitution sought to eradicate.
Respondents insist that
“agreements involving technical or financial assistance” is just another
term for service contracts. They contend that the proceedings of the
CONCOM indicate “that although the terminology ‘service contract’ was
avoided [by the Constitution], the concept it represented was not.”
They add that “[t]he concept is embodied in the phrase ‘agreements
involving financial or technical assistance.’”
[229] And point out how members of the CONCOM referred to these agreements as “service contracts.” For instance:
SR. TAN. Am I correct in thinking that the only difference between these future service contracts and the past service contracts under Mr. Marcos
is the general law to be enacted by the legislature and the
notification of Congress by the President? That is the only difference,
is it not?
MR. VILLEGAS. That is right.
SR. TAN. So those are the safeguards[?]
MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
SR. TAN. Thank you, Madam President.[230] [Emphasis supplied.]
WMCP
also cites the following statements of Commissioners Gascon, Garcia,
Nolledo and Tadeo who alluded to service contracts as they explained
their respective votes in the approval of the draft Article:
MR.
GASCON. Mr. Presiding Officer, I vote no primarily because of two
reasons: One, the provision on service contracts. I felt that if we
would constitutionalize any provision on service contracts, this
should always be with the concurrence of Congress and not guided only by
a general law to be promulgated by Congress. x x x.[231] [Emphasis supplied.]
x x x.
MR. GARCIA. Thank you.
I vote no. x x x.
Service
contracts are given constitutional legitimization in Section 3, even
when they have been proven to be inimical to the interests of the
nation, providing as they do the legal loophole for the exploitation of
our natural resources for the benefit of foreign interests. They
constitute a serious negation of Filipino control on the use and
disposition of the nation’s natural resources, especially with regard to
those which are nonrenewable.[232] [Emphasis supplied.]
x x x
MR.
NOLLEDO. While there are objectionable provisions in the Article on
National Economy and Patrimony, going over said provisions meticulously,
setting aside prejudice and personalities will reveal that the article
contains a balanced set of provisions. I hope the forthcoming Congress
will implement such provisions taking into account that Filipinos should
have real control over our economy and patrimony, and if foreign equity
is permitted, the same must be subordinated to the imperative demands
of the national interest.
x x x.
It is also my
understanding that service contracts involving foreign corporations or
entities are resorted to only when no Filipino enterprise or
Filipino-controlled enterprise could possibly undertake the exploration
or exploitation of our natural resources and that compensation under
such contracts cannot and should not equal what should pertain to
ownership of capital. In other words, the service contract should not
be an instrument to circumvent the basic provision, that the exploration
and exploitation of natural resources should be truly for the benefit
of Filipinos.
Thank you, and I vote yes.[233] [Emphasis supplied.]
x x x.
MR. TADEO. Nais ko lamang ipaliwanag ang aking boto.
Matapos
suriin ang kalagayan ng Pilipinas, ang saligang suliranin, pangunahin
ang salitang “imperyalismo.” Ang ibig sabihin nito ay ang sistema ng
lipunang pinaghaharian ng iilang monopolyong kapitalista at ang salitang
“imperyalismo” ay buhay na buhay sa National Economy and Patrimony na
nating ginawa. Sa pamamagitan ng salitang “based on,” naroroon na ang
free trade sapagkat tayo ay mananatiling tagapagluwas ng hilaw na
sangkap at tagaangkat ng yaring produkto. Pangalawa, naroroon pa rin ang parity rights, ang service contract, ang 60-40 equity sa natural resources. Habang
naghihirap ang sambayanang Pilipino, ginagalugad naman ng mga dayuhan
ang ating likas na yaman. Kailan man ang Article on National Economy
and Patrimony ay hindi nagpaalis sa pagkaalipin ng ating ekonomiya sa
kamay ng mga dayuhan. Ang solusyon sa suliranin ng bansa ay dalawa
lamang: ang pagpapatupad ng tunay na reporma sa lupa at ang national
industrialization. Ito ang tinatawag naming pagsikat ng araw sa
Silangan. Ngunit ang mga landlords and big businessmen at ang mga
komprador ay nagsasabi na ang free trade na ito, ang kahulugan para sa
amin, ay ipinipilit sa ating sambayanan na ang araw ay sisikat sa
Kanluran. Kailan man hindi puwedeng sumikat ang araw sa Kanluran. I
vote no.[234] [Emphasis supplied.]
This Court is likewise not persuaded.
As
earlier noted, the phrase “service contracts” has been deleted in the
1987 Constitution’s Article on National Economy and Patrimony. If the
CONCOM intended to retain the concept of service contracts under the
1973 Constitution, it could have simply adopted the old terminology
(“service contracts”) instead of employing new and unfamiliar terms
(“agreements . . . involving either technical or financial
assistance”). Such a difference between the language of a provision in a
revised constitution and that of a similar provision in the preceding
constitution is viewed as indicative of a difference in purpose.
[235]
If, as respondents suggest, the concept of “technical or financial
assistance” agreements is identical to that of “service contracts,” the
CONCOM would not have bothered to fit the same dog with a new collar.
To uphold respondents’ theory would reduce the first to a mere euphemism
for the second and render the change in phraseology meaningless.
An
examination of the reason behind the change confirms that technical or
financial assistance agreements are not synonymous to service contracts.
[T]he
Court in construing a Constitution should bear in mind the object
sought to be accomplished by its adoption, and the evils, if any, sought
to be prevented or remedied. A doubtful provision will be examined in
light of the history of the times, and the condition and circumstances
under which the Constitution was framed. The object is to ascertain the
reason which induced the framers of the Constitution to enact the
particular provision and the purpose sought to be accomplished thereby,
in order to construe the whole as to make the words consonant to that
reason and calculated to effect that purpose.[236]
As
the following question of Commissioner Quesada and Commissioner
Villegas’ answer shows the drafters intended to do away with service
contracts which were used to circumvent the capitalization (60%-40%)
requirement:
MS. QUESADA. The 1973 Constitution used the
words “service contracts.” In this particular Section 3, is there a
safeguard against the possible control of foreign interests if the
Filipinos go into coproduction with them?
MR. VILLEGAS. Yes. In fact, the
deletion of the phrase “service contracts” was our first attempt to
avoid some of the abuses in the past regime in the use of service
contracts to go around the 60-40 arrangement. The safeguard that
has been introduced – and this, of course can be refined – is found in
Section 3, lines 25 to 30, where Congress will have to concur with the
President on any agreement entered into between a foreign-owned
corporation and the government involving technical or financial
assistance for large-scale exploration, development and utilization of
natural resources.[237] [Emphasis supplied.]
In
a subsequent discussion, Commissioner Villegas allayed the fears of
Commissioner Quesada regarding the participation of foreign interests in
Philippine natural resources, which was supposed to be restricted to
Filipinos.
MS. QUESADA. Another point of clarification
is the phrase “and utilization of natural resources shall be under the
full control and supervision of the State.” In the 1973 Constitution,
this was limited to citizens of the Philippines; but it was removed and
substituted by “shall be under the full control and supervision of the
State.” Was the concept changed so that these particular resources
would be limited to citizens of the Philippines? Or would these
resources only be under the full control and supervision of the State;
meaning, noncitizens would have access to these natural resources? Is
that the understanding?
MR. VILLEGAS. No, Mr. Vice-President, if the Commissioner reads the next sentence, it states:
Such
activities may be directly undertaken by the State, or it may enter
into co-production, joint venture, production-sharing agreements with
Filipino citizens.
So we are still limiting it only to Filipino citizens.
x x x.
MS. QUESADA. Going back to Section 3, the section suggests that:
The
exploration, development, and utilization of natural resources… may be
directly undertaken by the State, or it may enter into co-production,
joint venture or production-sharing agreement with . . . corporations or
associations at least sixty per cent of whose voting stock or
controlling interest is owned by such citizens.
Lines 25
to 30, on the other hand, suggest that in the large-scale exploration,
development and utilization of natural resources, the President with the
concurrence of Congress may enter into agreements with foreign-owned
corporations even for technical or financial assistance.
I wonder
if this part of Section 3 contradicts the second part. I am raising
this point for fear that foreign investors will use their enormous
capital resources to facilitate the actual exploitation or exploration,
development and effective disposition of our natural resources to the
detriment of Filipino investors. I am not saying that we should not
consider borrowing money from foreign sources. What I refer to is that
foreign interest should be allowed to participate only to the extent
that they lend us money and give us technical assistance with the
appropriate government permit. In this way, we can insure the enjoyment
of our natural resources by our own people.
MR. VILLEGAS. Actually,
the second provision about the President does not permit foreign
investors to participate. It is only technical or financial assistance –
they do not own anything – but on conditions that have to be determined
by law with the concurrence of Congress. So, it is very restrictive.
If
the Commissioner will remember, this removes the possibility for
service contracts which we said yesterday were avenues used in the
previous regime to go around the 60-40 requirement.[238] [Emphasis supplied.]
The
present Chief Justice, then a member of the CONCOM, also referred to
this limitation in scope in proposing an amendment to the 60-40
requirement:
MR. DAVIDE. May I be allowed to explain the proposal?
MR. MAAMBONG. Subject to the three-minute rule, Madam President.
MR. DAVIDE. It will not take three minutes.
The Commission had just approved the Preamble. In
the Preamble we clearly stated that the Filipino people are sovereign
and that one of the objectives for the creation or establishment of a
government is to conserve and develop the national patrimony. The
implication is that the national patrimony or our natural resources are
exclusively reserved for the Filipino people. No alien must be allowed
to enjoy, exploit and develop our natural resources. As a matter of
fact, that principle proceeds from the fact that our natural resources
are gifts from God to the Filipino people and it would be a breach of
that special blessing from God if we will allow aliens to exploit our
natural resources.
I voted in favor of the Jamir proposal because it
is not really exploitation that we granted to the alien corporations
but only for them to render financial or technical assistance. It is
not for them to enjoy our natural resources. Madam President, our
natural resources are depleting; our population is increasing by leaps
and bounds. Fifty years from now, if we will allow these aliens to
exploit our natural resources, there will be no more natural resources
for the next generations of Filipinos. It may last long if we will
begin now. Since 1935 the aliens have been allowed to enjoy to a
certain extent the exploitation of our natural resources, and we became
victims of foreign dominance and control. The aliens are interested in
coming to the Philippines because they would like to enjoy the bounty of
nature exclusively intended for Filipinos by God.
And so I
appeal to all, for the sake of the future generations, that if we have
to pray in the Preamble “to preserve and develop the national patrimony
for the sovereign Filipino people and for the generations to come,” we
must at this time decide once and for all that our natural resources
must be reserved only to Filipino citizens.
Thank you.[239] [Emphasis supplied.]
The opinion of another member of the CONCOM is persuasive
[240] and leaves no doubt as to the intention of the framers to eliminate service contracts altogether. He writes:
Paragraph
4 of Section 2 specifies large-scale, capital-intensive, highly
technological undertakings for which the President may enter into
contracts with foreign-owned corporations, and enunciates strict
conditions that should govern such contracts. x x x.
This
provision balances the need for foreign capital and technology with the
need to maintain the national sovereignty. It recognizes the fact that
as long as Filipinos can formulate their own terms in their own
territory, there is no danger of relinquishing sovereignty to foreign
interests.
Are service contracts allowed under the new
Constitution? No. Under the new Constitution, foreign investors (fully
alien-owned) can NOT participate in Filipino enterprises except to
provide: (1) Technical Assistance for highly technical enterprises; and
(2) Financial Assistance for large-scale enterprises.
The intent
of this provision, as well as other provisions on foreign investments,
is to prevent the practice (prevalent in the Marcos government) of
skirting the 60/40 equation using the cover of service contracts.[241] [Emphasis supplied.]
Furthermore, it appears that Proposed Resolution No. 496,
[242]
which was the draft Article on National Economy and Patrimony, adopted
the concept of “agreements . . . involving either technical or financial
assistance” contained in the “Draft of the 1986 U.P. Law Constitution
Project” (U.P. Law draft) which was taken into consideration during the
deliberation of the CONCOM.
[243] The former, as well as Article XII, as adopted, employed the same terminology, as the comparative table below shows:
DRAFT OF THE UP
LAW CONSTITUTION
PROJECT
|
|
PROPOSED
RESOLUTION NO. 496
OF THE
CONSTITUTIONAL COMMISSION
|
|
ARTICLE XII OF THE
1987 CONSTITUTION
|
|
|
|
|
|
Sec.
1. All lands of the public domain, waters, minerals, coal, petroleum
and other mineral oils, all forces of potential energy, fisheries, flora
and fauna and other natural resources of the Philippines are owned by
the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development and
utilization of natural resources shall be under the full control and
supervision of the State. Such activities may be directly undertaken by
the state, or it may enter into co-production, joint venture,
production sharing agreements with Filipino citizens or corporations or
associations sixty per cent of whose voting stock or controlling
interest is owned by such citizens for a period of not more than
twenty-five years, renewable for not more than twenty-five years and
under such terms and conditions as may be provided by law. In case as
to water rights for irrigation, water supply, fisheries, or industrial
uses other than the development of water power, beneficial use may be
the measure and limit of the grant.
|
|
Sec.
3. All lands of the public domain, waters, minerals, coal, petroleum
and other mineral oils, all forces of potential energy, fisheries,
forests, flora and fauna, and other natural resources are owned by the
State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control and
supervision of the State. Such activities may be directly undertaken by
the State, or it may enter into co-production, joint venture,
production-sharing agreements with Filipino citizens or corporations or
associations at least sixty per cent of whose voting stock or
controlling interest is owned by such citizens. Such agreements shall
be for a period of twenty-five years, renewable for not more than
twenty-five years, and under such term and conditions as may be provided
by law. In cases of water rights for irrigation, water supply,
fisheries or industrial uses other than the development for water power,
beneficial use may be the measure and limit of the grant.
|
|
Sec.
2. All lands of the public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, fisheries,
forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural
lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be
under the full control and supervision of the State. The State may
directly undertake such activities or it may enter into co-production,
joint venture, or production-sharing agreements with Filipino citizens,
or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may be
provided by law. In case of water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power,
beneficial use may be the measure and limit of the grant.
|
| | | | |
|
|
|
|
The
State shall protect the nation’s marine wealth in its archipelagic
waters, territorial sea, and exclusive economic zone, and reserve its
use and enjoyment exclusively to Filipino citizens.
|
|
|
|
|
|
The National Assembly may by law allow small scale utilization of natural resources by Filipino citizens.
|
|
The
Congress may by law allow small-scale utilization of natural resources
by Filipino citizens, as well as cooperative fish farming in rivers,
lakes, bays, and lagoons.
|
|
The
Congress may, by law, allow small-scale utilization of natural
resources by Filipino citizens, as well as cooperative fish farming,
with priority to subsistence fishermen and fish-workers in rivers,
lakes, bays, and lagoons.
|
|
|
|
|
|
The
National Assembly, may, by two-thirds vote of all its members by
special law provide the terms and conditions under which a foreign-owned
corporation may enter into agreements with the government involving either technical or financial assistance for large-scale exploration, development, or utilization of natural resources. [Emphasis supplied.]
|
|
The
President with the concurrence of Congress, by special law, shall
provide the terms and conditions under which a foreign-owned corporation
may enter into agreements with the government involving either technical or financial assistance for large-scale exploration, development, and utilization of natural resources. [Emphasis supplied.]
|
|
The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance
for large-scale exploration, development, and utilization of minerals,
petroleum, and other mineral oils according to the general terms and
conditions provided by law, based on real contributions to the economic
growth and general welfare of the country. In such agreements, the
State shall promote the development and use of local scientific and
technical resources. [Emphasis supplied.]
|
|
|
|
|
|
|
|
|
|
The
President shall notify the Congress of every contract entered into in
accordance with this provision, within thirty days from its execution.
|
The
insights of the proponents of the U.P. Law draft are, therefore,
instructive in interpreting the phrase “technical or financial
assistance.”
In his position paper entitled
Service Contracts: Old Wine in New Bottles?,
Professor Pacifico A. Agabin, who was a member of the working group
that prepared the U.P. Law draft, criticized service contracts for they
“lodge exclusive management and control of the enterprise to the service
contractor, which is reminiscent of the old concession regime. Thus,
notwithstanding the provision of the Constitution that natural resources
belong to the State, and that these shall not be alienated, the service
contract system renders nugatory the constitutional provisions cited.”
[244] He elaborates:
Looking at the Philippine model, we can discern the following vestiges of the concession regime, thus:
- Bidding
of a selected area, or leasing the choice of the area to the interested
party and then negotiating the terms and conditions of the contract;
(Sec. 5, P.D. 87)
- Management of the enterprise vested on the contractor, including operation of the field if petroleum is discovered; (Sec. 8, P.D. 87)
- Control of production and other matters such as expansion and development;
- Responsibility for downstream operations – marketing, distribution, and processing may be with the contractor (Sec. 8);
- Ownership of equipment, machinery, fixed assets, and other properties remain with contractor (Sec. 12, P.D. 87);
- Repatriation of capital and retention of profits abroad guaranteed to the contractor (Sec. 13, P.D. 87); and
- While
title to the petroleum discovered may nominally be in the name of the
government, the contractor has almost unfettered control over its
disposition and sale, and even the domestic requirements of the country is relegated to a pro rata basis (Sec. 8).
In
short, our version of the service contract is just a rehash of the old
concession regime x x x. Some people have pulled an old rabbit out of a
magician’s hat, and foisted it upon us as a new and different animal.
The
service contract as we know it here is antithetical to the principle of
sovereignty over our natural resources restated in the same article of
the [1973] Constitution containing the provision for service contracts.
If the service contractor happens to be a foreign corporation, the
contract would also run counter to the constitutional provision on
nationalization or Filipinization, of the exploitation of our natural
resources.[245] [Emphasis supplied. Underscoring in the original.]
Professor Merlin M. Magallona, also a member of the working group, was harsher in his reproach of the system:
x
x x the nationalistic phraseology of the 1935 [Constitution] was
retained by the [1973] Charter, but the essence of nationalism was
reduced to hollow rhetoric. The 1973 Charter still provided that the
exploitation or development of the country’s natural resources be
limited to Filipino citizens or corporations owned or controlled by
them. However, the martial-law Constitution allowed them, once these
resources are in their name, to enter into service contracts with
foreign investors for financial, technical, management, or other forms
of assistance. Since foreign investors have the capital resources, the
actual exploitation and development, as well as the effective
disposition, of the country’s natural resources, would be under their
direction, and control, relegating the Filipino investors to the role of
second-rate partners in joint ventures.
Through the
instrumentality of the service contract, the 1973 Constitution had
legitimized at the highest level of state policy that which was
prohibited under the 1973 Constitution, namely: the exploitation of the
country’s natural resources by foreign nationals. The drastic impact of
[this] constitutional change becomes more pronounced when it is
considered that the active party to any service contract may be a
corporation wholly owned by foreign interests. In such a case, the
citizenship requirement is completely set aside, permitting foreign
corporations to obtain actual possession, control, and [enjoyment] of
the country’s natural resources.[246] [Emphasis supplied.]
Accordingly, Professor Agabin recommends that:
Recognizing
the service contract for what it is, we have to expunge it from the
Constitution and reaffirm ownership over our natural resources. That is the only way we can exercise effective control over our natural resources.
This should not mean complete isolation of the country’s natural resources from foreign investment. Other
contract forms which are less derogatory to our sovereignty and control
over natural resources – like technical assistance agreements,
financial assistance [agreements], co-production agreements, joint
ventures, production-sharing – could still be utilized and adopted
without violating constitutional provisions. In other words, we can
adopt contract forms which recognize and assert our sovereignty and
ownership over natural resources, and where the foreign entity is just a
pure contractor instead of the beneficial owner of our economic
resources.[247] [Emphasis supplied.]
Still another member of the working group, Professor Eduardo Labitag, proposed that:
- Service
contracts as practiced under the 1973 Constitution should be
discouraged, instead the government may be allowed, subject to
authorization by special law passed by an extraordinary majority to
enter into either technical or financial assistance. This is
justified by the fact that as presently worded in the 1973 Constitution,
a service contract gives full control over the contract area to the
service contractor, for him to work, manage and dispose of the proceeds
or production. It was a subterfuge to get around the nationality
requirement of the constitution.[248] [Emphasis supplied.]
In
the annotations on the proposed Article on National Economy and
Patrimony, the U.P. Law draft summarized the rationale therefor, thus:
- The
last paragraph is a modification of the service contract provision
found in Section 9, Article XIV of the 1973 Constitution as amended.
This 1973 provision shattered the framework of nationalism in our
fundamental law (see Magallona, “Nationalism and its Subversion in the
Constitution”). Through the service contract, the 1973 Constitution had
legitimized that which was prohibited under the 1935 constitution—the
exploitation of the country’s natural resources by foreign nationals.
Through the service contract, acts prohibited by the Anti-Dummy Law were
recognized as legitimate arrangements. Service contracts lodge
exclusive management and control of the enterprise to the service
contractor, not unlike the old concession regime where the
concessionaire had complete control over the country’s natural
resources, having been given exclusive and plenary rights to exploit a
particular resource and, in effect, having been assured of ownership of
that resource at the point of extraction (see Agabin, “Service
Contracts: Old Wine in New Bottles”). Service contracts, hence, are
antithetical to the principle of sovereignty over our natural resources,
as well as the constitutional provision on nationalization or
Filipinization of the exploitation of our natural resources.
Under
the proposed provision, only technical assistance or financial
assistance agreements may be entered into, and only for large-scale
activities. These are contract forms which recognize and assert our
sovereignty and ownership over natural resources since the foreign
entity is just a pure contractor and not a beneficial owner of our
economic resources. The proposal recognizes the need for capital and
technology to develop our natural resources without sacrificing our
sovereignty and control over such resources by the safeguard of a
special law which requires two-thirds vote of all the members of the
Legislature. This will ensure that such agreements will be debated
upon exhaustively and thoroughly in the National Assembly to avert
prejudice to the nation.[249] [Emphasis supplied.]
The
U.P. Law draft proponents viewed service contracts under the 1973
Constitution as grants of beneficial ownership of the country’s natural
resources to foreign owned corporations. While, in theory, the State
owns these natural resources – and Filipino citizens, their
beneficiaries – service contracts actually vested foreigners with the
right to dispose, explore for, develop, exploit, and utilize the same.
Foreigners, not Filipinos, became the beneficiaries of Philippine
natural resources. This arrangement is clearly incompatible with the
constitutional ideal of nationalization of natural resources, with the
Regalian doctrine, and on a broader perspective, with Philippine sovereignty.
The
proponents nevertheless acknowledged the need for capital and technical
know-how in the large-scale exploitation, development and utilization
of natural resources – the second paragraph of the proposed draft itself
being an admission of such scarcity. Hence, they recommended a
compromise to reconcile the nationalistic provisions dating back to the
1935 Constitution, which reserved all natural resources exclusively to
Filipinos, and the more liberal 1973 Constitution, which allowed
foreigners to participate in these resources through service
contracts. Such a compromise called for the adoption of a new system
in the exploration, development, and utilization of natural resources in
the form of technical agreements or financial agreements which,
necessarily, are distinct concepts from service contracts.
The
replacement of “service contracts” with “agreements… involving either
technical or financial assistance,” as well as the deletion of the
phrase “management or other forms of assistance,” assumes greater
significance when note is taken that the U.P. Law draft proposed other
equally crucial changes that were obviously heeded by the CONCOM. These
include the abrogation of the concession system and the adoption of new
“options” for the State in the exploration, development, and
utilization of natural resources. The proponents deemed these changes
to be more consistent with the State’s ownership of, and its “full
control and supervision” (a phrase also employed by the framers) over,
such resources. The Project explained:
-
In line with the State ownership of natural resources, the State should
take a more active role in the exploration, development, and
utilization of natural resources, than the present practice of granting
licenses, concessions, or leases – hence the provision that said
activities shall be under the full control and supervision of the
State. There are three major schemes by which the State could undertake
these activities: first, directly by itself; second, by virtue of
co-production, joint venture, production sharing agreements with
Filipino citizens or corporations or associations sixty per cent (60%)
of the voting stock or controlling interests of which are owned by such
citizens; or third, with a foreign-owned corporation, in cases of
large-scale exploration, development, or utilization of natural
resources through agreements involving either technical or financial
assistance only. x x x.
At present, under the licensing
concession or lease schemes, the government benefits from such benefits
only through fees, charges, ad valorem taxes and income taxes of the
exploiters of our natural resources. Such benefits are very minimal
compared with the enormous profits reaped by theses licensees, grantees,
concessionaires. Moreover, some of them disregard the conservation of
natural resources and do not protect the environment from degradation.
The proposed role of the State will enable it to a greater share in the
profits – it can also actively husband its natural resources and engage
in developmental programs that will be beneficial to them.
- Aside
from the three major schemes for the exploration, development, and
utilization of our natural resources, the State may, by law, allow
Filipino citizens to explore, develop, utilize natural resources in
small-scale. This is in recognition of the plight of marginal
fishermen, forest dwellers, gold panners, and others similarly situated
who exploit our natural resources for their daily sustenance and
survival.[250]
Professor
Agabin, in particular, after taking pains to illustrate the
similarities between the two systems, concluded that the service
contract regime was but a “rehash” of the concession system. “Old wine
in new bottles,” as he put it.
The rejection of the service contract regime, therefore, is in consonance with the abolition of the concession system.
In
light of the deliberations of the CONCOM, the text of the Constitution,
and the adoption of other proposed changes, there is no doubt that the
framers considered and shared the intent of the U.P. Law proponents in
employing the phrase “agreements . . . involving either technical or
financial assistance.”
While certain commissioners may have
mentioned the term “service contracts” during the CONCOM deliberations,
they may not have been necessarily referring to the concept of service
contracts under the 1973 Constitution. As noted earlier, “service
contracts” is a term that assumes different meanings to different
people.
[251] The commissioners
may have been using the term loosely, and not in its technical and
legal sense, to refer, in general, to agreements concerning natural
resources entered into by the Government with foreign corporations.
These loose statements do not necessarily translate to the adoption of
the 1973 Constitution provision allowing service contracts.
It is
true that, as shown in the earlier quoted portions of the proceedings
in CONCOM, in response to Sr. Tan’s question, Commissioner Villegas
commented that, other than congressional notification, the only
difference between “future” and “past” “service contracts” is the
requirement of a general law as there were no laws previously
authorizing the same.
[252]
However, such remark is far outweighed by his more categorical statement
in his exchange with Commissioner Quesada that the draft article “does
not permit foreign investors to participate” in the nation’s natural
resources – which was exactly what service contracts did – except to
provide “technical or financial assistance.”
[253]
In
the case of the other commissioners, Commissioner Nolledo himself
clarified in his work that the present charter prohibits service
contracts.
[254] Commissioner
Gascon was not totally averse to foreign participation, but favored
stricter restrictions in the form of majority congressional concurrence.
[255]
On the other hand, Commissioners Garcia and Tadeo may have veered to
the extreme side of the spectrum and their objections may be interpreted
as votes against any foreign participation in our natural resources
whatsoever.
WMCP cites Opinion No. 75, s. 1987,
[256] and Opinion No. 175, s. 1990
[257]
of the Secretary of Justice, expressing the view that a financial or
technical assistance agreement “is no different in concept” from the
service contract allowed under the 1973 Constitution. This Court is
not, however, bound by this interpretation. When an administrative or
executive agency renders an opinion or issues a statement of policy, it
merely interprets a pre-existing law; and the administrative
interpretation of the law is at best advisory, for it is the courts that
finally determine what the law means.
[258]
In
any case, the constitutional provision allowing the President to enter
into FTAAs with foreign-owned corporations is an exception to the rule
that participation in the nation’s natural resources is reserved
exclusively to Filipinos. Accordingly, such provision must be construed
strictly against their enjoyment by non-Filipinos. As Commissioner
Villegas emphasized, the provision is “very restrictive.”
[259]
Commissioner Nolledo also remarked that “entering into service
contracts is an exception to the rule on protection of natural resources
for the interest of the nation and, therefore, being an exception, it
should be subject, whenever possible, to stringent rules.”
[260]
Indeed, exceptions should be strictly but reasonably construed; they
extend only so far as their language fairly warrants and all doubts
should be resolved in favor of the general provision rather than the
exception.
[261]
With
the foregoing discussion in mind, this Court finds that R.A. No. 7942 is
invalid insofar as said Act authorizes service contracts. Although the
statute employs the phrase “financial and technical agreements” in
accordance with the 1987 Constitution, it actually treats these
agreements as service contracts that grant beneficial ownership to
foreign contractors contrary to the fundamental law.
Section 33, which is found under Chapter VI (Financial or Technical Assistance Agreement) of R.A. No. 7942 states:
SEC. 33. Eligibility.—Any qualified person with technical and financial capability to undertake large-scale exploration, development, and utilization of mineral resources
in the Philippines may enter into a financial or technical assistance
agreement directly with the Government through the Department.
[Emphasis supplied.]
“
Exploration,” as defined by R.A. No. 7942,
means
the searching or prospecting for mineral resources by geological,
geochemical or geophysical surveys, remote sensing, test pitting,
trending, drilling, shaft sinking, tunneling or any other means for the
purpose of determining the existence, extent, quantity and quality
thereof and the feasibility of mining them for profit.[262]
A legally organized foreign-owned corporation may be granted an exploration permit,
[263] which vests it with the right to conduct exploration for all minerals in specified areas,
[264] i.e., to enter, occupy and explore the same.
[265] Eventually, the foreign-owned corporation, as such permittee, may apply for a financial and technical assistance agreement.
[266]
“
Development” is
the
work undertaken to explore and prepare an ore body or a mineral deposit
for mining, including the construction of necessary infrastructure and
related facilities.[267]
“
Utilization” “means the extraction or disposition of minerals.”
[268] A stipulation that the proponent shall
dispose
of the minerals and byproducts produced at the highest price and more
advantageous terms and conditions as provided for under the implementing
rules and regulations is required to be incorporated in every FTAA.
[269]
A foreign-owned/-controlled corporation may likewise be granted a mineral processing permit.
[270] “
Mineral processing”
is the milling, beneficiation or upgrading of ores or minerals and
rocks or by similar means to convert the same into marketable products.
[271]
An FTAA contractor makes a warranty that the mining
operations shall be conducted in accordance with the provisions of R.A. No. 7942 and its implementing rules
[272] and for work programs and minimum expenditures and commitments.
[273]
And it obliges itself to furnish the Government records of geologic,
accounting, and other relevant data for its mining operation.
[274]
“
Mining operation,” as the law defines it, means
mining activities involving
exploration, feasibility, development, utilization, and
processing.
[275]
The
underlying assumption in all these provisions is that the foreign
contractor manages the mineral resources, just like the foreign
contractor in a service contract.
Furthermore, Chapter XII of the
Act grants foreign contractors in FTAAs the same auxiliary mining
rights that it grants contractors in mineral agreements (MPSA, CA and
JV).
[276] Parenthetically,
Sections 72 to 75 use the term “contractor,” without distinguishing
between FTAA and mineral agreement contractors. And so does “holders of
mining rights” in Section 76. A foreign contractor may even convert
its FTAA into a mineral agreement if the economic viability of the
contract area is found to be inadequate to justify large-scale mining
operations,
[277] provided that it reduces its equity in the corporation, partnership, association or cooperative to forty percent (40%).
[278]
Finally, under the Act, an FTAA contractor warrants that it “has or has access to all the financing,
managerial, and technical expertise. . . .”
[279] This suggests that an FTAA contractor is bound to provide some
management assistance – a form of assistance that has been eliminated and, therefore, proscribed by the present Charter.
By
allowing foreign contractors to manage or operate all the aspects of
the mining operation, the above-cited provisions of R.A. No. 7942 have
in effect conveyed beneficial ownership over the nation’s mineral
resources to these contractors, leaving the State with nothing but bare
title thereto.
Moreover, the same provisions, whether by design
or inadvertence, permit a circumvention of the constitutionally ordained
60%-40% capitalization requirement for corporations or associations
engaged in the exploitation, development and utilization of Philippine
natural resources.
In sum, the Court finds the following provisions of R.A. No. 7942 to be violative of Section 2, Article XII of the Constitution:
(1) The proviso in Section 3 (aq), which defines “qualified person,” to wit:
Provided,
That a legally organized foreign-owned corporation shall be deemed a
qualified person for purposes of granting an exploration permit,
financial or technical assistance agreement or mineral processing
permit.
(2) Section 23,
[280]
which specifies the rights and obligations of an exploration permittee,
insofar as said section applies to a financial or technical assistance
agreement,
(3) Section 33, which prescribes the eligibility of a contractor in a financial or technical assistance agreement;
(4) Section 35,
[281] which enumerates the terms and conditions for every financial or technical assistance agreement;
(5) Section 39,
[282]
which allows the contractor in a financial and technical assistance
agreement to convert the same into a mineral production-sharing
agreement;
(6) Section 56,
[283] which authorizes the issuance of a mineral processing permit to a contractor in a financial and technical assistance agreement;
The
following provisions of the same Act are likewise void as they are
dependent on the foregoing provisions and cannot stand on their own:
(1) Section 3 (g),
[284] which defines the term “contractor,” insofar as it applies to a financial or technical assistance agreement.
Section 34,
[285] which prescribes the maximum contract area in a financial or technical assistance agreements;
Section 36,
[286] which allows negotiations for financial or technical assistance agreements;
Section 37,
[287] which prescribes the procedure for filing and evaluation of financial or technical assistance agreement proposals;
Section 38,
[288] which limits the term of financial or technical assistance agreements;
Section 40,
[289] which allows the assignment or transfer of financial or technical assistance agreements;
Section 41,
[290] which allows the withdrawal of the contractor in an FTAA;
The second and third paragraphs of Section 81,
[291] which provide for the Government’s share in a financial and technical assistance agreement; and
Section 90,
[292] which provides for incentives to contractors in FTAAs insofar as it applies to said contractors;
When
the parts of the statute are so mutually dependent and connected as
conditions, considerations, inducements, or compensations for each
other, as to warrant a belief that the legislature intended them as a
whole, and that if all could not be carried into effect, the legislature
would not pass the residue independently, then, if some parts are
unconstitutional, all the provisions which are thus dependent,
conditional, or connected, must fall with them.
[293]
There can be little doubt that the WMCP FTAA itself is a service contract.
Section
1.3 of the WMCP FTAA grants WMCP “the exclusive right to explore,
exploit, utilise[,] process and dispose of all Minerals products and
by-products thereof that may be produced from the Contract Area.”
[294] The FTAA also imbues WMCP with the following rights:
| (b) |
to
extract and carry away any Mineral samples from the Contract area for
the purpose of conducting tests and studies in respect thereof;
|
|
|
| (c) |
to
determine the mining and treatment processes to be utilised during the
Development/Operating Period and the project facilities to be
constructed during the Development and Construction Period;
|
|
|
| (d) |
have
the right of possession of the Contract Area, with full right of
ingress and egress and the right to occupy the same, subject to the
provisions of Presidential Decree No. 512 (if applicable) and not be
prevented from entry into private ands by surface owners and/or
occupants thereof when prospecting, exploring and exploiting for
minerals therein;
|
|
|
| x x x |
|
|
| (f) |
to
construct roadways, mining, drainage, power generation and transmission
facilities and all other types of works on the Contract Area;
|
|
|
| (g) |
to
erect, install or place any type of improvements, supplies, machinery
and other equipment relating to the Mining Operations and to use, sell
or otherwise dispose of, modify, remove or diminish any and all parts
thereof;
|
|
|
| (h) |
enjoy,
subject to pertinent laws, rules and regulations and the rights of
third Parties, easement rights and the use of timber, sand, clay, stone,
water and other natural resources in the Contract Area without cost for
the purposes of the Mining Operations;
|
|
|
| x x x |
|
|
| (l) |
have
the right to mortgage, charge or encumber all or part of its interest
and obligations under this Agreement, the plant, equipment and
infrastructure and the Minerals produced from the Mining Operations;
|
| |
x x x. [295]
|
All
materials, equipment, plant and other installations erected or placed
on the Contract Area remain the property of WMCP, which has the right to
deal with and remove such items within twelve months from the
termination of the FTAA.
[296]
Pursuant
to Section 1.2 of the FTAA, WMCP shall provide “[all] financing,
technology, management and personnel necessary for the Mining
Operations.” The mining company binds itself to “perform all Mining
Operations . . . providing all necessary services, technology and
financing in connection therewith,”
[297]
and to “furnish all materials, labour, equipment and other
installations that may be required for carrying on all Mining
Operations.”
[298] WMCP may
make expansions, improvements and replacements of the mining facilities
and may add such new facilities as it considers necessary for the mining
operations.
[299]
These
contractual stipulations, taken together, grant WMCP beneficial
ownership over natural resources that properly belong to the State and
are intended for the benefit of its citizens. These stipulations are
abhorrent to the 1987 Constitution. They are precisely the vices that
the fundamental law seeks to avoid, the evils that it aims to suppress.
Consequently, the contract from which they spring must be struck down.
In
arguing against the annulment of the FTAA, WMCP invokes the Agreement
on the Promotion and Protection of Investments between the Philippine
and Australian Governments, which was signed in Manila on January 25,
1995 and which entered into force on December 8, 1995.
x x
x. Article 2 (1) of said treaty states that it applies to investments
whenever made and thus the fact that [WMCP’s] FTAA was entered into
prior to the entry into force of the treaty does not preclude the
Philippine Government from protecting [WMCP’s] investment in [that]
FTAA. Likewise, Article 3 (1) of the treaty provides that “Each
Party shall encourage and promote investments in its area by investors
of the other Party and shall [admit] such investments in accordance with
its Constitution, Laws, regulations and investment policies” and in
Article 3 (2), it states that “Each Party shall ensure that investments
are accorded fair and equitable treatment.” The latter
stipulation indicates that it was intended to impose an obligation upon a
Party to afford fair and equitable treatment to the investments of the
other Party and that a failure to provide such treatment by or under the
laws of the Party may constitute a breach of the treaty. Simply
stated, the Philippines could not, under said treaty, rely upon the
inadequacies of its own laws to deprive an Australian investor (like
[WMCP]) of fair and equitable treatment by invalidating [WMCP’s] FTAA
without likewise nullifying the service contracts entered into before
the enactment of RA 7942 such as those mentioned in PD 87 or EO 279.
This
becomes more significant in the light of the fact that [WMCP’s] FTAA
was executed not by a mere Filipino citizen, but by the Philippine
Government itself, through its President no less, which, in entering
into said treaty is assumed to be aware of the existing Philippine laws
on service contracts over the exploration, development and utilization
of natural resources. The execution of the FTAA by the Philippine
Government assures the Australian Government that the FTAA is in
accordance with existing Philippine laws.[300] [Emphasis and italics by private respondents.]
The
invalidation of the subject FTAA, it is argued, would constitute a
breach of said treaty which, in turn, would amount to a violation of
Section 3, Article II of the Constitution adopting the generally
accepted principles of international law as part of the law of the
land. One of these generally accepted principles is
pacta sunt servanda, which requires the performance in good faith of treaty obligations.
Even assuming
arguendo
that WMCP is correct in its interpretation of the treaty and its
assertion that “the Philippines could not . . . deprive an Australian
investor (like [WMCP]) of fair and equitable treatment by invalidating
[WMCP’s] FTAA without likewise nullifying the service contracts entered
into before the enactment of RA 7942 . . .,” the annulment of the FTAA
would not constitute a breach of the treaty invoked. For this decision
herein invalidating the subject FTAA forms part of the legal system of
the Philippines.
[301] The equal protection clause
[302]
guarantees that such decision shall apply to all contracts belonging to
the same class, hence, upholding rather than violating, the “fair and
equitable treatment” stipulation in said treaty.
One other matter
requires clarification. Petitioners contend that, consistent with the
provisions of Section 2, Article XII of the Constitution, the President
may enter into agreements involving “
either technical
or financial assistance” only. The agreement in question, however, is a technical
and financial assistance agreement.
Petitioners’ contention does not lie. To adhere to the literal language of the Constitution would lead to absurd consequences.
[303] As WMCP correctly put it:
x
x x such a theory of petitioners would compel the government (through
the President) to enter into contract with two (2) foreign-owned
corporations, one for financial assistance agreement and with the other,
for technical assistance over one and the same mining area or land; or
to execute two (2) contracts with only one foreign-owned corporation
which has the capability to provide both financial and technical
assistance, one for financial assistance and another for technical
assistance, over the same mining area. Such an absurd result is
definitely not sanctioned under the canons of constitutional
construction.[304] [Underscoring in the original.]
Surely,
the framers of the 1987 Charter did not contemplate such an absurd
result from their use of “either/or.” A constitution is not to be
interpreted as demanding the impossible or the impracticable; and
unreasonable or absurd consequences, if possible, should be avoided.
[305]
Courts are not to give words a meaning that would lead to absurd or
unreasonable consequences and a literal interpretation is to be rejected
if it would be unjust or lead to absurd results.
[306] That is a strong argument against its adoption.
[307] Accordingly, petitioners’ interpretation must be rejected.
The foregoing discussion has rendered unnecessary the resolution of the other issues raised by the petition.
WHEREFORE, the petition is
GRANTED. The Court hereby declares unconstitutional and void:
(1) The following provisions of Republic Act No. 7942:
(a) The proviso in Section 3 (aq),
(b) Section 23,
(c) Section 33 to 41,
(d) Section 56,
(e) The second and third paragraphs of Section 81, and
(f) Section 90.
(2)
All provisions of Department of Environment and Natural Resources
Administrative Order 96-40, s. 1996 which are not in conformity with
this Decision, and
(3) The Financial and Technical Assistance
Agreement between the Government of the Republic of the Philippines and
WMC Philippines, Inc.
SO ORDERED.
Davide, Jr., C.J., Puno, Quisumbing, Carpio, Corona, Callejo, Sr., and
Tinga, JJ., concur.
Vitug, J., see separate opinion.
Panganiban, J., see separate opinion.
Ynares-Santiago, Sandoval-Gutierrez, and
Austria-Martinez, JJ., joins J. Panganiban’s separate opinion.
Azcuna, J., no part, one of the parties was a client.
[1] Appears as “Nequito” in the caption of the Petition but “Nequinto” in the body. (
Rollo, p. 12.)
[2] As appears in the body of the Petition. (
Id.,
at 13.) The caption of the petition does not include Louel A. Peria as
one of the petitioners but the name of his father Elpidio V. Peria
appears therein.
[3]
Appears as “Kaisahan Tungo sa Kaunlaran ng Kanayunan at Repormang
Pansakahan (KAISAHAN)” in the caption of the Petition by “Philippine
Kaisahan Tungo sa Kaunlaran ng Kanayunan at Repormang Pansakahan
(KAISAHAN)” in the body. (
Id., at 14.)
[4] Erroneously designated in the Petition as “Western Mining Philippines Corporation.” (
Id., at 212.) Subsequently, WMC (Philippines), Inc. was renamed “Tampakan Mineral Resources Corporation.” (
Id., at 778.)
[5] An Act Instituting A New System of Mineral Resources Exploration, Development, Utilization and Conservation.
[6]
Authorizing the Secretary of Environment and Natural Resources to
Negotiate and Conclude Joint Venture, Co-Production, or
Production-Sharing Agreements for the Exploration, Development and
Utilization of Mineral Resources, and Prescribing the Guidelines for
such Agreements and those Agreements involving Technical or Financial
Assistance by Foreign-Owned Corporations for Large-Scale Exploration,
Development and Utilization of Minerals.
[7] Exec. Order No. 279 (1987), sec. 4.
[8] Rep. Act No. 7942 (1995), sec. 15.
[9] Id., sec. 26 (a)-(c).
[10] Id., sec. 29.
[11] Id., sec. 30.
[12] Id., sec. 31.
[13] Id., sec. 32.
[14] Id., ch. VI.
[15] Id., secs. 27 and 33 in relation to sec. 3 (aq).
[16] Id., sec. 72.
[17] Id., sec. 73.
[18] Id., sec. 75.
[19] Id., sec. 74.
[20] Id., sec. 76.
[21] Id., ch. XIII.
[22] Id., secs. 20-22.
[23] Id., secs. 43, 45.
[24] Id., secs. 46-49, 51-52.
[25] Id., ch. IX.
[26] Id., ch. X.
[27] Id., ch. XI.
[28] Id., ch. XIV.
[29] Id., ch. XV.
[30] Id., ch. XVI.
[31] Id., ch. XIX.
[32] Id., ch. XVII.
[33]
Section 116, R.A. No. 7942 provides that the Act “shall take effect
thirty (30) days following its complete publication in two (2)
newspapers of general circulation in the Philippines.”
[34] WMCP FTAA, sec. 4.1.
[35] Rollo, p. 22.
[36] Ibid.
[37] Ibid.
[38] Ibid. The number has since risen to 129 applications when the petitioners filed their Reply. (
Rollo, p. 363.)
[39] Id., at 22.
[40] Id., at 23-24.
[41] Id., at 52-53. Emphasis and underscoring supplied.
[42] WMCP FTAA, p. 2.
[43] Rollo, p. 220.
[44] Id., at 754.
[45] Vide Note 4.
[46] Rollo, p. 754.
[47] Id., at 755.
[48] Id., at 761-763.
[49] Id., at 764-776.
[50] Id., at 782-786.
[51] Docketed as C.A.-G. R. No. 74161.
[52] G.R. No. 153885, entitled
Lepanto Consolidated Mining Company v. WMC Resources International Pty. Ltd., et al., decided September 24, 2003 and G.R. No. 156214, entitled
Lepanto
Mining Company v. WMC Resources International Pty. Ltd., WMC
(Philippines), Inc., Southcot Mining Corporation, Tampakan Mining
Corporation and Sagittarius Mines, Inc., decided September 23, 2003.
[53]
Section 12, Rule 43 of the Rules of Court, invoked by private
respondent, states, “ The appeal shall not stay the award, judgment,
final order or resolution sought to be reviewed unless the Court of
Appeals shall direct otherwise upon such terms as it may deem just.”
[54] WMCP’s Reply (dated May 6, 2003) to Petitioners’ Comment (to the Manifestation and Supplemental Manifestation), p. 3.
[55] Ibid.
[56] Ibid.
[57] WMCP’s Reply (dated May 6, 2003) to Petitioners’ Comment (to the Manifestation and Supplemental Manifestation), p. 4.
[58] Philippine Constitution Association v. Enriquez, 235 SCRA 506 (1994);
National Economic Protectionism Association v. Ongpin, 171 SCRA 657 (1989);
Dumlao v. COMELEC, 95 SCRA 392 (1980).
[59] Dumlao v. COMELEC, supra.
[60] Board of Optometry v. Colet, 260 SCRA 88 (1996).
[61] Dumlao v. COMELEC, supra.
[62] Subic Bay Metropolitan Authority v. Commission on Elections, 262 SCRA 492 (1996).
[63] Angara v. Electoral Commission, 63 Phil. 139 (1936).
[64] Integrated Bar of the Philippines v. Zamora, 338 SCRA 81, 100 (2000);
Dumlao v. COMELEC, supra;
People v. Vera, 65 Phil. 56 (1937).
[65] Dumlao v. COMELEC, supra.
[66] Integrated Bar of the Philippines v. Zamora, supra.
[67] Ermita-Malate Hotel and Motel Operators Association, Inc. v. City Mayor of Manila¸ 21 SCRA 449 (1967).
[68]
Petitioners Roberto P. Amloy, Raqim L. Dabie, Simeon H. Dolojo, Imelda
Gandon, Leny B. Gusanan, Marcelo L. Gusanan, Quintol A. Labuayan,
Lomingges Laway, and Benita P. Tacuayan.
[69]
Petitioners F’long Agutin M. Dabie, Mario L. Mangcal, Alden S. Tusan,
Sr. Susuan O. Bolanio, OND, Lolita G. Demonteverde, Benjie L. Nequinto,
Rose Lilia S. Romano and Amparo S. Yap.
[70] Rollo, p. 6.
[71] Id. at 337, citing
Malabanan v. Gaw Ching, 181 SCRA 84 (1990).
[72] 246 SCRA 540 (1995).
[73] People v. Vera, supra.
[74] Militante v. Court of Appeals, 330 SCRA 318 (2000).
[75] Ibid.
[76] Cruz v. Secretary of Environment and Natural Resources, 347 SCRA 128 (2000), Kapunan,
J., Separate Opinion. [Emphasis supplied.]
[77] Joya v. Presidential Commission on Good Government, 225 SCRA 568 (1993).
[78] Integrated Bar of the Philippines v. Zamora, supra.
[79] J. BERNAS, S.J., THE 1987 CONSTITUTION OF THE PHILIPPINES: A COMMENTARY 1009 (1996).
[80] Cruz v. Secretary of Environment and Natural Resources, supra, Kapunan,
J., Separate Opinion.
[81] Id., Puno,
J., Separate Opinion, and Panganiban,
J., Separate Opinion.
[82] Cariño v. Insular Government, 212 US 449, 53 L.Ed. 595 (1909). For instance, Law 14, Title 12, Book 4 of the Recopilacion
de Leyes de las Indias proclaimed:
We
having acquired full sovereignty over the Indies, and all lands,
territories, and possessions not heretofore ceded away by our royal
predecessors, or by us, or in our name, still pertaining to the royal
crown and patrimony, it is our will that all lands which are held
without proper and true deeds of grant be restored to us according as
they belong to us, in order that after reserving before all what to us
or to our viceroys, audiencias, and governors may seem necessary for
public squares, ways, pastures, and commons in those places which are
peopled, taking into consideration not only their present condition, but
also their future and their probable increase, and after distributing
to the natives what may be necessary for tillage and pasturage,
confirming them in what they now have and giving them more if necessary,
all the rest of said lands may remain free and unencumbered for us to
dispose of as we may wish.
[83] Republic v. Court of Appeals,
160 SCRA 228 (1988). It has been noted, however, that “the prohibition
in the [1935] Constitution against alienation by the state of mineral
lands and minerals is not properly a part of the
Regalian doctrine
but a separate national policy designed to conserve our mineral
resources and prevent the state from being deprived of such minerals as
are essential to national defense.” (A. NOBLEJAS, PHILIPPINE LAW ON
NATURAL RESOURCES 126-127 [1959 ED.], citing V. FRANCISCO, THE NEW
MINING LAW.)
[84] Cruz v. Secretary of Environment and Natural Resources, supra, Kapunan,
J., Separate Opinion, citing A. NOBLEJAS, PHILIPPINE LAW ON NATURAL RESOURCES 6 (1961). Noblejas continues:
Thus,
they asserted their right of ownership over mines and minerals or
precious metals, golds, and silver as distinct from the right of
ownership of the land in which the minerals were found. Thus, when on a
piece of land mining was more valuable than agriculture, the sovereign
retained ownership of mines although the land has been alienated to
private ownership. Gradually, the right to the ownership of minerals
was extended to base metals. If the sovereign did not exploit the
minerals, they grant or sell it as a right separate from the land. (Id., at 6.)
[85] In the unpublished case of
Lawrence v. Garduño (L-10942, quoted in V. FRANCISCO, PHILIPPINE LAW ON NATURAL RESOURCES 14-15 [1956]), this Court observed:
The
principle underlying Spanish legislation on mines is that these are
subject to the eminent domain of the state. The Spanish law of July 7,
1867, amended by the law of March 4, 1868, in article 2 says: “The
ownership of the substances enumerated in the preceding article (among
them those of inflammable nature), belong[s] to the state, and they
cannot be disposed of without the government authority.”
The
first Spanish mining law promulgated for these Islands (Decree of
Superior Civil Government of January 28, 1864), in its Article I, says:
“The supreme ownership of mines throughout the kingdom belong[s] to the
crown and to the king. They shall not be exploited except by persons
who obtained special grant from this superior government and by those
who may secure it thereafter, subject to this regulation.”
Article
2 of the royal decree on ownership of mines in the Philippine Islands,
dated May 14, 1867, which was the law in force at the time of the
cession of these Islands to the Government of the United States, says:
“The ownership of the substances enumerated in the preceding article
(among them those of inflammable nature) belongs to the state, and they
cannot be disposed of without an authorization issued by the Superior
Civil Governor.”
Furthermore, all those laws contained provisions
regulating the manner of prospecting, locating and exploring mines in
private property by persons other than the owner of the land as well as
the granting of concessions, which goes to show that private ownership
of the land did not include, without express grant, the mines that might
be found therein.
Analogous provisions are found in the Civil
Code of Spain determining the ownership of mines. In its Article 339
(Article 420, New Civil Code) enumerating properties of public
ownership, the mines are included, until specially granted to private
individuals. In its article 350 (Art. 437, New Civil Code) declaring
that the proprietor of any parcel of land is the owner of its surface
and of everything under it, an exception is made as far as mining laws
are concerned. Then in speaking of minerals, the Code in its articles
426 and 427 (Art. 519, New Civil Code) provides rules governing the
digging of pits by third persons on private-owned lands for the purpose
of prospecting for minerals.
[86] Atok Big-Wedge Mining Co. v. Intermediate Appellate Court, 261 SCRA 528 (1996).
[87] Ibid.
[88] Cruz v. Secretary of Environment and Natural Resources, supra, Kapunan,
J., Separate Opinion.
[89] Ibid.
[90] McDaniel v. Apacible and Cuisia, 42 Phil. 749 (1922).
[91] NOBLEJAS,
supra, at 5.
[92] V. M. A. Dimagiba,
Service Contract Concepts in Energy, 57 PHIL. L. J. 307, 313 (1982).
[93] P. A. Agabin,
Service Contracts: Old Wine in New Bottles?, in II DRAFT PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT 3.
[94] Id., at 2-3.
[95] Id., at 3.
[96] Ibid.
[97] Ibid.
[98] Ibid.
[99]
An Act to Provide for the Exploration, Location and Lease of Lands
Containing Petroleum and other Mineral Oils and Gas in the Philippine
Islands.
[100] An Act to Provide for the Leasing and Development of Coal Lands in the Philippine Islands.
[101] Agabin, supra, at 3.
[102] People v. Linsangan, 62 Phil. 646 (1935).
[103] Ibid.
[104] Ibid.
[105] Ibid.
[106] Ibid.
[107] Atok Big-Wedge Mining Co. v. Intermediate Appellate Court, supra.
[108] BERNAS, S.J.,
supra, at 1009-1010, citing
Lee Hong Hok v. David, 48 SCRA 372 (1972).
[109] II J. ARUEGO, THE FRAMING OF THE PHILIPPINE CONSTITUTION 592 (1949).
[110] Id., at 600-601.
[111] Id., at 604. Delegate Aruego expounds:
At
the time of the framing of the Philippine Constitution, Filipino
capital had been known to be rather shy. Filipinos hesitated as a
general rule to invest a considerable sum of their capital for the
development, exploitation, and utilization of the natural resources of
the country. They had not as yet been so used to corporate enterprises
as the peoples of the West. This general apathy, the delegates knew,
would mean the retardation of the development of the natural resources,
unless foreign capital would be encouraged to come in and help in that
development. They knew that the nationalization of the natural
resources would certainly not encourage the investment of foreign
capital into them. But there was a general feeling in the Convention
that it was better to have such development retarded or even postponed
altogether until such time when the Filipinos would be ready and willing
to undertake it rather than permit the natural resources to be placed
under the ownership or control of foreigners in order that they might be
immediately developed, with the Filipinos of the future serving not as
owners but at most as tenants or workers under foreign masters. By all
means, the delegates believed, the natural resources should be conserved
for Filipino posterity.
The nationalization of natural resources
was also intended as an instrument of national defense. The Convention
felt that to permit foreigner to own or control the natural resources
would be to weaken the national defense. It would be making possible
the gradual extension of foreign influence into our politics, thereby
increasing the possibility of foreign control. x x x.
Not only
these. The nationalization of the natural resources, it was believed,
would prevent making the Philippines a source of international conflicts
with the consequent danger to its internal security and independence.
For unless the natural resources were nationalized, with the nationals
of foreign countries having the opportunity to own or control them,
conflicts of interest among them might arise inviting danger to the
safety and independence of the nation. (Id., at 605-606.)
[112] Palting v. San Jose Petroleum Inc., 18 SCRA 924 (1966);
Republic v. Quasha, 46 SCRA 160 (1972).
[113] Atok Big-Wedge Mining Co. v. Intermediate Appellate Court, supra.
[114] Article VI thereof provided:
- The
disposition, exploitation, development and utilization of all
agricultural, timber, and mineral lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils, all forces and sources
of potential energy, and other natural resources of either Party, and
the operation of public utilities, shall, if open to any person, be open
to citizens of the other Party and to all forms of business enterprise
owned or controlled directly or indirectly, by citizens of such other
Party in the same manner as to and under the same conditions imposed
upon citizens or corporations or associations owned or controlled by
citizens of the Party granting the right.
- The rights
provided for in Paragraph 1 may be exercised x x x in the case of
citizens of the United States, with respect to natural resources in the
public domain in the Philippines, only through the medium of a
corporation organized under the laws of the Philippines and at least 60%
of the capital stock of which is owned or controlled by citizens of the
United States x x x.
- The United States of America
reserves the rights of the several States of the United States to limit
the extent to which citizens or corporations or associations owned or
controlled by citizens of the Philippines may engage in the activities
specified in this Article. The Republic of the Philippines reserves the
power to deny any of the rights specified in this Article to citizens of
the United States who are citizens of States, or to corporations or
associations at least 60% of whose capital stock or capital is owned or
controlled by citizens of States, which deny like rights to citizens of
the Philippines, or to corporations or associations which ore owned or
controlled by citizens of the Philippines x x x.
[115]
An Act to Promote the Exploration, Development, Exploitation, and
Utilization of the Petroleum Resources of the Philippines; to Encourage
the Conservation of such Petroleum Resources; to Authorize the Secretary
of Agriculture and Natural Resources to Create an Administration Unit
and a Technical Board in the Bureau of Mines; to Appropriate Funds
therefor; and for other purposes.
[116] Rep. Act No. 387 (1949), as amended, art. 10 (b).
[117] Id., art. 10 (c).
[118] Id., art. 5.
[119] Id., art. 31. The same provision recognized the rights of American citizens under the Parity Amendment:
During
the effectivity and subject to the provisions of the ordinance appended
to the Constitution of the Philippines, citizens of the United States
and all forms of business enterprises owned and controlled, directly or
indirectly, by citizens of the United States shall enjoy the same rights
and obligations under the provisions of this Act in the same manner as
to, and under the same conditions imposed upon, citizens of the
Philippines or corporations or associations owned or controlled by
citizens of the Philippines.
[120] Id., art. 10.
[121] Id., art. 3.
[122] Id., art. 9.
[123] Ibid.
[124] Rep. Act No. 387 (1949), as amended, art. 8.
[125] Id., art. 25.
[126] Id., art. 47.
[127] Id., art. 60.
[128] Id.,
art. 64. Article 49, R.A. No. 387 originally imposed an annual
exploration tax on exploration concessionaires but this provision was
repealed by Section 1, R.A. No. 4304.
[129] FRANCISCO,
supra, at 103.
[130] Rep. Act No. 387 (1949), as amended, art. 65.
[131] FRANCISCO,
supra, at 103.
[132] Rep. Act No. 387 (1949), as amended, art. 90 (b) 3.
[133] Id., art. 90 (b) 4.
[134] Id., art. 93-A.
[135] Id., art. 93.
[136] Ibid.
[137] Rep. Act No. 387 (1949), as amended, art. 94.
[138] Id., art. 106.
[139] Id., art. 95.
[140] Ibid.
[141] Rep. Act No. 387 (1949), as amended, art. 95 (e).
[142] Dimagiba,
supra,
at 315, citing Fabrikant, Oil Discovery and Technical Change in
Southeast Asia, Legal Aspects of Production Sharing Contracts in the
Indonesian Petroleum Industry, 101-102, sections 13C.24 and 13C.25
(1972).
[143] Agabin,
supra, at 4.
[144] Dimagiba,
supra, at 318.
[145]
Amending Presidential Decree No. 8 issued on October 2, 1972, and
Promulgating an Amended Act to Promote the Discovery and Production of
Indigenous Petroleum and Appropriate Funds Therefor.
[146] Pres. Decree No. 87 (1972), sec. 4.
[147] Agabin,
supra, at 6.
[148] M. Magallona,
Service Contracts in Philippine Natural Resources, 9 WORLD BULL. 1, 4 (1993).
[149] Pres. Decree No. 87 (1972), sec. 6.
[150] Id., sec. 4.
[151] Id., sec. 6.
[152] Id., sec. 7.
[153] Id., sec. 8.
[154] Ibid.
[155] Ibid.
[156] Pres. Decree No. 87 (1972), sec. 9.
[157] Id., sec. 12.
[158] Id., sec. 13.
[159] Dimagiba draws the following comparison between the service contract scheme and the concession system:
In
both the concession system and the service contract scheme, work and
financial obligations are required of the developer. Under Republic Act
No. 387 and Presidential Decree No. 87, the concessionaire and the
service contractors are extracted certain taxes in favor of the
government. In both arrangements, the explorationist/developer is given
incentives in the form of tax exemptions in the importation or
disposition of machinery, equipment, materials and spare parts needed in
petroleum operations.
The concessionaire and the service
contractor are required to keep in their files valuable data and
information and may be required to submit need technological or
accounting reports to the Government. Duly authorized representatives
of the Government could, under the law, inspect or audit the books of
accounts of the contract holder.
In both systems, signature, discovery or production bonuses may be given by the developer to the host Government.
The
concession system, however, differs considerably from the service
contract system in important areas of the operations. In the concession
system, the Government merely receives fixed royalty which is a certain
percentage of the crude oil produced or other units of measure,
regardless of whether the concession holder makes profits or not. This
is not so in the service contract system. A certain percentage of the
gross production is set aside for recoverable expenditures by the
contractor. Of the net proceeds the parties are entitled percentages of
share that will accrue to each of them.
In the royalty system,
the concessionaire may be discouraged to produce more for the reason
that since the royalty paid to the host country is closely linked to the
volume of production, the greater the produce, the more amount or
royalty would be allocated to the Government. This is not so in the
production sharing system. The share of the Government depends largely
on the net proceeds of production after reimbursing the service
contractor of its recoverable expenses.
As a general rule, the
Government plays a passive role in the concession system, more
particularly, interested in receiving royalties from the
concessionaire. In the production-sharing arrangement, the Government
plays a more active role in the management and monitoring of oil
operations and requires the service contractor entertain obligations
designed to bring more economic and technological benefits to the host
country. (Dimagiba, supra, at 330-331.)
[160] Agabin,
supra, at 6.
[161] The antecedents leading to the Proclamation are narrated in
Javellana v. Executive Secretary, 50 SCRA 55 (1973):
On
March 16, 1967, Congress of the Philippines passed Resolution No. 2,
which was amended by Resolution No. 4, of said body, adopted on June 17,
1969, calling a convention to propose amendments to the Constitution of
the Philippines. Said Resolution No. 2, as amended, was implemented by
Republic Act No. 6132 approved on August 24, 1970, pursuant to the
provisions of which the election of delegates to said convention was
held on November 10, 1970, and the 1971 Convention began to perform its
functions on June 1, 1971. While the Convention was in session on
September 21, 1972, the President issued Proclamation No. 1081 placing
the entire Philippines under Martial Law. On November 29, 1972, the
President of the Philippines issued Presidential Decree No. 73,
submitting to the Filipino people for ratification or rejection the
Constitution of the Republic of the Philippines proposed by the 1971
Constitutional Convention, and appropriating funds therefor, as well as
setting the plebiscite for such ratification on January 15, 1973.
On
January 17, 1973, the President issued Proclamation No. 1102 certifying
and proclaiming that the Constitution proposed by the 1971
Constitutional Convention “has been ratified by an overwhelming majority
of all the votes cast by the members of all the Barangays (Citizens
Assemblies) throughout the Philippines, and has thereby come into
effect.”
[162] BERNAS, S.J.,
supra, at 1016, Note 28, citing Session of November 25, 1972.
[163] Agabin,
supra, at 1, quoting Sanvictores,
The Economic Provisions in the 1973 Constitution, in ESPIRITU, 1979 PHILCONSA READER ON CONSTITUTIONAL AND POLICY ISSUES 449.
[164] BERNAS, S.J.,
supra, at 1016, Note 28, citing Session of November 25, 1972.
[165] Ibid.
[166] Ibid.
[167]
Allowing Citizens of the Philippines or Corporations or Associations at
least Sixty Per Centum of the Capital of which is Owned by such
Citizens to Enter into Service Contracts with Foreign Persons,
Corporations for the Exploration, Development, Exploitation or
Utilization of Lands of the Public Domain, Amending for the purpose
certain provisions of Commonwealth Act No. 141.
[168] Pres. Decree No. 151 (1973), sec. 1.
[169]
Providing for A Modernized System of Administration and Disposition of
Mineral Lands and to Promote and Encourage the Development and
Exploitation thereof.
[170] Revising and Consolidating All Laws and Decrees Affecting Fishing and Fisheries.
[171] Pres. Decree No. 704 (1975), sec. 21.
[172] Revising Presidential Decree No. 389, otherwise known as The Forestry Reform Code of the Philippines.
[173] Pres. Decree No. 705 (1975), sec. 62.
[174] An Act to Promote the Exploration and Development of Geothermal Resources.
[175] Magallona,
supra, at 6.
[176]
Declaring a National Policy to Implement the Reforms Mandated by the
People, Protecting their Basic Rights, Adopting a Provisional
Constitution, and Providing for an Orderly Transition to a Government
under a New Constitution.
[177] CONST., art. XVIII, sec. 27;
De Leon v. Esguerra, 153 SCRA 602 (1987).
[178] Miners Association of the Philippines, Inc. v. Factoran, Jr., 240 SCRA 100 (1995).
[179] Ibid.
[180] Ibid.
[181] J. BERNAS, S.J., THE INTENT OF THE 1986 CONSTITUTION WRITERS 812 (1995).
[182] Miners Association of the Philippines, Inc. v. Factoran, Jr., supra.
[183] III RECORDS OF THE CONSTITUTIONAL COMMISSION 255.
[184] Id., at 355-356.
[185] CONST. (1986), art. II, sec. 1.
[186] Cruz v. Secretary of Environment and Natural Resources, supra, Puno,
J., Separate Opinion.
[187] Rep. Act No. 7942 (1995), sec. 9.
[188] SEC. 82.
Allocation of Government Share.—The
Government share as referred to in the preceding sections shall be
shared and allocated in accordance with Sections 290 and 292 of Republic
Act No. 7160 otherwise known as the Local Government Code of 1991. In
case the development and utilization of mineral resources is undertaken
by a government-owned or -controlled corporation, the sharing and
allocation shall be in accordance with Sections 291 and 292 of the said
Code.
[189] An Act Creating A People’s Small-Scale Mining Program and for other purposes.
[190] Rep. Act No. 7942 (1995), sec. 42.
[191] Id., secs. 3 (ab) and 26.
[192]
“Contractor” means a qualified person acting alone or in consortium who
is a party to a mineral agreement or to a financial or technical
assistance agreement. (
Id., sec. 3[g].)
[193]
“Contract area” means land or body water delineated for purposes of
exploration, development, or utilization of the minerals found therein. (
Id., sec. 3[f].)
[194]
“Gross output” means the actual market value of minerals or mineral
products from its mining area as defined in the National Internal
Revenue Code (
Id., sec. 3[v]).
[195] Id., sec. 26 (a).
[196]
An Act Reducing Excise Tax Rates on Metallic and Non-Metallic Minerals
and Quarry Resources, amending for the purpose Section 151 (a) of the
National Internal Revenue Code, as amended.
[197] Rep. Act No. 7942 (1995), sec. (80).
[198] Id., Sec. 26 (b).
[199] “Mineral resource” means any concentration of minerals/rocks with potential economic value. (
Id., sec. 3[ad].)
[200] Id., sec. 26 (c).
[201] Ibid.
[202] Id., sec. 3 (h).
[203] Id., sec. 3 (x).
[204] Id., sec. 26, last par.
[205] Id., sec. 27.
[206] Id., sec. 3 (aq).
[207] Id., sec. 3 (r).
[208] Id., sec. 33.
[209] Id., sec. 3 (t).
[210] Id., sec. 3 (aq).
[211] The maximum areas in cases of mineral agreements are prescribed in Section 28 as follows:
SEC. 28.
Maximum Areas for Mineral Agreement. – The maximum area that a qualified person may hold at any time under a mineral agreement shall be:
(a) Onshore, in any one province –
(1) For individuals, ten (10) blocks; and
(2) For partnerships, cooperatives, associations, or corporations, one hundred (100) blocks.
(b) Onshore, in the entire Philippines –
(1) For individuals, twenty (20) blocks; and
(2) For partnerships, cooperatives, associations, or corporations, two hundred (200) blocks.
(c) Offshore, in the entire Philippines –
(1) For individuals, fifty (50) blocks;
(2) For partnerships, cooperatives, associations, or corporations, five hundred (500) blocks; and
(3) For the exclusive economic area, a larger area to be determined by the Secretary.
The
maximum areas mentioned above that a contractor may hold under a
mineral agreement shall not include mining/quarry areas under operating
agreements between the contractor and a
claimowner/lessee/permittee/licensee entered into under Presidential
Decree No. 463.
On the other hand, Section 34, which governs the maximum area for FTAAs provides:
SEC. 34.
Maximum Contract Area. – The maximum contract area that may be granted per qualified person, subject to relinquishment shall be:
(a) 1,000 meridional blocks onshore;
(b) 4,000 meridional blocks offshore; or
(c) Combinations of (a) and (b) provided that it shall not exceed the maximum limits for onshore and offshore areas.
[212] Id., sec. 33.
[213] Id., sec. 81.
[214] Kapatiran v. Tan, 163 SCRA 371 (1988).
[215]
Providing for the Publication of Laws either in the Official Gazette or
in a Newspaper of General Circulation in the Philippines as a
Requirement for their Effectivity.
[216]
Section 1, E.O. No. 200 was subsequently incorporated in the
Administrative Code of 1987 (Executive Order No. 292 as Section 18,
Chapter 5 (Operation and Effect of Laws), Book 1 (Sovereignty and
General Administration).
[217] 136 SCRA 27 (1985).
[218] Manila Prince Hotel v. Government Service Insurance System, 267 SCRA 408 (1997).
[219] CONST., art. 3, sec. 1.
[220] 83 O.G. (Suppl.) 3528-115 to 3528-117 (August 1987).
[221] Miners Association of the Philippines, Inc. v. Factoran, Jr., supra.
[222] Petitioners note in their Memorandum that the FTAA:
x
x x guarantees that wholly foreign owned [WMCP] entered into the FTAA
in order to facilitate “the large scale exploration, development and
commercial exploitation of mineral deposits that may be found to exist
within the Contract area.” [Section 1.1] As a contractor it also has
the “exclusive right to explore, exploit, utilize, process and dispose
of all mineral products and by-products thereof that may be derived or
produced from the Contract Area.” [Section 1.3] Thus, it is divided
into an “exploration and feasibility phase” [Section 3.2 (a)] and a
“construction, development and production phase.” [Section 3. 2 (b).]
Thus, it is this wholly foreign owned corporation that, among other things:
(a)
|
operates within a prescribed contract area [Section 4],
|
(b)
|
opts to apply for a Mining Production Sharing Agreement [Section 4.2],
|
(c)
|
relinquishes control over portions thereof at their own choice [Section 4.6],
|
(d)
|
submits work programs, incurs expenditures, and makes reports during the exploration period [Section 5],
|
(e)
|
submits a Declaration of Mining Feasibility [Sections 5.4 and 5.5],
|
(f)
|
during
the development period, determines the timetable, submits work
programs, provides the reports and determines and executes expansions,
modifications, improvements and replacements of new mining facilities
within the area [Section 6],
|
(g)
|
complies
with the conditions for environmental protection and industrial safety,
posts the necessary bonds and makes representations and warranties to
the government [Section 10.5].
|
The
contract subsists for an initial term of twenty-five (25) years from
the date of its effectivity [Section 3.1] and renewable for a further
period of twenty-five years under the same terms and conditions upon
application by private respondent [Section 3.3]. (Rollo, pp. 458-459.)
[223] H. C. BLACK, HANDBOOK ON THE CONSTRUCTION AND INTERPRETATION OF THE LAWS § 8.
[224] Ibid.
[225] J. M. Tuason & Co., Inc. v. Land Tenure Association, 31 SCRA 413 (1970).
[226] Rollo, p. 580.
[227] Ibid. Emphasis supplied.
[228] People v. Manantan, 115 Phil. 657 (1962);
Commission on Audit of the Province of Cebu v. Province of Cebu, 371 SCRA 196 (2001).
[229] Rollo, p. 569.
[230] III Record of the Constitutional Commission 351-352.
[231] V Record of the Constitutional Commission 844.
[232] Id., at 841.
[233] Id., at 842.
[234] Id. at 844.
[235] Vide Cherey v. Long Beach, 282 NY 382, 26 NE 2d 945, 127 ALR 1210 (1940), cited in 16 Am Jur 2d Constitutional Law §79.
[236] Civil Liberties Union v. Executive Secretary, 194 SCRA 317, 325 (1991).
[237] III Record of the Constitutional Commission 278.
[238] Id., at 316-317.
[239] III Record of the Constitutional Commission 358-359.
[240] Vera v. Avelino, 77 Phil. 192 (1946).
[241] J. NOLLEDO, THE NEW CONSTITUTION OF THE PHILIPPINES ANNOTATED 924-926 (1990).
[242] Resolution to Incorporate in the New Constitution an Article on National Economy and Patrimony.
[243] The Chair of the Committee on National Economy and Patrimony, alluded to it in the discussion on the capitalization requirement:
MR.
VILLEGAS. We just had a long discussion with the members of the team
from the UP Law Center who provided us a draft. The phrase that is
contained here which we adopted from the UP draft is “60 percent of
voting stock.” (III Record of the Constitutional Commission 255.)
Likewise, in explaining the reasons for the deletion of the term “exploitation”:
MR.
VILLEGAS. Madam President, following the recommendation in the UP
draft, we omitted “exploitation” first of all because it is believed to
be subsumed under “development” and secondly because it has a derogatory
connotation. (Id., at 358.)
[244] Id., at 12.
[245] Id., at 15-16.
[246] M. Magallona,
Nationalism and Its Subversion in the Constitution 5, in II DRAFT PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT.
[247] Agabin,
supra, at 16.
[248] E. Labitag,
Philippine Natural Resources: Some Problems and Perspectives 17 in II DRAFT PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT.
[249] I DRAFT PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT 11-13.
[250] Id., at 9-11. Professor Labitag also suggests that:
x
x x. The concession regime of natural resources disposition should be
discontinued. Instead the State shall enter into such arrangements and
agreements like co-production, joint ventures, etc. as shall bring
about effective control and a larger share in the proceeds, harvest or
production. (Labitag, supra, at 17.)
[251] Vide Note 147.
[252] Vide Note 230. The question was posed before the Jamir amendment and subsequent proposals introducing other limitations.
Comm.
Villegas’ response that there was no requirement in the 1973
Constitution for a law to govern service contracts and that, in fact,
there were then no such laws is inaccurate. The 1973 Charter required
similar legislative approval, although it did not specify the form it
should take: “The Batasang Pambansa, in the national interest, may allow
such citizens… to enter into service contracts….” As previously noted,
however, laws authorizing service contracts were actually enacted by
presidential decree.
[253] Vide Note 238.
[254] Vide Note 241.
[255] Vide Note 231.
[256] Dated July 28, 1987.
[257] Dated October 3, 1990.
[258] Peralta v. Civil Service Commission, 212 SCRA 425 (1992).
[259] Vide Note 238.
[260] III RECORD OF THE CONSTITUTIONAL COMMISSION 354.
[261] Salaysay v. Castro, 98 Phil. 364 (1956).
[262] Rep. Act No. 7942 (1995), sec. 3 (q).
[263] Id., sec. 3 (aq).
[264] Id., sec. 20.
[265] Id., sec. 23, first par.
[266] Id., sec. 23, last par.
[267] Id., sec. 3 (j).
[268] Id., sec. 3 (az).
[269] Id., sec. 35 (m).
[270] Id., secs. 3 (aq) and 56.
[271] Id., sec. 3 (y).
[272] Id., sec. 35 (g).
[273] Id., sec. 35 (h).
[274] Id., sec. 35 (l).
[275] Id., sec. 3 (af).
[276] SEC. 72.
Timber Rights.—Any provision of the law to the contrary notwithstanding, a
contractor
may be granted a right to cut trees or timber within his mining area as
may be necessary for his mining operations subject to forestry laws,
rules and regulations:
Provided, That if the land covered by the
mining area is already covered by exiting timber concessions, the volume
of timber needed and the manner of cutting and removal thereof shall be
determined by the mines regional director, upon consultation with the
contractor, the timber concessionaire/permittee and the Forest
Management Bureau of the Department:
Provided, further, That in case of disagreement between the
contractor and the timber concessionaire, the matter shall be submitted to the Secretary whose decision shall be final. The
contractor
shall perform reforestation work within his mining area in accordance
with forestry laws, rules and regulations. [Emphasis supplied.]
SEC. 73.
Water Rights.—A
contractor
shall have water rights for mining operations upon approval of
application with the appropriate government agency in accordance with
existing water laws, rules and regulations promulgated thereunder:
Provided,
That water rights already granted or vested through long use,
recognized and acknowledged by local customs, laws and decisions of
courts shall not thereby be impaired:
Provided, further, That the
Government reserves the right to regulate water rights and the
reasonable and equitable distribution of water supply so as to prevent
the monopoly of the use thereof. [Emphasis supplied.]
SEC. 74.
Right to Possess Explosives.—A
contractor/exploration permittee
shall have the right to possess and use explosives within his
contract/permit area as may be necessary for his mining operations upon
approval of an application with the appropriate government agency in
accordance with existing laws, rules and regulations promulgated
thereunder:
Provided, That the Government reserves the right to
regulate and control the explosive accessories to ensure safe mining
operations. [Emphasis supplied.]
SEC. 75.
Easement Rights.—When
mining areas are so situated that for purposes of more convenient
mining operations it is necessary to build, construct or install on the
mining areas or lands owned, occupied or leased by other persons, such
infrastructure as roads, railroads, mills, waste dump sites, tailings
ponds, warehouses, staging or storage areas and port facilities,
tramways, runways, airports, electric transmission, telephone or
telegraph lines, dams and their normal flood and catchment areas, sites
for water wells, ditches, canals, new river beds, pipelines, flumes,
cuts, shafts, tunnels, or mills, the
contractor, upon payment of just compensation, shall be entitled to enter and occupy said mining areas or lands. [Emphasis supplied.]
SEC. 76.
Entry into Private Lands and Concession Areas.—Subject to prior notification,
holders of mining rights
shall not be prevented from entry into private lands and concession
areas by surface owners, occupants, or concessionaires when conducting
mining operations therein:
Provided, That any damage done to the
property of the surface owner, occupant, or concessionaire as a
consequence of such operations shall be properly compensated as may be
bee provided for in the implementing rules and regulations:
Provided, further,
That to guarantee such compensation, the person authorized to conduct
mining operation shall, prior thereto, post a bond with the regional
director based on the type of properties, the prevailing prices in and
around the area where the mining operations are to be conducted, with
surety or sureties satisfactory to the regional director. [Emphasis
supplied.]
[277] Id., sec. 39, first par.
[278] Id., sec. 39, second par.
[279] Id., sec. 35 (e).
[280] SEC. 23.
Rights and Obligations of the Permittee.—x x x.
The
permittee may apply for a mineral production sharing agreement, joint
venture agreement, co-production agreement or financial or technical
assistance agreement over the permit area, which application shall be
granted if the permittee meets the necessary qualifications and the
terms and conditions of any such agreement:
Provided, That the
exploration period covered by the exploration period of the mineral
agreement or financial or technical assistance agreement.
[281] SEC. 35.
Terms and Conditions.
— The following terms, conditions, and warranties shall be incorporated
in the financial or technical assistance agreement, to wit:
(a)
A firm commitment in the form of a sworn statement, of an amount
corresponding to the expenditure obligation that will be invested in the
contract area: Provided, That such amount shall be subject to changes
as may be provided for in the rules and regulations of this Act;
(b) A
financial guarantee bond shall be posted in favor of the Government in
an amount equivalent to the expenditure obligation of the applicant for
any year;
(c) Submission of proof of technical competence, such as,
but not limited to, its track record in mineral resource exploration,
development, and utilization; details of technology to be employed in
the proposed operation; and details of technical personnel to undertake
the operation;
(d) Representations and warranties that the applicant
has all the qualifications and none of the disqualifications for
entering into the agreement;
(e) Representations and warranties that
the contractor has or has access to all the financing, managerial and
technical expertise and, if circumstances demand, the technology
required to promptly and effectively carry out the objectives of the
agreement with the understanding to timely deploy these resources under
its supervision pursuant to the periodic work programs and related
budgets, when proper, providing an exploration period up to two (2)
years, extendible for another two (2) years but subject to annual review
by the Secretary in accordance with the implementing rules and
regulations of this Act, and further, subject to the relinquishment
obligations;
(f) Representations and warranties that, except for
paymets for dispositions for its equity, foreign investments in local
enterprises which are qualified for repatriation, and local supplier’s
credits and such other generally accepted and permissible financial
schemes for raising funds for valid business purposes, the conractor
shall not raise any form of financing from domestic sources of funds,
whether in Philippine or foreign currency, for conducting its mining
operations for and in the contract area;
(g) The mining operations
shall be conducted in accordance with the provisions of this Act and its
implementing rules and regulations;
(h) Work programs and minimum expenditures commitments;
(i) Preferential use of local goods and services to the maximum extent practicable;
(j)
A stipulation that the contractors are obligated to give preference to
Filipinos in all types of mining employment for which they are qualified
and that technology shall be transferred to the same;
(k) Requiring
the proponent to effectively use appropriate anti-pollution technology
and facilities to protect the environment and to restore or rehabilitate
mined out areas and other areas affected by mine tailings and other
forms of pollution or destruction;
(l) The contractors shall furnish
the Government records of geologic, accounting, and other relevant data
for its mining operations, and that book of accounts and records shall
be open for inspection by the government;
(m) Requiring the proponent
to dispose of the minerals and byproducts produced under a financial or
technical assistance agreement at the highest price and more
advantageous terms and conditions as provided for under the rules and
regulations of this Act;
(n) Provide for consultation and arbitration
with respect to the interpretation and implementation of the terms and
conditions of the agreements; and
(o) Such other terms and conditions
consistent with the Constitution and with this Act as the Secretary may
deem to be for the best interest of the State and the welfare of the
Filipino people.
[282] SEC. 39.
Option to Convert into a Mineral Agreement.
— The contractor has the option to convert the financial or technical
assistance agreement to a mineral agreement at any time during the term
of the agreement, if the economic viability of the contract area is
found to be inadequate to justify large-scale mining operations, after
proper notice to the Secretary as provided for under the implementing
rules and regulations;
Provided, That the mineral agreement shall only be for the remaining period of the original agreement.
In
the case of a foreign contractor, it shall reduce its equity to forty
percent (40%) in the corporation, partnership, association, or
cooperative. Upon compliance with this requirement by the contractor,
the Secretary shall approve the conversion and execute the mineral
production-sharing agreement.
[283] SEC. 56.
Eligibility of Foreign-owned/-controlled Corporation.—A foreign owned/ -controlled corporation may be granted a mineral processing permit.
[284] SEC. 3.
Definition of Terms. – As used in and for purposes of this Act, the following terms, whether in singular or plural, shall mean:
x x x
(g)
“Contractor” means a qualified person acting alone or in consortium who
is a party to a mineral agreement or to a financial or technical
assistance agreement.
[285] SEC. 34.
Maximum Contract Area. — The maximum contract area that may be granted per qualified person, subject to relinquishment shall be:
(a) 1,000 meridional blocks onshore;
(b) 4,000 meridional blocks offshore; or
(c) Combinations of (a) and (b) provided that it shall not exceed the maximum limits for onshore and offshore areas.
[286] SEC. 36.
Negotiations.
— A financial or technical assistance agreement shall be negotiated by
the Department and executed and approved by the President. The
President shall notify Congress of all financial or technical assistance
agreements within thirty (30) days from execution and approval thereof.
[287] SEC. 37.
Filing and Evaluation of Financial or Technical Assistance Agreement Proposals.
— All financial or technical assistance agreement proposals shall be
filed with the Bureau after payment of the required processing fees. If
the proposal is found to be sufficient and meritorious in form and
substance after evaluation, it shall be recorded with the appropriate
government agency to give the proponent the prior right to the area
covered by such proposal:
Provided, That existing mineral
agreements, financial or technical assistance agreements and other
mining rights are not impaired or prejudiced thereby. The Secretary
shall recommend its approval to the President.
[288] SEC. 38.
Term of Financial or Technical Assistance Agreement.
— A financial or technical assistance agreement shall have a term not
exceeding twenty-five (25) years to start from the execution thereof,
renewable for not more than twenty-five (25) years under such terms and
conditions as may be provided by law.
[289] SEC. 40.
Assignment/Transfer.
— A financial or technical assistance agreement may be assigned or
transferred, in whole or in part, to a qualified person subject to the
prior approval of the President:
Provided, That the President
shall notify Congress of every financial or technical assistance
agreement assigned or converted in accordance with this provision within
thirty (30) days from the date of the approval thereof.
[290] SEC. 41.
Withdrawal from Financial or Technical Assistance Agreement.
— The contractor shall manifest in writing to the Secretary his
intention to withdraw from the agreement, if in his judgment the mining
project is no longer economically feasible, even after he has exerted
reasonable diligence to remedy the cause or the situation. The
Secretary may accept the withdrawal:
Provided, That the contractor has complied or satisfied all his financial, fiscal or legal obligations.
[291] SEC. 81.
Government Share in Other Mineral Agreements.—x x x.
The
Government share in financial or technical assistance agreement shall
consist of, among other things, the contractor’s corporate income tax,
excise tax, special allowance, withholding tax due from the contractor’s
foreign stockholders arising from dividend or interest payments to the
said foreign stockholder in case of a foreign national and all such
other taxes, duties and fees as provided for under existing laws.
The
collection of Government share in financial or technical assistance
agreement shall commence after the financial or technical assistance
agreement contractor has fully recovered its pre-operating expenses,
exploration, and development expenditures, inclusive.
[292] SEC. 90.
Incentives.—The
contractors in mineral agreements, and financial or technical
assistance agreements shall be entitled to the applicable fiscal and
non-fiscal incentives as provided for under Executive Order No. 226,
otherwise known as the Omnibus Investments Code of 1987:
Provided,
That holders of exploration permits may register with the Board of
Investments and be entitled to the fiscal incentives granted under the
said Code for the duration of the permits or extensions thereof:
Provided, further, That mining activities shall always be included in the investment priorities plan.
[293] Lidasan v. Commission on Elections, 21 SCRA 496 (1967).
[294] Vide also WMCP FTAA, sec. 10.2 (a).
[295] WMCP, sec. 10.2.
[296] Id., sec. 11.
[297] Id., sec. 10.1(a).
[298] Id., sec. 10.1(c).
[299] Id., sec. 6.4.
[300] Rollo, pp. 563-564.
[301] CIVIL CODE, art. 8.
[302] CONST., art III, sec. 1.
[303] Vide Note 223.
[304] Rollo, p. 243.
[305] Civil Liberties Union v. Executive Secretary, supra.
[306] Automotive Parts & Equipment Company, Inc. v. Lingad, 30 SCRA 248 (1969).
[307] Ibid.
SEPARATE OPINION
VITUG, J.:
Petitioners, in the instant petition for prohibition and
mandamus,
assail the constitutionality of Republic Act No. 7942, otherwise also
known as the Philippine Mining Act of 1995, as well as its Implementing
Rules and Regulations (Administrative Order [DAO] 96-40) issued by the
Department of Environment and Natural Resources, and the Financial and
Technical Assistance Agreement (FTAA) entered into pursuant to Executive
Order (EO) No. 279, by the Republic of the Philippines and Western
Mining Corporation (Philippines), Inc. (WMCP). WMCP is owned by WMC
Resources International Pty., Ltd, a wholly owned subsidiary of Western
Mining Corporation Holdings Limited, a publicly-listed major Australian
mining and exploration company.
The premise for the constitutional challenge is Section 2, Article XII, of the 1987 Constitution which provides:
“All
lands of public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or
timber, wild life, flora and fauna, and other natural resources are
owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development,
and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture, or
production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by
such citizens, X x x.
“x x x x x x x x x.
“The
President may enter into agreements with foreign-owned corporations
involving either technical or financial assistance for large-scale
exploration, development, and utilization of minerals, petroleum, and
other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and
general welfare of the country. In such agreements, the State shall
promote the development and use of local scientific and technical
resources.
“The President shall notify the Congress of every
contract entered into in accordance with this provision within thirty
days from its execution.”
After a careful reading of the
provisions of Republic Act No. 7942, I join the majority in
invalidating the following portions of the law: a) Section 3 (aq) which
considers a foreign-owned corporation itself qualified, not only to
enter into financial or technical assistance agreements, but also for an
exploration or mineral processing permit; b) Section 35 (g), (I), (m)
which state the rights and obligations of a foreign-owned corporations
pursuant to its “mining operations”; and c) Section 56 which provides
that foreign-owned or controlled corporations are eligible to be granted
a mineral processing permit.
The
ponencia, so eloquently
expressed and so well ratiocinated, would also say that the Philippine
Mining Act and its implementing rules or decrees contain provisions
which, in effect, authorize the Government to enter into service
contracts with foreign-owned corporations, thereby granting beneficial
ownership over natural resources to foreign contractors in violation of
the fundamental law. Thus, it would strike down Sections 3 (aq), 23, 33
to 41, 56, 81, and 90 of the statute and related sections in DAO 96-40.
The FTAA executed between the Government and WMCP is being invalidated
for being in the nature of a service contract. The ponencia posits that
the adoption of the terms “agreements x x x involving either technical
or financial assistance” in the 1987 Constitution, in lieu of “service
contracts” found in the 1973 Charter, reflects the intention of the
framers to disallow the execution of service contracts with foreign
entities for the exploration, development, exploitation and utilization
of the country’s natural resources.
The proposition is one that
I, most respectfully, cannot fully share. The deliberations of the
Constitutional Commission do not disclose, in any evident manner, such
intention on the part of the drafters,
viz:
“MR.
JAMIR. Yes, Madam President. With respect to the second paragraph of
Section 3, my amendment by substitution reads: THE PRESIDENT MAY ENTER
INTO AGREEMENTS WITH FOREIGN-OWNED CORPORATIONS INVOLVING EITHER
TECHNICAL OR FINANCIAL ASSISTANCE FOR LARGE-SCALE EXPLORATION,
DEVELOPMENT AND UTILIZATION OF NATURAL RESOURCES ACCORDING TO THE TERMS
AND CONDITIONS PROVIDED BY LAW.
“X X X
“MR. SUAREZ. Thank you, Madam President. Will Commissioner Jamir answer a few clarificatory questions?
“MR. JAMIR. Yes, Madam President.
“MR.
SUAREZ. This particular portion of the section has reference to what
was popularly known before as service contracts, among other things; is
that correct?
“MR. JAMIR. Yes, Madam President.
“MR.
SUAREZ. As it is formulated, the President may enter into service
contracts but subject to the guidelines that may be promulgated by
Congress?
“MR. JAMIR. That is correct.
“MR. SUAREZ. Therefore, the aspect of negotiation and consummation will fall on the President, not upon Congress?
“MR. JAMIR. That is also correct, Madam President.
“MR.
SUAREZ. Except that all of these contracts, service or otherwise must
be made strictly in accordance with guidelines prescribed by Congress?
“MR. JAMIR. That is also correct.”[1]
The significance of the change in the terminology is clarified in the following exchanges during the deliberations:
“SR. TAN. Am I correct in thinking that the only difference between these future
service contracts and the past service contracts under Mr. Marcos is
the general law to be enacted by the legislature and the notification of
Congress by the President? That is the only difference, is it not?
“MR. VILLEGAS. That is right.
“SR. TAN. So those are the safeguards.
“MR. VILLEGAS. Yes”, there was no law at all governing service contracts before.”[2]
The
Constitutional Commission has also agreed to include the additional
requirement that said agreements must be “based on real contributions to
the economic growth and general welfare of the country.” Upon the
suggestion of then Commissioner Davide, the scope of “these service
contracts” has likewise been limited to large-scale exploration,
development, and utilization of minerals, petroleum, and other mineral
oils. The then Commissioner, explains: “And so, we believe that we
should really, if we want to grant service contracts at all, limit the
same to only those particular areas where Filipino capital may not be
sufficient x x x.”
[3]
The
majority would cite the emphatic statements of Commissioners Villegas
and Davide that the country’s natural resources are exclusively reserved
for Filipino citizens
[4] and
that, according to Commissioner Villegas, “the deletion of the phrase
‘service contracts’ (is the) first attempt to avoid some of the abuses
in the past regime in the use of service contracts to go around the
60-40 arrangement”.
[5] These
declarations do not necessarily mean that the Government may no longer
enter into service contracts with foreign entities. In order to uphold
and strengthen the national policy of preserving and developing the
country’s natural resources exclusively for the Filipino people, the
present Constitution indeed has provided for safeguards to prevent the
execution of service contracts of the old regime, but not of service
contracts
per se. It could not have been the object of the
framers of the Charter to limit the contracts which the President may
enter into, to mere “agreements for financial and technical assistance”.
One would take it that the usual terms and conditions recognized and
stipulated in agreements of such nature have been contemplated.
Basically, the financier and the owner of know-how would understandably
satisfy itself with the proper implementation and the profitability of
the project. It would be abnormal for the financier and owner of the
know-how not to assure itself that all the activities needed to bring
the project into fruition are properly implemented, attended to, and
carried out. Needless to say, no foreign investor would readily lend
financial or technical assistance without the proper incentives,
including fair returns, therefor.
The Constitution has not
prohibited the State from itself exploring, developing, or utilizing the
country’s natural resources, and, for this purpose, it may, I submit,
enter into the necessary agreements with individuals or entities in the
pursuit of a feasible operation.
The fundamental law is deemed
written in every contract. The FTAA entered into by the government and
WMCP recognizes this vital principle. Thus, two of the agreement’s
whereas clauses provide:
“WHEREAS, the 1987 Constitution
of the Republic of the Philippines provides in Article XII, Section 2
that all lands of the public domain, waters, minerals, coal, petroleum,
and other natural resources are owned by the State, and that the
exploration, development and utilization of natural resources shall be
under the full control and supervision of the State; and
“WHEREAS,
the Constitution further provides that the Government may enter into
agreements with foreign-owned corporations involving either technical or
financial assistance for large scale exploration, development and
utilization of minerals.”
The assailed contract or its
provisions must then be read in conformity with abovementioned
constitutional mandate. Hence, Section 10.2 (a) of the FTAA, for
instance, which states that “the Contractor shall have the exclusive
right to explore for, exploit, utilize, process, market, export and
dispose of all minerals and products and by-products thereof that may be
derived or produced from the Contract Area and to otherwise conduct
Mining Operations in the Contract Area in accordance with the terms and
conditions hereof, must be taken to mean that the foregoing rights are
to be exercised by WMCP for and in behalf of the State and that WMCP, as
the Contractor, would be bound to carry out the terms and conditions of
the agreement acting for and in behalf of the State. In exchange for
the financial and technical assistance, inclusive of its services, the
Contractor enjoys an exclusivity of the contract and a corresponding
compensation therefor.
Except as so expressed elsewhere above, I
see, therefore, no constitutional impairment in the enactment of
Republic Act No. 7942, as well as its implementing rules, and in the
execution by the Government of the Financial and Technical Agreement
with WMCP; and I so vote accordingly.
Just a word. While I cannot
ignore an impression of the business community that the Court is wont,
at times, to interfere with the economic decisions of Congress and the
government’s economic managers, I must hasten to add, however, that in
so voting as above, I have not been unduly overwhelmed by that
perception. Quite the contrary, the Court has always proceeded with
great caution, such as now, in resolving cases that could inextricably
involve policy questions thought to be best left to the technical
expertise of the legislative and executive departments.
[1] III Record of the Constitutional Commission 348.
[2] Id, p. 352.
[3] Id, p. 355.
[4] Decision, pp, 69-71.
[5] Id., p. 69.
SEPARATE OPINION
PANGANIBAN, J.:
Petitioners
challenge the constitutionality of (1) RA 7942 (The Philippine Mining
Act of 1995), (2) its Implementing Rules and Regulations (DENR
Administrative Order [DAO] 96-40); and (3) the Financial and Technical
Assistance Agreement (FTAA) dated March 30, 1995, by and between the
government and Western Mining Corporation (Phils.), Inc. (WMCP).
Crux of the Controversy
The crux of the controversy is the fact that WMCP,
at the time it entered into the FTAA,
was wholly owned by WMC Resources International Pty., Ltd. (WMC), which
in turn was a wholly owned subsidiary of Western Mining Corporation
Holdings, Ltd., a publicly Listed major Australian mining and
exploration company.
Petitioners thus argue that the FTAA was
executed in violation of Section 2 of Article XII of the 1987
Constitution. Allegedly, according to the fourth paragraph thereof,
FTAAs entered into by the government with
foreign-owned corporations are limited to agreements involving merely
technical or financial assistance
to the State for large-scale exploration, development and utilization
of minerals, petroleum and other mineral oils. The FTAA in question
supposedly permits the foreign contractor to
manage and control the mining operations fully,
and is therefore no different from the “service contracts” that were
prevalent under the martial law regime, and that are now disallowed by
Section 2 of Article XII of the present Constitution.
On January
23, 2001, all the shares of WMC in WMCP -- according to the latter’s
Manifestation subsequently filed with this Court -- had been sold to
Sagittarius Mines, Inc., in which 60 percent of the equity is
Filipino-owned. In the same Manifestation, the Court was further
informed that the assailed FTAA had likewise been transferred from WMCP
to Sagittarius.
The well-researched
ponencia of esteemed Justice Conchita Carpio Morales nevertheless declares that the instant case has
not been rendered moot by the FTAA’s transfer to and registration in the name of a
Filipino-owned corporation, and that the validity of that transfer remains in dispute and awaits final judicial determination.
[1] It then proceeds to decide the instant case on the assumption that WMCP remains a foreign corporation.
Controversy Now Moot
With
due respect, I believe that the Court should dismiss the Petition on
the ground of mootness. I submit that a decision on the
constitutionality issue should await the wisdom of a new day when the
Court would have a live case before it.
The nullity of the FTAA is unarguably premised upon the contractor being a
foreign
corporation. Had the FTAA been originally issued to a Filipino-owned
corporation, we would have had no constitutionality issue to speak of.
Upon the other hand, conveyance of the FTAA to a Filipino corporation
can be likened to the sale of land to a foreigner who subsequently
acquires Filipino citizenship, or who later re-sells the same land to a
Filipino citizen. The conveyance would be validated, as the property in
question would no longer be owned by a disqualified vendee.
[2]
Since
the FTAA is now to be implemented by a Filipino corporation, how can
the Court still declare it unconstitutional? The CA case is a dispute
between two Filipino companies (Sagittarius and Lepanto) both claiming
the right to purchase the foreign shares in WMCP. So regardless of which
side eventually wins, the FTAA would still be in the hands of a
qualified Filipino company.
Furthermore, there being no more
justiciable controversy, the plea to nullify the Mining Law has become a
virtual petition for declaratory relief, over which the Supreme Court
has no original jurisdiction.
[3]
At bottom, I rely on the well-settled doctrine that this Court does not decide constitutional issues, unless they are the very lis mota of the case.[4]
Not Limited to Technical or
Financial Assistance Only
At any rate, following the literal text of the present Constitution,
[5] the
ponencia
limits to strict technical or financial only the assistance to be
provided to the State by foreign-owned corporations for the large-scale
exploration, development and utilization of minerals, petroleum, and
mineral oils. Such assistance may not include “management or other forms
of assistance” or other activities associated with the “service
contracts” of the past unlamented regime. Precisely, “
the management
or operation of mining activities by foreign contractors, which is the
primary feature of service contracts, was x x x the evil that the
drafters of the 1987 Constitution sought to eradicate.”
Again, because of the mootness problem, it would be risky to take a
definitive
position on this question. The Court would be speculating on the
contents of the FTAA of a prospective foreign company. The requirements
of “case and controversy” would be lacking. Suffice it to say, at this
point, that the issue even in a live case is not quite that easy to
tackle.
First, the drafters’ choice of words -- their use of the phrase “agreements x x x
involving
x x x technical or financial assistance” --does not absolutely indicate
the intent to exclude other modes of assistance. Rather, the phrase
signifies the possibility of the inclusion of other activities, provided
they bear some
reasonable relationship to and compatibility with financial or technical assistance.
If the intention of the drafters were strictly to confine foreign corporations to financial or technical assistance and
nothing more, I am certain that their language would have been
unmistakably restrictive and stringent. They would have said, for example: “Foreign corporations are
prohibited
from providing management or other forms of assistance,” or words to
that effect. The conscious avoidance of restrictive wording bespeaks an
intent not to employ --in an exclusionary, inflexible and limiting
manner -- the expression “agreements involving technical or financial
assistance.”
Second, I believe the foregoing position is supported by the fact that our present Constitution
still recognizes and allows service contracts (and has not rendered them taboo), albeit
subject to several restrictions and modifications aimed at avoiding the pitfalls of the past. Below are
some
excerpts from the deliberations of the Constitutional Commission
(Concom), showing that its members discussed “technical or financial
agreements” in the same breath as “service contracts” and used the terms
interchangeably:
| “MR. JAMIR: |
Yes,
Madam President. With respect to the second paragraph of Section 3, my
amendment by substitution reads: THE PRESIDENT MAY ENTER INTO AGREEMENTS
WITH FOREIGN-OWNED CORPORATIONS INVOLVING EITHER TECHNICAL OR FINANCIAL
ASSISTANCE FOR LARGE-SCALE EXPLORATION, DEVELOPMENT AND UTILIZATION OF
NATURAL RESOURCES ACCORDING TO THE TERMS AND CONDITIONS PROVIDED BY LAW.
|
|
|
| MR. VILLEGAS: |
The Committee accepts the amendment. Commissioner Suarez will give the background x x x.
|
|
|
| MR. SUAREZ: |
Thank you, Madam President x x x. MR. JAMIR: Yes, Madam President.
|
|
|
MR. SUAREZ:
|
This particular portion of the section has reference to what was popularly known before as service contracts, among other things, is that correct?
|
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|
| MR. JAMIR: |
Yes, Madam President.
|
|
|
| MR. SUAREZ: |
As it is formulated, the President may enter into service contracts but subject to the guidelines that may be promulgated by Congress?
|
|
|
MR. JAMIR:
|
That is correct.
|
|
|
| MR. SUAREZ: |
Therefore, that aspect of negotiation and consummation will fall on the President, not upon Congress?
|
|
|
| MR. JAMIR: |
That is also correct, Madam President.
|
|
|
| MR. SUAREZ: |
Except that all of these contracts, service or otherwise, must be made strictly in accordance with guidelines prescribed by Congress?
|
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|
| MR. JAMIR: |
That is also correct.
|
|
|
| MR. SUAREZ: |
And the Gentleman is thinking in terms of a law that uniformly covers situations of the same nature?
|
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|
| MR. JAMIR: |
That is 100 percent correct x x x
|
|
|
x x x x x x x x x
|
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|
| THE PRESIDENT: |
The amendment has been accepted by the Committee. May we first vote on the last paragraph?
|
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|
| MR. GASCON: |
Madam President, that is the point of my inquiry xxx Commissioner Jamir had proposed an amendment with regard to special service contracts
which was accepted by the Committee. Since the Committee has accepted
it, I would like to ask some questions xxx As it is proposed now, such service contracts will be entered into by the President with the guidelines of a general law on service contracts to be enacted by Congress. Is that correct?
|
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|
| MR. VILLEGAS: |
The Commissioner is right, Madam President.
|
|
|
| MR. GASCON: |
According
to the original proposal, if the President were to enter into a
particular agreement, he would need the concurrence of Congress. Now
that it has been changed by the proposal of Commissioner Jamir in that
Congress will set the general law to which the President shall comply,
the President will, therefore, not need the concurrence of Congress
every time he enters into service contracts. Is that correct?
|
|
|
| MR. VILLEGAS: |
That is right.
|
|
|
| MR. GASCON: |
The
proposed amendment of Commissioner Jamir is in direct contrast to my
proposed amendment, so I would like to object and present my proposed
amendment to the body xxx.
|
|
|
x x x x x x x x x
|
|
|
| MR. GASCON: |
Yes, it will be up to the body. I feel that the general law to be set by Congress as regards service contract agreements
which the President will enter into might be too general or since we do
not know the content yet of such a law, it might be that certain
agreements will be detrimental to the interest of the Filipinos. This is
in direct contrast to my proposal which provides that there be
effective constraints in the implementation of service contracts. So instead of a general law to be passed by Congress to serve as a guideline to the President when entering into service contract agreements, I propose that every service contract
entered into by the President would need the concurrence of Congress,
so as to assure the Filipinos of their interests with regard to the
issue in Section 3 on all lands of the public domain. My alternative
amendment, which we will discuss later, reads: THAT THE PRESIDENT SHALL
ENTER INTO SUCH AGREEMENTS ONLY WITH THE CONCURRENCE OF TWO-THIRDS VOTE
OF ALL THE MEMBERS OF CONGRESS SITTING SEPARATELY x x x
|
|
|
| MR. BENGZON: |
The
reason we made that shift is that we realized the original proposal
could breed corruption. By the way, this is not just confined to service contracts but also to financial assistance.
If we are going to make every single contract subject to the
concurrence of Congress -- which, according to the Commissioner’s
amendment is the concurrence of two-thirds of Congress voting separately
-- then (1) there is a very great chance that each contract will be
different from another; and (2) there is a great temptation that it
would breed corruption because of the great lobbying that is going to
happen. And we do not want to subject our legislature to that. xxx.
|
|
|
| MR. GASCON: |
But
my basic problem is that we do not know as of yet the contents of such a
general law as to how much constraints there will be in it. And to my
mind, although the committee’s contention that the regular concurrence
from Congress would subject Congress to extensive lobbying, I think that
is a risk we will have to take since Congress is a body of
representatives of the people whose membership will be changing
regularly as there will be changing circumstances every time certain
agreements are made. It would be best then to keep in tab and attuned to
the interest of the Filipino people, whenever the President enters into
any agreement with regard to such an important matter as technical
or financial assistance for large-scale exploration, development and
utilization of natural resources or service contracts, the people’s elected representatives should be on top of it x x x.
|
|
|
x x x x x x x x x
|
|
|
| MR. OPLE: |
Madam
President, we do not need to suspend the session. If Commissioner
Gascon needs a few minutes, I can fill up the remaining time while he
completes his proposed amendment. I just wanted to ask Commissioner
Jamir whether he would entertain a minor amendment to his amendment, and
it reads as follows: THE PRESIDENT SHALL SUBSEQUENTLY NOTIFY CONGRESS
OF EVERY SERVICE CONTRACT ENTERED INTO IN ACCORDANCE WITH THE
GENERAL LAW. I think the reason is, if I may state it briefly, as
Commissioner Bengzon said, Congress can always change the general law
later on to conform to new perceptions of standards that should be built
into service contracts. But the only way Congress can do this is if there were a notification requirement from the Office of the President that such service contracts had been entered into, subject then to the scrutiny of the Members of Congress. This pertains to a situation where the service contracts
are already entered into, and all that this amendment seeks is the
reporting requirement from the Office of the President. Will
Commissioner Jamir entertain that?
|
|
|
| MR. JAMIR: |
I will gladly do so, if it is still within my power.
|
|
|
| MR. VILLEGAS: |
Yes, the Committee accepts the amendment.
|
|
|
x x x x x x x x x
|
|
|
| SR. TAN: |
Madam President, may I ask a question? xxx Am I correct in thinking that the only difference between these future service contracts and the past service contracts
under Mr. Marcos is the general law to be enacted by the legislature
and the notification of Congress by the President? That is the only
difference, is it not?
|
|
|
| MR. VILLEGAS: |
That is right.
|
|
|
| SR. TAN: |
So those are the safeguards.
|
|
|
| MR. VILLEGAS: |
Yes. There was no law at all governing service contracts before. x x x.
|
|
|
x x x x x x x x x
|
|
|
| MR. SARMIENTO: |
Maybe
we can simplify my proposed amendment, so that it will read: IT SHALL
BE THE POLICY OF THE STATE TO PROMOTE, DEVELOP AND EMPLOY LOCAL
SCIENTIFIC AND TECHNOLOGICAL RESOURCES x x x.
|
|
|
| MR. DAVIDE: |
Could
it not be properly accommodated either in the Article on Declaration of
Principles and State Policies or in the Article on Human Resources
because it would not be germane to the Article on National Economy and
Patrimony which we are now treating?
|
|
|
| MR. VILLEGAS: |
I think the intention here, if I understand the amendment to the amendment, is to make sure that when these technical and scientific services
are rendered by foreigners there would be a deliberate attempt to
develop local talents so that we are not forever dependent on these
foreigners. Am I right?
|
|
|
| MR. DAVIDE: |
So it is in relation to the service contracts? x x x Can it not be stated that the general law providing for service contracts shall give priority to the adjective of Commissioner Sarmiento’s amendment? It should be in the law itself.
|
|
|
| MR. VILLEGAS: |
That is why it says, ‘IT SHALL BE THE POLICY OF THE STATE’ immediately following the statement about Congress.
|
|
|
x x x x x x x x x
|
|
|
| THE PRESIDENT: |
Does Commissioner Gascon insist on his proposed amendment?
|
|
|
| MR. GASCON: |
I objected to that amendment and after listening to it again, I feel that I still object on basic principles, that every service contract
to be entered into by the President should be with the concurrence of
Congress. I had earlier presented a proposed amendment of ‘CONCURRENCE
OF TWO-THIRDS VOTE OF ALL THE MEMBERS OF CONGRESS,’ but at this point in
time, perhaps to simplify choices, since basically the proposal of
Commissioner Jamir is to set a general law with regard to service contracts, my proposal is to require concurrence of Congress every time a service contract is to be made.
|
|
|
| THE PRESIDENT: |
That is clear now. So can we proceed to vote?
|
|
|
| MR. NOLLEDO: |
x
x x Madam President, I have the permission of the Acting Floor Leader
to speak for only two minutes in favor of the amendment of Commissioner
Gascon x x x x With due respect to the members of the Committee and
Commissioner Jamir, I am in favor of the objection of Commissioner
Gascon. Madam President, I was one of those who refused to sign the 1973
Constitution, and one of the reasons is that there were many provisions
in the Transitory Provisions therein that favored aliens. I was shocked
when I read a provision authorizing service contracts while we,
in this Constitutional Commission, provided for Filipino control of the
economy. We are, therefore, providing for exceptional instances where
aliens may circumvent Filipino control of our economy. And one way of
circumventing the rule in favor of Filipino control of the economy is to
recognize service contracts. As far as I am concerned, if I
should have my own way, I am for the complete deletion of this
provision. However, we are presenting a compromise in the sense that we
are requiring a two-thirds vote of all the Members of Congress as a
safeguard. I think we should not mistrust the future Members of Congress
by saying that the purpose of this provision is to avoid corruption. We
cannot claim that they are less patriotic than we are. I think the
Members of this Commission should know that entering into service contracts
is an exception to the rule on protection of natural resources for the
interest of the nation, and therefore, being an exception it should be
subject whenever possible, to stringent rules. It seems to me that we
are liberalizing the rules in favor of aliens.
|
|
|
|
I
say these things with a heavy heart, Madam President. I do not claim to
be a nationalist, but I love my country. Although we need investments,
we must adopt safeguards that are truly reflective of the sentiments of
the people and not mere cosmetic safeguards as they now appear in the
Jamir amendment. (Applause) x x x.”
|
The
foregoing is but a small sampling of the lengthy discussions of the
constitutional commissioners on the subject of service contracts and
technical and financial assistance agreements. Quoting the rest of their
discussions would have taken up several more pages, and these have thus
been omitted for the sake of brevity.
In any event, it would appear that the members of the Concom actually had in mind the Marcos-era service contracts that they were familiar with (but which they duly modified and restricted so as to prevent abuses),
when
they were crafting and polishing the provisions dealing with financial
and/or technical assistance agreements. These provisions ultimately
became the fourth and the fifth paragraphs of Section 2 of Article XII
of the 1987 Constitution. Put, differently, “technical and financial
assistance agreements” were understood by the delegates to include
service contracts
duly modified to prevent abuses.
I
respectfully submit that the statements of Commissioner Jose Nolledo,
quoted above, are especially pertinent, since they refer specifically to
service contracts in favor of aliens. From his perspective, it is clear
to me that
the Concom discussions in their entirety had to do
with service contracts that might be given to foreign-owned corporations
as exceptions to the general principle of Filipino control of the
economy.
Commissioner Nolledo sums up these statements by saying: “
We
are, therefore, providing for exceptional instances where aliens may
circumvent Filipino control of our economy. And one way of circumventing
the rule in favor of Filipino control of the economy is to recognise
service contracts. As far as I am concerned, if I should have my own
way, I am for the complete deletion of this provision. However, we are
presenting a compromise in the sense that we are requiring a two-thirds
vote of all the Members of Congress as a safeguard, x x x x x x x
x x. I think the Members of this Commission should know that entering
into service contracts is an exception to the rule on protection of
natural resources for the interest of the nation, and therefore, being
an exception it should be subject whenever possible, to stringent rules.
It seems to me that we are liberalizing the rules in favor of aliens, x
x x.”
Since the drafters were referring only to service
contracts to be granted to foreigners and to nothing else, this fact
necessarily implies that we ought
not treat the idea of
“agreements involving either technical or financial assistance” as
having any significance or existence apart from service contracts. In
other words, in the minds of the commissioners, the concept of technical
and financial assistance agreements did not exist at all apart from the
concept of service contracts
duly modified to prevent abuses.
Interpretation of the Constitution
in the Light of Present-Day Realities
Tantamount
to closing one’s eyes to reality is the insistence that the term
“agreements involving technical or financial assistance” refers only to
purely
technical or financial assistance to be rendered to the State by a
foreign corporation (and must perforce exclude management and other
forms of assistance). Nowadays, securing the kind of
financial assistance required by large-scale explorations, which involve
hundreds of millions of dollars,
is not just a matter of signing a simple promissory note in favor of a
lender. Current business practices often require borrowers seeking huge
loans to allow creditors access to financial records and other data, and
probably a seat or two on the former’s board of directors; or at least
some participation in certain management decisions that may have an
impact on the financial health or long-term viability of the debtor,
which of course will directly affect the latter’s capacity to repay its
loans.
Prudent lending practices necessitate a certain degree of involvement in the borrower’s management process.
Likewise,
technical assistance,
particularly in certain industries like mining and oil exploration,
would likely be from the industry’s leading players. It may involve the
training of personnel and some form of supervision and oversight with
respect to the correct and proper implementation of the technical
assistance. The purpose is to ensure that the technical assistance
rendered will not go to waste, and that the lender’s business reputation
and successful track record in the industry will be adequately
safeguarded. Thus the technical assistance arrangements often
necessarily include interface with the management process itself.
The
mining industry is in the doldrums, precisely because of lack of
technical and financial resources in our country. If activated properly,
the industry could meaningfully contribute to our economy and lead to
the employment of many of our jobless compatriots. A hasty and premature
decision on the constitutionality of the herein FTAA and the Philippine
Mining Act could unnecessarily burden the recovery of the industry and
the employment opportunities it would likely generate.
Oral Argument Needed
Given
the modern-day reality that even the World Bank (WB) and the
International Monetary Fund (IMF) do not lend on the basis merely of
bare promissory notes, but on some conditionalities designed to assure
the borrowers’ financial viability, I would like to hear in an Oral
Argument in a
live, not a moot,
case what these
international practices are and how they impact on our constitutional
restrictions. This is not to say that we should bend our basic law;
rather, we should find out what kind of FTAA provisions are realistic
vis-à-vis these international standards and our constitutional
protection. Unless there is a
live FTAA, the Court would not be
able to analyze the provisions vis-à-vis the Constitution, the Mining
Law and these modern day lending practices.
I mentioned the WB
and the IMF, not necessarily because I agree with their oftentimes
stringent policies, but because they set the standards that
international and multinational financial institutions often take
bearings from. The WB and IMF are akin (though not equivalent) to the
Bangko Sentral, which all Philippine banks must abide by.
If
this Court closes its doors to these international realities and
unilaterally sets up its own concepts of strict technical and financial
assistance, then it may unwittingly make the country a virtual hermit --
an economic isolationist --in the real world of finance.
I understand that a
live
case, challenging the Mining Law and an FTAA relevant thereto, is
pending before the Second Division of this Court; where it is docketed
as GR No. 157882 (
Dipdio Earth Savers Multi-Purpose Association v. Hon. Elisea Gozun).
Can we not consolidate that case with the current one, call an Oral
Argument, and then decide the matter more definitively? During the Oral
Argument, I believe that the Court should invite as
amid curiae
(1) a lawyer versed in international finance like retired Justice
Florentino P. Feliciano, (2) a representative of the Banker’s
Association of the Philippines, and (3) a leader of the University of
the Philippines Law Constitution Project.
Constitutional Interpretation and the
Vagaries of Contemporary Events
Finally,
I believe that the Concom did not mean to tie the hands of the
President and restrict the latter only to agreements on rigid financial
and technical assistance and
nothing else. The commissioners
fully realized that their work would have to withstand the test of time;
that the Charter, though crafted with the wisdom born of past
experiences and lessons painfully learned, would have
to be a living document that would answer the needs of the nation well into the future. Thus, the unerring emphasis on flexibility and adaptability.
Commissioner
Joaquin Bernas stressed that he voted in favor of the Article, “because
it is flexible enough to allow future legislators to correct whatever
mistakes we may have made.”
[6]
Commissioner Felicitas Aquino noted that “unlike the other articles of
this Constitution, this article whether we like it or not would have to
yield to flexibility and elasticity which inheres in the interpretation
of this provision. Why? Precisely because the forces of economics are
dynamic and are perpetually in motion.”
[7]
Along the same line, the Court, in
Tañada v. Angara,
[8] stressed the need to interpret the Constitution to cover “refreshing winds of change necessitated by unfolding events”:
“x
x x. Constitutions are designed to meet not only the vagaries of
contemporary events. They should be interpreted to cover even future and
unknown circumstances. It is to the credit of its drafters that a
Constitution can withstand the assaults of bigots and infidels but at
the same time bend with the refreshing winds of change necessitated by
unfolding events.”
Accordingly, I vote to
DISMISS the Petition.
[1]
That is, the Court of Appeals’ resolution of the petition for review
--docketed as CA-GR No. 74161 and lodged by Lepanto Consolidated Mining
-- of the Decision of the Office of the President, which upheld the
Order of the DENR secretary approving the transfer to, and the
registration of the FTAA in the name of, Sagittarius Mines, Inc.
[2] Chavez v. Philippine Estates Authority and Amari, GR No. 133250, July 9, 2002, May 6, 2003 and November 11, 2003.
[3] United Residents of Dominican Hill, Inc. v. Commission on the Settlement of Land Problems, 353 SCRA 782, March 7, 2001;
In Re: Saturnino V. Bermudez 145 SCRA 163, October 24, 1986;
Darnoc Realty Development Corp. v. Ayala Corp., 202 Phil. 865, September 30, 1982;
De la Llana v. Alba, 198 Phil. 1, March 12, 1982.
[4] Mirasol v. Court of Appeals, 351 SCRA 44, February 1, 2001;
Lalican v. Hon. Vergara, 342 Phil. 485, July 31, 1997;
Ty v. Trampe, 321 Phil. 103, December 1, 1995;
People v. Vera, 65 Phil. 56, November 16, 1937.
[5] Par. 4, Sec. 2 of Art. XII.
[6] Id., p. 840.
[7] Ibid.
[8] 272 SCRA 18, May 2, 1997.
