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exploration, development, and utilization involving a committed capital

La Bugal v Ramos January 2004 investment in a single mining unit project of at least Fifty Million Dollars in
United States Currency (US $50,000,000.00). [7]

DECISION
CARPIO-MORALES, J.: On March 3, 1995, then President Fidel V. Ramos approved R.A.
No. 7942 to govern the exploration, development, utilization and
The present petition for mandamus and prohibition assails the processing of all mineral resources. R.A. No. 7942 defines the
[8]

constitutionality of Republic Act No. 7942, otherwise known as the


[5] modes of mineral agreements for mining operations, outlines the [9]

PHILIPPINE MINING ACT OF 1995, along with the Implementing procedure for their filing and approval, assignment/transfer and[10] [11]

Rules and Regulations issued pursuant thereto, Department of withdrawal, and fixes their terms. Similar provisions govern
[12] [13]

Environment and Natural Resources (DENR) Administrative Order financial or technical assistance agreements. [14]

96-40, and of the Financial and Technical Assistance Agreement The law prescribes the qualifications of contractors and grants [15]

(FTAA) entered into on March 30, 1995 by the Republic of the them certain rights, including timber, water and easement rights,
[16] [17] [18]

Philippines and WMC (Philippines), Inc. (WMCP), a corporation and the right to possess explosives. Surface owners, occupants, or
[19]

organized under Philippine laws. concessionaires are forbidden from preventing holders of mining
On July 25, 1987, then President Corazon C. Aquino issued rights from entering private lands and concession areas. A [20]

Executive Order (E.O.) No. 279 authorizing the DENR Secretary to


[6] procedure for the settlement of conflicts is likewise provided for. [21]

The Act restricts the conditions for exploration, quarry and [22] [23]

accept, consider and evaluate proposals from foreign-owned corporations or other permits. It regulates the transport, sale and processing of
[24]

foreign investors for contracts or agreements involving either technical or minerals, and promotes the development of mining communities,
[25]

financial assistance for large-scale exploration, development, and utilization science and mining technology, and safety and environmental
[26]

of minerals, which, upon appropriate recommendation of the Secretary, the protection. [27]

President may execute with the foreign proponent. In entering into such
proposals, the President shall consider the real contributions to the economic The governments share in the agreements is spelled out and
growth and general welfare of the country that will be realized, as well as allocated, taxes and fees are imposed, incentives granted. Aside
[28] [29] [30]

the development and use of local scientific and technical resources that will from penalizing certain acts, the law likewise specifies grounds for
[31]

be promoted by the proposed contract or agreement. Until Congress shall the cancellation, revocation and termination of agreements and
determine otherwise, large-scale mining, for purpose of this Section, shall permits. [32]

mean those proposals for contracts or agreements for mineral resources


On April 9, 1995, 30 days following its publication on March 10, x x x in signing and promulgating DENR Administrative Order No. 96-40
1995 in Malaya and Manila Times, two newspapers of general implementing Republic Act No. 7942, the latter being unconstitutional in
circulation, R.A. No. 7942 took effect. [33]
that it allows fully foreign owned corporations to explore, develop, utilize
and exploit mineral resources in a manner contrary to Section 2, paragraph
Shortly before the effectivity of R.A. No. 7942, however, or on
4, Article XII of the Constitution;
March 30, 1995, the President entered into an FTAA with WMCP
covering 99,387 hectares of land in South Cotabato, Sultan Kudarat, II
Davao del Sur and North Cotabato. [34]

On August 15, 1995, then DENR Secretary Victor O. Ramos x x x in signing and promulgating DENR Administrative Order No. 96-40
issued DENR Administrative Order (DAO) No. 95-23, s. 1995, implementing Republic Act No. 7942, the latter being unconstitutional in
otherwise known as the Implementing Rules and Regulations of R.A. that it allows the taking of private property without the determination of
No. 7942. This was later repealed by DAO No. 96-40, s. 1996 which public use and for just compensation;
was adopted on December 20, 1996.
III
On January 10, 1997, counsels for petitioners sent a letter to the
DENR Secretary demanding that the DENR stop the implementation x x x in signing and promulgating DENR Administrative Order No. 96-40
of R.A. No. 7942 and DAO No. 96-40, giving the DENR fifteen days
[35] implementing Republic Act No. 7942, the latter being unconstitutional in
from receipt to act thereon. The DENR, however, has yet to
[36] that it violates Sec. 1, Art. III of the Constitution;
respond or act on petitioners letter.
[37]

IV
Petitioners thus filed the present petition for prohibition and
mandamus, with a prayer for a temporary restraining order. They x x x in signing and promulgating DENR Administrative Order No. 96-40
allege that at the time of the filing of the petition, 100 FTAA implementing Republic Act No. 7942, the latter being unconstitutional in
applications had already been filed, covering an area of 8.4 million that it allows enjoyment by foreign citizens as well as fully foreign owned
hectares, 64 of which applications are by fully foreign-owned
[38]
corporations of the nations marine wealth contrary to Section 2, paragraph 2
corporations covering a total of 5.8 million hectares, and at least one of Article XII of the Constitution;
by a fully foreign-owned mining company over offshore areas. [39]

V
Petitioners claim that the DENR Secretary acted without or in
excess of jurisdiction: x x x in signing and promulgating DENR Administrative Order No. 96-40
I implementing Republic Act No. 7942, the latter being unconstitutional in
that it allows priority to foreign and fully foreign owned corporations in the (d) Cancelling the Financial and Technical Assistance Agreement issued to
exploration, development and utilization of mineral resources contrary to Western Mining Philippines, Inc. as unconstitutional, illegal and null and
Article XII of the Constitution; void.[41]

VI Impleaded as public respondents are Ruben Torres, the then


Executive Secretary, Victor O. Ramos, the then DENR Secretary,
x x x in signing and promulgating DENR Administrative Order No. 96-40 and Horacio Ramos, Director of the Mines and Geosciences Bureau
implementing Republic Act No. 7942, the latter being unconstitutional in of the DENR. Also impleaded is private respondent WMCP, which
that it allows the inequitable sharing of wealth contrary to Sections [sic] 1, entered into the assailed FTAA with the Philippine
paragraph 1, and Section 2, paragraph 4[,] [Article XII] of the Constitution; Government. WMCP is owned by WMC Resources International Pty.,
Ltd. (WMC), a wholly owned subsidiary of Western Mining
VII
Corporation Holdings Limited, a publicly listed major Australian
x x x in recommending approval of and implementing the Financial and mining and exploration company. By WMCPs information, it is a
[42]

Technical Assistance Agreement between the President of the Republic of 100% owned subsidiary of WMC LIMITED. [43]

the Philippines and Western Mining Corporation Philippines Inc. because Respondents, aside from meeting petitioners contentions, argue
the same is illegal and unconstitutional. [40]
that the requisites for judicial inquiry have not been met and that the
petition does not comply with the criteria for prohibition and
They pray that the Court issue an order: mandamus. Additionally, respondent WMCP argues that there has
been a violation of the rule on hierarchy of courts.
(a) Permanently enjoining respondents from acting on any application for
Financial or Technical Assistance Agreements; After petitioners filed their reply, this Court granted due course to
the petition. The parties have since filed their respective memoranda.
(b) Declaring the Philippine Mining Act of 1995 or Republic Act No. 7942 WMCP subsequently filed a Manifestation dated September 25,
as unconstitutional and null and void; 2002 alleging that on January 23, 2001, WMC sold all its shares in
WMCP to Sagittarius Mines, Inc. (Sagittarius), a corporation
(c) Declaring the Implementing Rules and Regulations of the Philippine
organized under Philippine laws. WMCP was subsequently
[44]

Mining Act contained in DENR Administrative Order No. 96-40 and all
renamed Tampakan Mineral Resources Corporation. WMCP claims [45]

other similar administrative issuances as unconstitutional and null and void;


that at least 60% of the equity of Sagittarius is owned by Filipinos
and
and/or Filipino-owned corporations while about 40% is owned by
Indophil Resources NL, an Australian company. It further claims [46]
FTAA; and that these three companies are the same companies
[55]

that by such sale and transfer of shares, WMCP has ceased to be that consolidated their interests in Sagittarius to whom WMC sold its
connected in any way with WMC. [47]
100% equity in WMCP. WMCP concludes that in the event that the
[56]

FTAA is invalidated, the MPSAs of the three corporations would be


By virtue of such sale and transfer, the DENR Secretary, by
revived and the mineral claims would revert to their original
Order of December 18, 2001, approved the transfer and registration
[48]

claimants. [57]

of the subject FTAA from WMCP to Sagittarius. Said Order, however,


was appealed by Lepanto Consolidated Mining Co. (Lepanto) to the These circumstances, while informative, are hardly significant in
Office of the President which upheld it by Decision of July 23, the resolution of this case, it involving the validity of the FTAA, not
2002. Its motion for reconsideration having been denied by the
[49]
the possible consequences of its invalidation.
Office of the President by Resolution of November 12,
Of the above-enumerated seven grounds cited by petitioners, as
2002, Lepanto filed a petition for review before the Court of
[50] [51]

will be shown later, only the first and the last need be delved into; in
Appeals. Incidentally, two other petitions for review related to the
the latter, the discussion shall dwell only insofar as it questions the
approval of the transfer and registration of the FTAA to Sagittarius
effectivity of E. O. No. 279 by virtue of which order the questioned
were recently resolved by this Court. [52]

FTAA was forged.


It bears stressing that this case has not been rendered moot I
either by the transfer and registration of the FTAA to a Filipino-owned
corporation or by the non-issuance of a temporary restraining order Before going into the substantive issues, the procedural
or a preliminary injunction to stay the above-said July 23, 2002 questions posed by respondents shall first be tackled.
decision of the Office of the President. The validity of the transfer
[53]

remains in dispute and awaits final judicial determination. This


assumes, of course, that such transfer cures the FTAAs alleged REQUISITES FOR JUDICIAL REVIEW
unconstitutionality, on which question judgment is reserved.
When an issue of constitutionality is raised, this Court can
WMCP also points out that the original claimowners of the major
exercise its power of judicial review only if the following requisites are
mineralized areas included in the WMCP FTAA, namely, Sagittarius,
present:
Tampakan Mining Corporation, and Southcot Mining Corporation, are
all Filipino-owned corporations, each of which was a holder of an
[54]
(1) The existence of an actual and appropriate case;
approved Mineral Production Sharing Agreement awarded in 1994,
(2) A personal and substantial interest of the party raising the
albeit their respective mineral claims were subsumed in the WMCP
constitutional question;
(3) The exercise of judicial review is pleaded at the earliest Petitioners traverse a wide range of sectors. Among them are La
opportunity; and Bugal Blaan Tribal Association, Inc., a farmers and indigenous
peoples cooperative organized under Philippine laws representing a
(4) The constitutional question is the lis mota of the case. [58]

community actually affected by the mining activities of WMCP,


Respondents claim that the first three requisites are not present. members of said cooperative, as well as other residents of areas
[68]

Section 1, Article VIII of the Constitution states that (j)udicial also affected by the mining activities of WMCP. These petitioners
[69]

power includes the duty of the courts of justice to settle actual have standing to raise the constitutionality of the questioned FTAA as
controversies involving rights which are legally demandable and they allege a personal and substantial injury. They claim that they
enforceable. The power of judicial review, therefore, is limited to the would suffer irremediable displacement as a result of the
[70]

determination of actual cases and controversies. [59]


implementation of the FTAA allowing WMCP to conduct mining
activities in their area of residence. They thus meet the appropriate
An actual case or controversy means an existing case or case requirement as they assert an interest adverse to that of
controversy that is appropriate or ripe for determination, not respondents who, on the other hand, insist on the FTAAs validity.
conjectural or anticipatory, lest the decision of the court would
[60]

amount to an advisory opinion. The power does not extend to


[61]
In view of the alleged impending injury, petitioners also have
hypothetical questions since any attempt at abstraction could only
[62]
standing to assail the validity of E.O. No. 279, by authority of which
lead to dialectics and barren legal questions and to sterile the FTAA was executed.
conclusions unrelated to actualities. [63]
Public respondents maintain that petitioners, being strangers to
Legal standing or locus standi has been defined as a personal the FTAA, cannot sue either or both contracting parties to annul
and substantial interest in the case such that the party has sustained it. In other words, they contend that petitioners are not real parties
[71]

or will sustain direct injury as a result of the governmental act that is in interest in an action for the annulment of contract.
being challenged, alleging more than a generalized grievance. The
[64] [65]
Public respondents contention fails. The present action is not
gist of the question of standing is whether a party alleges such merely one for annulment of contract but for prohibition and
personal stake in the outcome of the controversy as to assure that mandamus. Petitioners allege that public respondents acted without
concrete adverseness which sharpens the presentation of issues or in excess of jurisdiction in implementing the FTAA, which they
upon which the court depends for illumination of difficult constitutional submit is unconstitutional. As the case involves constitutional
questions. Unless a person is injuriously affected in any of his
[66]
questions, this Court is not concerned with whether petitioners are
constitutional rights by the operation of statute or ordinance, he has real parties in interest, but with whether they have legal standing. As
no standing. [67]
held in Kilosbayan v. Morato:[72]
x x x. It is important to note . . . that standing because of its constitutional Any term and condition more favourable to Financial
and public policy underpinnings, is very different from questions relating to &Technical Assistance Agreement contractors resulting from
whether a particular plaintiff is the real party in interest or has capacity to repeal or amendment of any existing law or regulation or from
sue. Although all three requirements are directed towards ensuring that only the enactment of a law, regulation or administrative order shall
certain parties can maintain an action, standing restrictions require a partial be considered a part of this Agreement.
consideration of the merits, as well as broader policy concerns relating to
the proper role of the judiciary in certain areas.[] (FRIEDENTHAL, KANE It is undisputed that R.A. No. 7942 and DAO No. 96-40 contain
AND MILLER, CIVIL PROCEDURE 328 [1985]) provisions that are more favorable to WMCP, hence, these laws, to
the extent that they are favorable to WMCP, govern the FTAA.
Standing is a special concern in constitutional law because in some cases
In addition, R.A. No. 7942 explicitly makes certain provisions
suits are brought not by parties who have been personally injured by the
apply to pre-existing agreements.
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 SEC. 112. Non-impairment of Existing Mining/Quarrying Rights. x x x That
question in standing is whether such parties have alleged such a personal the provisions of Chapter XIV on government share in mineral production-
stake in the outcome of the controversy as to assure that concrete sharing agreement and of Chapter XVI on incentives of this Act shall
adverseness which sharpens the presentation of issues upon which the court immediately govern and apply to a mining lessee or contractor unless the
so largely depends for illumination of difficult constitutional mining lessee or contractor indicates his intention to the secretary, in
questions. (Baker v. Carr, 369 U.S. 186, 7 L.Ed.2d 633 [1962].) writing, not to avail of said provisions x x xProvided, finally, That such
leases, production-sharing agreements, financial or technical assistance
As earlier stated, petitioners meet this requirement.
agreements shall comply with the applicable provisions of this Act and its
The challenge against the constitutionality of R.A. No. 7942 and implementing rules and regulations.
DAO No. 96-40 likewise fulfills the requisites of justiciability. Although
these laws were not in force when the subject FTAA was entered As there is no suggestion that WMCP has indicated its intention not
into, the question as to their validity is ripe for adjudication. 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.
The WMCP FTAA provides:
Misconstruing the application of the third requisite for judicial
14.3 Future Legislation 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 Prohibition is a preventive remedy. It seeks a judgment ordering
[74]

earliest opportunity. the defendant to desist from continuing with the commission of an act
perceived to be illegal. [75]

The third requisite should not be taken to mean that the question
of constitutionality must be raised immediately after the execution of The petition for prohibition at bar is thus an appropriate remedy.
the state action complained of. That the question of constitutionality While the execution of the contract itself may be fait accompli, its
has not been raised before is not a valid reason for refusing to allow implementation is not. Public respondents, in behalf of the
it to be raised later. A contrary rule would mean that a law,
[73]
Government, have obligations to fulfill under said
otherwise unconstitutional, would lapse into constitutionality by the contract. Petitioners seek to prevent them from fulfilling such
mere failure of the proper party to promptly file a case to challenge obligations on the theory that the contract is unconstitutional and,
the same. therefore, void.
The propriety of a petition for prohibition being upheld, discussion
PROPRIETY OF PROHIBITION of the propriety of the mandamus aspect of the petition is rendered
AND MANDAMUS unnecessary.

Before the effectivity in July 1997 of the Revised Rules of Civil HIERARCHY OF COURTS
Procedure, Section 2 of Rule 65 read:

SEC. 2. Petition for prohibition. When the proceedings of any tribunal, The contention that the filing of this petition violated the rule on
corporation, board, or person, whether exercising functions judicial or hierarchy of courts does not likewise lie. The rule has been explained
ministerial, are without or in excess of its or his jurisdiction, or with grave thus:
abuse of discretion, and there is no appeal or any other plain, speedy, and
Between two courts of concurrent original jurisdiction, it is the lower court
adequate remedy in the ordinary course of law, a person aggrieved thereby
that should initially pass upon the issues of a case. That way, as a particular
may file a verified petition in the proper court alleging the facts with
case goes through the hierarchy of courts, it is shorn of all but the important
certainty and praying that judgment be rendered commanding the defendant
legal issues or those of first impression, which are the proper subject of
to desist from further proceeding in the action or matter specified therein.
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 the issues raised are of paramount importance to the public, this
courts. Although this Court has concurrent jurisdiction with the Regional Court may brush aside technicalities of procedure. [78]

Trial Courts and the Court of Appeals to issue writs of certiorari, II


prohibition, mandamus, quo warranto, habeas corpus and injunction, such
concurrence does not give a party unrestricted freedom of choice of court Petitioners contend that E.O. No. 279 did not take effect because
forum. The resort to this Courts primary jurisdiction to issue said writs shall its supposed date of effectivity came after President Aquino had
be allowed only where the redress desired cannot be obtained in the already lost her legislative powers under the Provisional Constitution.
appropriate courts or where exceptional and compelling circumstances And they likewise claim that the WMC FTAA, which was entered
justify such invocation. We held in People v. Cuaresma that: into pursuant to E.O. No. 279, violates Section 2, Article XII of the
Constitution because, among other reasons:
A becoming regard for judicial hierarchy most certainly indicates that
petitions for the issuance of extraordinary writs against first level (inferior) (1) It allows foreign-owned companies to extend more than mere
courts should be filed with the Regional Trial Court, and those against the financial or technical assistance to the State in the exploitation,
latter, with the Court of Appeals. A direct invocation of the Supreme development, and utilization of minerals, petroleum, and other
Courts original jurisdiction to issue these writs should be allowed only mineral oils, and even permits foreign owned companies to operate
where there are special and important reasons therefor, clearly and and manage mining activities.
specifically set out in the petition. This is established policy. It is a policy (2) It allows foreign-owned companies to extend both
necessary to prevent inordinate demands upon the Courts time and attention technical and financial assistance, instead
which are better devoted to those matters within its exclusive jurisdiction, of either technical or financial assistance.
and to prevent further over-crowding of the Courts docket x x
x. [Emphasis supplied.]
[76] To appreciate the import of these issues, a visit to the history of
the pertinent constitutional provision, the concepts contained therein,
The repercussions of the issues in this case on the Philippine and the laws enacted pursuant thereto, is in order.
mining industry, if not the national economy, as well as the novelty Section 2, Article XII reads in full:
thereof, constitute exceptional and compelling circumstances to
justify resort to this Court in the first instance. Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum,
In all events, this Court has the discretion to take cognizance of a and other mineral oils, all forces of potential energy, fisheries, forests or
suit which does not satisfy the requirements of an actual case or timber, wildlife, flora and fauna, and other natural resources are owned by
legal standing when paramount public interest is involved. When [77] 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 THE SPANISH REGIME
supervision of the State. The State may directly undertake such activities or AND THE REGALIAN DOCTRINE
it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least The first sentence of Section 2 embodies the Regalian doctrine
sixty per centum of whose capital is owned by such citizens. Such or jura regalia. Introduced by Spain into these Islands, this feudal
agreements may be for a period not exceeding twenty-five years, renewable concept is based on the States power of dominium, which is the
for not more than twenty-five years, and under such terms and conditions as capacity of the State to own or acquire property. [79]

may be provided by law. In cases of water rights for irrigation, water


supply, fisheries, or industrial uses other than the development of water In its broad sense, the term jura regalia refers to royal rights, or those rights
power, beneficial use may be the measure and limit of the grant. 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
The State shall protect the nations marine wealth in its archipelagic waters, of property or propriedad. These were rights enjoyed during feudal times by
territorial sea, and exclusive economic zone, and reserve its use and the king as the sovereign.
enjoyment exclusively to Filipino citizens.
The theory of the feudal system was that title to all lands was originally held
The Congress may, by law, allow small-scale utilization of natural resources by the King, and while the use of lands was granted out to others who were
by Filipino citizens, as well as cooperative fish farming, with priority to permitted to hold them under certain conditions, the King theoretically
subsistence fishermen and fish-workers in rivers, lakes, bays, and lagoons. 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
The President may enter into agreements with foreign-owned corporations
lands were held. The theory of jura regalia was therefore nothing more than
involving either technical or financial assistance for large-scale exploration,
a natural fruit of conquest. [80]

development, and utilization of minerals, petroleum, and other mineral oils


according to the general terms and conditions provided by law, based on The Philippines having passed to Spain by virtue of discovery
real contributions to the economic growth and general welfare of the and conquest, earlier Spanish decrees declared that all lands were
[81]

country. In such agreements, the State shall promote the development and held from the Crown. [82]

use of local scientific and technical resources.


The Regalian doctrine extends not only to land but also to all
The President shall notify the Congress of every contract entered into in natural wealth that may be found in the bowels of the earth. Spain, [83]

accordance with this provision, within thirty days from its execution. 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. Mining laws during the
[84]
which has entered and is occupying such lands shall have paid to the
Spanish regime reflected this perspective. [85]
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
THE AMERICAN OCCUPATION AND mineral claims.
THE CONCESSION REGIME
Unlike Spain, the United States considered natural resources as
By the Treaty of Paris of December 10, 1898, Spain ceded the a source of wealth for its nationals and saw fit to allow both Filipino
archipelago known as the Philippine Islands to the United and American citizens to explore and exploit minerals in public lands,
States. The Philippines was hence governed by means of organic and to grant patents to private mineral lands. A person who[88]

acts that were in the nature of charters serving as a Constitution of acquired ownership over a parcel of private mineral land pursuant to
the occupied territory from 1900 to 1935. Among the principal[86] the laws then prevailing could exclude other persons, even the State,
organic acts of the Philippines was the Act of Congress of July 1, from exploiting minerals within his property. Thus, earlier [89]

1902, more commonly known as the Philippine Bill of 1902, through jurisprudence held that:
[90]

which the United States Congress assumed the administration of the


A valid and subsisting location of mineral land, made and kept up in
Philippine Islands. Section 20 of said Bill reserved the disposition of
[87]

accordance with the provisions of the statutes of the United States, has the
mineral lands of the public domain from sale. Section 21 thereof
effect of a grant by the United States of the present and exclusive possession
allowed the free and open exploration, occupation and purchase of
of the lands located, and this exclusive right of possession and enjoyment
mineral deposits not only to citizens of the Philippine Islands but to
continues during the entire life of the location. x x x.
those of the United States as well:
x x x.
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
The discovery of minerals in the ground by one who has a valid mineral
open to exploration, occupation and purchase, and the land in which they
location perfects his claim and his location not only against third
are found, to occupation and purchase, by citizens of the United States or of
persons, but also against the Government. x x x. [Italics in the original.]
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 The Regalian doctrine and the American system, therefore, differ
patented, mineral deposits have been found, the working of such mineral in one essential respect. Under the Regalian theory, mineral rights
deposits is forbidden until the person, association, or corporation who or 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 By the Act of United States Congress of March 24, 1934,
government. [91]
popularly known as the Tydings-McDuffie Law, the People of the
Philippine Islands were authorized to adopt a constitution. On July [102]

Section 21 also made possible the concession (frequently styled


30, 1934, the Constitutional Convention met for the purpose of
permit, license or lease) system. This was the traditional regime
[92] [93]

drafting a constitution, and the Constitution subsequently drafted was


imposed by the colonial administrators for the exploitation of natural
approved by the Convention on February 8, 1935. The Constitution
[103]

resources in the extractive sector (petroleum, hard minerals, timber,


was submitted to the President of the United States on March 18,
etc.).
[94]

1935. On March 23, 1935, the President of the United States


[104]

Under the concession system, the concessionaire makes a direct certified that the Constitution conformed substantially with the
equity investment for the purpose of exploiting a particular natural provisions of the Act of Congress approved on March 24, 1934. On [105]

resource within a given area. Thus, the concession amounts to


[95]
May 14, 1935, the Constitution was ratified by the Filipino people. [106]

complete control by the concessionaire over the countrys natural


The 1935 Constitution adopted the Regalian doctrine, declaring
resource, for it is given exclusive and plenary rights to exploit a
all natural resources of the Philippines, including mineral lands and
particular resource at the point of extraction. In consideration for the
[96]

minerals, to be property belonging to the State. As adopted in a


[107]

right to exploit a natural resource, the concessionaire either pays rent


republican system, the medieval concept of jura regalia is stripped of
or royalty, which is a fixed percentage of the gross proceeds. [97]

royal overtones and ownership of the land is vested in the State. [108]

Later statutory enactments by the legislative bodies set up in the


Section 1, Article XIII, on Conservation and Utilization of Natural
Philippines adopted the contractual framework of the
Resources, of the 1935 Constitution provided:
concession. For instance, Act No. 2932, approved on August 31,
[98] [99]

1920, which provided for the exploration, location, and lease of lands SECTION 1. All agricultural, timber, and mineral lands of the public
containing petroleum and other mineral oils and gas in the domain, waters, minerals, coal, petroleum, and other mineral oils, all forces
Philippines, and Act No. 2719, approved on May 14, 1917, which
[100]
of potential energy, and other natural resources of the Philippines belong to
provided for the leasing and development of coal lands in the the State, and their disposition, exploitation, development, or utilization
Philippines, both utilized the concession system. [101]
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
THE 1935 CONSTITUTION AND THE such citizens, subject to any existing right, grant, lease, or concession at the
NATIONALIZATION OF NATURAL RESOURCES 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 The nationalization of the natural resources was intended (1) to
be granted for a period exceeding twenty-five years, except as to water insure their conservation for Filipino posterity; (2) to serve as an
rights for irrigation, water supply, fisheries, or industrial uses other than the instrument of national defense, helping prevent the extension to the
development of water power, in which cases beneficial use may be the country of foreign control through peaceful economic penetration;
measure and the limit of the grant. and (3) to avoid making the Philippines a source of international
conflicts with the consequent danger to its internal security and
The nationalization and conservation of the natural resources of independence. [111]

the country was one of the fixed and dominating objectives of the
1935 Constitutional Convention. One delegate relates:
[109]
The same Section 1, Article XIII also adopted the concession
system, expressly permitting the State to grant licenses,
There was an overwhelming sentiment in the Convention in favor of the concessions, or leases for the exploitation, development, or
principle of state ownership of natural resources and the adoption of the utilization of any of the natural resources. Grants, however, were
Regalian doctrine. State ownership of natural resources was seen as a limited to Filipinos or entities at least 60% of the capital of which is
necessary starting point to secure recognition of the states power to control owned by Filipinos.
their disposition, exploitation, development, or utilization. The delegates of The swell of nationalism that suffused the 1935 Constitution was
the Constitutional Convention very well knew that the concept of State radically diluted when on November 1946, the Parity Amendment,
ownership of land and natural resources was introduced by the Spaniards, which came in the form of an Ordinance Appended to the
however, they were not certain whether it was continued and applied by the Constitution, was ratified in a plebiscite. The Amendment extended,
[112]

Americans. To remove all doubts, the Convention approved the provision in from July 4, 1946 to July 3, 1974, the right to utilize and exploit our
the Constitution affirming the Regalian doctrine. natural resources to citizens of the United States and business
enterprises owned or controlled, directly or indirectly, by citizens of
The adoption of the principle of state ownership of the natural resources and the United States: [113]

of the Regalian doctrine was considered to be a necessary starting point for


the plan of nationalizing and conserving the natural resources of the Notwithstanding the provision of section one, Article Thirteen, and section
country. For with the establishment of the principle of state ownership of the eight, Article Fourteen, of the foregoing Constitution, during the effectivity
natural resources, it would not be hard to secure the recognition of the of the Executive Agreement entered into by the President of the Philippines
power of the State to control their disposition, exploitation, development or with the President of the United States on the fourth of July, nineteen
utilization.
[110]
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 competence, and skills necessary to conduct the operations to be
mineral lands of the public domain, waters, minerals, coals, petroleum, and undertaken. [119]

other mineral oils, all forces and sources of potential energy, and other
Nevertheless, the Government reserved the right to undertake
natural resources of the Philippines, and the operation of public utilities,
such work itself. This proceeded from the theory that all natural
[120]

shall, if open to any person, be open to citizens of the United States and to
deposits or occurrences of petroleum or natural gas in public and/or
all forms of business enterprise owned or controlled, directly or indirectly,
private lands in the Philippines belong to the State. Exploration and
[121]

by citizens of the United States in the same manner as to, and under the
exploitation concessions did not confer upon the concessionaire
same conditions imposed upon, citizens of the Philippines or corporations or
ownership over the petroleum lands and petroleum
associations owned or controlled by citizens of the Philippines.
deposits. However, they did grant concessionaires the right to
[122]

explore, develop, exploit, and utilize them for the period and under
The Parity Amendment was subsequently modified by the 1954
Revised Trade Agreement, also known as the Laurel-Langley the conditions determined by the law. [123]

Agreement, embodied in Republic Act No. 1355. [114]


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]

THE PETROLEUM ACT OF 1949


AND THE CONCESSION SYSTEM 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
In the meantime, Republic Act No. 387, also known as the
[115]
as production reports. Exploration and
[125] [126]

Petroleum Act of 1949, was approved on June 18, 1949. exploitation concessionaires were also required to submit work
[127]

The Petroleum Act of 1949 employed the concession system for programs.
the exploitation of the nations petroleum resources. Among the kinds Exploitation concessionaires, in particular, were obliged to pay an
of concessions it sanctioned were exploration and exploitation annual exploitation tax, the object of which is to induce the
[128]

concessions, which respectively granted to the concessionaire the concessionaire to actually produce petroleum, and not simply to sit
exclusive right to explore for or develop petroleum within
[116] [117]
on the concession without developing or exploiting it. These [129]

specified areas. concessionaires were also bound to pay the Government royalty,
Concessions may be granted only to duly qualified persons who [118] which was not less than 12% of the petroleum produced and saved,
have sufficient finances, organization, resources, technical less that consumed in the operations of the concessionaire. Under
[130]

Article 66, R.A. No. 387, the exploitation tax may be credited against
the royalties so that if the concessionaire shall be actually producing Victorio Mario A. Dimagiba, Chief Legal Officer of the Bureau of
enough oil, it would not actually be paying the exploitation tax. [131]
Energy Development, analyzed the benefits and drawbacks of the
concession system insofar as it applied to the petroleum industry:
Failure to pay the annual exploitation tax for two consecutive
years, or the royalty due to the Government within one year from
[132]
Advantages of Concession. Whether it emphasizes income tax or royalty,
the date it becomes due, constituted grounds for the cancellation of
[133]
the most positive aspect of the concession system is that the States financial
the concession. In case of delay in the payment of the taxes or involvement is virtually risk free and administration is simple and
royalty imposed by the law or by the concession, a surcharge of 1% comparatively low in cost. Furthermore, if there is a competitive allocation
per month is exacted until the same are paid. [134]
of the resource leading to substantial bonuses and/or greater royalty coupled
As a rule, title rights to all equipment and structures that the with a relatively high level of taxation, revenue accruing to the State under
concessionaire placed on the land belong to the exploration or the concession system may compare favorably with other financial
exploitation concessionaire. Upon termination of such concession,
[135] arrangements.
the concessionaire had a right to remove the same. [136]

Disadvantages of Concession. There are, however, major negative aspects


The Secretary of Agriculture and Natural Resources was tasked to this system. Because the Governments role in the traditional concession is
with carrying out the provisions of the law, through the Director of passive, it is at a distinct disadvantage in managing and developing policy
Mines, who acted under the Secretarys immediate supervision and for the nations petroleum resource. This is true for several reasons. First,
control. The Act granted the Secretary the authority to inspect any
[137]
even though most concession agreements contain covenants requiring
operation of the concessionaire and to examine all the books and diligence in operations and production, this establishes only an indirect and
accounts pertaining to operations or conditions related to payment of passive control of the host country in resource development. Second, and
taxes and royalties. [138]
more importantly, the fact that the host country does not directly participate
The same law authorized the Secretary to create an in resource management decisions inhibits its ability to train and employ its
Administration Unit and a Technical Board. The Administration Unit
[139] nationals in petroleum development. This factor could delay or prevent the
was charged, inter alia, with the enforcement of the provisions of the country from effectively engaging in the development of its
law. The Technical Board had, among other functions, the duty to
[140] resources. Lastly, a direct role in management is usually necessary in order
check on the performance of concessionaires and to determine to obtain a knowledge of the international petroleum industry which is
whether the obligations imposed by the Act and its implementing important to an appreciation of the host countrys resources in relation to
regulations were being complied with. [141] 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 A shift to a new regime for the development of natural resources
economic power arising from its exclusive equity holding. This includes, thus seemed imminent.
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, PRESIDENTIAL DECREE NO. 87, THE 1973
research and development; and fourth, exclusive responsibility for CONSTITUTION AND THE SERVICE CONTRACT SYSTEM
downstream operations, like processing, marketing, and distribution. In
short, even if nominally, the state is the sovereign and owner of the natural The promulgation on December 31, 1972 of Presidential Decree
resource being exploited, it has been shorn of all elements of control over No. 87, otherwise known as THE OIL EXPLORATION AND
[145]

such natural resource because of the exclusive nature of the contractual DEVELOPMENT ACT OF 1972 signaled such a transformation. P.D.
regime of the concession. The concession system, investing as it does No. 87 permitted the government to explore for and produce
ownership of natural resources, constitutes a consistent inconsistency with indigenous petroleum through service contracts. [146]

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 Service contracts is a term that assumes varying meanings to
concession was the bedrock of the colonial system in the exploitation of different people, and it has carried many names in different countries,
natural resources.[143] like work contracts in Indonesia, concession agreements in Africa,
production-sharing agreements in the Middle East, and participation
Eventually, the concession system failed for reasons explained agreements in Latin America. A functional definition of service
[147]

by Dimagiba: contracts in the Philippines is provided as follows:

Notwithstanding the good intentions of the Petroleum Act of 1949, the A service contract is a contractual arrangement for engaging in the
concession system could not have properly spurred sustained oil exploration exploitation and development of petroleum, mineral, energy, land and other
activities in the country, since it assumed that such a capital-intensive, high natural resources by which a government or its agency, or a private person
risk venture could be successfully undertaken by a single individual or a granted a right or privilege by the government authorizes the other party
small company. In effect, concessionaires funds were easily (service contractor) to engage or participate in the exercise of such right or
exhausted. Moreover, since the concession system practically closed its the enjoyment of the privilege, in that the latter provides financial or
doors to interested foreign investors, local capital was stretched to the technical resources, undertakes the exploitation or production of a given
limits. The old system also failed to consider the highly sophisticated resource, or directly manages the productive enterprise, operations of the
technology and expertise required, which would be available only to exploration and exploitation of the resources or the disposition of marketing
multinational companies. [144] or resources. [148]
In a service contract under P.D. No. 87, service and technology petroleum industry, was basically a concession regime with a
are furnished by the service contractor for which it shall be entitled to production-sharing element. [160]

the stipulated service fee. The contractor must be technically


[149]

On January 17, 1973, then President Ferdinand E. Marcos


competent and financially capable to undertake the operations
required in the contract.[150]
proclaimed the ratification of a new Constitution. Article XIV on the
[161]

National Economy and Patrimony contained provisions similar to the


Financing is supposed to be provided by the Government to 1935 Constitution with regard to Filipino participation in the nations
which all petroleum produced belongs. In case the Government is
[151]
natural resources. Section 8, Article XIV thereof provides:
unable to finance petroleum exploration operations, the contractor
may furnish services, technology and financing, and the proceeds of SEC. 8. All lands of the public domain, waters, minerals, coal, petroleum
sale of the petroleum produced under the contract shall be the and other mineral oils, all forces of potential energy, fisheries, wildlife, and
source of funds for payment of the service fee and the operating other natural resources of the Philippines belong to the State. With the
expenses due the contractor. The contractor shall undertake,
[152]
exception of agricultural, industrial or commercial, residential and
manage and execute petroleum operations, subject to the resettlement lands of the public domain, natural resources shall not be
government overseeing the management of the operations. The [153]
alienated, and no license, concession, or lease for the exploration,
contractor provides all necessary services and technology and the development, exploitation, or utilization of any of the natural resources shall
requisite financing, performs the exploration work obligations, and be granted for a period exceeding twenty-five years, renewable for not more
assumes all exploration risks such that if no petroleum is produced, it than twenty-five years, except as to water rights for irrigation, water supply,
will not be entitled to reimbursement. Once petroleum in [154]
fisheries, or industrial uses other than the development of water power, in
commercial quantity is discovered, the contractor shall operate the which cases beneficial use may be the measure and the limit of the grant.
field on behalf of the government. [155]

While Section 9 of the same Article maintained the Filipino-only


P.D. No. 87 prescribed minimum terms and conditions for every
policy in the enjoyment of natural resources, it also allowed Filipinos,
service contract. It also granted the contractor certain privileges,
[156]

upon authority of the Batasang Pambansa, to enter into service


including exemption from taxes and payment of tariff duties, and [157]

contracts with any person or entity for the exploration or utilization of


permitted the repatriation of capital and retention of profits abroad. [158]

natural resources.
Ostensibly, the service contract system had certain advantages
over the concession regime. It has been opined, though, that, in the
[159] SEC. 9. The disposition, exploration, development, exploitation, or
Philippines, our concept of a service contract, at least in the 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 such lands to enter into service contracts for financial, technical,
interest, may allow such citizens, corporations or associations to enter management or other forms of assistance with any foreign persons
into service contracts for financial, technical, management, or other or entity for the exploration, development, exploitation or utilization of
forms of assistance with any person or entity for the exploration, or said lands.[168]

utilization of any of the natural resources. Existing valid and binding


Presidential Decree No. 463, also known as THE MINERAL
[169]

service contracts for financial, technical, management, or other forms of


RESOURCES DEVELOPMENT DECREE OF 1974, was enacted on
assistance are hereby recognized as such. [Emphasis supplied.]
May 17, 1974. Section 44 of the decree, as amended, provided that a
The concept of service contracts, according to one delegate, was lessee of a mining claim may enter into a service contract with a
qualified domestic or foreign contractor for the exploration,
borrowed from the methods followed by India, Pakistan and
development and exploitation of his claims and the processing and
especially Indonesia in the exploration of petroleum and mineral
oils. The provision allowing such contracts, according to another,
[162]
marketing of the product thereof.
was intended to enhance the proper development of our natural Presidential Decree No. 704 (THE FISHERIES DECREE OF
[170]

resources since Filipino citizens lack the needed capital and 1975), approved on May 16, 1975, allowed Filipinos engaged in
technical know-how which are essential in the proper exploration, commercial fishing to enter into contracts for financial, technical or
development and exploitation of the natural resources of the other forms of assistance with any foreign person, corporation or
country. [163]
entity for the production, storage, marketing and processing of fish
The original idea was to authorize the government, not private and fishery/aquatic products. [171]

entities, to enter into service contracts with foreign entities. As [164]


Presidential Decree No. 705 (THE REVISED FORESTRY
[172]

finally approved, however, a citizen or private entity could be allowed CODE OF THE PHILIPPINES), approved on May 19, 1975, allowed
by the National Assembly to enter into such service contract. The [165]
forest products licensees, lessees, or permitees to enter into service
prior approval of the National Assembly was deemed sufficient to contracts for financial, technical, management, or other forms of
protect the national interest. Notably, none of the laws allowing
[166]
assistance . . . with any foreign person or entity for the exploration,
service contracts were passed by the Batasang Pambansa. Indeed, development, exploitation or utilization of the forest resources. [173]

all of them were enacted by presidential decree.


Yet another law allowing service contracts, this time for
On March 13, 1973, shortly after the ratification of the new geothermal resources, was Presidential Decree No. 1442, which [174]

Constitution, the President promulgated Presidential Decree No. was signed into law on June 11, 1978. Section 1 thereof authorized
151. The law allowed Filipino citizens or entities which have
[167]
the Government to enter into service contracts for the exploration,
acquired lands of the public domain or which own, hold or control exploitation and development of geothermal resources with a foreign
contractor who must be technically and financially capable of Like the 1935 and 1973 Constitutions before it, the 1987
undertaking the operations required in the service contract. Constitution, in the second sentence of the same provision, prohibits
the alienation of natural resources, except agricultural lands.
Thus, virtually the entire range of the countrys natural resources
from petroleum and minerals to geothermal energy, from public lands The third sentence of the same paragraph is new: The
and forest resources to fishery products was well covered by exploration, development and utilization of natural resources shall be
apparent legal authority to engage in the direct participation or under the full control and supervision of the State. The
involvement of foreign persons or corporations (otherwise constitutional policy of the States full control and supervision over
disqualified) in the exploration and utilization of natural resources natural resources proceeds from the concept of jura regalia, as well
through service contracts. [175]
as the recognition of the importance of the countrys natural
resources, not only for national economic development, but also for
its security and national defense. Under this provision, the State
[178]

THE 1987 CONSTITUTION AND TECHNICAL assumes a more dynamic role in the exploration, development and
OR FINANCIAL ASSISTANCE AGREEMENTS utilization of natural resources. [179]

Conspicuously absent in Section 2 is the provision in the 1935


After the February 1986 Edsa Revolution, Corazon C. Aquino and 1973 Constitutions authorizing the State to grant licenses,
took the reins of power under a revolutionary government. On March concessions, or leases for the exploration, exploitation, development,
25, 1986, President Aquino issued Proclamation No. or utilization of natural resources. By such omission, the utilization of
3, promulgating the Provisional Constitution, more popularly
[176]
inalienable lands of public domain through license, concession or
referred to as the Freedom Constitution. By authority of the same lease is no longer allowed under the 1987 Constitution. [180]

Proclamation, the President created a Constitutional Commission


(CONCOM) to draft a new constitution, which took effect on the date Having omitted the provision on the concession system, Section
of its ratification on February 2, 1987.
[177] 2 proceeded to introduce unfamiliar language: [181]

The 1987 Constitution retained the Regalian doctrine. The first The State may directly undertake such activities or it may enter into co-
sentence of Section 2, Article XII states: All lands of the public production, joint venture, or production-sharing agreements with Filipino
domain, waters, minerals, coal, petroleum, and other mineral oils, all citizens, or corporations or associations at least sixty per centum of whose
forces of potential energy, fisheries, forests or timber, wildlife, flora capital is owned by such citizens.
and fauna, and other natural resources are owned by the State.
Consonant with the States full supervision and control over Although Section 2 sanctions the participation of foreign-owned
natural resources, Section 2 offers the State two options. One, the
[182]
corporations in the exploration, development, and utilization of
State may directly undertake these activities itself; or two, it may natural resources, it imposes certain limitations or conditions to
enter into co-production, joint venture, or production-sharing agreements with such corporations.
agreements with Filipino citizens, or entities at least 60% of whose
First, the parties to FTAAs. Only the President, in behalf of the
capital is owned by such citizens.
State, may enter into these agreements, and only
A third option is found in the third paragraph of the same section: with corporations. By contrast, under the 1973 Constitution, a Filipino
citizen, corporation or association may enter into a service contract
The Congress may, by law, allow small-scale utilization of natural resources with a foreign person or entity.
by Filipino citizens, as well as cooperative fish farming, with priority to
subsistence fishermen and fish-workers in rivers, lakes, bays, and lagoons. Second, the size of the activities: only large-scale exploration,
development, and utilization is allowed. The term large-scale usually
While the second and third options are limited only to Filipino refers to very capital-intensive activities.
[183]

citizens or, in the case of the former, to corporations or associations Third, the natural resources subject of the activities is
at least 60% of the capital of which is owned by Filipinos, a fourth restricted to minerals, petroleum and other mineral oils, the intent
allows the participation of foreign-owned corporations. The fourth and being to limit service contracts to those areas where Filipino capital
fifth paragraphs of Section 2 provide: may not be sufficient.
[184]

The President may enter into agreements with foreign-owned corporations Fourth, consistency with the provisions of statute. The
involving either technical or financial assistance for large-scale exploration, agreements must be in accordance with the terms and conditions
development, and utilization of minerals, petroleum, and other mineral oils provided by law.
according to the general terms and conditions provided by law, based on Fifth, Section 2 prescribes certain standards for entering into
real contributions to the economic growth and general welfare of the such agreements. The agreements must be based on real
country. In such agreements, the State shall promote the development and contributions to economic growth and general welfare of the country.
use of local scientific and technical resources.
Sixth, the agreements must contain rudimentary stipulations for
The President shall notify the Congress of every contract entered into in the promotion of the development and use of local scientific and
accordance with this provision, within thirty days from its execution. technical resources.
Seventh, the notification requirement. The President shall notify As earlier stated, on the 25th also of July 1987, the President
Congress of every financial or technical assistance agreement issued E.O. No. 279 by authority of which the subject WMCP FTAA
entered into within thirty days from its execution. was executed on March 30, 1995.
Finally, the scope of the agreements. While the 1973 On March 3, 1995, President Ramos signed into law R.A. No.
Constitution referred to service contracts for financial, technical, 7942. Section 15 thereof declares that the Act shall govern the
management, or other forms of assistance the 1987 Constitution exploration, development, utilization, and processing of all mineral
provides for agreements. . . involving either financial or technical resources. Such declaration notwithstanding, R.A. No. 7942 does not
assistance. It bears noting that the phrases service contracts and actually cover all the modes through which the State may undertake
management or other forms of assistance in the earlier constitution the exploration, development, and utilization of natural resources.
have been omitted.
The State, being the owner of the natural resources, is accorded
By virtue of her legislative powers under the Provisional the primary power and responsibility in the exploration, development
Constitution, President Aquino, on July 10, 1987, signed into law
[185]
and utilization thereof. As such, it may undertake these activities
E.O. No. 211 prescribing the interim procedures in the processing through four modes:
and approval of applications for the exploration, development and
The State may directly undertake such activities.
utilization of minerals. The omission in the 1987 Constitution of the
term service contracts notwithstanding, the said E.O. still referred to (2) The State may enter into co-production, joint venture or
them in Section 2 thereof: production-sharing agreements with Filipino citizens or qualified
corporations.
SEC. 2. Applications for the exploration, development and utilization of
(3) Congress may, by law, allow small-scale utilization of natural
mineral resources, including renewal applications and applications for
resources by Filipino citizens.
approval of operating agreements and mining service contracts, shall be
accepted and processed and may be approved x x x. [Emphasis supplied.] (4) For the large-scale exploration, development and utilization of
minerals, petroleum and other mineral oils, the President may enter
The same law provided in its Section 3 that the processing, into agreements with foreign-owned corporations involving technical
evaluation and approval of all mining applications . . . operating or financial assistance.
[186]

agreements and service contracts . . . shall be governed by


Except to charge the Mines and Geosciences Bureau of the
Presidential Decree No. 463, as amended, other existing mining
DENR with performing researches and surveys, and a passing
[187]

laws, and their implementing rules and regulations. . . .


mention of government-owned or controlled corporations, R.A. No.
[188]
7942 does not specify how the State should go about the first The share of the Government in co-production and joint venture agreements
mode. The third mode, on the other hand, is governed by Republic shall be negotiated by the Government and the contractor taking into
Act No. 7076 (the Peoples Small-Scale Mining Act of 1991) and
[189]
consideration the: (a) capital investment of the project, (b) the risks
other pertinent laws. R.A. No. 7942 primarily concerns itself with
[190]
involved, (c) contribution of the project to the economy, and (d) other
the second and fourth modes. factors that will provide for a fair and equitable sharing between the
Government and the contractor. The Government shall also be entitled to
Mineral production sharing, co-production and joint venture
compensations for its other contributions which shall be agreed upon by the
agreements are collectively classified by R.A. No. 7942 as mineral
parties, and shall consist, among other things, the contractors income tax,
agreements. The Government participates the least in a mineral
[191]

excise tax, special allowance, withholding tax due from the contractors
production sharing agreement (MPSA). In an MPSA, the Government
foreign stockholders arising from dividend or interest payments to the said
grants the contractor the exclusive right to conduct mining
[192]

foreign stockholders, in case of a foreign national and all such other taxes,
operations within a contract area and shares in the gross [193]

duties and fees as provided for under existing laws.


output. The MPSA contractor provides the financing, technology,
[194]

management and personnel necessary for the agreements


All mineral agreements grant the respective contractors the
implementation. The total government share in an MPSA is the
[195]
exclusive right to conduct mining operations and to extract all mineral
excise tax on mineral products under Republic Act No.
resources found in the contract area. A qualified person may enter
[204]

7729, amending Section 151(a) of the National Internal Revenue


[196]
into any of the mineral agreements with the Government. A [205]

Code, as amended. [197]


qualified person is
In a co-production agreement (CA), the Government provides [198]

inputs to the mining operations other than the mineral any citizen of the Philippines with capacity to contract, or a corporation,
resource, while in a joint venture agreement (JVA), where the
[199] partnership, association, or cooperative organized or authorized for the
Government enjoys the greatest participation, the Government and purpose of engaging in mining, with technical and financial capability to
the JVA contractor organize a company with both parties having undertake mineral resources development and duly registered in accordance
equity shares. Aside from earnings in equity, the Government in a
[200] with law at least sixty per centum (60%) of the capital of which is owned by
JVA is also entitled to a share in the gross output. The Government [201] citizens of the Philippines x x x.
[206]

may enter into a CA or JVA with one or more contractors. The


[202] [203]

Governments share in a CA or JVA is set out in Section 81 of the The fourth mode involves financial or technical assistance
law: agreements. An FTAA is defined as a contract involving financial or
technical assistance for large-scale exploration, development, and
utilization of natural resources. Any qualified person with technical
[207]
and financial capability to undertake large-scale exploration, THE EFFECTIVITY OF
development, and utilization of natural resources in the Philippines EXECUTIVE ORDER NO. 279
may enter into such agreement directly with the Government through
the DENR. For the purpose of granting an FTAA, a legally
[208]
Petitioners argue that E.O. No. 279, the law in force when the
organized foreign-owned corporation (any corporation, partnership, WMC FTAA was executed, did not come into effect.
association, or cooperative duly registered in accordance with law in
which less than 50% of the capital is owned by Filipino citizens) is [209] E.O. No. 279 was signed into law by then President Aquino on
deemed a qualified person. [210] July 25, 1987, two days before the opening of Congress on July 27,
1987. Section 8 of the E.O. states that the same shall take
[214]

Other than the difference in contractors qualifications, the effect immediately. This provision, according to petitioners, runs
principal distinction between mineral agreements and FTAAs is the counter to Section 1 of E.O. No. 200, which provides:
[215]

maximum contract area to which a qualified person may hold or be


granted. Large-scale under R.A. No. 7942 is determined by the
[211]
SECTION 1. Laws shall take effect after fifteen days following the
size of the contract area, as opposed to the amount invested (US completion of their publication either in the Official Gazette or in a
$50,000,000.00), which was the standard under E.O. 279. newspaper of general circulation in the Philippines, unless it is otherwise
Like a CA or a JVA, an FTAA is subject to negotiation. The [212] provided. [Emphasis supplied.]
[216]

Governments contributions, in the form of taxes, in an FTAA is


identical to its contributions in the two mineral agreements, save that On that premise, petitioners contend that E.O. No. 279 could
in an FTAA: have only taken effect fifteen days after its publication at which time
Congress had already convened and the Presidents power to
The collection of Government share in financial or technical assistance legislate had ceased.
agreement shall commence after the financial or technical assistance Respondents, on the other hand, counter that the validity of E.O.
agreement contractor has fully recovered its pre-operating expenses, No. 279 was settled in Miners Association of the Philippines v.
exploration, and development expenditures, inclusive. [213]
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.
III
57 and 82 which were issued pursuant thereto.
Having examined the history of the constitutional provision and
statutes enacted pursuant thereto, a consideration of the substantive Nevertheless, petitioners contentions have no merit.
issues presented by the petition is now in order. 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 279 became effective immediately upon its publication in the Official
effectivity, such date prevails over that prescribed by E.O. No. Gazette on August 3, 1987.
200. Indeed, this is the very essence of the phrase unless it is
That such effectivity took place after the convening of the first
otherwise provided in Section 1 thereof.Section 1, E.O. No. 200,
Congress is irrelevant. At the time President Aquino issued E.O. No.
therefore, applies only when a statute does not provide for its own
279 on July 25, 1987, she was still validly exercising legislative
date of effectivity.
powers under the Provisional Constitution. Article XVIII (Transitory
[221]

What is mandatory under E.O. No. 200, and what due process Provisions) of the 1987 Constitution explicitly states:
requires, as this Court held in Taada v. Tuvera, is the publication of
[217]

the law for SEC. 6. The incumbent President shall continue to exercise legislative
powers until the first Congress is convened.
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 convening of the first Congress merely precluded the exercise of
the height of injustice to punish or otherwise burden a citizen for the legislative powers by President Aquino; it did not prevent the
transgression of a law of which he had no notice whatsoever, not even a effectivity of laws she had previously enacted.
constructive one. There can be no question, therefore, that E.O. No. 279 is an
effective, and a validly enacted, statute.
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 CONSTITUTIONALITY
the nation, is deemed written in the law. Hence, the due process
[218]
OF THE WMCP FTAA
clause, which, so Taada held, mandates the publication of statutes,
[219]

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 Petitioners submit that, in accordance with the text of Section 2,
in a newspaper of general circulation in the Philippines, finds Article XII of the Constitution, FTAAs should be limited
suppletory application. It is significant to note that E.O. No. 279 was to technical or financial assistance only. They observe, however,
actually published in the Official Gazette on August 3, 1987.
[220] that, contrary to the language of the Constitution, the WMCP FTAA
allows WMCP, a fully foreign-owned mining corporation, to extend
From a reading then of Section 8 of E.O. No. 279, Section 1 of more than mere financial or technical assistance to the State, for it
E.O. No. 200, and Taada v. Tuvera, this Court holds that E.O. No. 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 which is the primary feature of service contracts, was precisely the
interpretation of constitutions that the instrument must be so evil that the drafters of the 1987 Constitution sought to eradicate.
construed as to give effect to the intention of the people who adopted
Respondents insist that agreements involving technical or
it. This intention is to be sought in the constitution itself, and the
[223]

financial assistance is just another term for service contracts. They


apparent meaning of the words is to be taken as expressing it,
contend that the proceedings of the CONCOM indicate that although
except in cases where that assumption would lead to absurdity,
the terminology service contract was avoided [by the Constitution],
ambiguity, or contradiction. What the Constitution says according to
[224]

the concept it represented was not. They add that [t]he concept is
the text of the provision, therefore, compels acceptance and negates
embodied in the phrase agreements involving financial or technical
the power of the courts to alter it, based on the postulate that the
assistance. And point out how members of the CONCOM referred
[229]

framers and the people mean what they say. Accordingly, following
[225]

to these agreements as service contracts. For instance:


the literal text of the Constitution, assistance accorded by foreign-
owned corporations in the large-scale exploration, development, and SR. TAN. Am I correct in thinking that the only difference between
utilization of petroleum, minerals and mineral oils should be limited to these future service contracts and the past service contracts under Mr.
technical or financial assistance only. Marcos is the general law to be enacted by the legislature and the
WMCP nevertheless submits that the word technical in the fourth notification of Congress by the President? That is the only difference, is it
paragraph of Section 2 of E.O. No. 279 encompasses a broad not?
number of possible services, perhaps, scientific and/or technological
in basis. It thus posits that it may also well include the area
[226] MR. VILLEGAS. That is right.
of management or operations . . . so long as such assistance
requires specialized knowledge or skills, and are related to the SR. TAN. So those are the safeguards[?]
exploration, development and utilization of mineral resources. [227]

MR. VILLEGAS. Yes. There was no law at all governing service contracts
This Court is not persuaded. As priorly pointed out, the phrase before.
management or other forms of assistance in the 1973 Constitution
was deleted in the 1987 Constitution, which allows only technical or SR. TAN. Thank you, Madam President. [230]
[Emphasis supplied.]
financial assistance. Casus omisus pro omisso habendus est. A
person, object or thing omitted from an enumeration must be held to WMCP also cites the following statements of Commissioners
have been omitted intentionally. As will be shown later, the
[228] Gascon, Garcia, Nolledo and Tadeo who alluded to service contracts
management or operation of mining activities by foreign contractors, 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 x x x.
reasons: One, the provision on service contracts. I felt that if we
would constitutionalize any provision on service contracts, this should It is also my understanding that service contracts involving foreign
always be with the concurrence of Congress and not guided only by a corporations or entities are resorted to only when no Filipino enterprise
general law to be promulgated by Congress. x x x. [Emphasis supplied.]
[231] or Filipino-controlled enterprise could possibly undertake the
exploration or exploitation of our natural resources and that
x x x. compensation under such contracts cannot and should not equal what
should pertain to ownership of capital. In other words, the service
MR. GARCIA. Thank you. contract should not be an instrument to circumvent the basic provision,
that the exploration and exploitation of natural resources should be
I vote no. x x x. truly for the benefit of Filipinos.
Service contracts are given constitutional legitimization in Section 3, Thank you, and I vote yes. [233]
[Emphasis supplied.]
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 x x x.
our natural resources for the benefit of foreign interests. They constitute
a serious negation of Filipino control on the use and disposition of the MR. TADEO. Nais ko lamang ipaliwanag ang aking boto.
nations natural resources, especially with regard to those which are
nonrenewable. [Emphasis supplied.]
[232] Matapos suriin ang kalagayan ng Pilipinas, ang saligang suliranin,
pangunahin ang salitang imperyalismo. Ang ibig sabihin nito ay ang sistema
xxx ng lipunang pinaghaharian ng iilang monopolyong kapitalista at ang salitang
imperyalismo ay buhay na buhay sa National Economy and Patrimony na
MR. NOLLEDO. While there are objectionable provisions in the Article on nating ginawa. Sa pamamagitan ng salitang based on, naroroon na ang free
National Economy and Patrimony, going over said provisions meticulously, trade sapagkat tayo ay mananatiling tagapagluwas ng hilaw na sangkap at
setting aside prejudice and personalities will reveal that the article contains a tagaangkat ng yaring produkto. Pangalawa, naroroon pa rin ang parity
balanced set of provisions. I hope the forthcoming Congress will implement rights, ang service contract, ang 60-40 equity sa natural resources. Habang
such provisions taking into account that Filipinos should have real control naghihirap ang sambayanang Pilipino, ginagalugad naman ng mga
over our economy and patrimony, and if foreign equity is permitted, the dayuhan ang ating likas na yaman. Kailan man ang Article on National
same must be subordinated to the imperative demands of the national Economy and Patrimony ay hindi nagpaalis sa pagkaalipin ng ating
interest. ekonomiya sa kamay ng mga dayuhan. Ang solusyon sa suliranin ng
bansa ay dalawa lamang: ang pagpapatupad ng tunay na reporma sa lupa at [T]he Court in construing a Constitution should bear in mind the object
ang national industrialization. Ito ang tinatawag naming pagsikat ng araw sa sought to be accomplished by its adoption, and the evils, if any, sought to be
Silangan. Ngunit ang mga landlords and big businessmen at ang mga prevented or remedied. A doubtful provision will be examined in light of the
komprador ay nagsasabi na ang free trade na ito, ang kahulugan para sa history of the times, and the condition and circumstances under which the
amin, ay ipinipilit sa ating sambayanan na ang araw ay sisikat sa Constitution was framed. The object is to ascertain the reason which
Kanluran. Kailan man hindi puwedeng sumikat ang araw sa Kanluran. I vote induced the framers of the Constitution to enact the particular provision and
no. [Emphasis supplied.]
[234]
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
This Court is likewise not persuaded. that purpose. [236]

As earlier noted, the phrase service contracts has been deleted in


As the following question of Commissioner Quesada and
the 1987 Constitutions Article on National Economy and Patrimony. If
Commissioner Villegas answer shows the drafters intended to do
the CONCOM intended to retain the concept of service contracts
away with service contracts which were used to circumvent the
under the 1973 Constitution, it could have simply adopted the old
capitalization (60%-40%) requirement:
terminology (service contracts) instead of employing new and
unfamiliar terms (agreements . . . involving either technical or MS. QUESADA. The 1973 Constitution used the words service
financial assistance). Such a difference between the language of a contracts. In this particular Section 3, is there a safeguard against the
provision in a revised constitution and that of a similar provision in possible control of foreign interests if the Filipinos go into coproduction
the preceding constitution is viewed as indicative of a difference in with them?
purpose. If, as respondents suggest, the concept of technical or
[235]

financial assistance agreements is identical to that of service MR. VILLEGAS. Yes. In fact, the deletion of the phrase service contracts
contracts, the CONCOM would not have bothered to fit the same dog was our first attempt to avoid some of the abuses in the past regime in
with a new collar. To uphold respondents theory would reduce the the use of service contracts to go around the 60-40 arrangement. The
first to a mere euphemism for the second and render the change in safeguard that has been introduced and this, of course can be refined is
phraseology meaningless. found in Section 3, lines 25 to 30, where Congress will have to concur with
An examination of the reason behind the change confirms that the President on any agreement entered into between a foreign-owned
technical or financial assistance agreements are not synonymous to corporation and the government involving technical or financial assistance
service contracts. for large-scale exploration, development and utilization of natural
resources. [Emphasis supplied.]
[237]
In a subsequent discussion, Commissioner Villegas allayed the venture or production-sharing agreement with . . . corporations or
fears of Commissioner Quesada regarding the participation of foreign associations at least sixty per cent of whose voting stock or controlling
interests in Philippine natural resources, which was supposed to be interest is owned by such citizens.
restricted to Filipinos.
Lines 25 to 30, on the other hand, suggest that in the large-scale exploration,
MS. QUESADA. Another point of clarification is the phrase and utilization development and utilization of natural resources, the President with the
of natural resources shall be under the full control and supervision of the concurrence of Congress may enter into agreements with foreign-owned
State. In the 1973 Constitution, this was limited to citizens of the corporations even for technical or financial assistance.
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 I wonder if this part of Section 3 contradicts the second part. I am raising
particular resources would be limited to citizens of the Philippines? Or this point for fear that foreign investors will use their enormous capital
would these resources only be under the full control and supervision of the resources to facilitate the actual exploitation or exploration, development
State; meaning, noncitizens would have access to these natural resources? Is and effective disposition of our natural resources to the detriment of Filipino
that the understanding? 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
MR. VILLEGAS. No, Mr. Vice-President, if the Commissioner reads the allowed to participate only to the extent that they lend us money and give us
next sentence, it states: technical assistance with the appropriate government permit. In this way, we
can insure the enjoyment of our natural resources by our own people.
Such activities may be directly undertaken by the State, or it may enter into
co-production, joint venture, production-sharing agreements with Filipino MR. VILLEGAS. Actually, the second provision about the President
citizens. does not permit foreign investors to participate. It is only technical or
financial assistance they do not own anything but on conditions that
So we are still limiting it only to Filipino citizens. have to be determined by law with the concurrence of Congress. So, it is
very restrictive.
x x x.
If the Commissioner will remember, this removes the possibility for
MS. QUESADA. Going back to Section 3, the section suggests that: service contracts which we said yesterday were avenues used in the
previous regime to go around the 60-40 requirement. [Emphasis
[238]

The exploration, development, and utilization of natural resources may be supplied.]


directly undertaken by the State, or it may enter into co-production, joint
The present Chief Justice, then a member of the CONCOM, also certain extent the exploitation of our natural resources, and we became
referred to this limitation in scope in proposing an amendment to the victims of foreign dominance and control. The aliens are interested in
60-40 requirement: coming to the Philippines because they would like to enjoy the bounty of
nature exclusively intended for Filipinos by God.
MR. DAVIDE. May I be allowed to explain the proposal?
And so I appeal to all, for the sake of the future generations, that if we have
MR. MAAMBONG. Subject to the three-minute rule, Madam President. 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
MR. DAVIDE. It will not take three minutes. this time decide once and for all that our natural resources must be reserved
only to Filipino citizens.
The Commission had just approved the Preamble. In the Preamble we
clearly stated that the Filipino people are sovereign and that one of the Thank you. [239]
[Emphasis supplied.]
objectives for the creation or establishment of a government is to
conserve and develop the national patrimony. The implication is that The opinion of another member of the CONCOM is
the national patrimony or our natural resources are exclusively persuasive and leaves no doubt as to the intention of the framers to
[240]

reserved for the Filipino people. No alien must be allowed to enjoy, eliminate service contracts altogether. He writes:
exploit and develop our natural resources. As a matter of fact, that
principle proceeds from the fact that our natural resources are gifts Paragraph 4 of Section 2 specifies large-scale, capital-intensive, highly
from God to the Filipino people and it would be a breach of that special technological undertakings for which the President may enter into contracts
blessing from God if we will allow aliens to exploit our natural with foreign-owned corporations, and enunciates strict conditions that
resources. should govern such contracts. x x x.

I voted in favor of the Jamir proposal because it is not really exploitation This provision balances the need for foreign capital and technology with the
that we granted to the alien corporations but only for them to render need to maintain the national sovereignty. It recognizes the fact that as long
financial or technical assistance. It is not for them to enjoy our natural as Filipinos can formulate their own terms in their own territory, there is no
resources. Madam President, our natural resources are depleting; our danger of relinquishing sovereignty to foreign interests.
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 Are service contracts allowed under the new Constitution? No. Under
natural resources for the next generations of Filipinos. It may last long if we the new Constitution, foreign investors (fully alien-owned) can NOT
will begin now. Since 1935 the aliens have been allowed to enjoy to a participate in Filipino enterprises except to provide: (1) Technical
Assistance for highly technical enterprises; and (2) Financial Assistance owned by the State. With State. With the exception are owned by the
for large-scale enterprises. the exception of of agricultural lands, all State. With the exception
agricultural lands, all other other natural resources of agricultural lands, all
The intent of this provision, as well as other provisions on foreign natural resources shall not shall not be alienated. The other natural resources
be alienated. The exploration, development, shall not be alienated. The
investments, is to prevent the practice (prevalent in the Marcos exploration, development and utilization of natural exploration, development,
government) of skirting the 60/40 equation using the cover of service and utilization of natural resources shall be under and utilization of natural
contracts. [Emphasis supplied.]
[241]
resources shall be under the full control and resources shall be under
the full control and supervision of the the full control and
Furthermore, it appears that Proposed Resolution No. supervision of the State. Such activities may supervision of the
496, which was the draft Article on National Economy and
[242]
State. Such activities may be directly undertaken by State. The State may
Patrimony, adopted the concept of agreements . . . involving either be directly undertaken by the State, or it may enter directly undertake such
technical or financial assistance contained in the Draft of the 1986 the state, or it may enter into co-production, joint activities or it may enter
U.P. Law Constitution Project (U.P. Law draft) which was taken into into co-production, joint venture, production- into co-production, joint
venture, production sharing agreements with venture, or production-
consideration during the deliberation of the CONCOM. The former, [243]
sharing agreements with Filipino citizens or sharing agreements with
as well as Article XII, as adopted, employed the same terminology, Filipino citizens or corporations or Filipino citizens, or
as the comparative table below shows: corporations or associations at least sixty corporations or
PROPOSED ARTICLE XII OF THE associations sixty per cent per cent of whose voting associations at least
RESOLUTION NO. 496 1987 CONSTITUTION of whose voting stock or stock or controlling sixty per centum of whose
OF THE controlling interest is interest is owned by such capital is owned by such
CONSTITUTIONAL owned by such citizens for citizens. Such agreements citizens. Such agreements
DRAFT OF THE UP COMMISSION a period of not more than shall be for a period of may be for a period not
LAW CONSTITUTION twenty-five years, twenty-five years, exceeding twenty-five
PROJECT renewable for not more renewable for not more years, renewable for not
SEC. 1. All lands of the SEC. 3. All lands of the SEC. 2. All lands of the than twenty-five years and than twenty-five years, and more than twenty-five
public domain, waters, public domain, waters, public domain, waters, under such terms and under such term and years, and under such
minerals, coal, petroleum minerals, coal, petroleum minerals, coal, petroleum, conditions as may be conditions as may be terms and conditions as
and other mineral oils, all and other mineral oils, all and other mineral oils, all provided by law. In case as provided by law. In cases may be provided by
forces of potential energy, forces of potential energy, forces of potential energy, to water rights for of water rights for law. In case of water rights
fisheries, flora and fauna fisheries, forests, flora and fisheries, forests or timber, irrigation, water supply, irrigation, water supply, for irrigation, water
and other natural resources fauna, and other natural wildlife, flora and fauna, fisheries, or industrial uses fisheries or industrial uses supply, fisheries, or
of the Philippines are resources are owned by the and other natural resources other than the other than the development industrial uses other than
development of water for water power, beneficial the development of water foreign-owned corporation foreign-owned corporation or financial assistance for
power, beneficial use may use may be the measure power, beneficial use may may enter into agreements may enter into agreements large-scale exploration,
be the measure and limit and limit of the grant. be the measure and limit with the government with the government development, and
of the grant. of the grant. involving either technical involving either technical utilization of minerals,
or financial assistance for or financial assistance for petroleum, and other
large-scale exploration, large-scale exploration, mineral oils according to
The State shall protect the development, or utilization development, and the general terms and
nations marine wealth in of natural utilization of natural conditions provided by
its archipelagic waters, resources. [Emphasis resources. [Emphasis law, based on real
territorial sea, and supplied.] supplied.] contributions to the
exclusive economic zone, economic growth and
and reserve its use and general welfare of the
enjoyment exclusively to country. In such
Filipino citizens. agreements, the State shall
promote the development
and use of local scientific
The National Assembly The Congress may by law The Congress may, by and technical
may by law allow small allow small-scale law, allow small-scale resources.[Emphasis
scale utilization of natural utilization of natural utilization of natural supplied.]
resources by Filipino resources by Filipino resources by Filipino The President shall notify
citizens. citizens, as well as citizens, as well as the Congress of every
cooperative fish farming in cooperative fish farming, contract entered into in
rivers, lakes, bays, and with priority to subsistence accordance with this
lagoons. fishermen and fish- provision, within thirty
workers in rivers, lakes, days from its execution.
bays, and lagoons.

The National Assembly, The President with the The President may enter The insights of the proponents of the U.P. Law draft are,
may, by two-thirds vote of concurrence of Congress, into agreements with therefore, instructive in interpreting the phrase technical or financial
all its members by special by special law, shall foreign-owned assistance.
law provide the terms and provide the terms and corporations
conditions under which a conditions under which a involving either technical
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 7. While title to the petroleum discovered may nominally be in the
contracts for they lodge exclusive management and control of the name of the government, the contractor has almost unfettered control
enterprise to the service contractor, which is reminiscent of the old over its disposition and sale, and even the domestic requirements of the
concession regime. Thus, notwithstanding the provision of the country is relegated to a pro rata basis (Sec. 8).
Constitution that natural resources belong to the State, and that
these shall not be alienated, the service contract system renders In short, our version of the service contract is just a rehash of the old
nugatory the constitutional provisions cited. He elaborates:
[244] concession regime x x x. Some people have pulled an old rabbit out of a
magicians hat, and foisted it upon us as a new and different animal.
Looking at the Philippine model, we can discern the following vestiges of
the concession regime, thus: 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
1. Bidding of a selected area, or leasing the choice of the area to the the [1973] Constitution containing the provision for service contracts. If
interested party and then negotiating the terms and conditions of the the service contractor happens to be a foreign corporation, the contract
contract; (Sec. 5, P.D. 87) would also run counter to the constitutional provision on
nationalization or Filipinization, of the exploitation of our natural
2. Management of the enterprise vested on the contractor, including resources. [Emphasis supplied. Underscoring in the original.]
[245]

operation of the field if petroleum is discovered; (Sec. 8, P.D. 87)


Professor Merlin M. Magallona, also a member of the working
3. Control of production and other matters such as expansion and group, was harsher in his reproach of the system:
development; (Sec. 8)
x x x the nationalistic phraseology of the 1935 [Constitution] was retained
4. Responsibility for downstream operations marketing, distribution, by the [1973] Charter, but the essence of nationalism was reduced to hollow
and processing may be with the contractor (Sec. 8); rhetoric. The 1973 Charter still provided that the exploitation or
development of the countrys natural resources be limited to Filipino citizens
5. Ownership of equipment, machinery, fixed assets, and other properties or corporations owned or controlled by them. However, the martial-law
remain with contractor (Sec. 12, P.D. 87); Constitution allowed them, once these resources are in their name, to enter
into service contracts with foreign investors for financial, technical,
6. Repatriation of capital and retention of profits abroad guaranteed to the management, or other forms of assistance. Since foreign investors have the
contractor (Sec. 13, P.D. 87); and capital resources, the actual exploitation and development, as well as the
effective disposition, of the countrys natural resources, would be under their
direction, and control, relegating the Filipino investors to the role of second- foreign entity is just a pure contractor instead of the beneficial owner of
rate partners in joint ventures. our economic resources. [Emphasis supplied.]
[247]

Through the instrumentality of the service contract, the 1973 Still another member of the working group, Professor Eduardo
Constitution had legitimized at the highest level of state policy that Labitag, proposed that:
which was prohibited under the 1973 Constitution, namely: the
exploitation of the countrys natural resources by foreign nationals. The 2. Service contracts as practiced under the 1973 Constitution should be
drastic impact of [this] constitutional change becomes more discouraged, instead the government may be allowed, subject to
pronounced when it is considered that the active party to any service authorization by special law passed by an extraordinary majority to
contract may be a corporation wholly owned by foreign interests. In enter into either technical or financial assistance. This is justified by the
such a case, the citizenship requirement is completely set aside, fact that as presently worded in the 1973 Constitution, a service contract
permitting foreign corporations to obtain actual possession, control, gives full control over the contract area to the service contractor, for him to
and [enjoyment] of the countrys natural resources. [Emphasis
[246] work, manage and dispose of the proceeds or production. It was a
supplied.] subterfuge to get around the nationality requirement of the
constitution. [Emphasis supplied.]
[248]

Accordingly, Professor Agabin recommends that:


In the annotations on the proposed Article on National Economy
Recognizing the service contract for what it is, we have to expunge it and Patrimony, the U.P. Law draft summarized the rationale therefor,
from the Constitution and reaffirm ownership over our natural thus:
resources. That is the only way we can exercise effective control over our
natural resources. 5. The last paragraph is a modification of the service contract provision
found in Section 9, Article XIV of the 1973 Constitution as amended. This
This should not mean complete isolation of the countrys natural resources 1973 provision shattered the framework of nationalism in our fundamental
from foreign investment. Other contract forms which are less derogatory law (see Magallona, Nationalism and its Subversion in the
to our sovereignty and control over natural resources like technical Constitution). Through the service contract, the 1973 Constitution had
assistance agreements, financial assistance [agreements], co-production legitimized that which was prohibited under the 1935 constitutionthe
agreements, joint ventures, production-sharing could still be utilized exploitation of the countrys natural resources by foreign nationals. Through
and adopted without violating constitutional provisions. In other words, the service contract, acts prohibited by the Anti-Dummy Law were
we can adopt contract forms which recognize and assert our recognized as legitimate arrangements. Service contracts lodge exclusive
sovereignty and ownership over natural resources, and where the management and control of the enterprise to the service contractor, not
unlike the old concession regime where the concessionaire had complete Philippine natural resources. This arrangement is clearly
control over the countrys natural resources, having been given incompatible with the constitutional ideal of nationalization of natural
exclusive and plenary rights to exploit a particular resource and, in resources, with the Regalian doctrine, and on a broader perspective,
effect, having been assured of ownership of that resource at the point of with Philippine sovereignty.
extraction (see Agabin, Service Contracts: Old Wine in New
The proponents nevertheless acknowledged the need for capital
Bottles). Service contracts, hence, are antithetical to the principle of
and technical know-how in the large-scale exploitation, development
sovereignty over our natural resources, as well as the constitutional
and utilization of natural resources the second paragraph of the
provision on nationalization or Filipinization of the exploitation of our
proposed draft itself being an admission of such scarcity. Hence,
natural resources.
they recommended a compromise to reconcile the nationalistic
provisions dating back to the 1935 Constitution, which reserved all
Under the proposed provision, only technical assistance or financial
natural resources exclusively to Filipinos, and the more liberal 1973
assistance agreements may be entered into, and only for large-scale
Constitution, which allowed foreigners to participate in these
activities. These are contract forms which recognize and assert our
resources through service contracts. Such a compromise called for
sovereignty and ownership over natural resources since the foreign
the adoption of a new system in the exploration, development, and
entity is just a pure contractor and not a beneficial owner of our
utilization of natural resources in the form of technical agreements or
economic resources. The proposal recognizes the need for capital and
financial agreements which, necessarily, are distinct concepts from
technology to develop our natural resources without sacrificing our
service contracts.
sovereignty and control over such resources by the safeguard of a
special law which requires two-thirds vote of all the members of the The replacement of service contracts with agreements involving
Legislature. This will ensure that such agreements will be debated upon either technical or financial assistance, as well as the deletion of the
exhaustively and thoroughly in the National Assembly to avert prejudice to phrase management or other forms of assistance, assumes greater
the nation. [Emphasis supplied.]
[249]
significance when note is taken that the U.P. Law draft proposed
other equally crucial changes that were obviously heeded by the
The U.P. Law draft proponents viewed service contracts under CONCOM. These include the abrogation of the concession system
the 1973 Constitution as grants of beneficial ownership of the and the adoption of new options for the State in the exploration,
countrys natural resources to foreign owned corporations.While, in development, and utilization of natural resources. The proponents
theory, the State owns these natural resources and Filipino citizens, deemed these changes to be more consistent with the States
their beneficiaries service contracts actually vested foreigners with ownership of, and its full control and supervision (a phrase also
the right to dispose, explore for, develop, exploit, and utilize the employed by the framers) over, such resources. The Project
same. Foreigners, not Filipinos, became the beneficiaries of explained:
3. In line with the State ownership of natural resources, the State should take Professor Agabin, in particular, after taking pains to illustrate the
a more active role in the exploration, development, and utilization of natural similarities between the two systems, concluded that the service
resources, than the present practice of granting licenses, concessions, or contract regime was but a rehash of the concession system. Old
leases hence the provision that said activities shall be under the full control wine in new bottles, as he put it. The rejection of the service
and supervision of the State. There are three major schemes by which the contract regime, therefore, is in consonance with the abolition
State could undertake these activities: first, directly by itself; second, by of the concession system.
virtue of co-production, joint venture, production sharing agreements with
In light of the deliberations of the CONCOM, the text of the
Filipino citizens or corporations or associations sixty per cent (60%) of the
Constitution, and the adoption of other proposed changes, there is no
voting stock or controlling interests of which are owned by such citizens; or
doubt that the framers considered and shared the intent of the U.P.
third, with a foreign-owned corporation, in cases of large-scale exploration,
Law proponents in employing the phrase agreements . . . involving
development, or utilization of natural resources through agreements
either technical or financial assistance.
involving either technical or financial assistance only. x x x.
While certain commissioners may have mentioned the term
At present, under the licensing concession or lease schemes, the government service contracts during the CONCOM deliberations, they may not
benefits from such benefits only through fees, charges, ad valorem taxes and have been necessarily referring to the concept of service contracts
income taxes of the exploiters of our natural resources. Such benefits are under the 1973 Constitution. As noted earlier, service contracts is a
very minimal compared with the enormous profits reaped by theses term that assumes different meanings to different people. The [251]

licensees, grantees, concessionaires. Moreover, some of them disregard the commissioners may have been using the term loosely, and not in its
conservation of natural resources and do not protect the environment from technical and legal sense, to refer, in general, to agreements
degradation. The proposed role of the State will enable it to a greater share concerning natural resources entered into by the Government with
in the profits it can also actively husband its natural resources and engage in foreign corporations. These loose statements do not necessarily
developmental programs that will be beneficial to them. translate to the adoption of the 1973 Constitution provision allowing
service contracts.
4. Aside from the three major schemes for the exploration, development,
and utilization of our natural resources, the State may, by law, allow It is true that, as shown in the earlier quoted portions of the
Filipino citizens to explore, develop, utilize natural resources in small- proceedings in CONCOM, in response to Sr. Tans question,
scale. This is in recognition of the plight of marginal fishermen, forest Commissioner Villegas commented that, other than congressional
dwellers, gold panners, and others similarly situated who exploit our natural notification, the only difference between future and past service
resources for their daily sustenance and survival.[250] contracts is the requirement of a general law as there were no laws
previously authorizing the same. However, such remark is far
[252]
outweighed by his more categorical statement in his exchange with restrictive. Commissioner Nolledo also remarked that entering into
[259]

Commissioner Quesada that the draft article does not permit foreign service contracts is an exception to the rule on protection of natural
investors to participate in the nations natural resources which was resources for the interest of the nation and, therefore, being an
exactly what service contracts did except to provide technical or exception, it should be subject, whenever possible, to stringent
financial assistance.[253]
rules. Indeed, exceptions should be strictly but reasonably
[260]

construed; they extend only so far as their language fairly warrants


In the case of the other commissioners, Commissioner Nolledo
and all doubts should be resolved in favor of the general provision
himself clarified in his work that the present charter prohibits service
rather than the exception. [261]

contracts. Commissioner Gascon was not totally averse to foreign


[254]

participation, but favored stricter restrictions in the form of majority With the foregoing discussion in mind, this Court finds that R.A.
congressional concurrence. On the other hand, Commissioners
[255]
No. 7942 is invalid insofar as said Act authorizes service contracts.
Garcia and Tadeo may have veered to the extreme side of the Although the statute employs the phrase financial and technical
spectrum and their objections may be interpreted as votes against agreements in accordance with the 1987 Constitution, it actually
any foreign participation in our natural resources whatsoever. treats these agreements as service contracts that grant beneficial
ownership to foreign contractors contrary to the fundamental law.
WMCP cites Opinion No. 75, s. 1987, and Opinion No. 175, s.
[256]

1990 of the Secretary of Justice, expressing the view that a


[257]
Section 33, which is found under Chapter VI (Financial or Technical
financial or technical assistance agreement is no different in concept Assistance Agreement) of R.A. No. 7942 states:
from the service contract allowed under the 1973 Constitution. This
Court is not, however, bound by this interpretation. When an SEC. 33. Eligibility.Any qualified person with technical and financial
administrative or executive agency renders an opinion or issues a capability to undertake large-scale exploration, development, and
statement of policy, it merely interprets a pre-existing law; and the utilization of mineral resources in the Philippines may enter into a
administrative interpretation of the law is at best advisory, for it is the financial or technical assistance agreement directly with the Government
courts that finally determine what the law means. [258]
through the Department. [Emphasis supplied.]
In any case, the constitutional provision allowing the President to
enter into FTAAs with foreign-owned corporations is an exception to Exploration, as defined by R.A. No. 7942,
the rule that participation in the nations natural resources is reserved
exclusively to Filipinos. Accordingly, such provision must be means the searching or prospecting for mineral resources by geological,
construed strictly against their enjoyment by non-Filipinos. As geochemical or geophysical surveys, remote sensing, test pitting, trending,
Commissioner Villegas emphasized, the provision is very drilling, shaft sinking, tunneling or any other means for the purpose of
determining the existence, extent, quantity and quality thereof and the obliges itself to furnish the Government records of geologic,
feasibility of mining them for profit. [262]
accounting, and other relevant data for its mining operation.
[274]

A legally organized foreign-owned corporation may be granted an Mining operation, as the law defines it, means mining
activities involving exploration, feasibility, development,
exploration permit, which vests it with the right to conduct
[263]

utilization, and processing. [275]


exploration for all minerals in specified areas, i.e., to enter, occupy
[264]

and explore the same. Eventually, the foreign-owned corporation,


[265]
The underlying assumption in all these provisions is that the
as such permittee, may apply for a financial and technical assistance foreign contractor manages the mineral resources, just like the
agreement. [266]
foreign contractor in a service contract.
Development is Furthermore, Chapter XII of the Act grants foreign contractors in
FTAAs the same auxiliary mining rights that it grants contractors in
the work undertaken to explore and prepare an ore body or a mineral deposit mineral agreements (MPSA, CA and JV). Parenthetically, Sections
[276]

for mining, including the construction of necessary infrastructure and 72 to 75 use the term contractor, without distinguishing between
related facilities. [267]
FTAA and mineral agreement contractors. And so does holders of
mining rights in Section 76. A foreign contractor may even convert its
Utilization means the extraction or disposition of minerals. A [268]
FTAA into a mineral agreement if the economic viability of the
stipulation that the proponent shall dispose of the minerals and contract area is found to be inadequate to justify large-scale mining
byproducts produced at the highest price and more advantageous operations, provided that it reduces its equity in the corporation,
[277]

terms and conditions as provided for under the implementing rules partnership, association or cooperative to forty percent (40%). [278]

and regulations is required to be incorporated in every FTAA. [269]

Finally, under the Act, an FTAA contractor warrants that it has or


A foreign-owned/-controlled corporation may likewise be granted has access to all the financing, managerial, and technical expertise.
a mineral processing permit. Mineral processing is the milling,
[270]
. . . This suggests that an FTAA contractor is bound to provide
[279]

beneficiation or upgrading of ores or minerals and rocks or by similar some management assistance a form of assistance that has been
means to convert the same into marketable products. [271]
eliminated and, therefore, proscribed by the present Charter.
An FTAA contractor makes a warranty that the By allowing foreign contractors to manage or operate all the
mining operations shall be conducted in accordance with the aspects of the mining operation, the above-cited provisions of R.A.
provisions of R.A. No. 7942 and its implementing rules and for work [272]
No. 7942 have in effect conveyed beneficial ownership over the
programs and minimum expenditures and commitments. And it [273]
nations mineral resources to these contractors, leaving the State with (6) Section 56, which authorizes the issuance of a mineral
[283]

nothing but bare title thereto. processing permit to a contractor in a financial and technical
assistance agreement;
Moreover, the same provisions, whether by design or
inadvertence, permit a circumvention of the constitutionally ordained The following provisions of the same Act are likewise void as they
60%-40% capitalization requirement for corporations or associations are dependent on the foregoing provisions and cannot stand on their
engaged in the exploitation, development and utilization of Philippine own:
natural resources.
(1) Section 3 (g), which defines the term contractor, insofar as it
[284]

In sum, the Court finds the following provisions of R.A. No. 7942 applies to a financial or technical assistance agreement.
to be violative of Section 2, Article XII of the Constitution:
Section 34, which prescribes the maximum contract area in a
[285]

(1) The proviso in Section 3 (aq), which defines qualified person, financial or technical assistance agreements;
to wit:
Section 36, which allows negotiations for financial or technical
[286]

Provided, That a legally organized foreign-owned corporation shall be assistance agreements;


deemed a qualified person for purposes of granting an exploration permit, Section 37, which prescribes the procedure for filing and
[287]

financial or technical assistance agreement or mineral processing permit. evaluation of financial or technical assistance agreement proposals;

(2) Section 23, which specifies the rights and obligations of an


[280]
Section 38, which limits the term of financial or technical
[288]

exploration permittee, insofar as said section applies to a financial or assistance agreements;


technical assistance agreement, Section 40, which allows the assignment or transfer of financial
[289]

(3) Section 33, which prescribes the eligibility of a contractor in a or technical assistance agreements;
financial or technical assistance agreement; Section 41, [290]
which allows the withdrawal of the contractor in an
(4) Section 35, which enumerates the terms and conditions for
[281]
FTAA;
every financial or technical assistance agreement; The second and third paragraphs of Section 81, which provide
[291]

(5) Section 39, which allows the contractor in a financial and


[282]
for the Governments share in a financial and technical assistance
technical assistance agreement to convert the same into a mineral agreement; and
production-sharing agreement; Section 90, which provides for incentives to contractors in
[292]

FTAAs insofar as it applies to said contractors;


When the parts of the statute are so mutually dependent and xxx
connected as conditions, considerations, inducements, or
compensations for each other, as to warrant a belief that the (f) to construct roadways, mining, drainage, power generation and
legislature intended them as a whole, and that if all could not be transmission facilities and all other types of works on the Contract Area;
carried into effect, the legislature would not pass the residue
independently, then, if some parts are unconstitutional, all the (g) to erect, install or place any type of improvements, supplies, machinery
provisions which are thus dependent, conditional, or connected, must and other equipment relating to the Mining Operations and to use, sell or
fall with them.[293] otherwise dispose of, modify, remove or diminish any and all parts thereof;
There can be little doubt that the WMCP FTAA itself is a service (h) enjoy, subject to pertinent laws, rules and regulations and the rights of
contract. third Parties, easement rights and the use of timber, sand, clay, stone, water
Section 1.3 of the WMCP FTAA grants WMCP the exclusive right and other natural resources in the Contract Area without cost for the
to explore, exploit, utilise[,] process and dispose of all Minerals purposes of the Mining Operations;
products and by-products thereof that may be produced from the
Contract Area. The FTAA also imbues WMCP with the following
[294] xxx
rights:
(l) have the right to mortgage, charge or encumber all or part of its interest
(b) to extract and carry away any Mineral samples from the Contract area and obligations under this Agreement, the plant, equipment and
for the purpose of conducting tests and studies in respect thereof; infrastructure and the Minerals produced from the Mining Operations;

(c) to determine the mining and treatment processes to be utilised during the x x x. [295]

Development/Operating Period and the project facilities to be constructed


during the Development and Construction Period; All materials, equipment, plant and other installations erected or
placed on the Contract Area remain the property of WMCP, which
(d) have the right of possession of the Contract Area, with full right of has the right to deal with and remove such items within twelve
ingress and egress and the right to occupy the same, subject to the months from the termination of the FTAA. [296]

provisions of Presidential Decree No. 512 (if applicable) and not be Pursuant to Section 1.2 of the FTAA, WMCP shall provide [all]
prevented from entry into private ands by surface owners and/or occupants financing, technology, management and personnel necessary for the
thereof when prospecting, exploring and exploiting for minerals therein; Mining Operations. The mining company binds itself to perform all
Mining Operations . . . providing all necessary services, technology
and financing in connection therewith, and to furnish all materials,
[297]
intended to impose an obligation upon a Party to afford fair and equitable
labour, equipment and other installations that may be required for treatment to the investments of the other Party and that a failure to provide
carrying on all Mining Operations. WMCP may make expansions,
[298]
such treatment by or under the laws of the Party may constitute a breach of
improvements and replacements of the mining facilities and may add the treaty. Simply stated, the Philippines could not, under said treaty, rely
such new facilities as it considers necessary for the mining upon the inadequacies of its own laws to deprive an Australian investor (like
operations. [299]
[WMCP]) of fair and equitable treatment by invalidating [WMCPs] FTAA
without likewise nullifying the service contracts entered into before the
These contractual stipulations, taken together, grant WMCP
enactment of RA 7942 such as those mentioned in PD 87 or EO 279.
beneficial ownership over natural resources that properly belong to
the State and are intended for the benefit of its citizens.These This becomes more significant in the light of the fact that [WMCPs] FTAA
stipulations are abhorrent to the 1987 Constitution. They are was executed not by a mere Filipino citizen, but by the Philippine
precisely the vices that the fundamental law seeks to avoid, the evils Government itself, through its President no less, which, in entering into said
that it aims to suppress. Consequently, the contract from which they treaty is assumed to be aware of the existing Philippine laws on service
spring must be struck down. contracts over the exploration, development and utilization of natural
In arguing against the annulment of the FTAA, WMCP invokes resources. The execution of the FTAA by the Philippine Government
the Agreement on the Promotion and Protection of Investments assures the Australian Government that the FTAA is in accordance with
between the Philippine and Australian Governments, which was existing Philippine laws. [Emphasis and italics by private respondents.]
[300]

signed in Manila on January 25, 1995 and which entered into force
on December 8, 1995. The invalidation of the subject FTAA, it is argued, would
constitute a breach of said treaty which, in turn, would amount to a
x x x. Article 2 (1) of said treaty states that it applies to investments violation of Section 3, Article II of the Constitution adopting the
whenever made and thus the fact that [WMCPs] FTAA was entered into generally accepted principles of international law as part of the law of
prior to the entry into force of the treaty does not preclude the Philippine the land. One of these generally accepted principles is pacta sunt
Government from protecting [WMCPs] investment in [that] servanda, which requires the performance in good faith of treaty
FTAA. Likewise, Article 3 (1) of the treaty provides that Each Party shall obligations.
encourage and promote investments in its area by investors of the other
Even assuming arguendo that WMCP is correct in its
Party and shall [admit] such investments in accordance with its
interpretation of the treaty and its assertion that the Philippines could
Constitution, Laws, regulations and investment policies and in Article 3 not . . . deprive an Australian investor (like [WMCP]) of fair and
(2), it states that Each Party shall ensure that investments are accorded
equitable treatment by invalidating [WMCPs] FTAA without likewise
fair and equitable treatment. The latter stipulation indicates that it was
nullifying the service contracts entered into before the enactment of Surely, the framers of the 1987 Charter did not contemplate such
RA 7942 . . ., the annulment of the FTAA would not constitute a an absurd result from their use of either/or. A constitution is not to be
breach of the treaty invoked. For this decision herein invalidating the interpreted as demanding the impossible or the impracticable; and
subject FTAA forms part of the legal system of the Philippines. The [301]
unreasonable or absurd consequences, if possible, should be
equal protection clause guarantees that such decision shall apply to
[302]
avoided. Courts are not to give words a meaning that would lead to
[305]

all contracts belonging to the same class, hence, upholding rather absurd or unreasonable consequences and a literal interpretation is
than violating, the fair and equitable treatment stipulation in said to be rejected if it would be unjust or lead to absurd results. That is
[306]

treaty. a strong argument against its adoption. Accordingly, petitioners


[307]

interpretation must be rejected.


One other matter requires clarification. Petitioners contend that,
consistent with the provisions of Section 2, Article XII of the The foregoing discussion has rendered unnecessary the
Constitution, the President may enter into agreements resolution of the other issues raised by the petition.
involving either technical or financial assistance only. The
WHEREFORE, the petition is GRANTED. The Court hereby
agreement in question, however, is a technical and financial
declares unconstitutional and void:
assistance agreement.
(1) The following provisions of Republic Act No. 7942:
Petitioners contention does not lie. To adhere to the literal
language of the Constitution would lead to absurd (a) The proviso in Section 3 (aq),
consequences. As WMCP correctly put it:
[303]

(b) Section 23,


x x x such a theory of petitioners would compel the government (through
the President) to enter into contract with two (2) foreign-owned (c) Section 33 to 41,
corporations, one for financial assistance agreement and with the other, for
technical assistance over one and the same mining area or land; or to (d) Section 56,
execute two (2) contracts with only one foreign-owned corporation which
has the capability to provide both financial and technical assistance, one for (e) The second and third paragraphs of Section 81, and
financial assistance and another for technical assistance, over the same
mining area. Such an absurd result is definitely not sanctioned under the (f) Section 90.
canons of constitutional construction. [Underscoring in the original.]
[304]
(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. Panganibans separate opinion.
Azcuna, no part, one of the parties was a client.
La Bugal v Ramos December 2004 owned corporations. On the other hand, Congress may review the
action of the President once it is notified of every contract entered
RESOLUTION into in accordance with this [constitutional] provision within thirty days
PANGANIBAN, J.: from its execution. In contrast to this express mandate of the
President and Congress in the EDU of natural resources, Article XII
All mineral resources are owned by the State. Their exploration, of the Constitution is silent on the role of the judiciary. However,
development and utilization (EDU) must always be subject to the full should the President and/or Congress gravely abuse their discretion
control and supervision of the State. More specifically, given the in this regard, the courts may -- in a proper case -- exercise their
inadequacy of Filipino capital and technology in large-scale EDU residual duty under Article VIII. Clearly then, the judiciary should not
activities, the State may secure the help of foreign companies in all inordinately interfere in the exercise of this presidential power of
relevant matters -- especially financial and technical assistance -- control over the EDU of our natural resources.
provided that, at all times, the State maintains its right of full control. The Constitution should be read in broad, life-giving strokes. It
The foreign assistor or contractor assumes all financial, technical and should not be used to strangulate economic growth or to serve
entrepreneurial risks in the EDU activities; hence, it may be given narrow, parochial interests. Rather, it should be construed to grant
reasonable management, operational, marketing, audit and other the President and Congress sufficient discretion and reasonable
prerogatives to protect its investments and to enable the business to leeway to enable them to attract foreign investments and expertise,
succeed. as well as to secure for our people and our posterity the blessings of
Full control is not anathematic to day-to-day management by the prosperity and peace.
contractor, provided that the State retains the power to direct overall On the basis of this control standard, this Court upholds the
strategy; and to set aside, reverse or modify plans and actions of the constitutionality of the Philippine Mining Law, its Implementing Rules
contractor. The idea of full control is similar to that which is exercised and Regulations -- insofar as they relate to financial and technical
by the board of directors of a private corporation: the performance of agreements -- as well as the subject Financial and Technical
managerial, operational, financial, marketing and other functions may Assistance Agreement (FTAA).[5]
be delegated to subordinate officers or given to contractual entities,
but the board retains full residual control of the business.
Who or what organ of government actually exercises this power Background
of control on behalf of the State? The Constitution is crystal clear:
the President. Indeed, the Chief Executive is the official
constitutionally mandated to enter into agreements with foreign
The Petition for Prohibition and Mandamus before the Court Subsequently, respondents filed separate Motions for
challenges the constitutionality of (1) Republic Act No. [RA] 7942 Reconsideration. In a Resolution dated March 9, 2004, the Court
(The Philippine Mining Act of 1995); (2) its Implementing Rules and required petitioners to comment thereon. In the Resolution of June 8,
Regulations (DENR Administrative Order No. [DAO] 96-40); and (3) 2004, it set the case for Oral Argument on June 29, 2004.
the FTAA dated March 30, 1995,[6] executed by the government with
After hearing the opposing sides, the Court required the parties to
Western Mining Corporation (Philippines), Inc. (WMCP).[7]
submit their respective Memoranda in amplification of their
On January 27, 2004, the Court en banc promulgated its arguments. In a Resolution issued later the same day, June 29,
Decision[8] granting the Petition and declaring the unconstitutionality of 2004, the Court noted, inter alia, the Manifestation and Motion (in lieu
certain provisions of RA 7942, DAO 96-40, as well as of the entire FTAA of comment) filed by the Office of the Solicitor General (OSG) on
executed between the government and WMCP, mainly on the finding behalf of public respondents. The OSG said that it was not
that FTAAs are service contracts prohibited by the 1987 interposing any objection to the Motion for Intervention filed by the
Constitution. Chamber of Mines of the Philippines, Inc. (CMP) and was in fact
joining and adopting the latters Motion for Reconsideration.
The Decision struck down the subject FTAA for being similar to
service contracts,[9] which, though permitted under the 1973 Memoranda were accordingly filed by the intervenor as well as by
Constitution,[10] were subsequently denounced for being antithetical to petitioners, public respondents, and private respondent, dwelling at
the principle of sovereignty over our natural resources, because they length on the three issues discussed below. Later, WMCP submitted
allowed foreign control over the exploitation of our natural resources, to its Reply Memorandum, while the OSG -- in obedience to an Order of
the prejudice of the Filipino nation. this Court -- filed a Compliance submitting copies of more FTAAs
entered into by the government.
The Decision quoted several legal scholars and authors who had
criticized service contracts for, inter alia, vesting in the foreign
contractor exclusive management and control of the enterprise, Three Issues Identified by the Court
including operation of the field in the event petroleum was
discovered; control of production, expansion and development;
nearly unfettered control over the disposition and sale of the products During the Oral Argument, the Court identified the three issues to
discovered/extracted; effective ownership of the natural resource at be resolved in the present controversy, as follows:
the point of extraction; and beneficial ownership of our economic 1. Has the case been rendered moot by the sale of WMC shares
resources. According to the Decision, the 1987 Constitution (Section in WMCP to Sagittarius (60 percent of Sagittarius equity is owned by
2 of Article XII) effectively banned such service contracts. Filipinos and/or Filipino-owned corporations while 40 percent is
owned by Indophil Resources NL, an Australian company) and by the to fully manage and control the mining operations and, therefore, to
subsequent transfer and registration of the FTAA from WMCP to acquire beneficial ownership of our mineral resources.
Sagittarius?
The Decision merely shrugged off the Manifestation by WMPC
2. Assuming that the case has been rendered moot, would it still informing the Court (1) that on January 23, 2001, WMC had sold all
be proper to resolve the constitutionality of the assailed provisions of its shares in WMCP to Sagittarius Mines, Inc., 60 percent of whose
the Mining Law, DAO 96-40 and the WMCP FTAA? equity was held by Filipinos; and (2) that the assailed FTAA had
likewise been transferred from WMCP to
3. What is the proper interpretation of the phrase Agreements
Sagittarius. The ponencia declared
[11] that the instant case
Involving Either Technical or Financial Assistance contained in
had not been rendered moot by the transfer and registration of the
paragraph 4 of Section 2 of Article XII of the Constitution?
FTAA to a Filipino-owned corporation, and that the validity of the said
Should the Motion for Reconsideration transfer remained in dispute and awaited final judicial
Be Granted? determination.[12] Patently therefore, the Decision is anchored on the
Respondents and intervenors Motions for Reconsideration should assumption that WMCP had remained a foreign corporation.
be granted, for the reasons discussed below. The foregoing three The crux of this issue of mootness is the fact that WMCP, at the
issues identified by the Court shall now be taken up seriatim. time it entered into the FTAA, happened to be wholly owned by WMC
First Issue: Resources International Pty., Ltd. (WMC), which in turn was a wholly
Mootness owned subsidiary of Western Mining Corporation Holdings Ltd., a
publicly listed major Australian mining and exploration company.
In declaring unconstitutional certain provisions of RA 7942, DAO
96-40, and the WMCP FTAA, the majority Decision agreed with The nullity of the FTAA was obviously premised upon the
petitioners contention that the subject FTAA had been executed in contractor being a foreign corporation. Had the FTAA been originally
violation of Section 2 of Article XII of the 1987 Constitution. issued to a Filipino-owned corporation, there would have been no
According to petitioners, the FTAAs entered into by the government constitutionality issue to speak of. Upon the other hand, the
with foreign-owned corporations are limited by the fourth paragraph conveyance of the WMCP FTAA to a Filipino corporation can be
of the said provision to agreements involving only technical or likened to the sale of land to a foreigner who subsequently acquires
financial assistance for large-scale exploration, development and Filipino citizenship, or who later resells the same land to a Filipino
utilization of minerals, petroleum and other mineral oils. Furthermore, citizen. The conveyance would be validated, as the property in
the foreign contractor is allegedly permitted by the FTAA in question question would no longer be owned by a disqualified vendee.
And, inasmuch as the FTAA is to be implemented now by a the provisions of the WMCP FTAA itself; and third, that the sale of
Filipino corporation, it is no longer possible for the Court to declare it the shares is suspect and should therefore be the subject of a case
unconstitutional. The case pending in the Court of Appeals is a in which its validity may properly be litigated.
dispute between two Filipino companies (Sagittarius and Lepanto),
On the first ground, petitioners assert that paragraph 4 of Section
both claiming the right to purchase the foreign shares in WMCP. So,
2 of Article XII permits the government to enter into FTAAs only with
regardless of which side eventually wins, the FTAA would still be in
foreign-owned corporations. Petitioners insist that the first paragraph
the hands of a qualified Filipino company. Considering that there is
of this constitutional provision limits the participation of Filipino
no longer any justiciable controversy, the plea to nullify the Mining
corporations in the exploration, development and utilization of natural
Law has become a virtual petition for declaratory relief, over which
resources to only three species of contracts -- production sharing, co-
this Court has no original jurisdiction.
production and joint venture -- to the exclusion of all other
In their Final Memorandum, however, petitioners argue that the arrangements or variations thereof, and the WMCP FTAA may
case has not become moot, considering the invalidity of the alleged therefore not be validly assumed and implemented by Sagittarius. In
sale of the shares in WMCP from WMC to Sagittarius, and of the short, petitioners claim that a Filipino corporation is not allowed by
transfer of the FTAA from WMCP to Sagittarius, resulting in the the Constitution to enter into an FTAA with the government.
change of contractor in the FTAA in question. And even assuming
However, a textual analysis of the first paragraph of Section 2 of
that the said transfers were valid, there still exists an actual case
Article XII does not support petitioners argument. The pertinent part
predicated on the invalidity of RA 7942 and its Implementing Rules
of the said provision states: Sec. 2. x x x The exploration,
and Regulations (DAO 96-40). Presently, we shall discuss petitioners
development and utilization of natural resources shall be under the
objections to the transfer of both the shares and the FTAA. We shall
full control and supervision of the State. The State may directly
take up the alleged invalidity of RA 7942 and DAO 96-40 later on in
undertake such activities, or it may enter into co-production, joint
the discussion of the third issue.
venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose
No Transgression of the Constitution capital is owned by such citizens. x x x. Nowhere in the provision is
by the Transfer of the WMCP Shares there any express limitation or restriction insofar as arrangements
other than the three aforementioned contractual schemes are
concerned.
Petitioners claim, first, that the alleged invalidity of the transfer of
the WMCP shares to Sagittarius violates the fourth paragraph of Neither can one reasonably discern any implied stricture to that
Section 2 of Article XII of the Constitution; second,that it is contrary to effect. Besides, there is no basis to believe that the framers of the
Constitution, a majority of whom were obviously concerned with assumed by a Filipino corporation like Sagittarius, in which event the
furthering the development and utilization of the countrys natural said provision should simply be disregarded as a superfluity.
resources, could have wanted to restrict Filipino participation in that
area. This point is clear, especially in the light of the overarching
constitutional principle of giving preference and priority to Filipinos No Need for a Separate
and Filipino corporations in the development of our natural Litigation of the Sale of Shares
resources.
Besides, even assuming (purely for arguments sake) that a Petitioners claim as third ground the suspicious sale of shares
constitutional limitation barring Filipino corporations from holding and from WMC to Sagittarius; hence, the need to litigate it in a separate
implementing an FTAA actually exists, nevertheless, such provision case. Section 40 of RA 7942 (the Mining Law) allegedly requires the
would apply only to the transfer of the FTAA to Sagittarius, but Presidents prior approval of a transfer.
definitely not to the sale of WMCs equity stake in WMCP to A re-reading of the said provision, however, leads to a different
Sagittarius. Otherwise, an unreasonable curtailment of property conclusion. Sec. 40. Assignment/Transfer -- A financial or technical
rights without due process of law would ensue. Petitioners argument assistance agreement may be assigned or transferred, in whole or in
must therefore fail. 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
FTAA Not Intended converted in accordance with this provision within thirty (30) days
Solely for Foreign Corporation from the date of the approval thereof.
Section 40 expressly applies to the assignment or transfer of the
Equally barren of merit is the second ground cited by petitioners -
FTAA, not to the sale and transfer of shares of stock in WMCP.
- that the FTAA was intended to apply solely to a foreign corporation,
Moreover, when the transferee of an FTAA is
as can allegedly be seen from the provisions therein. They manage
another foreign corporation, there is a logical application of the
to cite only one WMCP FTAA provision that can be regarded as
requirement of prior approval by the President of the Republic and
clearly intended to apply only to a foreign contractor: Section 12,
notification to Congress in the event of assignment or transfer of an
which provides for international commercial arbitration under the
FTAA. In this situation, such approval and notification are appropriate
auspices of the International Chamber of Commerce, after local
safeguards, considering that the new contractor is the subject of a
remedies are exhausted. This provision, however, does not
foreign government.
necessarily imply that the WMCP FTAA cannot be transferred to and
On the other hand, when the transferee of the FTAA happens to would certainly be improper to invalidate the sale on that basis, as
be a Filipino corporation, the need for such safeguard is not critical; petitioners propose.
hence, the lack of prior approval and notification may not be deemed
fatal as to render the transfer invalid. Besides, it is not as if approval
by the President is entirely absent in this instance. As pointed out by FTAA Not Void,
private respondent in its Memorandum,[13] the issue of approval is the Thus Transferrable
subject of one of the cases brought by Lepanto against Sagittarius in
GR No. 162331. That case involved the review of the Decision of the To bolster further their claim that the case is not moot, petitioners
Court of Appeals dated November 21, 2003 in CA-GR SP No. 74161, insist that the FTAA is void and, hence cannot be transferred; and
which affirmed the DENR Order dated December 31, 2001 and the that its transfer does not operate to cure the constitutional infirmity
Decision of the Office of the President dated July 23, 2002, that is inherent in it; neither will a change in the circumstances of one
both approving the assignment of the WMCP FTAA to Sagittarius. of the parties serve to ratify the void contract.
Petitioners also question the sale price and the financial capacity While the discussion in their Final Memorandum was skimpy,
of the transferee. According to the Deed of Absolute Sale dated petitioners in their Comment (on the MR) did ratiocinate that this
January 23, 2001, executed between WMC and Sagittarius, the price Court had declared the FTAA to be void because, at the time it was
of the WMCP shares was fixed at US$9,875,000, equivalent to P553 executed with WMCP, the latter was a fully foreign-owned
million at an exchange rate of 56:1. Sagittarius had an authorized corporation, in which the former vested full control and management
capital stock of P250 million and a paid up capital of P60 million. with respect to the exploration, development and utilization of mineral
Therefore, at the time of approval of the sale by the DENR, the debt- resources, contrary to the provisions of paragraph 4 of Section 2 of
to-equity ratio of the transferee was over 9:1 -- hardly ideal for an Article XII of the Constitution. And since the FTAA was per se void,
FTAA contractor, according to petitioners. no valid right could be transferred; neither could it be ratified, so
However, private respondents counter that the Deed of Sale petitioners conclude.
specifically provides that the payment of the purchase price would Petitioners have assumed as fact that which has yet to be
take place only after Sagittarius commencement of commercial established. First and foremost, the Decision of this Court declaring
production from mining operations, if at all. Consequently, under the the FTAA void has not yet become final. That was precisely the
circumstances, we believe it would not be reasonable to conclude, as reason the Court still heard Oral Argument in this case. Second, the
petitioners did, that the transferees high debt-to-equity ratio per se FTAA does not vest in the foreign corporation full control and
necessarily carried negative implications for the enterprise; and it supervision over the exploration, development and utilization of
mineral resources, to the exclusion of the government. This point will In their Comment, petitioners contend that
be dealt with in greater detail below; but for now, suffice it to say that in Chavez and Halili, the object of the transfer (the land) was not
a perusal of the FTAA provisions will prove that the government has what was assailed for alleged unconstitutionality. Rather, it was the
effective overall direction and control of the mining operations, transaction that was assailed; hence subsequent compliance with
including marketing and product pricing, and that the contractors constitutional provisions would cure its infirmity. In contrast, in the
work programs and budgets are subject to its review and approval or instant case it is the FTAA itself, the object of the transfer, that is
disapproval. being assailed as invalid and unconstitutional. So, petitioners claim
that the subsequent transfer of a void FTAA to a Filipino corporation
As will be detailed later on, the government does not have to
would not cure the defect.
micro-manage the mining operations and dip its hands into the day-
to-day management of the enterprise in order to be considered as Petitioners are confusing themselves. The present Petition has
having overall control and direction. Besides, for practical and been filed, precisely because the grantee of the FTAA was a wholly
pragmatic reasons, there is a need for government agencies to owned subsidiary of a foreign corporation. It cannot be gainsaid that
delegate certain aspects of the management work to the contractor. anyone would have asserted that the same FTAA was void if it had at
Thus the basis for declaring the FTAA void still has to be revisited, the outset been issued to a Filipino corporation. The FTAA, therefore,
reexamined and reconsidered. is not per se defective or unconstitutional. It was questioned only
because it had been issued to an allegedly non-qualified, foreign-
Petitioners sniff at the citation of Chavez v. Public Estates
owned corporation.
Authority,[14] and Halili v. CA,[15] claiming that the doctrines in these
cases are wholly inapplicable to the instant case. We believe that this case is clearly analogous to Halili, in which
the land acquired by a non-Filipino was re-conveyed to a qualified
Chavez clearly teaches: Thus, the Court has ruled consistently
vendee and the original transaction was thereby cured.
that where a Filipino citizen sells land to an alien who later sells the
Paraphrasing Halili, the same rationale applies to the instant case:
land to a Filipino, the invalidity of the first transfer is corrected by the
assuming arguendo the invalidity of its prior grant to a foreign
subsequent sale to a citizen. Similarly, where the alien who buys the
corporation, the disputed FTAA -- being now held by a Filipino
land subsequently acquires Philippine citizenship, the sale is
corporation -- can no longer be assailed; the objective of the
validated since the purpose of the constitutional ban to limit land
constitutional provision -- to keep the exploration, development and
ownership to Filipinos has been achieved. In short, the law
utilization of our natural resources in Filipino hands -- has been
disregards the constitutional disqualification of the buyer to hold land
served.
if the land is subsequently transferred to a qualified party, or the
buyer himself becomes a qualified party.[16]
More accurately speaking, the present situation is one degree All the protagonists are in agreement that the Court has
better than that obtaining in Halili, in which the original sale to a non- jurisdiction to decide this controversy, even assuming it to be moot.
Filipino was clearly and indisputably violative of the constitutional
Petitioners stress the following points. First, while a case
prohibition and thus void ab initio. In the present case, the
becomes moot and academic when there is no more actual
issuance/grant of the subject FTAA to the then foreign-owned WMCP
controversy between the parties or no useful purpose can be served
was not illegal, void or unconstitutional at the time. The matter had to
in passing upon the merits,[18] what is at issue in the instant case is
be brought to court, precisely for adjudication as to whether the
not only the validity of the WMCP FTAA, but also the constitutionality
FTAA and the Mining Law had indeed violated the Constitution.
of RA 7942 and its Implementing Rules and
Since, up to this point, the decision of this Court declaring the FTAA
Regulations. Second, the acts of private respondent cannot operate
void has yet to become final, to all intents and purposes, the FTAA
to cure the law of its alleged unconstitutionality or to divest this Court
must be deemed valid and constitutional.[17]
of its jurisdiction to decide. Third, the Constitution imposes upon the
At bottom, we find completely outlandish petitioners contention Supreme Court the duty to declare invalid any law that offends the
that an FTAA could be entered into by the government only with a Constitution.
foreign corporation, never with a Filipino enterprise. Indeed, the
Petitioners also argue that no amendatory laws have been
nationalistic provisions of the Constitution are all anchored on the
passed to make the Mining Act of 1995 conform to constitutional
protection of Filipino interests. How petitioners can now argue that
strictures (assuming that, at present, it does not); that public
foreigners have the exclusive right to FTAAs totally overturns the
respondents will continue to implement and enforce the statute until
entire basis of the Petition -- preference for the Filipino in the
this Court rules otherwise; and that the said law continues to be the
exploration, development and utilization of our natural resources. It
source of legal authority in accepting, processing and approving
does not take deep knowledge of law and logic to understand that
numerous applications for mining rights.
what the Constitution grants to foreigners should be equally available
to Filipinos. Indeed, it appears that as of June 30, 2002, some 43 FTAA
applications had been filed with the Mines and Geosciences Bureau
(MGB), with an aggregate area of 2,064,908.65 hectares -- spread
Second Issue: over Luzon, the Visayas and Mindanao[19] -- applied for. It may be a
Whether the Court Can Still Decide the Case, bit far-fetched to assert, as petitioners do, that each and every FTAA
Even Assuming It Is Moot that was entered into under the provisions of the Mining Act invites
potential litigation for as long as the constitutional issues are not
resolved with finality. Nevertheless, we must concede that there
exists the distinct possibility that one or more of the future FTAAs will grow out of its infancy. They also recall Salonga v. Cruz Pao,[25] in
be the subject of yet another suit grounded on constitutional issues. which this Court declared that (t)he Court also has the duty to
formulate guiding and controlling constitutional principles, precepts,
But of equal if not greater significance is the cloud of uncertainty
doctrines or rules. It has the symbolic function of educating the bench
hanging over the mining industry, which is even now scaring away
and bar on the extent of protection given by constitutional
foreign investments. Attesting to this climate of anxiety is the fact that
guarantees. x x x.
the Chamber of Mines of the Philippines saw the urgent need to
intervene in the case and to present its position during the Oral The mootness of the case in relation to the WMCP FTAA led the
Argument; and that Secretary General Romulo Neri of the National undersigned ponente to state in his dissent to the Decision that there
Economic Development Authority (NEDA) requested this Court to was no more justiciable controversy and the plea to nullify the Mining
allow him to speak, during that Oral Argument, on the economic Law has become a virtual petition for declaratory relief.[26] The entry
consequences of the Decision of January 27, 2004.[20] of the Chamber of Mines of the Philippines, Inc., however, has put
into focus the seriousness of the allegations of unconstitutionality of
We are convinced. We now agree that the Court must recognize
RA 7942 and DAO 96-40 which converts the case to one for
the exceptional character of the situation and the paramount public
prohibition[27] in the enforcement of the said law and regulations.
interest involved, as well as the necessity for a ruling to put an end to
the uncertainties plaguing the mining industry and the affected Indeed, this CMP entry brings to fore that the real issue in this
communities as a result of doubts cast upon the constitutionality and case is whether paragraph 4 of Section 2 of Article XII of the
validity of the Mining Act, the subject FTAA and future FTAAs, and Constitution is contravened by RA 7942 and DAO 96-40, not whether
the need to avert a multiplicity of suits. Paraphrasing Gonzales v. it was violated by specific acts implementing RA 7942 and DAO 96-
Commission on Elections,[21] it is evident that strong reasons of public 40. [W]hen an act of the legislative department is seriously alleged to
policy demand that the constitutionality issue be resolved now.[22] have infringed the Constitution, settling the controversy becomes the
duty of this Court. By the mere enactment of the questioned law or
In further support of the immediate resolution of the
the approval of the challenged action, the dispute is said to have
constitutionality issue, public respondents cite Acop v.
ripened into a judicial controversy even without any other overt
Guingona,[23] to the effect that the courts will decide a question --
act.[28] This ruling can be traced from Taada v. Angara,[29] in which the
otherwise moot and academic -- if it is capable of repetition, yet
Court said:
evading review.[24] Public respondents ask the Court to avoid a
situation in which the constitutionality issue may again arise with In seeking to nullify an act of the Philippine Senate on the ground that it
respect to another FTAA, the resolution of which may not be contravenes the Constitution, the petition no doubt raises a justiciable
achieved until after it has become too late for our mining industry to controversy. Where an action of the legislative branch is seriously alleged
to have infringed the Constitution, it becomes not only the right but in fact the State. With the exception of agricultural lands, all other natural
the duty of the judiciary to settle the dispute. resources shall not be alienated. The exploration, development and
utilization of natural resources shall be under the full control and
xxxxxxxxx supervision of the State. The State may directly undertake such activities, or
it may enter into co-production, joint venture or production-sharing
As this Court has repeatedly and firmly emphasized in many cases, it will agreements with Filipino citizens or corporations or associations at least
not shirk, digress from or abandon its sacred duty and authority to uphold sixty per centum of whose capital is owned by such citizens. Such
the Constitution in matters that involve grave abuse of discretion brought agreements may be for a period not exceeding twenty-five years, renewable
before it in appropriate cases, committed by any officer, agency, for not more than twenty-five years, and under such terms and conditions as
instrumentality or department of the government.[30] may be provided by law. In cases of water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of water
Additionally, the entry of CMP into this case has also effectively power, beneficial use may be the measure and limit of the grant.
forestalled any possible objections arising from the standing or legal
interest of the original parties. The State shall protect the nations marine wealth in its archipelagic waters,
For all the foregoing reasons, we believe that the Court should territorial sea, and exclusive economic zone, and reserve its use and
proceed to a resolution of the constitutional issues in this case. enjoyment exclusively to Filipino citizens.

The Congress may, by law, allow small-scale utilization of natural


Third Issue: resources by Filipino citizens, as well as cooperative fish farming, with
The Proper Interpretation of the Constitutional Phrase priority to subsistence fishermen and fish-workers in rivers, lakes, bays and
Agreements Involving Either Technical or Financial Assistance lagoons.

The President may enter into agreements with foreign-owned


The constitutional provision at the nucleus of the controversy is corporations involving either technical or financial assistance for large-
paragraph 4 of Section 2 of Article XII of the 1987 Constitution. In scale exploration, development, and utilization of minerals, petroleum,
order to appreciate its context, Section 2 is reproduced in full: and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, general welfare of the country. In such agreements, the State shall promote
and other mineral oils, all forces of potential energy, fisheries, forests or the development and use of local scientific and technical resources.
timber, wildlife, flora and fauna, and other natural resources are owned by
The President shall notify the Congress of every contract entered into in xxxxxxxxx
accordance with this provision, within thirty days from its execution.[31]
Second, where there is ambiguity, ratio legis est anima. The words of the
Constitution should be interpreted in accordance with the intent of its
No Restriction of Meaning by framers. x x x.
a Verba Legis Interpretation
xxxxxxxxx
To interpret the foregoing provision, petitioners adamantly assert
Finally, ut magis valeat quam pereat. The Constitution is to be interpreted
that the language of the Constitution should prevail; that the primary
as a whole.[34]
method of interpreting it is to seek the ordinary meaning of the words
used in its provisions. They rely on rulings of this Court, such as the For ease of reference and in consonance with verba legis, we
following: reconstruct and stratify the aforequoted Section 2 as follows:
The fundamental principle in constitutional construction however is that the 1. All natural resources are owned by the State. Except for agricultural
primary source from which to ascertain constitutional intent or purpose is lands, natural resources cannot be alienated by the State.
the language of the provision itself. The presumption is that the words in
which the constitutional provisions are couched express the objective sought 2. The exploration, development and utilization (EDU) of natural resources
to be attained. In other words, verba legis prevails. Only when the meaning shall be under the full control and supervision of the State.
of the words used is unclear and equivocal should resort be made to
extraneous aids of construction and interpretation, such as the proceedings 3. The State may undertake these EDU activities through either of the
of the Constitutional Commission or Convention to shed light on and following:
ascertain the true intent or purpose of the provision being construed.[32]
(a) By itself directly and solely
Very recently, in Francisco v. The House of
Representatives, this Court indeed had the occasion to reiterate
[33]
(b) By (i) co-production; (ii) joint venture; or (iii) production sharing
the well-settled principles of constitutional construction: agreements with Filipino citizens or corporations, at least 60 percent of the
capital of which is owned by such citizens
First, verba legis, that is, wherever possible, the words used in the
Constitution must be given their ordinary meaning except where technical 4. Small-scale utilization of natural resources may be allowed by law in
terms are employed. x x x. favor of Filipino citizens.
5. For large-scale EDU of minerals, petroleum and other mineral oils, the January 27, 2004 correctly declared the WMCP FTAA, along with
President may enter into agreements with foreign-owned corporations pertinent provisions of RA 7942, void for allowing a foreign contractor
involving either technical or financial assistance according to the general to have direct and exclusive management of a mining enterprise.
terms and conditions provided by law x x x. Allowing such a privilege not only runs counter to the full control and
supervision that the State is constitutionally mandated to exercise
Note that in all the three foregoing mining activities -- exploration, over the exploration, development and utilization of the countrys
development and utilization -- the State may undertake such EDU natural resources; doing so also vests in the foreign company
activities by itself or in tandem with Filipinos or Filipino corporations, beneficial ownership of our mineral resources. It will be recalled that
except in two instances: first, in small-scale utilization of natural the Decision of January 27, 2004 zeroed in on management or other
resources, which Filipinos may be allowed by law to undertake; forms of assistance or other activities associated with the service
and second, in large-scale EDU of minerals, petroleum and mineral contracts of the martial law regime, since the management or
oils, which may be undertaken by the State via agreements with operation of mining activities by foreign contractors, which is the
foreign-owned corporations involving either technical or financial primary feature of service contracts, was precisely the evil that the
assistance as provided by law. drafters of the 1987 Constitution sought to eradicate.
Petitioners claim that the phrase agreements x x x involving On the other hand, the intervenor[37] and public respondents
either technical or financial assistance simply means technical argue that the FTAA allowed by paragraph 4 is not merely an
assistance or financial assistance agreements, nothing more and agreement for supplying limited and specific financial or technical
nothing else. They insist that there is no ambiguity in the phrase, and services to the State. Rather, such FTAA is a comprehensive
that a plain reading of paragraph 4 quoted above leads to the agreement for the foreign-owned corporations integrated exploration,
inescapable conclusion that what a foreign-owned corporation may development and utilization of mineral, petroleum or other mineral
enter into with the government is merely an agreement oils on a large-scale basis. The agreement, therefore, authorizes the
for either financial or technical assistance only, for the large-scale foreign contractors rendition of a whole range of integrated and
exploration, development and utilization of minerals, petroleum and comprehensive services, ranging from the discovery to the
other mineral oils; such a limitation, they argue, excludes foreign development, utilization and production of minerals or petroleum
management and operation of a mining enterprise.[35] products.
This restrictive interpretation, petitioners believe, is in line with the We do not see how applying a strictly literal or verba
general policy enunciated by the Constitution reserving to Filipino legis interpretation of paragraph 4 could inexorably lead to the
citizens and corporations the use and enjoyment of the countrys conclusions arrived at in the ponencia. First, the drafters choice of
natural resources. They maintain that this Courts Decision[36] of words -- their use of the phrase agreements x x x involving either
technical or financial assistance -- does not indicate the intent agreements for technical or financial assistance against
to exclude other modes of assistance. The drafters opted to agreements including technical or financial assistance. This much is
use involving when they could have simply unalterably clear in a verba legis approach.
said agreements for financial or technical assistance, if that was their
Second, if the real intention of the drafters was to confine foreign
intention to begin with. In this case, the limitation would be very clear
corporations to financial or technical assistance and nothing more,
and no further debate would ensue.
their language would have certainly been so unmistakably
In contrast, the use of the word involving signifies the possibility restrictive and stringent as to leave no doubt in anyones mind
of the inclusion of other forms of assistance or activities having about their true intent. For example, they would have used the
to do with, otherwise related to or compatible with financial or sentence foreign corporations are absolutely prohibited from
technical assistance. The word involving as used in this context has involvement in the management or operation of mining or similar
three connotations that can be differentiated thus: one, the sense of ventures or words of similar import. A search for such stringent
concerning, having to do with, or affecting; two, entailing, requiring, wording yields negative results. Thus, we come to the inevitable
implying or necessitating; and three, including, containing or conclusion that there was a conscious and deliberate decision
comprising.[38] to avoid the use of restrictive wording that bespeaks an intent
not to use the expression agreements x x x involving either
Plainly, none of the three connotations convey a sense of
technical or financial assistance in an exclusionary and limiting
exclusivity. Moreover, the word involving, when understood in the
manner.
sense of including, as in including technical or financial
assistance, necessarily implies that there are activities other
than those that are being included. In other words, if an Deletion of Service Contracts to
agreement includes technical or financial assistance, there is apart Avoid Pitfalls of Previous Constitutions,
from such assistance -- something else already in, and covered or Not to Ban Service Contracts Per Se
may be covered by, the said agreement.
In short, it allows for the possibility that matters, other than those Third, we do not see how a verba legis approach leads to the
explicitly mentioned, could be made part of the agreement. Thus, we conclusion that the management or operation of mining activities by
are now led to the conclusion that the use of the word involving foreign contractors, which is the primary feature of service contracts,
implies that these agreements with foreign corporations are not was precisely the evil that the drafters of the 1987 Constitution
limited to mere financial or technical assistance. The difference in sought to eradicate. Nowhere in the above-quoted Section can be
sense becomes very apparent when we juxtapose discerned the objective to keep out of foreign hands the management
or operation of mining activities or the plan to eradicate service in mining or the development of any other natural resource. The
contracts as these were understood in the 1973 Constitution. Still, taking out of foreign-currency or peso-denominated loans or any
petitioners maintain that the deletion or omission from the 1987 other kind of financial assistance, as well as the rendition of technical
Constitution of the term service contracts found in the 1973 assistance -- whether to the State or to any other entity in the
Constitution sufficiently proves the drafters intent to exclude Philippines -- has never been restricted in favor of Filipino citizens or
foreigners from the management of the affected enterprises. corporations having a certain minimum percentage of Filipino equity.
Such a restriction would certainly be preposterous and unnecessary.
To our mind, however, such intent cannot be definitively and
As a matter of fact, financial, and even technical
conclusively established from the mere failure to carry the same
assistance, regardless of the nationality of its source, would be
expression or term over to the new Constitution, absent a more
welcomed in the mining industry anytime with open arms, on account
specific, explicit and unequivocal statement to that effect. What
of the dearth of local capital and the need to continually update
petitioners seek (a complete ban on foreign participation in the
technological know-how and improve technical skills.
management of mining operations, as previously allowed by the
earlier Constitutions) is nothing short of bringing about a momentous There was therefore no need for a constitutional provision
sea change in the economic and developmental policies; and the specifically allowing foreign-owned corporations to render financial or
fundamentally capitalist, free-enterprise philosophy of our technical assistance, whether in respect of mining or some other
government. We cannot imagine such a radical shift being resource development or commercial activity in the Philippines. The
undertaken by our government, to the great prejudice of the mining last point needs to be emphasized: if merely financial or
sector in particular and our economy in general, merely on the basis technical assistance agreements are allowed, there would be no
of the omission of the terms service contract from or the failure to need to limit them to large-scale mining operations, as there
carry them over to the new Constitution. There has to be a much would be far greater need for them in the smaller-scale mining
more definite and even unarguable basis for such a drastic reversal activities (and even in non-mining areas). Obviously, the
of policies. provision in question was intended to refer to agreements other
than those for mere financial or technical assistance.
Fourth, a literal and restrictive interpretation of paragraph 4, such
as that proposed by petitioners, suffers from certain internal logical In like manner, there would be no need to require the President of
inconsistencies that generate ambiguities in the understanding of the the Republic to report to Congress, if only financial or technical
provision. As the intervenor pointed out, there has never been any assistance agreements are involved. Such agreements are in the
constitutional or statutory provision that reserved to Filipino citizens nature of foreign loans that -- pursuant to Section 20 of Article
or corporations, at least 60 percent of which is Filipino-owned, the VII[39] of the 1987 Constitution -- the President may contract or
rendition of financial or technical assistance to companies engaged guarantee, merely with the prior concurrence of the Monetary Board.
In turn, the Board is required to report to Congress within thirty days Fifth, it is argued that Section 2 of Article XII authorizes nothing
from the end of every quarter of the calendar year, not thirty days more than a rendition of specific and limited financial service or
after the agreement is entered into. technical assistance by a foreign company. This argument begs the
question To whom or for whom would it be rendered? or Who is
And if paragraph 4 permits only agreements for loans and other
being assisted? If the answer is The State, then it necessarily implies
forms of financial, or technical assistance, what is the point of
that the State itself is the one directly and solely undertaking the
requiring that they be based on real contributions to the economic
large-scale exploration, development and utilization of a mineral
growth and general welfare of the country? For instance, how is one
resource, so it follows that the State must itself bear the liability and
to measure and assess the real contributions to the economic growth
cost of repaying the financing sourced from the foreign lender and/or
and general welfare of the country that may ensue from a foreign-
of paying compensation to the foreign entity rendering technical
currency loan agreement or a technical-assistance agreement for,
assistance.
say, the refurbishing of an existing power generating plant for a
mining operation somewhere in Mindanao? Such a criterion would However, it is of common knowledge, and of judicial notice as
make more sense when applied to a major business investment in a well, that the government is and has for many many years been
principal sector of the industry. financially strapped, to the point that even the most essential
services have suffered serious curtailments -- education and health
The conclusion is clear and inescapable -- a verba
care, for instance, not to mention judicial services -- have had to
legis construction shows that paragraph 4 is not to be understood as
make do with inadequate budgetary allocations. Thus, government
one limited only to foreign loans (or other forms of financial support)
has had to resort to build-operate-transfer and similar arrangements
and to technical assistance. There is definitely more to it than
with the private sector, in order to get vital infrastructure projects built
that. These are provisions permitting participation by foreign
without any governmental outlay.
companies; requiring the Presidents report to Congress; and
using, as yardstick, contributions based on economic growth The very recent brouhaha over the gargantuan fiscal crisis or
and general welfare. These were neither accidentally inserted budget deficit merely confirms what the ordinary citizen has
into the Constitution nor carelessly cobbled together by the suspected all along. After the reality check, one will have to admit the
drafters in lip service to shallow nationalism. The provisions implausibility of a direct undertaking -- by the State itself -- of large-
patently have significance and usefulness in a context that allows scale exploration, development and utilization of minerals, petroleum
agreements with foreign companies to include more than mere and other mineral oils. Such an undertaking entails not only
financial or technical assistance. humongous capital requirements, but also the attendant risk of never
finding and developing economically viable quantities of minerals,
petroleum and other mineral oils.[40]
It is equally difficult to imagine that such a provision restricting officials -- were not unfamiliar with the practices of foreign
foreign companies to the rendition of only financial or technical corporations and multinationals.
assistance to the government was deliberately crafted by the drafters
Neither were they so nave as to believe that these entities would
of the Constitution, who were all well aware of the capital-intensive
provide assistance without conditionalities or some quid pro quo.
and technology-oriented nature of large-scale mineral or petroleum
Definitely, as business persons well know and as a matter of judicial
extraction and the countrys deficiency in precisely those areas.[41] To
notice, this matter is not just a question of signing a promissory note
say so would be tantamount to asserting that the provision was
or executing a technology transfer agreement. Foreign corporations
purposely designed to ladle the large-scale development and
usually require that they be given a say in the management, for
utilization of mineral, petroleum and related resources with
instance, of day-to-day operations of the joint venture. They would
impossible conditions; and to remain forever and permanently
demand the appointment of their own men as, for example,
reserved for future generations of Filipinos.
operations managers, technical experts, quality control heads,
internal auditors or comptrollers. Furthermore, they would probably
A More Reasonable Look require seats on the Board of Directors -- all these to ensure the
at the Charters Plain Language success of the enterprise and the repayment of the loans and other
financial assistance and to make certain that the funding and the
technology they supply would not go to waste. Ultimately, they would
Sixth, we shall now look closer at the plain language of the also want to protect their business reputation and bottom lines.[42]
Charter and examining the logical inferences. The drafters chose to
emphasize and highlight agreements x x x involving either technical In short, the drafters will have to be credited with enough
or financial assistance in relation to foreign corporations participation pragmatism and savvy to know that these foreign entities will not
in large-scale EDU. The inclusion of this clause on technical or enter into such agreements involving assistance without requiring
financial assistance recognizes the fact that foreign business entities arrangements for the protection of their investments, gains and
and multinational corporations are the ones with the resources and benefits.
know-how to provide technical and/or financial assistance of the Thus, by specifying such agreements involving assistance, the
magnitude and type required for large-scale exploration, drafters necessarily gave implied assent to everything that these
development and utilization of these resources. agreements necessarily entailed; or that could reasonably be
The drafters -- whose ranks included many academicians, deemed necessary to make them tenable and effective, including
economists, businessmen, lawyers, politicians and government management authority with respect to the day-to-day operations of
the enterprise and measures for the protection of the interests of the
foreign corporation, PROVIDED THAT Philippine sovereignty over and a timeline within which to carry them out. The following are some
natural resources and full control over the enterprise undertaking the extant examples of such transitory guidelines set forth in Article XVIII
EDU activities remain firmly in the State. of our Constitution:

Section 23. Advertising entities affected by paragraph (2), Section 11 of


Petitioners Theory Deflated by the Article XVI of this Constitution shall have five years from its ratification to
Absence of Closing-Out Rules or Guidelines comply on a graduated and proportionate basis with the minimum Filipino
ownership requirement therein.
Seventh and final point regarding the plain-language approach,
xxxxxxxxx
one of the practical difficulties that results from it is the fact that there
is nothing by way of transitory provisions that would serve to confirm
Section 25. After the expiration in 1991 of the Agreement between the
the theory that the omission of the term service contract from the
Republic of the Philippines and the United States of America concerning
1987 Constitution signaled the demise of service contracts.
military bases, foreign military bases, troops, or facilities shall not be
The framers knew at the time they were deliberating that there allowed in the Philippines except under a treaty duly concurred in by the
were various service contracts extant and in force and effect, Senate and, when the Congress so requires, ratified by a majority of the
including those in the petroleum industry. Many of these service votes cast by the people in a national referendum held for that purpose, and
contracts were long-term (25 years) and had several more years to recognized as a treaty by the other contracting State.
run. If they had meant to ban service contracts altogether, they would
have had to provide for the termination or pretermination of the Section 26. The authority to issue sequestration or freeze orders under
existing contracts. Accordingly, they would have supplied the Proclamation No. 3 dated March 25, 1986 in relation to the recovery of ill-
specifics and the when and how of effecting the extinguishment of gotten wealth shall remain operative for not more than eighteen months
these existing contracts (or at least the mechanics for determining after the ratification of this Constitution. However, in the national interest,
them); and of putting in place the means to address the just claims of as certified by the President, the Congress may extend such period.
the contractors for compensation for their investments, lost
opportunities, and so on, if not for the recovery thereof. A sequestration or freeze order shall be issued only upon showing of a
prima facie case. The order and the list of the sequestered or frozen
If the framers had intended to put an end to service contracts, properties shall forthwith be registered with the proper court. For orders
they would have at least left specific instructions to Congress to deal issued before the ratification of this Constitution, the corresponding judicial
with these closing-out issues, perhaps by way of general guidelines action or proceeding shall be filed within six months from its ratification.
For those issued after such ratification, the judicial action or proceeding Deconstitutionalized
shall be commenced within six months from the issuance thereof.
Pertinent portions of the deliberations of the members of the
The sequestration or freeze order is deemed automatically lifted if no
Constitutional Commission (ConCom) conclusively show that they
judicial action or proceeding is commenced as herein provided. [43]
discussed agreements involving either technical or financial
It is inconceivable that the drafters of the Constitution would leave assistance in the same breadth as service contracts and used the
such an important matter -- an expression of sovereignty as it were -- terms interchangeably. The following exchange between
indefinitely hanging in the air in a formless and ineffective state. Commissioner Jamir (sponsor of the provision) and Commissioner
Indeed, the complete absence of even a general framework only Suarez irrefutably proves that the agreements involving technical or
serves to further deflate petitioners theory, like a childs balloon losing financial assistance were none other than service contracts.
its air. THE PRESIDENT. Commissioner Jamir is recognized. We are still on
Section 3.
Under the circumstances, the logical inconsistencies resulting
MR. JAMIR. Yes, Madam President. With respect to the second paragraph
from petitioners literal and purely verba legis approach to paragraph of Section 3, my amendment by substitution reads: THE PRESIDENT
4 of Section 2 of Article XII compel a resort to other aids to MAY ENTER INTO AGREEMENTS WITH FOREIGN-OWNED
interpretation. 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.
Petitioners Posture Also Negated
by Ratio Legis Et Anima MR. VILLEGAS. The Committee accepts the amendment. Commissioner
Suarez will give the background.
MR. JAMIR. Thank you.
Thus, in order to resolve the inconsistencies, incongruities and
ambiguities encountered and to supply the deficiencies of the plain- THE PRESIDENT. Commissioner Suarez is recognized.
language approach, there is a need for recourse to the proceedings MR. SUAREZ. Thank you, Madam President.
of the 1986 Constitutional Commission. There is a need for ratio legis Will Commissioner Jamir answer a few clarificatory questions?
et anima.
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. This particular portion of the section has reference to what
Service Contracts Not was popularly known before as service contracts, among other
things, is that correct?
MR. JAMIR. Yes, Madam President. MR. VILLEGAS. The Commissioner is right, Madam President.
MR. SUAREZ. As it is formulated, the President may enter into service MR. GASCON. According to the original proposal, if the President were to
contracts but subject to the guidelines that may be promulgated by enter into a particular agreement, he would need the concurrence of
Congress? Congress. Now that it has been changed by the proposal of
Commissioner Jamir in that Congress will set the general law to which
MR. JAMIR. That is correct. the President shall comply, the President will, therefore, not need the
MR. SUAREZ. Therefore, that aspect of negotiation and consummation will concurrence of Congress every time he enters into service contracts.
fall on the President, not upon Congress? Is that correct?
MR. JAMIR. That is also correct, Madam President. MR. VILLEGAS. That is right.
MR. SUAREZ. Except that all of these contracts, service or otherwise, MR. GASCON. The proposed amendment of Commissioner Jamir is in
must be made strictly in accordance with guidelines prescribed by indirect contrast to my proposed amendment, so I would like to object
Congress? and present my proposed amendment to the body.
MR. JAMIR. That is also correct.
xxxxxxxxx
MR. SUAREZ. And the Gentleman is thinking in terms of a law that
uniformly covers situations of the same nature? MR. GASCON. Yes, it will be up to the body.
MR. JAMIR. That is 100 percent correct. I feel that the general law to be set by Congress as regard service contract
MR. SUAREZ. I thank the Commissioner. 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
MR. JAMIR. Thank you very much.[44] certain agreements will be detrimental to the interest of the Filipinos.
This is in direct contrast to my proposal which provides that there be
The following exchange leaves no doubt that the commissioners effective constraints in the implementation of service contracts.
knew exactly what they were dealing with: service contracts.
So instead of a general law to be passed by Congress to serve as a
THE PRESIDENT. Commissioner Gascon is recognized. guideline to the President when entering into service contract
agreements, I propose that every service contract entered into by the
MR. GASCON. Commissioner Jamir had proposed an amendment with President would need the concurrence of Congress, so as to assure the
regard to special service contracts which was accepted by the
Filipinos of their interests with regard to the issue in Section 3 on all
Committee. Since the Committee has accepted it, I would like to ask lands of the public domain. My alternative amendment, which we will
some questions.
discuss later, reads: THAT THE PRESIDENT SHALL ENTER INTO
THE PRESIDENT. Commissioner Gascon may proceed. SUCH AGREEMENTS ONLY WITH THE CONCURRENCE OF TWO-
THIRDS VOTE OF ALL THE MEMBERS OF CONGRESS SITTING
MR. GASCON. As it is proposed now, such service contracts will be SEPARATELY.
entered into by the President with the guidelines of a general law
on service contract to be enacted by Congress. Is that correct?
xxxxxxxxx xxxxxxxxx

MR. BENGZON. The reason we made that shift is that we realized the MR. OPLE. Madam President, we do not need to suspend the session. If
original proposal could breed corruption. By the way, this is not just Commissioner Gascon needs a few minutes, I can fill up the remaining
confined to service contracts but also to financial assistance. If we time while he completes his proposed amendment. I just wanted to ask
are going to make every single contract subject to the concurrence of Commissioner Jamir whether he would entertain a minor amendment to
Congress which, according to the Commissioners amendment is the his amendment, and it reads as follows: THE PRESIDENT SHALL
concurrence of two-thirds of Congress voting separately then (1) there SUBSEQUENTLY NOTIFY CONGRESS OF EVERY SERVICE
is a very great chance that each contract will be different from another; CONTRACT ENTERED INTO IN ACCORDANCE WITH THE
and (2) there is a great temptation that it would breed corruption GENERAL LAW. I think the reason is, if I may state it briefly, as
because of the great lobbying that is going to happen. And we do not Commissioner Bengzon said, Congress can always change the general
want to subject our legislature to that. 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
Now, to answer the Commissioners apprehension, by general law, we do not there were a notification requirement from the Office of the President
that such service contracts had been entered into, subject then to the
mean statements of motherhood. Congress can build all the restrictions that scrutiny of the Members of Congress. This pertains to a situation where
it wishes into that general law so that every contract entered into by the the service contracts are already entered into, and all that this
President under that specific area will have to be uniform. The President has amendment seeks is the reporting requirement from the Office of the
no choice but to follow all the guidelines that will be provided by law. President. Will Commissioner Jamir entertain that?
MR. JAMIR. I will gladly do so, if it is still within my power.
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 MR. VILLEGAS. Yes, the Committee accepts the amendment.
in it. And to my mind, although the Committees contention that the
regular concurrence from Congress would subject Congress to xxxxxxxxx
extensive lobbying, I think that is a risk we will have to take since
Congress is a body of representatives of the people whose SR. TAN. Madam President, may I ask a question?
membership will be changing regularly as there will be changing
circumstances every time certain agreements are made. It would be THE PRESIDENT. Commissioner Tan is recognized.
best then to keep in tab and attuned to the interest of the Filipino SR. TAN. Am I correct in thinking that the only difference between these
people, whenever the President enters into any agreement with regard future service contracts and the past service contracts under Mr.
to such an important matter as technical or financial assistance for Marcos is the general law to be enacted by the legislature and the
large-scale exploration, development and utilization of natural notification of Congress by the President? That is the only difference, is
resources or service contracts, the peoples elected representatives it not?
should be on top of it.
MR. VILLEGAS. That is right.
SR. TAN. So those are the safeguards. read a provision authorizing service contracts while we, in this
MR. VILLEGAS. Yes. There was no law at all governing service Constitutional Commission, provided for Filipino control of the economy.
contracts before. We are, therefore, providing for exceptional instances where aliens may
SR. TAN. Thank you, Madam President.[45] 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.
More Than Mere Financial
and Technical Assistance As far as I am concerned, if I should have my own way, I am for the
Entailed by the Agreements 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
The clear words of Commissioner Jose N. Nolledo quoted below
future Members of Congress by saying that the purpose of this provision is
explicitly and eloquently demonstrate that the drafters knew that the
to avoid corruption. We cannot claim that they are less patriotic than we are.
agreements with foreign corporations were going to entail not mere
I think the Members of this Commission should know that entering
technical or financial assistance but, rather, foreign investment in and
into service contracts is an exception to the rule on protection of natural
management of an enterprise involved in large-scale
resources for the interest of the nation, and therefore, being an exception it
exploration, development and utilization of minerals, petroleum, and
should be subject, whenever possible, to stringent rules. It seems to me that
other mineral oils.
we are liberalizing the rules in favor of aliens.
THE PRESIDENT. Commissioner Nolledo is recognized.
MR. NOLLEDO. Madam President, I have the permission of the Acting Floor I say these things with a heavy heart, Madam President. I do not claim to be
Leader to speak for only two minutes in favor of the amendment of a nationalist, but I love my country. Although we need investments, we
Commissioner Gascon. must adopt safeguards that are truly reflective of the sentiments of the
THE PRESIDENT. Commissioner Nolledo may proceed. people and not mere cosmetic safeguards as they now appear in the Jamir
MR. NOLLEDO. With due respect to the members of the Committee and
amendment. (Applause)
Commissioner Jamir, I am in favor of the objection of Commissioner
Gascon. Thank you, Madam President.[46]

Madam President, I was one of those who refused to sign the 1973 Another excerpt, featuring then Commissioner (now Chief
Constitution, and one of the reasons is that there were many provisions in Justice) Hilario G. Davide Jr., indicates the limitations of the scope of
the Transitory Provisions therein that favored aliens. I was shocked when I
such service contracts -- they are valid only in regard to minerals, After the Jamir amendment was voted upon and approved by a
petroleum and other mineral oils, not to all natural resources. vote of 21 to 10 with 2 abstentions, Commissioner Davide made the
THE PRESIDENT. Commissioner Davide is recognized. following statement, which is very relevant to our quest:
MR. DAVIDE. Thank you, Madam President. This is an amendment to the THE PRESIDENT. Commissioner Davide is recognized.
Jamir amendment and also to the Ople amendment. I propose to delete MR. DAVIDE. I am very glad that Commissioner Padilla emphasized
NATURAL RESOURCES and substitute it with the following: minerals, petroleum and mineral oils. The Commission has just
MINERALS, PETROLEUM AND OTHER MINERAL OILS. On the Ople approved the possible foreign entry into the development, exploration
amendment, I propose to add: THE NOTIFICATION TO CONGRESS and utilization of these minerals, petroleum and other mineral oils by
SHALL BE WITHIN THIRTY DAYS FROM THE EXECUTION OF THE virtue of the Jamir amendment. I voted in favor of the Jamir amendment
SERVICE CONTRACT. because it will eventually give way to vesting in exclusively Filipino
THE PRESIDENT. What does the Committee say with respect to the first citizens and corporations wholly owned by Filipino citizens the right to
amendment in lieu of NATURAL RESOURCES? utilize the other natural resources. This means that as a matter of
policy, natural resources should be utilized and exploited only by
MR. VILLEGAS. Could Commissioner Davide explain that? Filipino citizens or corporations wholly owned by such citizens. But by
virtue of the Jamir amendment, since we feel that Filipino capital may
MR. DAVIDE. Madam President, with the use of NATURAL RESOURCES
not be enough for the development and utilization of minerals,
here, it would necessarily include all lands of the public domain, our
petroleum and other mineral oils, the President can enter into service
marine resources, forests, parks and so on. So we would like to limit
contracts with foreign corporations precisely for the development and
the scope of these service contracts to those areas really where these
utilization of such resources. And so, there is nothing to fear that we will
may be needed, the exploitation, development and exploration of
stagnate in the development of minerals, petroleum and
minerals, petroleum and other mineral oils. And so, we believe that we
mineral oils because we now allow service contracts. x x x. [48]
should really, if we want to grant service contracts at all, limit the
same to only those particular areas where Filipino capital may not The foregoing are mere fragments of the framers lengthy
be sufficient, and not to all natural resources.
discussions of the provision dealing with agreements x x x involving
MR. SUAREZ. Just a point of clarification again, Madam President. When either technical or financial assistance, which ultimately became
the Commissioner made those enumerations and specifications, I paragraph 4 of Section 2 of Article XII of the Constitution. Beyond
suppose he deliberately did not include agricultural land?
any doubt, the members of the ConCom were actually debating
MR. DAVIDE. That is precisely the reason we have to enumerate what about the martial-law-era service contracts for which they were
these resources are into which service contracts may enter. So,
beyond the reach of any service contract will be lands of the public
crafting appropriate safeguards.
domain, timberlands, forests, marine resources, fauna and flora, wildlife In the voting that led to the approval of Article XII by the ConCom,
and national parks.[47]
the explanations given by Commissioners Gascon, Garcia and
Tadeo indicated that they had voted to reject this provision on
account of their objections to the constitutionalization of the service In their deliberations on what was to become paragraph
contract concept. 4, the framers used the term service contracts in
referring to agreements x x x involving either technical
Mr. Gascon said, I felt that if we would constitutionalize any
or financial assistance.
provision on service contracts, this should always be with the
concurrence of Congress and not guided only by a general law to be They spoke of service contracts as the concept was
promulgated by Congress.[49] Mr. Garcia explained, Service understood in the 1973 Constitution.
contracts are given constitutional legitimization in Sec. 3, even when
It was obvious from their discussions that they were not
they have been proven to be inimical to the interests of the nation,
about to ban or eradicate service contracts.
providing, as they do, the legal loophole for the exploitation of our
natural resources for the benefit of foreign interests.[50] Likewise, Mr. Instead, they were plainly crafting provisions to put in
Tadeo cited inter alia the fact that service contracts continued to place safeguards that would eliminate or minimize the
subsist, enabling foreign interests to benefit from our natural abuses prevalent during the marital law regime. In brief,
resources.[51] It was hardly likely that these gentlemen would they were going to permit service contracts with foreign
have objected so strenuously, had the provision called for mere corporations as contractors, but with safety measures
technical or financial assistance and nothing more. to prevent abuses, as an exception to the general norm
established in the first paragraph of Section 2 of Article
The deliberations of the ConCom and some commissioners
XII. This provision reserves or limits to Filipino citizens -
explanation of their votes leave no room for doubt that the service
- and corporations at least 60 percent of which is
contract concept precisely underpinned the commissioners
owned by such citizens -- the exploration, development
understanding of the agreements involving either technical or
and utilization of natural resources.
financial assistance.
This provision was prompted by the perceived
insufficiency of Filipino capital and the felt need for
Summation of the foreign investments in the EDU of minerals and
Concom Deliberations petroleum resources.
The framers for the most part debated about the sort of
At this point, we sum up the matters established, based on a safeguards that would be considered adequate and
careful reading of the ConCom deliberations, as follows: reasonable. But some of them, having more radical
leanings, wanted to ban service contracts altogether;
for them, the provision would permit aliens to exploit and the government, through its agencies (DENR, MGB), actively
and benefit from the nations natural resources, which exercises control and supervision over the entire operation.
they felt should be reserved only for Filipinos.
Such service contracts may be entered into only with respect to
In the explanation of their votes, the individual minerals, petroleum and other mineral oils. The grant thereof is
commissioners were heard by the entire body. They subject to several safeguards, among which are these requirements:
sounded off their individual opinions, openly enunciated
their philosophies, and supported or attacked the (1) The service contract shall be crafted in accordance with a general law
provisions with fervor. Everyones viewpoint was heard. that will set standard or uniform terms, conditions and requirements,
presumably to attain a certain uniformity in provisions and avoid the
In the final voting, the Article on the National Economy possible insertion of terms disadvantageous to the country.
and Patrimony -- including paragraph 4 allowing service
contracts with foreign corporations as an exception to (2) The President shall be the signatory for the government because,
the general norm in paragraph 1 of Section 2 of the supposedly before an agreement is presented to the President for signature,
same article -- was resoundingly approved by a vote of it will have been vetted several times over at different levels to ensure that it
32 to 7, with 2 abstentions. conforms to law and can withstand public scrutiny.

(3) Within thirty days of the executed agreement, the President shall report
Agreements Involving Technical it to Congress to give that branch of government an opportunity to look over
or Financial Assistance Are the agreement and interpose timely objections, if any.
Service Contracts With Safeguards

From the foregoing, we are impelled to conclude that the Use of the Record of the
phrase agreements involving either technical or financial ConCom to Ascertain Intent
assistance, referred to in paragraph 4, are in fact service
contracts.But unlike those of the 1973 variety, the new ones are At this juncture, we shall address, rather than gloss over, the use
between foreign corporations acting as contractors on the one hand; of the framers intent approach, and the criticism hurled by petitioners
and on the other, the government as principal or owner of the works. who quote a ruling of this Court:
In the new service contracts, the foreign contractors provide capital,
technology and technical know-how, and managerial expertise in the
creation and operation of large-scale mining/extractive enterprises;
While it is permissible in this jurisdiction to consult the debates and individual explanations of votes are on record, and they show where
proceedings of the constitutional convention in order to arrive at the reason each delegate stood on the issues. In sum, we cannot completely
and purpose of the resulting Constitution, resort thereto may be had only denigrate the value or usefulness of the record of the ConCom,
when other guides fail as said proceedings are powerless to vary the terms simply because certain members chose not to speak out.
of the Constitution when the meaning is clear. Debates in the constitutional
It is contended that the deliberations therein did not necessarily
convention are of value as showing the views of the individual members,
reflect the thinking of the voting population that participated in the
and as indicating the reason for their votes, but they give us no light as to
referendum and ratified the Constitution. Verily, whether we like it or
the views of the large majority who did not talk, much less the mass of our
not, it is a bit too much to assume that every one of those who voted
fellow citizens whose votes at the polls gave that instrument the force of
to ratify the proposed Charter did so only after carefully reading and
fundamental law. We think it safer to construe the constitution from what
mulling over it, provision by provision.
appears upon its face. The proper interpretation therefore depends more on
how it was understood by the people adopting it than in the framers Likewise, it appears rather extravagant to assume that every one
understanding thereof.[52] of those who did in fact bother to read the draft Charter actually
understood the import of its provisions, much less analyzed it vis--vis
The notion that the deliberations reflect only the views of those the previous Constitutions. We believe that in reality, a good
members who spoke out and not the views of the majority who percentage of those who voted in favor of it did so more out of faith
remained silent should be clarified. We must never forget that those and trust. For them, it was the product of the hard work and careful
who spoke out were heard by those who remained silent and did not deliberation of a group of intelligent, dedicated and trustworthy men
react. If the latter were silent because they happened not to be and women of integrity and conviction, whose love of country and
present at the time, they are presumed to have read the minutes and fidelity to duty could not be questioned.
kept abreast of the deliberations. By remaining silent, they are
In short, a large proportion of the voters voted yes because the
deemed to have signified their assent to and/or conformity with at
drafters, or a majority of them, endorsed the proposed Constitution.
least some of the views propounded or their lack of objections
What this fact translates to is the inescapable conclusion that many
thereto. It was incumbent upon them, as representatives of the entire
of the voters in the referendum did not form their own isolated
Filipino people, to follow the deliberations closely and to speak their
judgment about the draft Charter, much less about particular
minds on the matter if they did not see eye to eye with the
provisions therein. They only relied or fell back and acted upon the
proponents of the draft provisions.
favorable endorsement or recommendation of the framers as a
In any event, each and every one of the commissioners had the group. In other words, by voting yes, they may be deemed to have
opportunity to speak out and to vote on the matter. Moreover, the signified their voluntary adoption of the understanding and
interpretation of the delegates with respect to the proposed Charter In view of the foregoing discussion, we should reverse the
and its particular provisions. If its good enough for them, its good Decision of January 27, 2004, and in fact now hold a view different
enough for me; or, in many instances, If its good enough for from that of the Decision, which had these findings: (a) paragraph 4
President Cory Aquino, its good enough for me. of Section 2 of Article XII limits foreign involvement in the local
mining industry to agreements strictly for either financial or technical
And even for those who voted based on their own individual
assistance only; (b) the same paragraph precludes agreements that
assessment of the proposed Charter, there is no evidence available
grant to foreign corporations the management of local mining
to indicate that their assessment or understanding of its provisions
operations, as such agreements are purportedly in the nature of
was in fact different from that of the drafters. This unwritten
service contracts as these were understood under the 1973
assumption seems to be petitioners as well. For all we know, this
Constitution; (c) these service contracts were supposedly de-
segment of voters must have read and understood the provisions of
constitutionalized and proscribed by the omission of the term service
the Constitution in the same way the framers had, an assumption
contracts from the 1987 Constitution; (d) since the WMCP FTAA
that would account for the favorable votes.
contains provisions permitting the foreign contractor to manage the
Fundamentally speaking, in the process of rewriting the Charter, concern, the said FTAA is invalid for being a prohibited service
the members of the ConCom as a group were supposed to represent contract; and (e) provisions of RA 7942 and DAO 96-40, which
the entire Filipino people. Thus, we cannot but regard their views as likewise grant managerial authority to the foreign contractor, are also
being very much indicative of the thinking of the people with respect invalid and unconstitutional.
to the matters deliberated upon and to the Charter as a whole.
It is therefore reasonable and unavoidable to make the
Ultimate Test: States Control
following conclusion, based on the above arguments. As written
Determinative of Constitutionality
by the framers and ratified and adopted by the people, the
Constitution allows the continued use of service contracts with
foreign corporations -- as contractors who would invest in and But we are not yet at the end of our quest. Far from it. It seems
operate and manage extractive enterprises, subject to the full that we are confronted with a possible collision of constitutional
control and supervision of the State -- sans the abuses of the provisions. On the one hand, paragraph 1 of Section 2 of Article XII
past regime. The purpose is clear: to develop and utilize our explicitly mandates the State to exercise full control and supervision
mineral, petroleum and other resources on a large scale for the over the exploration, development and utilization of natural
immediate and tangible benefit of the Filipino people. resources. On the other hand, paragraph 4 permits safeguarded
service contracts with foreign contractors. Normally, pursuant
thereto, the contractors exercise management prerogatives over the contractors of a reasonable degree of management prerogative and
mining operations and the enterprise as a whole. There is thus a authority necessary and indispensable to their proper functioning.
legitimate ground to be concerned that either the States full control
For one thing, such an interpretation would discourage foreign
and supervision may rule out any exercise of management authority
entry into large-scale exploration, development and utilization
by the foreign contractor; or, the other way around, allowing the
activities; and result in the unmitigated stagnation of this sector, to
foreign contractor full management prerogatives may ultimately
the detriment of our nations development. This scenario renders
negate the States full control and supervision.
paragraph 4 inoperative and useless. And as respondents have
correctly pointed out, the government does not have to micro-
Ut Magis Valeat manage the mining operations and dip its hands into the day-to-day
Quam Pereat affairs of the enterprise in order for it to be considered as having full
control and supervision.

Under the third principle of constitutional construction laid down The concept of control adopted in Section 2 of Article XII must
[53]

in Francisco -- ut magis valeat quam pereat -- every part of the be taken to mean less than dictatorial, all-encompassing control; but
Constitution is to be given effect, and the Constitution is to be read nevertheless sufficient to give the State the power to direct, restrain,
and understood as a harmonious whole. Thus, full control and regulate and govern the affairs of the extractive enterprises. Control
supervision by the State must be understood as one that does not by the State may be on a macro level, through the establishment of
preclude the legitimate exercise of management prerogatives by the policies, guidelines, regulations, industry standards and similar
foreign contractor. Before any further discussion, we must stress the measures that would enable the government to control the conduct of
primacy and supremacy of the principle of sovereignty and State affairs in various enterprises and restrain activities deemed not
control and supervision over all aspects of exploration, development desirable or beneficial.
and utilization of the countrys natural resources, as mandated in the The end in view is ensuring that these enterprises contribute to
first paragraph of Section 2 of Article XII. the economic development and general welfare of the country,
But in the next breadth we have to point out that full control and conserve the environment, and uplift the well-being of the affected
supervision cannot be taken literally to mean that the State controls local communities. Such a concept of control would be compatible
and supervises everything involved, down to the minutest details, with permitting the foreign contractor sufficient and reasonable
and makes all decisions required in the mining operations. This management authority over the enterprise it invested in, in order to
strained concept of control and supervision over the mining ensure that it is operating efficiently and profitably, to protect its
enterprise would render impossible the legitimate exercise by the investments and to enable it to succeed.
The question to be answered, then, is whether RA 7942 and thereof shall be under its full control and supervision. The State may
its Implementing Rules enable the government to exercise that directly undertake such activities or it may enter into mineral agreements
degree of control sufficient to direct and regulate the conduct of with contractors.
affairs of individual enterprises and restrain undesirable
activities. The State shall recognize and protect the rights of the indigenous cultural
communities to their ancestral lands as provided for by the Constitution.
On the resolution of these questions will depend the validity and
constitutionality of certain provisions of the Philippine Mining Act of The aforequoted provision is substantively reiterated in Section 2
1995 (RA 7942) and its Implementing Rules and Regulations (DAO of DAO 96-40 as follows:
96-40), as well as the WMCP FTAA.
Indeed, petitioners charge[54] that RA 7942, as well as its Sec. 2. Declaration of Policy. All mineral resources in public and private
Implementing Rules and Regulations, makes it possible for FTAA lands within the territory and exclusive economic zone of the Republic of the
contracts to cede full control and management of mining enterprises Philippines are owned by the State. It shall be the responsibility of the State
over to fully foreign-owned corporations, with the result that the State to promote their rational exploration, development, utilization and
is allegedly reduced to a passive regulator dependent on submitted conservation through the combined efforts of the Government and private
plans and reports, with weak review and audit powers. The State sector in order to enhance national growth in a way that effectively
does not supposedly act as the owner of the natural resources for safeguards the environment and protects the rights of affected communities.
and on behalf of the Filipino people; it practically has little effective
say in the decisions made by the enterprise. Petitioners then
conclude that the law, the implementing regulations, and the WMCP Sufficient Control Over Mining
FTAA cede beneficial ownership of the mineral resources to the Operations Vested in the State
foreign contractor. by RA 7942 and DAO 96-40

A careful scrutiny of the provisions of RA 7942 and its


RA 7942 provides for the States control and supervision over
Implementing Rules belies petitioners claims. Paraphrasing the
Constitution, Section 4 of the statute clearly affirms the States control mining operations. The following provisions thereof establish the
mechanism of inspection and visitorial rights over mining operations
thus:
and institute reportorial requirements in this manner:
Sec. 4. Ownership of Mineral Resources. Mineral resources are owned by
the State and the exploration, development, utilization and processing 1. Sec. 8 which provides for the DENRs power of over-all
supervision and periodic review for the conservation,
management, development and proper use of the States (k) Requiring proponent to effectively use appropriate
mineral resources; anti-pollution technology and facilities to protect
the environment and restore or rehabilitate mined-
2. Sec. 9 which authorizes the Mines and Geosciences Bureau out areas.
(MGB) under the DENR to exercise direct charge in the
administration and disposition of mineral resources, and (l) The contractors shall furnish the Government records
empowers the MGB to monitor the compliance by the of geologic, accounting and other relevant data for
contractor of the terms and conditions of the mineral its mining operation, and that books of accounts
agreements, confiscate surety and performance bonds, and and records shall be open for inspection by the
deputize whenever necessary any member or unit of the Phil. government. x x x.
National Police, barangay, duly registered non-governmental
organization (NGO) or any qualified person to police mining (m) Requiring the proponent to dispose of the minerals at
activities; the highest price and more advantageous terms and
conditions.
3. Sec. 66 which vests in the Regional Director exclusive
jurisdiction over safety inspections of all installations, whether (n) x x x x x x x x x
surface or underground, utilized in mining operations.
(o) Such other terms and conditions consistent with the
4. Sec. 35, which incorporates into all FTAAs the following terms, Constitution and with this Act as the Secretary may
conditions and warranties: deem to be for the best interest of the State and the
welfare of the Filipino people.
(g) Mining operations shall be conducted in accordance
with the provisions of the Act and its IRR. The foregoing provisions of Section 35 of RA 7942 are also
reflected and implemented in Section 56 (g), (h), (l), (m) and (n) of
(h) Work programs and minimum expenditures the Implementing Rules, DAO 96-40.
commitments.
Moreover, RA 7942 and DAO 96-40 also provide various
xxxxxxxxx stipulations confirming the governments control over mining
enterprises:
The contractor is to relinquish to the government those A mining project under an FTAA cannot proceed to the
portions of the contract area not needed for mining construction/development/utilization stage, unless its
operations and not covered by any declaration of mining Declaration of Mining Project Feasibility has been approved
feasibility (Section 35-e, RA 7942; Section 60, DAO 96-40). by government (Section 24, RA 7942).
The contractor must comply with the provisions pertaining to The Declaration of Mining Project Feasibility filed by the
mine safety, health and environmental protection (Chapter contractor cannot be approved without submission of the
XI, RA 7942; Chapters XV and XVI, DAO 96-40). following documents:
For violation of any of its terms and conditions, government 1. Approved mining project feasibility study
may cancel an FTAA. (Chapter XVII, RA 7942; Chapter (Section 53-d, DAO 96-40)
XXIV, DAO 96-40). 2. Approved three-year work program (Section 53-
a-4, DAO 96-40)
An FTAA contractor is obliged to open its books of accounts
3. Environmental compliance certificate (Section
and records for inspection by the government (Section 56-
70, RA 7942)
m, DAO 96-40).
4. Approved environmental protection and
An FTAA contractor has to dispose of the minerals and by- enhancement program (Section 69, RA 7942)
products at the highest market price and register with the 5. Approval by the Sangguniang
MGB a copy of the sales agreement (Section 56-n, DAO Panlalawigan/Bayan/Barangay (Section 70, RA
96-40). 7942; Section 27, RA 7160)
MGB is mandated to monitor the contractors compliance 6. Free and prior informed consent by the
with the terms and conditions of the FTAA; and to deputize, indigenous peoples concerned, including
when necessary, any member or unit of the Philippine payment of royalties through a Memorandum of
National Police, the barangay or a DENR-accredited Agreement (Section 16, RA 7942; Section 59,
nongovernmental organization to police mining activities RA 8371)
(Section 7-d and -f, DAO 96-40). The FTAA contractor is obliged to assist in
An FTAA cannot be transferred or assigned without prior the development of its mining community, promotion of the
approval by the President (Section 40, RA 7942; Section general welfare of its inhabitants, and development of
66, DAO 96-40). science and mining technology (Section 57, RA 7942).
The FTAA contractor is obliged to submit expertise and technology necessary to carry out the
reports (on quarterly, semi-annual or annual basis as the objectives of the FTAA (Section 35-b, -e, and -f, RA 7942).
case may be; per Section 270, DAO 96-40), pertaining to
Other reports to be submitted by the
the following:
contractor, as required under DAO 96-40, are as follows:
1. Exploration an environmental report on the rehabilitation of the mined-
2. Drilling out area and/or mine waste/tailing covered area, and anti-
3. Mineral resources and reserves pollution measures undertaken (Section 35-a-2); annual
4. Energy consumption reports of the mining operations and records of geologic
5. Production accounting (Section 56-m); annual progress reports and
6. Sales and marketing final report of exploration activities (Section 56-2).
7. Employment
Other programs required to be submitted by
8. Payment of taxes, royalties, fees and other
the contractor, pursuant to DAO 96-40, are the following: a
Government Shares
safety and health program (Section 144); an
9. Mine safety, health and environment
environmental work program (Section 168); an annual
10. Land use
environmental protection and enhancement program
11. Social development
(Section 171).
12. Explosives consumption
The foregoing gamut of requirements, regulations, restrictions
An FTAA pertaining to areas within
and limitations imposed upon the FTAA contractor by the statute and
government reservations cannot be granted without a
regulations easily overturns petitioners contention. The setup under
written clearance from the government agencies
RA 7942 and DAO 96-40 hardly relegates the State to the role of a
concerned (Section 19, RA 7942; Section 54, DAO 96-40).
passive regulator dependent on submitted plans and reports. On the
An FTAA contractor is required to post a contrary, the government agencies concerned are empowered to
financial guarantee bond in favor of the government in an approve or disapprove -- hence, to influence, direct and change -- the
amount equivalent to its expenditures obligations for any various work programs and the corresponding minimum expenditure
particular year. This requirement is apart from the commitments for each of the exploration, development and utilization
representations and warranties of the contractor that it has phases of the mining enterprise.
access to all the financing, managerial and technical
Once these plans and reports are approved, the contractor is
bound to comply with its commitments therein. Figures for mineral
production and sales are regularly monitored and subjected to enterprise. Ineluctably then, RA 7942 and DAO 96-40 vest in the
government review, in order to ensure that the products and by- government more than a sufficient degree of control and
products are disposed of at the best prices possible; even copies of supervision over the conduct of mining operations.
sales agreements have to be submitted to and registered with MGB.
And the contractor is mandated to open its books of accounts and
records for scrutiny, so as to enable the State to determine if the Section 3(aq) of RA 7942
government share has been fully paid. Not Unconstitutional
The State may likewise compel the contractors compliance with
mandatory requirements on mine safety, health and environmental An objection has been expressed that Section 3(aq)[55] of RA
protection, and the use of anti-pollution technology and facilities. 7942 -- which allows a foreign contractor to apply for and hold
Moreover, the contractor is also obligated to assist in the an exploration permit -- is unconstitutional. The reasoning is that
development of the mining community and to pay royalties to the Section 2 of Article XII of the Constitution does not allow foreign-
indigenous peoples concerned. owned corporations to undertake mining operations directly. They
may act only as contractors of the State under an FTAA; and the
Cancellation of the FTAA may be the penalty for violation of any State, as the party directly undertaking exploitation of its natural
of its terms and conditions and/or noncompliance with statutes or resources, must hold through the government all exploration permits
regulations. This general, all-around, multipurpose sanction is no and similar authorizations. Hence, Section 3(aq), in permitting
trifling matter, especially to a contractor who may have yet to recover foreign-owned corporations to hold exploration permits, is
the tens or hundreds of millions of dollars sunk into a mining project. unconstitutional.
Overall, considering the provisions of the statute and the The objection, however, is not well-founded. While the
regulations just discussed, we believe that the State definitely Constitution mandates the State to exercise full control and
possesses the means by which it can have the ultimate word in the supervision over the exploitation of mineral resources, nowhere does
operation of the enterprise, set directions and objectives, and detect it require the government to hold all exploration permits and similar
deviations and noncompliance by the contractor; likewise, it has the authorizations. In fact, there is no prohibition at all against foreign or
capability to enforce compliance and to impose sanctions, should the local corporations or contractors holding exploration permits. The
occasion therefor arise. reason is not hard to see.
In other words, the FTAA contractor is not free to do Pursuant to Section 20 of RA 7942, an exploration permit merely
whatever it pleases and get away with it; on the contrary, it will grants to a qualified person the right to conduct exploration for all
have to follow the government line if it wants to stay in the
minerals in specified areas. Such a permit does not amount to an But prior to the issuance of such FTAA or mineral agreement, the
authorization to extract and carry off the mineral resources that may exploration permit grantee (or prospective contractor) cannot yet be
be discovered. This phase involves nothing but expenditures for deemed to have entered into any contract or agreement with the
exploring the contract area and locating the mineral bodies. As no State, and the grantee would definitely need to have some document
extraction is involved, there are no revenues or incomes to speak of. or instrument as evidence of its right to conduct exploration works
In short, the exploration permit is an authorization for the grantee to within the specified area. This need is met by the exploration permit
spend its own funds on exploration programs that are pre-approved issued pursuant to Sections 3(aq), 20 and 23 of RA 7942.
by the government, without any right to recover anything should no
In brief, the exploration permit serves a practical and
minerals in commercial quantities be discovered. The State risks
legitimate purpose in that it protects the interests and preserves
nothing and loses nothing by granting these permits to local or
the rights of the exploration permit grantee (the would-be
foreign firms; in fact, it stands to gain in the form of data generated
contractor) -- foreign or local -- during the period of time that it
by the exploration activities.
is spending heavily on exploration works, without yet being able
Pursuant to Section 24 of RA 7942, an exploration permit grantee to earn revenues to recoup any of its investments and
who determines the commercial viability of a mining area may, within expenditures. Minus this permit and the protection it affords, the
the term of the permit, file with the MGB a declaration of mining exploration works and expenditures may end up benefiting only
project feasibility accompanied by a work program for development. claim-jumpers. Such a possibility tends to discourage investors and
The approval of the mining project feasibility and compliance with contractors. Thus, Section 3(aq) of RA 7942 may not be deemed
other requirements of RA 7942 vests in the grantee the exclusive unconstitutional.
right to an MPSA or any other mineral agreement, or to an FTAA.
Thus, the permit grantee may apply for an MPSA, a joint venture The Terms of the WMCP FTAA
agreement, a co-production agreement, or an FTAA over the permit A Deference to State Control
area, and the application shall be approved if the permit grantee
meets the necessary qualifications and the terms and conditions of
any such agreement. Therefore, the contractor will be in a position to A perusal of the WMCP FTAA also reveals a slew of stipulations
extract minerals and earn revenues only when the MPSA or another providing for State control and supervision:
mineral agreement, or an FTAA, is granted. At that point, the 1. The contractor is obligated to account for the value of production and sale
contractors rights and obligations will be covered by an FTAA or a of minerals (Clause 1.4).
mineral agreement. 2. The contractors work program, activities and budgets must be approved
by/on behalf of the State (Clause 2.1).
3. The DENR secretary has the power to extend the exploration period 14. The contractor is obliged to complete the development of the mine,
(Clause 3.2-a). including construction of the production facilities, within the period
stated in the approved work program (Clause 6.1).
4. Approval by the State is necessary for incorporating lands into the FTAA
contract area (Clause 4.3-c). 15. The contractor is obligated to submit for approval of the DENR secretary
a work program covering each period of three fiscal years (Clause 6.2).
5. The Bureau of Forest Development is vested with discretion in regard to
approving the inclusion of forest reserves as part of the FTAA contract 16. The contractor is to submit reports to the DENR secretary on the
area (Clause 4.5). production, ore reserves, work accomplished and work in progress,
profile of its work force and management staff, and other technical
6. The contractor is obliged to relinquish periodically parts of the contract information (Clause 6.3).
area not needed for exploration and development (Clause 4.6).
17. Any expansions, modifications, improvements and replacements of
7. A Declaration of Mining Feasibility must be submitted for approval by the mining facilities shall be subject to the approval of the secretary
State (Clause 4.6-b). (Clause 6.4).
8. The contractor is obligated to report to the State its exploration activities 18. The State has control with respect to the amount of funds that the
(Clause 4.9). contractor may borrow within the Philippines (Clause 7.2).
9. The contractor is required to obtain State approval of its work programs
19. The State has supervisory power with respect to technical, financial and
for the succeeding two-year periods, containing the proposed work marketing issues (Clause 10.1-a).
activities and expenditures budget related to exploration (Clause 5.1).
20. The contractor is required to ensure 60 percent Filipino equity in the
10. The contractor is required to obtain State approval for its proposed contractor, within ten years of recovering specified expenditures,
expenditures for exploration activities (Clause 5.2). unless not so required by subsequent legislation (Clause 10.1).
11. The contractor is required to submit an annual report on geological, 21. The State has the right to terminate the FTAA for the contractors
geophysical, geochemical and other information relating to its unremedied substantial breach thereof (Clause 13.2);
explorations within the FTAA area (Clause 5.3-a).
22. The States approval is needed for any assignment of the FTAA by the
12. The contractor is to submit within six months after expiration of contractor to an entity other than an affiliate (Clause 14.1).
exploration period a final report on all its findings in the contract area
(Clause 5.3-b). We should elaborate a little on the work programs and budgets,
13. The contractor, after conducting feasibility studies, shall submit a and what they mean with respect to the States ability to exercise full
declaration of mining feasibility, along with a description of the area to control and effective supervision over the enterprise. For instance,
be developed and mined, a description of the proposed mining throughout the initial five-year exploration and feasibility phase of the
operations and the technology to be employed, and a proposed work
program for the development phase, for approval by the DENR
project, the contractor is mandated by Clause 5.1 of the WMCP
secretary (Clause 5.4). FTAA to submit a series of work programs (copy furnished the
director of MGB) to the DENR secretary for approval. The programs
will detail the contractors proposed exploration activities and for development and production, a description of the proposed
budget covering each subsequent period of two fiscal years. mining operations including the technology to be used, a work
program for development, an environmental impact statement, and a
In other words, the concerned government officials will be
description of the contributions to the economic and general
informed beforehand of the proposed exploration activities and
welfare of the country to be generated by the mining operations
expenditures of the contractor for each succeeding two-year period,
(pursuant to Clause 5.5).
with the right to approve/disapprove them or require changes or
adjustments therein if deemed necessary. The work program for development is subject to the approval of
the DENR secretary. Upon its approval, the contractor must comply
Likewise, under Clause 5.2(a), the amount that the contractor
with it and complete the development of the mine, including the
was supposed to spend for exploration activities during the first
construction of production facilities and installation of machinery and
contract year of the exploration period was fixed at not less than P24
equipment, within the period provided in the approved work program
million; and then for the succeeding years, the amount shall be as
for development (per Clause 6.1).
agreed between the DENR secretary and the contractor prior to the
commencement of each subsequent fiscal year. If no such Thus, notably, the development phase of the project is likewise
agreement is arrived upon, the previous years expenditure subject to the control and supervision of the government. It cannot be
commitment shall apply. emphasized enough that the proper and timely construction and
deployment of the production facilities and the development of the
This provision alone grants the government through the DENR
mine are of pivotal significance to the success of the mining venture.
secretary a very big say in the exploration phase of the project. This
Any missteps here will potentially be very costly to remedy. Hence,
fact is not something to be taken lightly, considering that
the submission of the work program for development to the DENR
the government has absolutely no contribution to the exploration
secretary for approval is particularly noteworthy, considering that so
expenditures or work activities and yet is given veto power over such
many millions of dollars worth of investments -- courtesy of the
a critical aspect of the project. We cannot but construe as very
contractor -- are made to depend on the States consideration and
significant such a degree of control over the project and, resultantly,
action.
over the mining enterprise itself.
Throughout the operating period, the contractor is required to
Following its exploration activities or feasibility studies, if the
submit to the DENR secretary for approval, copy furnished the
contractor believes that any part of the contract area is likely to
director of MGB, work programs covering each period of three fiscal
contain an economic mineral resource, it shall submit to the DENR
years (per Clause 6.2). During the same period (per Clause 6.3), the
secretary a declaration of mining feasibility (per Clause 5.4 of the
contractor is mandated to submit various quarterly and annual
FTAA), together with a technical description of the area delineated
reports to the DENR secretary, copy furnished the director of MGB, by the State, since it cannot truly impose its own discretion in respect
on the tonnages of production in terms of ores and concentrates, with of the submitted work programs.
corresponding grades, values and destinations; reports of sales; total 8.2. The Secretary shall be deemed to have approved any Work
ore reserves, total tonnage of ores, work accomplished and work in Programme or Budget or variation thereof submitted by the
progress (installations and facilities related to mining operations), Contractor unless within sixty (60) days after submission by the
investments made or committed, and so on and so forth. Contractor the Secretary gives notice declining such approval or
proposing a revision of certain features and specifying its reasons
Under Section VIII, during the period of mining operations, the therefor (the Rejection Notice).
contractor is also required to submit to the DENR secretary (copy 8.3. If the Secretary gives a Rejection Notice, the Parties shall promptly
furnished the director of MGB) the work program and corresponding meet and endeavor to agree on amendments to the Work
budget for the contract area, describing the mining operations that Programme or Budget. If the Secretary and the Contractor fail to
agree on the proposed revision within 30 days from delivery of the
are proposed to be carried out during the period covered. The
Rejection Notice then the Work Programme or Budget or variation
secretary is, of course, entitled to grant or deny approval of any work thereof proposed by the Contractor shall be deemed approved, so as
program or budget and/or propose revisions thereto. Once the not to unnecessarily delay the performance of the Agreement.
program/budget has been approved, the contractor shall comply 8.4. x x x x x x x x x
therewith.
8.5. So far as is practicable, the Contractor shall comply with any approved
In sum, the above provisions of the WMCP FTAA taken together, Work Programme and Budget. It is recognized by the Secretary and
far from constituting a surrender of control and a grant of beneficial the Contractor that the details of any Work Programmes or Budgets
may require changes in the light of changing circumstances. The
ownership of mineral resources to the contractor in question, bestow
Contractor may make such changes without approval of the
upon the State more than adequate control and supervision Secretary provided they do not change the general objective of any
over the activities of the contractor and the enterprise. Work Programme, nor entail a downward variance of more than
twenty per centum (20percent) of the relevant Budget. All other
variations to an approved Work Programme or Budget shall be
No Surrender of Control submitted for approval of the Secretary.
Under the WMCP FTAA From the provisions quoted above, petitioners generalize by
asserting that the government does not participate in making critical
Petitioners, however, take aim at Clause 8.2, 8.3, and 8.5 of the decisions regarding the operations of the mining firm. Furthermore,
WMCP FTAA which, they say, amount to a relinquishment of control while the State can require the submission of work programs and
budgets, the decision of the contractor will still prevail, if the parties
have a difference of opinion with regard to matters affecting determine what work program or budget would be appropriate, more
operations and management. effective, or more suitable under the circumstances.
We hold, however, that the foregoing provisions do not manifest a All things considered, we take exception to the characterization of
relinquishment of control. For instance, Clause 8.2 merely provides a the DENR secretary as a subservient nonentity whom the contractor
mechanism for preventing the business or mining operations from can overrule at will, on account of Clause 8.3. And neither is it true
grinding to a complete halt as a result of possibly over-long and that under the same clause, the DENR secretary has no authority
unjustified delays in the governments handling, processing and whatsoever to disapprove the work program. As Respondent WMCP
approval of submitted work programs and budgets. Anyway, the reasoned in its Reply-Memorandum, the State -- despite Clause 8.3 -
provision does give the DENR secretary more than sufficient time (60 - still has control over the contract area and it may, as sovereign
days) to react to submitted work programs and budgets. It cannot be authority, prohibit work thereon until the dispute is resolved. And
supposed that proper grounds for objecting thereto, if any exist, ultimately, the State may terminate the agreement, pursuant to
cannot be discovered within a period of two months. Clause 13.2 of the same FTAA, citing substantial breach thereof.
Hence, it clearly retains full and effective control of the exploitation of
On the other hand, Clause 8.3 seeks to provide a temporary,
the mineral resources.
stop-gap solution in the event a disagreement over the submitted
work program or budget arises between the State and the contractor On the other hand, Clause 8.5 is merely an acknowledgment of
and results in a stalemate or impasse, in order that there will be no the parties need for flexibility, given that no one can accurately
unreasonably long delays in the performance of the works. forecast under all circumstances, or predict how situations may
change. Hence, while approved work programs and budgets are to
These temporary or stop-gap solutions are not necessarily evil or
be followed and complied with as far as practicable, there may be
wrong. Neither does it follow that the government will inexorably be
instances in which changes will have to be effected, and effected
aggrieved if and when these temporary remedies come into
rapidly, since events may take shape and unfold with suddenness
play. First, avoidance of long delays in these situations will
and urgency. Thus, Clause 8.5 allows the contractor to move ahead
undoubtedly redound to the benefit of the State as well as the
and make changes without the express or implicit approval of the
contractor. Second, who is to say that the work program or budget
DENR secretary. Such changes are, however, subject to certain
proposed by the contractor and deemed approved under Clause 8.3
conditions that will serve to limit or restrict the variance and prevent
would not be the better or more reasonable or more effective
the contractor from straying very far from what has been approved.
alternative? The contractor, being the insider, as it were, may be said
to be in a better position than the State -- an outsider looking in -- to Clause 8.5 provides the contractor a certain amount of flexibility
to meet unexpected situations, while still guaranteeing that the
approved work programs and budgets are not abandoned altogether. Accordingly, relinquishment is not an issue, given that the contractor
Clause 8.5 does not constitute proof that the State has relinquished will not want to pay the annual occupation fees on the non-mineral
control. And ultimately, should there be disagreement with the parts of its contract area. Neither will it want to relinquish promising
actions taken by the contractor in this instance as well as under sites, which other contractors may subsequently pick up.
Clause 8.3 discussed above, the DENR secretary may resort to
cancellation/termination of the FTAA as the ultimate sanction.
Government Not
a Subcontractor
Discretion to Select Contract
Area Not an Abdication of Control Petitioners further maintain that the contractor can compel the
government to exercise its power of eminent domain to acquire
Next, petitioners complain that the contractor has full discretion to surface areas within the contract area for the contractors use. Clause
select -- and the government has no say whatsoever as to -- the 10.2 (e) of the WMCP FTAA provides that the government agrees
parts of the contract area to be relinquished pursuant to Clause 4.6 that the contractor shall (e) have the right to require the Government
of the WMCP FTAA.[56] This clause, however, does not constitute at the Contractors own cost, to purchase or acquire surface areas for
abdication of control. Rather, it is a mere acknowledgment of the fact and on behalf of the Contractor at such price and terms as may be
that the contractor will have determined, after appropriate exploration acceptable to the contractor. At the termination of this Agreement
works, which portions of the contract area do not contain minerals in such areas shall be sold by public auction or tender and the
commercial quantities sufficient to justify developing the same and Contractor shall be entitled to reimbursement of the costs of
ought therefore to be relinquished. The State cannot just substitute acquisition and maintenance, adjusted for inflation, from the
its judgment for that of the contractor and dictate upon the latter proceeds of sale.
which areas to give up.
According to petitioners, government becomes a subcontractor to
Moreover, we can be certain that the contractors self-interest will the contractor and may, on account of this provision, be compelled to
propel proper and efficient relinquishment. According to private make use of its power of eminent domain, not for public purposes but
respondent,[57] a mining company tries to relinquish as much non- on behalf of a private party, i.e., the contractor. Moreover, the power
mineral areas as soon as possible, because the annual occupation fees of the courts to determine the amount corresponding to the
paid to the government are based on the total hectarage of the contract constitutional requirement of just compensation has allegedly also
area, net of the areas relinquished. Thus, the larger the remaining area, been contracted away by the government, on account of the latters
the heftier the amount of occupation fees to be paid by the contractor.
commitment that the acquisition shall be at such terms as may be own and hold land. As such, it may therefore freely negotiate with the
acceptable to the contractor. surface rights owners and acquire the surface property in its own
right.
However, private respondent has proffered a logical explanation
for the provision.[58] Section 10.2(e) contemplates a situation Clearly, petitioners have needlessly jumped to unwarranted
applicable to foreign-owned corporations. WMCP, at the time of the conclusions, without being aware of the rationale for the said
execution of the FTAA, was a foreign-owned corporation and provision. That provision does not call for the exercise of the power
therefore not qualified to own land. As contractor, it has at some of eminent domain -- and determination of just compensation is not
future date to construct the infrastructure -- the mine processing an issue -- as much as it calls for a qualified party to acquire the
plant, the camp site, the tailings dam, and other infrastructure -- surface rights on behalf of a foreign-owned contractor.
needed for the large-scale mining operations. It will then have to
Rather than having the foreign contractor act through a dummy
identify and pinpoint, within the FTAA contract area, the particular
corporation, having the State do the purchasing is a better
surface areas with favorable topography deemed ideal for such
alternative. This will at least cause the government to be aware of
infrastructure and will need to acquire the surface rights. The State
such transaction/s and foster transparency in the contractors
owns the mineral deposits in the earth, and is also qualified to own
dealings with the local property owners. The government, then, will
land.
not act as a subcontractor of the contractor; rather, it will facilitate the
Section 10.2(e) sets forth the mechanism whereby the foreign- transaction and enable the parties to avoid a technical violation of the
owned contractor, disqualified to own land, identifies to the Anti-Dummy Law.
government the specific surface areas within the FTAA contract area
to be acquired for the mine infrastructure. The government then
acquires ownership of the surface land areas on behalf of the Absence of Provision
contractor, in order to enable the latter to proceed to fully implement Requiring Sale at Posted
the FTAA. Prices Not Problematic
The contractor, of course, shoulders the purchase price of the
land. Hence, the provision allows it, after termination of the FTAA, to The supposed absence of any provision in the WMCP FTAA
be reimbursed from proceeds of the sale of the surface areas, which directly and explicitly requiring the contractor to sell the mineral
the government will dispose of through public bidding. It should be products at posted or market prices is not a problem. Apart from
noted that this provision will not be applicable to Sagittarius as the Clause 1.4 of the FTAA obligating the contractor to account for the
present FTAA contractor, since it is a Filipino corporation qualified to total value of mineral production and the sale of minerals, we can
also look to Section 35 of RA 7942, which incorporates into all that can be applied to the repayment of loans. Banks even lend on
FTAAs certain terms, conditions and warranties, including the the security of accounts receivable that are collectible within 90
following: days.[59]
(l) The contractors shall furnish the Government records of geologic, It is not uncommon to find that a debtor corporation has executed
accounting and other relevant data for its mining operation, and deeds of assignment by way of security over the production for the
that books of accounts and records shall be open for inspection by the
government. x x x next twelve months and/or the proceeds of the sale thereof -- or the
corresponding accounts receivable, if sold on terms -- in favor of its
(m) Requiring the proponent to dispose of the minerals at the highest price
and more advantageous terms and conditions.
creditor-banks. Such deeds may include authorizing the creditors to
sell the products themselves and to collect the sales proceeds and/or
For that matter, Section 56(n) of DAO 99-56 specifically obligates the accounts receivable.
an FTAA contractor to dispose of the minerals and by-products at the
highest market price and to register with the MGB a copy of the sales Seen in this context, Clause 10.2(l) is not something out of the
agreement. After all, the provisions of prevailing statutes as well as ordinary or objectionable. In any case, as will be explained below,
rules and regulations are deemed written into contracts. even if it is allowed to mortgage or encumber the mineral end-
products themselves, the contractor is not freed of its obligation to
pay the government its basic and additional shares in the net mining
Contractors Right to Mortgage revenue, which is the essential thing to consider.
Not Objectionable Per Se In brief, the alarum raised over the contractors right to mortgage
the minerals is simply unwarranted. Just the same, the contractor
Petitioners also question the absolute right of the contractor must account for the value of mineral production and the sales
under Clause 10.2 (l) to mortgage and encumber not only its rights proceeds therefrom. Likewise, under the WMCP FTAA, the
and interests in the FTAA and the infrastructure and improvements government remains entitled to its sixty percent share in the net
introduced, but also the mineral products extracted. Private mining revenues of the contractor. The latters right to mortgage the
respondents do not touch on this matter, but we believe that this minerals does not negate the States right to receive its share of net
provision may have to do with the conditions imposed by the creditor- mining revenues.
banks of the then foreign contractor WMCP to secure the lendings
made or to be made to the latter. Ordinarily, banks lend not only on
the security of mortgages on fixed assets, but also on encumbrances Shareholders Free
of goods produced that can easily be sold and converted into cash to Sell Their Stocks
Petitioners likewise criticize Clause 10.2(k), which gives the obtain financing contemplated herein from banks or other financial
contractor authority to change its equity structure at any time. This institutions, (the Government shall) cooperate with the Contractor in
provision may seem somewhat unusual, but considering that WMCP such efforts provided that such financing arrangements will in no
then was 100 percent foreign-owned, any change would mean that event reduce the Contractors obligations or the Governments rights
such percentage would either stay unaltered or be decreased in favor hereunder. The colatilla obviously safeguards the States interests; if
of Filipino ownership. Moreover, the foreign-held shares may change breached, it will give the government cause to object to the proposed
hands freely. Such eventuality is as it should be. amendments.
We believe it is not necessary for government to attempt to limit On the other hand, Clause 10.4(i) provides that the Government
or restrict the freedom of the shareholders in the contractor to freely shall favourably consider any request from [the] Contractor for
transfer, dispose of or encumber their shareholdings, consonant with amendments of this Agreement which are necessary in order for the
the unfettered exercise of their business judgment and discretion. Contractor to successfully obtain the financing. Petitioners see in this
Rather, what is critical is that, regardless of the identity, nationality provision a complete renunciation of control. We disagree.
and percentage ownership of the various shareholders of the
The proviso does not say that the government shall grant any
contractor -- and regardless of whether these shareholders decide to
request for amendment. Clause 10.4(i) only obliges the State to
take the company public, float bonds and other fixed-income
favorably consider any such request, which is not at all
instruments, or allow the creditor-banks to take an equity position in
unreasonable, as it is not equivalent to saying that the government
the company -- the foreign-owned contractor is always in a position
must automatically consent to it. This provision should be read
to render the services required under the FTAA, under the direction
together with the rest of the FTAA provisions instituting government
and control of the government.
control and supervision over the mining enterprise. The clause
should not be given an interpretation that enables the contractor to
Contractors Right to Ask wiggle out of the restrictions imposed upon it by merely suggesting
For Amendment Not Absolute that certain amendments are requested by the lenders.
Rather, it is up to the contractor to prove to the government that
With respect to Clauses 10.4(e) and (i), petitioners complain that the requested changes to the FTAA are indispensable, as they
these provisions bind government to allow amendments to the FTAA enable the contractor to obtain the needed financing; that without
if required by banks and other financial institutions as part of the such contract changes, the funders would absolutely refuse to extend
conditions for new lendings. However, we do not find anything wrong the loan; that there are no other sources of financing available to the
with Clause 10.4(e), which only states that if the Contractor seeks to contractor (a very unlikely scenario); and that without the needed
financing, the execution of the work programs will not proceed. But Beneficial ownership has been defined as ownership recognized
the bottom line is, in the exercise of its power of control, the by law and capable of being enforced in the courts at the suit of the
government has the final say on whether to approve or disapprove beneficial owner.[61] Blacks Law Dictionary indicates that the term is
such requested amendments to the FTAA. In short, approval thereof used in two senses: first, to indicate the interest of a beneficiary in
is not mandatory on the part of the government. trust property (also called equitable ownership); and second, to refer
to the power of a corporate shareholder to buy or sell the shares,
In fine, the foregoing evaluation and analysis of the
though the shareholder is not registered in the corporations books as
aforementioned FTAA provisions sufficiently overturns
the owner.[62] Usually, beneficial ownership is distinguished from
petitioners litany of objections to and criticisms of the States
naked ownership, which is the enjoyment of all the benefits and
alleged lack of control.
privileges of ownership, as against possession of the bare title to
property.
Financial Benefits Not An assiduous examination of the WMCP FTAA uncovers no
Surrendered to the Contractor indication that it confers upon WMCP ownership, beneficial or
otherwise, of the mining property it is to develop, the minerals to be
One of the main reasons certain provisions of RA 7942 were produced, or the proceeds of their sale, which can be legally
struck down was the finding mentioned in the Decision that beneficial asserted and enforced as against the State.
ownership of the mineral resources had been conveyed to the As public respondents correctly point out, any interest the
contractor. This finding was based on the underlying assumption, contractor may have in the proceeds of the mining operation is
common to the said provisions, that the foreign contractor manages merely the equivalent of the consideration the government has
the mineral resources in the same way that foreign contractors in undertaken to pay for its services. All lawful contracts require such
service contracts used to. By allowing foreign contractors to manage mutual prestations, and the WMCP FTAA is no different. The
or operate all the aspects of the mining operation, the above-cited contractor commits to perform certain services for the government in
provisions of R.A. No. 7942 have in effect conveyed beneficial respect of the mining operation, and in turn it is to be compensated
ownership over the nations mineral resources to these contractors, out of the net mining revenues generated from the sale of mineral
leaving the State with nothing but bare title thereto.[60] As the WMCP products. What would be objectionable is a contractual provision that
FTAA contained similar provisions deemed by the ponente to be unduly benefits the contractor far in excess of the service rendered or
abhorrent to the Constitution, the Decision struck down the Contract value delivered, if any, in exchange therefor.
as well.
A careful perusal of the statute itself and its implementing rules with other mineral-producing countries. After the contractor has
reveals that neither RA 7942 nor DAO 99-56 can be said to convey recovered its initial investment, it will pay all the normal taxes and
beneficial ownership of any mineral resource or product to any fees comprising the basic share of the government, plus an
foreign FTAA contractor. additional share for the government based on the options and
formulae set forth in DAO 99-56.

Equitable Sharing The said DAO spells out the financial benefits the government will
of Financial Benefits receive from an FTAA, referred to as the Government Share,
composed of a basic government share and an additional
government share.
On the contrary, DAO 99-56, entitled Guidelines Establishing the
Fiscal Regime of Financial or Technical Assistance Agreements aims The basic government share is comprised of all direct taxes,
to ensure an equitable sharing of the benefits derived from mineral fees and royalties, as well as other payments made by the contractor
resources. These benefits are to be equitably shared among the during the term of the FTAA. These are amounts paid directly to (i)
government (national and local), the FTAA contractor, and the the national government (through the Bureau of Internal Revenue,
affected communities. The purpose is to ensure sustainable mineral Bureau of Customs, Mines & Geosciences Bureau and other national
resources development; and a fair, equitable, competitive and stable government agencies imposing taxes or fees), (ii) the local
investment regime for the large-scale exploration, development and government units where the mining activity is conducted, and (iii)
commercial utilization of minerals. The general framework or concept persons and communities directly affected by the mining project. The
followed in crafting the fiscal regime of the FTAA is based on the major taxes and other payments constituting the basic government
principle that the government expects real contributions to the share are enumerated below:[65]
economic growth and general welfare of the country, while the Payments to the National Government:
contractor expects a reasonable return on its investments in the
Excise tax on minerals - 2 percent of the gross output of mining
project.[63] operations
Specifically, under the fiscal regime, the governments expectation Contractor income tax - maximum of 32 percent of taxable income
is, inter alia, the receipt of its share from the taxes and fees normally for corporations
paid by a mining enterprise. On the other hand, the FTAA contractor Customs duties and fees on imported capital equipment -the rate is
is granted by the government certain fiscal and non-fiscal set by the Tariff and Customs Code (3-7 percent for chemicals; 3-10
incentives[64] to help support the formers cash flow during the most percent for explosives; 3-15 percent for mechanical and electrical
equipment; and 3-10 percent for vehicles, aircraft and vessels
critical phase (cost recovery) and to make the Philippines competitive
VAT on imported equipment, goods and services 10 percent of value Other Payments:
Royalties due the government on minerals extracted from mineral Royalty to indigenous cultural communities, if any 1 percent of gross
reservations, if applicable 5 percent of the actual market value of the output from mining operations
minerals produced
Special allowance - payment to claim owners and surface rights
Documentary stamp tax - the rate depends on the type of transaction holders
Capital gains tax on traded stocks - 5 to 10 percent of the value of Apart from the basic share, an additional government share is
the shares
also collected from the FTAA contractor in accordance with the
Withholding tax on interest payments on foreign loans -15 percent of second paragraph of Section 81 of RA 7942, which provides that the
the amount of interest
government share shall be comprised of, among other things, certain
Withholding tax on dividend payments to foreign stockholders 15 taxes, duties and fees. The subject proviso reads:
percent of the dividend
Wharfage and port fees The Government share in a financial or technical assistance agreement
Licensing fees (for example, radio permit, firearms permit, shall consist of, among other things, the contractors corporate income tax,
professional fees) excise tax, special allowance, withholding tax due from the contractors
Other national taxes and fees.
foreign stockholders arising from dividend or interest payments to the said
foreign stockholder in case of a foreign national, and all such other taxes,
Payments to Local Governments: duties and fees as provided for under existing laws. (Bold types supplied.)
Local business tax - a maximum of 2 percent of gross sales or
receipts (the rate varies among local government units) The government, through the DENR and the MGB, has
Real property tax - 2 percent of the fair market value of the property, interpreted the insertion of the phrase among other things as
based on an assessment level set by the local government signifying that the government is entitled to an additional government
share to be paid by the contractor apart from the basic share, in
Special education levy - 1 percent of the basis used for the real
property tax order to attain a fifty-fifty sharing of net benefits from mining.
Occupation fees - PhP50 per hectare per year; PhP100 per hectare The additional government share is computed by using one of
per year if located in a mineral reservation three options or schemes presented in DAO 99-56: (1) a fifty-fifty
Community tax - maximum of PhP10,500 per year sharing in the cumulative present value of cash flows; (2) the share
based on excess profits; and (3) the sharing based on the cumulative
All other local government taxes, fees and imposts as of the effective
date of the FTAA - the rate and the type depend on the local net mining revenue. The particular formula to be applied will be
government selected by the contractor, with a written notice to the government
prior to the commencement of the development and construction the Solicitor General, in its Motion for Reconsideration, appears to
phase of the mining project.[66] have erroneously claimed that the phrase refers to indirect taxes.
Proceeds from the government shares arising from an FTAA The law provides no definition of the term among other things, for
contract are distributed to and received by the different levels of the reason that Congress deliberately avoided setting unnecessary
government in the following proportions: limitations as to what may constitute compensation to the State for
the exploitation and use of mineral resources. But the inclusion of
National Government 50 percent
that phrase clearly and unmistakably reveals the legislative intent to
Provincial Government 10 percent
have the State collect more than just the usual taxes, duties and
Municipal Government 20 percent
fees. Certainly, there is nothing in that phrase -- or in the second
Affected Barangays 20 percent
paragraph of Section 81 -- that would suggest that such phrase
The portion of revenues remaining after the deduction of the should be interpreted as referring only to taxes, duties, fees and the
basic and additional government shares is what goes to the like.
contractor.
Precisely for that reason, to fulfill the legislative intent behind the
inclusion of the phrase among other things in the second paragraph
Governments Share in an of Section 81,[67] the DENR structured and formulated in DAO 99-56
FTAA Not Consisting Solely the said additional government share. Such a share was to consist
of Taxes, Duties and Fees not of taxes, but of a share in the earnings or cash flows of the
mining enterprise. The additional government share was to be paid
by the contractor on top of the basic share, so as to achieve a fifty-
In connection with the foregoing discussion on the basic and fifty sharing -- between the government and the contractor -- of net
additional government shares, it is pertinent at this juncture to benefits from mining. In the Ramos-DeVera paper, the explanation of
mention the criticism leveled at the second paragraph of Section 81 the three options or formulas[68] -- presented in DAO 99-56 for the
of RA 7942, quoted earlier. The said proviso has been denounced, computation of the additional government share -- serves to debunk
because, allegedly, the States share in FTAAs with foreign the claim that the governments take from an FTAA consists solely of
contractors has been limited to taxes, fees and duties only; in effect, taxes, fees and duties.
the State has been deprived of a share in the after-tax income of the
enterprise. In the face of this allegation, one has to consider that the Unfortunately, the Office of the Solicitor General -- although in
law does not define the term among other things; and the Office of possession of the relevant data -- failed to fully replicate or echo the
pertinent elucidation in the Ramos-DeVera paper regarding the three
schemes or options for computing the additional government share As used above, net mining revenue is defined as the gross output
presented in DAO 99-56. Had due care been taken by the OSG, the from mining operations for a calendar year, less deductible expenses
Court would have been duly apprised of the real nature and (inclusive of taxes, duties and fees). Such revenue would roughly be
particulars of the additional share. equivalent to taxable income or income before income tax. Definitely,
as compared with, say, calculating the additional government
But, perhaps, on account of the esoteric discussion in the
share on the basis of net income (after income tax), the net mining
Ramos-DeVera paper, and the even more abstruse mathematical
revenue is a better and much more reasonable basis for such
jargon employed in DAO 99-56, the OSG omitted any mention of the
computation, as it gives a truer picture of the profitability of the
three options. Instead, the OSG skipped to a side discussion of the
company.
effect of indirect taxes, which had nothing at all to do with the
additional government share, to begin with. Unfortunately, this move To demonstrate that the three options or formulations will operate
created the wrong impression, pointed out in Justice Antonio T. as intended, Messrs. Ramos and de Vera also performed some
Carpios Opinion, that the OSG had taken the position that the quantifications of the government share via a financial modeling of
additional government share consisted of indirect taxes. each of the three options discussed above. They found that the
government would get the highest share from the option that is based
In any event, what is quite evident is the fact that the additional
on the net mining revenue, as compared with the other two options,
government share, as formulated, has nothing to do with taxes --
considering only the basic and the additional shares; and that, even
direct or indirect -- or with duties, fees or charges. To repeat, it is
though production rate decreases, the government share will actually
over and above the basic government share composed of taxes and
increase when the net mining revenue and the additional profit-based
duties. Simply put, the additional share may be (a) an amount that
options are used.
will result in a 50-50 sharing of the cumulative present value of
the cash flows[69] of the enterprise; (b) an amount equivalent to 25 Furthermore, it should be noted that the three options or
percent of the additional or excess profits of the enterprise, reckoned formulae do not yet take into account the indirect taxes[70] and other
against a benchmark return on investments; or (c) an amount that will financial contributions[71] of mining projects. These indirect taxes and
result in a fifty-fifty sharing of the cumulative net mining revenue from other contributions are real and actual benefits enjoyed by the
the end of the recovery period up to the taxable year in question. The Filipino people and/or government. Now, if some of the quantifiable
contractor is required to select one of the three options or formulae items are taken into account in the computations, the financial
for computing the additional share, an option it will apply to all of its modeling would show that the total government share increases to
mining operations. 60 percent or higher -- in one instance, as much as 77 percent and
even 89 percent -- of the net present value of total benefits from the
project. As noted in the Ramos-DeVera paper, these results are not
at all shabby, considering that the contractor puts in all the capital will have that innate flexibility to adjust to and cope with rapidly
requirements and assumes all the risks, without the government changing circumstances, particularly those in the international
having to contribute or risk anything. markets. Such flexibility is especially significant for the government in
terms of helping our mining enterprises remain competitive in world
Despite the foregoing explanation, Justice Carpio still insisted
markets despite challenging and shifting economic scenarios.
during the Courts deliberations that the phrase among other
things refers only to taxes, duties and fees. We are bewildered by his In conclusion, we stress that we do not share the view that in
position. On the one hand, he condemns the Mining Law for allegedly FTAAs with foreign contractors under RA 7942, the
limiting the governments benefits only to taxes, duties and fees; and governments share is limited to taxes, fees and duties.
on the other, he refuses to allow the State to benefit from the correct Consequently, we find the attacks on the second paragraph of
and proper interpretation of the DENR/MGB. To remove all doubts Section 81 of RA 7942 totally unwarranted.
then, we hold that the States share is not limited to taxes, duties and
fees only and that the DENR/MGB interpretation of the
phrase among other things is correct. Definitely, this DENR/MGB Collections Not Made Uncertain
interpretation is not only legally sound, but also greatly advantageous by the Third Paragraph of Section 81
to the government.
One last point on the subject. The legislature acted judiciously in The third or last paragraph of Section 81[72] provides that the
not defining the terms among other things and, instead, leaving it to government share in FTAAs shall be collected when the contractor
the agencies concerned to devise and develop the various modes of shall have recovered its pre-operating expenses and exploration and
arriving at a reasonable and fair amount for the additional development expenditures. The objection has been advanced that,
government share. As can be seen from DAO 99-56, the agencies on account of the proviso, the collection of the States share is not
concerned did an admirable job of conceiving and developing not just even certain, as there is no time limit in RA 7942 for this grace period
one formula, but three different formulae for arriving at the additional or recovery period.
government share. Each of these options is quite fair and We believe that Congress did not set any time limit for the grace
reasonable; and, as Messrs. Ramos and De Vera stated, other period, preferring to leave it to the concerned agencies, which are, on
alternatives or schemes for a possible improvement of the fiscal account of their technical expertise and training, in a better position
regime for FTAAs are also being studied by the government. to determine the appropriate durations for such recovery periods.
Besides, not locking into a fixed definition of the term among After all, these recovery periods are determined, to a great extent, by
other things will ultimately be more beneficial to the government, as it technical and technological factors peculiar to the mining industry.
Besides, with developments and advances in technology and in the reads: Any expenditure in excess of the yearly budget of
geosciences, we cannot discount the possibility of shorter recovery the approved work program may be carried forward and credited to
periods. At any rate, the concerned agencies have not been remiss the succeeding years covering the duration of the permit. x x
in this area. The 1995 and 1996 Implementing Rules and x. (underscoring supplied)
Regulations of RA 7942 specify that the period of recovery, reckoned
Clearly, even at the stage of application for an exploration permit,
from the date of commercial operation, shall be for a period not
the applicant is required to submit -- for approval by the government -
exceeding five years, or until the date of actual recovery, whichever
- a proposed work program for exploration, containing a yearly
comes earlier.
budget of proposed expenditures. The State has the opportunity to
pass upon (and approve or reject) such proposed expenditures, with
Approval of Pre-Operating the foreknowledge that -- if approved -- these will subsequently be
Expenses Required by RA 7942 recorded as pre-operating expenses that the contractor will have to
recoup over the grace period. That is not all.

Still, RA 7942 is criticized for allegedly not requiring government Under Section 24, an exploration permit holder who determines
approval of pre-operating, exploration and development expenses of the commercial viability of a project covering a mining area may,
the foreign contractors, who are in effect given unfettered discretion within the term of the permit, file with the Mines and Geosciences
to determine the amounts of such expenses. Supposedly, nothing Bureau a declaration of mining project feasibility. This declaration is
prevents the contractors from recording such expenses in amounts to be accompanied by a work program for development for the
equal to the mining revenues anticipated for the first 10 or 15 years Bureaus approval, the necessary prelude for entering into an FTAA,
of commercial production, with the result that the share of the State a mineral production sharing agreement (MPSA), or some other
will be zero for the first 10 or 15 years. Moreover, under the mineral agreement. At this stage, too, the government obviously has
circumstances, the government would be unable to say when it the opportunity to approve or reject the proposed work program and
would start to receive its share under the FTAA. budgeted expenditures for development works on the project. Such
expenditures will ultimately become the pre-operating and
We believe that the argument is based on incorrect information development costs that will have to be recovered by the contractor.
as well as speculation. Obviously, certain crucial provisions in the
Mining Law were overlooked. Section 23, dealing with the rights and Naturally, with the submission of approved work programs and
obligations of the exploration permit grantee, states: The permittee budgets for the exploration and the development/construction
shall undertake exploration work on the area as specified by its phases, the government will be able to scrutinize and approve or
permit based on an approved work program. The next proviso reject such expenditures. It will be well-informed as to the amounts of
pre-operating and other expenses that the contractor may No Deprivation of
legitimately recover and the approximate period of time needed to Beneficial Rights
effect such a recovery. There is therefore no way the contractor can
just randomly post any amount of pre-operating expenses and expect It is also claimed that aside from the second and the third
to recover the same. paragraphs of Section 81 (discussed above), Sections 80, 84 and
The aforecited provisions on approved work programs and 112 of RA 7942 also operate to deprive the State of beneficial rights
budgets have counterparts in Section 35, which deals with the terms of ownership over mineral resources; and give them away for free to
and conditions exclusively applicable to FTAAs. The said provision private business enterprises (including foreign owned corporations).
requires certain terms and conditions to be incorporated into FTAAs; Likewise, the said provisions have been construed as constituting,
among them, a firm commitment x x x of an amount corresponding to together with Section 81, an ingenious attempt to resurrect the old
the expenditure obligation that will be invested in the contract and discredited system of license, concession or lease.
area and representations and warranties x x x to timely deploy Specifically, Section 80 is condemned for limiting the States
these [financing, managerial and technical expertise and share in a mineral production-sharing agreement (MPSA) to just the
technological] resources under its supervision pursuant to excise tax on the mineral product. Under Section 151(A) of the Tax
the periodic work programs and related budgets x x x, as well Code, such tax is only 2 percent of the market value of the gross
as work programs and minimum expenditures output of the minerals. The colatilla in Section 84, the portion
commitments. (underscoring supplied) considered offensive to the Constitution, reiterates the same
Unarguably, given the provisions of Section 35, the State has limitation made in Section 80.[73]
every opportunity to pass upon the proposed expenditures under an It should be pointed out that Section 80 and the colatilla in
FTAA and approve or reject them. It has access to all the information Section 84 pertain only to MPSAs and have no application to FTAAs.
it may need in order to determine in advance the amounts of pre- These particular statutory provisions do not come within the issues
operating and developmental expenses that will have to be that were defined and delineated by this Court during the Oral
recovered by the contractor and the amount of time needed for such Argument -- particularly the third issue, which pertained exclusively to
recovery. FTAAs. Neither did the parties argue upon them in their pleadings.
In summary, we cannot agree that the third or last paragraph Hence, this Court cannot make any pronouncement in this
of Section 81 of RA 7942 is in any manner unconstitutional. case regarding the constitutionality of Sections 80 and 84 without
violating the fundamental rules of due process. Indeed, the two
provisos will have to await another case specifically placing them in 7942. On the other hand, FTAAs are covered by and in fact are the
issue. subject of Chapter VI, an entirely different chapter altogether. The
law obviously intends to treat them as a breed apart from mineral
On the other hand, Section 112[74] is disparaged for allegedly
agreements, since Section 35 (found in Chapter VI) creates a long
reverting FTAAs and all mineral agreements to the old and
list of specific terms, conditions, commitments, representations and
discredited license, concession or lease system. This Section states
warranties -- which have not been made applicable to mineral
in relevant part that the provisions of Chapter XIV [which includes
agreements -- to be incorporated into FTAAs.
Sections 80 to 82] on government share in mineral production-
sharing agreement x x x shall immediately govern and apply to a Third, under Section 39, the FTAA contractor is given the option
mining lessee or contractor. (underscoring supplied) This provision is to downgrade -- to convert the FTAA into a mineral agreement at any
construed as signifying that the 2 percent excise tax which, pursuant time during the term if the economic viability of the contract area is
to Section 80, comprises the government share in MPSAs shall now inadequate to sustain large-scale mining operations. Thus, there is
also constitute the government share in FTAAs -- as well as in co- no reason to think that the law through Section 112 intends to exact
production agreements and joint venture agreements -- to the from FTAA contractors merely the same government share (a 2
exclusion of revenues of any other nature or from any other source. percent excise tax) that it apparently demands from contractors
under the three forms of mineral agreements. In brief, Section 112
Apart from the fact that Section 112 likewise does not come
does not apply to FTAAs.
within the issues delineated by this Court during the Oral Argument,
and was never touched upon by the parties in their pleadings, it must Notwithstanding the foregoing explanation, Justices Carpio and
also be noted that the criticism hurled against this Section is rooted in Morales maintain that the Court must rule now on the constitutionality
unwarranted conclusions made without considering other relevant of Sections 80, 84 and 112, allegedly because the WMCP FTAA
provisions in the statute. Whether Section 112 may properly apply to contains a provision which grants the contractor unbridled and
co-production or joint venture agreements, the fact of the matter is automatic authority to convert the FTAA into an MPSA; and should
that it cannot be made to apply to FTAAs. such conversion happen, the State would be prejudiced since its
share would be limited to the 2 percent excise tax. Justice Carpio
First, Section 112 does not specifically mention or refer to FTAAs;
adds that there are five MPSAs already signed just awaiting the
the only reason it is being applied to them at all is the fact that it
judgment of this Court on respondents and intervenors Motions for
happens to use the word contractor. Hence, it is a bit of a stretch to
Reconsideration. We hold however that, at this point, this argument
insist that it covers FTAAs as well. Second, mineral agreements, of
is based on pure speculation. The Court cannot rule on mere
which there are three types -- MPSAs, co-production agreements,
surmises and hypothetical assumptions, without firm factual anchor.
and joint venture agreements -- are covered by Chapter V of RA
We repeat: basic due process requires that we hear the parties who
have a real legal interest in the MPSAs (i.e. the parties who executed It must likewise prove that its new findings, also based on scientific
them) before these MPSAs can be reviewed, or worse, struck down tests and procedures, are correct. Right away, this puts the
by the Court. Anything less than that requirement would be arbitrary contractors technical capabilities and expertise into serious doubt.
and capricious. We wonder if anyone would relish being in this situation. The State
could even question and challenge the contractors qualification and
In any event, the conversion of the present FTAA into an MPSA
competence to continue the activity under an MPSA.
is problematic. First, the contractor must comply with the law,
particularly Section 39 of RA 7942; inter alia, it must convincingly All in all, while there may be cogent grounds to assail the
show that the economic viability of the contract is found to be aforecited Sections, this Court -- on considerations of due
inadequate to justify large-scale mining operations; second, it must process -- cannot rule upon them here. Anyway, if later on these
contend with the Presidents exercise of the power of State control Sections are declared unconstitutional, such declaration will not
over the EDU of natural resources; and third, it will have to risk a affect the other portions since they are clearly separable from
possible declaration of the unconstitutionality (in a proper case) of the rest.
Sections 80, 84 and 112.
The first requirement is not as simple as it looks. Section 39 Our Mineral Resources Not
contemplates a situation in which an FTAA has already Given Away for Free by RA 7942
been executed and entered into, and is presumably being
implemented, when the contractor discovers that the mineral ore
reserves in the contract area are not sufficient to justify large-scale Nevertheless, if only to disabuse our minds, we should address
mining, and thus the contractor requests the conversion of the FTAA the contention that our mineral resources are effectively given away
into an MPSA. The contractor in effect needs to explain why, despite for free by the law (RA 7942) in general and by Sections 80, 81, 84
its exploration activities, including the conduct of various geologic and 112 in particular.
and other scientific tests and procedures in the contract area, it was Foreign contractors do not just waltz into town one day and leave
unable to determine correctly the mineral ore reserves and the the next, taking away mineral resources without paying anything. In
economic viability of the area. The contractor must explain why, after order to get at the minerals, they have to invest huge sums of money
conducting such exploration activities, it decided to file a declaration (tens or hundreds of millions of dollars) in exploration works first. If
of mining feasibility, and to apply for an FTAA, thereby leading the the exploration proves unsuccessful, all the cash spent thereon will
State to believe that the area could sustain large-scale mining. The not be returned to the foreign investors; rather, those funds will have
contractor must justify fully why its earlier findings, based on scientific been infused into the local economy, to remain there permanently.
procedures, tests and data, turned out to be wrong, or were way off.
The benefits therefrom cannot be simply ignored. And assuming that It must be noted that there can be no recovery without
the foreign contractors are successful in finding ore bodies that are commencing actual commercial production. In the meantime that the
viable for commercial exploitation, they do not just pluck out the contractors are recouping costs, they need to continue operating; in
minerals and cart them off. They have first to build camp sites and order to do so, they have to disburse money to meet their various
roadways; dig mine shafts and connecting tunnels; prepare tailing needs. In short, money is continually infused into the economy.
ponds, storage areas and vehicle depots; install their machinery and
The foregoing discussion should serve to rid us of the mistaken
equipment, generator sets, pumps, water tanks and sewer systems,
belief that, since the foreign contractors are allowed to recover their
and so on.
investments and costs, the end result is that they practically get the
In short, they need to expend a great deal more of their funds for minerals for free, which leaves the Filipino people none the better for
facilities, equipment and supplies, fuel, salaries of local labor and it.
technical staff, and other operating expenses. In the meantime, they
also have to pay taxes,[75] duties, fees, and royalties. All told, the
exploration, pre-feasibility, feasibility, development and construction All Businesses Entitled
phases together add up to as many as eleven years.[76] The to Cost Recovery
contractors have to continually shell out funds for the duration of over
a decade, before they can commence commercial production from Let it be put on record that not only foreign contractors, but all
which they would eventually derive revenues. All that money businessmen and all business entities in general, have to recoup
translates into a lot of pump-priming for the local economy. their investments and costs. That is one of the first things a student
Granted that the contractors are allowed subsequently to recover learns in business school. Regardless of its nationality, and whether
their pre-operating expenses, still, that eventuality will happen only or not a business entity has a five-year cost recovery period, it will --
after they shall have first put out the cash and fueled the economy. must -- have to recoup its investments, one way or another. This is
Moreover, in the process of recouping their investments and costs, just common business sense. Recovery of investments is absolutely
the foreign contractors do not actually pull out the money from the indispensable for business survival; and business survival ensures
economy. Rather, they recover or recoup their investments out of soundness of the economy, which is critical and contributory to the
actual commercial production by not paying a portion of the basic general welfare of the people. Even government corporations must
government share corresponding to national taxes, along with the recoup their investments in order to survive and continue in
additional government share, for a period of not more than five operation. And, as the preceding discussion has shown, there is no
years[77] counted from the commencement of commercial production. business that gets ahead or earns profits without any cost to it.
It must also be stressed that, though the State owns vast mineral hand, in order to avoid leaping precipitately to ill-conceived
wealth, such wealth is not readily accessible or transformable into conclusions not solidly grounded upon fact.
usable and negotiable currency without the intervention of the
credible mining companies. Those untapped mineral resources,
hidden beneath tons of earth and rock, may as well not be there for Repatriation of
all the good they do us right now. They have first to be extracted and After-Tax Income
converted into marketable form, and the country needs the foreign
contractors funds, technology and know-how for that. Another objection points to the alleged failure of the Mining Law
After about eleven years of pre-operation and another five years to ensure real contributions to the economic growth and general
for cost recovery, the foreign contractors will have just broken even. welfare of the country, as mandated by Section 2 of Article XII of the
Is it likely that they would at that point stop their operations and Constitution. Pursuant to Section 81 of the law, the entire after-tax
leave? Certainly not. They have yet to make profits. Thus, for the income arising from the exploitation of mineral resources owned by
remainder of the contract term, they must strive to maintain the State supposedly belongs to the foreign contractors, which will
profitability. During this period, they pay the whole of the basic naturally repatriate the said after-tax income to their home countries,
government share and the additional government share which, taken thereby resulting in no real contribution to the economic growth of
together with indirect taxes and other contributions, amount to this country. Clearly, this contention is premised on erroneous
approximately 60 percent or more of the entire financial benefits assumptions.
generated by the mining venture. First, as already discussed in detail hereinabove, the concerned
In sum, we can hardly talk about foreign contractors taking our agencies have correctly interpreted the second paragraph of Section
mineral resources for free. It takes a lot of hard cash to even begin to 81 of RA 7942 to mean that the government is entitled to an
do what they do. And what they do in this country ultimately benefits additional share, to be computed based on any one of the following
the local economy, grows businesses, generates employment, and factors: net mining revenues, the present value of the cash flows, or
creates infrastructure, as discussed above. Hence, we definitely excess profits reckoned against a benchmark rate of return on
disagree with the sweeping claim that no FTAA under Section 81 will investments. So it is not correct to say that all of the after-tax income
ever make any real contribution to the growth of the economy or to will accrue to the foreign FTAA contractor, as the
the general welfare of the country. This is not a plea for foreign government effectively receives a significant portion thereof.
contractors. Rather, this is a question of focusing the judicial spotlight Second, the foreign contractors can hardly repatriate the entire
squarely on all the pertinent facts as they bear upon the issue at after-tax income to their home countries. Even a bit of knowledge of
corporate finance will show that it will be impossible to maintain a requirement that at least 60 percent of the capital, and hence 60
business as a going concern if the entire net profit earned in any percent of the income, of mining companies should remain in Filipino
particular year will be taken out and repatriated. The net income hands.
figure reflected in the bottom line is a mere accounting figure not
First, we fail to see how we can properly conclude that the
necessarily corresponding to cash in the bank, or other quick assets.
Constitution mandates the State to extract at least 60 percent of the
In order to produce and set aside cash in an amount equivalent to
after-tax income from a mining company run by a foreign contractor.
the bottom line figure, one may need to sell off assets or immediately
The argument is that the Charter requires the States partner in a co-
collect receivables or liquidate short-term investments; but doing so
production agreement, joint venture agreement or MPSA to be a
may very likely disrupt normal business operations.
Filipino corporation (at least 60 percent owned by Filipino citizens).
In terms of cash flows, the funds corresponding to the net income
We question the logic of this reasoning, premised on a
as of a particular point in time are actually in use in the normal
supposedly parallel or analogous situation. We are, after all, dealing
course of business operations. Pulling out such net income disrupts
with an essentially different equation, one that involves different
the cash flows and cash position of the enterprise and, depending on
elements. The Charter did not intend to fix an iron-clad rule on
the amount being taken out, could seriously cripple or endanger the
the 60 percent share, applicable to all situations at all times and
normal operations and financial health of the business enterprise. In
in all circumstances. If ever such was the intention of the framers,
short, no sane business person, concerned with maintaining the
they would have spelt it out in black and white. Verba legis will serve
mining enterprise as a going concern and keeping a foothold in
to dispel unwarranted and untenable conclusions.
its market, can afford to repatriate the entire after-tax income to
the home country. Second, if we would bother to do the math, we might better
appreciate the impact (and reasonableness) of what we are
demanding of the foreign contractor. Let us use
The States Receipt of Sixty a simplifiedillustration. Let us base it on gross revenues of,
Percent of an FTAA Contractors say, P500. After deducting operating expenses, but prior to income
After-Tax Income Not Mandatory tax, suppose a mining firm makes a taxable income of P100. A
corporate income tax of 32 percent results in P32 of taxable income
We now come to the next objection which runs this way: In going to the government, leaving the mining firm with P68.
FTAAs with a foreign contractor, the State must receive at least 60 Government then takes 60 percent thereof, equivalent to P40.80,
percent of the after-tax income from the exploitation of its mineral leaving only P27.20 for the mining firm.
resources. This share is the equivalent of the constitutional
At this point the government has pocketed P32.00 plus P40.80, machineries and expend funds to dig and build tunnels in order to
or a total of P72.80 for every P100 of taxable income, leaving the access and extract the minerals from underneath hundreds of tons of
mining firm with only P27.20. But that is not all. The government has earth and rock.
also taken 2 percent excise tax off the top, equivalent to another P10.
As already stated, the numerous intrinsic differences involved in
Under the minimum 60 percent proposal, the government nets
their respective operations and requirements, cost structures and
around P82.80 (not counting other taxes, duties, fees and charges)
investment needs render it highly inappropriate to use petroleum
from a taxable income of P100 (assuming gross revenues of P500,
operations FTAAs as benchmarks for mining FTAAs. Verily, we
for purposes of illustration). On the other hand, the foreign
cannot just ignore the realities of the distinctly different situations and
contractor, which provided all the capital, equipment and labor, and
stubbornly insist on the minimum 60 percent.
took all the entrepreneurial risks -- receives P27.20. One cannot but
wonder whether such a distribution is even remotely equitable and
reasonable, considering the nature of the mining business. The The Mining and the Oil Industries
amount of P82.80 out of P100.00 is really a lot it does not matter that Different From Each Other
we call part of it excise tax or income tax, and another portion
thereof income from exploitation of mineral resources. Some might
think it wonderful to be able to take the lions share of the benefits. To stress, there is no independent showing that the taking of at
But we have to ask ourselves if we are really serious in attracting the least a 60 percent share in the after-tax income of a mining company
investments that are the indispensable and key element in operated by a foreign contractor is fair and reasonable under most if
generating the monetary benefits of which we wish to take the lions not all circumstances. The fact that some petroleum companies like
share. Fairness is a credo not only in law, but also in business. Shell acceded to such percentage of sharing does not ipso facto
mean that it is per se reasonable and applicable to non-petroleum
Third, the 60 percent rule in the petroleum industry cannot be situations (that is, mining companies) as well. We can take judicial
insisted upon at all times in the mining business. The reason notice of the fact that there are, after all, numerous intrinsic
happens to be the fact that in petroleum operations, the bulk of differences involved in their respective operations and equipment or
expenditures is in exploration, but once the contractor has found and technological requirements, costs structures and capital investment
tapped into the deposit, subsequent investments and expenditures needs, and product pricing and markets.
are relatively minimal. The crude (or gas) keeps gushing out, and the
work entailed is just a matter of piping, transporting and storing. Not There is no showing, for instance, that mining companies can
so in mineral mining. The ore body does not pop out on its own. Even readily cope with a 60 percent government share in the same way
after it has been located, the contractor must continually invest in petroleum companies apparently can. What we have is a suggestion
to enforce the 60 percent quota on the basis of a disjointed analogy. To stress again, the main risk in gas and oil is in the exploration.
The only factor common to the two disparate situations is the But once oil in commercial quantities is struck and the wells are put
extraction of natural resources. in place, the risk is relatively over and black gold simply flows out
continuously with comparatively less need for fresh investments and
Indeed, we should take note of the fact that Congress made a
technology.
distinction between mining firms and petroleum companies. In
Republic Act No. 7729 -- An Act Reducing the Excise Tax Rates on On the other hand, even if minerals are found in viable quantities,
Metallic and Non-Metallic Minerals and Quarry Resources, Amending there is still need for continuous fresh capital and expertise to dig the
for the Purpose Section 151(a) of the National Internal Revenue mineral ores from the mines. Just because deposits of mineral ores
Code, as amended -- the lawmakers fixed the excise tax rate on are found in one area is no guarantee that an equal amount can be
metallic and non-metallic minerals at two percent of the actual market found in the adjacent areas. There are simply continuing risks and
value of the annual gross output at the time of removal. However, in need for more capital, expertise and industry all the time.
the case of petroleum, the lawmakers set the excise tax rate for the
Note, however, that the indirect benefits -- apart from the cash
first taxable sale at fifteen percent of the fair international market
revenues -- are much more in the mineral industry. As mines are
price thereof.
explored and extracted, vast employment is created, roads and other
There must have been a very sound reason that impelled infrastructure are built, and other multiplier effects arise. On the other
Congress to impose two very dissimilar excise tax rate. We cannot hand, once oil wells start producing, there is less need for
assume, without proof, that our honorable legislators acted arbitrarily, employment. Roads and other public works need not be constructed
capriciously and whimsically in this instance. We cannot just ignore continuously. In fine, there is no basis for saying that government
the reality of two distinctly different situations and stubbornly insist on revenues from the oil industry and from the mineral industries are to
going minimum 60 percent. be identical all the time.
To repeat, the mere fact that gas and oil exploration contracts Fourth, to our mind, the proffered minimum 60 percent
grant the State 60 percent of the net revenues does not necessarily suggestion tends to limit the flexibility and tie the hands of
imply that mining contracts should likewise yield a minimum of 60 government, ultimately hampering the countrys competitiveness in
percent for the State. Jumping to that erroneous conclusion is like the international market, to the detriment of the Filipino people. This
comparing apples with oranges. The exploration, development and you-have-to-give-us-60-percent-of-after-tax-income-or-we-dont-do-
utilization of gas and oil are simply different from those of mineral business-with-you approach is quite perilous. True, this situation may
resources. not seem too unpalatable to the foreign contractor during good years,
when international market prices are up and the mining firm manages
to keep its costs in check. However, under unfavorable economic circumstances, even if it means agreeing to less than 60 percent.
and business conditions, with costs spiraling skywards and minerals Nothing must prevent the State from agreeing to a share less than
prices plummeting, a mining firm may consider itself lucky to make that, should it be deemed fit; otherwise the State will be deprived of
just minimal profits. full control over mineral exploitation that the Charter has vested in it.
The inflexible, carved-in-granite demand for a 60 percent To stress again, there is simply no constitutional or legal
government share may spell the end of the mining venture, scare provision fixing the minimum share of the government in an FTAA at
away potential investors, and thereby further worsen the already 60 percent of the net profit. For this Court to decree such minimum is
dismal economic scenario. Moreover, such an unbending or to wade into judicial legislation, and thereby inordinately impinge on
unyielding policy prevents the government from responding the control power of the State. Let it be clear: the Court is not against
appropriately to changing economic conditions and shifting market the grant of more benefits to the State; in fact, the more the better. If
forces. This inflexibility further renders our country less attractive as during the FTAA negotiations, the President can secure 60
an investment option compared with other countries. percent,[78] or even 90 percent, then all the better for our people. But,
if under the peculiar circumstances of a specific contract, the
And fifth, for this Court to decree imperiously that the
President could secure only 50 percent or 55 percent, so be it.
governments share should be not less than 60 percent of the after-
Needless to say, the President will have to report (and be
tax income of FTAA contractors at all times is nothing short of
responsible for) the specific FTAA to Congress, and eventually to the
dictating upon the government. The result, ironically, is that the State
people.
ends up losing control. To avoid compromising the States full control
and supervision over the exploitation of mineral resources, this Court Finally, if it should later be found that the share agreed to
must back off from insisting upon a minimum 60 percent rule. It is is grossly disadvantageous to the government, the officials
sufficient that the State has the power and means, should it so responsible for entering into such a contract on its behalf will have to
decide, to get a 60 percent share (or more) in the contractors net answer to the courts for their malfeasance. And the contract
mining revenues or after-tax income, or whatever other basis the provision voided. But this Court would abuse its own authority should
government may decide to use in reckoning its share. It is not it force the governments hand to adopt the 60 percent demand of
necessary for it to do so in every case, regardless of circumstances. some of our esteemed colleagues.
In fact, the government must be trusted, must be accorded the
liberty and the utmost flexibility to deal, negotiate and transact with Capital and Expertise Provided,
contractors and third parties as it sees fit; and upon terms that it Yet All Risks Assumed by Contractor
ascertains to be most favorable or most acceptable under the
Here, we will repeat what has not been emphasized and exploration works, before arriving at the point in which it can make
appreciated enough: the fact that the contractor in an FTAA provides that determination and decide to cut its losses. In fact, during
all the needed capital, technical and managerial expertise, and the first year alone of the exploration period, the contractor was
technology required to undertake the project. already committed to spend not less than P24 million. The FTAA
therefore clearly ensures benefits for the local economy, courtesy of
In regard to the WMCP FTAA, the then foreign-owned WMCP as
the contractor.
contractor committed, at the very outset, to make capital investments
of up to US$50 million in that single mining project. WMCP claims to All in all, this setup cannot be regarded as disadvantageous
have already poured in well over P800 million into the country as of to the State or the Filipino people; it certainly cannot be said to
February 1998, with more in the pipeline. These resources, valued in convey beneficial ownership of our mineral resources to foreign
the tens or hundreds of millions of dollars, are invested in a mining contractors.
project that provides no assurance whatsoever that any part of the
investment will be ultimately recouped.
Deductions Allowed by the
At the same time, the contractor must comply with legally WMCP FTAA Reasonable
imposed environmental standards and the social obligations, for
which it also commits to make significant expenditures of funds.
Throughout, the contractor assumes all the risks[79] of the business, Petitioners question whether the States weak control might
as mentioned earlier. These risks are indeed very high, considering render the sharing arrangements ineffective. They cite the so-called
that the rate of success in exploration is extremely low. The suspicious deductions allowed by the WMCP FTAA in arriving at the
probability of finding any mineral or petroleum in commercially viable net mining revenue, which is the basis for computing the government
quantities is estimated to be about 1:1,000 only. On that slim chance share. The WMCP FTAA, for instance, allows expenditures for
rides the contractors hope of recouping investments and generating development within and outside the Contract Area relating to the
profits. And when the contractor has recouped its initial investments Mining Operations,[80] consulting fees incurred both inside
in the project, the government share increases to sixty percent of net and outside the Philippines for work related directly to the Mining
benefits -- without the State ever being in peril of incurring costs, Operations,[81] and the establishment and administration of field
expenses and losses. offices including administrative overheads incurred within and outside
the Philippines which are properly allocatable to the Mining
And even in the worst possible scenario -- an absence of Operations and reasonably related to the performance of the
commercial quantities of minerals to justify development -- the Contractors obligations and exercise of its rights under this
contractor would already have spent several million pesos for Agreement.[82]
It is quite well known, however, that mining companies do The percentage of Net Mining Revenues payable to the Government
perform some marketing activities abroad in respect of selling their pursuant to Clause 7.7 shall be reduced by 1percent of Net Mining
mineral products and by-products. Hence, it would not be improper to Revenues for every 1percent ownership interest in the Contractor (i.e.,
allow the deduction of reasonable consulting fees incurred abroad, WMCP) held by a Qualified Entity.[83]
as well as administrative expenses and overheads related to
marketing offices also located abroad -- provided that these Evidently, what Section 7.7 grants to the State is taken away in
deductions are directly related or properly allocatable to the mining the next breath by Section 7.9 without any offsetting compensation to
operations and reasonably related to the performance of the the State. Thus, in reality, the State has no vested right to receive
contractors obligations and exercise of its rights. In any event, more any income from the FTAA for the exploitation of its mineral
facts are needed. Until we see how these provisions actually operate, resources. Worse, it would seem that what is given to the State in
mere suspicions will not suffice to propel this Court into taking action. Section 7.7 is by mere tolerance of WMCPs foreign
stockholders, who can at any time cut off the governments entire 60
percent share. They can do so by simply selling 60 percent of
Section 7.9 of the WMCP FTAA WMCPs outstanding capital stock to a Philippine citizen or
Invalid and Disadvantageous corporation. Moreover, the proceeds of such sale will of course
accrue to the foreign stockholders of WMCP, not to the State.
Having defended the WMCP FTAA, we shall now turn to two The sale of 60 percent of WMCPs outstanding equity to a
defective provisos. Let us start with Section 7.9 of the WMCP FTAA. corporation that is 60 percent Filipino-owned and 40 percent foreign-
While Section 7.7 gives the government a 60 percent share in the net owned will still trigger the operation of Section 7.9. Effectively, the
mining revenues of WMCP from the commencement of commercial State will lose its right to receive all 60 percent of the net mining
production, Section 7.9 deprives the government of part or all of the revenues of WMCP; and foreign stockholders will own beneficially up
said 60 percent. Under the latter provision, should WMCPs foreign to 64 percent of WMCP, consisting of the remaining 40 percent
shareholders -- who originally owned 100 percent of the equity -- sell foreign equity therein, plus the 24 percent pro-rata share in the
60 percent or more of its outstanding capital stock to a Filipino citizen buyer-corporation.[84]
or corporation, the State loses its right to receive its 60 percent share
in net mining revenues under Section 7.7. In fact, the January 23, 2001 sale by WMCPs foreign stockholder
of the entire outstanding equity in WMCP to Sagittarius Mines, Inc. --
Section 7.9 provides: a domestic corporation at least 60 percent Filipino owned -- may be
deemed to have automatically triggered the operation of Section 7.9,
without need of further action by any party, and removed the States that should the State be prevented from agreeing to a share less
right to receive the 60 percent share in net mining revenues. than 60 percent as it deems fit, it will be deprived of the full control
over mineral exploitation that the Charter has vested in it.
At bottom, Section 7.9 has the effect of depriving the State of its
60 percent share in the net mining revenues of WMCP without any That full control is obviously not an end in itself; it exists and
offset or compensation whatsoever. It is possible that the inclusion of subsists precisely because of the need to serve and protect the
the offending provision was initially prompted by the desire to provide national interest. In this instance, national interest finds particular
some form of incentive for the principal foreign stockholder in WMCP application in the protection of the national patrimony and the
to eventually reduce its equity position and ultimately divest in favor development and exploitation of the countrys mineral resources for
of Filipino citizens and corporations. However, as finally structured, the benefit of the Filipino people and the enhancement of economic
Section 7.9 has the deleterious effect of depriving government of the growth and the general welfare of the country. Undoubtedly, such
entire 60 percent share in WMCPs net mining revenues, without any full control can be misused and abused, as we now witness.
form of compensation whatsoever. Such an outcome is completely
Section 7.9 of the WMCP FTAA effectively gives away the States
unacceptable.
share of net mining revenues (provided for in Section 7.7) without
The whole point of developing the nations natural resources is to anything in exchange. Moreover, this outcome constitutes unjust
benefit the Filipino people, future generations included. And the State enrichment on the part of the local and foreign stockholders of
as sovereign and custodian of the nations natural wealth is mandated WMCP. By their mere divestment of up to 60 percent equity in
to protect, conserve, preserve and develop that part of the national WMCP in favor of Filipino citizens and/or corporations, the local and
patrimony for their benefit. Hence, the Charter lays great emphasis foreign stockholders get a windfall. Their share in the net mining
on real contributions to the economic growth and general welfare of revenues of WMCP is automatically increased, without their having to
the country[85] as essential guiding principles to be kept in mind when pay the government anything for it. In short, the provision in question
negotiating the terms and conditions of FTAAs. is without a doubt grossly disadvantageous to the government,
detrimental to the interests of the Filipino people, and violative of
Earlier, we held (1) that the State must be accorded the liberty
public policy.
and the utmost flexibility to deal, negotiate and transact with
contractors and third parties as it sees fit, and upon terms that it Moreover, it has been reiterated in numerous decisions[86] that the
ascertains to be most favorable or most acceptable under the parties to a contract may establish any agreements, terms and
circumstances, even if that should mean agreeing to less than 60 conditions that they deem convenient; but these should not be
percent; (2) that it is not necessary for the State to extract a 60 contrary to law, morals, good customs, public order or public
percent share in every case and regardless of circumstances; and (3) policy.[87] Being precisely violative of anti-graft provisions and
contrary to public policy, Section 7.9 must therefore be stricken off as 7.8 The Government Share shall be deemed to include all of the following
invalid. sums:
Whether the government officials concerned acceded to that (a) all Government taxes, fees, levies, costs, imposts,
provision by sheer mistake or with full awareness of the ill duties and royalties including excise tax,
consequences, is of no moment. It is hornbook doctrine that the corporate income tax, customs duty, sales tax,
principle of estoppel does not operate against the government for the value added tax, occupation and regulatory
act of its agents,[88] and that it is never estopped by any mistake or fees, Government controlled price stabilization
error on their part.[89] It is therefore possible and proper to rectify the schemes, any other form of Government backed
situation at this time. Moreover, we may also say that the FTAA in schemes, any tax on dividend payments by the
question does not involve mere contractual rights; being impressed Contractor or its Affiliates in respect of
as it is with public interest, the contractual provisions and stipulations revenues from the Mining Operations and any
must yield to the common good and the national interest. tax on interest on domestic and foreign loans or
Since the offending provision is very much separable[90] from other financial arrangements or
Section 7.7 and the rest of the FTAA, the deletion of Section 7.9 can accommodations, including loans extended to
be done without affecting or requiring the invalidation of the WMCP the Contractor by its stockholders;
FTAA itself. Such a deletion will preserve for the government its due (b) any payments to local and regional government,
share of the benefits. This way, the mandates of the Constitution are including taxes, fees, levies, costs, imposts,
complied with and the interests of the government fully protected, duties, royalties, occupation and regulatory fees
while the business operations of the contractor are not needlessly and infrastructure contributions;
disrupted. (c) any payments to landowners, surface rights holders,
occupiers, indigenous people or Claimowners;
(d) costs and expenses of fulfilling the Contractors
Section 7.8(e) of the WMCP FTAA obligations to contribute to national
Also Invalid and Disadvantageous development in accordance with Clause 10.1(i)
(1) and 10.1(i) (2);
Section 7.8(e) of the WMCP FTAA is likewise invalid. It provides (e) an amount equivalent to whatever benefits that may
thus: be extended in the future by the Government to
the Contractor or to financial or technical
assistance agreement contractors in general;
(f) all of the foregoing items which have not previously Section 7.8 of the WMCP FTAA, we will find that they correspond
been offset against the Government Share in an closely to the components or elements of the basic government
earlier Fiscal Year, adjusted for inflation. share established in DAO 99-56, as discussed in the earlier part of
(underscoring supplied) this Opinion.
Section 7.8(e) is out of place in the FTAA. It makes no sense Likewise, the balance of the governments 60 percent share --
why, for instance, money spent by the government for the benefit of after netting out the items of deduction listed in Section 7.8 --
the contractor in building roads leading to the mine site should still be corresponds closely to the additional government shareprovided
deductible from the States share in net mining revenues. Allowing for in DAO 99-56 which, we once again stress, has nothing at all to
this deduction results in benefiting the contractor twice over. It do with indirect taxes. The Ramos-DeVera paper[92] concisely
constitutes unjust enrichment on the part of the contractor at the presents the fiscal contribution of an FTAA under DAO 99-56 in this
expense of the government, since the latter is effectively being made equation:
to pay twice for the same item.[91] For being grossly disadvantageous
Receipts from an FTAA = basic govt share + addl govt share
and prejudicial to the government and contrary to public policy,
Section 7.8(e) is undoubtedly invalid and must be declared to be Transposed into a similar equation, the fiscal payments system
without effect. Fortunately, this provision can also easily be stricken from the WMCP FTAA assumes the following formulation:
off without affecting the rest of the FTAA.
Governments 60 percent share in net mining revenues of WMCP = items
listed in Sec. 7.8 of the FTAA + balance of Govt share, payable 4 months
Nothing Left Over from the end of the fiscal year
After Deductions?
It should become apparent that the fiscal arrangement under the
WMCP FTAA is very similar to that under DAO 99-56, with the
In connection with Section 7.8, an objection has been raised:
balance of government share payable 4 months from end of fiscal
Specified in Section 7.8 are numerous items of deduction from the
year being the equivalent of the additional government
States 60 percent share. After taking these into account, will the
share computed in accordance with the net-mining-revenue-based
State ever receive anything for its ownership of the mineral
option under DAO 99-56, as discussed above. As we have
resources?
emphasized earlier, we find each of the three options for computing
We are confident that under normal circumstances, the answer the additional government share -- as presented in DAO 99-56 --
will be yes. If we examine the various items of deduction listed in to be sound and reasonable.
We therefore conclude that there is nothing inherently wrong it may enter into co-production, joint venture or production-sharing
in the fiscal regime of the WMCP FTAA, and certainly nothing to agreements with Filipino citizens or corporations or associations at least
warrant the invalidation of the FTAA in its entirety. 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
Section 3.3 of the WMCP conditions as may be provided by law. In cases of water rights for
FTAA Constitutional irrigation, water supply, fisheries, or industrial uses other than the
development of water power, beneficial use may be the measure and limit of
Section 3.3 of the WMCP FTAA is assailed for violating supposed the grant.
constitutional restrictions on the term of FTAAs. The provision in
question reads: The State shall protect the nations marine wealth in its archipelagic waters,
territorial sea, and exclusive economic zone, and reserve its use and
3.3 This Agreement shall be renewed by the Government for a enjoyment exclusively to Filipino citizens.
further period of twenty-five (25) years under the same terms
and conditions provided that the Contractor lodges a request The Congress may, by law, allow small-scale utilization of natural
for renewal with the Government not less than sixty (60) days resources by Filipino citizens, as well as cooperative fish farming, with
prior to the expiry of the initial term of this Agreement and priority to subsistence fishermen and fish-workers in rivers, lakes, bays and
provided that the Contractor is not in breach of any of the lagoons.
requirements of this Agreement.
The President may enter into agreements with foreign-owned corporations
Allegedly, the above provision runs afoul of Section 2 of Article involving either technical or financial assistance for large-scale
XII of the 1987 Constitution, which states: exploration, development, and utilization of minerals, petroleum, and other
mineral oils according to the general terms and conditions provided by law,
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, based on real contributions to the economic growth and general welfare of
and other mineral oils, all forces of potential energy, fisheries, forests or the country. In such agreements, the State shall promote the development
timber, wildlife, flora and fauna, and other natural resources are owned by and use of local scientific and technical resources.
the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development and The President shall notify the Congress of every contract entered into in
utilization of natural resources shall be under the full control and accordance with this provision, within thirty days from its execution.[93]
supervision of the State. The State may directly undertake such activities, or
We hold that the term limitation of twenty-five years does not extra business risks, it would not be totally unreasonable to allow it to
apply to FTAAs. The reason is that the above provision is continue EDU activities for another twenty five years.
found within paragraph 1 of Section 2 of Article XII, which refers to
In any event, the complaint is that, in essence, Section 3.3 gives
mineral agreements -- co-production agreements, joint venture
the contractor the power to compel the government to renew the
agreements and mineral production-sharing agreements -- which the
WMCP FTAA for another 25 years and deprives the State of any say
government may enter into with Filipino citizens and corporations, at
on whether to renew the contract.
least 60 percent owned by Filipino citizens. The word such clearly
refers to these three mineral agreements -- CPAs, JVAs and MPSAs While we agree that Section 3.3 could have been worded so as to
-- not to FTAAs. prevent it from favoring the contractor, this provision does not violate
any constitutional limits, since the said term limitation does not apply
Specifically, FTAAs are covered by paragraphs 4 and 5 of
at all to FTAAs. Neither can the provision be deemed in any manner
Section 2 of Article XII of the Constitution. It will be noted that there
to be illegal, as no law is being violated thereby. It is certainly not
are no term limitations provided for in the said paragraphs dealing
illegal for the government to waive its option to refuse the renewal of
with FTAAs. This shows that FTAAs are sui generis, in a class of
a commercial contract.
their own. This omission was obviously a deliberate move on the part
of the framers. They probably realized that FTAAs would be different Verily, the government did not have to agree to Section 3.3. It
in many ways from MPSAs, JVAs and CPAs. The reason the framers could have said No to the stipulation, but it did not. It appears that, in
did not fix term limitations applicable to FTAAs is that they preferred the process of negotiations, the other contracting party was able to
to leave the matter to the discretion of the legislature and/or the convince the government to agree to the renewal terms. Under the
agencies involved in implementing the laws pertaining to FTAAs, in circumstances, it does not seem proper for this Court to intervene
order to give the latter enough flexibility and elbow room to meet and step in to undo what might have perhaps been a possible
changing circumstances. miscalculation on the part of the State. If government believes that it
is or will be aggrieved by the effects of Section 3.3, the remedy is the
Note also that, as previously stated, the exploratory phrases of an
renegotiation of the provision in order to provide the State the option
FTAA lasts up to eleven years. Thereafter, a few more years would
to not renew the FTAA.
be gobbled up in start-up operations. It may take fifteen years before
an FTAA contractor can start earning profits. And thus, the period of
25 years may really be short for an FTAA. Consider too that in this Financial Benefits for Foreigners
kind of agreement, the contractor assumes all entrepreneurial risks. If Not Forbidden by the Constitution
no commercial quantities of minerals are found, the contractor bears
all financial losses. To compensate for this long gestation period and
Before leaving this subject matter, we find it necessary for us to It is clear, then, that there is nothing inherently wrong with or
rid ourselves of the false belief that the Constitution somehow forbids constitutionally objectionable about the idea of foreign individuals and
foreign-owned corporations from deriving financial benefits from the entities having or enjoying beneficial interest in -- and participating in
development of our natural or mineral resources. the management of operations relative to -- the exploration,
development and utilization of our natural resources.
The Constitution has never prohibited foreign corporations from
acquiring and enjoying beneficial interest in the development of
Philippine natural resources. The State itself need not directly FTAA More Advantageous
undertake exploration, development, and utilization activities. Than Other Schemes
Alternatively, the Constitution authorizes the government to enter into Like CPA, JVA and MPSA
joint venture agreements (JVAs), co-production agreements (CPAs)
and mineral production sharing agreements (MPSAs) with
contractors who are Filipino citizens or corporations that are at least A final point on the subject of beneficial interest. We believe the
60 percent Filipino-owned. They may do the actual dirty work -- the FTAA is a more advantageous proposition for the government as
mining operations. compared with other agreements permitted by the Constitution. In a
CPA that the government enters into with one or more contractors,
In the case of a 60 percent Filipino-owned corporation, the 40 the government shall provide inputs to the mining operations other
percent individual and/or corporate non-Filipino than the mineral resource itself.[94]
stakeholders obviously participate in the beneficial interest derived
from the development and utilization of our natural resources. They In a JVA, a JV company is organized by the government and the
may receive by way of dividends, up to 40 percent of the contractors contractor, with both parties having equity shares (investments); and
earnings from the mining project. Likewise, they may have a say in the contractor is granted the exclusive right to conduct mining
the decisions of the board of directors, since they are entitled to operations and to extract minerals found in the area.[95] On the other
representation therein to the extent of their equity participation, which hand, in an MPSA, the government grants the contractor the
the Constitution permits to be up to 40 percent of the contractors exclusive right to conduct mining operations within the contract area
equity. Hence, the non-Filipino stakeholders may in that manner also and shares in the gross output; and the contractor provides the
participate in the management of the contractors natural resource necessary financing, technology, management and manpower.
development work. All of this is permitted by our Constitution, for any The point being made here is that, in two of the three types of
natural resource, and without limitation even in regard to the agreements under consideration, the government has to ante up
magnitude of the mining project or operations (see paragraph 1 of some risk capital for the enterprise. In other words, government
Section 2 of Article XII).
funds (public moneys) are withdrawn from other possible uses, put to the State in terms of regular reporting, approvals of work programs
work in the venture and placed at risk in case the venture fails. This and budgets, and so on.
notwithstanding, management and control of the operations of the
So, one needs to consider in relative terms, the costs of inputs
enterprise are -- in all three arrangements -- in the hands of the
for, degree of risk attendant to, and benefits derived or to be derived
contractor, with the government being mainly a silent partner. The
from a CPA, a JVA or an MPSA vis--vis those pertaining to an FTAA.
three types of agreement mentioned above apply to any natural
It may not be realistically asserted that the foreign grantee of an
resource, without limitation and regardless of the size or magnitude
FTAA is being unduly favored or benefited as compared with a
of the project or operations.
foreign stakeholder in a corporation holding a CPA, a JVA or an
In contrast to the foregoing arrangements, and pursuant to MPSA. Seen the other way around, the government is definitely
paragraph 4 of Section 2 of Article XII, the FTAA is limited to large- better off with an FTAA than a CPA, a JVA or an MPSA.
scale projects and only for minerals, petroleum and other mineral
oils. Here, the Constitution removes the 40 percent cap on foreign
ownership and allows the foreign corporation to own up to 100 Developmental Policy
percent of the equity. Filipino capital may not be sufficient on account on the Mining Industry
of the size of the project, so the foreign entity may have to ante up all
the risk capital. During the Oral Argument and in their Final
Correlatively, the foreign stakeholder bears up to 100 percent of Memorandum, petitioners repeatedly urged the Court to consider
the risk of loss if the project fails. In respect of the particular FTAA whether mining as an industry and economic activity deserved to be
granted to it, WMCP (then 100 percent foreign owned) was accorded priority, preference and government support as against,
responsible, as contractor, for providing the entire equity, including all say, agriculture and other activities in which Filipinos and the
the inputs for the project. It was to bear 100 percent of the risk of loss Philippines may have an economic advantage. For instance, a recent
if the project failed, but its maximum potential beneficial interest US study[96] reportedly examined the economic performance of all
consisted only of 40 percent of the net beneficial interest, because local US counties that were dependent on mining and 20 percent of
the other 60 percent is the share of the government, which will never whose labor earnings between 1970 and 2000 came from mining
be exposed to any risk of loss whatsoever. enterprises.
In consonance with the degree of risk assumed, the FTAA vested The study -- covering 100 US counties in 25 states dependent on
in WMCP the day-to-day management of the mining operations. Still mining -- showed that per capita income grew about 30 percent less
such management is subject to the overall control and supervision of in mining-dependent communities in the 1980s and 25 percent less
for the entire period 1980 to 2000; the level of per capita income was protection of the environment during and after mining. It can likewise
also lower. Therefore, given the slower rate of growth, the gap provide for the mechanisms to protect the rights of indigenous
between these and other local counties increased. communities, and thereby mold a more socially-responsive,
culturally-sensitive and sustainable mining industry.
Petitioners invite attention to the OXFAM America
Reports warning to developing nations that mining brings with it Early on during the launching of the Presidential Mineral Industry
serious economic problems, including increased regional inequality, Environmental Awards on February 6, 1997, then President Fidel V.
unemployment and poverty. They also cite the final report[97] of the Ramos captured the essence of balanced and sustainable mining in
Extractive Industries Review project commissioned by the World these words:
Bank (the WB-EIR Report), which warns of environmental
degradation, social disruption, conflict, and uneven sharing of Long term, high profit mining translates into higher revenues for
benefits with local communities that bear the negative social and government, more decent jobs for the population, more raw materials to
environmental impact. The Report suggests that countries need to feed the engines of downstream and allied industries, and improved chances
decide on the best way to exploit their natural resources, in order to of human resource and countryside development by creating self-reliant
maximize the value added from the development of their resources communities away from urban centers.
and ensure that they are on the path to sustainable development
once the resources run out. xxxxxxxxx
Whatever priority or preference may be given to mining vis--vis Against a fragile and finite environment, it is sustainability that holds the
other economic or non-economic activities is a question of policy that key. In sustainable mining, we take a middle ground where both production
the President and Congress will have to address; it is not for this and protection goals are balanced, and where parties-in-interest come to
Court to decide. This Court declares what the Constitution and the terms.
laws say, interprets only when necessary, and refrains from delving
into matters of policy. Neither has the present leadership been remiss in addressing the
Suffice it to say that the State control accorded by the concerns of sustainable mining operations. Recently, on January 16,
Constitution over mining activities assures a proper balancing of 2004 and April 20, 2004, President Gloria Macapagal Arroyo issued
interests. More pointedly, such control will enable the President to Executive Orders Nos. 270 and 270-A, respectively, to
demand the best mining practices and the use of the best available promote responsible mineral resources exploration, development and
technologies to protect the environment and to rehabilitate mined-out utilization, in order to enhance economic growth, in a manner that
areas. Indeed, under the Mining Law, the government can ensure the adheres to the principles of sustainable development and with due
regard for justice and equity, sensitivity to the culture of the Filipino points out that at times we conveniently omitted the use of the
people and respect for Philippine sovereignty.[98] disjunctive eitheror, which according to her denotes restriction; hence
the phrase must be deemed to connote restriction and limitation.

REFUTATION OF DISSENTS But, as Justice Carpio himself pointed out during the Oral
Argument, the disjunctive phrase either technical or financial
assistance would, strictly speaking, literally mean that a foreign
The Court will now take up a number of other specific points contractor may provide only one or the other, but not both. And if
raised in the dissents of Justices Carpio and Morales. both technical and financial assistance were required for a project,
1. Justice Morales introduced us to Hugh Morgan, former the State would have to deal with at least two different foreign
president and chief executive officer of Western Mining Corporation contractors -- one for financial and the other for technical assistance.
(WMC) and former president of the Australian Mining Industry And following on that, a foreign contractor, though very much
Council, who spearheaded the vociferous opposition to the filing by qualified to provide both kinds of assistance, would nevertheless be
aboriginal peoples of native title claims against mining companies in prohibited from providing one kind as soon as it shall have agreed to
Australia in the aftermath of the landmark Mabo decision by the provide the other.
Australian High Court. According to sources quoted by our esteemed But if the Court should follow this restrictive and literal
colleague, Morgan was also a racist and a bigot. In the course of construction, can we really find two (or more) contractors who are
protesting Mabo, Morgan allegedly uttered derogatory remarks willing to participate in one single project -- one to provide the
belittling the aboriginal culture and race. financial assistance only and the other the technical assistance
An unwritten caveat of this introduction is that this Court should exclusively; it would be excellent if these two or more contractors
be careful not to permit the entry of the likes of Hugh Morgan and his happen to be willing and are able to cooperate and work closely
hordes of alleged racist-bigots at WMC. With all due respect, such together on the same project (even if they are otherwise
scare tactics should have no place in the discussion of this case. We competitors). And it would be superb if no conflicts would arise
are deliberating on the constitutionality of RA 7942, DAO 96-40 and between or among them in the entire course of the contract. But what
the FTAA originally granted to WMCP, which had been transferred to are the chances things will turn out this way in the real world? To
Sagittarius Mining, a Filipino corporation. We are not discussing the think that the framers deliberately imposed this kind of restriction is to
apparition of white Anglo-Saxon racists/bigots massing at our gates. say that they were either exceedingly optimistic, or incredibly nave.
This begs the question -- What laudable objective or purpose could
2. On the proper interpretation of the phrase agreements possibly be served by such strict and restrictive literal interpretation?
involving either technical or financial assistance, Justice Morales
3. Citing Oposa v. Factoran Jr., Justice Morales claims that a infrastructure, and for the actual excavation and extraction of
service contract is not a contract or property right which merits minerals, including the extensive tunneling work to reach the ore
protection by the due process clause of the Constitution, but merely a body. The cancellation of the mining contract will utterly deprive the
license or privilege which may be validly revoked, rescinded or contractor of its investments (i.e., prevent recovery of investments),
withdrawn by executive action whenever dictated by public interest or most of which cannot be pulled out.
public welfare.
To say that an FTAA is just like a mere timber license or permit
Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy and does not involve contract or property rights which merit
Executive Secretary as authority. The latter cases dealt specifically protection by the due process clause of the Constitution, and may
with timber licenses only. Oposa allegedly reiterated that a license therefore be revoked or cancelled in the blink of an eye, is to adopt a
is merely a permit or privilege to do what otherwise would be well-nigh confiscatory stance; at the very least, it is downright
unlawful, and is not a contract between the authority, federal, state or dismissive of the property rights of businesspersons and corporate
municipal, granting it and the person to whom it is granted; neither is entities that have investments in the mining industry, whose
it property or a property right, nor does it create a vested right; nor is investments, operations and expenditures do contribute to the
it taxation. Thus this Court held that the granting of license does not general welfare of the people, the coffers of government, and the
create irrevocable rights, neither is it property or property rights. strength of the economy. Such a pronouncement will surely
discourage investments (local and foreign) which are critically
Should Oposa be deemed applicable to the case at bar, on the
needed to fuel the engine of economic growth and move this country
argument that natural resources are also involved in this situation?
out of the rut of poverty. In sum, Oposa is not applicable.
We do not think so. A grantee of a timber license, permit or license
agreement gets to cut the timber already growing on the surface; it 4. Justice Morales adverts to the supposedly clear intention of the
need not dig up tons of earth to get at the logs. In a logging framers of the Constitution to reserve our natural resources
concession, the investment of the licensee is not as substantial as exclusively for the Filipino people. She then quoted from the records
the investment of a large-scale mining contractor. If a timber license of the ConCom deliberations a passage in which then Commissioner
were revoked, the licensee packs up its gear and moves to a new Davide explained his vote, arguing in the process that aliens ought
area applied for, and starts over; what it leaves behind are mainly the not be allowed to participate in the enjoyment of our natural
trails leading to the logging site. resources. One passage does not suffice to capture the tenor or
substance of the entire extensive deliberations of the commissioners,
In contrast, the mining contractor will have sunk a great deal of
or to reveal the clear intention of the framers as a group. A re-reading
money (tens of millions of dollars) into the ground, so to speak, for
of the entire deliberations (quoted here earlier) is necessary if we are
exploration activities, for development of the mine site and
to understand the true intent of the framers.
5. Since 1935, the Filipino people, through their Constitution, realistic to say that we will borrow on our own terms. Maybe we can
have decided that the retardation or delay in the exploration, say that we inherited unjust loans, and we would like to repay these
development or utilization of the nations natural resources is merely on terms that are not prejudicial to our own growth. But the general
secondary to the protection and preservation of their ownership of statement that we should only borrow on our own terms is a bit
the natural resources, so says Justice Morales, citing Aruego. If it is unrealistic. Comm. Monsod is one who knew whereof he spoke.
true that the framers of the 1987 Constitution did not care much
7. Justice Morales also declares that the optimal time for the
about alleviating the retardation or delay in the development and
conversion of an FTAA into an MPSA is after completion of the
utilization of our natural resources, why did they bother to write
exploration phase and just before undertaking the development and
paragraph 4 at all? Were they merely paying lip service to large-scale
construction phase, on account of the fact that the requirement for a
exploration, development and utilization? They could have just
minimum investment of $50 million is applicable only during the
completely ignored the subject matter and left it to be dealt with
development, construction and utilization phase, but not during the
through a future constitutional amendment. But we have to
exploration phase, when the foreign contractor need merely comply
harmonize every part of the Constitution and to interpret each
with minimum ground expenditures. Thus by converting, the foreign
provision in a manner that would give life and meaning to it and to
contractor maximizes its profits by avoiding its obligation to make the
the rest of the provisions. It is obvious that a literal interpretation of
minimum investment of $50 million.
paragraph 4 will render it utterly inutile and inoperative.
This argument forgets that the foreign contractor is in the game
6. According to Justice Morales, the deliberations of the
precisely to make money. In order to come anywhere near
Constitutional Commission do not support our contention that the
profitability, the contractor must first extract and sell the mineral ore.
framers, by specifying such agreements involving financial or
In order to do that, it must also develop and construct the mining
technical assistance, necessarily gave implied assent to everything
facilities, set up its machineries and equipment and dig the tunnels to
that these agreements implicitly entailed, or that could reasonably be
get to the deposit. The contractor is thus compelled to expend funds
deemed necessary to make them tenable and effective, including
in order to make profits. If it decides to cut back on investments and
management authority in the day-to-day operations. As proof thereof,
expenditures, it will necessarily sacrifice the pace of development
she quotes one single passage from the ConCom deliberations,
and utilization; it will necessarily sacrifice the amount of profits it can
consisting of an exchange among Commissioners Tingson, Garcia
make from the mining operations. In fact, at certain less-than-optimal
and Monsod.
levels of operation, the stream of revenues generated may not even
However, the quoted exchange does not serve to contradict our be enough to cover variable expenses, let alone overhead expenses;
argument; it even bolsters it. Comm. Christian Monsod was quoted this is a dismal situation anyone would want to avoid. In order to
as saying: xxx I think we have to make a distinction that it is not really
make money, one has to spend money. This truism applies to the of the term of the contract -- 25 or 50 years, depending. If we
mining industry as well. calculate the cost of money at say 12 percent per annum, that is the
cost or opportunity loss to the contractor, in addition to the amount of
8. Mortgaging the minerals to secure a foreign FTAA contractors
the acquisition price. 12 percent per annum for 50 years is 600
obligations is anomalous, according to Justice Morales since the
percent; this, without any compounding yet. The cost of money is
contractor was from the beginning obliged to provide all financing
therefore at least 600 percent of the original acquisition cost; it is in
needed for the mining operations. However, the mortgaging of
addition to the acquisition cost. For free? Not by a long shot.
minerals by the contractor does not necessarily signify that the
contractor is unable to provide all financing required for the project, 10. The contractor will acquire and hold up to 5,000 hectares?
or that it does not have the financial capability to undertake large- We doubt it. The acquisition by the State of land for the contractor is
scale operations. Mortgaging of mineral products, just like the just to enable the contractor to establish its mine site, build its
assignment (by way of security) of manufactured goods and goods in facilities, establish a tailings pond, set up its machinery and
inventory, and the assignment of receivables, is an ordinary equipment, and dig mine shafts and tunnels, etc. It is impossible that
requirement of banks, even in the case of clients with more than the surface requirement will aggregate 5,000 hectares. Much of the
sufficient financial resources. And nowadays, even the richest and operations will consist of the tunneling and digging underground,
best managed corporations make use of bank credit facilities -- it which will not require possessing or using any land surface. 5,000
does not necessarily signify that they do not have the financial hectares is way too much for the needs of a mining operator. It
resources or are unable to provide the financing on their own; it is simply will not spend its cash to acquire property that it will not need;
just a manner of maximizing the use of their funds. the cash may be better employed for the actual mining operations, to
yield a profit.
9. Does the contractor in reality acquire the surface rights for free,
by virtue of the fact that it is entitled to reimbursement for the costs of 11. Justice Carpio claims that the phrase among other
acquisition and maintenance, adjusted for inflation? We think not. things (found in the second paragraph of Section 81 of the Mining
The reimbursement is possible only at the end of the term of the Act) is being incorrectly treated as a delegation of legislative power to
contract, when the surface rights will no longer be needed, and the the DENR secretary to issue DAO 99-56 and prescribe the formulae
land previously acquired will have to be disposed of, in which case therein on the States share from mining operations. He adds that the
the contractor gets reimbursement from the sales proceeds. The phrase among other things was not intended as a delegation of
contractor has to pay out the acquisition price for the land. That legislative power to the DENR secretary, much less could it be
money will belong to the seller of the land. Only if and when the land deemed a valid delegation of legislative power, since there is nothing
is finally sold off will the contractor get any reimbursement. In other in the second paragraph of Section 81 which can be said to grant any
words, the contractor will have been cash-out for the entire duration delegated legislative power to the DENR secretary. And even if there
were, such delegation would be void, for lack of any standards by The issuance of DAO 99-56 did not involve the exercise of
which the delegated power shall be exercised. delegated legislative power. The legislature did not delegate the
power to determine the nature, extent and composition of the items
While there is nothing in the second paragraph of Section 81
that would come under the phrase among other things. The
which can directly be construed as a delegation of legislative power
legislatures power pertains to the imposition of taxes, duties and
to the DENR secretary, it does not mean that DAO 99-56 is invalid
fees. This power was not delegated to the DENR secretary. But the
per se, or that the secretary acted without any authority or jurisdiction
power to negotiate and enter into FTAAs was withheld from
in issuing DAO 99-56. As we stated earlier in our Prologue, Who or
Congress, and reserved for the President. In determining the sharing
what organ of government actually exercises this power of control on
of mining benefits, i.e., in specifying what the phrase among other
behalf of the State? The Constitution is crystal clear: the President.
things include, the President (through the secretary acting in his/her
Indeed, the Chief Executive is the official constitutionally mandated to
behalf) was not determining the amount or rate of taxes, duties and
enter into agreements with foreign owned corporations. On the other
fees, but rather the amount of INCOME to be derived from minerals
hand, Congress may review the action of the President once it is
to be extracted and sold, income which belongs to the State as
notified of every contract entered into in accordance with this
owner of the mineral resources. We may say that, in the second
[constitutional] provision within thirty days from its execution. It is the
paragraph of Section 81, the legislature in a sense intruded partially
President who is constitutionally mandated to enter into FTAAs with
into the Presidents sphere of authority when the former provided that
foreign corporations, and in doing so, it is within the Presidents
prerogative to specify certain terms and conditions of the FTAAs, The Government share in financial or technical assistance agreement shall
for example, the fiscal regime of FTAAs -- i.e., the sharing of the net consist of, among other things, the contractors corporate income tax, excise
mining revenues between the contractor and the State. tax, special allowance, withholding tax due from the contractors foreign
Being the Presidents alter ego with respect to the control and stockholders arising from dividend or interest payments to the said foreign
supervision of the mining industry, the DENR secretary, acting for the stockholder in case of a foreign national and all such other taxes, duties and
President, is necessarily clothed with the requisite authority and fees as provided for under existing laws. (Italics supplied)
power to draw up guidelines delineating certain terms and conditions,
and specifying therein the terms of sharing of benefits from mining, to But it did not usurp the Presidents authority since the provision
be applicable to FTAAs in general. It is important to remember that merely included the enumerated items as part of the government
DAO 99-56 has been in existence for almost six years, and has not share, without foreclosing or in any way preventing (as in fact
been amended or revoked by the President. Congress could not validly prevent) the President from determining
what constitutes the States compensation derived from FTAAs. In
this case, the President in effect directed the inclusion or addition of
other things, viz., INCOME for the owner of the resources, in the We believe there is some distortion resulting from the quoted
governments share, while adopting the items enumerated by provision being taken out of context. Section 5 of DAO 99-56 reads
Congress as part of the government share also. as follows:
12. Justice Carpios insistence on applying the ejusdem Section 5. Status of Existing FTAAs. All FTAAs approved prior to the
generis rule of statutory construction to the phrase among other effectivity of this Administrative Order shall remain valid and be recognized
things is therefore useless, and must fall by the wayside. There is no by the Government: Provided, That should a Contractor desire to amend its
point trying to construe that phrase in relation to the enumeration of FTAA, it shall do so by filing a Letter of Intent (LOI) to the Secretary thru
taxes, duties and fees found in paragraph 2 of Section 81, precisely the Director. Provided, further, That if the Contractor desires to amend the
because the constitutional power to prescribe the sharing of fiscal regime of its FTAA, it may do so by seeking for the amendment of its
mining income between the State and mining companies, to FTAAs whole fiscal regime by adopting the fiscal regime provided hereof:
quote Justice Carpio pursuant to an FTAA is constitutionally Provided, finally, That any amendment of an FTAA other than the provision
lodged with the President, not with Congress. It thus makes no on fiscal regime shall require the negotiation with the Negotiating Panel and
sense to persist in giving the phrase among other things a restricted the recommendation of the Secretary for approval of the President of the
meaning referring only to taxes, duties and fees. Republic of the Philippines. (underscoring supplied)
13. Strangely, Justice Carpio claims that the DENR secretary can
change the formulae in DAO 99-56 any time even without the It looks like another case of misapprehension. The proviso being
approval of the President, and the secretary is the sole authority to objected to by Justice Carpio is actually preceded by a phrase that
determine the amount of consideration that the State shall receive in requires a contractor desiring to amend the fiscal regime of its FTAA,
an FTAA, because Section 5 of the DAO states that xxx any to amend the same by adopting the fiscal regime prescribed in DAO
amendment of an FTAA other than the provision on fiscal 99-56 -- i.e., solely in that manner, and in no other. Obviously, since
regime shall require the negotiation with the Negotiation Panel and DAO 99-56 was issued by the secretary under the authority and
the recommendation of the Secretary for approval of the President with the presumed approval of the President, the amendment of
xxx. Allegedly, because of that provision, if an amendment in the an FTAA by merely adopting the fiscal regime prescribed in said
FTAA involves non-fiscal matters, the amendment requires approval DAO 99-56 (and nothing more) need not have the express
of the President, but if the amendment involves a change in the fiscal clearance of the President anymore. It is as if the same had been
regime, the DENR secretary has the final authority, and approval of pre-approved. We cannot fathom the complaint that that makes the
the President may be dispensed with; hence the secretary is more secretary more powerful than the President, or that the former is
powerful than the President. trying to hide things from the President or Congress.
14. Based on the first sentence of Section 5 of DAO 99-56, which 56 does not apply to the WMCP FTAA, nevertheless, the WMCP
states [A]ll FTAAs approved prior to the effectivity of this FTAA has its own fiscal regime, found in Section 7.7 thereof. Hence,
Administrative Order shall remain valid and be recognized by the there is no such thing as want of consideration here.
Government, Justice Carpio concludes that said Administrative Order
Still more startling is this claim: The majority supposedly agrees
allegedly exempts FTAAs approved prior to its effectivity -- like the
that the provisions of the WMCP FTAA, which grant a sham
WMCP FTAA -- from having to pay the State any share from their
consideration to the State, are void. Since the majority agrees that
mining income, apart from taxes, duties and fees.
the WMCP FTAA has a sham consideration, the WMCP FTAA thus
We disagree. What we see in black and white is the statement lacks the third element of a valid contract. The Decision should
that the FTAAs approved before the DAO came into effect are to declare the WMCP FTAA void for want of consideration unless it
continue to be valid and will be recognized by the State.Nothing is treats the contract as an MPSA under Section 80. Indeed the only
said about their fiscal regimes. Certainly, there is no basis to claim recourse of WMCP to save the validity of its contract is to convert it
that the contractors under said FTAAs were being exempted from into an MPSA.
paying the government a share in their mining incomes.
To clarify, we said that Sections 7.9 and 7.8(e) of the WMCP
For the record, the WMCP FTAA is NOT and has never been FTAA are provisions grossly disadvantageous to government and
exempt from paying the government share. The WMCP FTAA has detrimental to the interests of the Filipino people, as well as violative
its own fiscal regime -- Section 7.7 -- which gives the of public policy, and must therefore be stricken off as invalid. Since
government a 60 percent share in the net mining revenues of the offending provisions are very much separable from Section 7.7
WMCP from the commencement of commercial production. and the rest of the FTAA, the deletion of Sections 7.9 and 7.8(e) can
be done without affecting or requiring the invalidation of the WMCP
For that very reason, we have never said that DAO 99-56 is the
FTAA itself, and such deletion will preserve for government its due
basis for claiming that the WMCP FTAA has a consideration. Hence,
share of the 60 percent benefits. Therefore, the WMCP FTAA is NOT
we find quite out of place Justice Carpios statement that ironically,
bereft of a valid consideration (assuming for the nonce that indeed
DAO 99-56, the very authority cited to support the claim that the
this is the consideration of the FTAA).
WMCP FTAA has a consideration, does not apply to the WMCP
FTAA. By its own express terms, DAO 99-56 does not apply to
FTAAs executed before the issuance of DAO 99-56, like the WMCP SUMMATION
FTAA. The majoritys position has allegedly no leg to stand on since
even DAO 99-56, assuming it is valid, cannot save the WMCP FTAA
from want of consideration. Even assuming arguendo that DAO 99-
To conclude, a summary of the key points discussed above is Also, if paragraph 4 permits only agreements for financial or
now in order. technical assistance, there would be no point in requiring that they
be based on real contributions to the economic growth and general
welfare of the country. And considering that there were various long-
The Meaning of Agreements Involving term service contracts still in force and effect at the time the new
Either Technical or Financial Assistance Charter was being drafted, the absence of any transitory provisions
to govern the termination and closing-out of the then existing service
Applying familiar principles of constitutional construction to the contracts strongly militates against the theory that the mere omission
phrase agreements involving either technical or financial assistance, of service contracts signaled their prohibition by the new Constitution.
the framers choice of words does not indicate the intent to exclude Resort to the deliberations of the Constitutional Commission is
other modes of assistance, but rather implies that there are other therefore unavoidable, and a careful scrutiny thereof conclusively
things being included or possibly being made part of the agreement, shows that the ConCom members discussed agreements involving
apart from financial or technical assistance. The drafters avoided the either technical or financial assistance in the same sense as service
use of restrictive and stringent phraseology; a verba legis scrutiny of contracts and used the terms interchangeably. The drafters in fact
Section 2 of Article XII of the Constitution discloses not even a hint of knew that the agreements with foreign corporations were going to
a desire to prohibit foreign involvement in the management or entail not mere technical or financial assistance but, rather, foreign
operation of mining activities, or to eradicate service contracts. Such investment in and management of an enterprise for large-
moves would necessarily imply an underlying drastic shift in scale exploration, development and utilization of minerals.
fundamental economic and developmental policies of the State. That
change requires a much more definite and irrefutable basis than The framers spoke about service contracts as the concept was
mere omission of the words service contract from the new understood in the 1973 Constitution. It is obvious from their discussions
Constitution. that they did not intend to ban or eradicate service contracts. Instead,
they were intent on crafting provisions to put in place safeguards that
Furthermore, a literal and restrictive interpretation of this would eliminate or minimize the abuses prevalent during the martial law
paragraph leads to logical inconsistencies. A constitutional provision regime. In brief, they were going to permit service contracts with
specifically allowing foreign-owned corporations to render financial or foreign corporations as contractors, but with safety measures to
technical assistance in respect of mining or any other commercial prevent abuses, as an exception to the general norm established
activity was clearly unnecessary; the provision was meant to refer to in the first paragraph of Section 2 of Article XII, which reserves or
more than mere financial or technical assistance. limits to Filipino citizens and corporations at least 60 percent
owned by such citizens the exploration, development and
utilization of mineral or petroleum resources. This was prompted by foreign corporations acting as contractors on the one hand, and on
the perceived insufficiency of Filipino capital and the felt need for the other hand government as principal or owner (of the works),
foreign expertise in the EDU of mineral resources. whereby the foreign contractor provides the capital, technology and
technical know-how, and managerial expertise in the creation and
Despite strong opposition from some ConCom members during
operation of the large-scale mining/extractive enterprise, and
the final voting, the Article on the National Economy and Patrimony --
government through its agencies (DENR, MGB) actively exercises
including paragraph 4 allowing service contracts with foreign
full control and supervision over the entire enterprise.
corporations as an exception to the general norm in paragraph 1 of
Section 2 of the same Article -- was resoundingly and Such service contracts may be entered into only with respect to
overwhelmingly approved. minerals, petroleum and other mineral oils. The grant of such service
contracts is subject to several safeguards, among them: (1) that the
The drafters, many of whom were economists, academicians,
service contract be crafted in accordance with a general law setting
lawyers, businesspersons and politicians knew that foreign entities
standard or uniform terms, conditions and requirements; (2) the
will not enter into agreements involving assistance without requiring
President be the signatory for the government; and (3) the President
measures of protection to ensure the success of the venture and
report the executed agreement to Congress within thirty days.
repayment of their investments, loans and other financial assistance,
and ultimately to protect the business reputation of the foreign
corporations. The drafters, by specifying such agreements involving Ultimate Test:
assistance, necessarily gave implied assent to everything that these Full State Control
agreements entailed or that could reasonably be deemed necessary
to make them tenable and effective -- including management
authority with respect to the day-to-day operations of the enterprise, To repeat, the primacy of the principle of the States sovereign
and measures for the protection of the interests of the foreign ownership of all mineral resources, and its full control and
corporation, at least to the extent that they are consistent with supervision over all aspects of exploration, development and
Philippine sovereignty over natural resources, the constitutional utilization of natural resources must be upheld. But full control and
requirement of State control, and beneficial ownership of natural supervision cannot be taken literally to mean that the State controls
resources remaining vested in the State. and supervises everything down to the minutest details and makes
all required actions, as this would render impossible the legitimate
From the foregoing, it is clear that agreements involving either exercise by the contractor of a reasonable degree of management
technical or financial assistance referred to in paragraph 4 are in prerogative and authority, indispensable to the proper functioning of
fact service contracts, but such new service contracts are between the mining enterprise. Also, government need not micro-manage
mining operations and day-to-day affairs of the enterprise in order to reasons beneficial ownership of the mineral resources is allegedly
be considered as exercising full control and supervision. ceded to the foreign contractor.
Control, as utilized in Section 2 of Article XII, must be taken to As discussed hereinabove, the States full control and supervision
mean a degree of control sufficient to enable the State to direct, over mining operations are ensured through the following provisions
restrain, regulate and govern the affairs of the extractive enterprises. in RA 7942: Sections 8, 9, 16, 19, 24, 35[(b), (e), (f), (g), (h), (k), (l),
Control by the State may be on a macro level, through the (m) and (o)], 40, 57, 66, 69, 70, and Chapters XI and XVII; as well as
establishment of policies, guidelines, regulations, industry standards the following provisions of DAO 96-40: Sections7[(d) and (f)], 35(a-2),
and similar measures that would enable government to regulate the 53[(a-4) and (d)], 54, 56[(g), (h), (l), (m) and (n)], 56(2), 60, 66, 144,
conduct of affairs in various enterprises, and restrain activities 168, 171 and 270, and also Chapters XV, XVI and XXIV.
deemed not desirable or beneficial, with the end in view of ensuring
Through the foregoing provisions, the government agencies
that these enterprises contribute to the economic development and
concerned are empowered to approve or disapprove -- hence, in a
general welfare of the country, conserve the environment, and uplift
position to influence, direct, and change -- the various work programs
the well-being of the local affected communities. Such a degree of
and the corresponding minimum expenditure commitments for each
control would be compatible with permitting the foreign contractor
of the exploration, development and utilization phases of the
sufficient and reasonable management authority over the enterprise
enterprise. Once they have been approved, the contractors
it has invested in, to ensure efficient and profitable operation.
compliance with its commitments therein will be monitored. Figures
for mineral production and sales are regularly monitored and
Government Granted Full Control subjected to government review, to ensure that the products and by-
by RA 7942 and DAO 96-40 products are disposed of at the best prices; copies of sales
agreements have to be submitted to and registered with MGB.

Baseless are petitioners sweeping claims that RA 7942 and its The contractor is mandated to open its books of accounts and
Implementing Rules and Regulations make it possible for FTAA records for scrutiny, to enable the State to determine that the
contracts to cede full control and management of mining enterprises government share has been fully paid. The State may likewise
over to fully foreign owned corporations. Equally wobbly is the compel compliance by the contractor with mandatory requirements
assertion that the State is reduced to a passive regulator dependent on mine safety, health and environmental protection, and the use of
on submitted plans and reports, with weak review and audit powers anti-pollution technology and facilities. The contractor is also
and little say in the decision-making of the enterprise, for which obligated to assist the development of the mining community, and
pay royalties to the indigenous peoples concerned. And violation of
any of the FTAAs terms and conditions, and/or non-compliance with The WMCP FTAA obligates the contractor to account for the
statutes or regulations, may be penalized by cancellation of the value of production and sale of minerals (Clause 1.4); requires that
FTAA. Such sanction is significant to a contractor who may have yet the contractors work program, activities and budgets be approved by
to recover the tens or hundreds of millions of dollars sunk into a the State (Clause 2.1); gives the DENR secretary power to extend
mining project. the exploration period (Clause 3.2-a); requires approval by the State
for incorporation of lands into the contract area (Clause 4.3-c);
Overall, the State definitely has a pivotal say in the operation of
requires Bureau of Forest Development approval for inclusion of
the individual enterprises, and can set directions and objectives,
forest reserves as part of the FTAA contract area (Clause 4.5);
detect deviations and non-compliances by the contractor, and
obligates the contractor to periodically relinquish parts of the contract
enforce compliance and impose sanctions should the occasion arise.
area not needed for exploration and development (Clause 4.6);
Hence, RA 7942 and DAO 96-40 vest in government more than a
requires submission of a declaration of mining feasibility for approval
sufficient degree of control and supervision over the conduct of
by the State (Clause 4.6-b); obligates the contractor to report to the
mining operations.
State the results of its exploration activities (Clause 4.9); requires the
Section 3(aq) of RA 7942 was objected to as being contractor to obtain State approval for its work programs for the
unconstitutional for allowing a foreign contractor to apply for and hold succeeding two year periods, containing the proposed work activities
an exploration permit. During the exploration phase, the permit and expenditures budget related to exploration (Clause 5.1); requires
grantee (and prospective contractor) is spending and investing the contractor to obtain State approval for its proposed expenditures
heavily in exploration activities without yet being able to extract for exploration activities (Clause 5.2); requires the contractor to
minerals and generate revenues. The exploration permit issued submit an annual report on geological, geophysical, geochemical and
under Sections 3(aq), 20 and 23 of RA 7942, which allows other information relating to its explorations within the FTAA area
exploration but not extraction, serves to protect the interests and (Clause 5.3-a); requires the contractor to submit within six months
rights of the exploration permit grantee (and would-be contractor), after expiration of exploration period a final report on all its findings in
foreign or local. Otherwise, the exploration works already conducted, the contract area (Clause 5.3-b); requires the contractor after
and expenditures already made, may end up only benefiting claim- conducting feasibility studies to submit a declaration of mining
jumpers. Thus, Section 3(aq) of RA 7942 is not unconstitutional. feasibility, along with a description of the area to be developed and
mined, a description of the proposed mining operations and the
technology to be employed, and the proposed work program for the
WMCP FTAA Likewise Gives the development phase, for approval by the DENR secretary (Clause
State Full Control and Supervision 5.4); obligates the contractor to complete the development of the
mine, including construction of the production facilities, within the
period stated in the approved work program (Clause 6.1); requires complete halt as a result of possible delays of more than 60 days in
the contractor to submit for approval a work program covering each the governments processing and approval of submitted work
period of three fiscal years (Clause 6.2); requires the contractor to programs and budgets. Clause 8.3 seeks to provide a temporary,
submit reports to the secretary on the production, ore reserves, work stop-gap solution in case a disagreement between the State and the
accomplished and work in progress, profile of its work force and contractor (over the proposed work program or budget submitted by
management staff, and other technical information (Clause 6.3); the contractor) should result in a deadlock or impasse, to avoid
subjects any expansions, modifications, improvements and unreasonably long delays in the performance of the works.
replacements of mining facilities to the approval of the secretary
The State, despite Clause 8.3, still has control over the contract
(Clause 6.4); subjects to State control the amount of funds that the
area, and it may, as sovereign authority, prohibit work thereon until
contractor may borrow within the Philippines (Clause 7.2); subjects to
the dispute is resolved, or it may terminate the FTAA, citing
State supervisory power any technical, financial and marketing
substantial breach thereof. Hence, the State clearly retains full and
issues (Clause 10.1-a); obligates the contractor to ensure 60 percent
effective control.
Filipino equity in the contractor within ten years of recovering
specified expenditures unless not so required by subsequent Clause 8.5, which allows the contractor to make changes to
legislation (Clause 10.1); gives the State the right to terminate the approved work programs and budgets without the prior approval of
FTAA for unremedied substantial breach thereof by the contractor the DENR secretary, subject to certain limitations with respect to the
(Clause 13.2); requires State approval for any assignment of the variance/s, merely provides the contractor a certain amount of
FTAA by the contractor to an entity other than an affiliate (Clause flexibility to meet unexpected situations, while still guaranteeing that
14.1). the approved work programs and budgets are not abandoned
altogether. And if the secretary disagrees with the actions taken by
In short, the aforementioned provisions of the WMCP FTAA, far
the contractor in this instance, he may also resort to
from constituting a surrender of control and a grant of beneficial
cancellation/termination of the FTAA as the ultimate sanction.
ownership of mineral resources to the contractor in question, vest the
State with control and supervision over practically all aspects of the Clause 4.6 of the WMCP FTAA gives the contractor discretion to
operations of the FTAA contractor, including the charging of pre- select parts of the contract area to be relinquished. The State is not
operating and operating expenses, and the disposition of mineral in a position to substitute its judgment for that of the contractor, who
products. knows exactly which portions of the contract area do not contain
minerals in commercial quantities and should be relinquished. Also,
There is likewise no relinquishment of control on account of
since the annual occupation fees paid to government are based on
specific provisions of the WMCP FTAA. Clause 8.2 provides a
the total hectarage of the contract area, net of the areas relinquished,
mechanism to prevent the mining operations from grinding to a
the contractors self-interest will assure proper and efficient ownership, is always in a position to render the services required
relinquishment. under the FTAA, under the direction and control of the government.
Clause 10.2(e) of the WMCP FTAA does not mean that the Clauses 10.4(e) and (i) bind government to allow amendments to
contractor can compel government to use its power of eminent the FTAA if required by banks and other financial institutions as part
domain. It contemplates a situation in which the contractor is a of the conditions of new lendings. There is nothing objectionable
foreign-owned corporation, hence, not qualified to own land. The here, since Clause 10.4(e) also provides that such financing
contractor identifies the surface areas needed for it to construct the arrangements should in no event reduce the contractors obligations
infrastructure for mining operations, and the State then acquires the or the governments rights under the FTAA. Clause 10.4(i) provides
surface rights on behalf of the former. The provision does not call for that government shall favourably consider any request for
the exercise of the power of eminent domain (or determination of just amendments of this agreement necessary for the contractor to
compensation); it seeks to avoid a violation of the anti-dummy law. successfully obtain financing. There is no renunciation of control, as
the proviso does not say that government shall automatically grant
Clause 10.2(l) of the WMCP FTAA giving the contractor the right
any such request. Also, it is up to the contractor to prove the need for
to mortgage and encumber the mineral products extracted may have
the requested changes. The government always has the final say on
been a result of conditions imposed by creditor-banks to secure the
whether to approve or disapprove such requests.
loan obligations of WMCP. Banks lend also upon the security of
encumbrances on goods produced, which can be easily sold and In fine, the FTAA provisions do not reduce or abdicate State
converted into cash and applied to the repayment of loans. Thus, control.
Clause 10.2(l) is not something out of the ordinary. Neither is it
objectionable, because even though the contractor is allowed to
mortgage or encumber the mineral end-products themselves, the No Surrender of
contractor is not thereby relieved of its obligation to pay the Financial Benefits
government its basic and additional shares in the net mining
revenue. The contractors ability to mortgage the minerals does not The second paragraph of Section 81 of RA 7942 has been
negate the States right to receive its share of net mining revenues. denounced for allegedly limiting the States share in FTAAs with
Clause 10.2(k) which gives the contractor authority to change its foreign contractors to just taxes, fees and duties, and depriving the
equity structure at any time, means that WMCP, which was then 100 State of a share in the after-tax income of the enterprise. However,
percent foreign owned, could permit Filipino equity ownership. the inclusion of the phrase among other things in the second
Moreover, what is important is that the contractor, regardless of its paragraph of Section 81 clearly and unmistakably reveals the
legislative intent to have the State collect more than just the usual The third or last paragraph of Section 81 of RA 7942 is slammed
taxes, duties and fees. for deferring the payment of the government share in FTAAs until
after the contractor shall have recovered its pre-operating expenses,
Thus, DAO 99-56, the Guidelines Establishing the Fiscal Regime
exploration and development expenditures. Allegedly, the collection
of Financial or Technical Assistance Agreements, spells out the
of the States share is rendered uncertain, as there is no time limit in
financial benefits government will receive from an FTAA, as
RA 7942 for this grace period or recovery period. But although RA
consisting of not only a basic government share, comprised of all
7942 did not limit the grace period, the concerned agencies (DENR
direct taxes, fees and royalties, as well as other payments made by
and MGB) in formulating the 1995 and 1996 Implementing Rules and
the contractor during the term of the FTAA, but also an additional
Regulations provided that the period of recovery, reckoned from the
government share, being a share in the earnings or cash flows
date of commercial operation, shall be for a period not exceeding five
of the mining enterprise, so as to achieve a fifty-fifty sharing of net
years, or until the date of actual recovery, whichever comes earlier.
benefits from miningbetween the government and the contractor.
And since RA 7942 allegedly does not require government
The additional government share is computed using one of
approval for the pre-operating, exploration and development
three (3) options or schemes detailed in DAO 99-56, viz., (1) the fifty-
expenses of the foreign contractors, it is feared that such expenses
fifty sharing of cumulative present value of cash flows; (2) the excess
could be bloated to wipe out mining revenues anticipated for 10
profit-related additional government share; and (3) the additional
years, with the result that the States share is zero for the first 10
sharing based on the cumulative net mining revenue. Whichever
years. However, the argument is based on incorrect information.
option or computation is used, the additional government share has
nothing to do with taxes, duties, fees or charges. The portion of Under Section 23 of RA 7942, the applicant for exploration permit
revenues remaining after the deduction of the basic and additional is required to submit a proposed work program for exploration,
government shares is what goes to the contractor. containing a yearly budget of proposed expenditures, which the State
passes upon and either approves or rejects; if approved, the same
The basic government share and the additional government
will subsequently be recorded as pre-operating expenses that the
share do not yet take into account the indirect taxes and other
contractor will have to recoup over the grace period.
financial contributions of mining projects, which are real and actual
benefits enjoyed by the Filipino people; if these are taken into Under Section 24, when an exploration permittee files with the
account, total government share increases to 60 percent or MGB a declaration of mining project feasibility, it must submit a work
higher (as much as 77 percent, and 89 percent in one instance) of program for development, with corresponding budget, for approval by
the net present value of total benefits from the project. the Bureau, before government may grant an FTAA or MPSA or
other mineral agreements; again, government has the opportunity to
approve or reject the proposed work program and budgeted from FTAA contractors merely the same government share (i.e., the
expenditures for development works, which will become the pre- 2 percent excise tax) that it apparently demands from contractors
operating and development costs that will have to be recovered. under the three forms of mineral agreements.
Government is able to know ahead of time the amounts of pre-
While there is ground to believe that Sections 80, 84 and 112 are
operating and other expenses to be recovered, and the approximate
indeed unconstitutional, they cannot be ruled upon here. In any
period of time needed therefor. The aforecited provisions have
event, they are separable; thus, a later finding of nullity will not affect
counterparts in Section 35, which deals with the terms and conditions
the rest of RA 7942.
exclusively applicable to FTAAs. In sum, the third or last paragraph
of Section 81 of RA 7942 cannot be deemed defective. In fine, the challenged provisions of RA 7942 cannot be said
to surrender financial benefits from an FTAA to the foreign
Section 80 of RA 7942 allegedly limits the States share in a
contractors.
mineral production-sharing agreement (MPSA) to just the excise tax
on the mineral product, i.e., only 2 percent of market value of the Moreover, there is no concrete basis for the view that, in FTAAs
minerals. The colatilla in Section 84 reiterates the same limitation in with a foreign contractor, the State must receive at least 60 percent
Section 80. However, these two provisions pertain only to of the after-tax income from the exploitation of its mineral resources,
MPSAs, and have no application to FTAAs. These particular and that such share is the equivalent of the constitutional
provisions do not come within the issues defined by this Court. requirement that at least 60 percent of the capital, and hence 60
Hence, on due process grounds, no pronouncement can be percent of the income, of mining companies should remain in Filipino
made in this case in respect of the constitutionality of Sections hands. Even if the State is entitled to a 60 percent share from other
80 and 84. mineral agreements (CPA, JVA and MPSA), that would not create a
parallel or analogous situation for FTAAs. We are dealing with an
Section 112 is disparaged for reverting FTAAs and all mineral
essentially different equation. Here we have the old apples and
agreements to the old license, concession or lease system, because
oranges syndrome.
it allegedly effectively reduces the government share in FTAAs to just
the 2 percent excise tax which pursuant to Section 80 comprises the The Charter did not intend to fix an iron-clad rule of 60 percent
government share in MPSAs. However, Section 112 likewise does share, applicable to all situations, regardless of circumstances. There
not come within the issues delineated by this Court, and was never is no indication of such an intention on the part of the framers.
touched upon by the parties in their pleadings. Moreover, Section Moreover, the terms and conditions of petroleum FTAAs cannot
112 may not properly apply to FTAAs. The mining law obviously serve as standards for mineral mining FTAAs, because the
meant to treat FTAAs as a breed apart from mineral agreements. technical and operational requirements, cost structures and
There is absolutely no basis to believe that the law intends to exact investment needs of off-shore petroleum exploration and
drilling companies do not have the remotest resemblance to Inc., a domestic corporation at least 60 percent Filipino owned, can
those of on-shore mining companies. be deemed to have automatically triggered the operation of Section
7.9 and removed the States right to receive its 60 percent share.
To take the position that governments share must be not less
Section 7.9 of the WMCP FTAA has effectively given away the
than 60 percent of after-tax income of FTAA contractors is nothing
States share without anything in exchange.
short of this Court dictating upon the government. The State
resultantly ends up losing control. To avoid compromising the States Moreover, it constitutes unjust enrichment on the part of the local
full control and supervision over the exploitation of mineral resources, and foreign stockholders in WMCP, because by the mere act of
there must be no attempt to impose a minimum 60 percent rule. It is divestment, the local and foreign stockholders get a windfall, as their
sufficient that the State has the power and means, should it so share in the net mining revenues of WMCP is automatically
decide, to get a 60 percent share (or greater); and it is not necessary increased, without having to pay anything for it.
that the State does so in every case.
Being grossly disadvantageous to government and detrimental to
the Filipino people, as well as violative of public policy, Section 7.9
Invalid Provisions of must therefore be stricken off as invalid. The FTAA in question does
the WMCP FTAA not involve mere contractual rights but, being impressed as it is with
public interest, the contractual provisions and stipulations must yield
to the common good and the national interest. Since the offending
Section 7.9 of the WMCP FTAA clearly renders illusory the States provision is very much separable from the rest of the FTAA, the
60 percent share of WMCPs revenues. Under Section 7.9, should deletion of Section 7.9 can be done without affecting or requiring the
WMCPs foreign stockholders (who originally owned 100 percent of invalidation of the entire WMCP FTAA itself.
the equity) sell 60 percent or more of their equity to a Filipino citizen
or corporation, the State loses its right to receive its share in net Section 7.8(e) of the WMCP FTAA likewise is invalid, since by
mining revenues under Section 7.7, without any offsetting allowing the sums spent by government for the benefit of the
compensation to the State. And what is given to the State in Section contractor to be deductible from the States share in net mining
7.7 is by mere tolerance of WMCPs foreign stockholders, who can at revenues, it results in benefiting the contractor twice over. This
any time cut off the governments entire share by simply selling 60 constitutes unjust enrichment on the part of the contractor, at the
percent of WMCPs equity to a Philippine citizen or corporation. expense of government. For being grossly disadvantageous and
prejudicial to government and contrary to public policy, Section 7.8(e)
In fact, the sale by WMCPs foreign stockholder on January 23, must also be declared without effect. It may likewise be stricken off
2001 of the entire outstanding equity in WMCP to Sagittarius Mines, without affecting the rest of the FTAA.
EPILOGUE future agreements which may be suspected to be grossly
disadvantageous or detrimental to government may be challenged in
AFTER ALL IS SAID AND DONE, it is clear that there is court, and the culprits haled before the bar of justice.
unanimous agreement in the Court upon the key principle that the Verily, under the doctrine of separation of powers and due
State must exercise full control and supervision over the exploration, respect for co-equal and coordinate branches of government, this
development and utilization of mineral resources. Court must restrain itself from intruding into policy matters and must
The crux of the controversy is the amount of discretion to be allow the President and Congress maximum discretion in using the
accorded the Executive Department, particularly the President of the resources of our country and in securing the assistance of foreign
Republic, in respect of negotiations over the terms of FTAAs, groups to eradicate the grinding poverty of our people and answer
particularly when it comes to the government share of financial their cry for viable employment opportunities in the country.
benefits from FTAAs. The Court believes that it is not unconstitutional The judiciary is loath to interfere with the due exercise by coequal
to allow a wide degree of discretion to the Chief Executive, given the branches of government of their official functions.[99] As aptly spelled
nature and complexity of such agreements, the humongous amounts out seven decades ago by Justice George Malcolm, Just as the
of capital and financing required for large-scale mining operations, the Supreme Court, as the guardian of constitutional rights, should not
complicated technology needed, and the intricacies of international sanction usurpations by any other department of government, so
trade, coupled with the States need to maintain flexibility in its should it as strictly confine its own sphere of influence to the powers
dealings, in order to preserve and enhance our countrys expressly or by implication conferred on it by the Organic Act.[100] Let
competitiveness in world markets. the development of the mining industry be the responsibility of the
We are all, in one way or another, sorely affected by the recently political branches of government. And let not this Court interfere
reported scandals involving corruption in high places, duplicity in the inordinately and unnecessarily.
negotiation of multi-billion peso government contracts, huge payoffs The Constitution of the Philippines is the supreme law of the land.
to government officials, and other malfeasances; and perhaps, there It is the repository of all the aspirations and hopes of all the people.
is the desire to see some measures put in place to prevent further We fully sympathize with the plight of Petitioner La Bugal Blaan and
abuse. However, dictating upon the President what minimum other tribal groups, and commend their efforts to uplift their
share to get from an FTAA is not the solution. It sets a bad communities. However, we cannot justify the invalidation of an
precedent since such a move institutionalizes the very reduction if otherwise constitutional statute along with its implementing rules, or
not deprivation of the States control. The remedy may be worse than the nullification of an otherwise legal and binding FTAA contract.
the problem it was meant to address. In any event, provisions in such
We must never forget that it is not only our less privileged For this latter group of Filipinos yet to be born, their eventual
brethren in tribal and cultural communities who deserve the attention access to education, health care and basic services, their overall
of this Court; rather, all parties concerned -- including the State itself, level of well-being, the very shape of their lives are even now being
the contractor (whether Filipino or foreign), and the vast majority of determined and affected partly by the policies and directions being
our citizens -- equally deserve the protection of the law and of this adopted and implemented by government today. And in part by the
Court. To stress, the benefits to be derived by the State from mining this Resolution rendered by this Court today.
activities must ultimately serve the great majority of our fellow
Verily, the mineral wealth and natural resources of this country
citizens. They have as much right and interest in the proper and well-
are meant to benefit not merely a select group of people living in the
ordered development and utilization of the countrys mineral
areas locally affected by mining activities, but the entire Filipino
resources as the petitioners.
nation, present and future, to whom the mineral wealth really belong.
Whether we consider the near term or take the longer view, we This Court has therefore weighed carefully the rights and interests of
cannot overemphasize the need for an appropriate balancing of all concerned, and decided for the greater good of the greatest
interests and needs -- the need to develop our stagnating mining number. JUSTICE FOR ALL, not just for some; JUSTICE FOR THE
industry and extract what NEDA Secretary Romulo Neri estimates is PRESENT AND THE FUTURE, not just for the here and now.
some US$840 billion (approx. PhP47.04 trillion) worth of mineral
WHEREFORE, the Court RESOLVES to GRANT the
wealth lying hidden in the ground, in order to jumpstart our
respondents and the intervenors Motions for Reconsideration;
floundering economy on the one hand, and on the other, the need to
to REVERSE and SET ASIDE this Courts January 27, 2004
enhance our nationalistic aspirations, protect our indigenous
Decision; to DISMISS the Petition; and to issue this new judgment
communities, and prevent irreversible ecological damage.
declaring CONSTITUTIONAL (1) Republic Act No. 7942 (the
This Court cannot but be mindful that any decision rendered in Philippine Mining Law), (2) its Implementing Rules and Regulations
this case will ultimately impact not only the cultural communities contained in DENR Administrative Order (DAO) No. 9640 -- insofar
which lodged the instant Petition, and not only the larger community as they relate to financial and technical assistance agreements
of the Filipino people now struggling to survive amidst a referred to in paragraph 4 of Section 2 of Article XII of the
fiscal/budgetary deficit, ever increasing prices of fuel, food, and Constitution; and (3) the Financial and Technical Assistance
essential commodities and services, the shrinking value of the local Agreement (FTAA) dated March 30, 1995 executed by the
currency, and a government hamstrung in its delivery of basic government and Western Mining Corporation Philippines Inc.
services by a severe lack of resources, but also countless future (WMCP), except Sections 7.8 and 7.9 of the subject FTAA which are
generations of Filipinos. hereby INVALIDATED for being contrary to public policy and for
being grossly disadvantageous to the government.
SO ORDERED.
Davide Jr., C.J., Sandoval-Gutierrez, Austria-
Martinez, and Garcia, JJ., concur.
Puno, J., in the result and votes to invalidate sections 3.3; 7.8
and 7.9 of the WMC FTAA.
Quisumbing, J., in the result.
Ynares-Santiago, J., joins dissenting opinion of J. Antonio Carpio
& J. Conchita C. Morales.
Carpio, and Carpio-Morales, JJ., see dissenting opinion.
Corona, J., certifies he voted affirmatively with the majority and
he was allowed to do so although he is on leave.
Callejo, Sr., J., concurs to the dissenting opinion of J. Carpio.
Azcuna, J., took no part-same reason.
Tinga, and Chico-Nazario, JJ., concur with a separate opinio

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