G.R. No.

141314

November 15, 2002

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGY REGULATORY BOARD petitioner, vs. MANILA ELECTRIC COMPANY, respondent. ----------------------------G.R. No. 141369 November 15, 2002

In the same Order, the ERB requested the Commission on Audit (COA) to conduct an "audit and examination of the books and other records of account of the applicant for such period of time, which in no case shall be less than 12 consecutive months, as it may deem appropriate" and to submit a copy thereof to the ERB immediately upon completion.2 On February 11, 1997, the COA submitted its Audit Report SAO No. 95-07 (the "COA Report") which contained, among others, the recommendation not to include income taxes paid by MERALCO as part of its operating expenses for purposes of rate determination and the use of the net average investment method for the computation of the proportionate value of the properties used by MERALCO during the test year for the determination of the rate base.3 Subsequently, the ERB rendered its decision adopting the above recommendations and authorized MERALCO to implement a rate adjustment in the average amount of P0.017 per kwh, effective with respect to MERALCO's billing cycles beginning February 1994. The ERB further ordered that "the provisional relief in the amount of P0.184 per kilowatthour granted under the Board's Order dated January 28, 1994 is hereby superseded and modified and the excess average amount of P0.167 per kilowatthour starting with [MERALCO's] billing cycles beginning February 1994 until its billing cycles beginning February 1998, be refunded to [MERALCO's] customers or correspondingly credited in their favor for future consumption."4 The ERB held that income tax should not be treated as operating expense as this should be "borne by the stockholders who are recipients of the income or profits realized from the operation of their business" hence, should not be passed on to the consumers.5 Further, in applying the net average investment method, the ERB adopted the recommendation of COA that in computing the rate base, only the proportionate value of the property should be included, determined in accordance with the number of months the same was actually used in service during the test year.6 On appeal, the Court of Appeals set aside the ERB decision insofar as it directed the reduction of the MERALCO rates by an average of P0.167 per kwh and the refund of such amount to MERALCO's customers beginning February 1994 and until its billing cycle beginning February 1998.7 Separate Motions for Reconsideration filed by the petitioners were denied by the Court of Appeals.8 Petitioners are now before the Court seeking a reversal of the decision of the Court of Appeals by arguing primarily that the Court of Appeals erred: a) in ruling that income tax paid by MERALCO should be treated as part of its operating expenses and thus considered in determining the amount of increase in rates imposed by MERALCO and b) in rejecting the net average investment method used by the COA and the ERB and instead adopted the average investment method used by MERALCO. We grant the petition. The regulation of rates to be charged by public utilities is founded upon the police powers of the State and statutes prescribing rules for the control and regulation of public utilities are a valid exercise thereof. When private property is used for a public purpose and is affected with public interest, it ceases to be juris privati only and becomes subject to regulation. The regulation is to promote the common good. Submission to regulation may be withdrawn by the owner by discontinuing use; but as long as use of the property is continued, the same is subject to public regulation.9 In regulating rates charged by public utilities, the State protects the public against arbitrary and excessive rates while maintaining the efficiency and quality of services rendered. However, the power to regulate rates does not give the State the right to prescribe rates which are so low as

LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP) consisting of CEFERINO PADUA, Chairman, G. FULTON ACOSTA, GALILEO BRION, ANATALIA BUENAVENTURA, PEDRO CASTILLO, NAPOLEON CORONADO, ROMEO ECHAUZ, FERNANDO GAITE, ALFREDO DE GUZMAN, ROGELIO KARAGDAG, JR., MA. LUZ ARZAGA-MENDOZA, ANSBERTO PAREDES, AQUILINO PIMENTEL III, MARIO REYES, EMMANUEL SANTOS, RUDEGELIO TACORDA, members, and ROLANDO ARZAGA, Secretary-General, JUSTICE ABRAHAM SARMIENTO, SENATOR AQUILINO PIMENTEL, JR. and COMMISSIONER BARTOLOME FERNANDEZ, JR., Board of Consultants, and Lawyer GENARO LUALHATI, petitioners, vs. MANILA ELECTRIC COMPANY (MERALCO), respondent. DECISION PUNO, J.: In third world countries like the Philippines, equal justice will have a synthetic ring unless the economic rights of the people, especially the poor, are protected with the same resoluteness as their right to liberty. The cases at bar are of utmost significance for they concern the right of our people to electricity and to be reasonably charged for their consumption. In configuring the contours of this economic right to a basic necessity of life, the Court shall define the limits of the power of respondent MERALCO, a giant public utility and a monopoly, to charge our people for their electric consumption. The question is: should public interest prevail over private profits? The facts are brief and undisputed. On December 23, 1993, MERALCO filed with the ERB an application for the revision of its rate schedules. The application reflected an average increase of 21 centavos per kilowatthour (kwh) in its distribution charge. The application also included a prayer for provisional approval of the increase pursuant to Section 16(c) of the Public Service Act and Section 8 of Executive Order No. 172. On January 28, 1994, the ERB issued an Order granting a provisional increase of P0.184 per kwh, subject to the following condition. "In the event, however, that the Board finds, after hearing and submission by the Commission on Audit of an audit report on the books and records of the applicant that the latter is entitled to a lesser increase in rates, all excess amounts collected from the applicant's customers as a result of this Order shall either be refunded to them or correspondingly credited in their favor for application to electric bills covering future consumptions."1

to deprive the public utility of a reasonable return on investment. Thus, the rates prescribed by the State must be one that yields a fair return on the public utility upon the value of the property performing the service and one that is reasonable to the public for the services rendered.10 The fixing of just and reasonable rates involves a balancing of the investor and the consumer interests.11 In his famous dissenting opinion in the 1923 case of Southwestern Bell Tel. Co. v. Public Service Commission,12 Mr. Justice Brandeis wrote: "The thing devoted by the investor to the public use is not specific property, tangible and intangible, but capital embarked in an enterprise. Upon the capital so invested, the Federal Constitution guarantees to the utility the opportunity to earn a fair return The Constitution does not guarantee to the utility the opportunity to earn a return on the value of all items of property used by the utility, or of any of them. The investor agrees, by embarking capital in a utility, that its charges to the public shall be reasonable. His company is the substitute for the State in the performance of the public service, thus becoming a public servant. The compensation which the Constitution guarantees an opportunity to earn is the reasonable cost of conducting the business." While the power to fix rates is a legislative function, whether exercised by the legislature itself or delegated through an administrative agency, a determination of whether the rates so fixed are reasonable and just is a purely judicial question and is subject to the review of the courts.13 The ERB was created under Executive Order No. 172 to regulate, among others, the distribution of energy resources and to fix rates to be charged by public utilities involved in the distribution of electricity. In the fixing of rates, the only standard which the legislature is required to prescribe for the guidance of the administrative authority is that the rate be reasonable and just. It has been held that even in the absence of an express requirement as to reasonableness, this standard may be implied.14 What is a just and reasonable rate is a question of fact calling for the exercise of discretion, good sense, and a fair, enlightened and independent judgment. The requirement of reasonableness comprehends such rates which must not be so low as to be confiscatory, or too high as to be oppressive. In determining whether a rate is confiscatory, it is essential also to consider the given situation, requirements and opportunities of the utility.15 Settled jurisprudence holds that factual findings of administrative bodies on technical matters within their area of expertise should be accorded not only respect but even finality if they are supported by substantial evidence even if not overwhelming or preponderant.16 In one case, 17 we cautioned that courts should "refrain from substituting their discretion on the weight of the evidence for the discretion of the Public Service Commission on questions of fact and will only reverse or modify such orders of the Public Service Commission when it really appears that the evidence is insufficient to support their conclusions."18 In the cases at bar, findings and conclusions of the ERB on the rate that can be charged by MERALCO to the public should be respected.19 The function of the court, in exercising its power of judicial review, is to determine whether under the facts and circumstances, the final order entered by the administrative agency is unlawful or unreasonable.20 Thus, to the extent that the administrative agency has not been arbitrary or capricious in the exercise of its power, the timehonored principle is that courts should not interfere. The principle of separation of powers dictates that courts should hesitate to review the acts of administrative officers except in clear cases of grave abuse of discretion.21 In determining the just and reasonable rates to be charged by a public utility, three major factors are considered by the regulating agency: a) rate of return; b) rate base and c) the return itself or

the computed revenue to be earned by the public utility based on the rate of return and rate base.22 The rate of return is a judgment percentage which, if multiplied with the rate base, provides a fair return on the public utility for the use of its property for service to the public.23 The rate of return of a public utility is not prescribed by statute but by administrative and judicial pronouncements. This Court has consistently adopted a 12% rate of return for public utilities.24 The rate base, on the other hand, is an evaluation of the property devoted by the utility to the public service or the value of invested capital or property which the utility is entitled to a return.25 In the cases at bar, the resolution of the issues involved hinges on the determination of the kind and the amount of operating expenses that should be allowed to a public utility to generate a fair return and the proper valuation of the rate base or the value of the property entitled to a return. I Income Tax as Operating Expense Cannot be Allowed For Rate-Determination Purposes In determining whether or not a rate yields a fair return to the utility, the operating expenses of the utility must be considered. The return allowed to a public utility in accordance with the prescribed rate must be sufficient to provide for the payment of such reasonable operating expenses incurred by the public utility in the provision of its services to the public. Thus, the public utility is allowed a return on capital over and above operating expenses. However, only such expenses and in such amounts as are reasonable for the efficient operation of the utility should be allowed for determination of the rates to be charged by a public utility. The ERB correctly ruled that income tax should not be included in the computation of operating expenses of a public utility. Income tax paid by a public utility is inconsistent with the nature of operating expenses. In general, operating expenses are those which are reasonably incurred in connection with business operations to yield revenue or income. They are items of expenses which contribute or are attributable to the production of income or revenue. As correctly put by the ERB, operating expenses "should be a requisite of or necessary in the operation of a utility, recurring, and that it redounds to the service or benefit of customers."26 Income tax, it should be stressed, is imposed on an individual or entity as a form of excise tax or a tax on the privilege of earning income.27 In exchange for the protection extended by the State to the taxpayer, the government collects taxes as a source of revenue to finance its activities. Clearly, by its nature, income tax payments of a public utility are not expenses which contribute to or are incurred in connection with the production of profit of a public utility. Income tax should be borne by the taxpayer alone as they are payments made in exchange for benefits received by the taxpayer from the State. No benefit is derived by the customers of a public utility for the taxes paid by such entity and no direct contribution is made by the payment of income tax to the operation of a public utility for purposes of generating revenue or profit. Accordingly, the burden of paying income tax should be Meralco's alone and should not be shifted to the consumers by including the same in the computation of its operating expenses. The principle behind the inclusion of operating expenses in the determination of a just and reasonable rate is to allow the public utility to recoup the reasonable amount of expenses it has incurred in connection with the services it provides. It does not give the public utility the license to indiscriminately charge any and all types of expenses incurred without regard to the nature thereof, i.e., whether or not the expense is attributable to the production of services by the public utility. To charge consumers for expenses incurred by a public utility which are not related to the service or benefit derived by the customers from the public utility is unjustified and inequitable. While the public utility is entitled to a reasonable return on the fair value of the property being used for the service of the public, no less than the Federal Supreme Court of the United States

emphasized: "[t]he public cannot properly be subjected to unreasonable rates in order simply that stockholders may earn dividends If a corporation cannot maintain such a [facility] and earn dividends for stockholders, it is a misfortune for it and them which the Constitution does not require to be remedied by imposing unjust burdens on the public."28 We are not impressed by the reliance by MERALCO on some American case law allowing the treatment of income tax paid by a public utility as operating expense for rate-making purposes. Suffice to state that with regard to rate-determination, the government is not hidebound to apply any particular method or formula.29 The question of what constitutes a reasonable return for the public utility is necessarily determined and controlled by its peculiar environmental milieu. Aside from the financial condition of the public utility, there are other critical factors to consider for purposes of rate regulation. Among others, they are: particular reasons involved for the request of the rate increase, the quality of services rendered by the public utility, the existence of competition, the element of risk or hazard involved in the investment, the capacity of consumers, etc.30 Rate regulation is the art of reaching a result that is good for the public utility and is best for the public. For these reasons, the Court cannot give in to the importunings of MERALCO that we blindly apply the rulings of American courts on the treatment of income tax as operating expenses in rate regulation cases. An approach allowing the indiscriminate inclusion of income tax payments as operating expenses may create an undesirable precedent and serve as a blanket authority for public utilities to charge their income tax payments to operating expenses and unjustly shift the tax burden to the customer. To be sure, public utility taxation in the United States is going through the eye of criticism. Some commentators are of the view that by allowing the public utility to collect its income tax payment from its customers, a form of "sales tax" is, in effect, imposed on the public for consumption of public utility services. By charging their income tax payments to their customers, public utilities virtually become "tax collectors" rather than taxpayers.31 In the cases at bar, MERALCO has not justified why its income tax should be treated as an operating expense to enable it to derive a fair return for its services. It is also noteworthy that under American laws, public utilities are taxed differently from other types of corporations and thus carry a heavier tax burden. Moreover, different types of taxes, charges, tolls or fees are assessed on a public utility depending on the state or locality where it operates. At a federal level, public utilities are subject to corporate income taxes and Social Security taxesin the same manner as other business corporations. At the state and local levels, public utilities are subject to a wide variety of taxes, not all of which are imposed on each state. Thus, it is not unusual to find different taxes or combinations of taxes applicable to respective utility industries within a particular state.32 A significant aspect of state and local taxation of public utilities in the United States is that they have been singled out for special taxation, i.e., they are required to pay one or more taxes that are not levied upon other industries. In contrast, in this jurisdiction, public utilities are subject to the same tax treatment as any other corporation and local taxes paid by it to various local government units are substantially the same. The reason for this is that the power to tax resides in our legislature which may prescribe the limits of both national and local taxation, unlike in the federal system of the United States where state legislature may prescribe taxes to be levied in their respective jurisdictions. MERALCO likewise cites decisions of the ERB33 allowing the application of a tax recovery clause for the imposition of an additional charge on consumers for taxes paid by the public utility. A close look at these decisions will show they are inappropos. In the said cases, the ERB approved the adoption of a formula which will allow the public utility to recover from its customers taxes already paid by it. However, in the cases at bar, the income tax component added to the operating expenses of a public utility is based on an estimate or approximate figure of income tax to be paid by the public utility. It is this estimated amount of income tax to be paid by MERALCO which is included in the amount of operating expenses and used as basis in determining the reasonable rate to be charged to the customers. Accordingly, the varying

factual circumstances in the said cases prohibit a square application of the rule under the previous ERB decisions. II Use of "Net Average Investment Method" is Not Unreasonable In the determination of the rate base, property used in the operation of the public utility must be subject to appraisal and evaluation to determine the fair value thereof entitled to a fair return. With respect to those properties which have not been used by the public utility for the entire duration of the test year, i.e., the year subject to audit examination for rate-making purposes, a valuation method must be adopted to determine the proportionate value of the property. Petitioners maintain that the net average investment method (also known as "actual number of months use method") recommended by COA and adopted by the ERB should be used, while MERALCO argues that the average investment method (also known as the "trending method") to determine the proportionate value of properties should be applied. Under the "net average investment method," properties and equipment used in the operation of a public utility are entitled to a return only on the actual number of months they are in service during the period.34 In contrast, the "average investment method" computes the proportionate value of the property by adding the value of the property at the beginning and at the end of the test year with the resulting sum divided by two.35 The ERB did not abuse its discretion when it applied the net average investment method. The reasonableness of net average investment method is borne by the records of the case. In its report, the COA explained that the computation of the proportionate value of the property and equipment in accordance with the actual number of months such property or equipment is in service for purposes of determining the rate base is favored, as against the trending method employed by MERALCO, "to reflect the real status of the property."36 By using the net average investment method, the ERB and the COA considered for determination of the rate base the value of properties and equipment used by MERALCO in proportion to the period that the same were actually used during the period in question. This treatment is consistent with the settled rule in rate regulation that the determination of the rate base of a public utility entitled to a return must be based on properties and equipment actually being used or are useful to the operations of the public utility.37 MERALCO does not seriously contest this treatment of actual usage of property but opposes the method of computation or valuation thereof adopted by the ERB and the COA on the ground that the net average investment method "assumes an ideal situation where a utility, like MERALCO, is able to record in its books within any given month the value of all the properties actually placed in service during that month."38 MERALCO contends that immediate recordal in its books of the property or equipment is not possible as MERALCO's franchise covers a wide area and that due to the volume of properties and equipment put into service and the amount of paper work required to be accomplished for recording in the books of the company, "it takes three to six months (often longer) before an asset placed in service is recorded in the books" of MERALCO.39 Hence, MERALCO adopted the "average investment method" or the "trending method" which computes the average value of the property at the beginning and at the end of the test year to compensate for the irregular recording in its books. MERALCO'S stance is belied by the COA Report which states that the "verification of the records, as confirmed by the Management Staff, disclosed that properties are recorded in the books as these are actually placed in service."40 Moreover, while the case was pending trial before the ERB, the ERB conducted an ocular inspection to examine the assets in service, records and books of accounts of MERALCO to ascertain the physical existence, ownership, valuation and usefulness of the assets contained in the COA Report.41 Thus, MERALCO's

contention that the date of recordal in the books does not reflect the date when the asset is placed in service is baseless. Further, computing the proportionate value of assets used in service in accordance with the actual number of months the same is used during the test year is a more accurate method of determining the value of the properties of a public utility entitled to a return. If, as determined by COA, the date of recordal in the books of MERALCO reflects the actual date the equipment or property is used in service, there is no reason for the ERB to adopt the trending method applied by MERALCO if a more precise method is available for determining the proportionate value of the assets placed in service. If we were to sustain the application of the "trending method," the public utility may easily manipulate the valuation of its property entitled to a return (rate base) by simply including a highly capitalized asset in the computation of the rate base even if the same was used for a limited period of time during the test year. With the inexactness of the trending method and the possibility that the valuation of certain properties may be subject to the control of and abuse by the public utility, the Court finds no reasonable basis to overturn the recommendation of COA and the decision of the ERB. MERALCO further insists that the Court should sustain the "trending method" in view of previous decisions by the Public Service Commission and of this Court which "upheld" the use of this method. By refusing to adopt the trending method, MERALCO argues that the ERB violated the rule on stare decisis. Again, we are not impressed. It is a settled rule that the goal of rate-making is to arrive at a just and reasonable rate for both the public utility and the public which avails of the former's products and services.42 However, what is a just and reasonable rate cannot be fixed by any immutable method or formula. Hence, it has been held that no public utility has a vested right to any particular method of valuation.43 Accordingly, with respect to a determination of the proper method to be used in the valuation of property and equipment used by a public utility for ratemaking purposes, the administrative agency is not bound to apply any one particular formula or method simply because the same method has been previously used and applied. In fact, nowhere in the previous decisions cited by MERALCO which applied the trending method did the Court rule that the same should be the only method to be applied in all instances. At any rate, MERALCO has not adequately shown that the rates prescribed by the ERB are unjust or confiscatory as to deprive its stockholders a reasonable return on investment. In the early case of Ynchausti S.S. Co. v. Public Utility Commissioner, this Court held: "[t]here is a legal presumption that the rates fixed by an administrative agency are reasonable, and it must be conceded that the fixing of rates by the Government, through its authorized agents, involves the exercise of reasonable discretion and, unless there is an abuse of that discretion, the courts will not interfere."44 Thus, the burden is upon the oppositor, MERALCO, to prove that the rates fixed by the ERB are unreasonable or otherwise confiscatory as to merit the reversal of the ERB. In the instant cases, MERALCO was unable to discharge this burden. WHEREFORE, in view of the foregoing, the instant petitions are GRANTED and the decision of the Court of Appeals in C.A. G.R. SP No. 46888 is REVERSED. Respondent MERALCO is authorized to adopt a rate adjustment in the amount of P0.017 per kilowatthour, effective with respect to MERALCO's billing cycles beginning February 1994. Further, in accordance with the decision of the ERB dated February 16, 1998, the excess average amount of P0.167 per kilwatthour starting with the applicant's billing cycles beginning February 1998 is ordered to be refunded to MERALCO's customers or correspondingly credited in their favor for future consumption. SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur. Footnotes 1 Rollo, G.R. No. 141314, p.116. 2 Id. 3 Id. at 164-166 and 168. 4 Id. at 589. 5 Id. at 587. 6 Id. at 569-570. 7 Id. at 88. 8 Id. at 90-95. 9 Munn v. People of the State of Illinois, 94 U.S.113, 126 (1877). 10 IV A. F. Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines 500 (1993). 11 Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591. 12 262 U.S. 290-91, 43 S.Ct. 544, 547 (1923). 13 IV A. F. Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines 500 (1993), citing Ynchausti SS Co. v. Public Utility Commission, 42 Phil 624 and Manila Electric Co. v. De Vera, et al., 66 Phil 161. 14 Philippine Communications Satellite Corporation v. Alcuaz, et al., 180 SCRA 218, 226 (1989). 15 Id. at 232. 16 Casa Filipina Realty Corporation v. Office of the President, 241 SCRA 165 (1995). Substantial evidence is more than a mere scintilla. It means such relevant evidence which a reasonable mind might accept as adequate to form a conclusion. (Ang Tibay v. Court of Industrial Relations, 69 Phil. 635 (1940). 17 Batangas Transportation Company, et al. v. Laguna Transportation Company, 104 Phil. 992 (1958). 18 Id., citing Manila Yellow Taxicab Co. and Acro Taxicab Co. vs. Danon, 58 Phil. 75 (1933). 19 Province of Zamboanga del Norte v. Court of Appeals, 342 SCRA 549, 560 (2000). 20 City of Cincinnati v. Public Utilities Commission, 90 N.E.2d 681 (1950). 21 A. Sibal, Administrative Law 145 (1999). 22 P. Garfield and W. Lovejoy, Public Utility, p. 116. 23 Nichols and Welch, Ruling Principles of Utility Regulations, Rate of Return, Supp. A, 1 (1964). 24 Manila Electric Company v. Public Service Commission, 18 SCRA 651, 665-666 (1966). 25 Susan F. Fendell, Public Ownership of Public Utilities: Have Stockholders Outlived Their Useful Economic Lives?, 43 Ohio St. L. J. 821 (1982); 64 Am Jur 2d 138. 26 Rollo, G.R. No. 141314, p. 581. 27 H. De Leon, The Fundamentals of Taxation 79 (1993). 28 Smyth v. Ames, 169 U.S. 466, 545 (1898). 29 Republic v. Medina, 41 SCRA 643, 662 (1971); 64 Am Jur 2d 666. 30 II O. Pond, Public Utilities 1037-1038 (1932). 31 P. Garfield and W. Lovejoy, Public Utility Economics 386, 393 (1964). 32 Id. at 385-386. 33 Cotabato Light & Power Plant (ERB Case No. 91-70); Davao Light and Power Co., Inc. (ERB Case No. 92-105); and San Fernando Electric Light and Power Co. Inc. (ERB Case No. 97-11). 34 Section 608 (7), Article IX of the National Accounting and Auditing Manual. 35 Rollo of G.R. No. 141314, p. 59. 36 Id. at 168. 37 II O. Pond, Public Utilities 1154 (1932). 38 Petition for Review, p. 22; Rollo, C.A.-G.R. No. 46888, p. 23. 40 Rollo, G.R. No. 141314, p. 168 (emphasis supplied). 41 Id. at 560. 42 Rate-Making for Public Utilities, 169 SCRA 175, 192 (1989). 43 64 Am Jur 2d 666-667. 44 42 Phil. 621 (1922).

G.R. No. 83551 July 11, 1989 RODOLFO B. ALBANO, petitioner, vs. HON. RAINERIO O. REYES, PHILIPPINE PORTS AUTHORITY, INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., E. RAZON, INC., ANSCOR CONTAINER CORPORATION, and SEALAND SERVICES. LTD., respondents. Vicente Abad Santos for petitioner. Bautista, Picazo, Buyco & Tan for private respondents. PARAS, J.: This is a Petition for Prohibition with prayer for Preliminary Injunction or Restraining Order seeking to restrain the respondents Philippine Ports Authority (PPA) and the Secretary of the Department of Transportation and Communications Rainerio O. Reyes from awarding to the International Container Terminal Services, Inc. (ICTSI) the contract for the development, management and operation of the Manila International Container Terminal (MICT). On April 20, 1987, the PPA Board adopted its Resolution No. 850 directing PPA management to prepare the Invitation to Bid and all relevant bidding documents and technical requirements necessary for the public bidding of the development, management and operation of the MICT at the Port of Manila, and authorizing the Board Chairman, Secretary Rainerio O. Reyes, to oversee the preparation of the technical and the documentation requirements for the MICT leasing as well as to implement this project. Accordingly, respondent Secretary Reyes, by DOTC Special Order 87-346, created a seven (7) man "Special MICT Bidding Committee" charged with evaluating all bid proposals, recommending to the Board the best bid, and preparing the corresponding contract between the PPA and the winning bidder or contractor. The Bidding Committee consisted of three (3) PPA representatives, two (2) Department of Transportation and Communications (DOTC) representatives, one (1) Department of Trade and Industry (DTI) representative and one (1) private sector representative. The PPA management prepared the terms of reference, bid documents and draft contract which materials were approved by the PPA Board. The PPA published the Invitation to Bid several times in a newspaper of general circulation which publication included the reservation by the PPA of "the right to reject any or all bids and to waive any informality in the bids or to accept such bids which may be considered most advantageous to the government." Seven (7) consortia of companies actually submitted bids, which bids were opened on July 17, 1987 at the PPA Head Office. After evaluation of the several bids, the Bidding Committee recommended the award of the contract to develop, manage and operate the MICT to respondent International Container Terminal Services, Inc. (ICTSI) as having offered the best Technical and Financial Proposal. Accordingly, respondent Secretary declared the ICTSI consortium as the winning bidder.

Before the corresponding MICT contract could be signed, two successive cases were filed against the respondents which assailed the legality or regularity of the MICT bidding. The first was Special Civil Action 55489 for "Prohibition with Preliminary Injunction" filed with the RTC of Pasig by Basilio H. Alo, an alleged "concerned taxpayer", and, the second was Civil Case 88-43616 for "Prohibition with Prayer for Temporary Restraining Order (TRO)" filed with the RTC of Manila by C.F. Sharp Co., Inc., a member of the nine (9) firm consortium "Manila Container Terminals, Inc." which had actively participated in the MICT Bidding. Restraining Orders were issued in Civil Case 88-43616 but these were subsequently lifted by this Court in Resolutions dated March 17, 1988 (in G.R. No. 82218 captioned "Hon. Rainerio O. Reyes etc., et al. vs. Hon. Doroteo N. Caneba, etc., et al.) and April 14, 1988 (in G.R. No. 81947 captioned "Hon. Rainerio O. Reyes etc., et al. vs. Court of Appeals, et al.") On May 18, 1988, the President of the Philippines approved the proposed MICT Contract, with directives that "the responsibility for planning, detailed engineering, construction, expansion, rehabilitation and capital dredging of the port, as well as the determination of how the revenues of the port system shall be allocated for future port works, shall remain with the PPA; and the contractor shall not collect taxes and duties except that in the case of wharfage or tonnage dues and harbor and berthing fees, payment to the Government may be made through the contractor who shall issue provisional receipts and turn over the payments to the Government which will issue the official receipts." (Annex "I"). The next day, the PPA and the ICTSI perfected the MICT Contract (Annex "3") incorporating therein by "clarificatory guidelines" the aforementioned presidential directives. (Annex "4"). Meanwhile, the petitioner, Rodolfo A. Albano filed the present petition as citizen and taxpayer and as a member of the House of Representatives, assailing the award of the MICT contract to the ICTSI by the PPA. The petitioner claims that since the MICT is a public utility, it needs a legislative franchise before it can legally operate as a public utility, pursuant to Article 12, Section 11 of the 1987 Constitution. The petition is devoid of merit. A review of the applicable provisions of law indicates that a franchise specially granted by Congress is not necessary for the operation of the Manila International Container Port (MICP) by a private entity, a contract entered into by the PPA and such entity constituting substantial compliance with the law. 1. Executive Order No. 30, dated July 16, 1986, provides: WHEREFORE, I, CORAZON C. AQUINO, President of the Republic of the Philippines, by virtue of the powers vested in me by the Constitution and the law, do hereby order the immediate recall of the franchise granted to the Manila International Port Terminals, Inc. (MIPTI) and authorize the Philippine Ports Authority (PPA) to take over, manage and operate the Manila International Port Complex at North Harbor, Manila and undertake the provision of cargo handling and port related

services thereat, in accordance with P.D. 857 and other applicable laws and regulations. Section 6 of Presidential Decree No. 857 (the Revised Charter of the Philippine Ports Authority) states: a) The corporate duties of the Authority shall be: xxx xxx xxx (ii) To supervise, control, regulate, construct, maintain, operate, and provide such facilities or services as are necessary in the ports vested in, or belonging to the Authority. xxx xxx xxx (v) To provide services (whether on its own, by contract, or otherwise) within the Port Districts and the approaches thereof, including but not limited to berthing, towing, mooring, moving, slipping, or docking of any vessel; loading or discharging any vessel; sorting, weighing, measuring, storing, warehousing, or otherwise handling goods. xxx xxx xxx b) The corporate powers of the Authority shall be as follows: xxx xxx xxx (vi) To make or enter into contracts of any kind or nature to enable it to discharge its functions under this Decree. xxx xxx xxx [Emphasis supplied.] Thus, while the PPA has been tasked, under E.O. No. 30, with the management and operation of the Manila International Port Complex and to undertake the providing of cargo handling and port related services thereat, the law provides that such shall be "in accordance with P.D. 857 and other applicable laws and regulations." On the other hand, P.D. No. 857 expressly empowers the PPA to provide services within Port Districts "whether on its own, by contract, or otherwise" [See. 6(a) (v)]. Therefore, under the terms of E.O. No. 30 and P.D. No. 857, the PPA may contract with the International Container Terminal Services, Inc. (ICTSI) for the management, operation and development of the MICP. 2. Even if the MICP be considered a public utility, 1 or a public service 2 on the theory that it is a "wharf' or a "dock" 3 as contemplated under the Public Service Act, its operation would not necessarily call for a franchise from the Legislative Branch. Franchises issued by Congress are not required before each and every public utility may operate. Thus, the law has granted certain administrative agencies the power to grant licenses for or to authorize the operation of certain public utilities. (See E.O. Nos. 172 and 202) That the Constitution provides in Art. XII, Sec. 11 that the issuance of a franchise, certificate or other form of authorization for the operation of a public utility shall be subject to amendment, alteration or repeal by Congress does not necessarily, imply, as petitioner posits that only Congress has the power to grant such authorization. Our statute books are replete with laws granting specified agencies in the Executive Branch the power to issue such authorization for certain classes of public utilities. 4 As stated earlier, E.O. No. 30 has tasked the PPA with the operation and management of the MICP, in accordance with P.D. 857 and other applicable laws and regulations. However, P.D. 857 itself authorizes the PPA to perform the service by itself, by contracting it out, or through other means. Reading E.O. No. 30 and P.D. No. 857 together, the

inescapable conclusion is that the lawmaker has empowered the PPA to undertake by itself the operation and management of the MICP or to authorize its operation and management by another by contract or other means, at its option. The latter power having been delegated to the PPA, a franchise from Congress to authorize an entity other than the PPA to operate and manage the MICP becomes unnecessary. In the instant case, the PPA, in the exercise of the option granted it by P.D. No. 857, chose to contract out the operation and management of the MICP to a private corporation. This is clearly within its power to do. Thus, PPA's acts of privatizing the MICT and awarding the MICT contract to ICTSI are wholly within the jurisdiction of the PPA under its Charter which empowers the PPA to "supervise, control, regulate, construct, maintain, operate and provide such facilities or services as are necessary in the ports vested in, or belonging to the PPA." (Section 6(a) ii, P.D. 857) The contract between the PPA and ICTSI, coupled with the President's written approval, constitute the necessary authorization for ICTSI's operation and management of the MICP. The award of the MICT contract approved by no less than the President of the Philippines herself enjoys the legal presumption of validity and regularity of official action. In the case at bar, there is no evidence which clearly shows the constitutional infirmity of the questioned act of government. For these reasons the contention that the contract between the PPA and ICTSI is illegal in the absence of a franchise from Congress appears bereft of any legal basis. 3. On the peripheral issues raised by the party, the following observations may be made: A. That petitioner herein is suing as a citizen and taxpayer and as a Member of the House of Representatives, sufficiently clothes him with the standing to institute the instant suit questioning the validity of the assailed contract. While the expenditure of public funds may not be involved under the contract, public interest is definitely involved considering the important role of the MICP in the economic development of the country and the magnitude of the financial consideration involved. Consequently, the disclosure provision in the Constitution 5 would constitute sufficient authority for upholding petitioner's standing. [Cf. Taada v. Tuvera, G.R. No. 63915, April 24, 1985,136 SCRA 27, citing Severino v. Governor General, 16 Phil. 366 (1910), where the Court considered the petitioners with sufficient standing to institute an action where a public right is sought to be enforced.] B. That certain committees in the Senate and the House of Representatives have, in their respective reports, and the latter in a resolution as well, declared their opinion that a franchise from Congress is necessary for the operation of the MICP by a private individual or entity, does not necessarily create a conflict between the Executive and the Legislative Branches needing the intervention of the Judicial Branch. The court is not faced with a situation where the Executive Branch has contravened an enactment of Congress. As discussed earlier, neither is the Court confronted with a case of one branch usurping a power pertaining to another. C. Petitioner's contention that what was bid out, i.e., the development, management and operation of the MICP, was not what was subsequently contracted, considering the conditions imposed by the President in her letter of approval, thus rendering the bids and projections immaterial and the procedure taken ineffectual, is not supported by the established facts. The conditions imposed by the President did not materially alter the substance of the contract, but merely dealt on the details of its implementation.

D. The determination of whether or not the winning bidder is qualified to undertake the contracted service should be left to the sound judgment of the PPA. The PPA, having been tasked with the formulation of a plan for the development of port facilities and its implementation [Sec. 6(a) (i)], is the agency in the best position to evaluate the feasibility of the projections of the bidders and to decide which bid is compatible with the development plan. Neither the Court, nor Congress, has the time and the technical expertise to look into this matter. Thus, the Court in Manuel v. Villena (G.R. No. L-28218, February 27, 1971, 37 SCRA 745] stated: [C]ourts, as a rule, refuse to interfere with proceedings undertaken by administrative bodies or officials in the exercise of administrative functions. This is so because such bodies are generally better equipped technically to decide administrative questions and that non-legal factors, such as government policy on the matter, are usually involved in the decisions. [at p. 750.] In conclusion, it is evident that petitioner has failed to show a clear case of grave abuse of discretion amounting to lack or excess of jurisdiction as to warrant the issuance of the writ of prohibition. WHEREFORE, the petition is hereby DISMISSED. SO ORDERED. Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Gancayco, Bidin, Cortes, Grio-Aquino, Medialdea and Regalado, JJ., concur. Feliciano, J., concurs in the result. Padilla and Sarmiento, JJ., took no part.

I recall that in E. Razon, Inc. v. Philippine Ports Authority (151 SCRA 233 [1977]), this Court decided the case in favor of the PPA because, among others, of its submissions that: (1) the petitioner therein committed violations as to outside stevedoring services, inadequate equipment, delayed submission of reports, and non-compliance with certain port regulations; (2) respondent Marina Port Services and not the petitioner was better qualified to handle arrastre services; (3) the petitioner being controlled by Alfredo Romualdez could not enter into a management contract with PPA and any such contract would be null and void; and (4) even if the petitioner may not have shared in the illegal intention behind the transfer of majority shares, it shared in the benefits of the violation of law. I was surprised during the oral arguments of the present petition to hear the counsel for PPA submit diametrically different statements regarding the capabilities and worth of E. Razon, Inc., as an arrastre operator. It now turns out that the Manila International Container Terminal will depend a great deal on the expertise, reliability and competence of E. Razon, Inc., for its successful operations. The time difference between the two petitions is insubstantial. After going over the pleadings of the present petition, I am now convinced that it is the submissions of PPA in this case and not its contentions in G.R. No. 75197 which are accurate and meritorious. There is the distinct possibility that we may have been unfair in the earlier petition because of assertions made therein which are contradictory to the submissions in the instant petition. No such doubts would exist if the Government is more consistent in its pleadings on such important factual matters as those raised in these two petitions.

Separate Opinions GUTIERREZ, JR., J., concurring: I concur in the Court's decision that the determination of whether or not the winning bidder is qualified to undertake the contracted service should be left to the sound judgment of the Philippine Ports Authority (PPA). I agree that the PPA is the agency which can best evaluate the comparative qualifications of the various bidding contractors and that in making such evaluation it has the technical expertise which neither this Court nor Congress possesses. However, I would feel more comfortable in the thought that the above rulings are not only grounded on firm legal foundations but are also factually accurate if the PPA shows greater consistency in its submissions to this Court.

G.R. No. 114222 April 6, 1995 FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners, vs. HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of Transportation and Communications, and EDSA LRT CORPORATION, LTD., respondents.

(BOT) Law, it took effect on October 9, 1990. Republic Act No. 6957 provides for two schemes for the financing, construction and operation of government projects through private initiative and investment: Build-Operate-Transfer (BOT) or Build-Transfer (BT). In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway, DOTC, on January 22, 1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91-496, respectively creating the Prequalification Bids and Awards Committee (PBAC) and the Technical Committee. After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing and implementation of the project The notice, advertising the prequalification of bidders, was published in three newspapers of general circulation once a week for three consecutive weeks starting February 21, 1991. The deadline set for submission of prequalification documents was March 21, 1991, later extended to April 1, 1991. Five groups responded to the invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium, composed of ten foreign and domestic corporations: namely, Kaiser Engineers International, Inc., ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial Construction Group, Inc, and F. F. Cruz & co., Inc. On the last day for submission of prequalification documents, the prequalification criteria proposed by the Technical Committee were adopted by the PBAC. The criteria totalling 100 percent, are as follows: (a) Legal aspects 10 percent; (b) Management/Organizational capability 30 percent; and (c) Financial capability 30 percent; and (d) Technical capability 30 percent (Rollo, p. 122). On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the Implementation Rules and Regulations thereof, approved the same. After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring that of the five applicants, only the EDSA LRT Consortium "met the requirements of garnering at least 21 points per criteria [sic], except for Legal Aspects, and obtaining an over-all passing mark of at least 82 points" (Rollo, p. 146). The Legal Aspects referred to provided that the BOT/BT contractor-applicant meet the requirements specified in the

QUIASON, J.: This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further implementing and enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" dated April 22, 1992, and the "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement To Build, Lease and Transfer a Light Rail Transit System for EDSA" dated May 6, 1993. Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine Senate and are suing in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent Secretary of the Department of Transportation and Communications (DOTC), while private respondent EDSA LRT Corporation, Ltd. is a private corporation organized under the laws of Hongkong. I In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in Metropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended to provide a mass transit system along EDSA and alleviate the congestion and growing transportation problem in the metropolis. On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu Levin to DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a Build-Operate-Transfer (BOT) basis. On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project with DOTC. On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes," was signed by President Corazon C. Aquino. Referred to as the Build-Operate-Transfer

Constitution and other pertinent laws (Rollo, p. 114). Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines and was replaced by Secretary Pete Nicomedes Prado. The latter sent to President Aquino two letters dated May 31, 1991 and June 14, 1991, respectively recommending the award of the EDSA LRT III project to the sole complying bidder, the EDSA LRT Consortium, and requesting for authority to negotiate with the said firm for the contract pursuant to paragraph 14(b) of the Implementing Rules and Regulations of the BOT Law (Rollo, pp. 298-302). In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to the DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its bid proposal to DOTC. Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" under the terms of the BOT Law (Rollo, pp. 147-177). Secretary Prado, thereafter, requested presidential approval of the contract. In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive Secretary Orbos, informed Secretary Prado that the President could not grant the requested approval for the following reasons: (1) that DOTC failed to conduct actual public bidding in compliance with Section 5 of the BOT Law; (2) that the law authorized public bidding as the only mode to award BOT projects, and the prequalification proceedings was not the public bidding contemplated under the law; (3) that Item 14 of the Implementing Rules and Regulations of the BOT Law which authorized negotiated award of contract in addition to public bidding was of doubtful legality; and (4) that congressional approval of the list of priority projects under the BOT or BT Scheme provided in the law had not yet been granted at the time the contract was awarded (Rollo, pp. 178-179). In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-negotiated the agreement. On April 22, 1992, the parties entered into a "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the fact the DOTC has full authority to sign the Agreement without need of approval by the President pursuant to the provisions of Executive Order No. 380 and that certain events [had] supervened since November 7, 1991 which necessitate[d] the revision of the Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by Secretary Jesus Garcia vice Secretary Prado, and private respondent entered into a "Supplemental Agreement to the 22 April 1992 Revised and Restated

Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" so as to "clarify their respective rights and responsibilities" and to submit [the] Supplemental Agreement to the President, of the Philippines for his approval" (Rollo, pp. 79-80). Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and approval. In a Memorandum to Secretary Garcia on May 6, 1993, approved the said Agreements, (Rollo, p. 194). According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak Federal Republics and will have a maximum carrying capacity of 450,000 passengers a day, or 150 million a year to be achievedthrough 54 such vehicles operating simultaneously. The EDSA LRT III will run at grade, or street level, on the mid-section of EDSA for a distance of 17.8 kilometers from F.B. Harrison, Pasay City to North Avenue, Quezon City. The system will have its own power facility (Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen (13) passenger stations and one depot in 16-hectare government property at North Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). Private respondents shall undertake and finance the entire project required for a complete operational light rail transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date is 1,080 days or approximately three years from the implementation date of the contract inclusive of mobilization, site works, initial and final testing of the system (Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion and viability thereof, private respondent shall deliver the use and possession of the completed portion to DOTC which shall operate the same (Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay private respondent rentals on a monthly basis through an Irrevocable Letter of Credit. The rentals shall be determined by an independent and internationally accredited inspection firm to be appointed by the parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent's capital shall be recovered from the rentals to be paid by the DOTC which, in turn, shall come from the earnings of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25 years and DOTC shall have completed payment of the rentals, ownership of the project shall be transferred to the latter for a consideration of only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67). On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and for Other Purposes" was signed into law by the President. The law was published in two newspapers of general circulation on May 12, 1994, and took effect 15 days thereafter or on May 28, 1994. The law expressly recognizes BLT scheme and allows direct negotiation of BLT contracts.

II In their petition, petitioners argued that: (1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL AGREEMENT OF MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL; (2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS ILLEGAL; (3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A. NO. 6957 AND, HENCE, IS UNLAWFUL; (4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT CORPORATION, LTD. VIOLATES THE REQUIREMENTS PROVIDED IN THE IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND, HENCE, IS ILLEGAL; (5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR FAILURE TO BEAR PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND INEFFECTIVE; AND (6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT (Rollo, pp. 15-16). Secretary Garcia and private respondent filed their comments separately and claimed that: (1) Petitioners are not the real parties-in-interest and have no legal standing to institute the present petition; (2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts; (3) The scheme adopted in the Agreements is actually a build-transfer

scheme allowed by the BOT Law; (4) The nationality requirement for public utilities mandated by the Constitution does not apply to private respondent; (5) The Agreements executed by and between respondents have been approved by President Ramos and are not disadvantageous to the government; (6) The award of the contract to private respondent through negotiation and not public bidding is allowed by the BOT Law; and (7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718 passed by the Legislature On May 12, 1994, which provides for direct negotiation as a mode of award of infrastructure projects. III Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners, however, countered that the action was filed by them in their capacity as Senators and as taxpayers. The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by the national government or government-owned or controlled corporations allegedly in contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the same when only municipal contracts are involved (Bugnay Construction and Development Corporation v. Laron, 176 SCRA. 240 [1989]). For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it and uphold the legal standing of petitioners as taxpayers to institute the present action. IV In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons: (1) the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by the Constitution to Filipino citizens and domestic corporations, not foreign corporations like private respondent; (2) the Build-Lease-Transfer (BLT) scheme provided in the

agreements is not the BOT or BT Scheme under the law; (3) the contract to construct the EDSA LRT III was awarded to private respondent not through public bidding which is the only mode of awarding infrastructure projects under the BOT law; and (4) the agreements are grossly disadvantageous to the government. 1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT III was awarded by public respondent, is admittedly a foreign corporation "duly incorporated and existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the EDSA LRT III is constructed, private respondent, as lessor, will turn it over to DOTC, as lessee, for the latter to operate the system and pay rentals for said use. The question posed by petitioners is: Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a public utility? (Rollo, p. 17). The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail tracks, rolling stocks like the coaches, rail stations, terminals and the power plant, not a public utility. While a franchise is needed to operate these facilities to serve the public, they do not by themselves constitute a public utility. What constitutes a public utility is not their ownership but their use to serve the public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558 [1923]). The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it does not require a franchise before one can own the facilities needed to operate a public utility so long as it does not operate them to serve the public. Section 11 of Article XII of the Constitution provides: No franchise, certificate or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive character or for a longer period than fifty years . . . (Emphasis supplied).

In law, there is a clear distinction between the "operation" of a public utility and the ownership of the facilities and equipment used to serve the public. Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely subjected to his will in everything not prohibited by law or the concurrence with the rights of another (Tolentino, II Commentaries and Jurisprudence on the Civil Code of the Philippines 45 [1992]). The exercise of the rights encompassed in ownership is limited by law so that a property cannot be operated and used to serve the public as a public utility unless the operator has a franchise. The operation of a rail system as a public utility includes the transportation of passengers from one point to another point, their loading and unloading at designated places and the movement of the trains at pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]). The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof. One can own said facilities without operating them as a public utility, or conversely, one may operate a public utility without owning the facilities used to serve the public. The devotion of property to serve the public may be done by the owner or by the person in control thereof who may not necessarily be the owner thereof. This dichotomy between the operation of a public utility and the ownership of the facilities used to serve the public can be very well appreciated when we consider the transportation industry. Enfranchised airline and shipping companies may lease their aircraft and vessels instead of owning them themselves. While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it admits that it is not enfranchised to operate a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC agreed that on completion date, private respondent will immediately deliver possession of the LRT system by way of lease for 25 years, during which period DOTC shall operate the same as a common carrier and private respondent shall provide technical maintenance and repair services to DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists of providing (1) repair and maintenance facilities for the depot and rail lines, services for routine clearing and security; and (2) producing and distributing maintenance manuals and drawings for the entire system (Revised and Restated Agreement, Annex F). Private respondent shall also train DOTC personnel for familiarization with the operation, use, maintenance and repair of the rolling stock, power plant,

substations, electrical, signaling, communications and all other equipment as supplied in the agreement (Revised and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of DOTC operational personnel which includes actual driving of light rail vehicles under simulated operating conditions, control of operations, dealing with emergencies, collection, counting and securing cash from the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel of DOTC will work under the direction and control of private respondent only during training (Revised and Restated Agreement, Annex E, Sec. 3.1). The training objectives, however, shall be such that upon completion of the EDSA LRT III and upon opening of normal revenue operation, DOTC shall have in their employ personnel capable of undertaking training of all new and replacement personnel (Revised and Restated Agreement, Annex E Sec. 5.1). In other words, by the end of the three-year construction period and upon commencement of normal revenue operation, DOTC shall be able to operate the EDSA LRT III on its own and train all new personnel by itself. Fees for private respondent' s services shall be included in the rent, which likewise includes the project cost, cost of replacement of plant equipment and spare parts, investment and financing cost, plus a reasonable rate of return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54). Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent from any losses, damages, injuries or death which may be claimed in the operation or implementation of the system, except losses, damages, injury or death due to defects in the EDSA LRT III on account of the defective condition of equipment or facilities or the defective maintenance of such equipment facilities (Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68). In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have no dealings with the public and the public will have no right to demand any services from it. It is well to point out that the role of private respondent as lessor during the lease period must be distinguished from the role of the Philippine Gaming Management Corporation (PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease between PGMC and the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint venture agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the lessor obligated itself to build, at its own expense, all the facilities necessary to operate and maintain a nationwide on-line lottery system from whom PCSO was to lease the facilities and operate the same. Upon due examination of the contract, the Court found that PGMC's participation was not confined to the construction and setting up of the on-line lottery system. It spilled over to the actual operation thereof, becoming indispensable to the pursuit, conduct, administration and control of the highly technical and sophisticated lottery system. In effect, the PCSO

leased out its franchise to PGMC which actually operated and managed the same. Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility (Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to railroad companies considered as public utilities (Crystal Car Line v. State Tax Commission, 174 p. 2d 984, 987 [1946]). Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as one operating a public utility. The moment for determining the requisite Filipino nationality is when the entity applies for a franchise, certificate or any other form of authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]). 2. Petitioners further assert that the BLT scheme under the Agreements in question is not recognized in the BOT Law and its Implementing Rules and Regulations. Section 2 of the BOT Law defines the BOT and BT schemes as follows: (a) Build-operate-and-transfer scheme A contractual arrangement whereby the contractor undertakes the construction including financing, of a given infrastructure facility, and the operation and maintenance thereof. The contractor operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals and charges sufficient to enable the contractor to recover its operating and maintenance expenses and its investment in the project plus a reasonable rate of return thereon. The contractor transfers the facility to the government agency or local government unit concerned at the end of the fixed term which shall not exceed fifty (50) years. For the construction stage, the contractor may obtain financing from foreign and/or domestic sources and/or engage the services of a foreign and/or Filipino constructor [sic]: Provided, That the ownership structure of the contractor of an infrastructure facility whose operation requires a public utility franchise must be in accordance with the Constitution: Provided, however, That in the case of corporate investors in the build-operate-and-transfer corporation, the citizenship of each stockholder in the corporate investors shall be the basis for the computation of Filipino equity in the said corporation: Provided, further, That, in the case of foreign constructors [sic], Filipino labor

shall be employed or hired in the different phases of the construction where Filipino skills are available: Provided, furthermore, that the financing of a foreign or foreigncontrolled contractor from Philippine government financing institutions shall not exceed twenty percent (20%) of the total cost of the infrastructure facility or project: Provided, finally, That financing from foreign sources shall not require a guarantee by the Government or by government-owned or controlled corporations. The build-operate-and-transfer scheme shall include a supply-and-operate situation which is a contractual agreement whereby the supplier of equipment and machinery for a given infrastructure facility, if the interest of the Government so requires, operates the facility providing in the process technology transfer and training to Filipino nationals. (b) Build-and-transfer scheme "A contractual arrangement whereby the contractor undertakes the construction including financing, of a given infrastructure facility, and its turnover after completion to the government agency or local government unit concerned which shall pay the contractor its total investment expended on the project, plus a reasonable rate of return thereon. This arrangement may be employed in the construction of any infrastructure project including critical facilities which for security or strategic reasons, must be operated directly by the government (Emphasis supplied). The BOT scheme is expressly defined as one where the contractor undertakes the construction and financing in infrastructure facility, and operates and maintains the same. The contractor operates the facility for a fixed period during which it may recover its expenses and investment in the project plus a reasonable rate of return thereon. After the expiration of the agreed term, the contractor transfers the ownership and operation of the project to the government. In the BT scheme, the contractor undertakes the construction and financing of the facility, but after completion, the ownership and operation thereof are turned over to the government. The government, in turn, shall pay the contractor its total investment on the project in addition to a reasonable rate of return. If payment is to be effected through amortization payments by the government infrastructure agency or local government unit concerned, this shall be made in accordance with a scheme proposed in the bid and incorporated in the contract (R.A. No. 6957, Sec. 6). Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must comply with the citizenship requirement of the Constitution on the operation of a public utility. No such a requirement is imposed in the BT scheme.

There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the payment by the government of the project cost. The law must not be read in such a way as to rule out or unduly restrict any variation within the context of the two schemes. Indeed, no statute can be enacted to anticipate and provide all the fine points and details for the multifarious and complex situations that may be encountered in enforcing the law (Director of Forestry v. Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119 [1914]). The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law. As a matter of fact, the burden on the government in raising funds to pay for the project is made lighter by allowing it to amortize payments out of the income from the operation of the LRT System. In form and substance, the challenged agreements provide that rentals are to be paid on a monthly basis according to a schedule of rates through and under the terms of a confirmed Irrevocable Revolving Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and when full payment shall have been made to and received by private respondent, it shall transfer to DOTC, free from any lien or encumbrances, all its title to, rights and interest in, the project for only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87). A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of a thing for a certain price and for a period which may be definite or indefinite but not longer than 99 years (Civil Code of the Philippines, Art. 1643). There is no transfer of ownership at the end of the lease period. But if the parties stipulate that title to the leased premises shall be transferred to the lessee at the end of the lease period upon the payment of an agreed sum, the lease becomes a lease-purchase agreement. Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine pesos. The EDSA LRT III Project is a high priority project certified by Congress and the National Economic and Development Authority as falling under the Investment Priorities Plan of Government (Rollo, pp. 310-311). It is, therefore, outside the application of the Uniform Currency Act (R.A. No. 529), which reads as follows: Sec. 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted in the Philippines which provisions purports to give the obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against

public policy, and null, void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred. The above prohibition shall not apply to (a) . . .; (b) transactions affecting highpriority economic projects for agricultural, industrial and power development as may be determined by the National Economic Council which are financed by or through foreign funds; . . . . 3. The fact that the contract for the construction of the EDSA LRT III was awarded through negotiation and before congressional approval on January 22 and 23, 1992 of the List of National Projects to be undertaken by the private sector pursuant to the BOT Law (Rollo, pp. 309-312) does not suffice to invalidate the award. Subsequent congressional approval of the list including "rail-based projects packaged with commercial development opportunities" (Rollo, p. 310) under which the EDSA LRT III projects falls, amounts to a ratification of the prior award of the EDSA LRT III contract under the BOT Law. Petitioners insist that the prequalifications process which led to the negotiated award of the contract appears to have been rigged from the very beginning to do away with the usual open international public bidding where qualified internationally known applicants could fairly participate. The records show that only one applicant passed the prequalification process. Since only one was left, to conduct a public bidding in accordance with Section 5 of the BOT Law for that lone participant will be an absurb and pointless exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]). Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to Presidential Decree No. 1594 allows the negotiated award of government infrastructure projects. Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts," allows the negotiated award of government projects in exceptional cases. Sections 4 of the said law reads as follows: Bidding. Construction projects shall generally be undertaken by contract after competitive public bidding. Projects may be undertaken by administration or force account or by negotiated contract only in exceptional cases where time is of the essence, or where there is lack of qualified bidders or contractors, or where there is conclusive evidence that greater economy and efficiency would be achieved through this arrangement, and in accordance with provision of laws and acts on the matter,

subject to the approval of the Minister of Public Works and Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be, if the project cost is less than P1 Million, and the President of the Philippines, upon recommendation of the Minister, if the project cost is P1 Million or more (Emphasis supplied). xxx xxx xxx Indeed, where there is a lack of qualified bidders or contractors, the award of government infrastructure contracts may he made by negotiation. Presidential Decree No. 1594 is the general law on government infrastructure contracts while the BOT Law governs particular arrangements or schemes aimed at encouraging private sector participation in government infrastructure projects. The two laws are not inconsistent with each other but are in pari materia and should be read together accordingly. In the instant case, if the prequalification process was actually tainted by foul play, one wonders why none of the competing firms ever brought the matter before the PBAC, or intervened in this case before us (cf. Malayan Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]). The challenged agreements have been approved by President Ramos himself. Although then Executive Secretary Drilon may have disapproved the "Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA," there is nothing in our laws that prohibits parties to a contract from renegotiating and modifying in good faith the terms and conditions thereof so as to meet legal, statutory and constitutional requirements. Under the circumstances, to require the parties to go back to step one of the prequalification process would just be an idle ceremony. Useless bureaucratic "red tape" should be eschewed because it discourages private sector participation, the "main engine" for national growth and development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory. Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as: (e) Build-lease-and-transfer A contractual arrangement whereby a project proponent is authorized to finance and construct an infrastructure or development facility and upon its completion turns it over to the government agency or local government unit concerned on a lease arrangement for a fixed period after which ownership of the facility is automatically transferred to the government unit concerned.

Section 5-A of the law, which expressly allows direct negotiation of contracts, provides: Direct Negotiation of Contracts. Direct negotiation shall be resorted to when there is only one complying bidder left as defined hereunder. (a) If, after advertisement, only one contractor applies for prequalification and it meets the prequalification requirements, after which it is required to submit a bid proposal which is subsequently found by the agency/local government unit (LGU) to be complying. (b) If, after advertisement, more than one contractor applied for prequalification but only one meets the prequalification requirements, after which it submits bid/proposal which is found by the agency/local government unit (LGU) to be complying. (c) If, after prequalification of more than one contractor only one submits a bid which is found by the agency/LGU to be complying. (d) If, after prequalification, more than one contractor submit bids but only one is found by the agency/LGU to be complying. Provided, That, any of the disqualified prospective bidder [sic] may appeal the decision of the implementing agency, agency/LGUs prequalification bids and awards committee within fifteen (15) working days to the head of the agency, in case of national projects or to the Department of the Interior and Local Government, in case of local projects from the date the disqualification was made known to the disqualified bidder: Provided, furthermore, That the implementing agency/LGUs concerned should act on the appeal within forty-five (45) working days from receipt thereof. Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by the BOT Law has now been rendered moot and academic by R.A. No. 7718. Section 3 of this law authorizes all government infrastructure agencies, government-owned and controlled corporations and local government units to enter into contract with any duly prequalified proponent for the financing, construction, operation and maintenance of any financially viable infrastructure or development facility through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO (Contract-add-operate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO (Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).

From the law itself, once and applicant has prequalified, it can enter into any of the schemes enumerated in Section 2 thereof, including a BLT arrangement, enumerated and defined therein (Sec. 3). Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate of minimum government regulations and procedures and specific government undertakings in support of the private sector" (Sec. 1). A curative statute makes valid that which before enactment of the statute was invalid. Thus, whatever doubts and alleged procedural lapses private respondent and DOTC may have engendered and committed in entering into the questioned contracts, these have now been cured by R.A. No. 7718 (cf. Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos V. Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43 [1922]. 4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government because the rental rates are excessive and private respondent's development rights over the 13 stations and the depot will rob DOTC of the best terms during the most productive years of the project. It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a period of 25 years, exclusive rights over the depot and the air space above the stations for development into commercial premises for lease, sublease, transfer, or advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of these development rights, private respondent shall pay DOTC in Philippine currency guaranteed revenues generated therefrom in the amounts set forth in the Supplemental Agreement (Sec. 11; Rollo, p. 93). In the event that DOTC shall be unable to collect the guaranteed revenues, DOTC shall be allowed to deduct any shortfalls from the monthly rent due private respondent for the construction of the EDSA LRT III (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and income over all contracts on the commercial spaces shall revert to DOTC upon expiration of the 25-year period. (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by the proper administrative agencies and officials who have acquired expertise, specialized skills and knowledge in the performance of their functions should be accorded respect absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v. Alfonso, 176 SCRA 304 [1989]). Government officials are presumed to perform their functions with regularity and strong evidence is necessary to rebut this presumption. Petitioners have not presented evidence on the reasonable rentals to be paid by the parties to each other. The matter of valuation is an esoteric field which is better left to

the experts and which this Court is not eager to undertake. That the grantee of a government contract will profit therefrom and to that extent the government is deprived of the profits if it engages in the business itself, is not worthy of being raised as an issue. In all cases where a party enters into a contract with the government, he does so, not out of charity and not to lose money, but to gain pecuniarily. 5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its governmental function. DOTC is the primary policy, planning, programming, regulating and administrative entity of the Executive branch of government in the promotion, development and regulation of dependable and coordinated networks of transportation and communications systems as well as in the fast, safe, efficient and reliable postal, transportation and communications services (Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in particular that has the power, authority and technical expertise determine whether or not a specific transportation or communication project is necessary, viable and beneficial to the people. The discretion to award a contract is vested in the government agencies entrusted with that function (Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]). WHEREFORE, the petition is DISMISSED. SO ORDERED Bellosillo and Kapunan, JJ., concur. Padilla and Regalado, JJ., concurs in the result. Romero, J., is on leave.

preventing the illegal expenditure of money raised by taxation and that he will sustain a direct injury as a result of the enforcement of the questioned statute or contract. It is not sufficient that he has merely a general interest common to all members of the public." In that case, it was held that a contract, whereby a local government leased property to a private party with the understanding that the latter would build a market building and at the end of the lease would transfer the building of the lessor, did not involve a disbursement of public funds so as to give taxpayer standing to question the legality of the contract. I see no substantial difference, as far as the standing is of taxpayers to question public contracts is concerned, between the contract there and the build-lease-transfer (BLT) contract being questioned by petitioners in this case. Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which citizens were authorized to sue, this Court found standing because it thought the constitutional claims pressed for decision to be of "transcendental importance," as in fact it subsequently granted relief to petitioners by invalidating the challenged statutes or governmental actions. Thus in the Lotto case 6 relied upon by the majority for upholding petitioners standing, this Court took into account the "paramount public interest" involved which "immeasurably affect[ed] the social, economic, and moral well-being of the people . . . and the counter-productive and retrogressive effects of the envisioned on-line lottery system:" 7 Accordingly, the Court invalidated the contract for the operation of lottery. But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive contentions to be without merit To the extent therefore that a party's standing is affected by a determination of the substantive merit of the case or a preliminary estimate thereof, petitioners in the case at bar must be held to be without standing. This is in line with our ruling in Lawyers League for a Better Philippines v. Aquino 8 and In re Bermudez 9 where we dismissed citizens' actions on the ground that petitioners had no personality to sue and their petitions did not state a cause of action. The holding that petitioners did not have standing followed from the finding that they did not have a cause of action. In order that citizens' actions may be allowed a party must show that he personally has suffered some actual or threatened injury as a result of the allegedly illegal conduct of the government; the injury is fairly traceable to the challenged action; and the injury is likely to be redressed by a favorable action. 10 As the U.S. Supreme Court has held: Typically, . . . the standing inquiry requires careful judicial examination of a complaint's allegation to ascertain whether the particular plaintiff is entitled to an adjudication of the particular claims asserted. Is the injury too abstract, or otherwise not appropriate, to be considered judicially cognizable? Is the line of causation between the illegal conduct and injury too attenuated? Is the prospect of

MENDOZA, J., concurring: I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing to sue, I join to dismiss the petition in this case. I write only to set forth what I understand the grounds for our decisions on the doctrine of standing are and, why in accordance with these decisions, petitioners do not have the rights to sue, whether as legislators, taxpayers or citizens. As members of Congress, because they allege no infringement of prerogative as legislators. 1 As taxpayers because petitioners allege neither an unconstitutional exercise of the taxing or spending powers of Congress (Art VI, 24-25 and 29) 2 nor an illegal disbursement of public money. 3 As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron, 4 a party suing as taxpayer "must specifically prove that he has sufficient interest in

obtaining relief from the injury as a result of a favorable ruling too speculative? These questions and any others relevant to the standing inquiry must be answered by reference to the Art III notion that federal courts may exercise power only "in the last resort, and as a necessity, Chicago & Grand Trunk R. Co. v. Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892), and only when adjudication is "consistent with a system of separated powers and [the dispute is one] traditionally thought to be capable of resolution through the judicial process," Flast v Cohen, 392 US 83, 97, 20 L Ed 2d 947, 88 S Ct 1942 (1968). See Valley Forge, 454 US, at 472-473, 70 L Ed 2d 700, 102 S Ct 752. 11 Today's holding that a citizen, qua citizen, has standing to question a government contract unduly expands the scope of public actions and sweeps away the case and controversy requirement so carefully embodied in Art. VIII, 5 in defining the jurisdiction of this Court. The result is to convert the Court into an office of ombudsman for the ventilation of generalized grievances. Consistent with the view that this case has no merit I submit with respect that petitioners, as representatives of the public interest, have no standing. Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur. DAVIDE, JR., J., dissenting: After wading through the record of the vicissitudes of the challenged contract and evaluating the issues raised and the arguments adduced by the parties, I find myself unable to joint majority in the well-written ponencia of Mr. Justice Camilo P. Quiason. I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is an-ultra-vires act of the Department of Transportation and Communications (DOTC) since under R.A. 6957 the DOTC has no authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b) even assuming arguendo that it has, the contract was entered into without complying with the mandatory requirement of public bidding. I Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes," recognizes only two (2) kinds of contractual arrangements between the private sector and government infrastructure agencies: (a) the Build-Operate-and-Transfer (BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This conclusion finds support in Section 2 thereof which defines only the BOT and BT schemes, in Section 3

which explicitly provides for said schemes thus: Sec. 3 Private Initiative in Infrastructure. All government infrastructure agencies, including government-owned and controlled corporations and local government units, are hereby authorized to enter into contract with any duly prequalified private contractor for the financing, construction, operation and maintenance of any financially viable infrastructure facilities through the build-operate-and transfer or build-and-transfer scheme, subject to the terms and conditions hereinafter set forth; (Emphasis supplied). and in Section 5 which requires public bidding of projects under both schemes. All prior acts and negotiations leading to the perfection of the challenged contract were clearly intended and pursued for such schemes. A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the aforesaid prior acts and negotiations were designed for such unauthorized scheme. Hence, the DOTC is without any power or authority to enter into the BLT contract in question. The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the BOT and the BT schemes bar any other arrangement for the payment by the government of the project cost," then "[t]he law must not be read in such a way as to rule outer unduly restrict any variation within the context of the two schemes." This interpretation would be correct if the law itself provides a room for flexibility. We find no such provisions in R.A. No. 6957 if it intended to include a BLT scheme, then it should have so stated, for contracts of lease are not unknown in our jurisdiction, and Congress has enacted several laws relating to leases. That the BLT scheme was never intended as a permissible variation "within the context" of the BOT and BT schemes is conclusively established by the passage of R.A. No. 7718 which amends: Section 2 by adding to the original BOT and BT schemes the following schemes: Build-own-and-operate (BOO) Build-Lease-and-transfer (BLT) Build-transfer-and-operate (BTO) Contract-add-and-operate (CAO) Develop-operate-and-transfer (DOT) Rehabilitate-operate-and-transfer (ROT) Rehabilitate-own-and-operate (ROO). a.

(1) (2) (3) (4) (5) (6) (7)

b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the build-operate-and-transfer or build-and-transfer scheme." II Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows: Sec. 5 Public Bidding of Projects. Upon approval of the projects mentioned in Section 4 of this Act, the concerned head of the infrastructure agency or local government unit shall forthwith cause to be published, once every week for three (3) consecutive weeks, in at least two (2) newspapers of general circulation and in at least one (1) local newspaper which is circulated in the region, province, city or municipality in which the project is to be constructed a notice inviting all duly prequalified infrastructure contractors to participate in the public bidding for the projects so approved. In the case of a build-operate-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the present value of its proposed tolls, fees, rentals, and charges over a fixed term for the facility to be constructed, operated, and maintained according to the prescribed minimum design and performance standards plans, and specifications. For this purpose, the winning contractor shall be automatically granted by the infrastructure agency or local government unit the franchise to operate and maintain the facility, including the collection of tolls, fees, rentals; and charges in accordance with Section 6 hereof. In the case of a build-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the present value of its proposed, schedule of amortization payments for the facility to be constructed according to the prescribed minimum design and performance standards, plans and specifications: Provided, however, That a Filipino constructor who submits an equally advantageous bid shall be given preference. A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be submitted to Congress for its information. The requirement of public bidding is not an idle ceremony. It has been aptly said that in our jurisdiction "public bidding is the policy and medium adhered to in Government procurement and construction contracts under existing laws and regulations. It is the accepted method for arriving at a fair and reasonable price and ensures that overpricing, favoritism, and other anomalous practices are eliminated or minimized. And any Government contract entered into without the required bidding is null and void and cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991], citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]).

The Office of the President, through then Executive Secretary Franklin Drilon Correctly disapproved the contract because no public bidding is strict compliance with Section 5 of R.A. No. 6957 was conducted. Secretary Drilon Further bluntly stated that the provision of the Implementing Rules of said law authorizing negotiated contracts was of doubtful legality. Indeed, it is null and void because the law itself does not recognize or allow negotiated contracts. However the majority opinion posits the view that since only private respondent EDSA LRT was prequalified, then a public bidding would be "an absurd and pointless exercise." I submit that the mandatory requirement of public bidding cannot be legally dispensed with simply because only one was qualified to bid during the prequalification proceedings. Section 5 mandates that the BOT or BT contract should be awarded "to the lowest complying bidder," which logically means that there must at least be two (2) bidders. If this minimum requirement is not met, then the proposed bidding should be deferred and a new prequalification proceeding be scheduled. Even those who were earlier disqualified may by then have qualified because they may have, in the meantime, exerted efforts to meet all the qualifications. This view of the majority would open the floodgates to the rigging of prequalification proceedings or to unholy conspiracies among prospective bidders, which would even include dishonest government officials. They could just agree, for a certain consideration, that only one of them qualify in order that the latter would automatically corner the contract and obtain the award. That section 5 admits of no exception and that no bidding could be validly had with only one bidder is likewise conclusively shown by the amendments introduced by R.A. No. 7718 Per section 7 thereof, a new section denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct negotiation contracts. This new section reads: Sec. 5-A. Direct Negotiation Of Contracts Direct negotiation, shall be resorted to when there is only one complying bidder left as defined hereunder. (a) If, after advertisement, only one contractor applies for prequalification requirements, after which it is required to submit a bid/proposal which subsequently found by the agency/local government unit (LGU) to be complying. (b) If, after advertisement, more than one contractor applied for prequalification but only one meets the prequalification requirements, after which it submits bid/proposal which is found by the agency/local government unit (LGU) to be complying,

(c) If after prequalification of more than one contractor only one submits a bid which is found by the agency/LGU to be complying. (d) If, after prequalification, more than one contractor, only one submit bids but only one is found by the agency/LGU to be complying: Provided, That, any of the disqualified prospective bidder may appeal the decision contractor of the implementing agency/LGUs prequalification bids an award committee within fifteen (15) working days to the head of the agency, in case of national projects or to the Department of the Interior and Local Government, in case of local projects from the date the disqualification was made known to the disqualified bidder Provided, That the implementing agency/LGUs concerned should act on the appeal within forty-five (45) working days from receipt thereof. Can this amendment be given retroactive effect to the challenged contract so that it may now be considered a permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not provide that it should be given retroactive effect to preexisting contracts. Section 18 thereof says that it "shall take effect fifteen (15) days after its publication in at least two (2) newspapers of general circulation." If it were the intention of Congress to give said act retroactive effect then it would have so expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no retroactive effect, unless the contrary is provided." The presumption is that all laws operate prospectively, unless the contrary clearly appears or is clearly, plainly, and unequivocally expressed or necessarily implied. In every case of doubt, the doubt will be resolved against the retroactive application of laws. (Ruben E Agpalo, STATUTORY CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an existing statute, Sutherland states: In accordance with the rule applicable to original acts, it is presumed that provisions added by the amendment affecting substantive rights are intended to operate prospectively. Provisions added by the amendment that affect substantive rights will not be construed to apply to transactions and events completed prior to its enactment unless the legislature has expressed its intent to that effect or such intent is clearly implied by the language of the amendment or by the circumstances surrounding its enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY CONSTRUCTION 434-436 [1943 ed.]). I vote then to grant the instant petition and to declare void the challenged contract and its supplement.

FELICIANO, J., dissenting: After considerable study and effort, and with much reluctance, I find I must dissent in the instant case. I agree with many of the things set out in the majority opinion written by my distinguished brother in the Court Quiason, J. At the end of the day, however, I find myself unable to join in the result reached by the majority. I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on fairly narrow grounds. At the same time; I wish to address briefly one of the points made by Justice Quiason in the majority opinion in his effort to meet the difficulties posed by Davide Jr., J. I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978 entitled: "Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts" More specifically, the majority opinion invokes paragraph 1 of Section 4 of this Degree which reads as follows: Sec. 4. Bidding. Construction projects shall, generally be undertaken by contract after competitive public bidding. Projects may be undertaken by administration or force account or by negotiated contract only in exceptional cases where time is of the essence, or where there is lack of qualified bidders or contractors, or where there is a conclusive evidence that greater economy and efficiency would be achieved through this arrangement, and in accordance with provisions of laws and acts on the matter, subject to the approval of the Ministry of public Works, Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be, if the project cost is less than P1 Million, and of the President of the Philippines, upon the recommendation of the Minister, if the project cost is P1 Million or more. xxx xxx xxx I understand the unspoken theory in the majority opinion to be that above Section 4 and presumably the rest of Presidential Decree No. 1594 continue to exist and to run parallel to the provisions of Republic Act No. 6957, whether in its original form or as amended by Republic Act No. 7718. A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply to all "government contracts for infrastructure and other construction projects." But Republic Act No. 6957 as amended by Republic Act No. 7718, relates only to "infrastructure projects" which are financed, constructed, operated and maintained "by the private sector" "through the build/operate-and-transfer or buildand-transfer scheme" under Republic Act No. 6597 and under a series of other comparable schemes under Republic Act No. 7718. In other words, Republic Act No. 6957 and Republic Act. No. 7718 must be held, in my view, to be special statutes applicable to a more limited field of "infrastructure projects" than the wide-ranging scope of application of the general statute i.e., Presidential Decree No. 1594. Thus,

the high relevance of the point made by Mr. Justice Davide that Republic Act No. 6957 in specific connection with BCT- and BLT type and BLT type of contracts imposed an unqualified requirement of public bidding set out in Section 5 thereof. It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken "by administration or force account or by negotiated contract only" (1) in exceptional cases where time is of the essence; or (2) where there is lack of bidders or contractors; or (3) where there is a conclusive evidence that greater economy and efficiency would be achieved through these arrangements, and in accordance with provision[s] of laws and acts on the matter. It must, upon the one hand, be noted that the special law Republic Act No. 6957 made absolutely no mention of negotiated contracts being permitted to displace the requirement of public bidding. Upon the other hand, Section 5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act No. 7718, does not purport to authorize direct negotiation of contracts situations where there is a lack of prequalified contractors or, complying bidders. Thus, even under the amended special statute, entering into contracts by negotiation is not permissible in the other (2) categories of cases referred to in Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases where time is of the essence" and "when there is conclusive evidence that greater economy and efficiency would be achieved through these arrangements, etc." The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public bidding requirement is that set out in Republic Act No. 6957 and, with respect to such type of contracts opened for pre-qualification and bidding after the date of effectivity of Republic Act No. 7718, The provision of Republic Act No. 7718. The assailed contract was entered into before Republic Act. No. 7718 was enacted. The difficulties. of applying the provisions of Presidential Degree No. 1594 to the Edsa LRT-type of contracts are aggravated when one considers the detailed "Implementing Rules and Regulations as amended April 1988" issued under that Presidential Decree. 1 For instance: IB [2.5.2] 2.4.2 By Negotiated Contract xxx xxx xxx a. In times of emergencies arising from natural calamities where immediate action is necessary to prevent imminent loss of life and/or property.

b. Failure to award the contract after competitive public bidding for valid cause or causes [such as where the prices obtained through public bidding are all above the AAE and the bidders refuse to reduce their prices to the AAE]. In these cases, bidding may be undertaken through sealed canvass of at least three (3) qualified contractors. Authority to negotiate contracts for projects under these exceptional cases shall be subject to prior approval by heads of agencies within their limits of approving authority. c. Where the subject project is adjacent or contiguous to an on-going project and it could be economically prosecuted by the same contractor provided that he has no negative slippage and has demonstrated a satisfactory performance. (Emphasis supplied). Note that there is no reference at all in these Presidential Decree No. 1594 Implementing Rules and Regulations to absence of pre-qualified applicants and bidders as justifying negotiation of contracts as distinguished from requiring public bidding or a second public bidding. Note also the following provision of the same Implementing Rules and Regulations: IB 1 Prequalification The following may be become contractors for government projects: 1 Filipino a. Citizens (single proprietorship) b. Partnership of corporation duly organized under the laws of the Philippines, and at least seventy five percent (75%) of the capital stock of which belongs to Filipino citizens. 2. Contractors forming themselves into a joint venture, i.e., a group of two or more contractors that intend to be jointly and severally responsible for a particular contract, shall for purposes of bidding/tendering comply with LOI 630, and, aside from being currently and properly accredited by the Philippine Contractors Accreditation Board, shall comply with the provisions of R.A. 4566, provided that joint ventures in which Filipino ownership is less than seventy five percent ( 75%) may be prequalified where the structures to be built require the application of techniques and/or

technologies which are not adequately possessed by a Filipino entity as defined above. [The foregoing shall not negate any existing and future commitments with respect to the bidding and aware of contracts financed partly or wholly with funds from international lending institutions like the Asian Development Bank and the Worlds Bank as well as from bilateral and other similar sources.(Emphases supplied) The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT Corporation; there is no suggestion that this corporation is organized under Philippine law and is at least seventy-five (75%) percent owned by Philippine citizens. Public bidding is the normal method by which a government keeps contractors honest and is able to assure itself that it would be getting the best possible value for its money in any construction or similar project. It is not for nothing that multilateral financial organizations like the World Bank and the Asian Development Bank uniformly require projects financed by them to be implemented and carried out by public bidding. Public bidding is much too important a requirement casually to loosen by a latitudinarian exercise in statutory construction. The instant petition should be granted and the challenged contract and its supplement should be nullified and set aside. A true public bidding, complete with a new prequalification proceeding, should be required for the Edsa LRT Project.

358 (1965); Philconsa v. Gimenez. 122 Phil. 894 (1965); CLU v. Executive Secretary, 194 SCRA 317 (1991). 6 Kilosbayan, Inc. v. Guingona, 232 SCRA 110 (1994). 7 Id. at 139. 8 G.R Nos. 73748, 73972, and 73990, May 22, 1986. (Questioning the legitimacy of the Provisional Government of President Aquino). 9 145 SCRA 160 (1986). (Questioning whether President Aquino and Vice President Laurel were the "President and Vice-President elected in the February 7, 1986 election" within the meaning of Art XVIII, 5 of the Constitution. 10 Valley Forge College v. Americans United, 454 U.S. 464, 70 L. Ed. 2d 700 (1982); Bugnay Const. and Dev. Corp. v. Laron, supra, note 4. 11 Allen v. Wright, 468 U.S. 737, 752, 82 L. Ed. 2d 556, 170 (1984). FELICIANO, J., dissenting: 1 Text in 84 Official Gazette, No. 23, pp. 33-37, et seq. (June 1988).

Footnotes MENDOZA, J., concurring: 1 Philconsa v. Enriquez, 235 SCRA 506 (1994); Gonzales v. Macaraig, 191 SCRA 452 (1990); Tolentino v. Comelec, 41 SCRA 702 (1971). 2 Flast v. Cohen, 392 U.S. 83, 20 L. Ed. 2d 947 (1968), cited in Igot v. Comelec, 95 SCRA 392 (1980). 3 Pascual v. Secretary of Public Works, 110 Phil 331 (1960); Sanidad v Comelec, 73 SCRA 333 (1976). 4 176 SCRA 240, 251-2 (1989). 5 Emergency Powers Cases [Araneta v. Dinglasan]. 84 Phil. 368 (1949), Iloilo Palay and Corn Planters Ass'n. v. Feliciano, 121 Phil.

[G.R. No. 119528. March 26, 1997]

pronouncements in the case of Albano vs. Reyes, as restated by the Court of Appeals in Avia Filipinas International vs. Civil Aeronautics Board and Silangan Airways, Inc. vs. Grand International Airways, Inc., and the Hon. Civil Aeronautics Board.
i[1] ii[2] iii[3]

PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL AIRWAYS, INC., respondents. DECISION
TORRES, JR., J.:

This Special Civil Action for Certiorari and Prohibition under Rule 65 of the Rules of Court seeks to prohibit respondent Civil Aeronautics Board from exercising jurisdiction over private respondent's Application for the issuance of a Certificate of Public Convenience and Necessity, and to annul and set aside a temporary operating permit issued by the Civil Aeronautics Board in favor of Grand International Airways (GrandAir, for brevity) allowing the same to engage in scheduled domestic air transportation services, particularly the Manila-Cebu, ManilaDavao, and converse routes. The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to support its petition is the fact that GrandAir does not possess a legislative franchise authorizing it to engage in air transportation service within the Philippines or elsewhere. Such franchise is, allegedly, a requisite for the issuance of a Certificate of Public Convenience or Necessity by the respondent Board, as mandated under Section 11, Article XII of the Constitution. Respondent GrandAir, on the other hand, posits that a legislative franchise is no longer a requirement for the issuance of a Certificate of Public Convenience and Necessity or a Temporary Operating Permit, following the Court's

On November 24, 1994, private respondent GrandAir applied for a Certificate of Public Convenience and Necessity with the Board, which application was docketed as CAB Case No. EP-12711. Accordingly, the Chief Hearing Officer of the CAB issued a Notice of Hearing setting the application for initial hearing on December 16, 1994, and directing GrandAir to serve a copy of the application and corresponding notice to all scheduled Philippine Domestic operators. On December 14, 1994, GrandAir filed its Compliance, and requested for the issuance of a Temporary Operating Permit. Petitioner, itself the holder of a legislative franchise to operate air transport services, filed an Opposition to the application for a Certificate of Public Convenience and Necessity on December 16, 1995 on the following grounds:
iv[4]

"A. The CAB has no jurisdiction to hear the petitioner's application until the latter has first obtained a franchise to operate from Congress. B. The petitioner's application is deficient in form and substance in that: 1. The application does not indicate a route structure including a computation of trunkline, secondary and rural available seat kilometers (ASK) which shall always be maintained at a monthly level at least 5% and 20% of the ASK offered into and out of the proposed base of operations for rural and secondary, respectively. 2. It does not contain a project/feasibility study, projected profit and loss statements, projected balance sheet, insurance coverage, list of personnel, list of spare parts inventory, tariff structure, documents supportive of financial capacity, route flight schedule, contracts on facilities (hangars, maintenance, lot) etc.

C. Approval of petitioner's application would violate the equal protection clause of the constitution. D. There is no urgent need and demand for the services applied for. E. To grant petitioner's application would only result in ruinous competition contrary to Section 4(d) of R.A. 776."v[5]

for the reconsideration of the issuance of the Temporary Operating Permit on January 11, 1995, but the same was denied in CAB Resolution No. 02 (95) on February 2, 1995. In the said Resolution, the Board justified its assumption of jurisdiction over GrandAir's application.
viii[8]

At the initial hearing for the application, petitioner raised the issue of lack of jurisdiction of the Board to hear the application because GrandAir did not possess a legislative franchise. On December 20, 1994, the Chief Hearing Officer of CAB issued an Order denying petitioner's Opposition. Pertinent portions of the Order read:
"PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until the latter has first obtained a franchise to operate from Congress. The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In Avia Filipina vs. CAB, CA G.R. No. 23365, it has been ruled that under Section 10 (c) (I) of R.A. 776, the Board possesses this specific power and duty. In view thereof, the opposition of PAL on this ground is hereby denied. SO ORDERED."

"WHEREAS, the CAB is specifically authorized under Section 10-C (1) of Republic Act No. 776 as follows: '(c) The Board shall have the following specific powers and duties: (1) In accordance with the provision of Chapter IV of this Act, to issue, deny, amend revise, alter, modify, cancel, suspend or revoke, in whole or in part, upon petitioner-complaint, or upon its own initiative, any temporary operating permit or Certificate of Public Convenience and Necessity; Provided, however; that in the case of foreign air carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines." WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein the Supreme Court held that the CAB can even on its own initiative, grant a TOP even before the presentation of evidence; WHEREAS, more recently, Avia Filipinas vs. CAB, (CAGR No. 23365), promulgated on October 30, 1991, held that in accordance with its mandate, the CAB can issue not only a TOP but also a Certificate of Public Convenience and Necessity (CPCN) to a qualified applicant therefor in the absence of a legislative franchise, citing therein as basis the decision of Albano vs. Reyes (175 SCRA 264) which provides (inter alia) that: a) Franchises by Congress are not required before each and every public utility may operate when the law has granted certain administrative agencies the power to grant licenses for or to authorize the operation of certain public utilities; b) The Constitutional provision in Article XII, Section 11 that the issuance of a franchise, certificate or other form of authorization for the

Meantime, on December 22, 1994, petitioner this time, opposed private respondent's application for a temporary permit maintaining that:
"1. The applicant does not possess the required fitness and capability of operating the services applied for under RA 776; and, 2. Applicant has failed to prove that there is clear and urgent public need for the services applied for."vi[6]

On December 23, 1994, the Board promulgated Resolution No. 119(92) approving the issuance of a Temporary Operating Permit in favor of Grand Air for a period of three months, i.e., from December 22, 1994 to March 22, 1994. Petitioner moved
vii[7]

operation of a public utility does not necessarily imply that only Congress has the power to grant such authorization since our statute books are replete with laws granting specified agencies in the Executive Branch the power to issue such authorization for certain classes of public utilities. WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides in Section 2.1 that a minimum of two (2) operators in each route/link shall be encouraged and that routes/links presently serviced by only one (1) operator shall be open for entry to additional operators. RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine Airlines on January 05, 1995 on the Grant by this Board of a Temporary Operating Permit (TOP) to Grand International Airways, Inc. alleging among others that the CAB has no such jurisdiction, is hereby DENIED, as it hereby denied, in view of the foregoing and considering that the grounds relied upon by the movant are not indubitable."

Dr. Arturo C. Corona Executive Director Civil Aeronautics Board PPL Building, 1000 U.N. Avenue Ermita, Manila Sir: This has reference to your request for opinion on the necessity of a legislative franchise before the Civil Aeronautics Board (CAB) may issue a Certificate of Public Convenience and Necessity and/or permit to engage in air commerce or air transportation to an individual or entity. You state that during the hearing on the application of Cebu Air for a congressional franchise, the House Committee on Corporations and Franchises contended that under the present Constitution, the CAB may not issue the abovestated certificate or permit, unless the individual or entity concerned possesses a legislative franchise. You believe otherwise, however, for the reason that under R.A. No. 776, as amended, the CAB is explicitly empowered to issue operating permits or certificates of public convenience and necessity and that this statutory provision is not inconsistent with the current charter. We concur with the view expressed by the House Committee on Corporations and Franchises. In an opinion rendered in favor of your predecessor-in-office, this Department observed that,xxx it is useful to note the distinction between the franchise to operate and a permit to commence operation. The former is sovereign and legislative in nature; it can be conferred only by the lawmaking authority (17 W and P, pp. 691-697). The latter is administrative and regulatory in character (In re Application of Fort Crook-Bellevue Boulevard Line, 283 NW 223); it is granted by an administrative agency, such as the Public Service Commission [now Board of Transportation], in the case of land transportation, and the Civil Aeronautics Board, in case of air services. While a legislative franchise is a pre-requisite to a grant of a certificate of public convenience and necessity to

On March 21, 1995, upon motion by private respondent, the temporary permit was extended for a period of six (6) months or up to September 22, 1995. Hence this petition, filed on April 3, 1995. Petitioners argue that the respondent Board acted beyond its powers and jurisdiction in taking cognizance of GrandAirs application for the issuance of a Certificate of Public Convenience and Necessity, and in issuing a temporary operating permit in the meantime, since GrandAir has not been granted and does not possess a legislative franchise to engage in scheduled domestic air transportation. A legislative franchise is necessary before anyone may engage in air transport services, and a franchise may only be granted by Congress. This is the meaning given by the petitioner upon a reading of Section 11, Article XII, and Section 1, Article VI, of the Constitution.
ix[9] x[10]

To support its theory, PAL submits Opinion No. 163, S. 1989 of the Department of Justice, which reads:

an airline company, such franchise alone cannot constitute the authority to commence operations, inasmuch as there are still matters relevant to such operations which are not determined in the franchise, like rates, schedules and routes, and which matters are resolved in the process of issuance of permit by the administrative. (Secretary of Justice opn No. 45, s. 1981) Indeed, authorities are agreed that a certificate of public convenience and necessity is an authorization issued by the appropriate governmental agency for the operation of public services for which a franchise is required by law (Almario, Transportation and Public Service Law, 1977 Ed., p. 293; Agbayani, Commercial Law of the Phil., Vol. 4, 1979 Ed., pp. 380-381). Based on the foregoing, it is clear that a franchise is the legislative authorization to engage in a business activity or enterprise of a public nature, whereas a certificate of public convenience and necessity is a regulatory measure which constitutes the franchises authority to commence operations. It is thus logical that the grant of the former should precede the latter. Please be guided accordingly. (SGD.) ORDOEZ Secretary of Justice" SEDFREY A.

Court of Appeals upheld the authority of the Board to issue such authority, even in the absence of a legislative franchise, which authority is derived from Section 10 of Republic Act 776, as amended by P.D. 1462.
xi[11]

The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a Temporary Operating Permit. This rule has been established in the case of Philippine Air Lines Inc., vs. Civil Aeronautics Board, promulgated on June 13, 1968. The Board is expressly authorized by Republic Act 776 to issue a temporary operating permit or Certificate of Public Convenience and Necessity, and nothing contained in the said law negates the power to issue said permit before the completion of the applicant's evidence and that of the oppositor thereto on the main petition. Indeed, the CAB's authority to grant a temporary permit "upon its own initiative" strongly suggests the power to exercise said authority, even before the presentation of said evidence has begun. Assuming arguendo that a legislative franchise is prerequisite to the issuance of a permit, the absence of the same does not affect the jurisdiction of the Board to hear the application, but tolls only upon the ultimate issuance of the requested permit.
xii[12]

The power to authorize and control the operation of a public utility is admittedly a prerogative of the legislature, since Congress is that branch of government vested with plenary powers of legislation.
"The franchise is a legislative grant, whether made directly by the legislature itself, or by any one of its properly constituted instrumentalities. The grant, when made, binds the public, and is, directly or indirectly, the act of the state."xiii[13]

Respondent GrandAir, on the other hand, relies on its interpretation of the provisions of Republic Act 776, which follows the pronouncements of the Court of Appeals in the cases of Avia Filipinas vs. Civil Aeronautics Board, and Silangan Airways, Inc. vs. Grand International Airways (supra). In both cases, the issue resolved was whether or not the Civil Aeronautics Board can issue the Certificate of Public Convenience and Necessity or Temporary Operating Permit to a prospective domestic air transport operator who does not possess a legislative franchise to operate as such. Relying on the Court's pronouncement in Albano vs. Reyes (supra), the

The issue in this petition is whether or not Congress, in enacting Republic Act 776, has delegated the authority to authorize the operation of domestic air transport services to the respondent Board, such that Congressional mandate for the approval of such authority is no longer necessary. Congress has granted certain administrative agencies the

power to grant licenses for, or to authorize the operation of certain public utilities. With the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency towards the delegation of greater powers by the legislature, and towards the approval of the practice by the courts. It is generally recognized that a franchise may be derived indirectly from the state through a duly designated agency, and to this extent, the power to grant franchises has frequently been delegated, even to agencies other than those of a legislative nature. In pursuance of this, it has been held that privileges conferred by grant by local authorities as agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the Legislature.
xiv[14] xv[15] xvi[16]

enumerated in Section 21 of R.A. 776. There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is an indispensable requirement for an entity to operate as a domestic air transport operator. Although Section 11 of Article XII recognizes Congress' control over any franchise, certificate or authority to operate a public utility, it does not mean Congress has exclusive authority to issue the same. Franchises issued by Congress are not required before each and every public utility may operate. In many instances, Congress has seen it fit to delegate this function to government agencies, specialized particularly in their respective areas of public service. A reading of Section 10 of the same reveals the clear intent of Congress to delegate the authority to regulate the issuance of a license to operate domestic air transport services:
SECTION 10. Powers and Duties of the Board. (A) Except as otherwise provided herein, the Board shall have the power to regulate the economic aspect of air transportation, and shall have general supervision and regulation of, the jurisdiction and control over air carriers, general sales agents, cargo sales agents, and air freight forwarders as well as their property rights, equipment, facilities and franchise, insofar as may be necessary for the purpose of carrying out the provision of this Act.

xix[19]

The trend of modern legislation is to vest the Public Service Commissioner with the power to regulate and control the operation of public services under reasonable rules and regulations, and as a general rule, courts will not interfere with the exercise of that discretion when it is just and reasonable and founded upon a legal right.
xvii[17]

It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a reading of the pertinent issuances governing the Philippine Ports Authority, proves that the PPA is empowered to undertake by itself the operation and management of the Manila International Container Terminal, or to authorize its operation and management by another by contract or other means, at its option. The latter power having been delegated to the PPA, a franchise from Congress to authorize an entity other than the PPA to operate and manage the MICP becomes unnecessary.
xviii[18]

In support of the Board's authority as stated above, it is given the following specific powers and duties:
(C) The Board shall have the following specific powers and duties: (1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise, alter, modify, cancel, suspend or revoke in whole or in part upon petition or complaint or upon its own initiative any Temporary Operating Permit or Certificate of Public Convenience and Necessity: Provided however, That in the case of foreign air carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines.

Given the foregoing postulates, we find that the Civil Aeronautics Board has the authority to issue a Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a domestic air transport operator, who, though not possessing a legislative franchise, meets all the other requirements prescribed by the law. Such requirements were

Petitioner argues that since R.A. 776 gives the Board the authority to issue "Certificates of Public Convenience and Necessity", this, according to petitioner, means that a legislative franchise is an absolute requirement. It cites a number of authorities supporting the view that a Certificate of Public Convenience and Necessity is issued to a public service for which a franchise is required by law, as distinguished from a "Certificate of Public Convenience" which is an authorization issued for the operation of public services for which no franchise, either municipal or legislative, is required by law.
xx[20]

The use of the word "necessity", in conjunction with "public convenience" in a certificate of authorization to a public service entity to operate, does not in any way modify the nature of such certification, or the requirements for the issuance of the same. It is the law which determines the requisites for the issuance of such certification, and not the title indicating the certificate. Congress, by giving the respondent Board the power to issue permits for the operation of domestic transport services, has delegated to the said body the authority to determine the capability and competence of a prospective domestic air transport operator to engage in such venture. This is not an instance of transforming the respondent Board into a minilegislative body, with unbridled authority to choose who should be given authority to operate domestic air transport services.
"To be valid, the delegation itself must be circumscribed by legislative restrictions, not a "roving commission" that will give the delegate unlimited legislative authority. It must not be a delegation "running riot" and "not canalized with banks that keep it from overflowing." Otherwise, the delegation is in legal effect an abdication of legislative authority, a total surrender by the legislature of its prerogatives in favor of the delegate."xxiii[23]

This submission relies on the premise that the authority to issue a certificate of public convenience and necessity is a regulatory measure separate and distinct from the authority to grant a franchise for the operation of the public utility subject of this particular case, which is exclusively lodged by petitioner in Congress. We do not agree with the petitioner. Many and varied are the definitions of certificates of public convenience which courts and legal writers have drafted. Some statutes use the terms "convenience and necessity" while others use only the words "public convenience." The terms "convenience and necessity", if used together in a statute, are usually held not to be separable, but are construed together. Both words modify each other and must be construed together. The word 'necessity' is so connected, not as an additional requirement but to modify and qualify what might otherwise be taken as the strict significance of the word necessity. Public convenience and necessity exists when the proposed facility will meet a reasonable want of the public and supply a need which the existing facilities do not adequately afford. It does not mean or require an actual physical necessity or an indispensable thing.
xxi[21]

Congress, in this instance, has set specific limitations on how such authority should be exercised. Firstly, Section 4 of R.A. No. 776, as amended, sets out the following guidelines or policies:
"SECTION 4. Declaration of policies. In the exercise and performance of its powers and duties under this Act, the Civil Aeronautics Board and the Civil Aeronautics Administrator shall consider the following, among other things, as being in the public interest, and in accordance with the public convenience and necessity: (a) The development and utilization of the air potential of the Philippines; (b) The encouragement and development of an air transportation system properly adapted to the present and future of foreign and domestic

"The terms 'convenience' and 'necessity' are to be construed together, although they are not synonymous, and effect must be given both. The convenience of the public must not be circumscribed by according to the word 'necessity' its strict meaning or an essential requisites."xxii[22]

commerce of the Philippines, of the Postal Service and of the National Defense; (c) The regulation of air transportation in such manner as to recognize and preserve the inherent advantages of, assure the highest degree of safety in, and foster sound economic condition in, such transportation, and to improve the relations between, and coordinate transportation by, air carriers; (d) The promotion of adequate, economical and efficient service by air carriers at reasonable charges, without unjust discriminations, undue preferences or advantages, or unfair or destructive competitive practices; (e) Competition between air carriers to the extent necessary to assure the sound development of an air transportation system properly adapted to the need of the foreign and domestic commerce of the Philippines, of the Postal Service, and of the National Defense; (f) To promote safety of flight in air commerce in the Philippines; and, (g) The encouragement and development of civil aeronautics.

regulations, and requirements issued thereunder; and (2) that such service is required by the public convenience and necessity; otherwise the application shall be denied.

Furthermore, the procedure for the processing of the application of a Certificate of Public Convenience and Necessity had been established to ensure the weeding out of those entities that are not deserving of public service.
xxv[25]

In sum, respondent Board should now be allowed to continue hearing the application of GrandAir for the issuance of a Certificate of Public Convenience and Necessity, there being no legal obstacle to the exercise of its jurisdiction. ACCORDINGLY, in view of the foregoing considerations, the Court RESOLVED to DISMISS the instant petition for lack of merit. The respondent Civil Aeronautics Board is hereby DIRECTED to CONTINUE hearing the application of respondent Grand International Airways, Inc. for the issuance of a Certificate of Public Convenience and Necessity. SO ORDERED. Regalado (Chairman), and Puno, JJ., concur. Romero, J., no part. Related to counsel. Mendoza, J., no part. Relative in management of party.

More importantly, the said law has enumerated the requirements to determine the competency of a prospective operator to engage in the public service of air transportation.
SECTION 12. Citizenship requirement. Except as otherwise provided in the Constitution and existing treaty or treaties, a permit authorizing a person to engage in domestic air commerce and/or air transportation shall be issued only to citizens of the Philippines.xxiv[24] SECTION 21. Issuance of permit. The Board shall issue a permit authorizing the whole or any part of the service covered by the application, if it finds: (1) that the applicant is fit, willing and able to perform such service properly in conformity with the provisions of this Act and the rules,

i ii iii iv v vi vii viii ix

[1]

G.R. No. 83551, July 11, 1989, 175 SCRA 264. CA G.R. SP No. 23365, October 30, 1991. CA G.R. SP No. 36787, July 19, 1995. Annex "A" Petition, p. 31, Rollo. Annex "D", Petition, Rollo, pp. 43-44. Annex "F", Petition, Rollo, pp. 54-63. Annex "H", Petition, Rollo, p. 79. Annex "I", Petition, Rollo, pp. 80-81.

[2]

[3]

[4]

[5]

[6]

[7]

[8]

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The state shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.
[9]

Section 1. The legislative power shall be vested in the Congress of the Philippines, which shall consist of a Senate and a House and a House of Representatives, except to the extent reserved to the people by the provision on initiative and referendum.
[10]

xi[11]

SECTION 10. Powers and Duties of the Board. (A) Except as otherwise provided herein, the Board shall have the power to regulate the economic aspect of air transportation, and shall have general supervision and regulation of, the jurisdiction and control over air carriers, general sales agents, cargo sales agents, and air freight forwarders as well as their property rights, equipment, facilities and franchise, insofar as may be necessary for the purpose of carrying out the provision of this Act. (B) The Board may perform such acts, conduct such investigation, issue and amend such orders, and make and amend such general or special rules, regulations, and procedures as it shall deem necessary to carry out the provisions of this Act. (C) The Board shall have the following specific powers and duties: (1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise, alter, modify, cancel, suspend or revoke in whole or in part upon petition or complaint or upon its own initiative any Temporary Operating Permit or Certificate of Public Convenience and Necessity: Provided however, That in the case of foreign air carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines. xxx
xii xiii xiv
[12]

G.R. No. L-24219, 23 SCRA 992. Walla Walla v. Walla Walla Water Co. 172 US 1, 36 Am Jur 2d 734.

[13]

Pangasinan Transportation Co., Inc. vs. The Public Service Commission, G.R. No. 47065, June 26, 1940, 70 Phil 221.
[14]

xv

Dyer vs. Tuskaloosa Bridge Co., 2 Port. 296, 27 Am. D. 655; Christian-Todd Tel. Co. vs. Commonwealth, 161 S.W. 543, 156 Ky. 557, 37 C.J.S. 158.
[15]

xvi

Superior Water, Light and Power Co. Vs. City of Superior, 181 N.W. 113, 174 Wis. 257, affirmed 183 N.W. 254, 37 C.J.S. 158.
[16] [17]

xvii xviii

Ynchausti Steamship Co. vs. PUC, 42 Phil 642. P.D. 857 and Executive Order No. 30

[18]

xix xx xxi xxii xxiii xxiv xxv

[19]

Albano vs. Reyes, supra. Memorandum of Petitioner, Rollo, pp. 417-418. Almario, Transportation and the Public Service Law, 1966 ed., p. 288. Wisconsin Tel. Co. vs. Railroad Commission, 156 N.W. 614, 162 N.W. 383, 73 C.J.S. 1099. Cruz, I., Philippine Political Law, 1996. p.97. See Section 11, Article XII, Constitution, supra. See Sections 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23, and 24, RA 776.

[20]

[21]

[22]

[23]

[24]

[25]