envi - la bugal blaan and province of north cotabato

8/10/2019 Envi - La Bugal Blaan and Province of North Cotabato

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Contentsla bugal blaan case ............................................. 1

Province of north cotabato case ...................... 35

la bugal blaan case

G.R. No. 127882 January 27, 2004LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC.,represented by its Chairman F'LONG MIGUELM. LUMAYONG, WIGBERTO E. TAADA,

PONCIANO BENNAGEN, JAIME TADEO,RENATO R. CONSTANTINO, JR., F'LONGAGUSTIN M. DABIE, ROBERTO P. AMLOY,RAQIM L. DABIE, SIMEON H. DOLOJO, IMELDAM. GANDON, LENY B. GUSANAN, MARCELO L.GUSANAN, QUINTOL A. LABUAYAN,LOMINGGES D. LAWAY, BENITA P. TACUAYAN,minors JOLY L. BUGOY, represented by hisfather UNDERO D. BUGOY, ROGER M. DADING,represented by his father ANTONIO L. DADING,ROMY M. LAGARO, represented by his fatherTOTING A. LAGARO, MIKENY JONG B.

LUMAYONG, represented by his father MIGUELM. LUMAYONG, RENE T. MIGUEL, representedby his mother EDITHA T. MIGUEL, ALDEMAR L.SAL, represented by his father DANNY M. SAL,DAISY RECARSE, represented by her motherLYDIA S. SANTOS, EDWARD M. EMUY, ALAN P.MAMPARAIR, MARIO L. MANGCAL, ALDEN S.TUSAN, AMPARO S. YAP, VIRGILIO CULAR,MARVIC M.V.F. LEONEN, JULIA REGINA CULAR,GIAN CARLO CULAR, VIRGILIO CULAR, JR.,represented by their father VIRGILIO CULAR,

PAUL ANTONIO P. VILLAMOR, represented byhis parents JOSE VILLAMOR and ELIZABETHPUA-VILLAMOR, ANA GININA R. TALJA,represented by her father MARIO JOSE B.TALJA, SHARMAINE R. CUNANAN, representedby her father ALFREDO M. CUNANAN,ANTONIO JOSE A. VITUG III, represented by hismother ANNALIZA A. VITUG, LEAN D.

NARVADEZ, represented by his father MANUELE. NARVADEZ, JR., ROSERIO MARALAGLINGATING, represented by her father RIOOLIMPIO A. LINGATING, MARIO JOSE B. TALJA,DAVID E. DE VERA, MARIA MILAGROS L. SANJOSE, SR., SUSAN O. BOLANIO, OND, LOLITA G.DEMONTEVERDE, BENJIE L. NEQUINTO,1ROSELILIA S. ROMANO, ROBERTO S. VERZOLA,EDUARDO AURELIO C. REYES, LEAN LOUEL A.PERIA, represented by his father ELPIDIO V.PERIA,2GREEN FORUM PHILIPPINES, GREENFORUM WESTERN VISAYAS, (GF-WV),ENVIRONMETAL LEGAL ASSISTANCE CENTER(ELAC), PHILIPPINE KAISAHAN TUNGO SAKAUNLARAN NG KANAYUNAN ATREPORMANG PANSAKAHAN(KAISAHAN),3KAISAHAN TUNGO SA

KAUNLARAN NG KANAYUNAN ATREPORMANG PANSAKAHAN (KAISAHAN),PARTNERSHIP FOR AGRARIAN REFORM andRURAL DEVELOPMENT SERVICES, INC.(PARRDS), PHILIPPINE PART`NERSHIP FOR THEDEVELOPMENT OF HUMAN RESOURCES IN THERURAL AREAS, INC. (PHILDHRRA), WOMEN'SLEGAL BUREAU (WLB), CENTER FORALTERNATIVE DEVELOPMENT INITIATIVES, INC.(CADI), UPLAND DEVELOPMENT INSTITUTE(UDI), KINAIYAHAN FOUNDATION, INC.,

SENTRO NG ALTERNATIBONG LINGAPPANLIGAL (SALIGAN), LEGAL RIGHTS ANDNATURAL RESOURCES CENTER, INC.(LRC),petitioners,vs.VICTOR O. RAMOS, SECRETARY, DEPARTMENTOF ENVIRONMENT AND NATURAL RESOURCES(DENR), HORACIO RAMOS, DIRECTOR, MINESAND GEOSCIENCES BUREAU (MGB-DENR),RUBEN TORRES, EXECUTIVE SECRETARY, andWMC (PHILIPPINES), INC.4respondents.D E C I S I O N

CARPIO-MORALES, J.:The present petition for mandamus andprohibition assails the constitutionality ofRepublic Act No. 7942,5otherwise known as thePHILIPPINE MINING ACT OF 1995, along withthe Implementing Rules and Regulations issuedpursuant thereto, Department of Environmentand Natural Resources (DENR) Administrative


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Order 96-40, and of the Financial and TechnicalAssistance Agreement (FTAA) entered into onMarch 30, 1995 by the Republic of thePhilippines and WMC (Philippines), Inc.(WMCP), a corporation organized underPhilippine laws.On July 25, 1987, then President Corazon C.Aquino issued Executive Order (E.O.) No.2796authorizing the DENR Secretary to accept,consider and evaluate proposals from foreign-owned corporations or foreign investors forcontracts or agreements involving eithertechnical or financial assistance for large-scaleexploration, development, and utilization ofminerals, which, upon appropriaterecommendation of the Secretary, thePresident may execute with the foreign

proponent. In entering into such proposals, thePresident shall consider the real contributionsto the economic growth and general welfare ofthe country that will be realized, as well as thedevelopment and use of local scientific andtechnical resources that will be promoted bythe proposed contract or agreement. UntilCongress shall determine otherwise, large-scalemining, for purpose of this Section, shall meanthose proposals for contracts or agreements formineral resources exploration, development,

and utilization involving a committed capitalinvestment in a single mining unit project of atleast Fifty Million Dollars in United StatesCurrency (US $50,000,000.00).7On March 3, 1995, then President Fidel V.Ramos approved R.A. No. 7942 to "govern theexploration, development, utilization andprocessing of all mineral resources."8R.A. No.7942 defines the modes of mineral agreementsfor mining operations,9outlines the procedurefor their filing andapproval,10assignment/transfer11and

withdrawal,12and fixes their terms.13Similarprovisions govern financial or technicalassistance agreements.14The law prescribes the qualifications ofcontractors15and grants them certain rights,including timber,16water17andeasement18rights, and the right to possessexplosives.19Surface owners, occupants, or

concessionaires are forbidden from preventingholders of mining rights from entering privatelands and concession areas.20 A procedure forthe settlement of conflicts is likewise providedfor.21The Act restricts the conditions forexploration,22quarry23and other24permits. Itregulates the transport, sale and processing ofminerals,25 and promotes the development ofmining communities, science and miningtechnology,26and safety and environmentalprotection.27The government's share in the agreements isspelled out and allocated,28 taxes and fees areimposed,29incentives granted.30Aside frompenalizing certain acts,31the law likewisespecifies grounds for the cancellation,

revocation and termination of agreements andpermits.32On April 9, 1995, 30 days following itspublication on March 10, 1995 in Malaya andManila Times, two newspapers of generalcirculation, R.A. No. 7942 took effect.33Shortlybefore the effectivity of R.A. No. 7942,however, or on March 30, 1995, the Presidententered into an FTAA with WMCP covering99,387 hectares of land in South Cotabato,Sultan Kudarat, Davao del Sur and North

Cotabato.

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On August 15, 1995, then DENR Secretary VictorO. Ramos issued DENR Administrative Order(DAO) No. 95-23, s. 1995, otherwise known asthe Implementing Rules and Regulations of R.A.No. 7942. This was later repealed by DAO No.96-40, s. 1996 which was adopted on December20, 1996.On January 10, 1997, counsels for petitionerssent a letter to the DENR Secretary demandingthat the DENR stop the implementation of R.A.No. 7942 and DAO No. 96-40,35giving the DENR

fifteen days from receipt36 to act thereon. TheDENR, however, has yet to respond or act onpetitioners' letter.37Petitioners thus filed the present petition forprohibition and mandamus, with a prayer for atemporary restraining order. They allege that atthe time of the filing of the petition, 100 FTAAapplications had already been filed, covering an


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area of 8.4 million hectares,3864 of whichapplications are by fully foreign-ownedcorporations covering a total of 5.8 millionhectares, and at least one by a fully foreign-owned mining company over offshore areas.39Petitioners claim that the DENR Secretary actedwithout or in excess of jurisdiction:Ix x x in signing and promulgating DENRAdministrative Order No. 96-40 implementingRepublic Act No. 7942, the latter beingunconstitutional in that it allows fully foreignowned corporations to explore, develop, utilizeand exploit mineral resources in a mannercontrary to Section 2, paragraph 4, Article XII ofthe Constitution;II

x x x in signing and promulgating DENRAdministrative Order No. 96-40 implementingRepublic Act No. 7942, the latter beingunconstitutional in that it allows the taking ofprivate property without the determination ofpublic use and for just compensation;IIIx x x in signing and promulgating DENRAdministrative Order No. 96-40 implementingRepublic Act No. 7942, the latter beingunconstitutional in that it violates Sec. 1, Art. III

of the Constitution;IVx x x in signing and promulgating DENRAdministrative Order No. 96-40 implementingRepublic Act No. 7942, the latter beingunconstitutional in that it allows enjoyment byforeign citizens as well as fully foreign ownedcorporations of the nation's marine wealthcontrary to Section 2, paragraph 2 of Article XIIof the Constitution;Vx x x in signing and promulgating DENR

Administrative Order No. 96-40 implementingRepublic Act No. 7942, the latter beingunconstitutional in that it allows priority toforeign and fully foreign owned corporations inthe exploration, development and utilization ofmineral resources contrary to Article XII of theConstitution;VI

x x x in signing and promulgating DENRAdministrative Order No. 96-40 implementingRepublic Act No. 7942, the latter beingunconstitutional in that it allows the inequitablesharing of wealth contrary to Sections [sic] 1,paragraph 1, and Section 2, paragraph 4[,][Article XII] of the Constitution;VIIx x x in recommending approval of andimplementing the Financial and TechnicalAssistance Agreement between the President ofthe Republic of the Philippines and WesternMining Corporation Philippines Inc. because thesame is illegal and unconstitutional.40They pray that the Court issue an order:(a) Permanently enjoining respondents fromacting on any application for Financial or

Technical Assistance Agreements;(b) Declaring the Philippine Mining Act of 1995or Republic Act No. 7942 as unconstitutionaland null and void;(c) Declaring the Implementing Rules andRegulations of the Philippine Mining Actcontained in DENR Administrative Order No. 96-40 and all other similar administrative issuancesas unconstitutional and null and void; and(d) Cancelling the Financial and TechnicalAssistance Agreement issued to Western

Mining Philippines, Inc. as unconstitutional,illegal and null and void.41Impleaded as public respondents are RubenTorres, the then Executive Secretary, Victor O.Ramos, the then DENR Secretary, and HoracioRamos, Director of the Mines and GeosciencesBureau of the DENR. Also impleaded is privaterespondent WMCP, which entered into theassailed FTAA with the Philippine Government.WMCP is owned by WMC ResourcesInternational Pty., Ltd. (WMC), "a wholly ownedsubsidiary of Western Mining Corporation

Holdings Limited, a publicly listed majorAustralian mining and explorationcompany."42By WMCP's information, "it is a100% owned subsidiary of WMC LIMITED."43Respondents, aside from meeting petitioners'contentions, argue that the requisites forjudicial inquiry have not been met and that thepetition does not comply with the criteria for


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prohibition and mandamus. Additionally,respondent WMCP argues that there has been aviolation of the rule on hierarchy of courts.After petitioners filed their reply, this Courtgranted due course to the petition. The partieshave since filed their respective memoranda.WMCP subsequently filed a Manifestationdated September 25, 2002 alleging that onJanuary 23, 2001, WMC sold all its shares inWMCP to Sagittarius Mines, Inc. (Sagittarius), acorporation organized under Philippinelaws.44WMCP was subsequently renamed"Tampakan Mineral ResourcesCorporation."45WMCP claims that at least 60%of the equity of Sagittarius is owned by Filipinosand/or Filipino-owned corporations while about40% is owned by Indophil Resources NL, an

Australian company.46 It further claims that bysuch sale and transfer of shares, "WMCP hasceased to be connected in any way withWMC."47By virtue of such sale and transfer, the DENRSecretary, by Order of December 18,2001,48 approved the transfer and registrationof the subject FTAA from WMCP to Sagittarius.Said Order, however, was appealed by LepantoConsolidated Mining Co. (Lepanto) to the Officeof the President which upheld it by Decision of

July 23, 2002.

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Its motion for reconsiderationhaving been denied by the Office of thePresident by Resolution of November 12,2002,50Lepanto filed a petition forreview51before the Court of Appeals.Incidentally, two other petitions for reviewrelated to the approval of the transfer andregistration of the FTAA to Sagittarius wererecently resolved by this Court.52It bears stressing that this case has not beenrendered moot either by the transfer andregistration of the FTAA to a Filipino-owned

corporation or by the non-issuance of atemporary restraining order or a preliminaryinjunction to stay the above-said July 23, 2002decision of the Office of the President.53Thevalidity of the transfer remains in dispute andawaits final judicial determination. Thisassumes, of course, that such transfer cures the

FTAA's alleged unconstitutionality, on whichquestion judgment is reserved.WMCP also points out that the originalclaimowners of the major mineralized areasincluded in the WMCP FTAA, namely,Sagittarius, Tampakan Mining Corporation, andSouthcot Mining Corporation, are all Filipino-owned corporations,54each of which was aholder of an approved Mineral ProductionSharing Agreement awarded in 1994, albeittheir respective mineral claims were subsumedin the WMCP FTAA;55and that these threecompanies are the same companies thatconsolidated their interests in Sagittarius towhom WMC sold its 100% equity inWMCP.56WMCP concludes that in the eventthat the FTAA is invalidated, the MPSAs of the

three corporations would be revived and themineral claims would revert to their originalclaimants.57These circumstances, while informative, arehardly significant in the resolution of this case,it involving the validity of the FTAA, not thepossible consequences of its invalidation.Of the above-enumerated seven grounds citedby petitioners, as will be shown later, only thefirst and the last need be delved into; in thelatter, the discussion shall dwell only insofar as

it questions the effectivity of E. O. No. 279 byvirtue of which order the questioned FTAA wasforged.IBefore going into the substantive issues, theprocedural questions posed by respondentsshall first be tackled.REQUISITES FOR JUDICIAL REVIEWWhen an issue of constitutionality is raised, thisCourt can exercise its power of judicial reviewonly if the following requisites are present:(1) The existence of an actual and appropriate

case;(2) A personal and substantial interest of theparty raising the constitutional question;(3) The exercise of judicial review is pleaded atthe earliest opportunity; and(4) The constitutional question is the lis mota ofthe case. 58


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Respondents claim that the first three requisitesare not present.Section 1, Article VIII of the Constitution statesthat "(j)udicial power includes the duty of thecourts of justice to settle actual controversiesinvolving rights which are legally demandableand enforceable." The power of judicial review,therefore, is limited to the determination ofactual cases and controversies.59An actual case or controversy means an existingcase or controversy that is appropriate or ripefor determination, not conjectural oranticipatory,60lest the decision of the courtwould amount to an advisory opinion.61Thepower does not extend to hypotheticalquestions62since any attempt at abstractioncould only lead to dialectics and barren legal

questions and to sterile conclusions unrelatedto actualities.63"Legal standing" or locus standi has beendefined as a personal and substantial interest inthe case such that the party has sustained orwill sustain direct injury as a result of thegovernmental act that is beingchallenged,64alleging more than a generalizedgrievance.65The gist of the question of standingis whether a party alleges "such personal stakein the outcome of the controversy as to assure

that concrete adverseness which sharpens thepresentation of issues upon which the courtdepends for illumination of difficultconstitutional questions."66Unless a person isinjuriously affected in any of his constitutionalrights by the operation of statute or ordinance,he has no standing.67Petitioners traverse a wide range of sectors.Among them are La Bugal B'laan TribalAssociation, Inc., a farmers and indigenouspeople's cooperative organized under Philippinelaws representing a community actually

affected by the mining activities of WMCP,members of said cooperative,68as well as otherresidents of areas also affected by the miningactivities of WMCP.69These petitioners havestanding to raise the constitutionality of thequestioned FTAA as they allege a personal andsubstantial injury. They claim that they wouldsuffer "irremediable displacement"70as a result

of the implementation of the FTAA allowingWMCP to conduct mining activities in their areaof residence. They thus meet the appropriatecase requirement as they assert an interestadverse to that of respondents who, on theother hand, insist on the FTAA's validity.In view of the alleged impending injury,petitioners also have standing to assail thevalidity of E.O. No. 279, by authority of whichthe FTAA was executed.Public respondents maintain that petitioners,being strangers to the FTAA, cannot sue eitheror both contracting parties to annul it.71Inother words, they contend that petitioners arenot real parties in interest in an action for theannulment of contract.Public respondents' contention fails. The

present action is not merely one for annulmentof contract but for prohibition and mandamus.Petitioners allege that public respondents actedwithout or in excess of jurisdiction inimplementing the FTAA, which they submit isunconstitutional. As the case involvesconstitutional questions, this Court is notconcerned with whether petitioners are realparties in interest, but with whether they havelegal standing. As held in Kilosbayan v.Morato:72

x x x. "It is important to note . . . that standingbecause of its constitutional and public policyunderpinnings, is very different from questionsrelating to whether a particular plaintiff is thereal party in interest or has capacity to sue.Although all three requirements are directedtowards ensuring that only certain parties canmaintain an action, standing restrictions requirea partial consideration of the merits, as well asbroader policy concerns relating to the properrole of the judiciary in certain areas.["](FRIEDENTHAL, KANE AND MILLER, CIVIL

PROCEDURE 328 [1985])Standing is a special concern in constitutionallaw because in some cases suits are brought notby parties who have been personally injured bythe operation of a law or by official actiontaken, but by concerned citizens, taxpayers orvoters who actually sue in the public interest.Hence, the question in standing is whether such


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parties have "alleged such a personal stake inthe outcome of the controversy as to assurethat concrete adverseness which sharpens thepresentation of issues upon which the court solargely depends for illumination of difficultconstitutional questions." (Baker v. Carr, 369U.S. 186, 7 L.Ed.2d 633 [1962].)As earlier stated, petitioners meet thisrequirement.The challenge against the constitutionality ofR.A. No. 7942 and DAO No. 96-40 likewisefulfills the requisites of justiciability. Althoughthese laws were not in force when the subjectFTAA was entered into, the question as to theirvalidity is ripe for adjudication.The WMCP FTAA provides:14.3 Future Legislation

Any term and condition more favourable toFinancial &Technical Assistance Agreementcontractors resulting from repeal oramendment of any existing law or regulation orfrom the enactment of a law, regulation oradministrative order shall be considered a partof this Agreement.It is undisputed that R.A. No. 7942 and DAO No.96-40 contain provisions that are morefavorable to WMCP, hence, these laws, to theextent that they are favorable to WMCP, govern

the FTAA.In addition, R.A. No. 7942 explicitly makescertain provisions apply to pre-existingagreements.SEC. 112. Non-impairment of ExistingMining/Quarrying Rights. x x x That theprovisions of Chapter XIV on government sharein mineral production-sharing agreement and ofChapter XVI on incentives of this Act shallimmediately govern and apply to a mininglessee or contractor unless the mining lessee orcontractor indicates his intention to the

secretary, in writing, not to avail of saidprovisions x x x Provided, finally, That suchleases, production-sharing agreements,financial or technical assistance agreementsshall comply with the applicable provisions ofthis Act and its implementing rules andregulations.

As there is no suggestion that WMCP hasindicated its intention not to avail of theprovisions of Chapter XVI of R.A. No. 7942, itcan safely be presumed that they apply to theWMCP FTAA.Misconstruing the application of the thirdrequisite for judicial review that the exerciseof the review is pleaded at the earliestopportunity WMCP points out that thepetition was filed only almost two years afterthe execution of the FTAA, hence, not raised atthe earliest opportunity.The third requisite should not be taken to meanthat the question of constitutionality must beraised immediately after the execution of thestate action complained of. That the question ofconstitutionality has not been raised before is

not a valid reason for refusing to allow it to beraised later.73A contrary rule would mean thata law, otherwise unconstitutional, would lapseinto constitutionality by the mere failure of theproper party to promptly file a case to challengethe same.PROPRIETY OF PROHIBITION AND MANDAMUSBefore the effectivity in July 1997 of the RevisedRules of Civil Procedure, Section 2 of Rule 65read:SEC. 2. Petition for prohibition. When the

proceedings of any tribunal, corporation, board,or person, whether exercising functions judicialor ministerial, are without or in excess of its orhis jurisdiction, or with grave abuse ofdiscretion, and there is no appeal or any otherplain, speedy, and adequate remedy in theordinary course of law, a person aggrievedthereby may file a verified petition in theproper court alleging the facts with certaintyand praying that judgment be renderedcommanding the defendant to desist fromfurther proceeding in the action or matter

specified therein.Prohibition is a preventive remedy.74It seeks ajudgment ordering the defendant to desist fromcontinuing with the commission of an actperceived to be illegal.75The petition for prohibition at bar is thus anappropriate remedy. While the execution of thecontract itself may be fait accompli, its


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implementation is not. Public respondents, inbehalf of the Government, have obligations tofulfill under said contract. Petitioners seek toprevent them from fulfilling such obligations onthe theory that the contract is unconstitutionaland, therefore, void.The propriety of a petition for prohibition beingupheld, discussion of the propriety of themandamus aspect of the petition is renderedunnecessary.HIERARCHY OF COURTSThe contention that the filing of this petitionviolated the rule on hierarchy of courts doesnot likewise lie. The rule has been explainedthus:Between two courts of concurrent originaljurisdiction, it is the lower court that should

initially pass upon the issues of a case. Thatway, as a particular case goes through thehierarchy of courts, it is shorn of all but theimportant legal issues or those of firstimpression, which are the proper subject ofattention of the appellate court. This is aprocedural rule borne of experience andadopted to improve the administration ofjustice.This Court has consistently enjoined litigants torespect the hierarchy of courts. Although this

Court has concurrent jurisdiction with theRegional Trial Courts and the Court of Appealsto issue writs of certiorari, prohibition,mandamus, quo warranto, habeas corpus andinjunction, such concurrence does not give aparty unrestricted freedom of choice of courtforum. The resort to this Court's primaryjurisdiction to issue said writs shall be allowedonly where the redress desired cannot beobtained in the appropriate courts or whereexceptional and compelling circumstancesjustify such invocation. We held in People v.

Cuaresma that:A becoming regard for judicial hierarchy mostcertainly indicates that petitions for theissuance of extraordinary writs against first level("inferior") courts should be filed with theRegional Trial Court, and those against thelatter, with the Court of Appeals. A directinvocation of the Supreme Court's original

jurisdiction to issue these writs should beallowed only where there are special andimportant reasons therefor, clearly andspecifically set out in the petition. This isestablished policy. It is a policy necessary toprevent inordinate demands upon the Court'stime and attention which are better devoted tothose matters within its exclusive jurisdiction,and to prevent further over-crowding of theCourt's docket x x x.76[Emphasis supplied.]The repercussions of the issues in this case onthe Philippine mining industry, if not thenational economy, as well as the noveltythereof, constitute exceptional and compellingcircumstances to justify resort to this Court inthe first instance.In all events, this Court has the discretion to

take cognizance of a suit which does not satisfythe requirements of an actual case or legalstanding when paramount public interest isinvolved.77When the issues raised are ofparamount importance to the public, this Courtmay brush aside technicalities of procedure.78IIPetitioners contend that E.O. No. 279 did nottake effect because its supposed date ofeffectivity came after President Aquino hadalready lost her legislative powers under the

Provisional Constitution.And they likewise claim that the WMC FTAA,which was entered into pursuant to E.O. No.279, violates Section 2, Article XII of theConstitution because, among other reasons:(1) It allows foreign-owned companies toextend more than mere financial or technicalassistance to the State in the exploitation,development, and utilization of minerals,petroleum, and other mineral oils, and evenpermits foreign owned companies to "operateand manage mining activities."

(2) It allows foreign-owned companies toextend both technical and financial assistance,instead of "either technical or financialassistance."To appreciate the import of these issues, a visitto the history of the pertinent constitutionalprovision, the concepts contained therein, andthe laws enacted pursuant thereto, is in order.


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Section 2, Article XII reads in full:Sec. 2. All lands of the public domain, waters,minerals, coal, petroleum, and other mineraloils, all forces of potential energy, fisheries,forests or timber, wildlife, flora and fauna, andother natural resources are owned by the State.With the exception of agricultural lands, allother natural resources shall not be alienated.The exploration, development, and utilization ofnatural resources shall be under the full controland supervision of the State. The State maydirectly undertake such activities or it mayenter into co-production, joint venture, orproduction-sharing agreements with Filipinocitizens, or corporations or associations at leastsixty per centum of whose capital is owned bysuch citizens. Such agreements may be for a

period not exceeding twenty-five years,renewable for not more than twenty-five years,and under such terms and conditions as may beprovided by law. In cases of water rights forirrigation, water supply, fisheries, or industrialuses other than the development of waterpower, beneficial use may be the measure andlimit of the grant.The State shall protect the nation's marinewealth in its archipelagic waters, territorial sea,and exclusive economic zone, and reserve its

use and enjoyment exclusively to Filipinocitizens.The Congress may, by law, allow small-scaleutilization of natural resources by Filipinocitizens, as well as cooperative fish farming,with priority to subsistence fishermen and fish-workers in rivers, lakes, bays, and lagoons.The President may enter into agreements withforeign-owned corporations involving eithertechnical or financial assistance for large-scaleexploration, development, and utilization ofminerals, petroleum, and other mineral oils

according to the general terms and conditionsprovided by law, based on real contributions tothe economic growth and general welfare ofthe country. In such agreements, the State shallpromote the development and use of localscientific and technical resources.

The President shall notify the Congress of everycontract entered into in accordance with thisprovision, within thirty days from its execution.THE SPANISH REGIME AND THE REGALIANDOCTRINEThe first sentence of Section 2 embodies theRegalian doctrine or jura regalia. Introduced bySpain into these Islands, this feudal concept isbased on the State's power of dominium, whichis the capacity of the State to own or acquireproperty.79In its broad sense, the term "jura regalia" refersto royal rights, or those rights which the Kinghas by virtue of his prerogatives. In Spanish law,it refers to a right which the sovereign has overanything in which a subject has a right ofproperty or propriedad. These were rights

enjoyed during feudal times by the king as thesovereign.The theory of the feudal system was that title toall lands was originally held by the King, andwhile the use of lands was granted out to otherswho were permitted to hold them under certainconditions, the King theoretically retained thetitle. By fiction of law, the King was regarded asthe original proprietor of all lands, and the trueand only source of title, and from him all landswere held. The theory of jura regalia was

therefore nothing more than a natural fruit ofconquest.80The Philippines having passed to Spain by virtueof discovery and conquest,81earlier Spanishdecrees declared that "all lands were held fromthe Crown."82The Regalian doctrine extends not only to landbut also to "all natural wealth that may befound in the bowels of the earth."83Spain, inparticular, recognized the unique value ofnatural resources, viewing them, especiallyminerals, as an abundant source of revenue to

finance its wars against other nations.84Mininglaws during the Spanish regime reflected thisperspective.85THE AMERICAN OCCUPATION AND THECONCESSION REGIMEBy the Treaty of Paris of December 10, 1898,Spain ceded "the archipelago known as thePhilippine Islands" to the United States. The


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Philippines was hence governed by means oforganic acts that were in the nature of chartersserving as a Constitution of the occupiedterritory from 1900 to 1935.86Among theprincipal organic acts of the Philippines was theAct of Congress of July 1, 1902, more commonlyknown as the Philippine Bill of 1902, throughwhich the United States Congress assumed theadministration of the PhilippineIslands.87Section 20 of said Bill reserved thedisposition of mineral lands of the publicdomain from sale. Section 21 thereof allowedthe free and open exploration, occupation andpurchase of mineral deposits not only tocitizens of the Philippine Islands but to those ofthe United States as well:Sec. 21. That all valuable mineral deposits in

public lands in the Philippine Islands, bothsurveyed and unsurveyed, are hereby declaredto be free and open to exploration, occupationand purchase, and the land in which they arefound, to occupation and purchase, by citizensof the United States or of said Islands: Provided,That when on any lands in said Islands enteredand occupied as agricultural lands under theprovisions of this Act, but not patented, mineraldeposits have been found, the working of suchmineral deposits is forbidden until the person,

association, or corporation who or which hasentered and is occupying such lands shall havepaid to the Government of said Islands suchadditional sum or sums as will make the totalamount paid for the mineral claim or claims inwhich said deposits are located equal to theamount charged by the Government for thesame as mineral claims.Unlike Spain, the United States considerednatural resources as a source of wealth for itsnationals and saw fit to allow both Filipino andAmerican citizens to explore and exploit

minerals in public lands, and to grant patents toprivate mineral lands.88A person who acquiredownership over a parcel of private mineral landpursuant to the laws then prevailing couldexclude other persons, even the State, fromexploiting minerals within his property.89Thus,earlier jurisprudence90held that:

A valid and subsisting location of mineral land,made and kept up in accordance with theprovisions of the statutes of the United States,has the effect of a grant by the United States ofthe present and exclusive possession of thelands located, and this exclusive right ofpossession and enjoyment continues during theentire life of the location. x x x.x x x.The discovery of minerals in the ground by onewho has a valid mineral location perfects hisclaim and his location not only against thirdpersons, but also against the Government. x x x.[Italics in the original.]The Regalian doctrine and the American system,therefore, differ in one essential respect. Underthe Regalian theory, mineral rights are not

included in a grant of land by the state; underthe American doctrine, mineral rights areincluded in a grant of land by the government.91Section 21 also made possible the concession(frequently styled "permit", license" or"lease")92system.93This was the traditionalregime imposed by the colonial administratorsfor the exploitation of natural resources in theextractive sector (petroleum, hard minerals,timber, etc.).94Under the concession system, the

concessionaire makes a direct equityinvestment for the purpose of exploiting aparticular natural resource within a givenarea.95Thus, the concession amounts tocomplete control by the concessionaire overthe country's natural resource, for it is givenexclusive and plenary rights to exploit aparticular resource at the point ofextraction.96In consideration for the right toexploit a natural resource, the concessionaireeither pays rent or royalty, which is a fixedpercentage of the gross proceeds.97

Later statutory enactments by the legislativebodies set up in the Philippines adopted thecontractual framework of the concession.98Forinstance, Act No. 2932,99 approved on August31, 1920, which provided for the exploration,location, and lease of lands containingpetroleum and other mineral oils and gas in thePhilippines, and Act No. 2719,100approved on


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May 14, 1917, which provided for the leasingand development of coal lands in thePhilippines, both utilized the concessionsystem.101THE 1935 CONSTITUTION AND THENATIONALIZATION OF NATURAL RESOURCESBy the Act of United States Congress of March24, 1934, popularly known as the Tydings-McDuffie Law, the People of the PhilippineIslands were authorized to adopt aconstitution.102On July 30, 1934, theConstitutional Convention met for the purposeof drafting a constitution, and the Constitutionsubsequently drafted was approved by theConvention on February 8, 1935.103TheConstitution was submitted to the President ofthe United States on March 18, 1935.104On

March 23, 1935, the President of the UnitedStates certified that the Constitution conformedsubstantially with the provisions of the Act ofCongress approved on March 24, 1934.105OnMay 14, 1935, the Constitution was ratified bythe Filipino people.106The 1935 Constitution adopted the Regaliandoctrine, declaring all natural resources of thePhilippines, including mineral lands andminerals, to be property belonging to theState.107As adopted in a republican system, the

medieval concept of jura regalia is stripped ofroyal overtones and ownership of the land isvested in the State.108Section 1, Article XIII, on Conservation andUtilization of Natural Resources, of the 1935Constitution provided:SECTION 1. All agricultural, timber, and minerallands of the public domain, waters, minerals,coal, petroleum, and other mineral oils, allforces of potential energy, and other naturalresources of the Philippines belong to the State,and their disposition, exploitation,

development, or utilization shall be limited tocitizens of the Philippines, or to corporations orassociations at least sixty per centum of thecapital of which is owned by such citizens,subject to any existing right, grant, lease, orconcession at the time of the inauguration ofthe Government established under thisConstitution. Natural resources, with the

exception of public agricultural land, shall notbe alienated, and no license, concession, orlease for the exploitation, development, orutilization of any of the natural resources shallbe granted for a period exceeding twenty-fiveyears, except as to water rights for irrigation,water supply, fisheries, or industrial uses otherthan the development of water power, in whichcases beneficial use may be the measure andthe limit of the grant.The nationalization and conservation of thenatural resources of the country was one of thefixed and dominating objectives of the 1935Constitutional Convention.109One delegaterelates:There was an overwhelming sentiment in theConvention in favor of the principle of state

ownership of natural resources and theadoption of the Regalian doctrine. Stateownership of natural resources was seen as anecessary starting point to secure recognition ofthe state's power to control their disposition,exploitation, development, or utilization. Thedelegates of the Constitutional Convention verywell knew that the concept of State ownershipof land and natural resources was introduced bythe Spaniards, however, they were not certainwhether it was continued and applied by the

Americans. To remove all doubts, theConvention approved the provision in theConstitution affirming the Regalian doctrine.The adoption of the principle of stateownership of the natural resources and of theRegalian doctrine was considered to be anecessary starting point for the plan ofnationalizing and conserving the naturalresources of the country. For with theestablishment of the principle of stateownership of the natural resources, it wouldnot be hard to secure the recognition of the

power of the State to control their disposition,exploitation, development or utilization.110The nationalization of the natural resources wasintended (1) to insure their conservation forFilipino posterity; (2) to serve as an instrumentof national defense, helping prevent theextension to the country of foreign controlthrough peaceful economic penetration; and (3)


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to avoid making the Philippines a source ofinternational conflicts with the consequentdanger to its internal security andindependence.111The same Section 1, Article XIII also adopted theconcession system, expressly permitting theState to grant licenses, concessions, or leasesfor the exploitation, development, or utilizationof any of the natural resources. Grants,however, were limited to Filipinos or entities atleast 60% of the capital of which is owned byFilipinos.lawph!l.ne+The swell of nationalism that suffused the 1935Constitution was radically diluted when onNovember 1946, the Parity Amendment, whichcame in the form of an "Ordinance Appended tothe Constitution," was ratified in a

plebiscite.112The Amendment extended, fromJuly 4, 1946 to July 3, 1974, the right to utilizeand exploit our natural resources to citizens ofthe United States and business enterprisesowned or controlled, directly or indirectly, bycitizens of the United States:113Notwithstanding the provision of section one,Article Thirteen, and section eight, ArticleFourteen, of the foregoing Constitution, duringthe effectivity of the Executive Agreemententered into by the President of the Philippines

with the President of the United States on thefourth of July, nineteen hundred and forty-six,pursuant to the provisions of CommonwealthAct Numbered Seven hundred and thirty-three,but in no case to extend beyond the third ofJuly, nineteen hundred and seventy-four, thedisposition, exploitation, development, andutilization of all agricultural, timber, andmineral lands of the public domain, waters,minerals, coals, petroleum, and other mineraloils, all forces and sources of potential energy,and other natural resources of the Philippines,

and the operation of public utilities, shall, ifopen to any person, be open to citizens of theUnited States and to all forms of businessenterprise owned or controlled, directly orindirectly, by citizens of the United States in thesame manner as to, and under the sameconditions imposed upon, citizens of thePhilippines or corporations or associations

owned or controlled by citizens of thePhilippines.The Parity Amendment was subsequentlymodified by the 1954 Revised Trade Agreement,also known as the Laurel-Langley Agreement,embodied in Republic Act No. 1355.114THE PETROLEUM ACT OF 1949 AND THECONCESSION SYSTEMIn the meantime, Republic Act No. 387,115alsoknown as the Petroleum Act of 1949, wasapproved on June 18, 1949.The Petroleum Act of 1949 employed theconcession system for the exploitation of thenation's petroleum resources. Among the kindsof concessions it sanctioned were explorationand exploitation concessions, whichrespectively granted to the concessionaire the

exclusive right to explore for116ordevelop117petroleum within specified areas.Concessions may be granted only to dulyqualified persons118who have sufficientfinances, organization, resources, technicalcompetence, and skills necessary to conduct theoperations to be undertaken.119Nevertheless, the Government reserved theright to undertake such work itself.120Thisproceeded from the theory that all naturaldeposits or occurrences of petroleum or natural

gas in public and/or private lands in thePhilippines belong to the State.121Explorationand exploitation concessions did not conferupon the concessionaire ownership over thepetroleum lands and petroleumdeposits.122However, they did grantconcessionaires the right to explore, develop,exploit, and utilize them for the period andunder the conditions determined by the law.123Concessions were granted at the complete riskof the concessionaire; the Government did notguarantee the existence of petroleum or

undertake, in any case, title warranty.124Concessionaires were required to submitinformation as maybe required by the Secretaryof Agriculture and Natural Resources, includingreports of geological and geophysicalexaminations, as well as productionreports.125Exploration126and


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exploitation127concessionaires were alsorequired to submit work programs.lavvphi1.netExploitation concessionaires, in particular, wereobliged to pay an annual exploitation tax,128theobject of which is to induce the concessionaireto actually produce petroleum, and not simplyto sit on the concession without developing orexploiting it.129These concessionaires were alsobound to pay the Government royalty, whichwas not less than 12% of the petroleumproduced and saved, less that consumed in theoperations of the concessionaire.130UnderArticle 66, R.A. No. 387, the exploitation taxmay be credited against the royalties so that ifthe concessionaire shall be actually producingenough oil, it would not actually be paying theexploitation tax.131

Failure to pay the annual exploitation tax fortwo consecutive years,132or the royalty due tothe Government within one year from the dateit becomes due,133constituted grounds for thecancellation of the concession. In case of delayin the payment of the taxes or royalty imposedby the law or by the concession, a surcharge of1% per month is exacted until the same arepaid.134As a rule, title rights to all equipment andstructures that the concessionaire placed on the

land belong to the exploration or exploitationconcessionaire.135Upon termination of suchconcession, the concessionaire had a right toremove the same.136The Secretary of Agriculture and NaturalResources was tasked with carrying out theprovisions of the law, through the Director ofMines, who acted under the Secretary'simmediate supervision and control.137The Actgranted the Secretary the authority to inspectany operation of the concessionaire and toexamine all the books and accounts pertaining

to operations or conditions related to paymentof taxes and royalties.138The same law authorized the Secretary tocreate an Administration Unit and a TechnicalBoard.139The Administration Unit was charged,inter alia, with the enforcement of theprovisions of the law.140 The Technical Boardhad, among other functions, the duty to check

on the performance of concessionaires and todetermine whether the obligations imposed bythe Act and its implementing regulations werebeing complied with.141Victorio Mario A. Dimagiba, Chief Legal Officerof the Bureau of Energy Development, analyzedthe benefits and drawbacks of the concessionsystem insofar as it applied to the petroleumindustry:Advantages of Concession. Whether itemphasizes income tax or royalty, the mostpositive aspect of the concession system is thatthe State's financial involvement is virtually riskfree and administration is simple andcomparatively low in cost. Furthermore, if thereis a competitive allocation of the resourceleading to substantial bonuses and/or greater

royalty coupled with a relatively high level oftaxation, revenue accruing to the State underthe concession system may compare favorablywith other financial arrangements.Disadvantages of Concession. There are,however, major negative aspects to this system.Because the Government's role in thetraditional concession is passive, it is at adistinct disadvantage in managing anddeveloping policy for the nation's petroleumresource. This is true for several reasons. First,

even though most concession agreementscontain covenants requiring diligence inoperations and production, this establishes onlyan indirect and passive control of the hostcountry in resource development. Second, andmore importantly, the fact that the hostcountry does not directly participate in resourcemanagement decisions inhibits its ability totrain and employ its nationals in petroleumdevelopment. This factor could delay or preventthe country from effectively engaging in thedevelopment of its resources. Lastly, a direct

role in management is usually necessary inorder to obtain a knowledge of theinternational petroleum industry which isimportant to an appreciation of the hostcountry's resources in relation to those of othercountries.142Other liabilities of the system have also beennoted:


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x x x there are functional implications whichgive the concessionaire great economic powerarising from its exclusive equity holding. Thisincludes, first, appropriation of the returns ofthe undertaking, subject to a modest royalty;second, exclusive management of the project;third, control of production of the naturalresource, such as volume of production,expansion, research and development; andfourth, exclusive responsibility for downstreamoperations, like processing, marketing, anddistribution. In short, even if nominally, thestate is the sovereign and owner of the naturalresource being exploited, it has been shorn ofall elements of control over such naturalresource because of the exclusive nature of thecontractual regime of the concession. The

concession system, investing as it doesownership of natural resources, constitutes aconsistent inconsistency with the principleembodied in our Constitution that naturalresources belong to the state and shall not bealienated, not to mention the fact that theconcession was the bedrock of the colonialsystem in the exploitation of naturalresources.143Eventually, the concession system failed forreasons explained by Dimagiba:

Notwithstanding the good intentions of thePetroleum Act of 1949, the concession systemcould not have properly spurred sustained oilexploration activities in the country, since itassumed that such a capital-intensive, high riskventure could be successfully undertaken by asingle individual or a small company. In effect,concessionaires' funds were easily exhausted.Moreover, since the concession systempractically closed its doors to interested foreigninvestors, local capital was stretched to thelimits. The old system also failed to consider the

highly sophisticated technology and expertiserequired, which would be available only tomultinational companies.144A shift to a new regime for the development ofnatural resources thus seemed imminent.PRESIDENTIAL DECREE NO. 87, THE 1973CONSTITUTION AND THE SERVICE CONTRACTSYSTEM

The promulgation on December 31, 1972 ofPresidential Decree No. 87,145otherwise knownas The Oil Exploration and Development Act of1972 signaled such a transformation. P.D. No.87 permitted the government to explore forand produce indigenous petroleum through"service contracts."146"Service contracts" is a term that assumesvarying meanings to different people, and it hascarried many names in different countries, like"work contracts" in Indonesia, "concessionagreements" in Africa, "production-sharingagreements" in the Middle East, and"participation agreements" in LatinAmerica.147A functional definition of "servicecontracts" in the Philippines is provided asfollows:

A service contract is a contractual arrangementfor engaging in the exploitation anddevelopment of petroleum, mineral, energy,land and other natural resources by which agovernment or its agency, or a private persongranted a right or privilege by the governmentauthorizes the other party (service contractor)to engage or participate in the exercise of suchright or the enjoyment of the privilege, in thatthe latter provides financial or technicalresources, undertakes the exploitation or

production of a given resource, or directlymanages the productive enterprise, operationsof the exploration and exploitation of theresources or the disposition of marketing orresources.148In a service contract under P.D. No. 87, serviceand technology are furnished by the servicecontractor for which it shall be entitled to thestipulated service fee.149 The contractor mustbe technically competent and financiallycapable to undertake the operations required inthe contract.150

Financing is supposed to be provided by theGovernment to which all petroleum producedbelongs.151In case the Government is unable tofinance petroleum exploration operations, thecontractor may furnish services, technology andfinancing, and the proceeds of sale of thepetroleum produced under the contract shall bethe source of funds for payment of the service


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fee and the operating expenses due thecontractor.152The contractor shall undertake,manage and execute petroleum operations,subject to the government overseeing themanagement of the operations.153Thecontractor provides all necessary services andtechnology and the requisite financing,performs the exploration work obligations, andassumes all exploration risks such that if nopetroleum is produced, it will not be entitled toreimbursement.154Once petroleum incommercial quantity is discovered, thecontractor shall operate the field on behalf ofthe government.155P.D. No. 87 prescribed minimum terms andconditions for every service contract.156 It alsogranted the contractor certain privileges,

including exemption from taxes and payment oftariff duties,157 and permitted the repatriationof capital and retention of profits abroad.158Ostensibly, the service contract system hadcertain advantages over the concessionregime.159 It has been opined, though, that, inthe Philippines, our concept of a servicecontract, at least in the petroleum industry, wasbasically a concession regime with aproduction-sharing element.160On January 17, 1973, then President Ferdinand

E. Marcos proclaimed the ratification of a newConstitution.161Article XIV on the NationalEconomy and Patrimony contained provisionssimilar to the 1935 Constitution with regard toFilipino participation in the nation's naturalresources. Section 8, Article XIV thereofprovides:Sec. 8. All lands of the public domain, waters,minerals, coal, petroleum and other mineraloils, all forces of potential energy, fisheries,wildlife, and other natural resources of thePhilippines belong to the State. With the

exception of agricultural, industrial orcommercial, residential and resettlement landsof the public domain, natural resources shallnot be alienated, and no license, concession, orlease for the exploration, development,exploitation, or utilization of any of the naturalresources shall be granted for a periodexceeding twenty-five years, renewable for not

more than twenty-five years, except as to waterrights for irrigation, water supply, fisheries, orindustrial uses other than the development ofwater power, in which cases beneficial use maybe the measure and the limit of the grant.While Section 9 of the same Article maintainedthe Filipino-only policy in the enjoyment ofnatural resources, it also allowed Filipinos, uponauthority of the Batasang Pambansa, to enterinto service contracts with any person or entityfor the exploration or utilization of naturalresources.Sec. 9. The disposition, exploration,development, exploitation, or utilization of anyof the natural resources of the Philippines shallbe limited to citizens, or to corporations orassociations at least sixty per centum of which

is owned by such citizens. The BatasangPambansa, in the national interest, may allowsuch citizens, corporations or associations toenter into service contracts for financial,technical, management, or other forms ofassistance with any person or entity for theexploration, or utilization of any of the naturalresources. Existing valid and binding servicecontracts for financial, technical, management,or other forms of assistance are herebyrecognized as such. [Emphasis supplied.]

The concept of service contracts, according toone delegate, was borrowed from the methodsfollowed by India, Pakistan and especiallyIndonesia in the exploration of petroleum andmineral oils.162The provision allowing suchcontracts, according to another, was intendedto "enhance the proper development of ournatural resources since Filipino citizens lack theneeded capital and technical know-how whichare essential in the proper exploration,development and exploitation of the naturalresources of the country."163

The original idea was to authorize thegovernment, not private entities, to enter intoservice contracts with foreign entities.164Asfinally approved, however, a citizen or privateentity could be allowed by the NationalAssembly to enter into such servicecontract.165 The prior approval of the NationalAssembly was deemed sufficient to protect the


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national interest.166 Notably, none of the lawsallowing service contracts were passed by theBatasang Pambansa. Indeed, all of them wereenacted by presidential decree.On March 13, 1973, shortly after the ratificationof the new Constitution, the Presidentpromulgated Presidential Decree No.151.167The law allowed Filipino citizens orentities which have acquired lands of the publicdomain or which own, hold or control suchlands to enter into service contracts forfinancial, technical, management or other formsof assistance with any foreign persons or entityfor the exploration, development, exploitationor utilization of said lands.168Presidential Decree No. 463,169 also known asThe Mineral Resources Development Decree of

1974, was enacted on May 17, 1974. Section 44of the decree, as amended, provided that alessee of a mining claim may enter into aservice contract with a qualified domestic orforeign contractor for the exploration,development and exploitation of his claims andthe processing and marketing of the productthereof.Presidential Decree No. 704170(The FisheriesDecree of 1975), approved on May 16, 1975,allowed Filipinos engaged in commercial fishing

to enter into contracts for financial, technical orother forms of assistance with any foreignperson, corporation or entity for theproduction, storage, marketing and processingof fish and fishery/aquatic products.171Presidential Decree No. 705172(The RevisedForestry Code of the Philippines), approved onMay 19, 1975, allowed "forest productslicensees, lessees, or permitees to enter intoservice contracts for financial, technical,management, or other forms of assistance . . .with any foreign person or entity for the

exploration, development, exploitation orutilization of the forest resources."173Yet another law allowing service contracts, thistime for geothermal resources, was PresidentialDecree No. 1442,174which was signed into lawon June 11, 1978. Section 1 thereof authorizedthe Government to enter into service contractsfor the exploration, exploitation and

development of geothermal resources with aforeign contractor who must be technically andfinancially capable of undertaking theoperations required in the service contract.Thus, virtually the entire range of the country'snatural resources from petroleum andminerals to geothermal energy, from publiclands and forest resources to fishery productswas well covered by apparent legal authority toengage in the direct participation orinvolvement of foreign persons or corporations(otherwise disqualified) in the exploration andutilization of natural resources through servicecontracts.175THE 1987 CONSTITUTION AND TECHNICAL ORFINANCIAL ASSISTANCE AGREEMENTSAfter the February 1986 Edsa Revolution,

Corazon C. Aquino took the reins of powerunder a revolutionary government. On March25, 1986, President Aquino issued ProclamationNo. 3,176promulgating the ProvisionalConstitution, more popularly referred to as theFreedom Constitution. By authority of the sameProclamation, the President created aConstitutional Commission (CONCOM) to drafta new constitution, which took effect on thedate of its ratification on February 2, 1987.177The 1987 Constitution retained the Regalian

doctrine. The first sentence of Section 2, ArticleXII states: "All lands of the public domain,waters, minerals, coal, petroleum, and othermineral oils, all forces of potential energy,fisheries, forests or timber, wildlife, flora andfauna, and other natural resources are ownedby the State."Like the 1935 and 1973 Constitutions before it,the 1987 Constitution, in the second sentenceof the same provision, prohibits the alienationof natural resources, except agricultural lands.The third sentence of the same paragraph is

new: "The exploration, development andutilization of natural resources shall be underthe full control and supervision of the State."The constitutional policy of the State's "fullcontrol and supervision" over natural resourcesproceeds from the concept of jura regalia, aswell as the recognition of the importance of thecountry's natural resources, not only for


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national economic development, but also for itssecurity and national defense.178Under thisprovision, the State assumes "a more dynamicrole" in the exploration, development andutilization of natural resources.179Conspicuously absent in Section 2 is theprovision in the 1935 and 1973 Constitutionsauthorizing the State to grant licenses,concessions, or leases for the exploration,exploitation, development, or utilization ofnatural resources. By such omission, theutilization of inalienable lands of public domainthrough "license, concession or lease" is nolonger allowed under the 1987 Constitution.180Having omitted the provision on the concessionsystem, Section 2 proceeded to introduce"unfamiliar language":181

The State may directly undertake such activitiesor it may enter into co-production, jointventure, or production-sharing agreements withFilipino citizens, or corporations or associationsat least sixty per centum of whose capital isowned by such citizens.Consonant with the State's "full supervision andcontrol" over natural resources, Section 2 offersthe State two "options."182One, the State maydirectly undertake these activities itself; or two,it may enter into co-production, joint venture,

or production-sharing agreements with Filipinocitizens, or entities at least 60% of whosecapital is owned by such citizens.A third option is found in the third paragraph ofthe same section:The Congress may, by law, allow small-scaleutilization of natural resources by Filipinocitizens, as well as cooperative fish farming,with priority to subsistence fishermen and fish-workers in rivers, lakes, bays, and lagoons.While the second and third options are limitedonly to Filipino citizens or, in the case of the

former, to corporations or associations at least60% of the capital of which is owned byFilipinos, a fourth allows the participation offoreign-owned corporations. The fourth andfifth paragraphs of Section 2 provide:The President may enter into agreements withforeign-owned corporations involving eithertechnical or financial assistance for large-scale

exploration, development, and utilization ofminerals, petroleum, and other mineral oilsaccording to the general terms and conditionsprovided by law, based on real contributions tothe economic growth and general welfare ofthe country. In such agreements, the State shallpromote the development and use of localscientific and technical resources.The President shall notify the Congress of everycontract entered into in accordance with thisprovision, within thirty days from its execution.Although Section 2 sanctions the participationof foreign-owned corporations in theexploration, development, and utilization ofnatural resources, it imposes certain limitationsor conditions to agreements with suchcorporations.

First, the parties to FTAAs. Only the President,in behalf of the State, may enter into theseagreements, and only with corporations. Bycontrast, under the 1973 Constitution, a Filipinocitizen, corporation or association may enterinto a service contract with a "foreign person orentity."Second, the size of the activities: only large-scale exploration, development, and utilizationis allowed. The term "large-scale usually refersto very capital-intensive activities."183

Third, the natural resources subject of theactivities is restricted to minerals, petroleumand other mineral oils, the intent being to limitservice contracts to those areas where Filipinocapital may not be sufficient.184Fourth, consistency with the provisions ofstatute. The agreements must be in accordancewith the terms and conditions provided by law.Fifth, Section 2 prescribes certain standards forentering into such agreements. The agreementsmust be based on real contributions toeconomic growth and general welfare of the

country.Sixth, the agreements must containrudimentary stipulations for the promotion ofthe development and use of local scientific andtechnical resources.Seventh, the notification requirement. ThePresident shall notify Congress of everyfinancial or technical assistance agreement


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entered into within thirty days from itsexecution.Finally, the scope of the agreements. While the1973 Constitution referred to "service contractsfor financial, technical, management, or otherforms of assistance" the 1987 Constitutionprovides for "agreements. . . involving eitherfinancial or technical assistance." It bears notingthat the phrases "service contracts" and"management or other forms of assistance" inthe earlier constitution have been omitted.By virtue of her legislative powers under theProvisional Constitution,185President Aquino,on July 10, 1987, signed into law E.O. No. 211prescribing the interim procedures in theprocessing and approval of applications for theexploration, development and utilization of

minerals. The omission in the 1987 Constitutionof the term "service contracts"notwithstanding, the said E.O. still referred tothem in Section 2 thereof:Sec. 2. Applications for the exploration,development and utilization of mineralresources, including renewal applications andapplications for approval of operatingagreements and mining service contracts, shallbe accepted and processed and may beapproved x x x. [Emphasis supplied.]

The same law provided in its Section 3 that the"processing, evaluation and approval of allmining applications . . . operating agreementsand service contracts . . . shall be governed byPresidential Decree No. 463, as amended, otherexisting mining laws, and their implementingrules and regulations. . . ."As earlier stated, on the 25th also of July 1987,the President issued E.O. No. 279 by authorityof which the subject WMCP FTAA was executedon March 30, 1995.On March 3, 1995, President Ramos signed into

law R.A. No. 7942. Section 15 thereof declaresthat the Act "shall govern the exploration,development, utilization, and processing of allmineral resources." Such declarationnotwithstanding, R.A. No. 7942 does notactually cover all the modes through which theState may undertake the exploration,

development, and utilization of naturalresources.The State, being the owner of the naturalresources, is accorded the primary power andresponsibility in the exploration, developmentand utilization thereof. As such, it mayundertake these activities through four modes:The State may directly undertake suchactivities.(2) The State may enter into co-production,joint venture or production-sharing agreementswith Filipino citizens or qualified corporations.(3) Congress may, by law, allow small-scaleutilization of natural resources by Filipinocitizens.(4) For the large-scale exploration, developmentand utilization of minerals, petroleum and other

mineral oils, the President may enter intoagreements with foreign-owned corporationsinvolving technical or financial assistance.186Except to charge the Mines and GeosciencesBureau of the DENR with performing researchesand surveys,187and a passing mention ofgovernment-owned or controlledcorporations,188R.A. No. 7942 does not specifyhow the State should go about the first mode.The third mode, on the other hand, is governedby Republic Act No. 7076189(the People's Small-

Scale Mining Act of 1991) and other pertinentlaws.190 R.A. No. 7942 primarily concerns itselfwith the second and fourth modes.Mineral production sharing, co-production andjoint venture agreements are collectivelyclassified by R.A. No. 7942 as "mineralagreements."191The Government participatesthe least in a mineral production sharingagreement (MPSA). In an MPSA, theGovernment grants the contractor192theexclusive right to conduct mining operationswithin a contract area193and shares in the gross

output.194The MPSA contractor provides thefinancing, technology, management andpersonnel necessary for the agreement'simplementation.195The total government sharein an MPSA is the excise tax on mineralproducts under Republic Act No.7729,196amending Section 151(a) of theNational Internal Revenue Code, as amended.197


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In a co-production agreement (CA),198theGovernment provides inputs to the miningoperations other than the mineralresource,199while in a joint venture agreement(JVA), where the Government enjoys thegreatest participation, the Government and theJVA contractor organize a company with bothparties having equity shares.200Aside fromearnings in equity, the Government in a JVA isalso entitled to a share in the grossoutput.201The Government may enter into aCA202 or JVA203with one or more contractors.The Government's share in a CA or JVA is setout in Section 81 of the law:The share of the Government in co-productionand joint venture agreements shall benegotiated by the Government and the

contractor taking into consideration the: (a)capital investment of the project, (b) the risksinvolved, (c) contribution of the project to theeconomy, and (d) other factors that will providefor a fair and equitable sharing between theGovernment and the contractor. TheGovernment shall also be entitled tocompensations for its other contributions whichshall be agreed upon by the parties, and shallconsist, among other things, the contractor'sincome tax, excise tax, special allowance,

withholding tax due from the contractor'sforeign stockholders arising from dividend orinterest payments to the said foreignstockholders, in case of a foreign national andall such other taxes, duties and fees as providedfor under existing laws.All mineral agreements grant the respectivecontractors the exclusive right to conductmining operations and to extract all mineralresources found in the contract area.204A"qualified person" may enter into any of themineral agreements with the Government.205A

"qualified person" isany citizen of the Philippines with capacity tocontract, or a corporation, partnership,association, or cooperative organized orauthorized for the purpose of engaging inmining, with technical and financial capability toundertake mineral resources development andduly registered in accordance with law at least

sixty per centum (60%) of the capital of which isowned by citizens of the Philippines x x x.206The fourth mode involves "financial or technicalassistance agreements." An FTAA is defined as"a contract involving financial or technicalassistance for large-scale exploration,development, and utilization of naturalresources."207Any qualified person withtechnical and financial capability to undertakelarge-scale exploration, development, andutilization of natural resources in thePhilippines may enter into such agreementdirectly with the Government through theDENR.208For the purpose of granting an FTAA, alegally organized foreign-owned corporation(any corporation, partnership, association, orcooperative duly registered in accordance with

law in which less than 50% of the capital isowned by Filipino citizens)209is deemed a"qualified person."210Other than the difference in contractors'qualifications, the principal distinction betweenmineral agreements and FTAAs is the maximumcontract area to which a qualified person mayhold or be granted.211"Large-scale" under R.A.No. 7942 is determined by the size of thecontract area, as opposed to the amountinvested (US $50,000,000.00), which was the

standard under E.O. 279.Like a CA or a JVA, an FTAA is subject tonegotiation.212The Government's contributions,in the form of taxes, in an FTAA is identical to itscontributions in the two mineral agreements,save that in an FTAA:The collection of Government share in financialor technical assistance agreement shallcommence after the financial or technicalassistance agreement contractor has fullyrecovered its pre-operating expenses,exploration, and development expenditures,

inclusive.213IIIHaving examined the history of theconstitutional provision and statutes enactedpursuant thereto, a consideration of thesubstantive issues presented by the petition isnow in order.


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THE EFFECTIVITY OF EXECUTIVE ORDER NO.279Petitioners argue that E.O. No. 279, the law inforce when the WMC FTAA was executed, didnot come into effect.E.O. No. 279 was signed into law by thenPresident Aquino on July 25, 1987, two daysbefore the opening of Congress on July 27,1987.214Section 8 of the E.O. states that thesame "shall take effect immediately." Thisprovision, according to petitioners, runs counterto Section 1 of E.O. No. 200,215which provides:SECTION 1. Laws shall take effect after fifteendays following the completion of theirpublication either in the Official Gazette or in anewspaper of general circulation in thePhilippines, unless it is otherwise

provided.216[Emphasis supplied.]On that premise, petitioners contend that E.O.No. 279 could have only taken effect fifteendays after its publication at which timeCongress had already convened and thePresident's power to legislate had ceased.Respondents, on the other hand, counter thatthe validity of E.O. No. 279 was settled inMiners Association of the Philippines v.Factoran, supra. This is of course incorrect forthe issue in Miners Association was not the

validity of E.O. No. 279 but that of DAO Nos. 57and 82 which were issued pursuant thereto.Nevertheless, petitioners' contentions have nomerit.It bears noting that there is nothing in E.O. No.200 that prevents a law from taking effect on adate other than even before the 15-dayperiod after its publication. Where a lawprovides for its own date of effectivity, suchdate prevails over that prescribed by E.O. No.200. Indeed, this is the very essence of thephrase "unless it is otherwise provided" in

Section 1 thereof. Section 1, E.O. No. 200,therefore, applies only when a statute does notprovide for its own date of effectivity.What is mandatory under E.O. No. 200, andwhat due process requires, as this Court held inTaada v. Tuvera,217is the publication of thelaw for without such notice and publication,there would be no basis for the application of

the maxim "ignorantia legis n[eminem]excusat." It would be the height of injustice topunish or otherwise burden a citizen for thetransgression of a law of which he had no noticewhatsoever, not even a constructive one.While the effectivity clause of E.O. No. 279 doesnot require its publication, it is not a ground forits invalidation since the Constitution, being"the fundamental, paramount and supreme lawof the nation," is deemed written in thelaw.218Hence, the due process clause,219which,so Taada held, mandates the publication ofstatutes, is read into Section 8 of E.O. No. 279.Additionally, Section 1 of E.O. No. 200 whichprovides for publication "either in the OfficialGazette or in a newspaper of general circulationin the Philippines," finds suppletory application.

It is significant to note that E.O. No. 279 wasactually published in the Official Gazette220onAugust 3, 1987.From a reading then of Section 8 of E.O. No.279, Section 1 of E.O. No. 200, and Taada v.Tuvera, this Court holds that E.O. No. 279became effective immediately upon itspublication in the Official Gazette on August 3,1987.That such effectivity took place after theconvening of the first Congress is irrelevant. At

the time President Aquino issued E.O. No. 279on July 25, 1987, she was still validly exercisinglegislative powers under the ProvisionalConstitution.221Article XVIII (TransitoryProvisions) of the 1987 Constitution explicitlystates:Sec. 6. The incumbent President shall continueto exercise legislative powers until the firstCongress is convened.The convening of the first Congress merelyprecluded the exercise of legislative powers byPresident Aquino; it did not prevent the

effectivity of laws she had previously enacted.There can be no question, therefore, that E.O.No. 279 is an effective, and a validly enacted,statute.THE CONSTITUTIONALITY OF THE WMCP FTAAPetitioners submit that, in accordance with thetext of Section 2, Article XII of the Constitution,FTAAs should be limited to "technical or


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financial assistance" only. They observe,however, that, contrary to the language of theConstitution, the WMCP FTAA allows WMCP, afully foreign-owned mining corporation, toextend more than mere financial or technicalassistance to the State, for it permits WMCP tomanage and operate every aspect of the miningactivity. 222Petitioners' submission is well-taken. It is acardinal rule in the interpretation ofconstitutions that the instrument must be soconstrued as to give effect to the intention ofthe people who adopted it.223This intention isto be sought in the constitution itself, and theapparent meaning of the words is to be takenas expressing it, except in cases where thatassumption would lead to absurdity, ambiguity,

or contradiction.224What the Constitution saysaccording to the text of the provision,therefore, compels acceptance and negates thepower of the courts to alter it, based on thepostulate that the framers and the people meanwhat they say.225Accordingly, following theliteral text of the Constitution, assistanceaccorded by foreign-owned corporations in thelarge-scale exploration, development, andutilization of petroleum, minerals and mineraloils should be limited to "technical" or

"financial" assistance only.WMCP nevertheless submits that the word"technical" in the fourth paragraph of Section 2of E.O. No. 279 encompasses a "broad numberof possible services," perhaps, "scientific and/ortechnological in basis."226 It thus posits that itmay also well include "the area of managementor operations . . . so long as such assistancerequires specialized knowledge or skills, and arerelated to the exploration, development andutilization of mineral resources."227This Court is not persuaded. As priorly pointed

out, the phrase "management or other forms ofassistance" in the 1973 Constitution wasdeleted in the 1987 Constitution, which allowsonly "technical or financial assistance." Casusomisus pro omisso habendus est. A person,object or thing omitted from an enumerationmust be held to have been omittedintentionally.228As will be shown later, the

management or operation of mining activitiesby foreign contractors, which is the primaryfeature of service contracts, was precisely theevil that the drafters of the 1987 Constitutionsought to eradicate.Respondents insist that "agreements involvingtechnical or financial assistance" is just anotherterm for service contracts. They contend thatthe proceedings of the CONCOM indicate "thatalthough the terminology 'service contract' wasavoided [by the Constitution], the concept itrepresented was not." They add that "[t]heconcept is embodied in the phrase 'agreementsinvolving financial or technicalassistance.'"229And point out how members ofthe CONCOM referred to these agreements as"service contracts." For instance:

SR. TAN. Am I correct in thinking that the onlydifference between these future servicecontracts and the past service contracts underMr. Marcos is the general law to be enacted bythe legislature and the notification of Congressby the President? That is the only difference, isit not?MR. VILLEGAS. That is right.SR. TAN. So those are the safeguards[?]MR. VILLEGAS. Yes. There was no law at allgoverning service contracts before.

SR. TAN. Thank you, MadamPresident.230[Emphasis supplied.]WMCP also cites the following statements ofCommissioners Gascon, Garcia, Nolledo andTadeo who alluded to service contracts as theyexplained their respective votes in the approvalof the draft Article:MR. GASCON. Mr. Presiding Officer, I vote noprimarily because of two reasons: One, theprovision on service contracts. I felt that if wewould constitutionalize any provision on servicecontracts, this should always be with the

concurrence of Congress and not guided only bya general law to be promulgated by Congress. xx x.231[Emphasis supplied.]x x x.MR. GARCIA. Thank you.I vote no. x x x.Service contracts are given constitutionallegitimization in Section 3, even when they have


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been proven to be inimical to the interests ofthe nation, providing as they do the legalloophole for the exploitation of our naturalresources for the benefit of foreign interests.They constitute a serious negation of Filipinocontrol on the use and disposition of thenation's natural resources, especially withregard to those which arenonrenewable.232[Emphasis supplied.]x x xMR. NOLLEDO. While there are objectionableprovisions in the Article on National Economyand Patrimony, going over said provisionsmeticulously, setting aside prejudice andpersonalities will reveal that the article containsa balanced set of provisions. I hope theforthcoming Congress will implement such

provisions taking into account that Filipinosshould have real control over our economy andpatrimony, and if foreign equity is permitted,the same must be subordinated to theimperative demands of the national interest.x x x.It is also my understanding that servicecontracts involving foreign corporations orentities are resorted to only when no Filipinoenterprise or Filipino-controlled enterprisecould possibly undertake the exploration or

exploitation of our natural resources and thatcompensation under such contracts cannot andshould not equal what should pertain toownership of capital. In other words, the servicecontract should not be an instrument tocircumvent the basic provision, that theexploration and exploitation of naturalresources should be truly for the benefit ofFilipinos.Thank you, and I vote yes.233[Emphasissupplied.]x x x.

MR. TADEO. Nais ko lamang ipaliwanag angaking boto.Matapos suriin ang kalagayan ng Pilipinas, angsaligang suliranin, pangunahin ang salitang"imperyalismo." Ang ibig sabihin nito ay angsistema ng lipunang pinaghaharian ng iilangmonopolyong kapitalista at ang salitang"imperyalismo" ay buhay na buhay sa National

Economy and Patrimony na nating ginawa. Sapamamagitan ng salitang "based on," naroroonna ang free trade sapagkat tayo ay mananatilingtagapagluwas ng hilaw na sangkap attagaangkat ng yaring produkto. Pangalawa,naroroon pa rin ang parity rights, ang servicecontract, ang 60-40 equity sa natural resources.Habang naghihirap ang sambayanang Pilipino,ginagalugad naman ng mga dayuhan ang atinglikas na yaman. Kailan man ang Article onNational Economy and Patrimony ay hindinagpaalis sa pagkaalipin ng ating ekonomiya sakamay ng mga dayuhan. Ang solusyon sasuliranin ng bansa ay dalawa lamang: angpagpapatupad ng tunay na reporma sa lupa atang national industrialization. Ito ang tinatawagnaming pagsikat ng araw sa Silangan. Ngunit

ang mga landlords and big businessmen at angmga komprador ay nagsasabi na ang free tradena ito, ang kahulugan para sa amin, ay ipinipilitsa ating sambayanan na ang araw ay sisikat saKanluran. Kailan man hindi puwedeng sumikatang araw sa Kanluran. I vote no.234[Emphasissupplied.]This Court is likewise not persuaded.As earlier noted, the phrase "service contracts"has been deleted in the 1987 Constitution'sArticle on National Economy and Patrimony. If

the CONCOM intended to retain the concept ofservice contracts under the 1973 Constitution, itcould have simply adopted the old terminology("service contracts") instead of employing newand unfamiliar terms ("agreements . . . involvingeither technical or financial assistance"). Such adifference between the language of a provisionin a revised constitution and that of a similarprovision in the preceding constitution isviewed as indicative of a difference inpurpose.235If, as respondents suggest, theconcept of "technical or financial assistance"

agreements is identical to that of "servicecontracts," the CONCOM would not havebothered to fit the same dog with a new collar.To uphold respondents' theory would reducethe first to a mere euphemism for the secondand render the change in phraseologymeaningless.


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An examination of the reason behind thechange confirms that technical or financialassistance agreements are not synonymous toservice contracts.[T]he Court in construing a Constitution shouldbear in mind the object sought to beaccomplished by its adoption, and the evils, ifany, sought to be prevented or remedied. Adoubtful provision will be examined in light ofthe history of the times, and the condition andcircumstances under which the Constitutionwas framed. The object is to ascertain thereason which induced the framers of theConstitution to enact the particular provisionand the purpose sought to be accomplishedthereby, in order to construe the whole as tomake the words consonant to that reason and

calculated to effect that purpose.236As the following question of CommissionerQuesada and Commissioner Villegas' answershows the drafters intended to do away withservice contracts which were used tocircumvent the capitalization (60%-40%)requirement:MS. QUESADA. The 1973 Constitution used thewords "service contracts." In this particularSection 3, is there a safeguard against thepossible control of foreign interests if the

Filipinos go into coproduction with them?MR. VILLEGAS. Yes. In fact, the deletion of thephrase "service contracts" was our first attemptto avoid some of the abuses in the past regimein the use of service contracts to go around the60-40 arrangement. The safeguard that hasbeen introduced and this, of course can berefined is found in Section 3, lines 25 to 30,where Congress will have to concur with thePresident on any agreement entered intobetween a foreign-owned corporation and thegovernment involving technical or financial

assistance for large-scale exploration,development and utilization of naturalresources.237[Emphasis supplied.]In a subsequent discussion, CommissionerVillegas allayed the fears of CommissionerQuesada regarding the participation of foreigninterests in Philippine natural resources, whichwas supposed to be restricted to Filipinos.

MS. QUESADA. Another point of clarification isthe phrase "and utilization of natural resourcesshall be under the full control and supervisionof the State." In the 1973 Constitution, this waslimited to citizens of the Philippines; but it wasremoved and substituted by "shall be under thefull control and supervision of the State." Wasthe concept changed so that these particularresources would be limited to citizens of thePhilippines? Or would these resources only beunder the full control and supervision of theState; meaning, noncitizens would have accessto these natural resources? Is that theunderstanding?MR. VILLEGAS. No, Mr. Vice-President, if theCommissioner reads the next sentence, itstates:

Such activities may be directly undertaken bythe State, or it may enter into co-production,joint venture, production-sharing agreementswith Filipino citizens.So we are still limiting it only to Filipino citizens.x x x.MS. QUESADA. Going back to Section 3, thesection suggests that:The exploration, development, and utilization ofnatural resources may be directly undertaken

by the State, or it may enter into co-production,

joint venture or production-sharing agreementwith . . . corporations or associations at leastsixty per cent of whose voting stock orcontrolling interest is owned by such citizens.Lines 25 to 30, on the other hand, suggest thatin the large-scale exploration, development andutilization of natural resources, the Presidentwith the concurrence of Congress may enterinto agreements with foreign-ownedcorporations even for technical or financialassistance.I wonder if this part of Section 3 contradicts the

second part. I am raising this point for fear thatforeign investors will use their enormous capitalresources to facilitate the actual exploitation orexploration, development and effectivedisposition of our natural resources to thedetriment of Filipino investors. I am not sayingthat we should not consider borrowing moneyfrom foreign sources. What I refer to is that


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foreign interest should be allowed toparticipate only to the extent that they lend usmoney and give us technical assistance with theappropriate government permit. In this way, wecan insure the enjoyment of our naturalresources by our own people.MR. VILLEGAS. Actually, the second provisionabout the President does not permit foreigninvestors to participate. It is only technical orfinancial assistancethey do not own anythingbut on conditions that have to be determinedby law with the concurrence of Congress. So, itis very restrictive.If the Commissioner will remember, thisremoves the possibility for service contractswhich we said yesterday were avenues used int

envi - la bugal blaan and province of north cotabato

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