la bugal-b'laan v denr gr 127882, jan 27-04

7/28/2019 La Bugal-b'Laan v Denr Gr 127882, Jan 27-04

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EN BANC

[G.R. No. 127882. January 27, 2004]

LA BUGAL-BLAAN TRIBAL ASSOCIATION, INC., representedby its Chairman FLONG MIGUEL M. LUMAYONG,WIGBERTO E. TAADA, PONCIANO BENNAGEN, JAIME

TADEO, RENATO R. CONSTANTINO, JR., FLONG AGUSTINM. DABIE, ROBERTO P. AMLOY, RAQIM L. DABIE, SIMEON H.DOLOJO, IMELDA M. GANDON, LENY B. GUSANAN,MARCELO L. GUSANAN, QUINTOL A. LABUAYAN,LOMINGGES D. LAWAY, BENITA P. TACUAYAN, minors JOLYL. BUGOY, represented by his father UNDERO D. BUGOY,ROGER M. DADING, represented by his father ANTONIO L.DADING, ROMY M. LAGARO, represented by his father

TOTING A. LAGARO, MIKENY JONG B. LUMAYONG,represented by his father MIGUEL M. LUMAYONG, RENE T.MIGUEL, represented by his mother EDITHA T. MIGUEL,ALDEMAR L. SAL, represented by his father DANNY M. SAL,

DAISY RECARSE, represented by her mother LYDIA S.SANTOS, EDWARD M. EMUY, ALAN P. MAMPARAIR, MARIOL. MANGCAL, ALDEN S. TUSAN, AMPARO S. YAP, VIRGILIOCULAR, MARVIC M.V.F. LEONEN, JULIA REGINA CULAR,GIAN CARLO CULAR, VIRGILIO CULAR, JR., represented bytheir father VIRGILIO CULAR, PAUL ANTONIO P. VILLAMOR,represented by his parents JOSE VILLAMOR and ELIZABETHPUA-VILLAMOR, ANA GININA R. TALJA, represented by her

father MARIO JOSE B. TALJA, SHARMAINE R. CUNANAN,represented by her father ALFREDO M. CUNANAN,ANTONIO JOSE A. VITUG III, represented by his motherANNALIZA A. VITUG, LEAN D. NARVADEZ, represented byhis father MANUEL E. NARVADEZ, JR., ROSERIO MARALAGLINGATING, represented by her father RIO OLIMPIO A.LINGATING, MARIO JOSE B. TALJA, DAVID E. DE VERA,MARIA MILAGROS L. SAN JOSE, SR., SUSAN O. BOLANIO,

OND, LOLITA G. DEMONTEVERDE, BENJIE L. NEQUINTO,ROSE LILIA S. ROMANO, ROBERTO S. VERZOLA, EDUARDOAURELIO C. REYES, LEAN LOUEL A. PERIA, represented byhis father ELPIDIO V. PERIA, GREEN FORUM PHILIPPINES,GREEN FORUM WESTERN VISAYAS, (GF-WV),ENVIRONMETAL LEGAL ASSISTANCE CENTER (ELAC),PHILIPPINE KAISAHAN TUNGO SA KAUNLARAN NG


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KANAYUNAN AT REPORMANG PANSAKAHAN (KAISAHAN),KAISAHAN TUNGO SA KAUNLARAN NG KANAYUNAN ATREPORMANG PANSAKAHAN (KAISAHAN), PARTNERSHIPFOR AGRARIAN REFORM and RURAL DEVELOPMENT

SERVICES, INC. (PARRDS), PHILIPPINE PART`NERSHIP FORTHE DEVELOPMENT OF HUMAN RESOURCES IN THE RURALAREAS, INC. (PHILDHRRA), WOMENS LEGAL BUREAU(WLB), CENTER FOR ALTERNATIVE DEVELOPMENTINITIATIVES, INC. (CADI), UPLAND DEVELOPMENTINSTITUTE (UDI), KINAIYAHAN FOUNDATION, INC., SENTRONG ALTERNATIBONG LINGAP PANLIGAL (SALIGAN), LEGALRIGHTS AND NATURAL RESOURCES CENTER, INC. (LRC),

petitioners,

vs.

VICTOR O. RAMOS, SECRETARY, DEPARTMENT OFENVIRONMENT AND NATURAL RESOURCES (DENR),HORACIO RAMOS, DIRECTOR, MINES AND GEOSCIENCESBUREAU (MGB-DENR), RUBEN TORRES, EXECUTIVESECRETARY, and WMC (PHILIPPINES), INC. respondents.

D E C I S I O N

CARPIO-MORALES,J.:

The present petition for mandamus and prohibitionassails the constitutionality of Republic Act No. 7942,otherwise known as the PHILIPPINE MINING ACT OF1995, along with the Implementing Rules andRegulations issued pursuant thereto, Department ofEnvironment and Natural Resources (DENR)Administrative Order 96-40, and of the Financial and

Technical Assistance Agreement (FTAA) entered into

on March 30, 1995 by the Republic of the Philippinesand WMC (Philippines), Inc. (WMCP), a corporationorganized under Philippine laws.

On July 25, 1987, then President Corazon C. Aquinoissued Executive Order (E.O.) No. 279 authorizing the


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DENR Secretary to accept, consider and evaluateproposals from foreign-owned corporations or foreigninvestors for contracts or agreements involving eithertechnical or financial assistance for large-scale

exploration, development, and utilization of minerals,which, upon appropriate recommendation of theSecretary, the President may execute with the foreignproponent. In entering into such proposals, thePresident shall consider the real contributions to theeconomic growth and general welfare of the countrythat will be realized, as well as the development and

use of local scientific and technical resources that willbe promoted by the proposed contract or agreement.Until Congress shall determine otherwise, large-scalemining, for purpose of this Section, shall mean thoseproposals for contracts or agreements for mineralresources exploration, development, and utilizationinvolving a committed capital investment in a single

mining unit project of at least Fifty Million Dollars inUnited States Currency (US $50,000,000.00).

On March 3, 1995, then President Fidel V. Ramosapproved R.A. No. 7942 to govern the exploration,development, utilization and processing of all mineralresources. R.A. No. 7942 defines the modes of

mineral agreements for mining operations, outlinesthe procedure for their filing and approval,assignment/transfer and withdrawal, and fixes theirterms. Similar provisions govern financial or technicalassistance agreements.

The law prescribes the qualifications of contractors

and grants them certain rights, including timber,water and easement rights, and the right to possessexplosives. Surface owners, occupants, orconcessionaires are forbidden from preventingholders of mining rights from entering private lands


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and concession areas. A procedure for the settlementof conflicts is likewise provided for.

The Act restricts the conditions for exploration, quarry

and other permits. It regulates the transport, saleand processing of minerals, and promotes thedevelopment of mining communities, science andmining technology, and safety and environmentalprotection.

The governments share in the agreements is spelled

out and allocated, taxes and fees are imposed,incentives granted. Aside from penalizing certainacts, the law likewise specifies grounds for thecancellation, revocation and termination ofagreements and permits.

On April 9, 1995, 30 days following its publication on

March 10, 1995 in Malaya and Manila Times, twonewspapers of general circulation,R.A. No. 7942 tookeffect.

Shortly before the effectivity of R.A. No. 7942,however, or on March 30, 1995, the President enteredinto an FTAA with WMCP covering 99,387 hectares of

land in South Cotabato, Sultan Kudarat, Davao del Surand North Cotabato.

On August 15, 1995, then DENR Secretary Victor O.Ramos issued DENR Administrative Order (DAO) No.95-23, s. 1995, otherwise known as the ImplementingRules and Regulations of R.A. No. 7942. This was

later repealed by DAO No. 96-40, s. 1996 which wasadopted on December 20, 1996.

On January 10, 1997, counsels for petitioners sent aletter to the DENR Secretary demanding that theDENR stop the implementation of R.A. No. 7942 and


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DAO No. 96-40, giving the DENR fifteen days fromreceipt to act thereon. The DENR, however, has yetto respond or act on petitioners letter.

Petitioners thus filed the present petition forprohibition and mandamus, with a prayer for atemporary restraining order. They allege that at thetime of the filing of the petition, 100 FTAAapplications had already been filed, covering an areaof 8.4 million hectares, 64 of which applications areby fully foreign-owned corporations covering a total of

5.8 million hectares, and at least one by a fullyforeign-owned mining company over offshore areas.

Petitioners claim that the DENR Secretary actedwithout or in excess of jurisdiction:

I

x x x in signing and promulgating DENRAdministrative Order No. 96-40 implementingRepublic Act No. 7942, the latter beingunconstitutional in that it allows fully foreign ownedcorporations to explore, develop, utilize and exploitmineral resources in a manner contrary to Section 2,

paragraph 4, Article XII of the Constitution;

II

x x x in signing and promulgating DENRAdministrative Order No. 96-40 implementingRepublic Act No. 7942, the latter being

unconstitutional in that it allows the taking of privateproperty without the determination of public use andfor just compensation;

III


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x 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;

IV

x x x in signing and promulgating DENRAdministrative Order No. 96-40 implementingRepublic Act No. 7942, the latter being

unconstitutional in that it allows enjoyment by foreigncitizens as well as fully foreign owned corporations ofthe nations marine wealth contrary to Section 2,paragraph 2 of Article XII of the Constitution;

V

x x x in signing and promulgating DENRAdministrative Order No. 96-40 implementingRepublic Act No. 7942, the latter beingunconstitutional in that it allows priority to foreignand fully foreign owned corporations in theexploration, development and utilization of mineralresources contrary to Article XII of the Constitution;

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 inequitable

sharing of wealth contrary to Sections [sic] 1,paragraph 1, and Section 2, paragraph 4[,] [ArticleXII] of the Constitution;

VII


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x x x in recommending approval of and implementingthe Financial and Technical Assistance Agreementbetween the President of the Republic of thePhilippines and Western Mining Corporation

Philippines Inc. because the same is illegal andunconstitutional.

They pray that the Court issue an order:

(a) Permanently enjoining respondents from actingon any application for Financial or Technical

Assistance Agreements;

(b) Declaring the Philippine Mining Act of 1995 orRepublic Act No. 7942 as unconstitutional and nulland void;

(c) Declaring the Implementing Rules and

Regulations of the Philippine Mining Act contained inDENR Administrative Order No. 96-40 and all othersimilar administrative issuances as unconstitutionaland null and void; and

(d) Cancelling the Financial and TechnicalAssistance Agreement issued to Western Mining

Philippines, Inc. as unconstitutional, illegal and nulland void.

Impleaded as public respondents are Ruben Torres,the then Executive Secretary, Victor O. Ramos, thethen DENR Secretary, and Horacio Ramos, Director ofthe Mines and Geosciences Bureau of the DENR. Also

impleaded is private respondent WMCP, whichentered into the assailed FTAA with the PhilippineGovernment. WMCP is owned by WMC ResourcesInternational Pty., Ltd. (WMC), a wholly ownedsubsidiary of Western Mining Corporation HoldingsLimited, a publicly listed major Australian mining


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and exploration company. By WMCPsinformation, it is a 100% owned subsidiary of WMCLIMITED.

Respondents, aside from meeting petitionerscontentions, argue that the requisites for judicialinquiry have not been met and that the petition doesnot comply with the criteria for prohibition andmandamus. Additionally, respondent WMCP arguesthat there has been a violation of the rule onhierarchy of courts.

After petitioners filed their reply, this Court granteddue course to the petition. The parties have sincefiled their respective memoranda.

WMCP subsequently filed a Manifestation datedSeptember 25, 2002 alleging that on January 23,

2001, WMC sold all its shares in WMCP to SagittariusMines, Inc. (Sagittarius), a corporation organizedunder Philippine laws. WMCP was subsequentlyrenamed Tampakan Mineral Resources Corporation.WMCP claims that at least 60% of the equity ofSagittarius is owned by Filipinos and/or Filipino-ownedcorporations while about 40% is owned by Indophil

Resources NL, an Australian company. It furtherclaims that by such sale and transfer of shares,WMCP has ceased to be connected in any way withWMC.

By virtue of such sale and transfer, the DENRSecretary, by Order of December 18, 2001, approved

the transfer and registration of the subject FTAA fromWMCP to Sagittarius. Said Order, however, wasappealed by Lepanto Consolidated Mining Co.(Lepanto) to the Office of the President which upheldit by Decision of July 23, 2002. Its motion forreconsideration having been denied by the Office of


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the President by Resolution of November 12, 2002,Lepanto filed a petition for review before the Court ofAppeals. Incidentally, two other petitions for reviewrelated to the approval of the transfer and

registration of the FTAA to Sagittarius were recentlyresolved by this Court.

It bears stressing that this case has not beenrendered moot either by the transfer and registrationof the FTAA to a Filipino-owned corporation or by thenon-issuance of a temporary restraining order or a

preliminary injunction to stay the above-said July 23,2002 decision of the Office of the President. Thevalidity of the transfer remains in dispute and awaitsfinal judicial determination. This assumes, of course,that such transfer cures the FTAAs allegedunconstitutionality, on which question judgment isreserved.

WMCP also points out that the original claimowners ofthe major mineralized areas included in the WMCPFTAA, namely, Sagittarius, Tampakan MiningCorporation, and Southcot Mining Corporation, are allFilipino-owned corporations, each of which was aholder of an approved Mineral Production Sharing

Agreement awarded in 1994, albeit their respectivemineral claims were subsumed in the WMCP FTAA;and that these three companies are the samecompanies that consolidated their interests inSagittarius to whom WMC sold its 100% equity inWMCP. WMCP concludes that in the event that theFTAA is invalidated, the MPSAs of the three

corporations would be revived and the mineral claimswould revert to their original claimants.

These circumstances, while informative, are hardlysignificant in the resolution of this case, it involving


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the validity of the FTAA, not the possibleconsequences of its invalidation.

Of the above-enumerated seven grounds cited by

petitioners, as will be shown later, only the first andthe last need be delved into; in the latter, thediscussion shall dwell only insofar as it questions theeffectivity of E. O. No. 279 by virtue of which orderthe questioned FTAA was forged.

I

Before going into the substantive issues, theprocedural questions posed by respondents shall firstbe tackled.

REQUISITES FOR JUDICIAL REVIEW

When an issue of constitutionality is raised, this Courtcan exercise its power of judicial review only if thefollowing requisites are present:

(1) The existence of an actual and appropriatecase;

(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

of the case.

Respondents claim that the first three requisites arenot present.


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Section 1, Article VIII of the Constitution states that(j)udicial power includes the duty of the courts of

justice to settle actual controversies involving rightswhich are legally demandable and enforceable. The

power of judicial review, therefore, is limited to thedetermination of actual cases and controversies.

An actual case or controversy means an existing caseor controversy that is appropriate or ripe fordetermination, not conjectural or anticipatory, lestthe decision of the court would amount to an advisory

opinion. The power does not extend to hypotheticalquestions since any attempt at abstraction could onlylead to dialectics and barren legal questions and tosterile conclusions unrelated to actualities.

Legal standing or locus standi has been defined asa personal and substantial interest in the case such

that the party has sustained or will sustain directinjury as a result of the governmental act that isbeing challenged, alleging more than a generalizedgrievance. The gist of the question of standing iswhether a party alleges such personal stake in theoutcome of the controversy as to assure thatconcrete adverseness which sharpens the

presentation of issues upon which the court dependsfor illumination of difficult constitutional questions.Unless a person is injuriously affected in any of hisconstitutional rights by the operation of statute orordinance, he has no standing.

Petitioners traverse a wide range of sectors. Among

them are La Bugal Blaan Tribal Association, Inc., afarmers and indigenous peoples cooperativeorganized under Philippine laws representing acommunity actually affected by the mining activitiesof WMCP, members of said cooperative, as well asother residents of areas also affected by the mining


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activities of WMCP. These petitioners have standingto raise the constitutionality of the questioned FTAAas they allege a personal and substantial injury. Theyclaim that they would suffer irremediable

displacement as a result of the implementation ofthe FTAA allowing WMCP to conduct mining activitiesin their area of residence. They thus meet theappropriate case requirement as they assert aninterest adverse to that of respondents who, on theother hand, insist on the FTAAs validity.

In view of the alleged impending injury, petitionersalso have standing to assail the validity of E.O. No.279, by authority of which the FTAA was executed.

Public respondents maintain that petitioners, beingstrangers to the FTAA, cannot sue either or bothcontracting parties to annul it. In other words, they

contend that petitioners are not real parties ininterest in an action for the annulment of contract.

Public respondents contention fails. The present action isnot merely one for annulment of contract but forprohibition and mandamus. Petitioners allege that publicrespondents acted without or in excess of jurisdiction inimplementing the FTAA, which they submit isunconstitutional. As the case involves constitutionalquestions, this Court is not concerned with whetherpetitioners are real parties in interest, but with whetherthey have legal standing. As held in Kilosbayan v. Morato:

x x x. It is important to note . . . that standingbecause of its constitutional and public policy

underpinnings, is very different from questionsrelating to whether a particular plaintiff is the realparty in interest or has capacity to sue. Although allthree requirements are directed towards ensuringthat only certain parties can maintain an action,standing restrictions require a partial consideration of


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the merits, as well as broader policy concerns relatingto the proper role of the judiciary in certain areas.[](FRIEDENTHAL, KANE AND MILLER, CIVIL PROCEDURE328 [1985])

Standing is a special concern in constitutional lawbecause in some cases suits are brought not byparties who have been personally injured by theoperation of a law or by official action taken, but byconcerned citizens, taxpayers or voters who actuallysue in the public interest. Hence, the question in

standing is whether such parties have alleged such apersonal stake in the outcome of the controversy asto assure that concrete adverseness which sharpensthe presentation of issues upon which the court solargely depends for illumination of difficultconstitutional questions. (Baker v. Carr, 369 U.S.186, 7 L.Ed.2d 633 [1962].)

As earlier stated, petitioners meet this requirement.

The challenge against the constitutionality of R.A. No.7942 and DAO No. 96-40 likewise fulfills the requisitesof justiciability. Although these laws were not in forcewhen the subject FTAA was entered into, the question

as to their validity is ripe for adjudication.

The WMCP FTAA provides:

14.3 Future Legislation

Any term and condition more favourable

to Financial &Technical AssistanceAgreement contractors resulting fromrepeal or amendment of any existing lawor regulation or from the enactment of alaw, regulation or administrative order


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shall be considered a part of thisAgreement.

It is undisputed that R.A. No. 7942 and DAO No. 96-40

contain provisions that are more favorable to WMCP,hence, these laws, to the extent that they arefavorable to WMCP, govern the FTAA.

In addition, R.A. No. 7942 explicitly makes certainprovisions apply to pre-existing agreements.

SEC. 112. Non-impairment of ExistingMining/Quarrying Rights. x x x That the provisionsof Chapter XIV on government share in mineralproduction-sharing agreement and of Chapter XVI onincentives of this Act shall immediately govern andapply to a mining lessee or contractor unless themining lessee or contractor indicates his intention to

the secretary, in writing, not to avail of saidprovisions x x x Provided, finally, That such leases,production-sharing agreements, financial or technicalassistance agreements shall comply with theapplicable provisions of this Act and its implementingrules and regulations.

As there is no suggestion that WMCP has indicated itsintention not to avail of the provisions of Chapter XVIof R.A. No. 7942, it can safely be presumed that theyapply to the WMCP FTAA.

Misconstruing the application of the third requisite forjudicial review that the exercise of the review is

pleaded at the earliest opportunity WMCP points outthat the petition was filed only almost two years afterthe execution of the FTAA, hence, not raised at theearliest opportunity.


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The third requisite should not be taken to mean thatthe question of constitutionality must be raisedimmediately after the execution of the state actioncomplained of. That the question of constitutionality

has not been raised before is not a valid reason forrefusing to allow it to be raised later. A contrary rulewould mean that a law, otherwise unconstitutional,would lapse into constitutionality by the mere failureof the proper party to promptly file a case tochallenge the same.

PROPRIETY OF PROHIBITIONAND MANDAMUS

Before the effectivity in July 1997 of the RevisedRules of Civil Procedure, Section 2 of Rule 65 read:

SEC. 2. Petition for prohibition. When the

proceedings of any tribunal, corporation, board, orperson, whether exercising functions judicial orministerial, are without or in excess of its or his

jurisdiction, or with grave abuse of discretion, andthere is no appeal or any other plain, speedy, andadequate remedy in the ordinary course of law, aperson aggrieved thereby may file a verified petition

in the proper court alleging the facts with certaintyand praying that judgment be rendered commandingthe defendant to desist from further proceeding in theaction or matter specified therein.

Prohibition is a preventive remedy. It seeks ajudgment ordering the defendant to desist from

continuing with the commission of an act perceived tobe illegal.

The 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, in behalfof the Government, have obligations to fulfill undersaid contract. Petitioners seek to prevent them fromfulfilling such obligations on the theory that the

contract is unconstitutional and, therefore, void.

The propriety of a petition for prohibition beingupheld, discussion of the propriety of the mandamusaspect of the petition is rendered unnecessary.

HIERARCHY OF COURTS

The contention that the filing of this petition violatedthe rule on hierarchy of courts does not likewise lie.

The rule has been explained thus:

Between two courts of concurrent original jurisdiction,it is the lower court that should initially pass upon the

issues of a case. That way, as a particular case goesthrough the hierarchy of courts, it is shorn of all butthe important legal issues or those of first impression,which are the proper subject of attention of theappellate court. This is a procedural rule borne ofexperience and adopted to improve theadministration of justice.

This Court has consistently enjoined litigants torespect the hierarchy of courts. Although this Courthas concurrent jurisdiction with the Regional TrialCourts and the Court of Appeals to issue writs ofcertiorari, prohibition, mandamus, quo warranto,habeas corpus and injunction, such concurrence does

not give a party unrestricted freedom of choice ofcourt forum. The resort to this Courts primaryjurisdiction to issue said writs shall be allowed onlywhere the redress desired cannot be obtained in theappropriate courts or where exceptional and


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compelling circumstances justify suchinvocation. We held in People v. Cuaresma that:

A becoming regard for judicial hierarchy most

certainly indicates that petitions for the issuance ofextraordinary writs against first level (inferior)courts should be filed with the Regional Trial Court,and those against the latter, with the Court ofAppeals. A direct invocation of the SupremeCourts original jurisdiction to issue these writsshould be allowed only where there are special

and important reasons therefor, clearly andspecifically set out in the petition. This is establishedpolicy. It is a policy necessary to prevent inordinatedemands upon the Courts time and attention whichare better devoted to those matters within itsexclusive jurisdiction, and to prevent further over-crowding of the Courts docket x x x. [Emphasis

supplied.]

The repercussions of the issues in this case on thePhilippine mining industry, if not the nationaleconomy, as well as the novelty thereof, constituteexceptional and compelling circumstances to justifyresort to this Court in the first instance.

In all events, this Court has the discretion to takecognizance of a suit which does not satisfy therequirements of an actual case or legal standingwhen paramount public interest is involved. When theissues raised are of paramount importance to thepublic, this Court may brush aside technicalities of

procedure.

II

Petitioners contend that E.O. No. 279 did not takeeffect because its supposed date of effectivity came


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after President Aquino had already lost her legislativepowers under the Provisional Constitution.

And they likewise claim that the WMC FTAA, which

was entered into pursuant to E.O. No. 279, violatesSection 2, Article XII of the Constitution because,among other reasons:

(1) It allows foreign-owned companies toextend more than mere financialor technicalassistance to the State in the exploitation,

development, and utilization of minerals, petroleum,and other mineral oils, and even permits foreignowned companies to operate and manage miningactivities.

(2) It allows foreign-owned companies toextend both technical and financial assistance,

instead of either technical or financial assistance.

To appreciate the import of these issues, a visit to thehistory of the pertinent constitutional provision, theconcepts contained therein, and the laws enactedpursuant thereto, is in order.

Section 2, Article XII reads in full:

Sec. 2. All lands of the public domain, waters,minerals, coal, petroleum, and other mineral oils, allforces of potential energy, fisheries, forests ortimber, wildlife, flora and fauna, and other naturalresources are owned by the State. With theexception of agricultural lands, all other naturalresources shall not be alienated. The exploration,development, and utilization of natural resourcesshall be under the full control and supervision of theState. The State may directly undertake suchactivities or it may enter into co-production, jointventure, or production-sharing agreements withFilipino citizens, or corporations or associations at


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least sixtyper centum of whose capital is owned bysuch citizens. Such agreements may be for a periodnot exceeding twenty-five years, renewable for notmore than twenty-five years, and under such terms

and conditions as may be provided by law. In casesof water rights for irrigation, water supply, fisheries,or industrial uses other than the development ofwater power, beneficial use may be the measureand limit of the grant.

The State shall protect the nations marine wealth inits archipelagic waters, territorial sea, and exclusive

economic zone, and reserve its use and enjoymentexclusively to Filipino citizens.

The Congress may, by law, allow small-scaleutilization of natural resources by Filipino citizens, aswell as cooperative fish farming, with priority tosubsistence fishermen and fish-workers in rivers,

lakes, bays, and lagoons.

The President may enter into agreements withforeign-owned corporations involving either technicalor financial assistance for large-scale exploration,development, and utilization of minerals, petroleum,and other mineral oils according to the general terms

and conditions provided by law, based on realcontributions to the economic growth and generalwelfare of the country. In such agreements, the Stateshall promote the development and use of localscientific and technical resources.

The President shall notify the Congress of every

contract entered into in accordance with thisprovision, within thirty days from its execution.

THE SPANISH REGIMEAND THE REGALIAN DOCTRINE


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The first sentence of Section 2 embodies the Regaliandoctrine orjura regalia. Introduced by Spain intothese Islands, this feudal concept is based on theStates power ofdominium, which is the capacity of

the State to own or acquire property.

In its broad sense, the term jura regalia refers toroyal rights, or those rights which the King has byvirtue of his prerogatives. In Spanish law, it refers toa right which the sovereign has over anything inwhich a subject has a right of property orpropriedad.

These were rights enjoyed during feudal times by theking as the sovereign.

The theory of the feudal system was that title to alllands was originally held by the King, and while theuse of lands was granted out to others who werepermitted to hold them under certain conditions, the

King theoretically retained the title. By fiction of law,the King was regarded as the original proprietor of alllands, and the true and only source of title, and fromhim all lands were held. The theory ofjura regaliawas therefore nothing more than a natural fruit ofconquest.

The Philippines having passed to Spain by virtue ofdiscovery and conquest, earlier Spanish decreesdeclared that all lands were held from the Crown.

The Regalian doctrine extends not only to land butalso to all natural wealth that may be found in thebowels of the earth. Spain, in particular, recognized

the unique value of natural resources, viewing them,especially minerals, as an abundant source ofrevenue to finance its wars against other nations.Mining laws during the Spanish regime reflected thisperspective.


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THE AMERICAN OCCUPATION ANDTHE CONCESSION REGIME

By the Treaty of Paris of December 10, 1898,

Spain ceded the archipelago known as the PhilippineIslands to the United States. The Philippines washence governed by means of organic acts that werein the nature of charters serving as a Constitution ofthe occupied territory from 1900 to 1935. Among theprincipal organic acts of the Philippines was the Act ofCongress of July 1, 1902, more commonly known as

the Philippine Bill of 1902, through which theUnited States Congress assumed the administrationof the Philippine Islands. Section 20 of said Billreserved the disposition of mineral lands of the publicdomain from sale. Section 21 thereof allowed thefree and open exploration, occupation and purchaseof mineral deposits not only to citizens of the

Philippine Islands but to those of the United States aswell:

Sec. 21. That all valuable mineral deposits in publiclands in the Philippine Islands, both surveyed andunsurveyed, are hereby declared to be free and opento exploration, occupation and purchase, and the land

in which they are found, to occupation and purchase,by citizens of the United States or of said Islands:Provided, That when on any lands in said Islandsentered and 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 has enteredand is occupying such lands shall have paid to theGovernment of said Islands such additional sum orsums as will make the total amount paid for themineral claim or claims in which said deposits are


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located equal to the amount charged by theGovernment for the same as mineral claims.

Unlike Spain, the United States considered natural

resources as a source of wealth for its nationals andsaw fit to allow both Filipino and American citizens toexplore and exploit minerals in public lands, and togrant patents to private mineral lands. A person whoacquired ownership over a parcel of private mineralland pursuant to the laws then prevailing couldexclude other persons, even the State, from

exploiting minerals within his property. Thus, earlierjurisprudence held that:

A valid and subsisting location of mineral land, madeand kept up in accordance with the provisions of thestatutes of the United States, has the effect of a grantby the United States of the present and exclusive

possession of the lands located, and this exclusiveright of possession and enjoyment continues duringthe entire life of the location.

x x x x x x.

The discovery of minerals in the ground by one who

has a valid mineral location perfects his claim and hislocation not only against third persons, but alsoagainst the Government. x x x. [Italics in theoriginal.]

The Regalian doctrine and the American system,therefore, differ in one essential respect. Under the

Regalian theory, mineral rights are not included in agrant of land by the state; under the Americandoctrine, mineral rights are included in a grant of landby the government.


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Section 21 also made possible the concession(frequently styled permit, license or lease)system. This was the traditional regime imposed bythe colonial administrators for the exploitation of

natural resources in the extractive sector (petroleum,hard minerals, timber, etc.).

Under the concession system, the concessionairemakes a direct equity investment for the purpose ofexploiting a particular natural resource within a givenarea. Thus, the concession amounts to complete

control by the concessionaire over the countrysnatural resource, for it is given exclusive and plenaryrights to exploit a particular resource at the point ofextraction. In consideration for the right to exploit anatural resource, the concessionaire either pays rentor royalty, which is a fixed percentage of the grossproceeds.

Later statutory enactments by the legislative bodiesset up in the Philippines adopted the contractualframework of the concession. For instance, Act No.2932, approved on August 31, 1920, which providedfor the exploration, location, and lease of landscontaining petroleum and other mineral oils and gas

in the Philippines, and Act No. 2719, approved on May14, 1917, which provided for the leasing anddevelopment of coal lands in the Philippines, bothutilized the concession system.

THE 1935 CONSTITUTION AND THENATIONALIZATION OF NATURAL RESOURCES

By the Act of United States Congress of March 24,1934, popularly known as the Tydings-McDuffieLaw, the People of the Philippine Islands wereauthorized to adopt a constitution. On July 30, 1934,the Constitutional Convention met for the purpose of


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drafting a constitution, and the Constitutionsubsequently drafted was approved by theConvention on February 8, 1935. The Constitutionwas submitted to the President of the United States

on March 18, 1935. On March 23, 1935, the Presidentof the United States certified that the Constitutionconformed substantially with the provisions of the Actof Congress approved on March 24, 1934. On May14, 1935, the Constitution was ratified by the Filipinopeople.

The 1935 Constitution adopted the Regalian doctrine,declaring all natural resources of the Philippines,including mineral lands and minerals, to be propertybelonging to the State. As adopted in a republicansystem, the medieval concept ofjura regalia isstripped of royal overtones and ownership of the landis vested in the State.

Section 1, Article XIII, on Conservation and Utilizationof Natural Resources, of the 1935 Constitutionprovided:

SECTION 1. All agricultural, timber, and mineral landsof the public domain, waters, minerals, coal,

petroleum, and other mineral oils, all forces ofpotential energy, and other natural resources of thePhilippines belong to the State, and their disposition,exploitation, development, or utilization shall belimited to citizens of the Philippines, or tocorporations or associations at least sixtyper centumof the capital of which is owned by such citizens,

subject to any existing right, grant, lease, orconcession at the time of the inauguration of theGovernment established under this Constitution.Natural resources, with the exception of publicagricultural land, shall not be alienated, and nolicense, concession, or lease for the exploitation,


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development, or utilization of any of the naturalresources shall be granted for a period exceedingtwenty-five years, except as to water rights forirrigation, water supply, fisheries, or industrial uses

other than the development of water power, in whichcases beneficial use may be the measure and thelimit of the grant.

The nationalization and conservation of the naturalresources of the country was one of the fixed anddominating objectives of the 1935 Constitutional

Convention. One delegate relates:

There was an overwhelming sentiment in theConvention in favor of the principle of stateownership of natural resources and the adoption ofthe Regalian doctrine. State ownership of naturalresources was seen as a necessary starting point to

secure recognition of the states power to controltheir disposition, exploitation, development, orutilization. The delegates of the ConstitutionalConvention very well knew that the concept of Stateownership of land and natural resources wasintroduced by the Spaniards, however, they were notcertain whether it was continued and applied by the

Americans. To remove all doubts, the Conventionapproved the provision in the Constitution affirmingthe Regalian doctrine.

The adoption of the principle of state ownership ofthe natural resources and of the Regalian doctrinewas considered to be a necessary starting point for

the plan of nationalizing and conserving the naturalresources of the country. For with the establishmentof the principle of state ownership of the naturalresources, it would not be hard to secure therecognition of the power of the State to control theirdisposition, exploitation, development or utilization.


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The nationalization of the natural resources wasintended (1) to insure their conservation for Filipinoposterity; (2) to serve as an instrument of nationaldefense, helping prevent the extension to the country

of foreign control through peaceful economicpenetration; and (3) to avoid making the Philippines asource of international conflicts with the consequentdanger to its internal security and independence.

The same Section 1, Article XIII also adopted theconcession system, expressly permitting the State to

grant licenses, concessions, or leases for theexploitation, development, or utilization of any of thenatural resources. Grants, however, were limited toFilipinos or entities at least 60% of the capital ofwhich is owned by Filipinos.

The swell of nationalism that suffused the 1935

Constitution was radically diluted when on November1946, the Parity Amendment, which came in the formof an Ordinance Appended to the Constitution, wasratified in a plebiscite. The Amendment extended,from July 4, 1946 to July 3, 1974, the right to utilizeand exploit our natural resources to citizens of theUnited States and business enterprises owned or

controlled, directly or indirectly, by citizens of theUnited States:

Notwithstanding the provision of section one, ArticleThirteen, and section eight, Article Fourteen, of theforegoing Constitution, during the effectivity of theExecutive Agreement entered into by the President of

the Philippines with the President of the United Stateson the fourth of July, nineteen hundred and forty-six,pursuant to the provisions of Commonwealth ActNumbered Seven hundred and thirty-three, but in nocase to extend beyond the third of July, nineteenhundred and seventy-four, the disposition,


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exploitation, development, and utilization of allagricultural, timber, and mineral lands of the publicdomain, waters, minerals, coals, petroleum, and othermineral oils, all forces and sources of potential

energy, and other natural resources of thePhilippines, and the operation of public utilities, shall,if open to any person, be open to citizens of theUnited States and to all forms of business enterpriseowned or controlled, directly or indirectly, by citizensof the United States in the same manner as to, andunder the same conditions imposed upon, citizens of

the Philippines or corporations or associations ownedor controlled by citizens of the Philippines.

The Parity Amendment was subsequently modified bythe 1954 Revised Trade Agreement, also known asthe Laurel-Langley Agreement, embodied in RepublicAct No. 1355.

THE PETROLEUM ACT OF 1949AND THE CONCESSION SYSTEM

In the meantime, Republic Act No. 387, also known asthe Petroleum Act of 1949, was approved on June 18,1949.

The Petroleum Act of 1949 employed the concessionsystem for the exploitation of the nations petroleumresources. Among the kinds of concessions itsanctioned were exploration and exploitationconcessions, which respectively granted to theconcessionaire the exclusive right to explore for or

develop petroleum within specified areas.

Concessions may be granted only to duly qualifiedpersons who have sufficient finances, organization,resources, technical competence, and skills necessaryto conduct the operations to be undertaken.


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Nevertheless, the Government reserved the right toundertake such work itself. This proceeded from thetheory that all natural deposits or occurrences ofpetroleum or natural gas in public and/or private

lands in the Philippines belong to the State.Exploration and exploitation concessions did notconfer upon the concessionaire ownership over thepetroleum lands and petroleum deposits. However,they did grant concessionaires the right to explore,develop, exploit, and utilize them for the period andunder the conditions determined by the law.

Concessions were granted at the complete risk of theconcessionaire; the Government did not guaranteethe existence of petroleum or undertake, in any case,title warranty.

Concessionaires were required to submit information

as maybe required by the Secretary of Agricultureand Natural Resources, including reports of geologicaland geophysical examinations, as well as productionreports. Exploration and exploitation concessionaireswere also required to submit work programs.

Exploitation concessionaires, in particular, were

obliged to pay an annual exploitation tax, the objectof which is to induce the concessionaire to actuallyproduce petroleum, and not simply to sit on theconcession without developing or exploiting it. Theseconcessionaires were also bound to pay theGovernment royalty, which was not less than 12%of the petroleum produced and saved, less that

consumed in the operations of the concessionaire.Under Article 66, R.A. No. 387, the exploitation taxmay be credited against the royalties so that if theconcessionaire shall be actually producing enough oil,it would not actually be paying the exploitation tax.


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Failure to pay the annual exploitation tax for twoconsecutive years, or the royalty due to theGovernment within one year from the date itbecomes due, constituted grounds for the

cancellation of the concession. In case of delay in thepayment of the taxes or royalty imposed by the lawor by the concession, a surcharge of 1% per month isexacted until the same are paid.

As a rule, title rights to all equipment and structuresthat the concessionaire placed on the land belong to

the exploration or exploitation concessionaire. Upontermination of such concession, the concessionairehad a right to remove the same.

The Secretary of Agriculture and Natural Resourceswas tasked with carrying out the provisions of thelaw, through the Director of Mines, who acted under

the Secretarys immediate supervision and control.The Act granted the Secretary the authority to inspectany operation of the concessionaire and to examineall the books and accounts pertaining to operations orconditions related to payment of taxes and royalties.

The same law authorized the Secretary to create an

Administration Unit and a Technical Board. TheAdministration Unit was charged, inter alia, with theenforcement of the provisions of the law. The

Technical Board had, among other functions, the dutyto check on the performance of concessionaires andto determine whether the obligations imposed by theAct and its implementing regulations were being

complied with.

Victorio Mario A. Dimagiba, Chief Legal Officer of theBureau of Energy Development, analyzed the benefitsand drawbacks of the concession system insofar as itapplied to the petroleum industry:


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Advantages of Concession. Whether it emphasizesincome tax or royalty, the most positive aspect of theconcession system is that the States financialinvolvement is virtually risk free and administration is

simple and comparatively low in cost. Furthermore, ifthere is a competitive allocation of the resourceleading to substantial bonuses and/or greater royaltycoupled with a relatively high level of taxation,revenue accruing to the State under the concessionsystem may compare favorably with other financialarrangements.

Disadvantages of Concession. There are, however,major negative aspects to this system. Because theGovernments role in the traditional concession ispassive, it is at a distinct disadvantage in managingand developing policy for the nations petroleumresource. This is true for several reasons. First, even

though most concession agreements containcovenants requiring diligence in operations andproduction, this establishes only an indirect andpassive control of the host country in resourcedevelopment. Second, and more importantly, thefact that the host country does not directly participatein resource management decisions inhibits its ability

to train and employ its nationals in petroleumdevelopment. This factor could delay or prevent thecountry from effectively engaging in the developmentof its resources. Lastly, a direct role in managementis usually necessary in order to obtain a knowledge ofthe international petroleum industry which isimportant to an appreciation of the host countrys

resources in relation to those of other countries.

Other liabilities of the system have also been noted:

x x x there are functional implications which give theconcessionaire great economic power arising from its


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exclusive equity holding. This includes, first,appropriation of the returns of the undertaking,subject to a modest royalty; second, exclusivemanagement of the project; third, control of

production of the natural resource, such as volume ofproduction, expansion, research and development;and fourth, exclusive responsibility for downstreamoperations, like processing, marketing, anddistribution. In short, even if nominally, the state isthe sovereign and owner of the natural resourcebeing exploited, it has been shorn of all elements of

control over such natural resource because of theexclusive nature of the contractual regime of theconcession. The concession system, investing as itdoes ownership of natural resources, constitutes aconsistent inconsistency with the principle embodiedin our Constitution that natural resources belong tothe state and shall not be alienated, not to mention

the fact that the concession was the bedrock of thecolonial system in the exploitation of naturalresources.

Eventually, the concession system failed for reasonsexplained by Dimagiba:

Notwithstanding the good intentions of the PetroleumAct of 1949, the concession system could not haveproperly spurred sustained oil exploration activities inthe country, since it assumed that such a capital-intensive, high risk venture could be successfullyundertaken by a single individual or a smallcompany. In effect, concessionaires funds were

easily exhausted. Moreover, since the concessionsystem practically closed its doors to interestedforeign investors, local capital was stretched to thelimits. The old system also failed to consider thehighly sophisticated technology and expertise


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required, which would be available only tomultinational companies.

A shift to a new regime for the development of

natural resources thus seemed imminent.

PRESIDENTIAL DECREE NO. 87, THE 1973CONSTITUTION AND THE SERVICE CONTRACT SYSTEM

The promulgation on December 31, 1972 ofPresidential Decree No. 87, otherwise known as THE

OIL EXPLORATION AND DEVELOPMENT ACT OF 1972signaled such a transformation. P.D. No. 87permitted the government to explore for and produceindigenous petroleum through service contracts.

Service contracts is a term that assumes varyingmeanings to different people, and it has carried many

names in different countries, like work contracts inIndonesia, concession agreements in Africa,production-sharing agreements in the Middle East,and participation agreements in Latin America. Afunctional definition of service contracts in thePhilippines is provided as follows:

A service contract is a contractual arrangement forengaging in the exploitation and development ofpetroleum, mineral, energy, land and other naturalresources by which a government or its agency, or aprivate person granted a right or privilege by thegovernment authorizes the other party (servicecontractor) to engage or participate in the exercise of

such right or the enjoyment of the privilege, in thatthe latter provides financial or technical resources,undertakes the exploitation or production of a givenresource, or directly manages the productiveenterprise, operations of the exploration and


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exploitation of the resources or the disposition ofmarketing or resources.

In a service contract under P.D. No. 87, service and

technology are furnished by the service contractor forwhich it shall be entitled to the stipulated service fee.

The contractor must be technically competent andfinancially capable to undertake the operationsrequired in the contract.

Financing is supposed to be provided by the

Government to which all petroleum producedbelongs. In case the Government is unable to financepetroleum exploration operations, the contractor mayfurnish services, technology and financing, and theproceeds of sale of the petroleum produced under thecontract shall be the source of funds for payment ofthe service fee and the operating expenses due the

contractor. The contractor shall undertake, manageand execute petroleum operations, subject to thegovernment overseeing the management of theoperations. The contractor provides all necessaryservices and technology and the requisite financing,performs the exploration work obligations, andassumes all exploration risks such that if no

petroleum is produced, it will not be entitled toreimbursement. Once petroleum in commercialquantity is discovered, the contractor shall operatethe field on behalf of the government.

P.D. No. 87 prescribed minimum terms and conditionsfor every service contract. It also granted the

contractor certain privileges, including exemptionfrom taxes and payment of tariff duties, andpermitted the repatriation of capital and retention ofprofits abroad.


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Ostensibly, the service contract system had certainadvantages over the concession regime. It has beenopined, though, that, in the Philippines, our conceptof a service contract, at least in the petroleum

industry, was basically a concession regime with aproduction-sharing element.

On January 17, 1973, then President Ferdinand E.Marcos proclaimed the ratification of a newConstitution. Article XIVon the National Economy andPatrimony contained provisions similar to the 1935

Constitution with regard to Filipino participation in thenations natural resources. Section 8, Article XIVthereof provides:

SEC. 8. All lands of the public domain, waters,minerals, coal, petroleum and other mineral oils, allforces of potential energy, fisheries, wildlife, and

other natural resources of the Philippines belong tothe State. With the exception of agricultural,industrial or commercial, residential and resettlementlands of the public domain, natural resources shallnot be alienated, and no license, concession, or leasefor the exploration, development, exploitation, orutilization of any of the natural resources shall be

granted for a period exceeding twenty-five years,renewable for not more than twenty-five years,except as to water rights for irrigation, water supply,fisheries, or industrial uses other than thedevelopment of water power, in which casesbeneficial use may be the measure and the limit ofthe grant.

While Section 9 of the same Article maintained theFilipino-only policy in the enjoyment of naturalresources, it also allowed Filipinos, upon authority ofthe Batasang Pambansa, to enter into service


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contracts with any person or entity for the explorationor utilization of natural resources.

SEC. 9. The disposition, exploration, development,

exploitation, or utilization of any of the naturalresources of the Philippines shall be limited tocitizens, or to corporations or associations at leastsixty per centum of which is owned by such citizens.The Batasang Pambansa, in the nationalinterest, may allow such citizens, corporationsor associations to enter into service contracts

for financial, technical, management, or otherforms of assistance with any person or entityfor the exploration, or utilization of any of thenatural resources. Existing valid and bindingservice contracts for financial, technical,management, or other forms of assistance are herebyrecognized as such. [Emphasis supplied.]

The concept of service contracts, according to onedelegate, was borrowed from the methods followedby India, Pakistan and especially Indonesia in theexploration of petroleum and mineral oils. Theprovision allowing such contracts, according toanother, was intended to enhance the proper

development of our natural resources since Filipinocitizens lack the needed capital and technical know-how which are essential in the proper exploration,development and exploitation of the naturalresources of the country.

The original idea was to authorize the government,

not private entities, to enter into service contractswith foreign entities. As finally approved, however, acitizen or private entity could be allowed by theNational Assembly to enter into such service contract.

The prior approval of the National Assembly wasdeemed sufficient to protect the national interest.


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Notably, none of the laws allowing service contractswere passed by the Batasang Pambansa. Indeed, allof them were enacted by presidential decree.

On March 13, 1973, shortly after the ratification of thenew Constitution, the President promulgatedPresidential Decree No. 151. The law allowed Filipinocitizens or entities which have acquired lands of thepublic domain or which own, hold or control suchlands to enter into service contracts for financial,technical, management or other forms of assistance

with any foreign persons or entity for the exploration,development, exploitation or utilization of said lands.

Presidential Decree No. 463, also known as THEMINERAL RESOURCES DEVELOPMENT DECREE OF1974, was enacted on May 17, 1974. Section 44 ofthe decree, as amended, provided that a lessee of a

mining claim may enter into a service contract with aqualified domestic or foreign contractor for theexploration, development and exploitation of hisclaims and the processing and marketing of theproduct thereof.

Presidential Decree No. 704 (THE FISHERIES DECREE

OF 1975), approved on May 16, 1975, allowedFilipinos engaged in commercial fishing to enter intocontracts for financial, technical or other forms ofassistance with any foreign person, corporation orentity for the production, storage, marketing andprocessing of fish and fishery/aquatic products.

Presidential Decree No. 705 (THE REVISED FORESTRYCODE OF THE PHILIPPINES), approved on May 19,1975, allowed forest products licensees, lessees, orpermitees to enter into service contracts for financial,technical, management, or other forms of assistance .. . with any foreign person or entity for the


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exploration, development, exploitation or utilizationof the forest resources.

Yet another law allowing service contracts, this time

for geothermal resources, was Presidential DecreeNo. 1442, which was signed into law on June 11,1978. Section 1 thereof authorized the Governmentto enter into service contracts for the exploration,exploitation and development of geothermalresources with a foreign contractor who must betechnically and financially capable of undertaking the

operations required in the service contract.

Thus, virtually the entire range of the countrysnatural resources from petroleum and minerals togeothermal energy, from public lands and forestresources to fishery products was well covered byapparent legal authority to engage in the direct

participation or involvement of foreign persons orcorporations (otherwise disqualified) in theexploration and utilization of natural resourcesthrough service contracts.

THE 1987 CONSTITUTION AND TECHNICALOR FINANCIAL ASSISTANCE AGREEMENTS

After the February 1986 Edsa Revolution, Corazon C.Aquino took the reins of power under a revolutionarygovernment. On March 25, 1986, President Aquinoissued Proclamation No. 3, promulgating theProvisional Constitution, more popularly referred to asthe Freedom Constitution. By authority of the same

Proclamation, the President created a ConstitutionalCommission (CONCOM) to draft a new constitution,which took effect on the date of its ratification onFebruary 2, 1987.


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The 1987 Constitution retained the Regaliandoctrine. The first sentence of Section 2, Article XIIstates: All lands of the public domain, waters,minerals, coal, petroleum, and other mineral oils, all

forces of potential energy, fisheries, forests or timber,wildlife, flora and fauna, and other natural resourcesare owned by the State.

Like the 1935 and 1973 Constitutions before it, the1987 Constitution, in the second sentence of thesame provision, prohibits the alienation of natural

resources, except agricultural lands.

The third sentence of the same paragraph is new:The exploration, development and utilization ofnatural resources shall be under the full control andsupervision of the State. The constitutionalpolicy of the States full control and supervision

over natural resources proceeds from the concept ofjura regalia, as well as the recognition of theimportance of the countrys natural resources, notonly for national economic development, but also forits security and national defense. Under thisprovision, the State assumes a more dynamic rolein the exploration, development and utilization of

natural resources.

Conspicuously absent in Section 2 is the provision inthe 1935 and 1973 Constitutions authorizing theState to grant licenses, concessions, or leases for theexploration, exploitation, development, or utilizationof natural resources. By such omission, the utilization

of inalienable lands of public domain throughlicense, concession or lease is no longer allowedunder the 1987 Constitution.


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Having omitted the provision on the concessionsystem, Section 2 proceeded to introduce unfamiliarlanguage:

The State may directly undertake such activities or itmay enter into co-production, joint venture, orproduction-sharing agreements with Filipino citizens,or corporations or associations at least sixtypercentum of whose capital is owned by such citizens.

Consonant with the States full supervision and

control over natural resources, Section 2 offers theState two options. One, the State may directlyundertake these activities itself; or two, it may enterinto co-production, joint venture, or production-sharing agreements with Filipino citizens, or entitiesat least 60% of whose capital is owned by suchcitizens.

A third option is found in the third paragraph of thesame section:

The Congress may, by law, allow small-scaleutilization of natural resources by Filipino citizens, aswell as cooperative fish farming, with priority to

subsistence fishermen and fish-workers in rivers,lakes, bays, and lagoons.

While the second and third options are limited only toFilipino citizens or, in the case of the former, tocorporations or associations at least 60% of thecapital of which is owned by Filipinos, a fourth allows

the participation of foreign-owned corporations. Thefourth and fifth paragraphs of Section 2 provide:

The President may enter into agreements withforeign-owned corporations involving either technicalor financial assistance for large-scale exploration,


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development, and utilization of minerals, petroleum,and other mineral oils according to the general termsand conditions provided by law, based on realcontributions to the economic growth and general

welfare of the country. In such agreements, the Stateshall promote 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 participation offoreign-owned corporations in the exploration,development, and utilization of natural resources, itimposes certain limitations or conditions toagreements with such corporations.

First, the parties to FTAAs. Only the President, inbehalf of the State, may enter into these agreements,and only with corporations. By contrast, under the1973 Constitution, a Filipino citizen, corporation orassociation may enter into a service contract with aforeign person or entity.

Second, the size of the activities: only large-scaleexploration, development, and utilization is allowed.The term large-scale usually refers to very capital-intensive activities.

Third, the natural resources subject of theactivities is restricted to minerals, petroleum and

other mineral oils, the intent being to limit servicecontracts to those areas where Filipino capital maynot be sufficient.


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Fourth, 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 to economicgrowth and general welfare of the country.

Sixth, the agreements must contain rudimentarystipulations for the promotion of the development

and use of local scientific and technical resources.

Seventh, the notification requirement. ThePresident shall notify Congress of every financial ortechnical assistance agreement entered into withinthirty days from its execution.

Finally, the scope of the agreements. While the 1973Constitution referred to service contracts forfinancial, technical, management, or other forms ofassistance the 1987 Constitution provides foragreements. . . involving either financial ortechnical assistance. It bears noting that thephrases service contracts and management or

other forms of assistance in the earlier constitutionhave been omitted.

By virtue of her legislative powers under theProvisional Constitution, President Aquino, on July 10,1987, signed into law E.O. No. 211 prescribing theinterim procedures in the processing and approval of

applications for the exploration, development andutilization of minerals. The omission in the 1987Constitution of the term service contractsnotwithstanding, the said E.O. still referred to them inSection 2 thereof:


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(2) The State may enter into co-production,joint venture or production-sharing agreements withFilipino citizens or qualified corporations.

(3) Congress may, by law, allow small-scaleutilization of natural resources by Filipino citizens.

(4) For the large-scale exploration,development and utilization of minerals, petroleumand other mineral oils, the President may enter intoagreements with foreign-owned corporations

involving technical or financial assistance.

Except to charge the Mines and Geosciences Bureauof the DENR with performing researches and surveys,and a passing mention of government-owned orcontrolled corporations, R.A. No. 7942 does notspecify how the State should go about the first mode.

The third mode, on the other hand, is governed byRepublic Act No. 7076 (the Peoples Small-ScaleMining Act of 1991) and other pertinent laws. R.A. No.7942 primarily concerns itself with the second andfourth modes.

Mineral production sharing, co-production and joint

venture agreements are collectively classified by R.A.No. 7942 as mineral agreements. The Governmentparticipates the least in a mineral production sharingagreement (MPSA). In an MPSA, the Governmentgrants the contractor the exclusive right to conductmining operations within a contract area and sharesin the gross output. The MPSA contractor provides

the financing, technology, management andpersonnel necessary for the agreementsimplementation. The total government share in anMPSA is the excise tax on mineral products underRepublic Act No. 7729, amending Section 151(a) ofthe National Internal Revenue Code, as amended.


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In a co-production agreement (CA), the Governmentprovides inputs to the mining operations other thanthe mineral resource, while in a joint ventureagreement (JVA), where the Government enjoys the

greatest participation, the Government and the JVAcontractor organize a company with both partieshaving equity shares. Aside from earnings in equity,the Government in a JVA is also entitled to a share inthe gross output. The Government may enter into aCA or JVA with one or more contractors. TheGovernments share in a CA or JVA is set out in

Section 81 of the law:

The share of the Government in co-production andjoint venture agreements shall be negotiated by theGovernment and the contractor taking intoconsideration the: (a) capital investment of theproject, (b) the risks involved, (c) contribution of the

project to the economy, and (d) other factors that willprovide for a fair and equitable sharing between theGovernment and the contractor. The Governmentshall also be entitled to compensations for its othercontributions which shall be agreed upon by theparties, and shall consist, among other things, thecontractors income tax, excise tax, special

allowance, withholding tax due from the contractorsforeign stockholders arising from dividend or interestpayments to the said foreign stockholders, in case ofa foreign national and all such other taxes, duties andfees as provided for under existing laws.

All mineral agreements grant the respective

contractors the exclusive right to conduct miningoperations and to extract all mineral resources foundin the contract area. A qualified person may enterinto any of the mineral agreements with theGovernment. A qualified person is


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any citizen of the Philippines with capacity to contract, or acorporation, partnership, association, or cooperativeorganized or authorized for the purpose of engaging inmining, with technical and financial capability to undertake

mineral resources development and duly registered inaccordance with law at least sixtyper centum (60%) of thecapital of which is owned by citizens of the Philippines x xx.

The fourth mode involves financial or technical assistanceagreements. An FTAA is defined as a contract involvingfinancial or technical assistance for large-scale

exploration, development, and utilization of naturalresources. Any qualified person with technical andfinancial capability to undertake large-scale exploration,development, and utilization of natural resources in thePhilippines may enter into such agreement directly withthe Government through the DENR. For the purpose ofgranting an FTAA, a legally organized foreign-owned

corporation (any corporation, partnership,association, or cooperative duly registered inaccordance with law in which less than 50% of thecapital is owned by Filipino citizens) is deemed aqualified person.

Other than the difference in contractors

qualifications, the principal distinction betweenmineral agreements and FTAAs is the maximumcontract area to which a qualified person may hold orbe granted. Large-scale under R.A. No. 7942 isdetermined by the size of the contract area, asopposed to the amount invested (US$50,000,000.00), which was the standard under E.O.279.

Like a CA or a JVA, an FTAA is subject to negotiation.The Governments contributions, in the form of taxes,in an FTAA is identical to its contributions in the twomineral agreements, save that in an FTAA:


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The collection of Government share in financial ortechnical assistance agreement shall commence afterthe financial or technical assistance agreementcontractor has fully recovered its pre-operating

expenses, exploration, and developmentexpenditures, inclusive.

III

Having examined the history of the constitutionalprovision and statutes enacted pursuant thereto, a

consideration of the substantive issues presented bythe petition is now in order.

THE EFFECTIVITY OFEXECUTIVE ORDER NO. 279

Petitioners argue that E.O. No. 279, the law in force

when the WMC FTAA was executed, did not come intoeffect.

E.O. No. 279 was signed into law by then PresidentAquino on July 25, 1987, two days before the openingof Congress on July 27, 1987. Section 8 of the E.O.states that the same shall take effect

immediately. This provision, according topetitioners, runs counter to Section 1 of E.O. No. 200,which provides:

SECTION 1. Laws shall take effect after fifteen daysfollowing the completion of their publicationeither in the Official Gazette or in a newspaper of

general circulation in the Philippines, unless it isotherwise provided. [Emphasis supplied.]

On that premise, petitioners contend that E.O. No.279 could have only taken effect fifteen days after itspublication at which time Congress had already


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convened and the Presidents power to legislate hadceased.

Respondents, on the other hand, counter that the

validity of E.O. No. 279 was settled in MinersAssociation of the Philippines v. Factoran, supra. Thisis of course incorrect for the issue in Miners

Association was not the validity of E.O. No. 279 butthat of DAO Nos. 57 and 82 which were issuedpursuant thereto.

Nevertheless, petitioners contentions have no merit.

It bears noting that there is nothing in E.O. No. 200that prevents a law from taking effect on a date otherthan even before the 15-day period after itspublication. Where a law provides for its own date ofeffectivity, such date prevails over that prescribed by

E.O. No. 200. Indeed, this is the very essence of thephrase unless it is otherwise provided in Section 1thereof. Section 1, E.O. No. 200, therefore, appliesonly when a statute does not provide for its own dateof effectivity.

What is mandatory under E.O. No. 200, and what due

process requires, as this Court held in Taada v.Tuvera, is the publication of the lawfor

without such notice and publication, there would beno basis for the application of the maxim ignorantialegis n[eminem] excusat. It would be the height ofinjustice to punish or otherwise burden a citizen for

the transgression of a law of which he had no noticewhatsoever, not even a constructive one.

While the effectivity clause of E.O. No. 279 does notrequire its publication, it is not a ground for itsinvalidation since the Constitution, being the


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fundamental, paramount and supreme law of thenation, is deemed written in the law. Hence, thedue process clause, which, so Taada held, mandatesthe publication of statutes, is read into Section 8 of

E.O. No. 279. Additionally, Section 1 of E.O. No. 200which provides for publication either in the OfficialGazette or in a newspaper of general circulation inthe Philippines, finds suppletory application. It issignificant to note that E.O. No. 279 was actuallypublished in the Official Gazette on August 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, thisCourt holds that E.O. No. 279 became effectiveimmediately upon its publication in the OfficialGazette on August 3, 1987.

That such effectivity took place after the convening of

the first Congress is irrelevant. At the time PresidentAquino issued E.O. No. 279 on July 25, 1987, she wasstill validly exercising legislative powers under theProvisional Constitution. Article XVIII (TransitoryProvisions) of the 1987 Constitution explicitly states:

SEC. 6. The incumbent President shall continue to

exercise legislative powers until the first Congress isconvened.

The convening of the first Congress merely precludedthe exercise of legislative powers by PresidentAquino; it did not prevent the effectivity of laws shehad previously enacted.

There can be no question, therefore, that E.O.No. 279 is an effective, and a validly enacted,statute.

THE CONSTITUTIONALITY


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assistance requires specialized knowledge or skills,and are related to the exploration, development andutilization of mineral resources.

This Court is not persuaded. As priorly pointed out,the phrase management or other forms ofassistance in the 1973 Constitution was deleted inthe 1987 Constitution, which allows only technical orfinancial assistance. Casus omisus pro omissohabendus est. A person, object or thing omitted froman enumeration must be held to have been omitted

intentionally. As will be shown later, the managementor operation of mining activities by foreigncontractors, which is the primary feature of servicecontracts, was precisely the evil that the drafters ofthe 1987 Constitution sought to eradicate.

Respondents insist that agreements involving

technical or financial assistance is just another termfor service contracts. They contend that theproceedings of the CONCOM indicate that althoughthe terminology service contract was avoided [bythe Constitution], the concept it represented wasnot. They add that [t]he concept is embodied in thephrase agreements involving financial or technical

assistance. And point out how members of theCONCOM referred to these agreements as servicecontracts. For instance:

SR. TAN. Am I correct in thinking that the onlydifference between these future service contractsand the past service contracts under Mr.

Marcos is the general law to be enacted by thelegislature and the notification of Congress by thePresident? That is the only difference, is it not?

MR. VILLEGAS. That is right.


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SR. TAN. So those are the safeguards[?]

MR. VILLEGAS. Yes. There was no law at allgoverning service contracts before.

SR. TAN. Thank you, Madam President. [Emphasissupplied.]

WMCP also cites the following statements ofCommissioners Gascon, Garcia, Nolledo and Tadeowho alluded to service contracts as they explained

their respective votes in the approval of the draftArticle:

MR. GASCON. Mr. Presiding Officer, I vote noprimarily because of two reasons: One, the provisionon service contracts. I felt that if we wouldconstitutionalize any provision on service

contracts, this should always be with theconcurrence of Congress and not guided only by ageneral law to be promulgated by Congress. x x x.[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 beenproven to be inimical to the interests of the nation,

providing as they do the legal loophole for theexploitation of our natural resources for the benefit offoreign interests. They constitute a serious negationof Filipino control on the use and disposition of thenations natural resources, especially with regard tothose which are nonrenewable. [Emphasis supplied.]


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x x x

MR. NOLLEDO. While there are objectionableprovisions in the Article on National Economy and

Patrimony, going over said provisions meticulously,setting aside prejudice and personalities will revealthat the article contains a balanced set of provisions.I hope the forthcoming Congress will implement suchprovisions taking into account that Filipinos shouldhave real control over our economy and patrimony,and if foreign equity is permitted, the same must be

subordinated to the imperative demands of thenational interest.

x x x.

It is also my understanding that service contractsinvolving foreign corporations or entities are resorted

to only when no Filipino enterprise or Filipino-controlled enterprise could possibly undertake theexploration or exploitation of our natural resourcesand that compensation under such contracts cannotand should not equal what should pertain toownership of capital. In other words, the servicecontract should not be an instrument to circumvent

the basic provision, that the exploration andexploitation of natural resources should be truly forthe benefit of Filipinos.

Thank you, and I vote yes. [Emphasis supplied.]

x x x.

MR. TADEO. Nais ko lamang ipaliwanag ang akingboto.

Matapos suriin ang kalagayan ng Pilipinas, angsaligang suliranin, pangunahin ang salitang


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imperyalismo. Ang ibig sabihin nito ay ang sistemang lipunang pinaghaharian ng iilang monopolyongkapitalista at ang salitang imperyalismo ay buhayna buhay sa National Economy and Patrimony na

nating ginawa. Sa pamamagitan ng salitang basedon, naroroon na ang free trade sapagkat tayo aymananatiling tagapagluwas 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 sa suliraninng bansa ay dalawa lamang: ang pagpapatupad ngtunay na reporma sa lupa at ang national

industrialization. Ito ang tinatawag naming pagsikatng araw sa Silangan. Ngunit ang mga landlords andbig businessmen at ang mga komprador ay nagsasabina ang free trade na ito, ang kahulugan para sa amin,ay ipinipilit sa ating sambayanan na ang araw aysisikat sa Kanluran. Kailan man hindi puwedengsumikat ang araw sa Kanluran. I vote no. [Emphasis

supplied.]

This Court is likewise not persuaded.

As earlier noted, the phrase service contracts hasbeen deleted in the 1987 Constitutions Article onNational Economy and Patrimony. If the CONCOM

intended to retain the concept of service contractsunder the 1973 Constitution, it could have simplyadopted the old terminology (service contracts)instead of employing new and unfamiliar terms(agreements . . . involving either technical orfinancial assistance). Such a difference between the


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language of a provision in a revised constitution andthat of a similar provision in the precedingconstitution is viewed as indicative of a difference inpurpose. If, as respondents suggest, the concept of

technical or financial assistance agreements isidentical to that of service contracts, the CONCOMwould not have bothered to fit the same dog with anew collar. To uphold respondents theory wouldreduce the first to a mere euphemism for the secondand render the change in phraseology meaningless.

An examination of the reason behind the changeconfirms that technical or financial assistanceagreements are not synonymous to service contracts.

[T]he Court in construing a Constitution should bearin mind the object sought to be accomplished by itsadoption, and the evils, if any, sought to be

prevented or remedied. A doubtful provision will beexamined in light of the history of the times, and thecondition and circumstances under which theConstitution was framed. The object is to ascertainthe reason which induced the framers of theConstitution to enact the particular provision and thepurpose sought to be accomplished thereby, in order

to construe the whole as to make the wordsconsonant to that reason and calculated to effect thatpurpose.

As the following question of Commissioner Quesadaand Commissioner Villegas answer shows thedrafters intended to do away with service contracts

which were used to circumvent the capitalization(60%-40%) requirement:

MS. QUESADA. The 1973 Constitution used the wordsservice contracts. In this particular Section 3, isthere a safeguard against the possible control of


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foreign interests if the Filipinos go into coproductionwith them?

MR. VILLEGAS. Yes. In fact, the deletion of the

phrase service contracts was our firstattempt to avoid some of the abuses in the pastregime in the use of service contracts to goaround the 60-40 arrangement. The safeguardthat has been introduced and this, of course can berefined is found in Section 3, lines 25 to 30, whereCongress will have to concur with the President on

any agreement entered into between a foreign-ownedcorporation and the government involving technicalor financial assistance for large-scale exploration,development and utilization of natural resources.[Emphasis supplied.]

In a subsequent discussion, Commissioner Villegas

allayed the fears of Commissioner Quesada regardingthe participation of foreign interests in Philippinenatural resources, which was supposed to berestricted to Filipinos.

MS. QUESADA. Another point of clarification is thephrase and utilization of natural resources shall be

under the full control and supervision of the State.In the 1973 Constitution, this was limited to citizensof the Philippines; but it was removed andsubstituted by shall be under the full control andsupervision of the State. Was the concept changedso that these particular resources would be limited tocitizens of the Philippines? Or would these resources

only be under the full control and supervision of theState; meaning, noncitizens would have access tothese natural resources? Is that the understanding?

MR. VILLEGAS. No, Mr. Vice-President, if theCommissioner reads the next sentence, it states:


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Such activities may be directly undertaken by theState, or it may enter into co-production, jointventure, production-sharing agreements with Filipinocitizens.

So we are still limiting it only to Filipino citizens.

x x x.

MS. QUESADA. Going back to Section 3, the sectionsuggests that:

la bugal-b'laan v denr gr 127882, jan 27-04

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