Justice Carpio’s Dissenting Opinion

DISSENTING OPINION

CARPIO MORALES, J.:

Regrettably, a majority of the members of this Court has voted to reverse its January 27, 2004 Decision in La Bugal-B’Laan Tribal Association, Inc. v. Ramos[1] by which it declared certain provisions[2] of the Mining Act of 1995[3] on Financial or Technical Assistance Agreements (FTAAs), the related provisions of Department of Environment and Natural Resources Administrative Order 96-40 (DAO No. 96-40), and the March 22, 1995 Financial and Technical Assistance Agreement (FTAA) executed between the Government of the Republic of the Philippines and WMC Philippines, Inc. (WMCP) in violation of Section 2, Article XII of the Constitution.

Because I find that: (1) the “agreements … involving either technical or financial assistance” contemplated by the fourth paragraph of Section 2, Article XII of the 1987 Constitution are distinct and dissimilar from the “service contracts” under the 1973 Constitution; and (2) these certain provisions of the Mining Act, its implementing rules, and the WMCP FTAA unconstitutionally convey beneficial ownership and control over Philippine mineral and petroleum resources to foreign contractors, I most respectfully dissent.

Antecedents

By motion, private respondent WMCP seeks a reconsideration of this Court’s Decision, it arguing essentially that FTAAs are the same as service contracts which were sanctioned under the 1973 Constitution.

By Resolution of June 22, 2004, this Court, upon motion,[4] impleaded Philippine Chamber of Mines (PCM), as respondent-in-intervention. Intervenor PCM argues that the “agreements” referred to in paragraph 4 of Section 2, Article XII of the Constitution were intended to involve or include the “service contracts” provided for in the 1973 Constitution.

The parties were, on June 29, 2004, heard on oral arguments during which two major issues were tackled: first, the proper interpretation of the phrase “agreements… involving either technical or financial assistance” in Section 2, Article XII of the Constitution, and second, mootness.

Thereafter, the parties submitted their respective memoranda, as required by Resolution of this Court. However, despite the verbal request of Associate Justice Artemio V. Panganiban during the oral arguments,[5] intervenor PCM failed to submit along with its memorandum any documents to establish international mining practices, particularly in developing countries.

Issues for Resolution

The majority opinion holds that the resolution of the Motions for Reconsideration in this case should be confined to the issues taken up during the oral arguments on June 29, 2004.  These were: (1) the proper interpretation of the phrase “agreements… involving either technical or financial assistance” in Section 2, Article XII of the Constitution, and (2) mootness.

It further holds that the issue of whether the Mining Act and the WMCP FTAA are manifestly disadvantageous to the government could not be passed upon because the same was supposedly not raised in the original petition.

These rulings, while well intentioned, cannot be accepted.

First, there is no rule of procedure, whether in Rule 52 or elsewhere, which restricts the resolution of a case to the issues taken up in the oral arguments.  The reason is obvious. The issues for resolution in any given case are determined by the conflicting arguments of the parties as set forth in their pleadings.  On the other hand, the matters to be taken up in an oral argument may be limited, by order of the court, to only such points as the court may deem necessary.  Thus, Section 1 of Rule 49 provides:

Section 1. When allowed. – At its own instance or upon motion of a party, the court may hear the parties in oral argument on the merits of a case, or on any material incident in connection therewith.

The oral argument shall be limited to such matters as the court may specify in its order or resolution (Emphasis supplied)

A narrow delimitation of matters to be taken up during oral argument is a matter of practical necessity since often not all the relevant issues can be thoroughly discussed without unduly imposing on the time of the Court.  However, unlike a pre-trial order,[6] the delimitation does not control or limit the issues to be resolved.  These issues may be subject matter of the parties’ memoranda, as in this case.

Second, as noted in the Decision,[7] the issue of whether the Mining Act and the WMCP FTAA afford the State a just share in the proceeds of its natural resources was in fact raised by the petitioners, viz:

Petitioners claim that the DENR Secretary acted without or in excess of jurisdiction:

I

x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it allows fully foreign owned corporations to explore, develop, utilize and exploit mineral resources in a manner contrary to Section 2, paragraph 4, Article XII of the Constitution;

II

x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it allows the taking of private property without the determination of public use and for just compensation;

III

x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it violates Sec. 1, Art. III of the Constitution;

IV

x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it allows enjoyment by foreign citizens as well as fully foreign owned corporations of the nation’s marine wealth contrary to Section 2, paragraph 2 of Article XII of the Constitution;

V

x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it allows priority to foreign and fully foreign owned corporations in the exploration, development and utilization of mineral resources contrary to Article XII of the Constitution;

VI

x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it allows the inequitable sharing of wealthcontrary to Sections [sic] 1, paragraph 1, and Section 2, paragraph 4[,] [Article XII] of the Constitution;

VII

x x x in recommending approval of and implementing the Financial and Technical Assistance Agreement between the President of the Republic of the Philippines and Western Mining Corporation Philippines Inc. because the same is illegal and unconstitutional.[8] (Emphasis and underscoring supplied)

Indeed, this Court expressly passed upon this issue in the Decision when it held that:

With the foregoing discussion in mind, this Court finds that R.A. No. 7942 is invalid insofar as said Act authorizes service contracts. Although the statute employs the phrase “financial and technical agreements” in accordance with the 1987 Constitution, it actually treats these agreements as service contracts that grant beneficial ownership to foreign contractors contrary to the fundamental law.[9] (Emphasis and underscoring supplied)

Moreover, the issue of whether the State is deprived of its just share in the proceeds from mining was touched upon by the parties in their memoranda.  Thus, respondent WMCP argues that:

Section 10.2 (a) of the COLUMBIO FTAA does not prohibit the State from partaking of the fruits of the exploration.  In fact, Section 7.7 of the COLUMBIO FTAA provides:

“7.7 Government Share

From the Commencement of Commercial Production, the Contractor shall pay a government share of sixty per centum (60%) of Net Mining Revenues, calculated in accordance with the following provisions (the “Government Share”).  The Contractor shall be entitled to retain the balance of all revenues from the Mining Operations.”

In other words, the State is guaranteed a sixty per centum (60%) share of the Net Mining Revenues, or 60% of the actual fruits of the endeavor.  This is in line with the intent behind Section 2 of Article XII that the Filipino people, as represented by the State, benefit primarily from the exploration, development, and utilization of the Philippines’ natural resources.  [10] (Emphasis and underscoring supplied)

while the petitioners, for their part, claim:

For instance, government share is computed on the basis of net mining revenue.  Net mining revenue is gross mining revenue less, among others, deductible expenses.  Some of the allowable deductions from the base amount to be used to compute government share are suspicious.  The WMCP FTAA contract, for instance, allows expenditures for development “outside the Contract Area,” consulting fees for work done “outside the Philippines,” and the “establishment and administration of field offices including administrative overheads incurred within and outside the Philippines.”

x x x

One mischief inherent in past service contracts was the practice of transfer pricing.  UNCTAD defines this as the “pricing of transfers of goods, services and other assets within a TNC network.” If government does not control the exploration, development and utilization of natural resources, then the intra-transnational corporation pricing of expenditures may not become transparent. [11] (Emphasis supplied; footnotes omitted)

In fine, the majority opinion skirts an issue raised in the original Petition for Prohibition and Mandamus, passed upon in its Decision of January 27, 2004 and argued by the parties in the present Motion for Reconsideration.

Instead, I find that the myriad arguments raised by the parties may be grouped according to two broad categories: first, the arguments pertaining to the constitutionality of FTAA provisions of the Mining Act; and second, those pertaining to the validity of the WMCP FTAA.  Within these categories, the following issues are submitted for resolution: (1) whether in invalidating certain provisions of the Mining Act a non-justiciable political question is passed upon; (2) whether the FTAAs contemplated in Section 2, Article XII of the 1987 Constitution are identical to, or inclusive of, the “service contracts” provided for in the 1973 Constitution; (3) whether the declaration of the unconstitutionality of certain provisions of the Mining Act should be reconsidered; (4) whether the question of validity of the WMCP FTAA was rendered moot before the promulgation of the Decision; and (5) whether the decision to declare the WMCP FTAA unconstitutional and void should be reconsidered.

Following the foregoing framework of analysis, I now proceed to resolve the issues raised in the motion for reconsideration.

I

Constitutionality of

the Philippine Mining Act of 1995

The issues presented constitute

justiciable questions.

Contrary to the posture of respondent WMCP, this Court did not tread on a political question in rendering its Decision of January 27, 2004.

The Constitution delineates the parameters of the powers of the legislative, the executive and the judiciary.[12] Whether the first and second great departments of government exceeded those parameters is the function of the third.[13] Thus, the Constitution defines judicial power to include “the duty… to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.”[14]

Judicial power does not extend to political questions, which are concerned with issues dependent upon the wisdom, not the legality, of a particular measure.[15] The reason is that, under our system of government, policy issues are within the domain of the political branches of government and of the people themselves as the repository of all state power.[16] In short, the judiciary does not settle policy issues.[17]

The distinction between a truly political question and an ostensible one lies in the answer to the question of whether there are constitutionally imposed limits on powers or functions conferred upon political bodies.[18] If there are constitutionally imposed limits, then the issue is justiciable, and a court is duty-bound to examine whether the branch or instrumentality of the government properly acted within those limits.[19]

Respondent WMCP argues that the “exploration, development, and utilization of natural resources are matters of policy, in other words, political matters or questions,” over which this Court has no jurisdiction.

Respondent is mistaken. The questions involved in this case are not political.  The provisions of paragraph 4, Section 2 of Article XII of the Constitution, including the phrase “agreements… involving either technical or financial assistance,” incorporate limitations[20] on the scope of such agreements or FTAAs. Consequently, they constitute limitations on the powers of the legislative to determine their terms, as well as the powers of the Executive to enter into them.  In its Decision, this Court found that, by enacting the objectionable portions of the Mining Act and in entering into the subject FTAA, the Congress and the President went beyond the constitutionally delimited scope of such agreements and thereby transgressed the boundaries of their constitutional powers.

The “agreements” contemplated

in paragraph 4, Section 2, Article XII

of the Constitution are distinct and

dissimilar from the old “service

contracts.”

The majority and respondents share a common thesis: that the fourth paragraph of Sec. 2, Article XII contemplates not only financial or technical assistance but, just like the service contracts which were allowed under the 1973 Constitution, management assistance as well.

The constitutional provision in dispute reads:

Art. XII

National Economy and Patrimony

x x x

SEC. 2.  All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State.  With the exception of agricultural lands, all other natural resources shall not be alienated.  The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State.  The State may directly undertake such activities or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens.  Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law.  In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.

The State shall protect the nation’s marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.

The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish workers in rivers, lakes, bays, and lagoons.

The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country.  In such agreements, the State shall promote the development and use of local scientific and technical resources.

The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.  (Emphasis and underscoring supplied)

Its counterpart provision in Article XIV of the 1973 Constitution authorized “service contracts” as follows:

SEC. 9.  The disposition, exploration, development, exploitation, or utilization of any of the natural resources of the Philippines shall be limited to citizens, or to corporations or associations at least sixty per centum of which is owned by such citizens.  The Batasang Pambansa, in the national interest, may allow such citizens, corporations or associations to enter into service contracts for financial, technical, management, or other forms of assistance with any person or entity for the exploration, development, exploration, or utilization of any of the natural resources.  Existing valid and binding service contracts for financial, technical, management, or other forms of assistance are hereby recognized as such.  (Emphasis and underscoring supplied)

Respondent WMCP contends that the fourth paragraph of Section 2 is an exception to the rule that participation in the country’s natural resources is reserved to Filipinos.[21] It hastens to add, however, that the word “may” therein is permissive not restrictive;[22] and that consistent with the provision’s permissive nature, the word “involving” therein should be construed to mean “to include,” such that the assistance by foreign corporations should not be confined to technical or financial, but also to management forms.[23] And it notes that the Constitution used “involving” instead of such restrictive terms as “solely,”  “only,” or “limited to.”[24]

To the Office of the Solicitor General (OSG), the intent behind the fourth paragraph is to prevent the practice under the 1973 Constitution of allowing foreigners to circumvent the capitalization requirement,[25] as well as to address the absence of a governing law that led to the abuse of service contracts.[26] The phrase “technical or financial” is merely for emphasis, the OSG adds, that it is descriptive, not definitive, of the forms of assistance that the State needs and which foreign corporations may provide in the large-scale exploration, development and utilization of the specified resources.[27] Furthermore, the OSG contends that the denomination of the subject FTAA as a “financial and technical assistance agreement” is a misnomer and should more properly be called “agreements for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils.”[28] It argues that the President has broad discretion to enter into anyagreement, regardless of the scope of assistance, with foreign corporations.[29] Driving its point, the OSG poses:  If the framers of the Constitution intended to limit the service of foreign corporations to “passive assistance,” such as simple loan agreements, why confine them to large-scale ventures?[30] Why does the Constitution require that such agreements be based on real contributions to economic growth and general welfare of the country?[31] Why the condition in the last paragraph of Section 2 that the President report to Congress?[32] Finally, the OSG asserts that these requirements would be superfluous if the assistance to be rendered were merely technical or financial.[33] And that it would make more sense if the phrase “agreements… involving technical or financial assistance” were construed to mean the same concept as the service contracts under the 1973 Constitution.

The OSG’s contentions are complemented by intervenor PCM which maintains that the FTAA “is an agreement for [the] rendition of a whole range of services of an integrated and comprehensive character, ranging from discovery through development and utilization and production of minerals or petroleum by the foreign-owned corporation.”[34] In fine, intervenor posits that the change in phraseology in the 1987 Constitution does not relate to the substance of the agreement,[35] otherwise, the State itself would be compelled to conduct the exploration, development and utilization of natural resources, ventures that it is ill-equipped to undertake.[36]

Primary Concepts in Article XII of

the Constitution

Before passing upon the foregoing arguments and for better clarity, it may be helpful to first examine the concepts of (a) “beneficial ownership,” (b) “full control and supervision,” and (c) “real contributions to the economic growth and general welfare of the country” which are at the heart of Section 2, Article XII of the Constitution.

Beneficial Ownership

Beneficial ownership, as the plain meaning of the words implies, refers to the right to the gains, rewards and advantages generated by the property.[37]

The concept is not new, but in fact is well entrenched in the law of trusts.[38] Thus, while the trustee holds the legal title to or ownership of the property entrusted to him, he is nevertheless not the beneficial owner.  Rather, he holds and administers the property for the benefit of another, called the beneficiary or the cestui que trust.  Hence, the profits realized from the administration and management of the property by the trustee, who is the “naked owner,” less any lawful fees due to the latter, accrue to the cestui que trust, who is the “beneficial” or “equitable” owner.[39]

The foregoing concepts are directly applicable to the statement in Section 2, Article XII of the Constitution that “[a]ll lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State.”

The words “owned” and “State” should both be understood on two levels. “Owned” or “ownership” refers to both the legal title to and the beneficial ownership of the natural resources.  Similarly, “State” should be understood as denoting both the body politic making up the Republic of the Philippines, i.e., the Filipino people, as well as the Government which represents them and acts on their behalf.

Thus, the phrase “natural resources are owned by the State” simultaneously vests the legal title to the nation’s natural resources in the Government, and the beneficial ownership of these resources in the sovereign Filipino people, from whom all governmental authority emanates.[40]

On this point, petitioners and respondent WMCP appear to be in rare agreement. Thus, petitioners, in their Memorandum state:

xxx With respect to exploration, development and utilization of mineral resources, the State should not merely be concerned about passing laws. It is expected that it holds these natural resources covered in Article XII, Section 2 in dominium and in trust for [the] Filipino people.[41] (Emphasis and underscoring supplied; italics in the original)

Respondent WMCP is even more emphatic:

The Regalian Doctrine, as embodied under the Constitution, is a recognition that sovereignty resides in the Filipino people, and the prime duty of government or the State is to serve and protect the people.  Thus, the ownership of natural resources by the State under Section 2, Article XII of the Constitution is actually a beneficial trust in favor of the Filipino people.

Stated differently, it is the Filipino people who own the nation’s natural resources, and the State is merely the guardian-in-trust therof.[42] (Emphasis and underscoring supplied; italics in the original; citations omitted)

Clearly, in the exploration, development and utilization of the nation’s natural resources, the Government is in a position analogous to a trustee, holding title to and managing these resources for the benefit of the Filipino people, including future generations.[43] As the trustee of the sovereign, the Government has a fiduciary duty to ensure that the gains, rewards and advantages generated by the Philippines’ natural resources accrue to the benefit of the Filipino people.  Corollary to this, the Government cannot, without violating its sacred trust, enter into any agreement or arrangement which effectively deprives the Filipino people of their beneficial ownership of these resources – e.g., when it enters into an agreement whereby the vast majority of the resources, or the profit generated from the resources, is bargained away in favor of a foreign entity.

Full Control and Supervision

In the context of its role as trustee, the Government’s “full control and supervision” over the exploration, development and utilization of the nation’s natural resources, in its most basic and fundamental sense, is accomplished by maintaining a position whereby it can carry out its fiduciary duty to protect the beneficial interest of its cestui que trust in these resources.

Significantly, Section 2, Article XII of the Constitution provides that the Government may undertake the exploration, development and utilization of these resources by itself or together with a third party.[44] In the first case, where no third party is involved, the Government’s “full control and supervision” over the resources is easily achieved.  In the second case, where the third party may naturally be expected to seek participation in the operation of the venture and ask for compensation in proportion to its contribution(s), the Government must still maintain a position vis-à-vis its third party partner whereby it can adequately protect the interest of the Filipino people, who are the beneficial owners of the resources.

By way of concrete example, the Government may enter into a joint venture agreement[45] with a third party to explore, develop or utilize certain natural resources through a jointly owned corporation, wherein the government has the controlling interest.  Under this arrangement, the Government would clearly be in a position to protect the interest of the beneficial owners of the natural resources.

In the alternative, as suggested by the OSG,[46] the Government may be allowed one or more directors (holding nominal shares) on the governing board and executive committee(s) of the private corporation contracted to undertake mining activities in behalf of the government.  Depending on the by-laws of the private corporation, strategic representation of the Government in its governing board and executive committee(s) may afford sufficient protection to the interest of the people.

However, Section 2, Article XII of the Constitution does not limit the options available to the Government, when dealing with prospective mining partners, to joint ventures or representation in the contractor’s board of directors.  To be sure, the provision states that the Government may enter into “co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations,” or, for large scale exploration, development and utilization, “agreements with foreign-owned corporations involving either technical or financial assistance.” But whatever form the agreement entered into by the Government and its third party partner(s) may take, the same must contain, as an absolute minimum, provisions that ensure that the Government can effectively perform its fiduciary duty to safeguard the beneficial interest of the Filipino people in their natural resources, as mandated by the Constitution.

Real Contributions to the Economy

and the General Welfare of the

Country

Section 2, Article XII likewise requires that “agreements … involving financial or technical assistance” be “based on real contributions to the economic growth and general welfare of the country.” This provision articulates the value which the Constitution places on natural resources, and recognizes their potential benefits. It likewise acknowledges the fact that the impact of mining operations is not confined to the economy but, perhaps to a greater extent, affects Philippine society as a whole as well.

“Minerals, petroleum and other mineral oils,” are part of the non-renewable wealth of the Filipino people.  By pursuing large scale exploration, development and utilization of these resources, the State would be allowing the consumption or exhaustion of these resources, and thus deprive future Filipino generations the enjoyment thereof.  Mining – especially large-scale mining – often results in the displacement of local residents.  Its negative effects on the environment are well-documented.[47]

Thus, for benefits from the exploration, development and utilization of these resources to be real, they must yield profits over and above 1) the capital and operating costs incurred, 2) the resulting damage to the environment, and 3) the social costs to the people who are immediately and adversely affected thereby.

Moreover, the State must ensure that the real benefits from the utilization of these resources are sufficient to offset the corresponding loss of these resources to future generations.  Real benefits are intergenerational benefits because the motherland’s natural resources are the birthright not only of the present generation of Filipinos but of future generations as well.[48]

The requirement of real benefit is applicable even when the exploration, development and utilization are being undertaken directly by the Government or with the aid of Filipinos or Filipino corporations.  But it takes on greater significance when a foreign entity is involved.  In the latter instance, the foreign entity would naturally expect to be compensated for its assistance.  In that event, it is inescapable that a foreigner would be benefiting from an activity (i.e. mining) which also results in numerous, serious and long term harmful consequences to the environment and to Philippine society.

Moreover, as recognized by the 1935 Constitutional Convention, foreign involvement in the exploitation of Philippine natural resources has serious implications on national security.  As recounted by delegate Jose Aruego:

The nationalization of the natural resources was also intended as an instrument of national defense.  The Convention felt that to permit foreigners to own or control the natural resources would be to weaken the national defense.  It would be making possible the gradual extension of foreign influence into our politics, thereby increasing the possibility of foreign control. xxx

Not only these. The nationalization of the natural resources, it was believed, would prevent making the Philippines a source of international conflicts with the consequent danger to its internal security and independence.  For unless the natural resources were nationalized, with the nationals of foreign countries having the opportunity to own or control them, conflicts of interest among them might arise inviting danger to the safety and independence of the nation.[49] (Emphasis supplied)

Significantly, and contrary to the posture of the OSG, it is immaterial whether the foreign involvement takes the form of “active” participation in the mining concern or “passive” assistance such as a foreign mining loan or the licensing of mining technology.  Whether the foreign involvement is passive or active, the fact remains that the foreigner will expect to be compensated and, as a necessary consequence, a fraction of the gains, rewards and advantages generated by Philippine natural resources will be diverted to foreign hands even as the long term pernicious “side effects” of the mining activity will be borne solely by the Filipino people.

Under such circumstances, the Executive, in determining whether or not to avail of the assistance of a foreign corporation in the large scale exploration, development and utilization of Philippine natural resources, must carefully weigh the costs and benefits if it is to faithfully discharge its fiduciary duty to protect the beneficial interest of the Filipino people in these resources.

These same considerations likewise explain why the last paragraph of Section 2 mandates that the President “notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.”  The Constitution requires that the Legislative branch, which is perceived to be more broadly representative of the people and therefore more immediately sensitive to their concerns, be given a timely opportunity to scrutinize and evaluate the Executive’s decision.

With these concepts in mind, I now turn to what I believe to be the proper interpretation of “agreements… involving either technical or financial assistance” in paragraph 4 of Section 2, Article XII of the Constitution.

Construction of paragraph 4,

Section 2, Article XII of the

Constitution

The suggestion that the avoidance of the term “service contracts” in the fourth paragraph is to prevent the circumvention, prevalent under the 1973 Constitution, of the 60-40 capital requirement does not persuade, it being too narrow an interpretation of that provision.  If that were the only purpose in the change of phraseology, this Court reiterates, there would have been no need to replace the term “service contracts” with “agreements… involving either technical or financial assistance.”

The loophole in the 1973 Constitution that sanctioned dummyism is easily plugged by the provision in the present Constitution that the President, not Congress or the Batasan Pambansa (under the 1973 Constitution), may enter into either technical or financial agreements with foreign corporations. The framers then could have easily employed the more traditional term “service contracts” in designating the agreements contemplated, and thus obviated confusion, especially since the term was employed by the legal system then prevailing[50] and had a settled acceptation.

The other proffered raison d’être of the fourth paragraph, i.e. to address the absence of a governing law that led to the abuse of service contracts, is equally unpersuasive. In truth, there were a host of laws governing service contracts pertaining to various natural resources, as this Court noted when it traced the history of Section 2, Article XII in its Decision.[51]

Respondent WMCP nevertheless correctly states that the fourth paragraph establishes an exception to the rule limiting the exploration, development and utilization of the nation’s natural resources to Filipinos.  As an exception, however, it is illogical to deduce that the provision should be interpreted liberally, not restrictively.  It bears repeating that the provision, being an exception, should be strictly construed against foreign participation.

In any case, the constitutional provision allowing the President to enter into FTAAs with foreign-owned corporations is an exception to the rule that participation in the nation’s natural resources is reserved exclusively to Filipinos.  Accordingly, such provision must be construed strictly against their enjoyment by non-Filipinos.  As Commissioner Villegas emphasized, the provision is “very restrictive.”  Commissioner Nolledo also remarked that “entering into service contracts is an exception to the rule on protection of natural resources for the interest of the nation and, therefore, being an exception, it should be subject, whenever possible, to stringent rules.”  Indeed, exceptions should be strictly but reasonably construed; they extend only so far as their language fairly warrants and all doubts should be resolved in favor of the general provision rather than the exception.[52] (Emphasis and underscoring supplied; citations omitted).

That the fourth paragraph employs the word “may” does not make it non-restrictive.  Indeed, “may” does make the provision permissive, but only as opposed to mandatory,[53] and operates to confer discretion upon a party.[54] Thus, as used in the fourth paragraph, “may” provides the President with the option to enter into FTAAs.  It is, however, not incumbent upon the President to do so for, as owner of the natural resources, the “State [itself] may directly undertake such activities.”[55] If the President opts to exercise the prerogative to enter into FTAAs, the agreement must conform to the restrictions laid down by Section 2, including the scope of the assistance, which must be limited to financial or technical forms.

“May” in the fourth paragraph, therefore, should be understood in the same sense as it is used in the first paragraph, that is, that the State “may enter into… agreements with Filipino citizens, or corporations or association at least sixty per centum of whose capital is owned by such citizens.”

The majority, however, opines that the “agreements involving either technical or financial assistance” referred to in paragraph 4 of Section 2 of Article XII of the 1987 Constitution are indeed service contracts.  In support of this conclusion, the majority maintains that the use of the phrase “agreements… involving either technical or financial assistance” does not indicate the intent to exclude other modes of assistance because the use of the word “involving” signifies the possibility of the inclusion of other forms of assistance or activities.  And it proffers that the word “involving” has three connotations that can be differentiated as follows: (1) the sense of concerning, having to do with, or affecting; (2) entailing, requiring, implying or necessitating; (3) including, containing or comprising.  None of these three connotations, it is contended, convey a sense of exclusivity.  Thus, it concludes that had the framers intended to exclude other forms of assistance, they would have simply said “agreements for technical or financial assistance” as opposed to “agreements including technical or financial assistance.”

To interpret the term “involving” in the fourth paragraph to mean “including,” as the majority contends, would run counter to the restrictive spirit of the provision.  Notably, the 1987 Constitution uses “involving” not “including.”  As admitted in the majority opinion, the word “involve” may also mean concerning, having to do with or affecting.  Following the majority opinion’s own methodology of substitution, “agreements… involving either technical or financial assistance” means “agreements…concerning either technical or financial assistance.”  And the word “concerning” according to Webster’s Third New International Dictionary means “regarding”, “respecting” or “about.”  To reiterate, these terms indicate exclusivity.  More tellingly, the 1987 Constitution not only deleted the term “management” in the 1973 Constitution, but also the catch-all phrase “or other forms of assistance,”[56] thus reinforcing the exclusivity of “either technical or financial assistance.”

That the fourth paragraph does not employ the terms “solely,” “only,” or “limited to” to qualify “either technical or financial assistance” does not detract from the provision’s restrictive nature.  Moreover, the majority opinion’s illustration conveniently omits “either… or.” As Senior Associate Justice Reynato S. Puno pointed out during the oral arguments, the use of the disjunctive “either… or” denotes restriction.[57]

According to the Penguin Dictionary, the word “either” may be used as (1) an adjective or (2) a pronoun or (3) a conjunction or (4) an adverb. As an adjective, the word “either” means (1) any one of two; one or the other; or (2) one and the other; each.  As a pronoun, the word “either” means the one or the other.  As a conjunction, the word “either” is used before two or more sentence elements of the same class or function joined usually by “or” to indicate what immediately follows is the first of two or more alternatives.  Lastly, as an adverb, “either” is used for emphasis after a negative or implied negation (i.e. for that matter or likewise).  The traditional rule holds that “either” should be used only to refer to one of two items and that “any” is required when more than two items are involved.[58] However, modern English usage has relaxed this rule when “either” is used as a conjunction.[59] Thus, the word “either” may indicate the choice between two or more possibilities.

“Either” in paragraph 4, section 2, Article XII, is clearly used as a conjunction, joining two (and only two) concepts – financial and technical. The use of the word “either” clearly limits the President to only two possibilities, financial and technical assistance.  Other forms of assistance are plainly not allowed, since only the words “financial and technical” follow the word “either.”

In accordance with the intent of the provision, “agreements… involving either technical or financial” is deemed restrictive and not just descriptive. It is a condition, a limitation, not a mere description.

The OSG’s suggestion that the President may enter into “any” agreement, the scope of which may go beyond technical or financial assistance, with a foreign-owned corporation, does not impress.  The first paragraph of Section 2 limits contracts with Filipino citizens or corporations to co-production, joint venture or production-sharing agreements.  To subscribe to the OSG’s theory would allow foreign-owned corporations participation in the country’s natural resources equal to, perhaps even greater than, that of Filipino citizens or corporations.

The OSG cites the Separate Opinion of Justice Jose C. Vitug, now retired, who proposed that, on the premise that the State itself may undertake the exploration, development and utilization of natural resources, a foreign-owned corporation may engage in such activities in behalf of the State:

The Constitution has not prohibited the State from itself exploring, developing, or utilizing the country’s natural resources, and, for this purpose, it may, I submit, enter into the necessary agreements with individuals or entities in the pursuit of a feasible operation.

The fundamental law is deemed written in every contract.  The FTAA entered into by the government and WMCP recognizes this vital principle.  Thus, two of the agreement’s clauses provide:

“WHEREAS, the 1987 Constitution of the Republic of the Philippines provides in Article XII, Section 2 that all lands of the public domain, waters, minerals, coal, petroleum, and other natural resources are owned by the State, and that the exploration, development and utilization of natural resources shall be under the full control and supervision of the State; and

“WHEREAS, the Constitution further provides that the Government may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large scale exploration, development and utilization of minerals.”

The assailed contract or its provisions must then be read in conformity with abovementioned constitutional mandate.  Hence, Section 10.2(a) of the FTAA, for instance, which states that “the Contractor shall have the exclusive right to explore for, exploit, utilize, process, market, export and dispose of all minerals and products and by-products thereof that may be derived or produced from the Contract Area and to otherwise conduct Mining Operations in the Contract Area in accordance with the terms and conditions hereof,” must be taken to mean that the foregoing rights are to be exercised by WMCP for and in behalf of the State and that WMCP, as the Contractor, would be bound to carry out the terms and conditions of the agreement acting for and in behalf of the State.  In exchange for the financial and technical assistance, inclusive of its services, the Contractor enjoys an exclusivity of the contract and a corresponding compensation therefor.[60] (Underscoring supplied).

This proposition must be rejected since it sanctions the circumvention, if not outright violation, of the fourth paragraph by allowing foreign corporations to render more than technical or financial assistance on the pretext that it is an agent of the State.  Quando aliquid prohibitur ex directo, prohibitur et per obliquum.  What is prohibited directly is prohibited indirectly.[61] Further, the proposition lends itself to mischievous consequences.  If followed to its logical conclusion, nothing would stop the State from engaging the services of a foreign corporation to undertake in its behalf the exploration, development and utilization of all other natural resources, not just “minerals, petroleum and mineral oils,” even on a small scale, not just “large-scale.”

The present Constitution restricts foreign involvement to large-scale activities because the idea is to limit the participation of foreign corporations only to areas where they are needed.

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

The exploration, development, and utilization of natural resources … may be directly undertaken by the State, or it may enter into co-production, joint venture or production-sharing agreement with … corporations or associations at least sixty percent of whose voting stock or controlling interest is owned by such citizens.

Lines 25 to 30 on the other hand, suggest that in the large-scale exploration, development and utilization of natural resources, the President with the concurrence of Congress may enter into agreements with foreign-owned corporations even for technical or financial assistance.

I wonder if this first part of Section 3 contradicts the second part.  I am raising this point for fear that foreign investors will use their enormous capital resources to facilitate the actual exploitation or exploration, development and effective disposition of our natural resources to the detriment of Filipino investors.  I am not saying that we should not consider borrowing money from foreign sources. What I refer to is that foreign interest should be allowed to participate only to the extent that they lend us money and give us technical assistance with the appropriate government permit.  In this way, we can insure the enjoyment of our natural resources by out people.

MR. VILLEGAS.  Actually, the second provision about the President does not permit foreign investors to participate.  It is only technical or financial assistance – they do not own anything – but on conditions that have to be determined by law with the concurrence of Congress.  So, it is very restrictive.

If the Commissioner will rememberthis removes the possibility for service contracts which we said yesterday were avenues used in the previous regime to go around the 60-40 requirement.[62] (Emphasis and underscoring supplied)

The intent is to allow Filipinos to benefit from Filipino resources.

MR. DAVIDE.  May I be allowed to explain the proposal?

MR. MAAMBONG.  Subject to the three-minute rule, Madam President.

MR. DAVIDE.  It will not take me three minutes.

The Commission had just approved the Preamble.  In the Preamble we clearly sated there that the Filipino people are sovereign and that one of the objectives for the creation or establishment of a government is to conserve and develop the national patrimony.  The implication is that the national patrimony or our natural resources are exclusively reserved for the Filipino people.  No alien must be allowed to enjoy, exploit and develop our natural resources.  As a matter of fact, that principle proceeds from the fact that our natural resources are gifts from God to the Filipino people and it would be a breach of that special blessing from God if we will allow aliens to exploit our natural resources.

I voted in favor of the Jamir proposal because it is not really exploitation that we granted to the alien corporations but only for them to render financial or technical assistance.  It is not for them toenjoy our natural resources.  Madam President, our natural resources are depleting; our population is increasing by leaps and bounds.  Fifty years from now, if we will allow these aliens to exploit our natural resources, there will be no more natural resources for the next generations of Filipinos.  It may last long if we will begin now.  Since 1935 the aliens have been allowed to enjoy to a certain extent the exploitation of our natural resources, and we became victims of foreign dominance and control.  The aliens are interested in coming to the Philippines because they would like to enjoy the bounty of nature exclusively intended for the Filipinos by God.

And so I appeal to all, for the sake of the future generations, that if we have to pray in the Preamble “to preserve and develop the national patrimony for the sovereign Filipino people and for the generations to come,” we must at this time decide once and for all that our natural resources must be reserved only to Filipino citizens.

Thank you.[63] (Emphasis and underscoring supplied)

The intent loses all significance if foreign-owned corporations are likewise allowed to participate even in small or medium-scale ventures.

Thus, in keeping with the clear intent and rationale of the Constitution, financial or technical assistance by foreign corporations are allowable only where there is no Filipino or Filipino-owned corporation (including corporations at least 60% of the capital of which are owned by Filipinos) which can provide the same or similar assistance.

To reiterate, the over-arching letter and intent of the Constitution is to reserve the exploration, development and utilization of natural resources to Filipinos.

The justification for foreign involvement in the exploration, development and utilization of natural resources was that Filipino nationals or corporations may not possess the necessary capital, technical knowledge or technology to mount a large scale undertaking.  In the words of the “Draft of the 1986 U.P. Law Constitution Project” (U.P. Law Draft) which was taken into consideration during the deliberation of the CONCOM:[64]

Under the proposed provision, only technical assistance or financial assistance agreements may be entered into, and only for large-scale activities.  These are contract forms which recognize and assert our sovereignty and ownership over natural resources since the foreign entity is just a pure contractor and not a beneficial owner of our economic resources.  The proposal recognizes the need for capital and technology to develop our natural resources without sacrificing our sovereignty and control over such resources[65] x x x (Emphasis and underscoring supplied)

Thus, the contention that Section 2, Article XII allows for any agreement for assistance by a foreign corporation “so long as such assistance requires specialized knowledge or skills, and are related to the exploration, development and utilization of mineral resources” is erroneous.[66]

Where a foreign corporation does not offer financial or technological assistance beyond the capabilities of its Philippine counterparts, an FTAA with such a corporation would be highly questionable.  Similarly, where the scope of the undertaking does not qualify as “large scale,” an FTAA with a foreign corporation is equally suspect.

“Agreements” in Section 2, Article

XII do not include “service

contracts.”

This Court’s ruling in the Decision under reconsideration that the agreements involving either technical or financial assistance contemplated by the 1987 Constitution are different and dissimilar from the service contracts under the 1973 Constitution must thus be affirmed.  That there is this difference, as noted in the Decision, is gathered from the change in phraseology.[67]There was no need to employ strongly prohibitory language, like that found in the Bill of Rights.[68] For the framers to expressly prohibit “management and other forms of assistance” would be redundant inasmuch as the elimination of such phrase serves the same purpose.  The deletion is simply too significant to ignore and speaks just as profoundly – it is an outright rejection.

It bears noting that the fourth paragraph does not employ the same language adopted in the first paragraph, which specifically denominates the agreements that the State may enter into with Filipinos or Filipino-owned corporations.  The fourth paragraph does not state “The President may also enter into co-production, joint venture, or production-sharing agreements with foreign-owned corporations for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils….”  On the other hand, the fourth paragraph cannot be construed as a grant of boundless discretion to the President to enter into any agreement regardless of the scope of assistance because it would result in a bias against Filipino citizens and corporations.

On this point, the following observations from the U.P. Law Draft on the odious and objectionable features of service contracts bear restating:

5.  The last paragraph is a modification of the service contract provision found in Section 9, Article XIV of the 1973 Constitution as amended.  This 1973 provision shattered the framework of nationalism in our fundamental law (see Magallona, “Nationalism and its Subversion in the Constitution”).  Through the service contract, the 1973 Constitution had legitimized that which was prohibited under the 1935 constitution—the exploitation of the country’s natural resources by foreign nationals.  Through the service contract, acts prohibited by the Anti-Dummy Law were recognized as legitimate arrangements. Service contracts lodge exclusive management and control of the enterprise to the service contractor, not unlike the old concession regime where the concessionaire had complete control over the country’s natural resources, having been given exclusive and plenary rights to exploit a particular resource and, in effect, having been assured of ownership of that resource at the point of extraction (see Agabin, “Service Contracts: Old Wine in New Bottles”).  Service contracts, hence, are antithetical to the principle of sovereignty over our natural resources, as well as the constitutional provision on nationalization or Filipinization of the exploitation of our natural resources.[69] (Emphasis supplied)

Furthermore, Professor Pacifico A. Agabin, a member of the working group of the U.P. Law Constitution Project and now counsel for intervenor PCM, stated in his position paper:

Recognizing the service contract for what it is, we have to expunge it from the Constitution and reaffirm ownership over our natural resources.  That is the only way we can exercise effective control over our naturalresources.

This should not mean complete isolation of the country’s natural resources from foreign investment.  Other contract forms which are less derogatory to our sovereignty and control over natural resources – like technical assistance agreements, financial assistance [agreements], co-production agreements, joint ventures, production-sharing [agreements] – could still be utilized and adopted without violating constitutional provisions.  In other words, we can adopt contract forms which recognize and assert our sovereignty and ownership over natural resources, and where the entity is just a pure contractor instead of the beneficial owner of our economic resources.[70] (Emphasis & underscoring supplied),

indicating that the proposed financial or technical assistance agreements are contract forms different from the 1973 Constitution service contracts.

Thus the phrase “agreements with foreign-owned corporations involving either technical or financial assistance” in Section 2, Article XII of the Constitution must be interpreted as restricting foreign involvement in the exploration, development and utilization of natural resources to large scale undertakings requiring foreign financial or technical assistance and not, as alleged by respondents, inclusive of any possible agreement under the sun.

The majority however argues that the deletion or omission from the 1987 Constitution of the term “service contracts” found in the 1973 Constitution does not sufficiently prove the drafters’ intent to exclude foreigners from management since such intent cannot be definitively and conclusively established.  This argument overlooks three basic principles of statutory construction.

First, casus omisus pro omisso habendus est.[71] As recently as 2001 in Commission on Audit of the Province of Cebu v. Province of Cebu,[72] this Court held that a person, object or thing omitted from an enumeration must be held to have been omitted intentionally.[73] That there is a difference between technical or financial assistance contemplated by the 1987 Constitution and the service contracts under the 1973 Constitution is gathered from the omission of the phrase “management or other forms of assistance.”

As earlier noted, the phrase “service contracts” has been deleted in the 1987 Constitution’s Article on National Economy and Patrimony.  If the CONCOM intended to retain the concept of service contracts under the 1973 Constitution, it would have simply adopted the old terminology (“service contracts”) instead of employing new and unfamiliar terms (“agreements…involving either technical or financial assistance.”)  Such a difference between the language of a provision in a revised constitution and that of a similar provision in the preceding constitution is viewed as indicative of a difference in purpose.  If, as respondents suggest, the concept of “technical or financial assistance” agreements is identical to that of “service contracts,” the CONCOM would not have bothered to fit the same dog with a new collar.  To uphold respondents’ theory would reduce the first to a mere euphemism for the second render the change in phraseology meaningless.[74] (Emphasis and underscoring supplied; citation omitted)

Second, expressio unius est exclusion alterius.[75] The express mention of one person, thing, act, or consequence excludes all others.[76]

Third and lastly, expressium facit cessare tacitum.[77] What is expressed puts an end to that which is implied.[78] Since the constitutional provision, by its terms, is expressly limited to financial or technical agreements, it may not, by interpretation or construction, be extended to other forms of assistance.

These three principles of statutory construction, derived from the well-settled principle of verba legis, proceed from the premise that the Constitutional Commission would not have made specific enumerations in the provision if it had the intention not to restrict its meaning and confine its terms to those expressly mentioned.  And this Court may not, in the guise of interpretation, enlarge the scope of a constitutional provision and include therein situations not provided nor intended by the framers.  To do so would be to do violence to the very language of the Constitution, the same Constitution which this Court has sworn to uphold.

The majority counters, however, that service contracts were not de-constitutionalized since the deliberations of the members of the Constitutional Commission conclusively show that they discussed agreements involving either technical or financial assistance in the same breath as service contracts and used the terms interchangeably.  This argument merely echoes that of private respondent WMCP which had already been addressed in this Court’s Decision of January 27, 2004, (the Decision) viz:

While certain commissioners may have mentioned the term “service contracts” during the CONCOM deliberations, they may not have been necessarily referring to the concept of service contracts under the 1973 Constitution.  As noted earlier “service contracts” is a term that assumes different meanings to different people.  The commissioners may have been using the term loosely, and not in its technical and legal sense, to refer, in general, to agreements concerning natural resources entered into by the Government with foreign corporations.  These loose statements do not necessarily translate to the adoption of the 1973 Constitution provision allowing service contracts.

It is true that, as shown in the earlier quoted portions of the proceedings in [the] CONCOM, in response to Sr. Tan’s question, Commissioner Villegas commented that, other than congressional notification, the only difference between “future” and “past” “service contracts” is the requirement of a general law as there were no laws previously authorizing the same.[79] However, such remark is far outweighed by his more categorical statement in his exchange with Commissioner Quesada that the draft article “does not permit foreign investors to participate” in the nation’s natural resources – which was exactly what service contracts did – except to provide “technical or financial assistance.

In the case of the other commissioners, Commissioner Nolledo himself clarified in his work that the present charter prohibits service contracts.  Commissioner Gascon was not totally averse to foreign participation, but favored stricter restrictions in the form of majority congressional concurrence.  On the other hand, Commissioners Garcia and Tadeo may have veered to the extreme side of the spectrum and their objections may be interpreted as votes against any foreign participation in our natural resources whatsoever.[80] (Emphasis and underscoring supplied; citations omitted)

In fact, the opinion of Commissioner Nolledo in his textbook which is cited in this Court’s January 27, 2004 Decision should leave no doubt as to the intention of the framers to eliminate service contracts altogether.

Are service contracts allowed under the new Constitution? No.  Under the new Constitution, foreign investors (fully alien-owned) can NOT participate in Filipino enterprises except to provide: (1) Technical Assistance for highly technical enterprises; and (2) Financial Assistance for large-scale enterprises.

The intention of this provision, as well as other provisions on foreign investments, is to prevent the practice (prevalent in the Marcos government) of skirting the 60/40 equation using the cover of service contracts.[81]

Next, the majority opinion asserts that if the framers had meant to ban service contracts altogether, they would have provided for the termination or pre-termination of the existing service contracts.

There was no need for a constitutional provision to govern the termination or pre-termination of existing service contracts since the intention of the framers was to apply the rule banning service contracts prospectively.

MR. DAVIDE.  Under the proposal, I notice that except for the lands of the public domain, all other natural resources cannot be alienated and in respect to lands of the public domain, private corporations with the required ownership by Filipino citizens can only lease the same.  Necessarily, insofar as other natural resources are concerned, it would only be the State which can exploit, develop, explore and utilize the same.  However, the State may enter into a joint venture, coproduction (sic) or production-sharing.  Is that not correct?

MR. VILLEGAS.  Yes.

MR. DAVIDE.  Consequently, henceforth upon the approval of this Constitution, no timber or forest concessions, permits or authorization can be exclusively granted to any citizen of the Philippines nor to any corporation qualified to acquire lands of the public domain?

MR. VILLEGAS.  Would Commissioner Monsod like to comment on that?  I think his answer is “yes.”

MR. DAVIDE.  So, what will happen now to licenses or concessions earlier granted by the Philippine government to private corporations or to Filipino citizens?  Would they be deemed repealed?

MR. VILLEGAS.  This is not applied retroactively.  They will be respected.

MR. DAVIDE.  In effect, they will be deemed repealed?

MR. VILLEGAS.  No.[82] (Emphasis and underscoring supplied)

Besides, a service contract is only a license or privilege, not a contract or property right which merits protection by the due process clause of the Constitution.  Thus in the landmark case ofOposa v. Factoran, Jr,[83] this Court held:

x x x Needless to sayall licenses may thus be revoked or rescinded by executive action.  It is not a contractproperty or a property right protected by the due process clause of the Constitution.  In Tan vs. Director of Forestry, this Court held:

“x x x A timber license is an instrument by which the State regulates the utilization and disposition of forest resources to the end that public welfare is promoted.  A timber license is not a contract within the purview of the due process clause; it is only a license or privilege, which can be validly withdrawn whenever dictated by public interest or public welfare as in this case.

‘A license is merely a permit or privilege to do what otherwise would be unlawful, and is not a contract between the authority, federal, state, or municipal, granting it and the person to whom it is granted; neither is it property or a property right, nor does it create a vested right; nor is it taxation’  Thus, this Court held that the granting of license does not create irrevocable rights, neither is it property or property rights.

We reiterated this pronouncement in Felipe Ysmael, Jr. & Co, Inc. vs. Deputy Executive Secretary:

“x x x Timber licenses, permits and license agreements are the principal instruments by which the State regulates the utilization and disposition of forest resources to the end that public welfare is promoted.  And it can hardly be gainsaid that they merely evidence a privilege granted by the State to qualified entities, and do not vest in the latter a permanent or irrevocable right to the particular concession area and the forest products therein.  They may be validly amended, modified, replaced or rescinded by the Chief Executive when national interests so require.  Thus, they are not deemed contracts within the purview of the due process clause.”

Since timber licenses are not contracts, the non-impairment clause which reads:

“SEC 10.  No law impairing, the obligation of contracts shall be passed.”

cannot be invoked.

In the second place, even if it is to be assumed that the same are contracts, the instant case does not involve a law or even an executive issuance declaring the cancellation or modification of existing timber licenses.  Hence, the non-impairment clause cannot as yet be invoked.  Nevertheless, granting further that a law has actually been passed mandating cancellations or modifications, the same cannot still be stigmatized as a violation of the non-impairment clause.  This is because by its very nature and purpose, such a law could have only been passed in the exercise of the police power of the state for the purpose of advancing the right of the people to a balanced and healthful ecology, promoting their health and enhancing the general welfare.  In Abe vs. Foster Wheeler Corp., this Court stated:

“The freedom of contract, under our system of government, is not meant to be absolute.  The same is understood to be subject to reasonable legislative regulation aimed at the promotion of public health, moral, safety and welfare.  In other words, the constitutional guaranty of non-impairment of obligations of contract is limited by the exercise of the police power of the State, in the interest of public health, safety, moral and general welfare.

The reason for this is emphatically set forth in Nebia vs. New York quoted in Philippine American Life Insurance Co. vs. Auditor General, to wit:

“Under our form of government the use of property and the making of contracts are normally matters of private and not of public concern.  The general rule is that both shall be free of governmental interference.  But neither property rights nor contract rights are absolute; for government cannot exist if the citizen may at will use his property to the detriment of his fellows, or exercise his freedom of contract to work them harm.  Equally fundamental with the private right is that of the public to regulate it in the common interest.”

In shortthe non-impairment clause must yield to the police power of the state.[84] (Emphasis and underscoring supplied; citations omitted)

The majority however argues that Oposa is not applicable since the investment in a logging concession is not as substantial an investment as that of a large scale mining contractor.  Such a contention is patently absurd.  Taken to its logical conclusion, the majority would have this Court exempt firms in highly capital intensive industries from the exercise of police power simply to protect their investment.  That would mean that the legislature would, for example, be powerless to revoke or amend legislative franchises of public utilities, such as power and telecommunications firms, which no doubt require huge sums of capital.

The majority opinion then proffers that the framers of the Constitution were pragmatic enough to know that foreign entities would not enter into such agreements without requiring arrangements for the protection of their investments, gains, and benefits or other forms of conditionalities.  It goes on to argue that “by specifying such ‘agreements involving assistance,’ the framers of the Constitution necessarily gave implied assent to everything that these agreements necessarily entailed; or that could reasonably be deemed necessary to make them tenable and effective, including management authority with respect to the day-to-day operations of the enterprise and measures for the protection of the interests of the foreign corporation.”

The deliberations of the Constitutional Commission, however, do not support the immediately foregoing contentions.

MR. TINGSON.  Within the purview of what the Gentleman is saying, would he welcome friendly foreigners to lend us their technical expertise in helping develop our country?

MR. GARCIA.  Part 2 of this proposal, Filipino control of the economy, in fact, says that the entry of foreign capital, technology and business enterprises into the national economy shall be effectively regulated to ensure the protection of the interest of our people.

In other words, we welcome them but on our own terms.  This is very similar to our position on loans.  We welcome loans as long as they are paid on our own terms, on our ability to pay, not on their terms.  For example, the case of Peru is instructive.  They decided first to develop and grow, and were willing to pay only 10 percent of their foreign exchange earnings.  That, I think, is a very commendable position given the economic situation of a country such as Peru.  The Philippines is a similar case, especially when we realize that the foreign debt was made by a government that was bankrupt in its desire to serve the people.

MR. MONSOD.  Mr. Vice-President, I think we have to make a distinction that it is not really realistic to say that we will borrow on our own terms.  Maybe we can say that we inherited unjust loans, and we would like to repay these on terms that are not prejudicial to our own growth.  But the general statement that we should only borrow on our own terms is a bit unrealistic.

MR. GARCIA.  Excuse me.  The point I am trying to make is that we do not have to borrow.  If we have to borrow, it must be on our terms.  In other words, banks do not lend out of the goodness of their hearts.  Banks lend to make a profit.

MR. TINGSON.  Mr. Vice-President, I think the trouble in our country is that we have forgotten the scriptural injunction that the borrower becomes a slave to the lender.  That is the trouble with our country; we have borrowed and borrowed but we forget that we become slaves to those who lend us.[85] (Emphasis and underscoring supplied)

By public respondent’s information, “[t]he potential mining wealth in the Philippines is estimated at $840 billion or P47 trillion or 10 times our annual GDP, and 15 times our total foreign debt of $56 billion.  Globally, the Philippines ranks third in gold, fourth in copper, fifth in nickel and sixth in chromite.”[86] With such high concentration of valuable minerals coupled with the Filipino people’s willingness to protect and preserve ownership of their natural resources at the expense of retarding or postponing the exploration, development, and utilization of these resources, the Philippines clearly has the superior bargaining position and should be able to dictate its terms.  No foreign entity should be able to bully the Philippines and intimidate the Government into conceding to certain conditions incompatible with the Constitution.

Extent of foreign corporation’s

participation in the management of

an FTAA

Foreign-owned corporations, however, are not precluded from a limited participation in the management of the exploration, development and utilization of natural resources.

Some degree of participation by the contractor in management, to assure the proper application of its investment and/or to facilitate the technical assistance and transfer of technology may be unavoidable and not necessarily undesirable. Thus, there is merit in respondent WMCP’s contention, to which even petitioners conceded during the oral arguments, that a foreign-owned corporation is not prevented from having limited participation in the management assistance or participation so long as it is incidental to the financial or technical assistance being rendered:

JUSTICE PANGANIBAN:

Alright.  Going back to verba legis, you say that the FTAA’s are limited to financial or technical assistance only.

ATTY. LEONEN:

Either financial or technical assistance, yes your Honor.

ATTY. LEONEN:

Full management, your Honor.

JUSTICE PANGANIBAN:

Full management is excluded.

ATTY. LEONEN:

Yes your Honor.

JUSTICE PANGANIBAN:

But incidental management to protect the financial or technical assistance should be allowed.

ATTY. LEONEN:

If a mining company would get the technical expertise to bring in drilling rig your Honor, and that is the sole contract, then we cannot imagine a situation were it is not the technicians that we will do the actual drilling your Honor, but for the entire contract area your Honor as it is now in the FTAA then I think that would be different.

JUSTICE PANGANIBAN:

Yes I agree.  In other words, the words financial or technical may include parts of management, isn’t it?  Its reasonable in other words if I may re state it, it’s reasonable to expect that entities, foreign entities who don’t know anything about this country, well that is an exaggeration, who know not too much about this country, would not just extend money, period.  They would want to have a say a little bit of say management and sometimes even in auditing of the company, isn’t it reasonable to expect.

ATTY. LEONEN:

I would qualify my answer your Honor with management of what your Honor.  It means if it’s for development and utilization of the minerals.

JUSTICE PANGANIBAN:

No.

ATTY. LEONEN:

Yes your Honor, but if it’s management of sub-contracted activity like a symposium then that would be all right your Honor.  Mining companies do symposiums also.

JUSTICE PANGANIBAN:

Management to protect their own investments, whether it be technical or financial.

ATTY. LEONEN:

Their investment, your Honor, which cannot be the entire mining operation from my perspective, your Honor.

JUSTICE PANGANIBAN:

Yes I agree because there is the Constitutional provision of control and supervision, full control and supervision to the State.

ATTY. LEONEN:

And Filipino corporations your Honor.

JUSTICE PANGANIBAN:

Or even Filipino corporation, the full control and supervision is still with the State.

ATTY. LEONEN:

Yes your Honor.

JUSTICE PANGANIBAN:

Even with Filipino citizens being the contractors, full control and supervision is still with the State.

ATTY. LEONEN:

Yes, your Honor.

JUSTICE PANGANIBAN:

In all these contract full control and supervision is with the State.

ATTY. LEONEN:

Yes your Honor and we can only hope that the State is responsive to the people we represent.

x x x

JUSTICE PANGANIBAN:

Yes, yes.  Can it also not be said reading that the Constitution that the safeguards on contracts with foreigners was left by the Constitutional Commission or by Constitution itself to Congress to craft out.

ATTY. LEONEN:

I can accept your Honor that there was a province of power that was given to Congress, but it was delimited by the fact, that they removed the word management and other arrangement and put the words either financial and technical.

JUSTICE PANGANIBAN:

Yes but you just admitted earlier that these two words would also include some form of management or other things to protect the investment or the technology being put by the foreign company.

ATTY. LEONEN:

Yes your Honor for so long as it’s not the entire.

JUSTICE PANGANIBAN:

Yes, yes provided the State does not lose control and supervision, isn’t it?

ATTY. LEONEN:

Yes your Honor.[87] (Emphasis and underscoring supplied)

Thus, the degree of the foreign corporation’s participation in the management of the mining concern is co-extensive with and strictly limited to the degree of financial or technical assistance extended.  The scope of the assistance defines the limits of the participation in management.

However, to whatever extent the foreign corporation’s incidental participation in the management of the mining concern may be, full control and supervision, sufficient to protect the interest of the Filipino people, over all aspects of mining operations must be retained by the Government.  While this does not necessarily mean that the Government must assume the role of a back seat driver, actively second guessing every decision made by the foreign corporation, it does mean that sufficient safeguards must be incorporated into the FTAA to insure that the people’s beneficial interest in their natural resources are protected at all times.

Moreover, the foreign contractor’s limited participation in management, as the Court held in its Decision, should not effectively grant foreign-owned corporations beneficial ownership over the natural resources.

The opinion, submitted by the OSG, of Bernardo M. Villegas, who was a Member of the Constitutional Commission and Chair of its Committee on National Economy and Patrimony, is not inconsistent with the foregoing conclusion.  Commissioner Villegas opined:

The phrase “service contracts” contained in the 1973 Constitution was deleted in the 1987 Constitution because there was the general perception among the Concom members that it was used during the Marcos regime as an instrument to circumvent the 60-40 limit in favor of Filipino ownership.  There was also the impression that the inclusion of the word “management” in the description of the service contract concept in the 1973 Constitution was tantamount to ownership by the foreign partner.

The majority of the Concom members, however, recognized the vital need of the Philippine economy for foreign capital and technology in the exploitation of natural resources to benefit Filipinos, especially the poor in the countryside where the mining sites are located.  For this reason, the majority voted for “agreements involving financial or technical assistance” or FTAA.

I maintain that the majority who voted Yes to this FTAA provision realized that an FTAA involved more than borrowing money and/or buying technology from foreigners.  If an FTAA involved only a loan and/or purchase of technology, there would not have been a need for a constitutional provision because existing laws in the Philippines more than adequately regulate these transactions.

It can be deducted from the various comments of both those who voted Yes and No to the FTAA provision that an FTAA also involves the participation in management of the foreign partner.  What was then assumed in 1986 is now even clearer in the way business organizations have evolved in the last decade or so under the modern concept of good governance.  There are numerous stakeholders in a business other than the stockholders or equity owners who participate actively in the management of a business enterprise.  Not only do creditors and suppliers demand representation in boards of directors.  There are also other so-called independent directors who actively participate in management.

In summary, the word “management” was deleted from the description of the FTAA because some CONCOM delegates identified management with beneficial ownership.  In order not to prolong the debate, those in favor of the FTAA provision agreed not to include the word management.  But from what has been discussed above, it was clear in the minds of those who voted YES that the FTAA included more than just a loan and/or purchase of technology from foreigners but necessarily allowed the active participation of the foreign partners in the management of the enterprise engaged in the exploitation of natural resources.[88] (Emphasis supplied).

Under no circumstances should the execution of an FTAA be tantamount to the grant of a roving commission whereby a foreign contractor is given blanket and unfettered discretion to do whatever it deems necessary – denude watersheds, divert sources of water, drive communities from their homes – in pursuit of its pecuniary goals.

Nor should the scope of an FTAA be broadened to include “managerial assistance.” As discussed extensively in the Decision,[89] “managerial assistance” – a euphemism by which full control and beneficial ownership of natural resources were vested in foreigners – is part and parcel of the martial law era “service contracts” and the old “concession regime” which the 1987 Constitution has consigned to the dust bin of history.

The elimination of the phrase “service contracts” effectuates another purpose.  Intervenor PCM agrees that the Constitution tries to veer away from the old concession system,[90] which vested foreign-owned corporations control and beneficial ownership over Philippine natural resources.  Hence, the 1987 Constitution also deleted the provision in the 1935 and 1973 Constitutions authorizing the State to grant licenses, concessions, or leases for the exploration, exploitation, development, or utilization of natural resources.[91]

Prof. Agabin had no flattering words for the concession system, which he described in his position paper as follows:

Under the concession system, the concessionaire makes a direct equity investment for the purpose of exploiting a particular natural resource within a given area.  Thus, the concession amounts to a complete control by the concessionaire over the country’s natural resource, for it is given exclusive and plenary rights to exploit a particular resource and is in effect assured ownership of that resource at the point of extraction.  In consideration for the right to exploit a natural resource, the concessionaire either pays rent or royalty which is a fixed percentage of the gross proceeds.  But looking beyond the legal significance of the concession regime, we can see that there are functional implications which give the concessionaire great economic power arising from its exclusive equity holding.  This includes, first, appropriation of the returns of the undertaking, subject to a modest royalty; second, exclusive management of the project; third, control of production of the natural resource, such as volume of production, expansion, research and development; and fourth, exclusive responsibility for downstream operations, like processing, marketing, and distribution.  In short, even if nominally, the state is the sovereign and owner of the natural resource being exploited, it has been shorn of all elements of control over such natural resource because of the exclusive nature of the contractual regime of the concession.  The concession system, investing as it does ownership of natural resources, constitutes a consistent inconsistency with the principle embodied in our Constitution that natural resources belong to the State and shall not be alienated, not to mention the fact that the concession was the bedrock of the colonial system in the exploitation of natural resources.[92] (Underscoring in the original)

Vestiges of the concession system endured in the service contract regime, including the vesting on the contractor of the management of the enterprise, as well as the control of production and other matters, such as expansion and development. [93] Also, while title to the resource discovered was nominally in the name of the government, the contractor had almost unfettered control over its disposition and sale.[94]

The salutary intent of the 1987 Constitution notwithstanding, these stubborn features of the concession system persist in the Mining Act of 1995.  The statute allows a foreign-owned corporation to carry out mining operations,[95] which includes the conduct of exploration,[96] development[97] and utilization[98] of the resources.[99] The same law grants foreign contractors auxiliary mining rights, i.e., timber rights,[100] water rights,[101] the right to possess explosives,[102] easement rights,[103] and entry into private lands and concession areas.[104] These are the very same rights granted under the old concession and service contract systems.

The majority opinion proposes two alternative standards of Government control over FTAA operations.  Thus, in the opening paragraphs it states:

Full control is not anathema to day-to-day management by the contractor, provided that the State retains the power to direct overall strategy; and to set aside, reverse, or modify plans and actions of the contractor.  The idea of full control is similar to that which is exercised by the board of directors of a private corporation x x x (Emphasis and underscoring supplied)

However, the majority opinion subsequently substantially reduces the scope of its definition of “control” in this wise:

The concept of control adopted in Section 2 of Article XII must be taken to mean less than dictatorial, all-encompassing control; but nevertheless sufficient to give the State the power to direct, restrain, regulate and govern the affairs of the extractive enterprises.  Control by the State may be on a macro level, through the establishment of policies, guidelines, regulations, industry standards and similar measuresthat would enable the government to control the conduct of affairs in various enterprises and restrain activities deemed not desirable or beneficial. (Emphasis and underscoring supplied; citations omitted; italics in the original)

This second definition is apparently analogous to regulatory control which the Government is automatically presumed to exercise over all business activities by virtue of the Police Power.  This definition of the “full control and supervision” mandated by Section 2, Article XII of the Constitution strikes a discordant and unconvincing chord as it gives no effect to the mandated “full” character of the State’s control but merely places it at par with any other business activity or industry regulated by the Government.

But even under this second and more limited concept of regulatory control, the provisions of the Mining Act pertaining to FTAAs do not pass the test of constitutionality.

To be sure, the majority opinion cites a litany of documents, plans, reports and records which the foreign FTAA contractor is obliged to submit or make available under the Mining Act and DAO 96-40.  However, the mere fact that the Act requires the submission of work programs and minimum expenditure commitments[105] does not provide adequate protection.  These were also required under the old concession[106] and service contract[107] systems, but did not serve to place full control and supervision of the country’s natural resources in the hands of the Government.

Conspicuously absent from the Mining Act are effective means by which the Government can protect the beneficial interest of the Filipino people in the exploration, development and utilization of their resources.  It appears from the provisions of the Mining Act that the Government, once it has determined that a foreign corporation is eligible for an FTAA and enters into such an agreement, has very little say in the corporation’s actual operations.

Thus, when pressed to identify the mechanism by which the Government can administratively compel compliance with the foregoing requirements as well as the other terms and conditions of the Mining Act, DAO 96-40 and DAO 99-56, the majority can only point to the cancellation of the agreement(s) and/or the incentives concerned under Section 95 to 99 of the Mining Act:[108]

CHAPTER XVII

Ground for Cancellation, Revocation, and Termination

SECTION 95.  Late or Non-filing of Requirements. — Failure of the permittee or contractor to comply with any of the requirements provided in this Act or in its implementing rules and regulations, without a valid reason, shall be sufficient ground for the suspension of any permit or agreement provided under this Act.

SECTION 96.  Violation of the Terms and Conditions of Permit or Agreements. — Violation of the terms and conditions of the permits or agreements shall be a sufficient ground for cancellation of the same.

SECTION 97.  Non-payment of Taxes and Fees. — Failure to pay taxes and fees due the Government for two (2) consecutive years shall cause the cancellation of the exploration permit, mineral agreement, financial or technical assistance agreement and other agreements and the re-opening of the area subject thereof to new applicants.

SECTION 98.  Suspension or Cancellation of Tax Incentives and Credits. — Failure to abide by the terms and conditions of tax incentives and credits shall cause the suspension or cancellation of said incentives and credits.

SECTION 99.  Falsehood or Omission of Facts in the Statement — All statements made in the exploration permit, mining agreement and financial or technical assistance agreement shall be considered as conditions and essential parts thereof and any falsehood in said statements or omission of facts therein which may alter, change or affect substantially the facts set forth in said statements may cause the revocation and termination of the exploration permit, mining agreement and financial or technical assistance agreement.

An examination of the foregoing fails to impress.  For instance, how does cancellation of the FTAA under Section 97 for nonpayment of taxes and fees (comprising the “basic share” of the government) for two consecutive years facilitate the collection of the unpaid taxes and fees?  How does it preserve and protect the beneficial interest of the Filipino people? For that matter, how does the DENR administratively compel compliance with the anti-pollution and other requirements?[109] If minerals are found to have been sold overseas at less than the most advantageous market prices, how does the DENR obtain satisfaction from the offending foreign FTAA contractor for the difference?

In sum, the enforcement provisions of the Mining Act and its Implementing Rules are scarcely effective, and, worse, perceptibly less than the analogous provisions of other Government Regulatory Agencies.

For instance, the Bangko Sentral Ng Pilipinas, the Central Monetary Authority mandated by the Constitution to exercise supervision (but not full control and supervision) over banks,[110] is empowered to (1) appoint a conservator with such powers as shall be deemed necessary to take charge of the assets, liabilities and management of a bank or quasi-bank;[111] (2) under certain well defined conditions, summarily and without need for prior hearing forbid a bank from doing business in the Philippines and appoint the Philippine Deposit Insurance Corporation as receiver;[112] and (3) impose a number of administrative sanctions such as (a)  fines not to exceed P30,000 per day for each violation, (b) suspension of a bank’s rediscounting privileges, (c) suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments, (d) suspension of interbank clearing privileges, and (e) revocation of quasi-banking license.[113]

Similarly, to give effect to the Constitutional mandate to afford full protection to labor,[114] the Labor Code[115] grants the Secretary of Labor the power to (1) issue compliance orders to give effect to the labor standards provisions of the Code;[116] and (2) enjoin an intended or impending strike or lockout by assuming jurisdiction over a labor dispute in an industry determined to be indispensable to the national interest.[117]

Under the Tax Code, the Commissioner of Internal Revenue has the power to (1) temporarily suspend the business operations of a taxpayer found to have committed certain specified violations;[118] (2) order the constructive distraint of the property of a taxpayer;[119] and (3) impose the summary remedies of distraint of personal property and or levy on real property for nonpayment of taxes.[120]

In comparison, the Mining Act and its Implementing Rules conspicuously fail to provide the DENR with anything remotely analogous to the foregoing regulatory and enforcement powers of other government agencies.

In fine, the provisions of the Mining Act and its Implementing Rules give scarcely more than lip service to the constitutional mandate for the State to exercise full control and supervision over the exploration, development and utilization of Philippine Natural Resources. Evaluated as a whole and in comparison with other government agencies, the provisions of the Mining Act and its Implementing Rules fail to meet even the reduced standard of effective regulatory control over mining operations.  In effect, they abdicate control over mining operations in favor of the foreign FTAA contractor.  For this reason, the provisions of the Mining Act, insofar as they pertain to FTAA contracts, must be declared unconstitutional and void.

The majority opinion vigorously asserts that it is the Chief Executive who exercises the power of control on behalf of the State.

This only begs the question. How does President effectively enforce the terms and conditions of an FTAA?  What specific powers are subsumed within the constitutionally mandated “power of control?”  On these particular matters the majority opinion, like the Mining Act, is silent.

Provisions of the Mining Act

pertaining to FTAAs void for

conveying beneficial ownership

of Philippine mineral resources to

foreign contractors

An examination of the Mining Act reveals that the law grants the lion’s share of the proceeds of the mining operation to the foreign corporation.  Thus the second and third paragraphs of Section 81 of the law provide:

SECTION 81.           Government Share in Other Mineral Agreements. — x x x

The Government share in financial or technical assistance agreement shall consist of, among other things, the contractor’s corporate income tax, excise tax, special allowance, withholding tax due from the contractor’s foreign stockholders arising from dividend or interest payments to the said foreign stockholder in case of a foreign national and all such other taxes, duties and fees as provided for under existing laws.

The collection of Government share in financial or technical assistance agreement shall commence after the financial or technical assistance agreement contractor has fully recovered its pre-operating expenses, exploration, and development expenditures, inclusive.  (Emphasis supplied)

Under the foregoing provisions, the Government does not receive a share in the proceeds of the mining operation.  All it receives are taxes and fees from the foreign corporation, just as in the old concession[121] and service contract[122] regimes.  The collection of taxes and fees cannot be considered a return on the resources mined corresponding to beneficial ownership of the Filipino people.  Taxes are collected under the State’s power to generate funds to finance the needs of the citizenry and to advance the common weal.[123] They are not a return on investment or property.  Similarly, fees are imposed under the police power primarily for purposes of regulation.[124] Again, they do not correspond to a return on investment or property.

Even more galling is the stipulation in the above-quoted third paragraph that the Government’s share (composed only of taxes and fees) shall not be collected until after the foreign corporation has “fully recovered its pre-operating expenses, exploration, and development expenditures, inclusive.”  In one breath this provision virtually guarantees the foreigner a return on his investment while simultaneously leaving the Government’s (and People’s) share to chance.

It is, therefore, clearly evident that the foregoing provisions of the Mining Act effectively transfer the beneficial ownership over the resources covered by the agreement to a foreigner, in contravention of the letter and spirit of the Constitution.

Consequently, the assailed Decision inescapably concluded that:

The underlying assumption in all these provisions is that the foreign contractor manages the mineral resources, just like the foreign contractor in a service contract.[125]

The Mining Act gives the foreign-owned corporation virtually complete control, not mere “incidental” participation in management, over the entire operations.

The law is thus at its core a retention of the concession system.  It still grants beneficial ownership of the natural resources to the foreign contractor and does little to affirm the State’s ownership over them, and its supervision and control over their exploration, development and utilization.

While agreeing that the Constitution vests the beneficial ownership of Philippine minerals with the Filipino people, entitling them to gains, rewards and advantages generated by these minerals, the majority opinion nevertheless maintains that the Mining Act, as implemented by DENR Administrative Order 99-56[126] (DAO 99-56), is constitutional as, so it claims, it does not “convey beneficial ownership of any mineral resource or product to any foreign FTAA contractor.”  The majority opinion adds that the State’s share, as expounded by DAO 99-56, amounts to “real contributions to the economic growth and general welfare of the country,” at the same time allowing the contractor to recover “a reasonable return on its investments in the project.”

Under DAO 99-56, the “government’s share” in an FTAA is divided into (1) a “basic government share” composed of a number of taxes and fees[127] and (2) an “additional government share[128] computed according to one of three possible methods – (a) a 50-50 sharing in the cumulative present value of cash flows,[129] (b) a profit related additional government share[130] or (c) an additional share based on the cumulative net mining revenue[131] – at the option of the contractor.

Thus, the majority opinion claims that the total government share, equal to the sum of the “basic government share” and the “additional government share,” will achieve “a fifty-fifty sharing – between the government and the contractor – of net benefits from mining.”

This claim is misleading and meaningless for two reasons:

First, as priorly discussed, the taxes and fees which make up the government’s “basic share” cannot be considered a return on the resources mined corresponding to the beneficial ownership of the Filipino people. Again, they do not correspond to a return on investment or property.

Second, and more importantly, the provisions of the Mining Act effectively allow the foreign contractor TO CIRCUMVENT ALL THE PROVISIONS OF DAO 99-56, INCLUDING ITS INTENDED “50-50 SHARING” of the net benefits from mining, AND REDUCE GOVERNMENT’S TOTAL SHARE to as low as TWO PERCENT (2%) OF THE VALUE OF THE MINERALS MINED

The foreign contractor can do this because Section 39 of the Mining Act allows it to convert its FTAA into a Mineral Production-Sharing Agreement (MPSA) by the simple expedient of reducing its equity in the corporation undertaking the FTAA to 40%:

SECTION 39.           Option to Convert into a Mineral Agreement. — The contractor has the option to convert the financial or technical assistance agreement to a mineral agreement at any time during the term of the agreement, if the economic viability of the contract area is found to be inadequate to justify large-scale mining operations, after proper notice to the Secretary as provided for under the implementing rules and regulations: Provided, That the mineral agreement shall only be for the remaining period of the original agreement.

In the case of a foreign contractor, it shall reduce its equity to forty percent (40%) in the corporation, partnership, association, or cooperative. Upon compliance with this requirement by the contractor, the Secretary shall approve the conversion and execute the mineral production-sharing agreement. (Emphasis and underscoring supplied)

And under Section 80 of the Mining Act, in connection with Section 151(a) of the National Internal Revenue Code[132] (Tax Code), the TOTAL GOVERNMENT SHARE in an MPSA is ONLY TWO PERCENT (2%) OF THE VALUE OF THE MINERALS.  Section 80 of the Mining Act provides:

SECTION 80.  Government Share in Mineral Production Sharing Agreement. — The total government share in a mineral production sharing agreement shall be the excise tax on mineral products as provided in Republic Act No. 7729, amending Section 151(a) of the National Internal Revenue Code, as amended. (Emphasis supplied)

While Section 151(a) of the Tax Code reads:

Sec. 151.  Mineral Products. — (a) Rates of Tax. — There shall be levied, assessed and collected on mineral, mineral products and quarry resources, excise tax as follows:

(1)     On coal and coke, a tax of ten pesos (P10.00) per metric ton.

(2)     On non-metallic minerals and quarry resources, a tax of two percent (2%) based on the actual market value of the annual gross output thereof at the time of removal, in the case of those locally extracted or produced; or the value used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax, in the case of importation.

(3)     On all metallic minerals, a tax based on the actual market value of the gross output thereof at the time of removal, in the case of those locally extracted or produced; or the value used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax, in the case of importation, in accordance with the following schedule:

(a)     Copper and other metallic minerals:

(i)         On the first three (3) years upon the effectivity of this Act, one percent (1%);

(ii)        On the fourth and fifth year, one and a half percent (1 1/2%); and

(iii)       On the sixth year and thereafter, two percent (2%)

(b)     Gold and chromite, two percent (2%)

(4)     On indigenous petroleum, a tax of fifteen percent (15%) of the fair international market price thereof, on the first taxable sale, such tax to be paid by the buyer or purchaser within 15 days from the date of actual or constructive delivery to the said buyer or purchaser.  The phrase ‘first taxable sale, barter, exchange or similar transaction’ means the transfer of indigenous petroleum in its original state to a first taxable transferee.  The fair international market price shall be determined in consultation with an appropriate government agency.

For the purpose of this subsection, ‘indigenous petroleum’ shall include locally extracted mineral oil, hydrocarbon gas, bitumen, crude asphalt, mineral gas and all other similar or naturally associated substances with the exception of coal, peat, bituminous shale and/or stratified mineral deposits. (Emphasis supplied)

By taking advantage of the foregoing provisions and selling 60% of its equity to a Filipino corporation (such as any of the members of respondent-in-intervention Philippine Chamber of Mines) a foreign contractor can easily reduce the total government’s share (held in trust for the benefit of the Filipino People) in the minerals mined to a paltry 2% while maintaining a 40% beneficial interest in the same.

What is more, if the Filipino corporation acquiring the foreign contractor’s stake is itself 60% Filipino-owned and 40% foreign-owned (a “60-40” Filipino corporation such as Sagittarius Mines, the putative purchaser of WMC’s 100% equity in WMCP), then the total beneficial interest of foreigners in the mineral output of the mining concern would constitute a majority of 64%[133]while the beneficial ownership of Filipinos would, at most,[134] amount to 36% – 34% for the Filipino stockholders of the 60-40 Filipino corporation and 2% for the Government (in trust for the Filipino People).

The foregoing scheme, provided for in the Mining Act itself, is no different and indeed is VIRTUALLY IDENTICAL to that embodied in SECTION 7.9 OF THE WMCP FTAA WHICH  THE MAJORITY OPINION ITSELF FOUND TO BE “without a doubt GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT, DETRIMENTAL TO THE INTERESTS OF THE FILIPINO PEOPLE, AND VIOLATIVE OF PUBLIC POLICY:

x x x While Section 7.7 gives the government a 60 percent share in the net mining revenues of WMCP from the commencement of commercial production; Section 7.9 deprives the government of part or all of the said 60 percent.  Under the latter provision, should WMCP’s foreign shareholders – who originally owned 100 percent of the equity – sell 60 percent or more of its outstanding capital stock to a Filipino citizen or corporation, the State loses its right to receive its 60 percent share in net mining revenues under Section 7.7.

Section 7.9 provides

The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7 shall be reduced by 1percent of Net Mining Revenues for every 1percent ownership interest in the Contractor (i.e., WMCP) held by a Qualified Entity.

Evidently, what Section 7.7 grants to the State is taken away in the next breath by Section 7.9 without any offsetting compensation to the State. Thus, in reality, the State has no vested right to receive any income from the FTAA for the exploration of its mineral resources.  Worse, it would seem that what is given to the State in Section 7.7 is by mere tolerance of WMCP’s foreign stockholders, who can at any time cut off the government’s entire 60 percent share.  They can do so by simply selling 60 percent of WMCP’s outstanding stock to a Philippine citizen or corporation.  Moreover, the proceeds of such sale will of course accrue to the foreign stockholders of WMCP, not to the State.

The sale of 60 percent of WMCP’s outstanding equity to a corporation that is 60 percent Filipino-owned and 40 percent foreign-owned will still trigger the operation of Section 7.9.  Effectively, the State will lose its right to receive all 60 percent of the net mining revenues of WMCP; and foreign stockholders will own beneficially up to 64 percent of WMCP, consisting of the remaining 40percent foreign equity therein, plus the 24 percent pro-rata share in the buyer-corporation.

x x x

At bottom, Section 7.9 has the effect of depriving the State of its 60 percent share in the net mining revenues of WMCP without any offset or compensation whatsoever.  It is possible that the inclusion of the offending provision was initially prompted by the desire to provide some form of incentive for the principal foreign stockholder in WMCP to eventually reduce its equity position and ultimately divest itself thereof in favor of Filipino citizens and corporations.  However, as finally structured, Section 7.9 has the deleterious effect of depriving government of the entire 60 percent share in WMCP’s net mining revenues, without any form of compensation whatsoever.  Such an outcome is completely unacceptable.

The whole point of developing the nation’s natural resources is to benefit the Filipino people, future generations included.  And the State as sovereign and custodian of the nation’s natural wealth is mandated to protect, conserve, preserve and develop that part of the national patrimony for their benefit.  Hence, the Charter lays great emphasis on “real contributions to the economic growth and general welfare of the country” [Footnote 75 of the Dissent omitted] as essential guiding principles to be kept in mind when negotiating the terms and conditions of FTAAs.

x x x

Section 7.9 of the WMCP FTAA effectively gives away the State’s share of net mining revenues (provided for in Section 7.7) without anything in exchange.  Moreover, this outcome constitutes unjust enrichment on the part of local and foreign stockholders of WMCP.  By their mere divestment of up to 60 percent equity in WMCP in favor of Filipino citizens and/or corporations, the local and foreign stockholders get a windfall.  Their share in the net mining revenues of WMCP is automatically increased, without their having to pay the government anything for it.  In short, the provision in question is without a doubt grossly disadvantageous to the government, detrimental to the interests of the Filipino people, and violative of public policy. (Emphasis supplied; italics and underscoring in the original; footnotes omitted)

The foregoing disquisition is directly applicable to the provisions of the Mining Act.  By selling 60% of its outstanding equity to a 60% Filipino-owned and 40% foreign-owned corporation, the foreign contractor can readily convert its FTAA into an MPSA.  Effectively, the State’s share in the net benefits from mining will be automatically and drastically reduced from the theoretical 50% anticipated under DAO 99-56 to merely 2%.  What is given to the State by Section 81 and DAO 99-56 is all but eliminated by Sections 39 and 80.  At the same time, foreign stockholders will beneficially own up to 64% of the mining concern, consisting of the remaining 40% foreign equity therein plus the 24% pro-rata share in the buyer-corporation.

It is possible that, like Section 7.9 of the WMCP FTAA, Section 39 of the Mining Act was intended to provide some form of incentive for the foreign FTAA contractor to eventually reduce its equity position and ultimately divest itself thereof in favor of Filipino citizens and corporations.  However, the net effect is to allow the Filipino people to be robbed of their just share in Philippine mineral resources.  Such an outcome is completely unacceptable and cannot be sanctioned by this Court.

By this simple conversion, which may be availed of at any time, the local and foreign stockholders will obtain a windfall at the expense of the Government, which is the trustee of the Filipino people.  The share of these stockholders in the net mining revenues from Philippine resources will be automatically increased without their having to pay the government anything in exchange.

On this basis alone, and despite whatever other differences of opinion might exist, the majority must concede that the provisions of the Mining Act are grossly disadvantageous to the government, detrimental to the interests of the Filipino people, and violative of Section 2, Article XII of the Constitution.

En passant, it is significant to note that Section 39 of the Mining Act allows an FTAA holder to covert its agreement to an MPSA “at any time during the term of the agreement.”

As any reasonable person with a modicum of business experience can readily determine, the optimal time for the foreign contractor to convert its FTAA into an MPSA is after the completion of the exploration phase and just before undertaking the development, construction and utilization phase.  This is because under Section 56 (a) of DAO 40-96, the requirement for a minimum investment of Fifty Million U.S. Dollars (US$ 50,000,000.00)[135] is only applicable during the development, construction and utilization phase and NOT during the exploration phase where the foreign contractor need only comply with the stipulated minimum ground expenditures:

SECTION 56.  Terms and Conditions of an FTAA. — The following terms, conditions and warranties shall be incorporated in the FTAA, namely:

a.       A firm commitment, in the form of a sworn statement during the existence of the Agreement, that the Contractor shall comply with minimum ground expenditures during the exploration and pre-feasibility periods as follows:

Year US $/Hectare

1        2

2        2

3        8

4        8

5        18

6        23

and a minimum investment of Fifty Million US Dollars ($50,000,000.00) or its Philippine Peso equivalent in the case of Filipino Contractor for infrastructure and development in the contract area. If a Temporary/Special Exploration Permit has been issued prior to the approval of an FTAA, the exploration expenditures incurred shall form part of the expenditures during the first year of the exploration period of the FTAA.

In the event that the Contractor exceeds the minimum expenditure requirement in any one (1) year, the amount in excess may be carried forward and deducted from the minimum expenditure required in the subsequent year. In case the minimum ground expenditure commitment for a given year is not met for justifiable reasons as determined by the Bureau/concerned Regional Office, the unexpended amount may be spent on the subsequent year(s) of the exploration period. (Emphasis supplied)

By converting its FTAA to an MPSA just before undertaking development, construction and utilization activities, a foreign contractor further maximizes its profits by avoiding its obligation to make a minimum investment of US$ 50,000,000.00.  Assuming an exploration term of 6 years, it will have paid out only a little over US$ 2.4 million[136] in minimum ground expenditures.

Clearly, under the terms and provisions of the Mining Act, even the promised influx of tens of millions of dollars in direct foreign investments is merely hypothetical and ultimately illusory.

Grant of Exploration Permits to Foreign

Corporations is Unconstitutional

The majority is also convinced that Section 3(aq) of the Mining Act, defining foreign corporations as a qualified entity for the purposes of granting exploration permits, is “not unconstitutional.”

The questioned provision reads:

SECTION 3. Definition of Terms. — As used in and for purposes of this Act, the following terms, whether in singular or plural, shall mean:

x x x

(aq)  “Qualified person” means any citizen of the Philippines with capacity to contract, or a corporation, partnership, association, or cooperative organized or authorized for the purpose of engaging in mining, with technical and financial capability to undertake mineral resources development and duly registered in accordance with law at least sixty per centum (60%) of the capital of which is owned by citizens of the Philippines:  Provided, That a legally organized foreign-owned corporation shall be deemed a qualified person for purposes of granting an exploration permit, financial or technical assistance agreement or mineral processing permit.  (Emphasis supplied)

In support of its contention that the above-quoted provision does not offend against the Constitution, the majority opinion states that: (1) “there is no prohibition at all against foreign or local corporations or contractors holding exploration permits;” and (2) an “exploration permit serves a practical and legitimate purpose in that it protects the interests and preserves the rights of the exploration permit grantee x x x during the period of time that it is spending heavily on exploration works, without yet being able to earn revenues x x x.”

The majority opinion also characterizes an exploration permit as “an authorization for the grantee to spend its funds on exploration programs that are pre-approved by the government.” And it comments that “[t]he State risks nothing and loses nothing by granting these permits” to foreign firms.

These contentions fail for two obvious reasons.

First, setting aside for the moment all disagreements pertaining to the construction of Section 2, Article XII of the Constitution, the following, at the very least, may be said to have been conclusively determined by this Court: (1) the only constitutionally sanctioned method by which a foreign entity may participate in the natural resources of the Philippines is by virtue of paragraph 4 of Section 2, Article XII of the Constitution; (2) said provision requires that an agreement be entered into (3) between the President and the foreign corporation (4) for the large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils (5) according to the general terms and conditions provided by law, (6) based on real contributions to the economic growth and general welfare of the country; (7) such agreements will promote the development and use of local scientific and technical resources; and (8) the President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.

However, by the majority opinion’s express admission, the grant of an exploration permit does not even contemplate the entry into an agreement between the State and the applicant foreign corporation since “prior to the issuance of such FTAA or mineral agreement, the exploration permit grantee (or prospective contractor) cannot yet be deemed to have entered into any contract or agreement with the State.”

Consequently, the grant of an exploration permit – which is not an agreement – cannot possibly be construed as being favorably sanctioned by paragraph 4 of Section 2, Article XII of the Constitution which refers to “agreements … involving either financial or technical assistance.”  Not falling within the exception embodied in paragraph 4 of Section 2, Article XII of the Constitution,the grant of such a permit to a foreign corporation is prohibited and the proviso providing for such grant in Section 3 (aq) of the Mining Act is void for being unconstitutional.

Second, given the foregoing discussion on the circumvention of the State’s share in an FTAA, it is clearly evident that to allow the grant of exploration permits to foreign corporations is to allow the whole-sale circumvention of the entire system of FTAAs mandated by the Constitution.

For Chapter IV of the Mining Act on Exploration Permits grants to the permit holder, including foreign corporations, the principal rights conferred on an FTAA contractor during the exploration phase, including (1) the right to enter, occupy and explore the permit area under Section 23,[137] and (2) the exclusive right to an MPSA or other mineral agreements or FTAAs upon the filing of a Declaration of Mining Project Feasibility under Sections 23 and 24;[138] but requires none of the obligations of an FTAA – not even the obligation under Section 56 of DAO 40-96 to pay the minimum ground expenditures during the exploration and feasibility period.[139]

Thus, all that a foreign mining company need do to further maximize its profits and further reduce the Government’s revenue from mining operations is to apply for an exploration permit and content itself with the “smaller” permit area of 400 meridional blocks onshore (which itself is not small considering that it is equivalent to 32,400 hectares or 324,000,000 square meters).[140] It is not obligated to pay any minimum ground expenditures during the exploration period.

Should it discover minerals in commercial quantities, it can circumvent the Fiscal Regime in DAO 99-56 by divesting 60% of its equity in favor of a Philippine corporation and opting to enter into an MPSA.  By doing so it automatically reduces the Government’s TOTAL SHARE to merely 2% of value of the minerals mined by operation of Section 81.

And if the Philippine corporation to which it divested its 60% foreign equity is itself a 60-40 Philippine Corporation, then the beneficial interest of foreigners in the minerals mined would be a minimum of 64%.

In light of the foregoing, Section 3 (aq), in so far as it allows the granting of exploration permits to foreign corporations, is patently unconstitutional, hence, null and void.

II

Invalidity of the WMCP FTAA

Sale of foreign interest in WMCP to

a Filipino corporation did not

render the case moot and academic.

Respondent WMCP, now renamed Tampakan Mineral Resources Corporation, submits that the case has been rendered moot since “[e]xcept for the nominal shares of directors, 100% of TMRC’s share are now owned by Sagittarius Mines, which is a Filipino-owned corporation.  More than 60% of the equity of Sagittarius is owned by Filipinos or Filipino-owned corporations.”[141]This Court initially reserved judgment on this issue.[142]

Petitioner invokes by analogy the rule that where land is invalidly transferred to an alien who subsequently becomes a Filipino citizen or transfers it to one, the infirmity in the original transaction is considered cured and the title of the transferee is rendered valid, citing Halili v. Court of Appeals.[143] The rationale for this rule is that if the ban on aliens from acquiring lands is to preserve the nation’s lands for future generations of Filipinos, that aim or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by Filipino citizens.[144]

Respondent WMCP’s analogy is fallacious.  Whether the legal title to the corporate vehicle holding the FTAA has been transferred from a foreigner to a Filipino is irrelevant.  What is relevant is whether a foreigner has improperly and illegally obtained an FTAA and has therefore benefited from the exploration, development or utilization of Philippine natural resources in a manner contrary to the provisions of the Constitution.

As above-stated the doctrine enunciated in Halili is based on the premise that the purpose of the Constitution in prohibiting alien ownership of agricultural land is to retain the ownership orlegal title of the land in the hands of Filipinos.  This purpose is not identical or even analogous to that in Section 2, Article XII of the Constitution.  As priorly discussed, the primary purpose of the provisions on National Patrimony is to preserve to the Filipino people the beneficial ownership of their natural resources – i.e.  the right to the gains, rewards and advantages generated by their natural resources.  Except under the terms of Section 2, Article XII, foreigners are prohibited from involving themselves in the exploration, development or utilization of these resources, much less from profiting from them.

Divestment by a foreigner of an illegally acquired right to mine Philippine resources does not alter the illegal character of the right being divested or sold.  Indeed, such divestment or sale is obviously a method by which the foreigner may derive pecuniary benefit from his unlawful act since he receives payment for his illegally acquired interest in the country’s natural resources.

To rule otherwise would be to condone, even to invite, foreign entities to obtain Philippine mining interests in violation of the Constitution with the assurance that they can escape liability and at the same time make a tidy sum by later selling these interests to Filipinos.  This is nothing less than allowing foreign speculation in Philippine natural resources.  Worse, there is the very real possibility that these foreign entities may intentionally inflate the value of their illegally–acquired mineral rights to the detriment of their Filipino purchasers as the past Bre-X scandal[145] and recent Shell oil reserve controversy[146] vividly illustrate.

To allow a foreigner to profit from illegally obtained mining rights or FTAAs subverts and circumvents the letter and intent of Article XII of the Constitution.  It facilitates rather than prevents the rape and plunder of the nation’s natural resources by unscrupulous neo-colonial entities.  It thwarts, rather than achieves, the purpose of the fundamental law.

As applied to the facts of this case, respondent WMCP, in essence, claims that now that the operation and management of the WMCP FTAA is in the hands of a Filipino company, no serious question as to the FTAA’s validity need arise.

On the contrary, this very fact – that WMC has sold its 100% interest in WMCP to a Filipino company for US$10,000,000.00 – directly leads to some very serious questions concerning the WMCP FTAA and its validity.  First, if a Filipino corporation is capable of undertaking the terms of the FTAA, why was an agreement with a foreign owned corporation entered into in the first place?  Second, does not the fact that, as alleged by petitioners[147] and admitted by respondent WMCP,[148] Sagittarius, WMCP’s putative new owner, is capitalized at less than half the purchase price[149] of WMC’s shares in WMCP, a strong indication that Sagittarius is merely acting as the dummy of WMC? Third, if indeed WMCP has, to date, spent US$40,000,000.00 in the implementation of the FTAA, as it claims,[150] why did WMC sell 100% of its shares in WMCP for only US$10,000,000.00? Finally, considering that, as emphasized by WMCP,[151] “payment of the purchase price by Sagittarius to WMC will come only after the commencement of commercial production,” hasn’t WMC effectively acquired a beneficial interest in any minerals mined in the FTAA area to the extent of US$10,000,000.00?  If so, is the acquisition of such a beneficial interest by a foreign corporation permitted under our Constitution?

Succinctly put, the question remains: What is the validity of the FTAA by which WMC, a fully foreign owned corporation, has acquired a more than half billion peso[152] interest in Philippine mineral resources located in a contract area of 99,387 (alleged to have later been reduced to 30,000)[153] hectares of land spread across the four provinces of South Cotabato, Sultan Kudarat, Davao del Sur and North Cotabato?

Clearly then, the issues of this case have not been rendered moot by the sale of WMC’s 100% interest in WMCP to a Filipino corporation, whether the latter be Sagittarius or Lepanto.  If the FTAA is held to be valid under the Constitution, then the sale is valid and, more importantly, WMC’s US$10,000,000.00 interest in Philippine mineral deposit, arising as it did from the sale and its prior 100% ownership of WMCP, is likewise valid.  However, if the FTAA is held to be invalid, then neither WMC’s interest nor the sale which gave rise to said interest is valid for no foreigner may profit from the natural resources of the Republic of the Philippines in a manner contrary to the terms of the Philippine Constitution. If held unconstitutional, the WMCP FTAA is void ab initio for being contrary to the fundamental law and no rights may arise from it, either in favor of WMC or its Filipino transferee.

Evidently, the transfer of the shares in WMCP from WMC Resources International Pty. Ltd. (WMC), a foreign-owned corporation, to a Filipino-owned one, whether Sagittarius or Lepanto, now presently engaged in a dispute over said shares,[154] did not “cure” the FTAA nor moot the petition at bar.  On the contrary, it is the Decision in this case that rendered those pending cases moot for the invalidation of the FTAA leaves Sagittarius and Lepanto with nothing to dispute.

Terms of the WMCP FTAA are

contrary to the Constitution and

render said FTAA null and void.

The WMCP FTAA is clearly contrary to the agreements provided for in Section 2, Article XII of the Constitution.  In the Decision under reconsideration, this Court observed:

Section 1.3 of the WMCP FTAA grants WMCP “the exclusive right to explore, exploit, utilise[,] process and dispose of all Minerals products and by-products thereof that may be produced from the Contract Area.”  The FTAA also imbues WMCP with the following rights:

(b) to extract and carry away any Mineral samples from the Contract area for the purpose of conducting tests and studies in respect thereof;

(c) to determine the mining and treatment processes to be utilized during the Development/Operating Period and the project facilities to be constructed during the Development and Construction Period;

(d) have the right of possession of the Contract Area, with full right of ingress and egress and the right to occupy the same, subject to the provisions of Presidential Decree No. 512 (if applicable) and not be prevented from entry into private lands by surface owners and/or occupants thereof when prospecting, exploring and exploiting for minerals therein;

x x x

(f) to construct roadways, mining, drainage, power generation and transmission facilities and all other types of works on the Contract Area;

(g) to erect, install or place any type of improvements, supplies, machinery and other equipment relating to the Mining Operations and to use, sell or otherwise dispose of, modify, remove or diminish any and all parts thereof;

(h) enjoy, subject to pertinent laws, rules and regulations and the rights of third Parties, easement rights and the use of timber, sand, clay, stone, water and other natural resources in the Contract Area without cost for the purposes of the Mining Operations;

x x x

(l) have the right to mortgage, charge or encumber all or part of its interest and obligations under this Agreement, the plant, equipment and infrastructure and the Minerals produced from the Mining Operations;

x x x.

All materials, equipment, plant and other installations erected or placed on the Contract Area remain the property of WMCP, which has the right to deal with and remove such items within twelve months from the termination of the FTAA.

Pursuant to Section 1.2 of the FTAA, WMCP shall provide “[all] financing, technology, management and personnel necessary for the Mining Operations.” The mining company binds itself to “perform all Mining Operations . . . providing all necessary services, technology and financing in connection therewith,” and to “furnish all materials, labour, equipment and other installations that may be required for carrying on all Mining Operations.” WMCP may make expansions, improvements and replacements of the mining facilities and may add such new facilities as it considers necessary for the mining operations.

These contractual stipulations, taken together, grant WMCP beneficial ownership over natural resources that properly belong to the State and are intended for the benefit of its citizens.  These stipulations are abhorrent to the 1987 Constitution.  They are precisely the vices that the fundamental law seeks to avoid, the evils that it aims to suppress. Consequently, the contract from which they spring must be struck down.[155] (Citations omitted)

Indeed, save for the fact that the contract covers a larger area, the subject FTAA is actually a mineral production sharing agreement.  Respondent WMCP admitted as much in its Memorandum.[156] The first paragraph of Section 2, Article XII of the Constitution, however, allows this type of agreement only with Filipino citizens or corporations.

That the subject FTAA is void for having an unlawful cause bears reaffirmation.  In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other.[157] On the part of WMCP, a foreign-owned corporation, the cause was to extend not only technical or financial assistance but management assistance as well.  The management prerogatives contemplated by the FTAA are not merely incidental to the two other forms of assistance, but virtually grant WMCP full control over its mining operations.  Thus, in Section 8.3[158] of the FTAA, in case of a dispute between the DENR and WMCP, it is WMCP’s decision which will prevail.

The questioned FTAA also grants beneficial ownership over Philippine natural resources to WMCP, which is prohibited from entering into such contracts not only by the fourth paragraph of Section 2, Article XII of the Constitution, but also by the first paragraph, the FTAA practically being a production-sharing agreement reserved to Filipinos.

Contracts whose cause is contrary to law or public policy are inexistent and void from the beginning.[159] They produce no effect whatsoever.[160] They cannot be ratified,[161] and so cannot the WMCP FTAA.

The terms of the WMCP FTAA effectively give

away the Beneficial Ownership of Philippine

minerals

As previously observed, the majority opinion finds Section 7.9. of the WMCP FTAA to be “grossly disadvantageous to the government, detrimental to the interests of the Filipino people, and violative of public policy” since it  “effectively gives away the State’s share of net mining revenues (provided for in Section 7.7) without anything in exchange.”

It likewise finds Section 7.8(e) of the WMCP FTAA to be invalid.  Said provision states:

7.8     The Government Share shall be deemed to include all of the following sums:

x x x

(e)        an amount equivalent to whatever benefits that may be extended in the future by the Government to the Contractor or to financial or technical assistance agreement contractors in general. (Emphasis supplied)

And in its own estimation:

Section 7.8(e) is out of place in the FTAA.  This provision does not make any sense why, for instance, money spent by the government for the benefit of the contractor in building roads leading to the mine site should still be deductible from the State’s share in net mining revenues.  Allowing this deduction results in benefiting the contractor twice over.  To do so would constitute unjust enrichment on the part of the contractorat the expense of the government, since the latter is effectively being made to pay twice for the same item.  For being grossly disadvantageous and prejudicial to the government and contrary to public policy, Section 7.8(e) is undoubtedly invalid and must be declared to be without effect. xxx (Emphasis supplied; citations omitted; underscore in the original)

The foregoing estimation notwithstanding, the majority opinion declines to invalidate the WMCP FTAA on the theory that Section 7.9 and 7.8 are separable from the rest of the agreement, which may supposedly be given effect without the offending provisions.

As previously discussed, the same deleterious results are easily achieved by the foreign contractor’s conversion of its FTAA into an MPSA under the provisions of the Mining Act. Hence, merely striking out Sections 7.9 and 7.8(e) of the WMCP FTAA will not suffice; the provisions pertaining to FTAAs in the Mining Act must be stricken out for being unconstitutional as well.

Moreover, Section 7.8 (e) and 7.9 are not the only provisions of the WMCP FTAA which convey beneficial ownership of mineral resources to a foreign corporation.

Under Section 10.2 (l) of the WMCP FTAA, the foreign FTAA contractor shall have the right to mortgage and encumber, not only its rights and interests in the FTAA, but the very minerals themselves:

10.2  Rights of Contractor

The Government agrees that the Contractor shall:-

x x x

(l)      have the right to mortgage, charge or encumber all or part of its interest and obligations under this Agreement, the plant, equipment and infrastructure and the Minerals produced from the Mining Operations; (Emphasis supplied)

Although respondents did not proffer their own explanation, the majority opinion theorizes that the foregoing provision is necessitated by the conditions that may be imposed by creditor-banks on the FTAA contractor:

xxx I believe that this provision may have to do with the conditions imposed by the creditor-banks of the then foreign contractor WMCP to secure the lendings made to the latter.  Ordinarily, banks lend not only on the security of mortgages on fixed assets, but also on encumbrances of goods produced that can easily be sold and converted into cash that can be applied to the repayment of loans.  Banks even lend on the security ofaccounts receivable that are collectible within 90 days.  (Citations omitted; underscore in the original)

It, however, overlooks the provision of Art. 2085 of the Civil Code which enumerates the essential requisites of a contract of mortgage:

Art. 2085.  The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. (Emphasis and underscoring supplied)

From the foregoing provision of law, it is abundantly clear that only the absolute owner of the minerals has the right to mortgage the sameand under Section 2, Article XII of theConstitution the absolute owner of the minerals is none other than the State.  While the foreign FTAA contractor may have an interest in the proceeds of the minerals, it does not acquire ownership over the minerals themselves.

Put differently, the act of mortgaging the minerals is an act of ownership, which, under the Constitution, is reserved solely to the State.  In purporting to grant such power to a foreign FTAA contractor, Section 10.2 (l) of the WMCP FTAA clearly runs afoul of the Constitution.

Moreover, it bears noting that to encumber natural resources of the State to secure a foreign FTAA contractor’s obligations is anomalous since Section 1.2 of the WMCP FTAA provides that “[a]ll financing, technology, management and personnel necessary for the Mining Operations shall be provided by the Contractor.”

Indeed, even the provisions of the Mining Act, irredeemably flawed though they may be, require that the FTAA contractor have the financial capability to undertake the large-scale exploration, development and utilization of mineral resources in the Philippines;[162] and, specifically, that the contractor warrant that it has or has access to all the financing required to promptly and effectively carry out the objectives of the FTAA.[163]

Under Section 10.2 (e) of the WMCP FTAA, the foreign FTAA Contractor has the power to require the Government to acquire surface rights in its behalf at such price and terms acceptable to it:

10.2 Rights of Contractor

The Government agrees that the Contractor shall:-

x x x

(e)     have the right to require the Government at the Contractor’s own cost, to purchase or acquire surface areas for and on behalf of the Contractor at such price and terms as may be acceptable to the Contractor.  At the termination of this Agreement such areas shall be sold by public auction or tender and the Contractor shall be entitled to reimbursement of the costs of acquisition and maintenance, adjusted for inflation, from the proceeds of sale; (Emphasis supplied)

Petitioners, in their Memorandum, point out that pursuant to the foregoing, the foreign FTAA contractor may compel the Government to exercise its power of eminent domain to acquire the title to the land under which the minerals are located for and in its behalf.

The majority opinion, however, readily accepts the explanation proffered by respondent WMCP, thus:

Section 10.2 (e) sets forth the mechanism whereby the foreign-owned contractor, disqualified to own land, identifies to the government the specific surface areas within the FTAA contract area to be acquired for the mine infrastructure.  The government then acquires ownership of the surface land areas on behalf of the contractor, in order to enable the latter to proceed to fully implement the FTAA.

The contractor, of course, shoulders the purchase price of the land. Hence, the provision allows it, after the termination of the FTAA to be reimbursed from proceeds of the sale of the surface areas, which the government will dispose of through public bidding.

And it concludes that “the provision does not call for the exercise of the power of eminent domain” and the determination of just compensation.

The foregoing arguments are specious.

First, the provision in question clearly contemplates a situation where the surface area is not already owned by the Government – i.e. when the land over which the minerals are located is owned by some private person.

Second, the logical solution in that situation is not, as asserted by respondent WMCP, to have the Government purchase or acquire the land, but for the foreign FTAA contractor to negotiate a lease over the property with the private owner.

Third, it is plain that the foreign FTAA contractor would only avail of Section 10.2 (e) if, for some reason or another, it is unable to lease the land in question at the price it is willing to pay.  In that situation, it would have the power under Section 10.2 (e) to compel the State, as the only entity which can legally compel the landowner to involuntarily part with his property, to acquire the land at a price dictated by the foreign FTAA contractor.

Clearly, the State’s power of eminent domain is very much related to the practical workings of Section 10.2 (e) of the WMCP FTAA.  It is the very instrument by which the contractor assures itself that it can obtain the “surface right” to the property at a price of its own choosing.  Moreover, under Section 60 of DAO 40-96, the contractor may, after final relinquishment, hold up to 5,000 hectares of land in this manner.

More. While the foreign FTAA contractor advances the purchase price for the property, in reality it acquires the “surface right” for free since under the same provision of the WMCP FTAA it is entitled to reimbursement of the costs of acquisition and maintenance, adjusted for inflation.  And as if the foregoing were not enough, when read together with Section 3.3,[164] the foreign FTAA contractor would have the right to hold the “surface area” for a maximum of 50 years, at its option.

In sum, by virtue of Sections 10.2 (e) and 3.3. of the WMCP FTAA, the foreign FTAA contractor is given the power to hold inalienable mineral land of up to 5,000 hectareswith theassistance of the State’s power of eminent domainfree of chargefor a period of up to 50 years in contravention of Section 3Article XII of the Constitution:

Section 3.     Lands of the public domain are classified into agricultural, forest or timber, mineral lands, and national parks. Agricultural lands of the public domain may be further classified by law according to the uses which they may be devoted.  Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area. Citizens of the Philippines may lease not more than five hundred hectares, or acquire not more than twelve hectares thereof by purchase, homestead, or grant.

Taking into account the requirements of conservation, ecology, and development, and subject to the requirements of agrarian reform, the Congress shall determine, by law, the size of lands of the public domain which may be acquired, developed, held, or leased and the conditions therefor. (Emphasis supplied)

Taken together, the foregoing provisions of the WMCP FTAA amount to a conveyance to a foreign corporation of the beneficial ownership of both the minerals and the surface rights to the same in contravention of the clear provisions of the Constitution.

The majority opinion posits that “[t]he acquisition by the State of land for the contractor is just to enable the contractor to establish its mine site, build its facilities, establish a tailings pond, set up its machinery and equipment, and dig mine shafts and tunnels, etc.” It thus concludes that “5,000 hectares is way too much for the needs of a mining operator.”

Evidently, the majority opinion does not take into account open pit mining. Open pit or opencut mining, as differentiated from methods that require tunneling into the earth, is a method of extracting minerals by their removal from an open pit or borrow;[165] it is a mine working in which excavation is performed from the surface.[166] It entails a surface mining operation in which blocks of earth are dug from the surface to extract the ore contained in them.  During the mining process, the surface of the land is excavated forming a deeper and deeper pit until the end of mining operations.[167] It is used extensively in mining metal ores, copper, gold, iron, aluminum[168] – the very minerals which the Philippines is believed to possess in vast quantities; and is considered the most cost-effective mining method.[169]

Furthermore, considering that FTAAs deal with large scale exploration, development and utilization of mineral resources and that the original contract area of the WMCP FTAA was 99,387 hectares, an open pit mining operation covering a total of 5,000 hectares is not outside the realm of possibility.

In any event, regardless of what the majority opinion considers “way too much” (or too little), it is undisputed that under Section 60 of DAO 40-96, which is among the enactments under review, the contractor may, after final relinquishment, hold up to 5,000 hectares of land.  And, under Section 3.3. of the WMCP FTAA, it may do so for a term of 25 years automatically renewable for another 25 years, at the option of the contractor.

The majority opinion also argues that, although entitled to reimbursement of its acquisition cost at the end of the contract term, the FTAA contractor does not acquire its surface rights for free since “the contractor will have been cash-out for the entire duration of the term of the contract – 25 to 50 years, depending,” thereby foregoing any interest income he might have earned.  This is the “opportunity cost” of the contractor’s decision to use its money to acquire the surface rights instead of leaving it in the bank.

The majority opinion does not consider the fact that “opportunity cost” is more theoretical rather than actual and, for that reason, is not an allowable deduction from gross income in an income statement.  In layman’s terms it is equivalent to “the value of the chickens that might have been hatched if only the cook had not scrambled the eggs.”  Neither does it consider the fact that the contractor’s foregone interest income does not find its way to the pockets of either the previous land owner (in this case, the Bugal B’Laans) or the State.

But even if the contractor does incur some opportunity cost in holding the surface rights for 35 to 50 years.  The fact remains that, under the terms of the WMCP FTAA, the contractor is given the power to hold inalienable mineral land of up to 5,000 hectares, with the assistance of the State’s power of eminent domain for a period of up to 50 years in contravention of Section 3, Article XII of the Constitution.

Clearly, Section 3 and 10.2 (e) of the WMCP FTAA in conjunction with Section 60 of DAO 40-96, amount to a conveyance to a foreign corporation of the beneficial ownership of both the minerals and the surface rights over the same, in contravention of the clear provisions of the Constitution.

The terms of the WMCP FTAA abdicate all

control over the mining operation in favor

of the foreign FTAA contractor

The majority opinion’s defense of the constitutionality of Section 8.1, 8.2, 8.3 of the WMCP FTAA is similarly unpersuasive.  These Sections provide:

8.1 The Secretary shall be deemed to have approved any Work Programme or Budget or variation thereof submitted by the Contractor unless within sixty (60) days after submissionby the Contractor the Secretary gives notice declining such approval or proposing a revision of certain features and specifying its reasons therefore (“the Rejection Notice”).

8.2 If the Secretary gives a Rejection Notice the Parties shall promptly meet and endeavour to agree on amendments to the Work Programme or budget.  If the Secretary and the Contractor fail to agree on the proposed revision within 30 days from delivery of the Rejection Notice then the Work Programme or Budget or variation thereof proposed by the Contractor shall be deemed approved so as not to unnecessarily delay the performance of this Agreement.

Even measured against the majority opinion’s standards of control – i.e. either (1) the power to set aside, reverse, or modify plans and actions of the contractor; or (2) regulatory control – the foregoing provisions cannot pass muster.  This is because, by virtue of the foregoing provisions, the foreign FTAA contractor has unfettered discretion to countermand the orders of its putative regulator, the DENR.

Contrary to the majority’s assertions, the foregoing provisions do not provide merely temporary or stop-gap solutionsThe determination of the FTAA contractor permanently reverses the “Rejection Notice” of the DENR since, by the majority opinion’s own admission, there is no available remedy for the DENR under the agreement except to seek the cancellation of the same.

Indeed, the justification for the foregoing provisions is revealing:

xxx  First, avoidance of long delays in these situations will undoubtedly redound to the benefit of the State as well as to the contractor.  Second, who is to say that the work program or budget proposed by the contractor and deemed approved under Clause 8.3 would not be the better or more reasonable or more effective alternative?  The contractor, being the “insider,” as it were, may be said to be in a better position than the State – an outsider looking in – to determine what work program or budget would be appropriate, more effective, or more suitable under the circumstances. (Emphasis and underscoring supplied)

Both reasons tacitly rely on the unstated assumption that the interest of the foreign FTAA contractor and that of the Government are identical.  They are not.

Private businesses, including large foreign-owned corporations brimming with capital and technical expertise, are primarily concerned with maximizing the pecuniary returns to their owners or shareholders.  To this extent, they can be relied upon to pursue the most efficient courses of action which maximize their profits at the lowest possible cost.

The Government, on the other hand, is mandated to concern itself with more than just narrow self-interest.  With respect to the nation’s natural wealth, as the majority opinion points out, the Government is mandated to preserve, protect and even maximize the beneficial interest of the Filipino people in their natural resources. Moreover, it is directed to ensure that the large-scale exploration, development and utilization of these resources results in real contributions to the economic growth and general welfare of the nation. To achieve these broader goals, the Constitution mandates that the State exercise full control and supervision over the exploration, development and utilization of the country’s natural resources.

However, taking the majority opinion’s reasoning to its logical conclusion, the business “insider’s opinion” would always be superior to the Government’s administrative or regulatory determination with respect to mining operations.  Consequently, it is the foreign contractor’s opinion that should always prevail.  Ultimately, this means that, at least for the majority, foreign private business interests outweigh those of the State – at least with respect to the conduct of mining operations.

Indeed, in what other industry can the person regulated permanently overrule the administrative determinations of the regulatory agency?

To any reasonable mind, the absence of an effective means to enforce even administrative determinations over an FTAA contractor, except to terminate the contract itself, falls far too short of the concept of “full control and supervision” as to cause the offending FTAA to fall outside the ambit of Section 2, Article XII of the Constitution.

Verily, viewed in its entirety, the WMCP FTAA cannot withstand a rigid constitutional scrutiny since, by its provisions, it conveys both the beneficial ownership of Philippine minerals and control over their exploration, development and utilization to a foreign corporation.  Being contrary to both the letter and intent of Section 2, Article XII of the Constitution, the WMCP FTAA must be declared void and of no effect whatsoever.

A Final Note

For over 350 years, the natural resources of this nation have been under the control and domination of foreign powers – whether political or corporate.  Philippine mineral wealth, viciously wrenched from the bosom of the motherland, has enriched foreign shores while the Filipino people, to whom such wealth justly belongs, have remained impoverished and unrecompensed.

Time and time again the Filipino people have sought an end to this intolerable situation.  From 1935 they have struggled to assert their legal control and ownership over their patrimony only to have their efforts repeatedly subverted – first, by the parity amendment to the 1935 Constitution and subsequently by the service contract provision in the 1973 Constitution.

It is not surprising that an industry, overly dependent on foreign support and now in decline, should implore this Court to reverse itself if only to perpetuate its otherwise economically unsustainable conduct.  It is even understandable, however regrettable, that a government, strapped for cash and in the midst of a self-proclaimed fiscal crisis, would be inclined to turn a blind eye to the consequences of unconstitutional legislation in the hope, however false or empty, of obtaining fabulous amounts of hard currency.

But these considerations should not outweigh the Constitution.

As always, the one overriding consideration of this Court should be the will of the sovereign Filipino people as embodied in their Constitution.  The Constitution which gives life to and empowers this Court.  The same Constitution to which the members of this Court have sworn their unshakable loyalty and their unwavering fidelity.

Now, the unmistakable letter and intent of the 1987 Constitution notwithstanding, the majority of this Court has chosen to reverse its earlier Decision which, to me, would once again open the doors to foreign control and ownership of Philippine natural resources.  The task of reclaiming Filipino control over Philippine natural resources now belongs to another generation.

ACCORDINGLY, I vote to deny respondents’ Motions for Reconsideration.

 


[1] 421 SCRA 148 (2004).

[2] Section 3 (aq); Section 23; Sections 33-41; Section 56; Section 81, pars. 2-3; and Section 90.

[3] Rep. Act No. 7942 (1995).

[4] In its Motion for Intervention, intervenor PCM alleged that the Court’s January 27, 2004 Decision in this case would adversely affect the ability of domestic mining companies to contract with their foreign counterparts with regard to mining operations beyond the resources of the local companies.  (Rollo, at 2096.)

[5] Transcript of Stenographic Notes, June 29, 2004 (TSN) at 129.

[6] Rules of Court, Rule 18, sec. 7.

[7] La Buga-B’Laan Tribal Association, Inc. v. Ramos, 421 SCRA 148 (2004).

[8] Id. at 173-174.

[9] Id. at 234.

[10] Memorandum (In support of WMCP’s Motion and Supplemental Motion for Reconsideration) at 42-43.

[11] Final Memorandum for the Petitioners at 9.

[12] Angara v. Electoral Commission, 63 Phil. 139, 156-158 (1936).

[13] Bengson v. Senate Blue Ribbon Committee, 203 SCRA 767, 775-776 (1991).

[14] CONST., art. VIII, sec. 1.

[15] Tañada v. Cuenco, 103 Phil. 1051, 1067 (1957).

[16] Valmonte v. Belmonte, Jr., 170 SCRA 256, 268 (1989).

[17] Ibid.

[18] Francisco, Jr. v. House of Representatives, 415 SCRA 44, 143-151 (2003).

[19] Ibid.

[20] Vide: La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 207-208.

[21] Memorandum for WMCP at 37.

[22] Id. at 38.

[23] Id. at 39.

[24] Ibid.

[25] Memorandum for Public Respondents at 34.

[26] Id. at 37.

[27] Id. at 21.

[28] Id. at 22.

[29] Rollo at 1373-1374.

[30] Memorandum for Public Respondents at 24.

[31] Ibid.

[32] Id. at 25.

[33] Id. at 23.

[34] Memorandum for Intervenor at 7.

[35] Statement for Intervenor at 1.

[36] Memorandum for Intervenor at 9.

[37] Vide: Black’s Law Dictionary 156 (6th ed., 1991).

[38] Article 1440 of the Civil Code provides:

Art. 1440.  A person who establishes a trust is called a trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary.

Justice Jose C. Vitug (ret.) describes a trust relationship as follows:

trust is a juridical relationship that exists between one person having the equitable title or beneficial enjoyment of property, real or personal, and another having the legal title thereto.  The person who establishes the trust is the trustor (or grantor); one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee (fiduciary), and the person for whose benefit the trust has been created is referred to as the beneficiary (cestui que trust). The Code has adopted the principles of the general law of trusts, insofar as they are not in conflict with its provisions, the Code of Commerce, the Rules of Court and special laws. [IIIJ.C. VITUG CIVIL LAW 175 (2003); citations omitted]

[39] VideBlack’s Law Dictionary 156 (6th ed., 1991).

[40] CONST. art. II, sec. 1.

[41] Memorandum for Petitioners at 11.

[42] Memorandum for WMCP at 59.

[43] Oposa v. Factoran, Jr., 224 SCRA 792, 803 (1993).

[44] Vide: Miners Association of the Philippines, Inc. v. Factoran, Jr., 240 SCRA 100, 106 (1995).

[45] Vide: Rep. Act No. 7942 (1995), sec. 26 (c).

[46] Memorandum for Public Respondents at 49.

[47] For instance an article written by Patricia Thompson describes the 1996 Marcopper environmental disaster:

Between 2.4 and 4 million tons of tailings solids escaped from an open pit impoundment at Marcopper’s copper mine on the island of Marinduque in the Philippines on March 24, 1996, when a concrete drainage plug gave way. The sediment-laden water flowed into the Boac River system at rates of 5 to 10 cubic meters per second.  Although “independent studies by the United Nations and the Philippine Department of Science and Technology have concluded that the escaped material is not toxic,” the increased sediment load in the Boac River led to substantial salt and freshwater kills.  An impact assessment estimated that ten years would elapse before freshwater fish would be viable in the river again and predicted a seventy percent reduction in the “salt water fish catch from the mouth of the Boac River,” however, there are some indications that this initial estimate may be too high.  Although the Boac River itself is not a drinking water source, the release threatened potable water supplies along the banks of the river and necessitated airdrops of food and medical supplies.  [P. Thompson, II. Mining Criminal Sanctions Sought in Philippine Mine Tailings Spill, 1996 COLO. J. INT’L ENVT’L. L. & POL’Y 54 (1996).]

[48] VideOposa v. Factoran, Jr., supra.

[49] II J. Aruego, The Framing of the Philippine Constitution 605-606 (1949); videLa Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 192, note 111.

[50] Vide: Pres. Decree No. 87 (Amending Presidential Decree No. 8 issued on October 2, 1972, and Promulgating an Amended Act to Promote the Discovery and Production of Indigenous Petroleum and Appropriate Funds therefor), Pres. Decree No. 151 (Allowing Citizens of the Philippines or Corporations or Associations at least Sixty Per Centum of the Capital of which is Owned by such Citizens to Enter into Service Contracts with Foreign Persons, Corporations for the Exploration, Development, Exploitation or Utilization of Lands of the Public Domain, amending for the purpose certain provisions of Commonwealth Act No. 141), Pres. Decree No. 463(Providing for A Modernized System of Administration and Disposition of Mineral Lands and to Promote and Encourage the Development and Exploitation thereof), and Pres. Decree No. 1442 (An Act to Promote the Exploration and Development of Geothermal Resources).

[51] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 199-205 & 233, note 252.

[52] Id. at 234.

[53] Caltex (Philippines), Inc. v. Court of Appeals, 212 SCRA 448, 463 (1992).

[54] Capati v. Ocampo, 113 SCRA 794, 796 (1982).

[55] CONST., art. XII, sec. 2, first par.

[56] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 208 & 218-222.

[57] TSN at 37-40.

[58] http://dictionary.reference.com/search?q=either

[59] Ibid.

[60] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 252-253.

[61] Laurel v. Civil Service Commission, 203 SCRA 195, 209 (1991).

[62] III Record of the Constitutional Commission 316-317.

[63] Id. at 358-359.

[64] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 224.

[65] I DRAFT PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT, ARTICLE XV at 12 -13.

[66] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 217-218.

[67] Id. at 208 & 218-222.

[68] Vide: Section 1 (“No person shall be deprived of life, liberty or property without due process of law, nor shall any person be denied of the equal protection of the laws.”); Section 4 (“No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people peaceably to assemble and petition the government for redress of grievances.”); Section 5 (“No law shall be made respecting an establishment of religion, or prohibiting the exercise thereof.  The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed.  No religious test shall be required for the exercise of civil or political rights.”)

[69] I DRAFT PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT, ARTICLE XV at 11-12.

[70] P. A. Agabin, Service Contracts: Old Wines in New Bottles?, II DRAFT PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT 16, cited in La Bugal-B’Laan Tribal Association, Inc. v. Ramossupra at 229.

[71] A case omitted is to be held as intentionally omitted.  [Black’s Law Dictionary 219 (6th ed., 1991)]

[72] 371 SCRA 196 (2001).

[73] Id. at 205.

[74] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 220.

[75] The expression of one thing is the exclusion of another.  [Black’s Law Dictionary 581 (6th ed., 1991)]

[76] VideCanet v. Decena, G.R. No. 155344, January 20, 2004; Commissioner of Internal Revenue v. Michel J. Lhuiller Pawnshop, Inc., 406 SCRA 178, 186 (2003); National Power Corporation v. City of Cabanatuan, 401 SCRA 259, 280 (2003); Malinias v. Commission on Elections, 390 SCRA 480, 491 (2002); Integrated Bar of the Philippines v. Zamora, 338 SCRA 81, 109 (2000); People v. Mamac, 332 SCRA 547, 556 (2000); Mathay, Jr. v. Court of Appeals, 320 SCRA 703, 711 (1999); Miranda v. Abaya, 311 SCRA 617, 624 (1999); City Government of San Pablo, Laguna v. Reyes, 305 SCRA 353, 361 (1999); Centeno v. Villalon-Pornillos, 236 SCRA 197, 203 (1994);  Phil. American Life Insurance Company v. Ansaldo, 234 SCRA 509, 515 (1994); Commissioner of Customs v. Court of Tax Appeals, 224 SCRA 665, 669-670 (1993);  Ledesma v. Court of Appeals, 211 SCRA 753, 760 (1992); Montoya v. Escayo, 171 SCRA 442, 448 (1989); Singapore Airlines Local Employees Association v. NLRC, 130 SCRA 472, 479 (1984); Vera v. Fernandez, 89 SCRA 199, 203 (1979);  Central Barrio v. City Treasurer of Davao, 23 SCRA 6, 9 (1968); Catuiza v. People, 13 SCRA 538, 542 (1965); Ursal v. Court of Tax Appeals, 101 Phil. 209, 212 (1957); Vega v. Mun. Board of the City of Iloilo, 94 Phil. 949, 953 (1954); Sotto v. Commission on Elections, 76 Phil. 516, 530 (1946).

[77] That which is expressed makes that which is implied to cease.  [Black’s Law Dictionary 581 (6th ed., 1991)]

[78] VideCanet v. Decena, G.R. No. 155344, January 20, 2004; Malinias v. Commission on Election 390 SCRA 480, 491 (2002); National Electrification Administration v. Commission on Audit, 377 SCRA 223, 232 (2002); Espiritu v. Cipriano, 55 SCRA 533, 538 (1974).

[79] Comm. Villegas’ response that there was no requirement in the 1973 Constitution for a law to govern service contracts and that, in fact, there were then no such laws is inaccurate.  The 1973 Charter required similar legislative approval, although it did not specify the form it should take:  “The Batasang Pambansa, in the national interest, may allow such citizens … to enter into service contracts …” As previously noted in this Court’s Decision of January 27, 2004, however, laws authorizing service contracts were actually enacted by presidential decree [i.e. Presidential Decree No. 87 (Amending Presidential Decree No. 8 issued on October 2, 1972, and Promulgating an Amended Act to Promote the Discovery and Production of Indigenous Petroleum and Appropriate Funds therefore), Pres. Decree No. 151 (Allowing Citizens of the Philippines or Corporations or Associations at least Sixty Per Centum of the Capital of which is Owned by such Citizens to Enter into Service Contracts with Foreign Persons, Corporations for the Exploration, Development, Exploitation or Utilization of Lands of the Public Domain, amending for the purpose certain provisions of Commonwealth Act No. 141), Pres. Decree No. 463 (Providing for a Modernized System of Administration and Disposition of Mineral Lands and to Promote and Encourage the Development and Exploitation thereof), and Pres. Decree No. 1442 (An Act to Promote the Exploration and Development of Geothermal Resources)]

[80] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 233-234.

[81] Id. at 224.

[82] III Record of the Constitutional Commission 260.

[83] 224 SCRA 792 (1993).

[84] Id. at 811-813.

[85] III Record of the Constitutional Commission 319.

[86] Rollo at 2779.

[87] TSN at 181-186.

[88] Memorandum for Public Respondents, Annex 1.

[89] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 227-234.

[90] Statement for Intervenor, p. 2.

[91] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 206; vide: Miners Association of the Philippines v. Factoran, 240 SCRA 100, 104 (1995).

[92] P. A. Agabin, Service Contracts: Old Wines in New Bottles?, II DRAFT PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT 3-4.

[93] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 227-228 citing Agabin, supra, at 15-16.

[94] Ibid.

[95] Rep. Act No. 7942 (1995), secs. 35 (g), sec. 3 (af).

[96] Id., sec. 3 (q).

[97] Id., sec. 3 (j).

[98] Id., sec. 3 (az).

[99] Id., sec. 33.

[100] Id., sec. 72.

[101] Id., sec. 73.

[102] Id., sec. 74.

[103] Id., sec. 75.

[104] Id., sec. 76.

[105] Id., sec. 35 (h).

[106] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 195.

[107] Vide: Pres. Decree No. 87, sec. 8 (c), (e) and (f).

[108] The DENR Secretary is also empowered to charge fines for late or non-submission of reports under Section 111 of the Mining Act, but the majority opinion either overlooked this provision or considered it too insubstantial to be able to compel enforcement of the law and its implementing rules.

[109] Section 108 provides a criminal penalty for violation of the terms and conditions of an environmental compliance certificate, but this remedy is judicial and not administrative.  In any event, what is the likelihood of a Philippine court acquiring criminal jurisdiction over the person of the foreign corporate officers of the foreign FTAA contractor who may be responsible for such violations?

[110] CONST., art. XII, sec. 20.

[111] Rep. Act. No. 7653 (1993), sec. 29.

[112] Id. sec. 30

[113] Id. sec. 37.

[114] CONST. art. XIII, sec. 3.

[115] Pres. Decree No. 442 as amended.

[116] Id. art. 128 (b).

[117] Id. art. 263 (g).

[118] Rep. Act No. 8424 (1997), sec. 115.

[119] Id. sec. 206.

[120] Id. sec. 207.

[121] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 196.

[122] Vide: Pres. Decree No. 87, sec. 8 (k) and sec. 9 (e).

[123] National Power Corporation v. Province of Albay, 186 SCRA 198, 207 (1990).

[124] Progressive Development Corporation v. Quezon City, 172 SCRA 629, 635 (1989).

[125] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 236.

[126] Guidelines Establishing the Fiscal Regime of financial or Technical Assistance Agreements.

[127] Section 3 (g) (1) of DAO 99-56 provides:

Section 3. Fiscal Regime of a Financial or Technical Assistance Agreement

x x x

g.  Government Share.

1.  Basic Government Share.  The following taxes, fees and other such charges shall constitute the Basic Government Share:

a)         Excise tax on minerals;

b)         Contractor’s income tax;

c)         Customs duties and fees on imported capital equipment;

d)         Value added tax on the purchase of imported equipment, goods and services;

e)         Withholding tax on interest payments on foreign loans;

f)          Withholding tax on dividends to foreign stockholders;

g)         Royalties due the Government on Mineral Reservations;

h)         Documentary stamps taxes;

i)          Capital gains tax;

j)          Local business tax;

k)         Real property tax;

l)          Community tax;

m)        Occupation fees;

n)         All other local Government taxes, fees and imposts as of the effective date of the FTAA;

o)         Special Allowance, as defined in the Mining Act; and

p)         Royalty payments to any Indigenous People(s)/Indigenous Cultural Community (ies).

From the Effective Date, the foregoing taxes, fees and other such charges constituting the Basic Government Share, if applicable, shall be paid by the Contractor: Provided, That above items (a) to (g) shall not be collected from the Contractor upon the date of approval of the Mining Project Feasibility Study up to the end of the Recovery Period. Any taxes, fees, royalties, allowances or other imposts, which should not be collected by the Government, but nevertheless paid by the Contractor and are not refunded by the Government before the end of the next taxable year, shall be included in the Government Share in the next taxable year.  Any Value-Added Tax refunded or credited shall not form part of Government Share.

[128] Section 3 (g) (2) of DAO 99-56 provides:

2.  Additional Government Share. Prior to the commencement of Development and Construction Phase, the Contractor may select one of the formula for calculating the Additional Government Share set out below which the Contractor wishes to apply to all of its Mining Operations and notify the Government in writing of that selection.  Upon the issuance of such notice, the formula so selected shall thereafter apply to all of the Contractor’s Mining Operations.

x x x

[129] Section 3 (g) (2) (1) of DAO 99-56 provides:

a) Fifty-Fifty Sharing of the Cumulative Present Value of Cash Flows.  The Government shall collect an Additional Government Share from the Contractor equivalent to an amount which when aggregated with the cumulative present value of Government Share during the previous Contract Years and the Basic Government Share for the current Contract Year is equivalent to a minimum of fifty percent (50%) of the Cumulative Present Value of Project Cash Flow before financing for the current Contract Year, as defined below.

Computation. The computation of the Additional Government Share shall commence immediately after the Recovery Period. If the computation covers a period of less than one year, the Additional Government Share corresponding to this period shall be computed pro-rata wherein the Additional Government Share during the year shall be multiplied by the fraction of the year after recovery.  The Additional Government Share shall be computed as follows:

Project Cash Flow Before Financing and Tax (“CF”) for a taxable year shall be calculated as follows:

CF = GO – DE + I – PE – OC

Cumulative Present Value of Project Cash Flow (“CP”) shall be the sum of the present value of the cumulative present value of project cash flow during the previous year (CP i-1 x 1.10) and the Project Cash Flow Before Financing and Tax for the current year (“CF”), and shall be calculated as follows:

CP  =  (CP i-1 x 1.10) + CF

Cumulative Present Value of Total Government Share Before Additional Government Share (“CGB”) shall be the sum of: the present value of the cumulative present value of the Total Government Share during the previous year (CGAi-1 x 1.10), and the Basic Government Share for the current year (BGS), and shall be calculated as follows:

CGB  =  (CGA i-1 x 1.10) + BGS

The Additional Government Share (“AGS”) shall be:

If:  CGB  > CP □  0.5      then      AGS = 0

If:  CGB  <  CP □  0.5     then      AGS  =  [ CP x  0.5 ] –  CGB

Cumulative Present Value of Total Government Share (CGA):

CGA  = CGB  + AGS

where:

BGS     =          Basic Government Share shall have the meaning as

described in Clause 3-g-1 hereof;

GO       =          Gross Output shall have the same meaning as defined in

the National Internal Revenue Code;

DE        =          Deductible Expenses shall have the meaning as

described in  Clause 3-c hereof;

I           =          Interest payments on loans included in the Deductible

Expenses shall be equivalent to those referred to in Clause 3-c-8 hereof;

PE        =          unrecovered Pre-Operating Expenses;

OC       =          On-going Capital Expenditures as defined in Clause 3-c

hereof;

CP i-1   =          cumulative present value of project cash flow during the

previous year; and

CGAi-1  =          cumulative present value of total Government Share

during the previous year.

[130] Section 3 (g) (2) (2) of DAO 99-56 provides:

b) Profit Related Additional Government Share.  The Government shall collect an Additional Government Share from the Contractor based on twenty-five percent (25%) of the additional profits once the arithmetic average of the ratio of Net Income After Tax To Gross Output as defined in the National Internal Revenue Code, for the current and previous taxable years is 0.40 or higher rounded off to the nearest two decimal places.

Computation. The computation of the Additional Government Share from additional profit shall commence immediately after the Recovery Period. If the computation covers a period of less than a year, the additional profit corresponding to this period shall be computed pro-rata wherein the total additional profit during the year shall be multiplied by the fraction of the year after recovery.

The additional profit shall be derived from the following formula:

If the computed average ratio as derived from above is less than 0.40:

Additional Profit  = 0

If the computed average ratio is 0.40 or higher:

[NIAT-(0.40 x GO)]

Additional Profit =  ————————

( 1 – ITR )

The Additional Government Share from the additional profit is computed using the following formula:

Additional Government Share

From Additional Profit  = 25% x Additional Profit

where:

NIAT     =          Net Income After Tax for the particular taxable year under consideration.

GO       =          Gross Output from operations during the same taxable year.

ITR       =          Income Tax Rate applied by the Bureau of Internal Revenue in computing the income tax of the Contractor during the taxable year.

[131] Section 3 (g) (2) (3) of DAO 99-56 provides:

c) Additional Share Based from the Cumulative Net Mining Revenue.  The Additional Government Share for a given taxable year shall be calculated as follows:

(i)         Fifty percent (50%) of cumulative Net Mining Revenue from the end of the Recovery Period to the end of that taxable year;

LESS

(ii)         Cumulative Basic Government Share for that period as calculated under Clause 3-g-1 hereof;

AND LESS (if applicable)

(iii)        Cumulative Additional Government Share in respect of the period commencing at the end of the Recovery Period and expiring at the end of the taxable year immediately preceding the taxable year in question.

“Net Mining Revenue” means the Gross Output from Mining Operations during a Calendar year less Deductible Expenses, plus Government taxes, duties and fees included as part of Deductible Expenses.

[132] Republic Act No. 8424 as amended.

[133] The 40% equity of the foreign stockholders in a 60-40 Filipino corporation would translate to a 24% (40% x 60%) beneficial interest in the corporation undertaking the MPSA.

[134] Of course, the 60% Filipino equity in a 60-40 Filipino corporation could also be held by another 60-40 Filipino corporation or corporations, further diluting actual Filipino beneficial interest and increasing foreign beneficial interest.

[135] As noted in the Decision (La Bugal-B’Laan Tribal Association, Inc.supra at 212-213), unlike E.O. 279, the Mining Act does not define “large-scale” in terms of capital expenditure although this was evidently the way it was understood by the 1986 Constitutional Commission. (vide: III RECORDS OF THE CONSTITUTIONAL COMMISSION 255).

In fact, the Mining Act does not categorically define “large-scale” at all. However, a comparison of the maximum areas for exploration in Section 22 for Exploration Permits (400 meridional blocks onshore for corporations), Section 28 for Mineral Agreements (200 meridional blocks for corporations) and Section 34 for FTAAs (1,000 meridional blocks for corporations) indicates that “large-scale” under the Mining Act refers to the size of the contract area.

It is only Section 56 of DAO 40-96 that any reference to the US$50,000,000.00 minimum capital investment prescribed by E.O. 279 is made.

[136] Applying the formula in Section 56 (a) of DAO 40-96 and assuming: (1) the foreign FTAA contractor began with the maximum contract area of 1,000 meridional blocks onshore, (2) an exploration period of 6 years and (3) compliance with Section 60 of DAO 40-96 on relinquishment of areas covered by FTAA.

The figure for an exploration period of 10 years is US$ 4.8 million.  The figure for a 20-year exploration period is US$ 7.7 million.

One meridional block is equivalent to 81 hectares. (Website of the Philippine Mines and Geosciences Bureau www.mgb.gov.ph/epprimer.htm)

[137] SECTION 23.  Rights and Obligations of the Permittee. — An exploration permit shall grant to the permittee, his heirs or successors-in-interest, the right to enter, occupy and explore the area: Provided, That if private or other parties are affected, the permittee shall first discuss with the said parties the extent, necessity, and manner of his entry, occupation and exploration and in case of disagreement, a panel of arbitrators shall resolve the conflict or disagreement.

The permittee shall undertake an exploration work on the area as specified by its permit based on an approved work program.

Any expenditure in excess of the yearly budget of the approved work program may be carried forward and credited to the succeeding years covering the duration of the permit.  The Secretary, through the Director, shall promulgate rules and regulations governing the terms and conditions of the permit.

The permittee may apply for a mineral production sharing agreement, joint venture agreement, co-production agreement or financial or technical assistance agreement over the permit area, which application shall be granted if the permittee meets the necessary qualifications and the terms and conditions of any such agreement: Provided, That the exploration period covered by the exploration permit shall be included as part of the exploration period of the mineral agreement or financial or technical assistance agreement. (Emphasis supplied)

[138] SECTION 24.  Declaration of Mining Project Feasibility. — A holder of an exploration permit who determines the commercial viability of a project covering a mining area may, within the term of the permit, file with the Bureau a declaration of mining project feasibility accompanied by a work program for development.  The approval of the mining project feasibility and compliance with other requirements provided in this Act shall entitle the holder to an exclusive right to a mineral production sharing agreement or other mineral agreements or financial or technical assistance agreement. (Emphasis supplied)

[139] Sections 17-30 of DAO 40-96 on exploration permits contains absolutely no minimum requirement for ground expenditures, much less the minimum required investment of US$ 50,000,000.00 for development, infrastructure and utilization.

[140] Vide: note 20.

[141] Memorandum for WMCP, p. 2.

[142] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 176.

[143] 287 SCRA 465, 474 (1998).  The Constitution prohibits non-Filipinos from acquiring or holding title to private lands or to lands of the public domain, except only by way of legal succession.

[144] Id. at 475.

[145] In 1997 Bre-X, a large Canadian mining firm, was found to have inflated the prospective amount of gold deposits in its Busang, Indonesia mining operation by “salting” and tampering with gold samples taken from the site.  After news of the gold salting scam had broken out, Bre-X’s share price fell by almost 90%. [W. Symonds & M. Shari, ‘After Bre-X, Gold’s Glow is Gone’ Available at http:// www.businessweek.com/1997/15/b352267.htm]

[146] In January, 2004, 20% of Royal Dutch/Shell’s reserves of oil and gas were reclassified from “proven” to merely “probable” or other even less certain categories.  As a result, Shell’s share prices fell by 7% [‘Shell shock’ Available at http:// www.economist.co.uk/business/PrinterFriendly.cfm?Story_ID=2354469]

[147] Memorandum for Petitioners at 14.

[148] Memorandum for WMCP at 67.

[149] US$ 4,000,000.00 or approximately P224,000,000.00.

[150] Memorandum for WMCP at 16.

[151] Id. at 67.

[152] At the prevailing rate of exchange, the US$10,000,000.00 selling price of WMC’s shares in WMCP is worth approximately P560,000,000.00.

[153] TSN at 155-156; Memorandum for WMCP at 60-61.

[154] La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at 176.

[155] Id. at 243-245.

[156] Memorandum for WMCP at 5.

[157] CIVIL CODE, art. 1350.

[158] Section 8.3 provides:

If the Secretary gives a Rejection Notice the Parties shall promptly meet and endeavour to agree on amendments to the Work Programme or budget.  If the Secretary and the Contractor fail to agree on the proposed revision within 30 days from delivery of the Rejection Notice then the Work Programme or Budget or variation thereof proposed by the Contractor shall be deemed approved, so as not to unnecessarily delay the performance of this Agreement. (Emphasis supplied; Rollo, p. 92-93.)

[159] CIVIL CODE, art. 1409 (1).

[160] Id. art. 1352.

[161] Id. art. 1409.

[162] R.A. No. 7942, sec. 33.

[163] Id, sec. 35 (e).

[164] 3.3. This Agreement shall be renewed by the Government for a further period of twenty-five (25) years under the same terms and conditions provided that the Contractor lodges a request for renewal with the Government not less than sixty (60) days prior to the expiry of the initial terms of this Agreement and provided that the Contractor is not in breach of any of the requirements of this Agreement.

[165] http://en.wikipedia.org/wiki/Open-pit_mining htm.

[166] Webster’s Third New International Dictionary 1579 (1976).

[167] http://riot.ieor.berkeley.edu/riot/Applications/OPM/OPMDetails.html.

[168] http://www.mine-engineer.com/mining/open_pit.htm;  http://en.wikipedia.org/wiki/Open-pit_mining htm.

[169] http://www.mcq.org/roc/en/exploitation/exploitation_2_1_2.html.