1 G.R. No.

127882 December 1, 2004

2 LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., Represented by its Chairman F'LONG MIGUEL M. LUMAYONG;
3 WIGBERTO E. TAÑADA; PONCIANO BENNAGEN; JAIME TADEO; RENATO R. CONSTANTINO JR.; F'LONG
4 AGUSTIN M. DABIE; ROBERTO P. AMLOY; RAQIM L. DABIE; SIMEON H. DOLOJO; IMELDA M. GANDON; LENY B.
5 GUSANAN; MARCELO L. GUSANAN; QUINTOL A. LABUAYAN; LOMINGGES D. LAWAY; BENITA P. TACUAYAN;
6 Minors JOLY L. BUGOY, Represented by His Father UNDERO D. BUGOY and ROGER M. DADING; Represented by His
7 Father ANTONIO L. DADING; ROMY M. LAGARO, Represented by His Father TOTING A. LAGARO; MIKENY JONG B.
8 LUMAYONG, Represented by His Father MIGUEL M. LUMAYONG; RENE T. MIGUEL, Represented by His Mother
9 EDITHA T. MIGUEL; ALDEMAR L. SAL, Represented by His Father DANNY M. SAL; DAISY RECARSE, Represented by
10 Her Mother LYDIA S. SANTOS; EDWARD M. EMUY; ALAN P. MAMPARAIR; MARIO L. MANGCAL; ALDEN S. TUSAN;
11 AMPARO S. YAP; VIRGILIO CULAR; MARVIC M.V.F. LEONEN; JULIA REGINA CULAR, GIAN CARLO CULAR,
12 VIRGILIO CULAR JR., Represented by Their Father VIRGILIO CULAR; PAUL ANTONIO P. VILLAMOR, Represented by
13 His Parents JOSE VILLAMOR and ELIZABETH PUA-VILLAMOR; ANA GININA R. TALJA, Represented by Her Father
14 MARIO JOSE B. TALJA; SHARMAINE R. CUNANAN, Represented by Her Father ALFREDO M. CUNANAN; ANTONIO
15 JOSE A. VITUG III, Represented by His Mother ANNALIZA A. VITUG, LEAN D. NARVADEZ, Represented by His Father
16 MANUEL E. NARVADEZ JR.; ROSERIO MARALAG LINGATING, Represented by Her Father RIO OLIMPIO A.
17 LINGATING; MARIO JOSE B. TALJA; DAVID E. DE VERA; MARIA MILAGROS L. SAN JOSE; Sr. SUSAN O. BOLANIO,
18 OND; LOLITA G. DEMONTEVERDE; BENJIE L. NEQUINTO;1 ROSE LILIA S. ROMANO; ROBERTO S. VERZOLA;
19 EDUARDO AURELIO C. REYES; LEAN LOUEL A. PERIA, Represented by His Father ELPIDIO V. PERIA; 2 GREEN
20 FORUM PHILIPPINES; GREEN FORUM WESTERN VISAYAS (GF-WV); ENVIRONMENTAL LEGAL ASSISTANCE
21 CENTER (ELAC); KAISAHAN TUNGO SA KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN
22 (KAISAHAN);3 PARTNERSHIP FOR AGRARIAN REFORM and RURAL DEVELOPMENT SERVICES, INC. (PARRDS);
23 PHILIPPINE PARTNERSHIP FOR THE DEVELOPMENT OF HUMAN RESOURCES IN THE RURAL AREAS, INC.
24 (PHILDHRRA); WOMEN'S LEGAL BUREAU (WLB); CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES, INC.
25 (CADI); UPLAND DEVELOPMENT INSTITUTE (UDI); KINAIYAHAN FOUNDATION, INC.; SENTRO NG
26 ALTERNATIBONG LINGAP PANLIGAL (SALIGAN); and LEGAL RIGHTS AND NATURAL RESOURCES CENTER, INC.
27 (LRC), petitioners,
28 vs.
29 VICTOR O. RAMOS, Secretary, Department of Environment and Natural Resources (DENR); HORACIO RAMOS, Director,
30 Mines and Geosciences Bureau (MGB-DENR); RUBEN TORRES, Executive Secretary; and WMC (PHILIPPINES),
31 INC.,4 respondents.

32
33

34 RESOLUTION

35
36

37 PANGANIBAN, J.:

38 All mineral resources are owned by the State. Their exploration, development and utilization (EDU) must always be subject
39 to the full control and supervision of the State. More specifically, given the inadequacy of Filipino capital and technology
40 in large-scale EDU activities, the State may secure the help of foreign companies in all relevant matters -- especially
41 financial and technical assistance -- provided that, at all times, the State maintains its right of full control. The foreign
42 assistor or contractor assumes all financial, technical and entrepreneurial risks in the EDU activities; hence, it may be given
43 reasonable management, operational, marketing, audit and other prerogatives to protect its investments and to enable the
44 business to succeed.

45 Full control is not anathematic to day-to-day management by the contractor, provided that the State retains the power to
46 direct overall strategy; and to set aside, reverse or modify plans and actions of the contractor. The idea of full control is
47 similar to that which is exercised by the board of directors of a private corporation: the performance of managerial,
48 operational, financial, marketing and other functions may be delegated to subordinate officers or given to contractual
49 entities, but the board retains full residual control of the business.

Page 1
50 Who or what organ of government actually exercises this power of control on behalf of the State? The Constitution is crystal
51 clear: the President. Indeed, the Chief Executive is the official constitutionally mandated to "enter into agreements with
52 foreign owned corporations." On the other hand, Congress may review the action of the President once it is notified of "every
53 contract entered into in accordance with this [constitutional] provision within thirty days from its execution." In contrast to
54 this express mandate of the President and Congress in the EDU of natural resources, Article XII of the Constitution is silent
55 on the role of the judiciary. However, should the President and/or Congress gravely abuse their discretion in this regard, the
56 courts may -- in a proper case -- exercise their residual duty under Article VIII. Clearly then, the judiciary should not
57 inordinately interfere in the exercise of this presidential power of control over the EDU of our natural resources.

58 The Constitution should be read in broad, life-giving strokes. It should not be used to strangulate economic growth or to
59 serve narrow, parochial interests. Rather, it should be construed to grant the President and Congress sufficient discretion
60 and reasonable leeway to enable them to attract foreign investments and expertise, as well as to secure for our people and
61 our posterity the blessings of prosperity and peace.

62 On the basis of this control standard, this Court upholds the constitutionality of the Philippine Mining Law, its
63 Implementing Rules and Regulations -- insofar as they relate to financial and technical agreements -- as well as the subject
64 Financial and Technical Assistance Agreement (FTAA).5

65 Background

66 The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of (1) Republic Act No. [RA]
67 7942 (The Philippine Mining Act of 1995); (2) its Implementing Rules and Regulations (DENR Administrative Order No.
68 [DAO] 96-40); and (3) the FTAA dated March 30, 1995,6 executed by the government with Western Mining Corporation
69 (Philippines), Inc. (WMCP).7

70 On January 27, 2004, the Court en banc promulgated its Decision8 granting the Petition and declaring the
71 unconstitutionality of certain provisions of RA 7942, DAO 96-40, as well as of the entire FTAA executed between the
72 government and WMCP, mainly on the finding that FTAAs are service contracts prohibited by the 1987 Constitution.

73 The Decision struck down the subject FTAA for being similar to service contracts, 9 which, though permitted under the 1973
74 Constitution,10 were subsequently denounced for being antithetical to the principle of sovereignty over our natural resources,
75 because they allowed foreign control over the exploitation of our natural resources, to the prejudice of the Filipino nation.

76 The Decision quoted several legal scholars and authors who had criticized service contracts for, inter alia, vesting in the
77 foreign contractor exclusive management and control of the enterprise, including operation of the field in the event
78 petroleum was discovered; control of production, expansion and development; nearly unfettered control over the disposition
79 and sale of the products discovered/extracted; effective ownership of the natural resource at the point of extraction; and
80 beneficial ownership of our economic resources. According to the Decision, the 1987 Constitution (Section 2 of Article XII)
81 effectively banned such service contracts.

82 Subsequently, respondents filed separate Motions for Reconsideration. In a Resolution dated March 9, 2004, the Court
83 required petitioners to comment thereon. In the Resolution of June 8, 2004, it set the case for Oral Argument on June 29,
84 2004.

85 After hearing the opposing sides, the Court required the parties to submit their respective Memoranda in amplification of
86 their arguments. In a Resolution issued later the same day, June 29, 2004, the Court noted, inter alia, the Manifestation and
87 Motion (in lieu of comment) filed by the Office of the Solicitor General (OSG) on behalf of public respondents. The OSG said
88 that it was not interposing any objection to the Motion for Intervention filed by the Chamber of Mines of the Philippines, Inc.
89 (CMP) and was in fact joining and adopting the latter's Motion for Reconsideration.

90

91 Memoranda were accordingly filed by the intervenor as well as by petitioners, public respondents, and private respondent,
92 dwelling at length on the three issues discussed below. Later, WMCP submitted its Reply Memorandum, while the OSG -- in
93 obedience to an Order of this Court -- filed a Compliance submitting copies of more FTAAs entered into by the government.

94 Three Issues Identified by the Court

Page 2
 95 During the Oral Argument, the Court identified the three issues to be resolved in the present controversy, as follows:

96 1. Has the case been rendered moot by the sale of WMC shares in WMCP to Sagittarius (60 percent of Sagittarius' equity is
97 owned by Filipinos and/or Filipino-owned corporations while 40 percent is owned by Indophil Resources NL, an Australian
98 company) and by the subsequent transfer and registration of the FTAA from WMCP to Sagittarius?

99 2. Assuming that the case has been rendered moot, would it still be proper to resolve the constitutionality of the assailed
100 provisions of the Mining Law, DAO 96-40 and the WMCP FTAA?

101 3. What is the proper interpretation of the phrase Agreements Involving Either Technical or Financial Assistancecontained
102 in paragraph 4 of Section 2 of Article XII of the Constitution?

103 Should the Motion for Reconsideration Be Granted?

104 Respondents' and intervenor's Motions for Reconsideration should be granted, for the reasons discussed below. The foregoing
105 three issues identified by the Court shall now be taken up seriatim.

106 First Issue:

107 Mootness

108 In declaring unconstitutional certain provisions of RA 7942, DAO 96-40, and the WMCP FTAA, the majority Decision agreed
109 with petitioners' contention that the subject FTAA had been executed in violation of Section 2 of Article XII of the 1987
110 Constitution. According to petitioners, the FTAAs entered into by the government with foreign-owned corporations are
111 limited by the fourth paragraph of the said provision to agreements involving only technical or financial assistance for large-
112 scale exploration, development and utilization of minerals, petroleum and other mineral oils. Furthermore, the foreign
113 contractor is allegedly permitted by the FTAA in question to fully manage and control the mining operations and, therefore,
114 to acquire "beneficial ownership" of our mineral resources.

115 The Decision merely shrugged off the Manifestation by WMPC informing the Court (1) that on January 23, 2001, WMC had
116 sold all its shares in WMCP to Sagittarius Mines, Inc., 60 percent of whose equity was held by Filipinos; and (2) that the
117 assailed FTAA had likewise been transferred from WMCP to Sagittarius. 11 The ponencia declared that the instant case
118 had not been rendered moot by the transfer and registration of the FTAA to a Filipino-owned corporation, and that the
119 validity of the said transfer remained in dispute and awaited final judicial determination. 12Patently therefore, the Decision is
120 anchored on the assumption that WMCP had remained a foreign corporation.

121 The crux of this issue of mootness is the fact that WMCP, at the time it entered into the FTAA, happened to be wholly owned
122 by WMC Resources International Pty., Ltd. (WMC), which in turn was a wholly owned subsidiary of Western Mining
123 Corporation Holdings Ltd., a publicly listed major Australian mining and exploration company.

124 The nullity of the FTAA was obviously premised upon the contractor being a foreign corporation. Had the FTAA been
125 originally issued to a Filipino-owned corporation, there would have been no constitutionality issue to speak of. Upon the
126 other hand, the conveyance of the WMCP FTAA to a Filipino corporation can be likened to the sale of land to a foreigner who
127 subsequently acquires Filipino citizenship, or who later resells the same land to a Filipino citizen. The conveyance would be
128 validated, as the property in question would no longer be owned by a disqualified vendee.

129 And, inasmuch as the FTAA is to be implemented now by a Filipino corporation, it is no longer possible for the Court to
130 declare it unconstitutional. The case pending in the Court of Appeals is a dispute between two Filipino companies
131 (Sagittarius and Lepanto), both claiming the right to purchase the foreign shares in WMCP. So, regardless of which side
132 eventually wins, the FTAA would still be in the hands of a qualified Filipino company. Considering that there is no longer
133 any justiciable controversy, the plea to nullify the Mining Law has become a virtual petition for declaratory relief, over which
134 this Court has no original jurisdiction.

135 In their Final Memorandum, however, petitioners argue that the case has not become moot, considering the invalidity of the
136 alleged sale of the shares in WMCP from WMC to Sagittarius, and of the transfer of the FTAA from WMCP to Sagittarius,
137 resulting in the change of contractor in the FTAA in question. And even assuming that the said transfers were valid, there
138 still exists an actual case predicated on the invalidity of RA 7942 and its Implementing Rules and Regulations (DAO 96-40).

Page 3
139 Presently, we shall discuss petitioners' objections to the transfer of both the shares and the FTAA. We shall take up the
140 alleged invalidity of RA 7942 and DAO 96-40 later on in the discussion of the third issue.

141 No Transgression of the Constitution

142 by the Transfer of the WMCP Shares

143 Petitioners claim, first, that the alleged invalidity of the transfer of the WMCP shares to Sagittarius violates the fourth
144 paragraph of Section 2 of Article XII of the Constitution; second, that it is contrary to the provisions of the WMCP FTAA
145 itself; and third, that the sale of the shares is suspect and should therefore be the subject of a case in which its validity may
146 properly be litigated.

147 On the first ground, petitioners assert that paragraph 4 of Section 2 of Article XII permits the government to enter into
148 FTAAs only with foreign-owned corporations. Petitioners insist that the first paragraph of this constitutional provision limits
149 the participation of Filipino corporations in the exploration, development and utilization of natural resources to only three
150 species of contracts -- production sharing, co-production and joint venture -- to the exclusion of all other arrangements or
151 variations thereof, and the WMCP FTAA may therefore not be validly assumed and implemented by Sagittarius. In short,
152 petitioners claim that a Filipino corporation is not allowed by the Constitution to enter into an FTAA with the government.

153 However, a textual analysis of the first paragraph of Section 2 of Article XII does not support petitioners' argument. The
154 pertinent part of the said provision states: "Sec. 2. x x x The exploration, development and utilization of natural resources
155 shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter
156 into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at
157 least sixty per centum of whose capital is owned by such citizens. x x x." Nowhere in the provision is there any express
158 limitation or restriction insofar as arrangements other than the three aforementioned contractual schemes are concerned.

159 Neither can one reasonably discern any implied stricture to that effect. Besides, there is no basis to believe that the framers
160 of the Constitution, a majority of whom were obviously concerned with furthering the development and utilization of the
161 country's natural resources, could have wanted to restrict Filipino participation in that area. This point is clear, especially in
162 the light of the overarching constitutional principle of giving preference and priority to Filipinos and Filipino corporations in
163 the development of our natural resources.

164 Besides, even assuming (purely for argument's sake) that a constitutional limitation barring Filipino corporations from
165 holding and implementing an FTAA actually exists, nevertheless, such provision would apply only to the transfer of the
166 FTAA to Sagittarius, but definitely not to the sale of WMC's equity stake in WMCP to Sagittarius. Otherwise, an
167 unreasonable curtailment of property rights without due process of law would ensue. Petitioners' argument must therefore
168 fail.

169 FTAA Not Intended

170 Solely for Foreign Corporation

171 Equally barren of merit is the second ground cited by petitioners -- that the FTAA was intended to apply solely to a foreign
172 corporation, as can allegedly be seen from the provisions therein. They manage to cite only one WMCP FTAA provision that
173 can be regarded as clearly intended to apply only to a foreign contractor: Section 12, which provides for international
174 commercial arbitration under the auspices of the International Chamber of Commerce, after local remedies are exhausted.
175 This provision, however, does not necessarily imply that the WMCP FTAA cannot be transferred to and assumed by a
176 Filipino corporation like Sagittarius, in which event the said provision should simply be disregarded as a superfluity.

177 No Need for a Separate

178 Litigation of the Sale of Shares

179 Petitioners claim as third ground the "suspicious" sale of shares from WMC to Sagittarius; hence, the need to litigate it in a
180 separate case. Section 40 of RA 7942 (the Mining Law) allegedly requires the President's prior approval of a transfer.

181 A re-reading of the said provision, however, leads to a different conclusion. "Sec. 40. Assignment/Transfer -- A financial or
182 technical assistance agreement may be assigned or transferred, in whole or in part, to a qualified person subject to the prior
183 approval of the President: Provided, That the President shall notify Congress of every financial or technical assistance

Page 4
184 agreement assigned or converted in accordance with this provision within thirty (30) days from the date of the approval
185 thereof."

186 Section 40 expressly applies to the assignment or transfer of the FTAA, not to the sale and transfer of shares of stock in
187 WMCP. Moreover, when the transferee of an FTAA is another foreign corporation, there is a logical application of the
188 requirement of prior approval by the President of the Republic and notification to Congress in the event of assignment or
189 transfer of an FTAA. In this situation, such approval and notification are appropriate safeguards, considering that the new
190 contractor is the subject of a foreign government.

191 On the other hand, when the transferee of the FTAA happens to be a Filipino corporation, the need for such safeguard is not
192 critical; hence, the lack of prior approval and notification may not be deemed fatal as to render the transfer invalid. Besides,
193 it is not as if approval by the President is entirely absent in this instance. As pointed out by private respondent in its
194 Memorandum,13 the issue of approval is the subject of one of the cases brought by Lepanto against Sagittarius in GR No.
195 162331. That case involved the review of the Decision of the Court of Appeals dated November 21, 2003 in CA-GR SP No.
196 74161, which affirmed the DENR Order dated December 31, 2001 and the Decision of the Office of the President dated July
197 23, 2002, both approving the assignment of the WMCP FTAA to Sagittarius.

198 Petitioners also question the sale price and the financial capacity of the transferee. According to the Deed of Absolute Sale
199 dated January 23, 2001, executed between WMC and Sagittarius, the price of the WMCP shares was fixed at US$9,875,000,
200 equivalent to P553 million at an exchange rate of 56:1. Sagittarius had an authorized capital stock of P250 million and a paid
201 up capital of P60 million. Therefore, at the time of approval of the sale by the DENR, the debt-to-equity ratio of the
202 transferee was over 9:1 -- hardly ideal for an FTAA contractor, according to petitioners.

203 However, private respondents counter that the Deed of Sale specifically provides that the payment of the purchase price
204 would take place only after Sagittarius' commencement of commercial production from mining operations , if at all.
205 Consequently, under the circumstances, we believe it would not be reasonable to conclude, as petitioners did, that the
206 transferee's high debt-to-equity ratio per se necessarily carried negative implications for the enterprise; and it would
207 certainly be improper to invalidate the sale on that basis, as petitioners propose.

208 FTAA Not Void,

209 Thus Transferrable

210 To bolster further their claim that the case is not moot, petitioners insist that the FTAA is void and, hence cannot be
211 transferred; and that its transfer does not operate to cure the constitutional infirmity that is inherent in it; neither will a
212 change in the circumstances of one of the parties serve to ratify the void contract.

213 While the discussion in their Final Memorandum was skimpy, petitioners in their Comment (on the MR) did ratiocinate that
214 this Court had declared the FTAA to be void because, at the time it was executed with WMCP, the latter was a fully foreign-
215 owned corporation, in which the former vested full control and management with respect to the exploration, development and
216 utilization of mineral resources, contrary to the provisions of paragraph 4 of Section 2 of Article XII of the Constitution. And
217 since the FTAA was per se void, no valid right could be transferred; neither could it be ratified, so petitioners conclude.

218 Petitioners have assumed as fact that which has yet to be established. First and foremost, the Decision of this Court
219 declaring the FTAA void has not yet become final. That was precisely the reason the Court still heard Oral Argument in this
220 case. Second, the FTAA does not vest in the foreign corporation full control and supervision over the exploration,
221 development and utilization of mineral resources, to the exclusion of the government. This point will be dealt with in greater
222 detail below; but for now, suffice it to say that a perusal of the FTAA provisions will prove that the government has effective
223 overall direction and control of the mining operations, including marketing and product pricing, and that the contractor's
224 work programs and budgets are subject to its review and approval or disapproval.

225 As will be detailed later on, the government does not have to micro-manage the mining operations and dip its hands into the
226 day-to-day management of the enterprise in order to be considered as having overall control and direction. Besides, for
227 practical and pragmatic reasons, there is a need for government agencies to delegate certain aspects of the management
228 work to the contractor. Thus the basis for declaring the FTAA void still has to be revisited, reexamined and reconsidered.

229 Petitioners sniff at the citation of Chavez v. Public Estates Authority,14 and Halili v. CA,15 claiming that the doctrines in
230 these cases are wholly inapplicable to the instant case.

Page 5
231 Chavez clearly teaches: "Thus, the Court has ruled consistently that where a Filipino citizen sells land to an alien who later
232 sells the land to a Filipino, the invalidity of the first transfer is corrected by the subsequent sale to a citizen. Similarly, where
233 the alien who buys the land subsequently acquires Philippine citizenship, the sale is validated since the purpose of the
234 constitutional ban to limit land ownership to Filipinos has been achieved. In short, the law disregards the constitutional
235 disqualification of the buyer to hold land if the land is subsequently transferred to a qualified party, or the buyer himself
236 becomes a qualified party."16

237 In their Comment, petitioners contend that in Chavez and Halili, the object of the transfer (the land) was not what was
238 assailed for alleged unconstitutionality. Rather, it was the transaction that was assailed; hence subsequent compliance with
239 constitutional provisions would cure its infirmity. In contrast, in the instant case it is the FTAA itself, the object of the
240 transfer, that is being assailed as invalid and unconstitutional. So, petitioners claim that the subsequent transfer of a void
241 FTAA to a Filipino corporation would not cure the defect.

242 Petitioners are confusing themselves. The present Petition has been filed, precisely because the grantee of the FTAA was a
243 wholly owned subsidiary of a foreign corporation. It cannot be gainsaid that anyone would have asserted that the same FTAA
244 was void if it had at the outset been issued to a Filipino corporation. The FTAA, therefore, is not per se defective or
245 unconstitutional. It was questioned only because it had been issued to an allegedly non-qualified, foreign-owned corporation.

246 We believe that this case is clearly analogous to Halili, in which the land acquired by a non-Filipino was re-conveyed to a
247 qualified vendee and the original transaction was thereby cured. Paraphrasing Halili, the same rationale applies to the
248 instant case: assuming arguendo the invalidity of its prior grant to a foreign corporation, the disputed FTAA -- being now
249 held by a Filipino corporation -- can no longer be assailed; the objective of the constitutional provision -- to keep the
250 exploration, development and utilization of our natural resources in Filipino hands -- has been served.

251 More accurately speaking, the present situation is one degree better than that obtaining in Halili, in which the original sale
252 to a non-Filipino was clearly and indisputably violative of the constitutional prohibition and thus void ab initio. In the
253 present case, the issuance/grant of the subject FTAA to the then foreign-owned WMCP was not illegal, void or
254 unconstitutional at the time. The matter had to be brought to court, precisely for adjudication as to whether the FTAA and
255 the Mining Law had indeed violated the Constitution. Since, up to this point, the decision of this Court declaring the FTAA
256 void has yet to become final, to all intents and purposes, the FTAA must be deemed valid and constitutional.17

257 At bottom, we find completely outlandish petitioners' contention that an FTAA could be entered into by the government only
258 with a foreign corporation, never with a Filipino enterprise. Indeed, the nationalistic provisions of the Constitution are all
259 anchored on the protection of Filipino interests. How petitioners can now argue that foreigners have the exclusive right to
260 FTAAs totally overturns the entire basis of the Petition -- preference for the Filipino in the exploration, development and
261 utilization of our natural resources. It does not take deep knowledge of law and logic to understand that what the
262 Constitution grants to foreigners should be equally available to Filipinos.

263 Second Issue:

264 Whether the Court Can Still Decide the Case,

265 Even Assuming It Is Moot

266 All the protagonists are in agreement that the Court has jurisdiction to decide this controversy, even assuming it to be moot.

267 Petitioners stress the following points. First, while a case becomes moot and academic when "there is no more actual
268 controversy between the parties or no useful purpose can be served in passing upon the merits," 18 what is at issue in the
269 instant case is not only the validity of the WMCP FTAA, but also the constitutionality of RA 7942 and its Implementing
270 Rules and Regulations. Second, the acts of private respondent cannot operate to cure the law of its alleged
271 unconstitutionality or to divest this Court of its jurisdiction to decide. Third, the Constitution imposes upon the Supreme
272 Court the duty to declare invalid any law that offends the Constitution.

273 Petitioners also argue that no amendatory laws have been passed to make the Mining Act of 1995 conform to constitutional
274 strictures (assuming that, at present, it does not); that public respondents will continue to implement and enforce the statute
275 until this Court rules otherwise; and that the said law continues to be the source of legal authority in accepting, processing
276 and approving numerous applications for mining rights.

Page 6
277 Indeed, it appears that as of June 30, 2002, some 43 FTAA applications had been filed with the Mines and Geosciences
278 Bureau (MGB), with an aggregate area of 2,064,908.65 hectares -- spread over Luzon, the Visayas and Mindanao19 -- applied
279 for. It may be a bit far-fetched to assert, as petitioners do, that each and every FTAA that was entered into under the
280 provisions of the Mining Act "invites potential litigation" for as long as the constitutional issues are not resolved with
281 finality. Nevertheless, we must concede that there exists the distinct possibility that one or more of the future FTAAs will be
282 the subject of yet another suit grounded on constitutional issues.

283 But of equal if not greater significance is the cloud of uncertainty hanging over the mining industry, which is even now
284 scaring away foreign investments. Attesting to this climate of anxiety is the fact that the Chamber of Mines of the
285 Philippines saw the urgent need to intervene in the case and to present its position during the Oral Argument; and that
286 Secretary General Romulo Neri of the National Economic Development Authority (NEDA) requested this Court to allow him
287 to speak, during that Oral Argument, on the economic consequences of the Decision of January 27, 2004.20

288 We are convinced. We now agree that the Court must recognize the exceptional character of the situation and the paramount
289 public interest involved, as well as the necessity for a ruling to put an end to the uncertainties plaguing the mining industry
290 and the affected communities as a result of doubts cast upon the constitutionality and validity of the Mining Act, the subject
291 FTAA and future FTAAs, and the need to avert a multiplicity of suits. Paraphrasing Gonzales v. Commission on
292 Elections,21 it is evident that strong reasons of public policy demand that the constitutionality issue be resolved now.22

293 In further support of the immediate resolution of the constitutionality issue, public respondents cite Acop v. Guingona,23 to
294 the effect that the courts will decide a question -- otherwise moot and academic -- if it is "capable of repetition, yet evading
295 review."24 Public respondents ask the Court to avoid a situation in which the constitutionality issue may again arise with
296 respect to another FTAA, the resolution of which may not be achieved until after it has become too late for our mining
297 industry to grow out of its infancy. They also recall Salonga v. Cruz Paño,25 in which this Court declared that "(t)he Court also
298 has the duty to formulate guiding and controlling constitutional principles, precepts, doctrines or rules. It has the symbolic
299 function of educating the bench and bar on the extent of protection given by constitutional guarantees. x x x."

300 The mootness of the case in relation to the WMCP FTAA led the undersigned ponente to state in his dissent to the Decision
301 that there was no more justiciable controversy and the plea to nullify the Mining Law has become a virtual petition for
302 declaratory relief.26 The entry of the Chamber of Mines of the Philippines, Inc., however, has put into focus the seriousness of
303 the allegations of unconstitutionality of RA 7942 and DAO 96-40 which converts the case to one for prohibition27 in the
304 enforcement of the said law and regulations.

305 Indeed, this CMP entry brings to fore that the real issue in this case is whether paragraph 4 of Section 2 of Article XII of the
306 Constitution is contravened by RA 7942 and DAO 96-40, not whether it was violated by specific acts implementing RA 7942
307 and DAO 96-40. "[W]hen an act of the legislative department is seriously alleged to have infringed the Constitution, settling
308 the controversy becomes the duty of this Court. By the mere enactment of the questioned law or the approval of the
309 challenged action, the dispute is said to have ripened into a judicial controversy even without any other overt act." 28 This
310 ruling can be traced from Tañada v. Angara,29 in which the Court said:

311 "In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the Constitution, the petition no
312 doubt raises a justiciable controversy. Where an action of the legislative branch is seriously alleged to have infringed the
313 Constitution, it becomes not only the right but in fact the duty of the judiciary to settle the dispute.

314 xxxxxxxxx

315 "As this Court has repeatedly and firmly emphasized in many cases, it will not shirk, digress from or abandon its sacred duty
316 and authority to uphold the Constitution in matters that involve grave abuse of discretion brought before it in appropriate
317 cases, committed by any officer, agency, instrumentality or department of the government."30

318 Additionally, the entry of CMP into this case has also effectively forestalled any possible objections arising from the standing
319 or legal interest of the original parties.

320 For all the foregoing reasons, we believe that the Court should proceed to a resolution of the constitutional issues in this
321 case.

322 Third Issue:

Page 7
323 The Proper Interpretation of the Constitutional Phrase
324 "Agreements Involving Either Technical or Financial Assistance"

325 The constitutional provision at the nucleus of the controversy is paragraph 4 of Section 2 of Article XII of the 1987
326 Constitution. In order to appreciate its context, Section 2 is reproduced in full:

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

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

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

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

344 "The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days
345 from its execution."31

346 No Restriction of Meaning by

347 a Verba Legis Interpretation

348 To interpret the foregoing provision, petitioners adamantly assert that the language of the Constitution should prevail; that
349 the primary method of interpreting it is to seek the ordinary meaning of the words used in its provisions. They rely on
350 rulings of this Court, such as the following:

351 "The fundamental principle in constitutional construction however is that the primary source from which to ascertain
352 constitutional intent or purpose is the language of the provision itself. The presumption is that the words in which the
353 constitutional provisions are couched express the objective sought to be attained. In other words, verba legis prevails. Only
354 when the meaning of the words used is unclear and equivocal should resort be made to extraneous aids of construction and
355 interpretation, such as the proceedings of the Constitutional Commission or Convention to shed light on and ascertain the
356 true intent or purpose of the provision being construed."32

357 Very recently, in Francisco v. The House of Representatives,33 this Court indeed had the occasion to reiterate the well-
358 settled principles of constitutional construction:

359 "First, verba legis, that is, wherever possible, the words used in the Constitution must be given their ordinary
360 meaning except where technical terms are employed. x x x.

361 xxxxxxxxx

362 "Second, where there is ambiguity, ratio legis est anima. The words of the Constitution should be interpreted in accordance
363 with the intent of its framers. x x x.

364 xxxxxxxxx

365 "Finally, ut magis valeat quam pereat. The Constitution is to be interpreted as a whole."34

Page 8
366 For ease of reference and in consonance with verba legis, we reconstruct and stratify the aforequoted Section 2 as follows:

367 1. All natural resources are owned by the State. Except for agricultural lands, natural resources cannot be alienated by the
368 State.

369 2. The exploration, development and utilization (EDU) of natural resources shall be under the full control and supervision of
370 the State.

371 3. The State may undertake these EDU activities through either of the following:

372 (a) By itself directly and solely

373 (b) By (i) co-production; (ii) joint venture; or (iii) production sharing agreements with Filipino citizens or corporations, at
374 least 60 percent of the capital of which is owned by such citizens

375 4. Small-scale utilization of natural resources may be allowed by law in favor of Filipino citizens.

376 5. For large-scale EDU of minerals, petroleum and other mineral oils, the President may enter into "agreements with foreign-
377 owned corporations involving either technical or financial assistance according to the general terms and conditions provided
378 by law x x x."

379 Note that in all the three foregoing mining activities -- exploration, development and utilization -- the State may undertake
380 such EDU activities by itself or in tandem with Filipinos or Filipino corporations, except in two instances: first, in small-scale
381 utilization of natural resources, which Filipinos may be allowed by law to undertake; and second, in large-scale EDU of
382 minerals, petroleum and mineral oils, which may be undertaken by the State via " agreementswith foreign-owned
383 corporations involving either technical or financial assistance " as provided by law.

384 Petitioners claim that the phrase "agreements x x x involving either technical or financial assistance" simply means technical
385 assistance or financial assistance agreements, nothing more and nothing else. They insist that there is no ambiguity in the
386 phrase, and that a plain reading of paragraph 4 quoted above leads to the inescapable conclusion that what a foreign-owned
387 corporation may enter into with the government is merely an agreement for eitherfinancial or technical assistance only, for
388 the large-scale exploration, development and utilization of minerals, petroleum and other mineral oils; such a limitation,
389 they argue, excludes foreign management and operation of a mining enterprise.35

390 This restrictive interpretation, petitioners believe, is in line with the general policy enunciated by the Constitution reserving
391 to Filipino citizens and corporations the use and enjoyment of the country's natural resources. They maintain that this
392 Court's Decision36 of January 27, 2004 correctly declared the WMCP FTAA, along with pertinent provisions of RA 7942, void
393 for allowing a foreign contractor to have direct and exclusive management of a mining enterprise. Allowing such a privilege
394 not only runs counter to the "full control and supervision" that the State is constitutionally mandated to exercise over the
395 exploration, development and utilization of the country's natural resources; doing so also vests in the foreign company
396 "beneficial ownership" of our mineral resources. It will be recalled that the Decision of January 27, 2004 zeroed in on
397 "management or other forms of assistance" or other activities associated with the "service contracts" of the martial law
398 regime, since "the management or operation of mining activities by foreign contractors, which is the primary feature of
399 service contracts, was precisely the evil that the drafters of the 1987 Constitution sought to eradicate."

400 On the other hand, the intervenor37 and public respondents argue that the FTAA allowed by paragraph 4 is not merely an
401 agreement for supplying limited and specific financial or technical services to the State. Rather, such FTAA is a
402 comprehensive agreement for the foreign-owned corporation's integrated exploration, development and utilization of mineral,
403 petroleum or other mineral oils on a large-scale basis. The agreement, therefore, authorizes the foreign contractor's rendition
404 of a whole range of integrated and comprehensive services, ranging from the discovery to the development, utilization and
405 production of minerals or petroleum products.

406 We do not see how applying a strictly literal or verba legis interpretation of paragraph 4 could inexorably lead to the
407 conclusions arrived at in the ponencia. First, the drafters' choice of words -- their use of the phrase agreements x x
408 x involving either technical or financial assistance -- does not indicate the intent to exclude other modes of assistance. The
409 drafters opted to use involving when they could have simply said agreements for financial or technical assistance, if that was
410 their intention to begin with. In this case, the limitation would be very clear and no further debate would ensue.

Page 9
411 In contrast, the use of the word "involving" signifies the possibility of the inclusion of other forms of assistance or
412 activities having to do with, otherwise related to or compatible with financial or technical assistance. The word "involving" as
413 used in this context has three connotations that can be differentiated thus: one, the sense of "concerning," "having to do
414 with," or "affecting"; two, "entailing," "requiring," "implying" or "necessitating"; and three, "including," "containing" or
415 "comprising."38

416 Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the word "involving," when understood in the
417 sense of "including," as in including technical or financial assistance, necessarily implies that there are activities other
418 than those that are being included. In other words, if an agreement includes technical or financial assistance, there is apart
419 from such assistance -- something else already in, and covered or may be covered by, the said agreement.

420 In short, it allows for the possibility that matters, other than those explicitly mentioned, could be made part of the
421 agreement. Thus, we are now led to the conclusion that the use of the word "involving" implies that these agreements with
422 foreign corporations are not limited to mere financial or technical assistance. The difference in sense becomes very apparent
423 when we juxtapose "agreements for technical or financial assistance" against "agreements including technical or financial
424 assistance." This much is unalterably clear in a verba legis approach.

425 Second, if the real intention of the drafters was to confine foreign corporations to financial or technical assistance and
426 nothing more, their language would have certainly been so unmistakably restrictive and stringent as to leave no doubt in
427 anyone's mind about their true intent. For example, they would have used the sentence foreign corporations are absolutely
428 prohibited from involvement in the management or operation of mining or similar ventures or words of similar import. A
429 search for such stringent wording yields negative results. Thus, we come to the inevitable conclusion that there was a
430 conscious and deliberate decision to avoid the use of restrictive wording that bespeaks an intent not to use the expression
431 "agreements x x x involving either technical or financial assistance" in an exclusionary and limiting manner.

432 Deletion of "Service Contracts" to

433 Avoid Pitfalls of Previous Constitutions,
434 Not to Ban Service Contracts Per Se

435 Third, we do not see how a verba legis approach leads to the conclusion that "the management or operation of mining
436 activities by foreign contractors, which is the primary feature of service contracts, was precisely the evil that the drafters of
437 the 1987 Constitution sought to eradicate." Nowhere in the above-quoted Section can be discerned the objective to keep out of
438 foreign hands the management or operation of mining activities or the plan to eradicate service contracts as these were
439 understood in the 1973 Constitution. Still, petitioners maintain that the deletion or omission from the 1987 Constitution of
440 the term "service contracts" found in the 1973 Constitution sufficiently proves the drafters' intent to exclude foreigners from
441 the management of the affected enterprises.

442 To our mind, however, such intent cannot be definitively and conclusively established from the mere failure to carry the
443 same expression or term over to the new Constitution, absent a more specific, explicit and unequivocal statement to that
444 effect. What petitioners seek (a complete ban on foreign participation in the management of mining operations, as previously
445 allowed by the earlier Constitutions) is nothing short of bringing about a momentous sea change in the economic and
446 developmental policies; and the fundamentally capitalist, free-enterprise philosophy of our government. We cannot imagine
447 such a radical shift being undertaken by our government, to the great prejudice of the mining sector in particular and our
448 economy in general, merely on the basis of the omission of the terms service contract from or the failure to carry them over to
449 the new Constitution. There has to be a much more definite and even unarguable basis for such a drastic reversal of policies.

450 Fourth, a literal and restrictive interpretation of paragraph 4, such as that proposed by petitioners, suffers from certain
451 internal logical inconsistencies that generate ambiguities in the understanding of the provision. As the intervenor pointed
452 out, there has never been any constitutional or statutory provision that reserved to Filipino citizens or corporations, at least
453 60 percent of which is Filipino-owned, the rendition of financial or technical assistance to companies engaged in mining or
454 the development of any other natural resource. The taking out of foreign-currency or peso-denominated loans or any other
455 kind of financial assistance, as well as the rendition of technical assistance -- whether to the State or to any other entity in
456 the Philippines -- has never been restricted in favor of Filipino citizens or corporations having a certain minimum percentage
457 of Filipino equity. Such a restriction would certainly be preposterous and unnecessary. As a matter of fact, financial, and
458 even technical assistance, regardless of the nationality of its source, would be welcomed in the mining industry anytime with
459 open arms, on account of the dearth of local capital and the need to continually update technological know-how and improve
460 technical skills.

Page 10
461 There was therefore no need for a constitutional provision specifically allowing foreign-owned corporations to render
462 financial or technical assistance, whether in respect of mining or some other resource development or commercial activity in
463 the Philippines. The last point needs to be emphasized: if merely financial or technical assistance agreements are allowed,
464 there would be no need to limit them to large-scale mining operations, as there would be far greater need for them in the
465 smaller-scale mining activities (and even in non-mining areas). Obviously, the provision in question was intended to refer to
466 agreements other than those for mere financial or technical assistance.

467 In like manner, there would be no need to require the President of the Republic to report to Congress, if only financial or
468 technical assistance agreements are involved. Such agreements are in the nature of foreign loans that -- pursuant to Section
469 20 of Article VII39 of the 1987 Constitution -- the President may contract or guarantee, merely with the prior concurrence of
470 the Monetary Board. In turn, the Board is required to report to Congress within thirty days from the end of every quarter of
471 the calendar year, not thirty days after the agreement is entered into.

472 And if paragraph 4 permits only agreements for loans and other forms of financial, or technical assistance, what is the point
473 of requiring that they be based on real contributions to the economic growth and general welfare of the country? For
474 instance, how is one to measure and assess the "real contributions" to the "economic growth" and "general welfare" of the
475 country that may ensue from a foreign-currency loan agreement or a technical-assistance agreement for, say, the
476 refurbishing of an existing power generating plant for a mining operation somewhere in Mindanao? Such a criterion would
477 make more sense when applied to a major business investment in a principal sector of the industry.

478 The conclusion is clear and inescapable -- a verba legis construction shows that paragraph 4 is not to be understood as one
479 limited only to foreign loans (or other forms of financial support) and to technical assistance. There is definitely more to it
480 than that. These are provisions permitting participation by foreign companies; requiring the President's report to Congress;
481 and using, as yardstick, contributions based on economic growth and general welfare. These were neither accidentally
482 inserted into the Constitution nor carelessly cobbled together by the drafters in lip service to shallow nationalism. The
483 provisions patently have significance and usefulness in a context that allows agreements with foreign companies to include
484 more than mere financial or technical assistance.

485 Fifth, it is argued that Section 2 of Article XII authorizes nothing more than a rendition of specific and limited financial
486 service or technical assistance by a foreign company. This argument begs the question "To whom or for whom would it be
487 rendered"? or Who is being assisted? If the answer is "The State," then it necessarily implies that the State itself is the
488 one directly and solely undertaking the large-scale exploration, development and utilization of a mineral resource, so it
489 follows that the State must itself bear the liability and cost of repaying the financing sourced from the foreign lender and/or
490 of paying compensation to the foreign entity rendering technical assistance.

491 However, it is of common knowledge, and of judicial notice as well, that the government is and has for many many years
492 been financially strapped, to the point that even the most essential services have suffered serious curtailments -- education
493 and health care, for instance, not to mention judicial services -- have had to make do with inadequate budgetary allocations.
494 Thus, government has had to resort to build-operate-transfer and similar arrangements with the private sector, in order to
495 get vital infrastructure projects built without any governmental outlay.

496 The very recent brouhaha over the gargantuan "fiscal crisis" or "budget deficit" merely confirms what the ordinary citizen
497 has suspected all along. After the reality check, one will have to admit the implausibility of a direct undertaking -- by the
498 State itself -- of large-scale exploration, development and utilization of minerals, petroleum and other mineral oils. Such an
499 undertaking entails not only humongous capital requirements, but also the attendant risk of never finding and developing
500 economically viable quantities of minerals, petroleum and other mineral oils.40

501 It is equally difficult to imagine that such a provision restricting foreign companies to the rendition of only financial or
502 technical assistance to the government was deliberately crafted by the drafters of the Constitution, who were all well aware
503 of the capital-intensive and technology-oriented nature of large-scale mineral or petroleum extraction and the country's
504 deficiency in precisely those areas.41 To say so would be tantamount to asserting that the provision was purposely designed to
505 ladle the large-scale development and utilization of mineral, petroleum and related resources with impossible conditions; and
506 to remain forever and permanently "reserved" for future generations of Filipinos.

507 A More Reasonable Look

508 at the Charter's Plain Language

Page 11
509 Sixth, we shall now look closer at the plain language of the Charter and examining the logical inferences. The drafters chose
510 to emphasize and highlight agreements x x x involving either technical or financial assistance in relation to foreign
511 corporations' participation in large-scale EDU. The inclusion of this clause on "technical or financial assistance" recognizes
512 the fact that foreign business entities and multinational corporations are the ones with the resources and know-how to
513 provide technical and/or financial assistance of the magnitude and type required for large-scale exploration, development and
514 utilization of these resources.

515 The drafters -- whose ranks included many academicians, economists, businessmen, lawyers, politicians and government
516 officials -- were not unfamiliar with the practices of foreign corporations and multinationals.

517 Neither were they so naïve as to believe that these entities would provide "assistance" without conditionalities or some quid
518 pro quo. Definitely, as business persons well know and as a matter of judicial notice, this matter is not just a question of
519 signing a promissory note or executing a technology transfer agreement. Foreign corporations usually require that they be
520 given a say in the management, for instance, of day-to-day operations of the joint venture. They would demand the
521 appointment of their own men as, for example, operations managers, technical experts, quality control heads, internal
522 auditors or comptrollers. Furthermore, they would probably require seats on the Board of Directors -- all these to ensure the
523 success of the enterprise and the repayment of the loans and other financial assistance and to make certain that the funding
524 and the technology they supply would not go to waste. Ultimately, they would also want to protect their business reputation
525 and bottom lines.42

526 In short, the drafters will have to be credited with enough pragmatism and savvy to know that these foreign entities will not
527 enter into such "agreements involving assistance" without requiring arrangements for the protection of their investments,
528 gains and benefits.

529 Thus, by specifying such "agreements involving assistance," the drafters necessarily gave implied assent to everything that
530 these agreements necessarily entailed; or that could reasonably be deemed necessary to make them tenable and effective,
531 including management authority with respect to the day-to-day operations of the enterprise and measures for the protection
532 of the interests of the foreign corporation, PROVIDED THAT Philippine sovereignty over natural resources and full control
533 over the enterprise undertaking the EDU activities remain firmly in the State.

534 Petitioners' Theory Deflated by the

535 Absence of Closing-Out Rules or Guidelines

536 Seventh and final point regarding the plain-language approach, one of the practical difficulties that results from it is the fact
537 that there is nothing by way of transitory provisions that would serve to confirm the theory that the omission of the term
538 "service contract" from the 1987 Constitution signaled the demise of service contracts.

539 The framers knew at the time they were deliberating that there were various service contracts extant and in force and effect,
540 including those in the petroleum industry. Many of these service contracts were long-term (25 years) and had several more
541 years to run. If they had meant to ban service contracts altogether, they would have had to provide for the termination or
542 pretermination of the existing contracts. Accordingly, they would have supplied the specifics and the when and how of
543 effecting the extinguishment of these existing contracts (or at least the mechanics for determining them); and of putting in
544 place the means to address the just claims of the contractors for compensation for their investments, lost opportunities, and
545 so on, if not for the recovery thereof.

546 If the framers had intended to put an end to service contracts, they would have at least left specific instructions to Congress
547 to deal with these closing-out issues, perhaps by way of general guidelines and a timeline within which to carry them out.
548 The following are some extant examples of such transitory guidelines set forth in Article XVIII of our Constitution:

549 "Section 23. Advertising entities affected by paragraph (2), Section 11 of Article XVI of this Constitution shall have five years
550 from its ratification to comply on a graduated and proportionate basis with the minimum Filipino ownership requirement
551 therein.

552 xxxxxxxxx

553 "Section 25. After the expiration in 1991 of the Agreement between the Republic of the Philippines and the United States of
554 America concerning military bases, foreign military bases, troops, or facilities shall not be allowed in the Philippines except

Page 12
555 under a treaty duly concurred in by the Senate and, when the Congress so requires, ratified by a majority of the votes cast by
556 the people in a national referendum held for that purpose, and recognized as a treaty by the other contracting State.

557 "Section 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986 in relation
558 to the recovery of ill-gotten wealth shall remain operative for not more than eighteen months after the ratification of this
559 Constitution. However, in the national interest, as certified by the President, the Congress may extend such period.

560 A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the list of the
561 sequestered or frozen properties shall forthwith be registered with the proper court. For orders issued before the ratification
562 of this Constitution, the corresponding judicial action or proceeding shall be filed within six months from its ratification. For
563 those issued after such ratification, the judicial action or proceeding shall be commenced within six months from the issuance
564 thereof.

565 The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as herein
566 provided." 43]

567 It is inconceivable that the drafters of the Constitution would leave such an important matter -- an expression of sovereignty
568 as it were -- indefinitely hanging in the air in a formless and ineffective state. Indeed, the complete absence of even a general
569 framework only serves to further deflate petitioners' theory, like a child's balloon losing its air.

570 Under the circumstances, the logical inconsistencies resulting from petitioners' literal and purely verba legisapproach to
571 paragraph 4 of Section 2 of Article XII compel a resort to other aids to interpretation.

572 Petitioners' Posture Also Negated

573 by Ratio Legis Et Anima

574 Thus, in order to resolve the inconsistencies, incongruities and ambiguities encountered and to supply the deficiencies of the
575 plain-language approach, there is a need for recourse to the proceedings of the 1986 Constitutional Commission. There is a
576 need for ratio legis et anima.

577 Service Contracts Not

578 "Deconstitutionalized"

579 Pertinent portions of the deliberations of the members of the Constitutional Commission (ConCom) conclusively show that
580 they discussed agreements involving either technical or financial assistance in the same breadth as service contracts and
581 used the terms interchangeably. The following exchange between Commissioner Jamir (sponsor of the provision) and
582 Commissioner Suarez irrefutably proves that the "agreements involving technical or financial assistance" were none other
583 than service contracts.

584 THE PRESIDENT. Commissioner Jamir is recognized. We are still on Section 3.

585 MR. JAMIR. Yes, Madam President. With respect to the second paragraph of Section 3, my amendment by substitution
586 reads: THE PRESIDENT MAY ENTER INTO AGREEMENTS WITH FOREIGN-OWNED CORPORATIONS INVOLVING
587 EITHER TECHNICAL OR FINANCIAL ASSISTANCE FOR LARGE-SCALE EXPLORATION, DEVELOPMENT AND
588 UTILIZATION OF NATURAL RESOURCES ACCORDING TO THE TERMS AND CONDITIONS PROVIDED BY LAW.

589 MR. VILLEGAS. The Committee accepts the amendment. Commissioner Suarez will give the background.

590 MR. JAMIR. Thank you.

591 THE PRESIDENT. Commissioner Suarez is recognized.

592 MR. SUAREZ. Thank you, Madam President.

593 Will Commissioner Jamir answer a few clarificatory questions?

594 MR. JAMIR. Yes, Madam President.

Page 13
595 MR. SUAREZ. This particular portion of the section has reference to what was popularly known before as service contracts,
596 among other things, is that correct?

597 MR. JAMIR. Yes, Madam President.

598 MR. SUAREZ. As it is formulated, the President may enter into service contracts but subject to the guidelines that may be
599 promulgated by Congress?

600 MR. JAMIR. That is correct.

601 MR. SUAREZ. Therefore, that aspect of negotiation and consummation will fall on the President, not upon Congress?

602 MR. JAMIR. That is also correct, Madam President.

603 MR. SUAREZ. Except that all of these contracts, service or otherwise, must be made strictly in accordance with guidelines
604 prescribed by Congress?

605 MR. JAMIR. That is also correct.

606 MR. SUAREZ. And the Gentleman is thinking in terms of a law that uniformly covers situations of the same nature?

607 MR. JAMIR. That is 100 percent correct.

608 MR. SUAREZ. I thank the Commissioner.

609 MR. JAMIR. Thank you very much.44

610 The following exchange leaves no doubt that the commissioners knew exactly what they were dealing with: service contracts.

611 THE PRESIDENT. Commissioner Gascon is recognized.

612 MR. GASCON. Commissioner Jamir had proposed an amendment with regard to special service contractswhich was accepted
613 by the Committee. Since the Committee has accepted it, I would like to ask some questions.

614 THE PRESIDENT. Commissioner Gascon may proceed.

615 MR. GASCON. As it is proposed now, such service contracts will be entered into by the President with the guidelines of a
616 general law on service contract to be enacted by Congress. Is that correct?

617 MR. VILLEGAS. The Commissioner is right, Madam President.

618 MR. GASCON. According to the original proposal, if the President were to enter into a particular agreement, he would need
619 the concurrence of Congress. Now that it has been changed by the proposal of Commissioner Jamir in that Congress will set
620 the general law to which the President shall comply, the President will, therefore, not need the concurrence of Congress
621 every time he enters into service contracts. Is that correct?

622 MR. VILLEGAS. That is right.

623 MR. GASCON. The proposed amendment of Commissioner Jamir is in indirect contrast to my proposed amendment, so I
624 would like to object and present my proposed amendment to the body.

625 xxxxxxxxx

626 MR. GASCON. Yes, it will be up to the body.

627 I feel that the general law to be set by Congress as regard service contract agreements which the President will enter into
628 might be too general or since we do not know the content yet of such a law, it might be that certain agreements will be
629 detrimental to the interest of the Filipinos. This is in direct contrast to my proposal which provides that there be effective
630 constraints in the implementation of service contracts.

Page 14
631 So instead of a general law to be passed by Congress to serve as a guideline to the President when entering into service
632 contract agreements, I propose that every service contract entered into by the President would need the concurrence of
633 Congress, so as to assure the Filipinos of their interests with regard to the issue in Section 3 on all lands of the public
634 domain. My alternative amendment, which we will discuss later, reads: THAT THE PRESIDENT SHALL ENTER INTO
635 SUCH AGREEMENTS ONLY WITH THE CONCURRENCE OF TWO-THIRDS VOTE OF ALL THE MEMBERS OF
636 CONGRESS SITTING SEPARATELY.

637 xxxxxxxxx

638 MR. BENGZON. The reason we made that shift is that we realized the original proposal could breed corruption. By the way,
639 this is not just confined to service contracts but also to financial assistance. If we are going to make every single contract
640 subject to the concurrence of Congress – which, according to the Commissioner's amendment is the concurrence of two-thirds
641 of Congress voting separately – then (1) there is a very great chance that each contract will be different from another; and (2)
642 there is a great temptation that it would breed corruption because of the great lobbying that is going to happen. And we do
643 not want to subject our legislature to that.

644 Now, to answer the Commissioner's apprehension, by "general law," we do not mean statements of motherhood. Congress can
645 build all the restrictions that it wishes into that general law so that every contract entered into by the President under that
646 specific area will have to be uniform. The President has no choice but to follow all the guidelines that will be provided by law.

647 MR. GASCON. But my basic problem is that we do not know as of yet the contents of such a general law as to how much
648 constraints there will be in it. And to my mind, although the Committee's contention that the regular concurrence from
649 Congress would subject Congress to extensive lobbying, I think that is a risk we will have to take since Congress is a body of
650 representatives of the people whose membership will be changing regularly as there will be changing circumstances every
651 time certain agreements are made. It would be best then to keep in tab and attuned to the interest of the Filipino people,
652 whenever the President enters into any agreement with regard to such an important matter as technical or financial
653 assistance for large-scale exploration, development and utilization of natural resources or service contracts, the people's
654 elected representatives should be on top of it.

655 xxxxxxxxx

656 MR. OPLE. Madam President, we do not need to suspend the session. If Commissioner Gascon needs a few minutes, I can fill
657 up the remaining time while he completes his proposed amendment. I just wanted to ask Commissioner Jamir whether he
658 would entertain a minor amendment to his amendment, and it reads as follows: THE PRESIDENT SHALL
659 SUBSEQUENTLY NOTIFY CONGRESS OF EVERY SERVICE CONTRACT ENTERED INTO IN ACCORDANCE WITH
660 THE GENERAL LAW. I think the reason is, if I may state it briefly, as Commissioner Bengzon said, Congress can always
661 change the general law later on to conform to new perceptions of standards that should be built into service contracts. But
662 the only way Congress can do this is if there were a notification requirement from the Office of the President that
663 such service contracts had been entered into, subject then to the scrutiny of the Members of Congress. This pertains to a
664 situation where the service contracts are already entered into, and all that this amendment seeks is the reporting
665 requirement from the Office of the President. Will Commissioner Jamir entertain that?

666 MR. JAMIR. I will gladly do so, if it is still within my power.

667 MR. VILLEGAS. Yes, the Committee accepts the amendment.

668 xxxxxxxxx

669 SR. TAN. Madam President, may I ask a question?

670 THE PRESIDENT. Commissioner Tan is recognized.

671 SR. TAN. Am I correct in thinking that the only difference between these future service contracts and the past service
672 contracts under Mr. Marcos is the general law to be enacted by the legislature and the notification of Congress by the
673 President? That is the only difference, is it not?

674 MR. VILLEGAS. That is right.

Page 15
675 SR. TAN. So those are the safeguards.

676 MR. VILLEGAS. Yes. There was no law at all governing service contracts before.

677 SR. TAN. Thank you, Madam President.45

678 More Than Mere Financial

679 and Technical Assistance
680 Entailed by the Agreements

681 The clear words of Commissioner Jose N. Nolledo quoted below explicitly and eloquently demonstrate that the drafters knew
682 that the agreements with foreign corporations were going to entail not mere technical or financial assistance but,
683 rather, foreign investment in and management of an enterprise involved in large-scale exploration, development and
684 utilization of minerals, petroleum, and other mineral oils.

685 THE PRESIDENT. Commissioner Nolledo is recognized.

686 MR. NOLLEDO. Madam President, I have the permission of the Acting Floor Leader to speak for only two minutes in favor
687 of the amendment of Commissioner Gascon.

688 THE PRESIDENT. Commissioner Nolledo may proceed.

689 MR. NOLLEDO. With due respect to the members of the Committee and Commissioner Jamir, I am in favor of the objection
690 of Commissioner Gascon.

691 Madam President, I was one of those who refused to sign the 1973 Constitution, and one of the reasons is that there were
692 many provisions in the Transitory Provisions therein that favored aliens. I was shocked when I read a provision
693 authorizing service contracts while we, in this Constitutional Commission, provided for Filipino control of the economy. We
694 are, therefore, providing for exceptional instances where aliens may circumvent Filipino control of our economy. And one way
695 of circumventing the rule in favor of Filipino control of the economy is to recognize service contracts.

696 As far as I am concerned, if I should have my own way, I am for the complete deletion of this provision. However, we are
697 presenting a compromise in the sense that we are requiring a two-thirds vote of all the Members of Congress as a safeguard.
698 I think we should not mistrust the future Members of Congress by saying that the purpose of this provision is to avoid
699 corruption. We cannot claim that they are less patriotic than we are. I think the Members of this Commission should know
700 that entering into service contracts is an exception to the rule on protection of natural resources for the interest of the nation,
701 and therefore, being an exception it should be subject, whenever possible, to stringent rules. It seems to me that we are
702 liberalizing the rules in favor of aliens.

703 I say these things with a heavy heart, Madam President. I do not claim to be a nationalist, but I love my country. Although
704 we need investments, we must adopt safeguards that are truly reflective of the sentiments of the people and not mere
705 cosmetic safeguards as they now appear in the Jamir amendment. (Applause)

706 Thank you, Madam President.46

707 Another excerpt, featuring then Commissioner (now Chief Justice) Hilario G. Davide Jr., indicates the limitations of the
708 scope of such service contracts -- they are valid only in regard to minerals, petroleum and other mineral oils, not to all
709 natural resources.

710 THE PRESIDENT. Commissioner Davide is recognized.

711 MR. DAVIDE. Thank you, Madam President. This is an amendment to the Jamir amendment and also to the Ople
712 amendment. I propose to delete "NATURAL RESOURCES" and substitute it with the following: MINERALS, PETROLEUM
713 AND OTHER MINERAL OILS. On the Ople amendment, I propose to add: THE NOTIFICATION TO CONGRESS SHALL
714 BE WITHIN THIRTY DAYS FROM THE EXECUTION OF THE SERVICE CONTRACT.

715 THE PRESIDENT. What does the Committee say with respect to the first amendment in lieu of "NATURAL RESOURCES"?

716 MR. VILLEGAS. Could Commissioner Davide explain that?

Page 16
717 MR. DAVIDE. Madam President, with the use of "NATURAL RESOURCES" here, it would necessarily include all lands of
718 the public domain, our marine resources, forests, parks and so on. So we would like to limit the scope of these service
719 contracts to those areas really where these may be needed, the exploitation, development and exploration of minerals,
720 petroleum and other mineral oils. And so, we believe that we should really, if we want to grant service contracts at all, limit
721 the same to only those particular areas where Filipino capital may not be sufficient, and not to all natural resources.

722 MR. SUAREZ. Just a point of clarification again, Madam President. When the Commissioner made those enumerations and
723 specifications, I suppose he deliberately did not include "agricultural land"?

724 MR. DAVIDE. That is precisely the reason we have to enumerate what these resources are into which service contracts may
725 enter. So, beyond the reach of any service contract will be lands of the public domain, timberlands, forests, marine resources,
726 fauna and flora, wildlife and national parks.47

727 After the Jamir amendment was voted upon and approved by a vote of 21 to 10 with 2 abstentions, Commissioner Davide
728 made the following statement, which is very relevant to our quest:

729 THE PRESIDENT. Commissioner Davide is recognized.

730 MR. DAVIDE. I am very glad that Commissioner Padilla emphasized minerals, petroleum and mineral oils. The Commission
731 has just approved the possible foreign entry into the development, exploration and utilization of these minerals, petroleum
732 and other mineral oils by virtue of the Jamir amendment. I voted in favor of the Jamir amendment because it will eventually
733 give way to vesting in exclusively Filipino citizens and corporations wholly owned by Filipino citizens the right to utilize the
734 other natural resources. This means that as a matter of policy, natural resources should be utilized and exploited only by
735 Filipino citizens or corporations wholly owned by such citizens. But by virtue of the Jamir amendment, since we feel that
736 Filipino capital may not be enough for the development and utilization of minerals, petroleum and other mineral oils, the
737 President can enter into service contracts with foreign corporations precisely for the development and utilization of such
738 resources. And so, there is nothing to fear that we will stagnate in the development of minerals, petroleum and mineral
739 oils because we now allow service contracts. x x x."48

740 The foregoing are mere fragments of the framers' lengthy discussions of the provision dealing with agreements x x x
741 involving either technical or financial assistance, which ultimately became paragraph 4 of Section 2 of Article XII of the
742 Constitution. Beyond any doubt, the members of the ConCom were actually debating about the martial-law-era service
743 contracts for which they were crafting appropriate safeguards.

744 In the voting that led to the approval of Article XII by the ConCom, the explanations given by Commissioners Gascon, Garcia
745 and Tadeo indicated that they had voted to reject this provision on account of their objections to the "constitutionalization" of
746 the "service contract" concept.

747 Mr. Gascon said, "I felt that if we would constitutionalize any provision on service contracts, this should always be with the
748 concurrence of Congress and not guided only by a general law to be promulgated by Congress." 49 Mr. Garcia
749 explained, "Service contracts are given constitutional legitimization in Sec. 3, even when they have been proven to be
750 inimical to the interests of the nation, providing, as they do, the legal loophole for the exploitation of our natural resources
751 for the benefit of foreign interests."50 Likewise, Mr. Tadeo cited inter alia the fact that service contracts continued to subsist,
752 enabling foreign interests to benefit from our natural resources.51 It was hardly likely that these gentlemen would have
753 objected so strenuously, had the provision called for mere technical or financial assistance and nothing more.

754 The deliberations of the ConCom and some commissioners' explanation of their votes leave no room for doubt that the service
755 contract concept precisely underpinned the commissioners' understanding of the "agreements involving either technical or
756 financial assistance."

757 Summation of the

758 Concom Deliberations

759 At this point, we sum up the matters established, based on a careful reading of the ConCom deliberations, as follows:

760 · In their deliberations on what was to become paragraph 4, the framers used the term service contracts in referring
761 to agreements x x x involving either technical or financial assistance.

Page 17
762 · They spoke of service contracts as the concept was understood in the 1973 Constitution.

763 · It was obvious from their discussions that they were not about to ban or eradicate service contracts.

764 · Instead, they were plainly crafting provisions to put in place safeguards that would eliminate or minimize the abuses
765 prevalent during the marital law regime. In brief, they were going to permit service contracts with foreign corporations as
766 contractors, but with safety measures to prevent abuses, as an exception to the general norm established in the first
767 paragraph of Section 2 of Article XII. This provision reserves or limits to Filipino citizens -- and corporations at least 60
768 percent of which is owned by such citizens -- the exploration, development and utilization of natural resources.

769 · This provision was prompted by the perceived insufficiency of Filipino capital and the felt need for foreign investments in
770 the EDU of minerals and petroleum resources.

771 · The framers for the most part debated about the sort of safeguards that would be considered adequate and reasonable. But
772 some of them, having more "radical" leanings, wanted to ban service contracts altogether; for them, the provision would
773 permit aliens to exploit and benefit from the nation's natural resources, which they felt should be reserved only for Filipinos.

774 · In the explanation of their votes, the individual commissioners were heard by the entire body. They sounded off their
775 individual opinions, openly enunciated their philosophies, and supported or attacked the provisions with fervor. Everyone's
776 viewpoint was heard.

777 · In the final voting, the Article on the National Economy and Patrimony -- including paragraph 4 allowing service contracts
778 with foreign corporations as an exception to the general norm in paragraph 1 of Section 2 of the same article -- was
779 resoundingly approved by a vote of 32 to 7, with 2 abstentions.

780 Agreements Involving Technical

781 or Financial Assistance Are

782 Service Contracts With Safeguards

783 From the foregoing, we are impelled to conclude that the phrase agreements involving either technical or financial
784 assistance, referred to in paragraph 4, are in fact service contracts. But unlike those of the 1973 variety, the new ones are
785 between foreign corporations acting as contractors on the one hand; and on the other, the government as principal or "owner"
786 of the works. In the new service contracts, the foreign contractors provide capital, technology and technical know-how, and
787 managerial expertise in the creation and operation of large-scale mining/extractive enterprises; and the government, through
788 its agencies (DENR, MGB), actively exercises control and supervision over the entire operation.

789 Such service contracts may be entered into only with respect to minerals, petroleum and other mineral oils . The grant
790 thereof is subject to several safeguards, among which are these requirements:

791 (1) The service contract shall be crafted in accordance with a general law that will set standard or uniform terms, conditions
792 and requirements, presumably to attain a certain uniformity in provisions and avoid the possible insertion of terms
793 disadvantageous to the country.

794 (2) The President shall be the signatory for the government because, supposedly before an agreement is presented to the
795 President for signature, it will have been vetted several times over at different levels to ensure that it conforms to law and
796 can withstand public scrutiny.

797 (3) Within thirty days of the executed agreement, the President shall report it to Congress to give that branch of government
798 an opportunity to look over the agreement and interpose timely objections, if any.

799 Use of the Record of the

800 ConCom to Ascertain Intent

801 At this juncture, we shall address, rather than gloss over, the use of the "framers' intent" approach, and the criticism hurled
802 by petitioners who quote a ruling of this Court:

Page 18
803 "While it is permissible in this jurisdiction to consult the debates and proceedings of the constitutional convention in order to
804 arrive at the reason and purpose of the resulting Constitution, resort thereto may be had only when other guides fail as said
805 proceedings are powerless to vary the terms of the Constitution when the meaning is clear. Debates in the constitutional
806 convention 'are of value as showing the views of the individual members, and as indicating the reason for their votes, but
807 they give us no light as to the views of the large majority who did not talk, much less the mass of our fellow citizens whose
808 votes at the polls gave that instrument the force of fundamental law. We think it safer to construe the constitution from what
809 appears upon its face.' The proper interpretation therefore depends more on how it was understood by the people adopting it
810 than in the framers' understanding thereof."52

811 The notion that the deliberations reflect only the views of those members who spoke out and not the views of the majority
812 who remained silent should be clarified. We must never forget that those who spoke out were heard by those who remained
813 silent and did not react. If the latter were silent because they happened not to be present at the time, they are presumed to
814 have read the minutes and kept abreast of the deliberations. By remaining silent, they are deemed to have signified their
815 assent to and/or conformity with at least some of the views propounded or their lack of objections thereto. It was incumbent
816 upon them, as representatives of the entire Filipino people, to follow the deliberations closely and to speak their minds on the
817 matter if they did not see eye to eye with the proponents of the draft provisions.

818 In any event, each and every one of the commissioners had the opportunity to speak out and to vote on the matter. Moreover,
819 the individual explanations of votes are on record, and they show where each delegate stood on the issues. In sum, we cannot
820 completely denigrate the value or usefulness of the record of the ConCom, simply because certain members chose not to
821 speak out.

822 It is contended that the deliberations therein did not necessarily reflect the thinking of the voting population that
823 participated in the referendum and ratified the Constitution. Verily, whether we like it or not, it is a bit too much to assume
824 that every one of those who voted to ratify the proposed Charter did so only after carefully reading and mulling over it,
825 provision by provision.

826 Likewise, it appears rather extravagant to assume that every one of those who did in fact bother to read the draft Charter
827 actually understood the import of its provisions, much less analyzed it vis-à-vis the previous Constitutions. We believe that
828 in reality, a good percentage of those who voted in favor of it did so more out of faith and trust. For them, it was the product
829 of the hard work and careful deliberation of a group of intelligent, dedicated and trustworthy men and women of integrity
830 and conviction, whose love of country and fidelity to duty could not be questioned.

831 In short, a large proportion of the voters voted "yes" because the drafters, or a majority of them, endorsed the proposed
832 Constitution. What this fact translates to is the inescapable conclusion that many of the voters in the referendum did not
833 form their own isolated judgment about the draft Charter, much less about particular provisions therein. They only relied or
834 fell back and acted upon the favorable endorsement or recommendation of the framers as a group. In other words, by
835 voting yes, they may be deemed to have signified their voluntary adoption of the understanding and interpretation of the
836 delegates with respect to the proposed Charter and its particular provisions. "If it's good enough for them, it's good enough
837 for me;" or, in many instances, "If it's good enough for President Cory Aquino, it's good enough for me."

838 And even for those who voted based on their own individual assessment of the proposed Charter, there is no evidence
839 available to indicate that their assessment or understanding of its provisions was in fact different from that of the drafters.
840 This unwritten assumption seems to be petitioners' as well. For all we know, this segment of voters must have read and
841 understood the provisions of the Constitution in the same way the framers had, an assumption that would account for the
842 favorable votes.

843 Fundamentally speaking, in the process of rewriting the Charter, the members of the ConCom as a group were supposed to
844 represent the entire Filipino people. Thus, we cannot but regard their views as being very much indicative of the thinking of
845 the people with respect to the matters deliberated upon and to the Charter as a whole.

846 It is therefore reasonable and unavoidable to make the following conclusion, based on the above arguments. As written by
847 the framers and ratified and adopted by the people, the Constitution allows the continued use of service contracts with
848 foreign corporations -- as contractors who would invest in and operate and manage extractive enterprises, subject to the full
849 control and supervision of the State -- sans the abuses of the past regime. The purpose is clear: to develop and utilize our
850 mineral, petroleum and other resources on a large scale for the immediate and tangible benefit of the Filipino people.

Page 19
851 In view of the foregoing discussion, we should reverse the Decision of January 27, 2004, and in fact now hold a view different
852 from that of the Decision, which had these findings: (a) paragraph 4 of Section 2 of Article XII limits foreign involvement in
853 the local mining industry to agreements strictly for either financial or technical assistance only; (b) the same paragraph
854 precludes agreements that grant to foreign corporations the management of local mining operations, as such agreements are
855 purportedly in the nature of service contracts as these were understood under the 1973 Constitution; (c) these service
856 contracts were supposedly "de-constitutionalized" and proscribed by the omission of the term service contracts from the 1987
857 Constitution; (d) since the WMCP FTAA contains provisions permitting the foreign contractor to manage the concern, the
858 said FTAA is invalid for being a prohibited service contract; and (e) provisions of RA 7942 and DAO 96-40, which likewise
859 grant managerial authority to the foreign contractor, are also invalid and unconstitutional.

860 Ultimate Test: State's "Control"

861 Determinative of Constitutionality

862 But we are not yet at the end of our quest. Far from it. It seems that we are confronted with a possible collision of
863 constitutional provisions. On the one hand, paragraph 1 of Section 2 of Article XII explicitly mandates the State to exercise
864 "full control and supervision" over the exploration, development and utilization of natural resources. On the other hand,
865 paragraph 4 permits safeguarded service contracts with foreign contractors. Normally, pursuant thereto, the contractors
866 exercise management prerogatives over the mining operations and the enterprise as a whole. There is thus a legitimate
867 ground to be concerned that either the State's full control and supervision may rule out any exercise of management
868 authority by the foreign contractor; or, the other way around, allowing the foreign contractor full management prerogatives
869 may ultimately negate the State's full control and supervision.

870 Ut Magis Valeat

871 Quam Pereat

872 Under the third principle of constitutional construction laid down in Francisco -- ut magis valeat quam pereat -- every part of
873 the Constitution is to be given effect, and the Constitution is to be read and understood as a harmonious whole. Thus, "full
874 control and supervision" by the State must be understood as one that does not preclude the legitimate exercise of
875 management prerogatives by the foreign contractor. Before any further discussion, we must stress the primacy and
876 supremacy of the principle of sovereignty and State control and supervision over all aspects of exploration, development and
877 utilization of the country's natural resources, as mandated in the first paragraph of Section 2 of Article XII.

878 But in the next breadth we have to point out that "full control and supervision" cannot be taken literally to mean that the
879 State controls and supervises everything involved, down to the minutest details , and makes all decisions required in the
880 mining operations. This strained concept of control and supervision over the mining enterprise would render impossible the
881 legitimate exercise by the contractors of a reasonable degree of management prerogative and authority necessary and
882 indispensable to their proper functioning.

883 For one thing, such an interpretation would discourage foreign entry into large-scale exploration, development and
884 utilization activities; and result in the unmitigated stagnation of this sector, to the detriment of our nation's development.
885 This scenario renders paragraph 4 inoperative and useless. And as respondents have correctly pointed out, the government
886 does not have to micro-manage the mining operations and dip its hands into the day-to-day affairs of the enterprise in order
887 for it to be considered as having full control and supervision.

888 The concept of control53 adopted in Section 2 of Article XII must be taken to mean less than dictatorial, all-encompassing
889 control; but nevertheless sufficient to give the State the power to direct, restrain, regulate and govern the affairs of the
890 extractive enterprises. Control by the State may be on a macro level, through the establishment of policies, guidelines,
891 regulations, industry standards and similar measures that would enable the government to control the conduct of affairs in
892 various enterprises and restrain activities deemed not desirable or beneficial.

893 The end in view is ensuring that these enterprises contribute to the economic development and general welfare of the
894 country, conserve the environment, and uplift the well-being of the affected local communities. Such a concept of control
895 would be compatible with permitting the foreign contractor sufficient and reasonable management authority over the
896 enterprise it invested in, in order to ensure that it is operating efficiently and profitably, to protect its investments and to
897 enable it to succeed.

Page 20
898 The question to be answered, then, is whether RA 7942 and its Implementing Rules enable the government to exercise that
899 degree of control sufficient to direct and regulate the conduct of affairs of individual enterprises and restrain undesirable
900 activities.

901 On the resolution of these questions will depend the validity and constitutionality of certain provisions of the Philippine
902 Mining Act of 1995 (RA 7942) and its Implementing Rules and Regulations (DAO 96-40), as well as the WMCP FTAA.

903 Indeed, petitioners charge54 that RA 7942, as well as its Implementing Rules and Regulations, makes it possible for FTAA
904 contracts to cede full control and management of mining enterprises over to fully foreign-owned corporations, with the result
905 that the State is allegedly reduced to a passive regulator dependent on submitted plans and reports, with weak review and
906 audit powers. The State does not supposedly act as the owner of the natural resources for and on behalf of the Filipino
907 people; it practically has little effective say in the decisions made by the enterprise. Petitioners then conclude that the law,
908 the implementing regulations, and the WMCP FTAA cede "beneficial ownership" of the mineral resources to the foreign
909 contractor.

910 A careful scrutiny of the provisions of RA 7942 and its Implementing Rules belies petitioners' claims. Paraphrasing the
911 Constitution, Section 4 of the statute clearly affirms the State's control thus:

912 "Sec. 4. Ownership of Mineral Resources. – Mineral resources are owned by the State and the exploration, development,
913 utilization and processing thereof shall be under its full control and supervision. The State may directly undertake such
914 activities or it may enter into mineral agreements with contractors.

915 "The State shall recognize and protect the rights of the indigenous cultural communities to their ancestral lands as provided
916 for by the Constitution."

917 The aforequoted provision is substantively reiterated in Section 2 of DAO 96-40 as follows:

918 "Sec. 2. Declaration of Policy. All mineral resources in public and private lands within the territory and exclusive economic
919 zone of the Republic of the Philippines are owned by the State. It shall be the responsibility of the State to promote their
920 rational exploration, development, utilization and conservation through the combined efforts of the Government and private
921 sector in order to enhance national growth in a way that effectively safeguards the environment and protects the rights of
922 affected communities."

923 Sufficient Control Over Mining

924 Operations Vested in the State
925 by RA 7942 and DAO 96-40

926 RA 7942 provides for the State's control and supervision over mining operations. The following provisions thereof establish
927 the mechanism of inspection and visitorial rights over mining operations and institute reportorial requirements in this
928 manner:

929 1. Sec. 8 which provides for the DENR's power of over-all supervision and periodic review for "the conservation, management,
930 development and proper use of the State's mineral resources";

931 2. Sec. 9 which authorizes the Mines and Geosciences Bureau (MGB) under the DENR to exercise "direct charge in the
932 administration and disposition of mineral resources", and empowers the MGB to "monitor the compliance by the contractor of
933 the terms and conditions of the mineral agreements", "confiscate surety and performance bonds", and deputize whenever
934 necessary any member or unit of the Phil. National Police, barangay, duly registered non-governmental organization (NGO)
935 or any qualified person to police mining activities;

936 3. Sec. 66 which vests in the Regional Director "exclusive jurisdiction over safety inspections of all installations, whether
937 surface or underground", utilized in mining operations.

938 4. Sec. 35, which incorporates into all FTAAs the following terms, conditions and warranties:

939 "(g) Mining operations shall be conducted in accordance with the provisions of the Act and its IRR.

940 "(h) Work programs and minimum expenditures commitments.

Page 21
941 xxxxxxxxx

942 "(k) Requiring proponent to effectively use appropriate anti-pollution technology and facilities to protect the environment and
943 restore or rehabilitate mined-out areas.

944 "(l) The contractors shall furnish the Government records of geologic, accounting and other relevant data for its mining
945 operation, and that books of accounts and records shall be open for inspection by the government. x x x.

946 "(m) Requiring the proponent to dispose of the minerals at the highest price and more advantageous terms and conditions.

947 "(n) x x x x x x x x x

948 "(o) Such other terms and conditions consistent with the Constitution and with this Act as the Secretary may deem to be for
949 the best interest of the State and the welfare of the Filipino people."

950 The foregoing provisions of Section 35 of RA 7942 are also reflected and implemented in Section 56 (g), (h), (l), (m) and (n) of
951 the Implementing Rules, DAO 96-40.

952 Moreover, RA 7942 and DAO 96-40 also provide various stipulations confirming the government's control over mining
953 enterprises:

954 · The contractor is to relinquish to the government those portions of the contract area not needed for mining operations and
955 not covered by any declaration of mining feasibility (Section 35-e, RA 7942; Section 60, DAO 96-40).

956 · The contractor must comply with the provisions pertaining to mine safety, health and environmental protection (Chapter
957 XI, RA 7942; Chapters XV and XVI, DAO 96-40).

958 · For violation of any of its terms and conditions, government may cancel an FTAA. (Chapter XVII, RA 7942; Chapter XXIV,
959 DAO 96-40).

960 · An FTAA contractor is obliged to open its books of accounts and records for inspection by the government (Section 56-m,
961 DAO 96-40).

962 · An FTAA contractor has to dispose of the minerals and by-products at the highest market price and register with the MGB
963 a copy of the sales agreement (Section 56-n, DAO 96-40).

964 · MGB is mandated to monitor the contractor's compliance with the terms and conditions of the FTAA; and to deputize, when
965 necessary, any member or unit of the Philippine National Police, the barangay or a DENR-accredited nongovernmental
966 organization to police mining activities (Section 7-d and -f, DAO 96-40).

967 · An FTAA cannot be transferred or assigned without prior approval by the President (Section 40, RA 7942; Section 66, DAO
968 96-40).

969 · A mining project under an FTAA cannot proceed to the construction/development/utilization stage, unless its Declaration of
970 Mining Project Feasibility has been approved by government (Section 24, RA 7942).

971 · The Declaration of Mining Project Feasibility filed by the contractor cannot be approved without submission of the following
972 documents:

973 1. Approved mining project feasibility study (Section 53-d, DAO 96-40)

974 2. Approved three-year work program (Section 53-a-4, DAO 96-40)

975 3. Environmental compliance certificate (Section 70, RA 7942)

976 4. Approved environmental protection and enhancement program (Section 69, RA 7942)

977 5. Approval by the Sangguniang Panlalawigan/Bayan/Barangay (Section 70, RA 7942; Section 27, RA 7160)

Page 22
 978 6. Free and prior informed consent by the indigenous peoples concerned, including payment of royalties through a
979 Memorandum of Agreement (Section 16, RA 7942; Section 59, RA 8371)

980 · The FTAA contractor is obliged to assist in the development of its mining community, promotion of the general welfare of
981 its inhabitants, and development of science and mining technology (Section 57, RA 7942).

982 · The FTAA contractor is obliged to submit reports (on quarterly, semi-annual or annual basis as the case may be; per
983 Section 270, DAO 96-40), pertaining to the following:

984 1. Exploration

985 2. Drilling

986 3. Mineral resources and reserves

987 4. Energy consumption

988 5. Production

989 6. Sales and marketing

990 7. Employment

991 8. Payment of taxes, royalties, fees and other Government Shares

992 9. Mine safety, health and environment

993 10. Land use

994 11. Social development

995 12. Explosives consumption

996 · An FTAA pertaining to areas within government reservations cannot be granted without a written clearance from the
997 government agencies concerned (Section 19, RA 7942; Section 54, DAO 96-40).

998 · An FTAA contractor is required to post a financial guarantee bond in favor of the government in an amount equivalent to
999 its expenditures obligations for any particular year. This requirement is apart from the representations and warranties of
1000 the contractor that it has access to all the financing, managerial and technical expertise and technology necessary to carry
1001 out the objectives of the FTAA (Section 35-b, -e, and -f, RA 7942).

1002 · Other reports to be submitted by the contractor, as required under DAO 96-40, are as follows: an environmental report on
1003 the rehabilitation of the mined-out area and/or mine waste/tailing covered area, and anti-pollution measures undertaken
1004 (Section 35-a-2); annual reports of the mining operations and records of geologic accounting (Section 56-m); annual progress
1005 reports and final report of exploration activities (Section 56-2).

1006 · Other programs required to be submitted by the contractor, pursuant to DAO 96-40, are the following: a safety and health
1007 program (Section 144); an environmental work program (Section 168); an annual environmental protection and enhancement
1008 program (Section 171).

1009 The foregoing gamut of requirements, regulations, restrictions and limitations imposed upon the FTAA contractor by the
1010 statute and regulations easily overturns petitioners' contention. The setup under RA 7942 and DAO 96-40 hardly relegates
1011 the State to the role of a "passive regulator" dependent on submitted plans and reports. On the contrary, the government
1012 agencies concerned are empowered to approve or disapprove -- hence, to influence, direct and change -- the various work
1013 programs and the corresponding minimum expenditure commitments for each of the exploration, development and
1014 utilization phases of the mining enterprise.

1015 Once these plans and reports are approved, the contractor is bound to comply with its commitments therein. Figures for
1016 mineral production and sales are regularly monitored and subjected to government review, in order to ensure that the

Page 23
1017 products and by-products are disposed of at the best prices possible; even copies of sales agreements have to be submitted to
1018 and registered with MGB. And the contractor is mandated to open its books of accounts and records for scrutiny, so as to
1019 enable the State to determine if the government share has been fully paid.

1020 The State may likewise compel the contractor's compliance with mandatory requirements on mine safety, health and
1021 environmental protection, and the use of anti-pollution technology and facilities. Moreover, the contractor is also obligated to
1022 assist in the development of the mining community and to pay royalties to the indigenous peoples concerned.

1023 Cancellation of the FTAA may be the penalty for violation of any of its terms and conditions and/or noncompliance with
1024 statutes or regulations. This general, all-around, multipurpose sanction is no trifling matter, especially to a contractor who
1025 may have yet to recover the tens or hundreds of millions of dollars sunk into a mining project.

1026 Overall, considering the provisions of the statute and the regulations just discussed, we believe that the State definitely
1027 possesses the means by which it can have the ultimate word in the operation of the enterprise, set directions and objectives,
1028 and detect deviations and noncompliance by the contractor; likewise, it has the capability to enforce compliance and to
1029 impose sanctions, should the occasion therefor arise.

1030 In other words, the FTAA contractor is not free to do whatever it pleases and get away with it; on the contrary, it will have to
1031 follow the government line if it wants to stay in the enterprise. Ineluctably then, RA 7942 and DAO 96-40 vest in the
1032 government more than a sufficient degree of control and supervision over the conduct of mining operations.

1033 Section 3(aq) of RA 7942

1034 Not Unconstitutional

1035 An objection has been expressed that Section 3(aq)55 of RA 7942 -- which allows a foreign contractor to apply for and hold
1036 an exploration permit -- is unconstitutional. The reasoning is that Section 2 of Article XII of the Constitution does not allow
1037 foreign-owned corporations to undertake mining operations directly. They may act only as contractors of the State under an
1038 FTAA; and the State, as the party directly undertaking exploitation of its natural resources, must hold through the
1039 government all exploration permits and similar authorizations. Hence, Section 3(aq), in permitting foreign-owned
1040 corporations to hold exploration permits, is unconstitutional.

1041 The objection, however, is not well-founded. While the Constitution mandates the State to exercise full control and
1042 supervision over the exploitation of mineral resources, nowhere does it require the government to hold all exploration
1043 permits and similar authorizations. In fact, there is no prohibition at all against foreign or local corporations or contractors
1044 holding exploration permits. The reason is not hard to see.

1045 Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified person the right to conduct
1046 exploration for all minerals in specified areas. Such a permit does not amount to an authorization to extract and carry off the
1047 mineral resources that may be discovered. This phase involves nothing but expenditures for exploring the contract area and
1048 locating the mineral bodies. As no extraction is involved, there are no revenues or incomes to speak of. In short, the
1049 exploration permit is an authorization for the grantee to spend its own funds on exploration programs that are pre-approved
1050 by the government, without any right to recover anything should no minerals in commercial quantities be discovered. The
1051 State risks nothing and loses nothing by granting these permits to local or foreign firms; in fact, it stands to gain in the form
1052 of data generated by the exploration activities.

1053 Pursuant to Section 24 of RA 7942, an exploration permit grantee who determines the commercial viability of a mining area
1054 may, within the term of the permit, file with the MGB a declaration of mining project feasibility accompanied by a work
1055 program for development. The approval of the mining project feasibility and compliance with other requirements of RA 7942
1056 vests in the grantee the exclusive right to an MPSA or any other mineral agreement, or to an FTAA.

1057 Thus, the permit grantee may apply for an MPSA, a joint venture agreement, a co-production agreement, or an FTAA over
1058 the permit area, and the application shall be approved if the permit grantee meets the necessary qualifications and the terms
1059 and conditions of any such agreement. Therefore, the contractor will be in a position to extract minerals and earn revenues
1060 only when the MPSA or another mineral agreement, or an FTAA, is granted. At that point, the contractor's rights and
1061 obligations will be covered by an FTAA or a mineral agreement.

Page 24
1062 But prior to the issuance of such FTAA or mineral agreement, the exploration permit grantee (or prospective contractor)
1063 cannot yet be deemed to have entered into any contract or agreement with the State, and the grantee would definitely need
1064 to have some document or instrument as evidence of its right to conduct exploration works within the specified area. This
1065 need is met by the exploration permit issued pursuant to Sections 3(aq), 20 and 23 of RA 7942.

1066 In brief, the exploration permit serves a practical and legitimate purpose in that it protects the interests and preserves the
1067 rights of the exploration permit grantee (the would-be contractor) -- foreign or local -- during the period of time that it is
1068 spending heavily on exploration works, without yet being able to earn revenues to recoup any of its investments and
1069 expenditures. Minus this permit and the protection it affords, the exploration works and expenditures may end up benefiting
1070 only claim-jumpers. Such a possibility tends to discourage investors and contractors. Thus, Section 3(aq) of RA 7942 may not
1071 be deemed unconstitutional.

1072 The Terms of the WMCP FTAA

1073 A Deference to State Control

1074 A perusal of the WMCP FTAA also reveals a slew of stipulations providing for State control and supervision:

1075 1. The contractor is obligated to account for the value of production and sale of minerals (Clause 1.4).

1076 2. The contractor's work program, activities and budgets must be approved by/on behalf of the State (Clause 2.1).

1077 3. The DENR secretary has the power to extend the exploration period (Clause 3.2-a).

1078 4. Approval by the State is necessary for incorporating lands into the FTAA contract area (Clause 4.3-c).

1079 5. The Bureau of Forest Development is vested with discretion in regard to approving the inclusion of forest reserves as part
1080 of the FTAA contract area (Clause 4.5).

1081 6. The contractor is obliged to relinquish periodically parts of the contract area not needed for exploration and development
1082 (Clause 4.6).

1083 7. A Declaration of Mining Feasibility must be submitted for approval by the State (Clause 4.6-b).

1084 8. The contractor is obligated to report to the State its exploration activities (Clause 4.9).

1085 9. The contractor is required to obtain State approval of its work programs for the succeeding two-year periods, containing
1086 the proposed work activities and expenditures budget related to exploration (Clause 5.1).

1087 10. The contractor is required to obtain State approval for its proposed expenditures for exploration activities (Clause 5.2).

1088 11. The contractor is required to submit an annual report on geological, geophysical, geochemical and other information
1089 relating to its explorations within the FTAA area (Clause 5.3-a).

1090 12. The contractor is to submit within six months after expiration of exploration period a final report on all its findings in the
1091 contract area (Clause 5.3-b).

1092 13. The contractor, after conducting feasibility studies, shall submit a declaration of mining feasibility, along with a
1093 description of the area to be developed and mined, a description of the proposed mining operations and the technology to be
1094 employed, and a proposed work program for the development phase, for approval by the DENR secretary (Clause 5.4).

1095 14. The contractor is obliged to complete the development of the mine, including construction of the production facilities,
1096 within the period stated in the approved work program (Clause 6.1).

1097 15. The contractor is obligated to submit for approval of the DENR secretary a work program covering each period of three
1098 fiscal years (Clause 6.2).

1099 16. The contractor is to submit reports to the DENR secretary on the production, ore reserves, work accomplished and work
1100 in progress, profile of its work force and management staff, and other technical information (Clause 6.3).

Page 25
1101 17. Any expansions, modifications, improvements and replacements of mining facilities shall be subject to the approval of the
1102 secretary (Clause 6.4).

1103 18. The State has control with respect to the amount of funds that the contractor may borrow within the Philippines (Clause
1104 7.2).

1105 19. The State has supervisory power with respect to technical, financial and marketing issues (Clause 10.1-a).

1106 20. The contractor is required to ensure 60 percent Filipino equity in the contractor, within ten years of recovering specified
1107 expenditures, unless not so required by subsequent legislation (Clause 10.1).

1108 21. The State has the right to terminate the FTAA for the contractor's unremedied substantial breach thereof (Clause 13.2);

1109 22. The State's approval is needed for any assignment of the FTAA by the contractor to an entity other than an affiliate
1110 (Clause 14.1).

1111 We should elaborate a little on the work programs and budgets, and what they mean with respect to the State's ability to
1112 exercise full control and effective supervision over the enterprise. For instance, throughout the initial five-year exploration
1113 and feasibility phase of the project, the contractor is mandated by Clause 5.1 of the WMCP FTAA to submit a series of work
1114 programs (copy furnished the director of MGB) to the DENR secretary for approval. The programs will detail the contractor's
1115 proposed exploration activities and budget covering each subsequent period of two fiscal years.

1116 In other words, the concerned government officials will be informed beforehand of the proposed exploration activities and
1117 expenditures of the contractor for each succeeding two-year period, with the right to approve/disapprove them or require
1118 changes or adjustments therein if deemed necessary.

1119 Likewise, under Clause 5.2(a), the amount that the contractor was supposed to spend for exploration activities during the
1120 first contract year of the exploration period was fixed at not less than P24 million; and then for the succeeding years, the
1121 amount shall be as agreed between the DENR secretary and the contractor prior to the commencement of each subsequent
1122 fiscal year. If no such agreement is arrived upon, the previous year's expenditure commitment shall apply.

1123 This provision alone grants the government through the DENR secretary a very big say in the exploration phase of the
1124 project. This fact is not something to be taken lightly, considering that the government has absolutely no contribution to the
1125 exploration expenditures or work activities and yet is given veto power over such a critical aspect of the project. We cannot
1126 but construe as very significant such a degree of control over the project and, resultantly, over the mining enterprise itself.

1127 Following its exploration activities or feasibility studies, if the contractor believes that any part of the contract area is likely
1128 to contain an economic mineral resource, it shall submit to the DENR secretary a declaration of mining feasibility (per
1129 Clause 5.4 of the FTAA), together with a technical description of the area delineated for development and production,
1130 a description of the proposed mining operations including the technology to be used, a work program for development, an
1131 environmental impact statement, and a description of the contributions to the economic and general welfare of the country to
1132 be generated by the mining operations (pursuant to Clause 5.5).

1133 The work program for development is subject to the approval of the DENR secretary. Upon its approval, the contractor must
1134 comply with it and complete the development of the mine, including the construction of production facilities and installation
1135 of machinery and equipment, within the period provided in the approved work program for development (per Clause 6.1).

1136 Thus, notably, the development phase of the project is likewise subject to the control and supervision of the government. It
1137 cannot be emphasized enough that the proper and timely construction and deployment of the production facilities and the
1138 development of the mine are of pivotal significance to the success of the mining venture. Any missteps here will potentially
1139 be very costly to remedy. Hence, the submission of the work program for development to the DENR secretary for approval is
1140 particularly noteworthy, considering that so many millions of dollars worth of investments -- courtesy of the contractor -- are
1141 made to depend on the State's consideration and action.

1142 Throughout the operating period, the contractor is required to submit to the DENR secretary for approval, copy furnished the
1143 director of MGB, work programs covering each period of three fiscal years (per Clause 6.2). During the same period (per
1144 Clause 6.3), the contractor is mandated to submit various quarterly and annual reports to the DENR secretary, copy
1145 furnished the director of MGB, on the tonnages of production in terms of ores and concentrates, with corresponding grades,

Page 26
1146 values and destinations; reports of sales; total ore reserves, total tonnage of ores, work accomplished and work in progress
1147 (installations and facilities related to mining operations), investments made or committed, and so on and so forth.

1148 Under Section VIII, during the period of mining operations, the contractor is also required to submit to the DENR secretary
1149 (copy furnished the director of MGB) the work program and corresponding budget for the contract area, describing the
1150 mining operations that are proposed to be carried out during the period covered. The secretary is, of course, entitled to grant
1151 or deny approval of any work program or budget and/or propose revisions thereto. Once the program/budget has been
1152 approved, the contractor shall comply therewith.

1153 In sum, the above provisions of the WMCP FTAA taken together, far from constituting a surrender of control and a grant of
1154 beneficial ownership of mineral resources to the contractor in question, bestow upon the State more than adequate control
1155 and supervision over the activities of the contractor and the enterprise.

1156 No Surrender of Control

1157 Under the WMCP FTAA

1158 Petitioners, however, take aim at Clause 8.2, 8.3, and 8.5 of the WMCP FTAA which, they say, amount to a relinquishment
1159 of control by the State, since it "cannot truly impose its own discretion" in respect of the submitted work programs.

1160 "8.2. The Secretary shall be deemed to have approved any Work Programme or Budget or variation thereofsubmitted by the
1161 Contractor unless within sixty (60) days after submission by the Contractor the Secretary gives notice declining such
1162 approval or proposing a revision of certain features and specifying its reasons therefor ('the Rejection Notice').

1163 8.3. If the Secretary gives a Rejection Notice, the Parties shall promptly meet and endeavor to agree on amendments to the
1164 Work Programme or Budget. If the Secretary and the Contractor fail to agree on the proposed revision within 30 days from
1165 delivery of the Rejection Notice then the Work Programme or Budget or variation thereof proposed by the Contractor shall be
1166 deemed approved, so as not to unnecessarily delay the performance of the Agreement.

1167 8.4. x x x x x x x x x

1168 8.5. So far as is practicable, the Contractor shall comply with any approved Work Programme and Budget. It is recognized by
1169 the Secretary and the Contractor that the details of any Work Programmes or Budgets may require changes in the light of
1170 changing circumstances. The Contractor may make such changes without approval of the Secretary provided they do not
1171 change the general objective of any Work Programme, nor entail a downward variance of more than twenty per centum
1172 (20percent) of the relevant Budget. All other variations to an approved Work Programme or Budget shall be submitted for
1173 approval of the Secretary."

1174 From the provisions quoted above, petitioners generalize by asserting that the government does not participate in making
1175 critical decisions regarding the operations of the mining firm. Furthermore, while the State can require the submission of
1176 work programs and budgets, the decision of the contractor will still prevail, if the parties have a difference of opinion with
1177 regard to matters affecting operations and management.

1178 We hold, however, that the foregoing provisions do not manifest a relinquishment of control. For instance, Clause 8.2 merely
1179 provides a mechanism for preventing the business or mining operations from grinding to a complete halt as a result of
1180 possibly over-long and unjustified delays in the government's handling, processing and approval of submitted work programs
1181 and budgets. Anyway, the provision does give the DENR secretary more than sufficient time (60 days) to react to submitted
1182 work programs and budgets. It cannot be supposed that proper grounds for objecting thereto, if any exist, cannot be
1183 discovered within a period of two months.

1184 On the other hand, Clause 8.3 seeks to provide a temporary, stop-gap solution in the event a disagreement over the
1185 submitted work program or budget arises between the State and the contractor and results in a stalemate or impasse, in
1186 order that there will be no unreasonably long delays in the performance of the works.

1187 These temporary or stop-gap solutions are not necessarily evil or wrong. Neither does it follow that the government will
1188 inexorably be aggrieved if and when these temporary remedies come into play. First, avoidance of long delays in these
1189 situations will undoubtedly redound to the benefit of the State as well as the contractor. Second, who is to say that the work
1190 program or budget proposed by the contractor and deemed approved under Clause 8.3 would not be the better or more
1191 reasonable or more effective alternative? The contractor, being the "insider," as it were, may be said to be in a better position

Page 27
1192 than the State -- an outsider looking in -- to determine what work program or budget would be appropriate, more effective, or
1193 more suitable under the circumstances.

1194 All things considered, we take exception to the characterization of the DENR secretary as a subservient nonentity whom the
1195 contractor can overrule at will, on account of Clause 8.3. And neither is it true that under the same clause, the DENR
1196 secretary has no authority whatsoever to disapprove the work program. As Respondent WMCP reasoned in its Reply-
1197 Memorandum, the State -- despite Clause 8.3 -- still has control over the contract area and it may, as sovereign authority,
1198 prohibit work thereon until the dispute is resolved. And ultimately, the State may terminate the agreement, pursuant to
1199 Clause 13.2 of the same FTAA, citing substantial breach thereof. Hence, it clearly retains full and effective control of the
1200 exploitation of the mineral resources.

1201 On the other hand, Clause 8.5 is merely an acknowledgment of the parties' need for flexibility, given that no one can
1202 accurately forecast under all circumstances, or predict how situations may change. Hence, while approved work programs
1203 and budgets are to be followed and complied with as far as practicable, there may be instances in which changes will have to
1204 be effected, and effected rapidly, since events may take shape and unfold with suddenness and urgency. Thus, Clause 8.5
1205 allows the contractor to move ahead and make changes without the express or implicit approval of the DENR secretary. Such
1206 changes are, however, subject to certain conditions that will serve to limit or restrict the variance and prevent the contractor
1207 from straying very far from what has been approved.

1208 Clause 8.5 provides the contractor a certain amount of flexibility to meet unexpected situations, while still guaranteeing that
1209 the approved work programs and budgets are not abandoned altogether. Clause 8.5 does not constitute proof that the State
1210 has relinquished control. And ultimately, should there be disagreement with the actions taken by the contractor in this
1211 instance as well as under Clause 8.3 discussed above, the DENR secretary may resort to cancellation/termination of the
1212 FTAA as the ultimate sanction.

1213 Discretion to Select Contract

1214 Area Not an Abdication of Control

1215 Next, petitioners complain that the contractor has full discretion to select -- and the government has no say whatsoever as to
1216 -- the parts of the contract area to be relinquished pursuant to Clause 4.6 of the WMCP FTAA. 56This clause, however, does
1217 not constitute abdication of control. Rather, it is a mere acknowledgment of the fact that the contractor will have determined,
1218 after appropriate exploration works, which portions of the contract area do not contain minerals in commercial quantities
1219 sufficient to justify developing the same and ought therefore to be relinquished. The State cannot just substitute its
1220 judgment for that of the contractor and dictate upon the latter which areas to give up.

1221 Moreover, we can be certain that the contractor's self-interest will propel proper and efficient relinquishment. According to
1222 private respondent,57 a mining company tries to relinquish as much non-mineral areas as soon as possible, because the
1223 annual occupation fees paid to the government are based on the total hectarage of the contract area, net of the areas
1224 relinquished. Thus, the larger the remaining area, the heftier the amount of occupation fees to be paid by the contractor.
1225 Accordingly, relinquishment is not an issue, given that the contractor will not want to pay the annual occupation fees on the
1226 non-mineral parts of its contract area. Neither will it want to relinquish promising sites, which other contractors may
1227 subsequently pick up.

1228 Government Not a Subcontractor

1229 Petitioners further maintain that the contractor can compel the government to exercise its power of eminent domain to
1230 acquire surface areas within the contract area for the contractor's use. Clause 10.2 (e) of the WMCP FTAA provides that the
1231 government agrees that the contractor shall "(e) have the right to require the Government at the Contractor's own cost, to
1232 purchase or acquire surface areas for and on behalf of the Contractor at such price and terms as may be acceptable to the
1233 contractor. At the termination of this Agreement such areas shall be sold by public auction or tender and the Contractor shall
1234 be entitled to reimbursement of the costs of acquisition and maintenance, adjusted for inflation, from the proceeds of sale."

1235 According to petitioners, "government becomes a subcontractor to the contractor" and may, on account of this provision, be
1236 compelled "to make use of its power of eminent domain, not for public purposes but on behalf of a private party, i.e., the
1237 contractor." Moreover, the power of the courts to determine the amount corresponding to the constitutional requirement of
1238 just compensation has allegedly also been contracted away by the government, on account of the latter's commitment that
1239 the acquisition shall be at such terms as may be acceptable to the contractor.

Page 28
1240 However, private respondent has proffered a logical explanation for the provision.58 Section 10.2(e) contemplates a situation
1241 applicable to foreign-owned corporations. WMCP, at the time of the execution of the FTAA, was a foreign-owned corporation
1242 and therefore not qualified to own land. As contractor, it has at some future date to construct the infrastructure -- the mine
1243 processing plant, the camp site, the tailings dam, and other infrastructure -- needed for the large-scale mining operations. It
1244 will then have to identify and pinpoint, within the FTAA contract area, the particular surface areas with favorable
1245 topography deemed ideal for such infrastructure and will need to acquire the surface rights. The State owns the mineral
1246 deposits in the earth, and is also qualified to own land.

1247 Section 10.2(e) sets forth the mechanism whereby the foreign-owned contractor, disqualified to own land, identifies to the
1248 government the specific surface areas within the FTAA contract area to be acquired for the mine infrastructure. The
1249 government then acquires ownership of the surface land areas on behalf of the contractor, in order to enable the latter to
1250 proceed to fully implement the FTAA.

1251 The contractor, of course, shoulders the purchase price of the land. Hence, the provision allows it, after termination of the
1252 FTAA, to be reimbursed from proceeds of the sale of the surface areas, which the government will dispose of through public
1253 bidding. It should be noted that this provision will not be applicable to Sagittarius as the present FTAA contractor, since it is
1254 a Filipino corporation qualified to own and hold land. As such, it may therefore freely negotiate with the surface rights
1255 owners and acquire the surface property in its own right.

1256 Clearly, petitioners have needlessly jumped to unwarranted conclusions, without being aware of the rationale for the said
1257 provision. That provision does not call for the exercise of the power of eminent domain -- and determination of just
1258 compensation is not an issue -- as much as it calls for a qualified party to acquire the surface rights on behalf of a foreign-
1259 owned contractor.

1260 Rather than having the foreign contractor act through a dummy corporation, having the State do the purchasing is a better
1261 alternative. This will at least cause the government to be aware of such transaction/s and foster transparency in the
1262 contractor's dealings with the local property owners. The government, then, will not act as a subcontractor of the
1263 contractor; rather, it will facilitate the transaction and enable the parties to avoid a technical violation of the Anti-Dummy
1264 Law.

1265 Absence of Provision

1266 Requiring Sale at Posted
1267 Prices Not Problematic

1268 The supposed absence of any provision in the WMCP FTAA directly and explicitly requiring the contractor to sell the mineral
1269 products at posted or market prices is not a problem. Apart from Clause 1.4 of the FTAA obligating the contractor to account
1270 for the total value of mineral production and the sale of minerals, we can also look to Section 35 of RA 7942, which
1271 incorporates into all FTAAs certain terms, conditions and warranties, including the following:

1272 "(l) The contractors shall furnish the Government records of geologic, accounting and other relevant data for its mining
1273 operation, and that books of accounts and records shall be open for inspection by the government.x x x

1274 (m) Requiring the proponent to dispose of the minerals at the highest price and more advantageous terms and conditions ."

1275 For that matter, Section 56(n) of DAO 99-56 specifically obligates an FTAA contractor to dispose of the minerals and by-
1276 products at the highest market price and to register with the MGB a copy of the sales agreement. After all, the provisions of
1277 prevailing statutes as well as rules and regulations are deemed written into contracts.

1278 Contractor's Right to Mortgage

1279 Not Objectionable Per Se

1280 Petitioners also question the absolute right of the contractor under Clause 10.2 (l) to mortgage and encumber not only its
1281 rights and interests in the FTAA and the infrastructure and improvements introduced, but also the mineral products
1282 extracted. Private respondents do not touch on this matter, but we believe that this provision may have to do with the
1283 conditions imposed by the creditor-banks of the then foreign contractor WMCP to secure the lendings made or to be made to
1284 the latter. Ordinarily, banks lend not only on the security of mortgages on fixed assets, but also on encumbrances of goods

Page 29
1285 produced that can easily be sold and converted into cash that can be applied to the repayment of loans. Banks even lend on
1286 the security of accounts receivable that are collectible within 90 days.59

1287 It is not uncommon to find that a debtor corporation has executed deeds of assignment "by way of security" over the
1288 production for the next twelve months and/or the proceeds of the sale thereof -- or the corresponding accounts receivable, if
1289 sold on terms -- in favor of its creditor-banks. Such deeds may include authorizing the creditors to sell the products
1290 themselves and to collect the sales proceeds and/or the accounts receivable.

1291 Seen in this context, Clause 10.2(l) is not something out of the ordinary or objectionable. In any case, as will be explained
1292 below, even if it is allowed to mortgage or encumber the mineral end-products themselves, the contractor is not freed of its
1293 obligation to pay the government its basic and additional shares in the net mining revenue, which is the essential thing to
1294 consider.

1295 In brief, the alarum raised over the contractor's right to mortgage the minerals is simply unwarranted. Just the same, the
1296 contractor must account for the value of mineral production and the sales proceeds therefrom. Likewise, under the WMCP
1297 FTAA, the government remains entitled to its sixty percent share in the net mining revenues of the contractor. The latter's
1298 right to mortgage the minerals does not negate the State's right to receive its share of net mining revenues.

1299 Shareholders Free to Sell Their Stocks

1300 Petitioners likewise criticize Clause 10.2(k), which gives the contractor authority "to change its equity structure at any time."
1301 This provision may seem somewhat unusual, but considering that WMCP then was 100 percent foreign-owned, any change
1302 would mean that such percentage would either stay unaltered or be decreased in favor of Filipino ownership. Moreover, the
1303 foreign-held shares may change hands freely. Such eventuality is as it should be.

1304 We believe it is not necessary for government to attempt to limit or restrict the freedom of the shareholders in the contractor
1305 to freely transfer, dispose of or encumber their shareholdings, consonant with the unfettered exercise of their business
1306 judgment and discretion. Rather, what is critical is that, regardless of the identity, nationality and percentage ownership of
1307 the various shareholders of the contractor -- and regardless of whether these shareholders decide to take the company public,
1308 float bonds and other fixed-income instruments, or allow the creditor-banks to take an equity position in the company -- the
1309 foreign-owned contractor is always in a position to render the services required under the FTAA, under the direction and
1310 control of the government.

1311 Contractor's Right to Ask

1312 For Amendment Not Absolute

1313 With respect to Clauses 10.4(e) and (i), petitioners complain that these provisions bind government to allow amendments to
1314 the FTAA if required by banks and other financial institutions as part of the conditions for new lendings. However, we do not
1315 find anything wrong with Clause 10.4(e), which only states that "if the Contractor seeks to obtain financing contemplated
1316 herein from banks or other financial institutions, (the Government shall) cooperate with the Contractor in such
1317 efforts provided that such financing arrangements will in no event reduce the Contractor's obligations or the Government's
1318 rights hereunder." The colatilla obviously safeguards the State's interests; if breached, it will give the government cause to
1319 object to the proposed amendments.

1320 On the other hand, Clause 10.4(i) provides that "the Government shall favourably consider any request from [the] Contractor
1321 for amendments of this Agreement which are necessary in order for the Contractor to successfully obtain the
1322 financing." Petitioners see in this provision a complete renunciation of control. We disagree.

1323 The proviso does not say that the government shall grant any request for amendment. Clause 10.4(i) only obliges the State to
1324 favorably consider any such request, which is not at all unreasonable, as it is not equivalent to saying that the government
1325 must automatically consent to it. This provision should be read together with the rest of the FTAA provisions instituting
1326 government control and supervision over the mining enterprise. The clause should not be given an interpretation that
1327 enables the contractor to wiggle out of the restrictions imposed upon it by merely suggesting that certain amendments are
1328 requested by the lenders.

1329 Rather, it is up to the contractor to prove to the government that the requested changes to the FTAA are indispensable, as
1330 they enable the contractor to obtain the needed financing; that without such contract changes, the funders would absolutely

Page 30
1331 refuse to extend the loan; that there are no other sources of financing available to the contractor (a very unlikely scenario);
1332 and that without the needed financing, the execution of the work programs will not proceed. But the bottom line is, in the
1333 exercise of its power of control, the government has the final say on whether to approve or disapprove such requested
1334 amendments to the FTAA. In short, approval thereof is not mandatory on the part of the government.

1335 In fine, the foregoing evaluation and analysis of the aforementioned FTAA provisions sufficiently overturns petitioners'
1336 litany of objections to and criticisms of the State's alleged lack of control.

1337 Financial Benefits Not

1338 Surrendered to the Contractor

1339 One of the main reasons certain provisions of RA 7942 were struck down was the finding mentioned in the Decision that
1340 beneficial ownership of the mineral resources had been conveyed to the contractor. This finding was based on the underlying
1341 assumption, common to the said provisions, that the foreign contractor manages the mineral resources in the same way that
1342 foreign contractors in service contracts used to. "By allowing foreign contractors to manage or operate all the aspects of the
1343 mining operation, the above-cited provisions of R.A. No. 7942 have in effect conveyed beneficial ownership over the nation's
1344 mineral resources to these contractors, leaving the State with nothing but bare title thereto." 60 As the WMCP FTAA
1345 contained similar provisions deemed by the ponente to be abhorrent to the Constitution, the Decision struck down the
1346 Contract as well.

1347 Beneficial ownership has been defined as ownership recognized by law and capable of being enforced in the courts at the suit
1348 of the beneficial owner.61 Black's Law Dictionary indicates that the term is used in two senses: first, to indicate the interest of
1349 a beneficiary in trust property (also called "equitable ownership"); and second, to refer to the power of a corporate
1350 shareholder to buy or sell the shares, though the shareholder is not registered in the corporation's books as the
1351 owner.62 Usually, beneficial ownership is distinguished from naked ownership, which is the enjoyment of all the benefits and
1352 privileges of ownership, as against possession of the bare title to property.

1353 An assiduous examination of the WMCP FTAA uncovers no indication that it confers upon WMCP ownership, beneficial or
1354 otherwise, of the mining property it is to develop, the minerals to be produced, or the proceeds of their sale, which can be
1355 legally asserted and enforced as against the State.

1356 As public respondents correctly point out, any interest the contractor may have in the proceeds of the mining operation is
1357 merely the equivalent of the consideration the government has undertaken to pay for its services. All lawful contracts require
1358 such mutual prestations, and the WMCP FTAA is no different. The contractor commits to perform certain services for the
1359 government in respect of the mining operation, and in turn it is to be compensated out of the net mining revenues generated
1360 from the sale of mineral products. What would be objectionable is a contractual provision that unduly benefits the contractor
1361 far in excess of the service rendered or value delivered, if any, in exchange therefor.

1362 A careful perusal of the statute itself and its implementing rules reveals that neither RA 7942 nor DAO 99-56 can be said to
1363 convey beneficial ownership of any mineral resource or product to any foreign FTAA contractor.

1364 Equitable Sharing

1365 of Financial Benefits

1366 On the contrary, DAO 99-56, entitled "Guidelines Establishing the Fiscal Regime of Financial or Technical Assistance
1367 Agreements" aims to ensure an equitable sharing of the benefits derived from mineral resources. These benefits are to be
1368 equitably shared among the government (national and local), the FTAA contractor, and the affected communities. The
1369 purpose is to ensure sustainable mineral resources development; and a fair, equitable, competitive and stable investment
1370 regime for the large-scale exploration, development and commercial utilization of minerals. The general framework or
1371 concept followed in crafting the fiscal regime of the FTAA is based on the principle that the government expects real
1372 contributions to the economic growth and general welfare of the country, while the contractor expects a reasonable return on
1373 its investments in the project.63

1374 Specifically, under the fiscal regime, the government's expectation is, inter alia, the receipt of its share from the taxes and
1375 fees normally paid by a mining enterprise. On the other hand, the FTAA contractor is granted by the government certain
1376 fiscal and non-fiscal incentives64 to help support the former's cash flow during the most critical phase (cost recovery) and to
1377 make the Philippines competitive with other mineral-producing countries. After the contractor has recovered its initial

Page 31
1378 investment, it will pay all the normal taxes and fees comprising the basic share of the government, plus an additional share
1379 for the government based on the options and formulae set forth in DAO 99-56.

1380 The said DAO spells out the financial benefits the government will receive from an FTAA, referred to as "the Government
1381 Share," composed of a basic government share and an additional government share.

1382 The basic government share is comprised of all direct taxes, fees and royalties, as well as other payments made by the
1383 contractor during the term of the FTAA. These are amounts paid directly to (i) the national government (through the Bureau
1384 of Internal Revenue, Bureau of Customs, Mines & Geosciences Bureau and other national government agencies imposing
1385 taxes or fees), (ii) the local government units where the mining activity is conducted, and (iii) persons and communities
1386 directly affected by the mining project. The major taxes and other payments constituting the basic government share are
1387 enumerated below:65

1388 Payments to the National Government:

1389 · Excise tax on minerals - 2 percent of the gross output of mining operations

1390 · Contractor' income tax - maximum of 32 percent of taxable income for corporations

1391 · Customs duties and fees on imported capital equipment -the rate is set by the Tariff and Customs Code (3-7 percent for
1392 chemicals; 3-10 percent for explosives; 3-15 percent for mechanical and electrical equipment; and 3-10 percent for vehicles,
1393 aircraft and vessels

1394 · VAT on imported equipment, goods and services – 10 percent of value

1395 · Royalties due the government on minerals extracted from mineral reservations, if applicable – 5 percent of the actual
1396 market value of the minerals produced

1397 · Documentary stamp tax - the rate depends on the type of transaction

1398 · Capital gains tax on traded stocks - 5 to 10 percent of the value of the shares

1399 · Withholding tax on interest payments on foreign loans -15 percent of the amount of interest

1400 · Withholding tax on dividend payments to foreign stockholders – 15 percent of the dividend

1401 · Wharfage and port fees

1402 · Licensing fees (for example, radio permit, firearms permit, professional fees)

1403 · Other national taxes and fees.

1404 Payments to Local Governments:

1405 · Local business tax - a maximum of 2 percent of gross sales or receipts (the rate varies among local government units)

1406 · Real property tax - 2 percent of the fair market value of the property, based on an assessment level set by the local
1407 government

1408 · Special education levy - 1 percent of the basis used for the real property tax

1409 · Occupation fees - PhP50 per hectare per year; PhP100 per hectare per year if located in a mineral reservation

1410 · Community tax - maximum of PhP10,500 per year

1411 · All other local government taxes, fees and imposts as of the effective date of the FTAA - the rate and the type depend on the
1412 local government

1413 Other Payments:

Page 32
1414 · Royalty to indigenous cultural communities, if any – 1 percent of gross output from mining operations

1415 · Special allowance - payment to claim owners and surface rights holders

1416 Apart from the basic share, an additional government share is also collected from the FTAA contractor in accordance with
1417 the second paragraph of Section 81 of RA 7942, which provides that the government share shall be comprised of, among other
1418 things, certain taxes, duties and fees. The subject proviso reads:

1419 "The Government share in a financial or technical assistance agreement shall consist of, among other things, the contractor's
1420 corporate income tax, excise tax, special allowance, withholding tax due from the contractor's foreign stockholders arising
1421 from dividend or interest payments to the said foreign stockholder in case of a foreign national, and all such other taxes,
1422 duties and fees as provided for under existing laws." (Bold types supplied.)

1423 The government, through the DENR and the MGB, has interpreted the insertion of the phrase among other things as
1424 signifying that the government is entitled to an "additional government share" to be paid by the contractor apart from the
1425 "basic share," in order to attain a fifty-fifty sharing of net benefits from mining.

1426 The additional government share is computed by using one of three options or schemes presented in DAO 99-56: (1) a fifty-
1427 fifty sharing in the cumulative present value of cash flows; (2) the share based on excess profits; and (3) the sharing based on
1428 the cumulative net mining revenue. The particular formula to be applied will be selected by the contractor, with a written
1429 notice to the government prior to the commencement of the development and construction phase of the mining project. 66

1430 Proceeds from the government shares arising from an FTAA contract are distributed to and received by the different levels of
1431 government in the following proportions:

National Government 50 percent

Provincial Government 10 percent

Municipal Government 20 percent

Affected Barangays 20 percent

1432 The portion of revenues remaining after the deduction of the basic and additional government shares is what goes to the
1433 contractor.

1434 Government's Share in an

1435 FTAA Not Consisting Solely
1436 of Taxes, Duties and Fees

1437 In connection with the foregoing discussion on the basic and additional government shares, it is pertinent at this juncture to
1438 mention the criticism leveled at the second paragraph of Section 81 of RA 7942, quoted earlier. The said proviso has been
1439 denounced, because, allegedly, the State's share in FTAAs with foreign contractors has been limited to taxes, fees and duties
1440 only; in effect, the State has been deprived of a share in the after-tax income of the enterprise. In the face of this allegation,
1441 one has to consider that the law does not define the term among other things; and the Office of the Solicitor General, in its
1442 Motion for Reconsideration, appears to have erroneously claimed that the phrase refers to indirect taxes.

1443 The law provides no definition of the term among other things, for the reason that Congress deliberately avoided setting
1444 unnecessary limitations as to what may constitute compensation to the State for the exploitation and use of mineral
1445 resources. But the inclusion of that phrase clearly and unmistakably reveals the legislative intent to have the State collect
1446 more than just the usual taxes, duties and fees. Certainly, there is nothing in that phrase -- or in the second paragraph of
1447 Section 81 -- that would suggest that such phrase should be interpreted as referring only to taxes, duties, fees and the like.

1448 Precisely for that reason, to fulfill the legislative intent behind the inclusion of the phrase among other things in the second
1449 paragraph of Section 81,67 the DENR structured and formulated in DAO 99-56 the said additional government share. Such a

Page 33
1450 share was to consist not of taxes, but of a share in the earnings or cash flows of the mining enterprise. The additional
1451 government share was to be paid by the contractor on top of the basic share, so as to achieve a fifty-fifty sharing -- between
1452 the government and the contractor -- of net benefits from mining. In the Ramos-DeVera paper, the explanation of the three
1453 options or formulas68 -- presented in DAO 99-56 for the computation of the additional government share -- serves to debunk
1454 the claim that the government's take from an FTAA consists solely of taxes, fees and duties.

1455 Unfortunately, the Office of the Solicitor General -- although in possession of the relevant data -- failed to fully replicate or
1456 echo the pertinent elucidation in the Ramos-DeVera paper regarding the three schemes or options for computing the
1457 additional government share presented in DAO 99-56. Had due care been taken by the OSG, the Court would have been duly
1458 apprised of the real nature and particulars of the additional share.

1459 But, perhaps, on account of the esoteric discussion in the Ramos-DeVera paper, and the even more abstruse mathematical
1460 jargon employed in DAO 99-56, the OSG omitted any mention of the three options. Instead, the OSG skipped to a side
1461 discussion of the effect of indirect taxes, which had nothing at all to do with the additional government share, to begin
1462 with. Unfortunately, this move created the wrong impression, pointed out in Justice Antonio T. Carpio's Opinion, that the
1463 OSG had taken the position that the additional government share consisted of indirect taxes.

1464 In any event, what is quite evident is the fact that the additional government share, as formulated, has nothing to do with
1465 taxes -- direct or indirect -- or with duties, fees or charges. To repeat, it is over and above the basic government share
1466 composed of taxes and duties. Simply put, the additional share may be (a) an amount that will result in a 50-50 sharing of
1467 the cumulative present value of the cash flows69 of the enterprise; (b) an amount equivalent to 25 percent of the additional or
1468 excess profits of the enterprise, reckoned against a benchmark return on investments; or (c) an amount that will result in a
1469 fifty-fifty sharing of the cumulative net mining revenue from the end of the recovery period up to the taxable year in
1470 question. The contractor is required to select one of the three options or formulae for computing the additional share, an
1471 option it will apply to all of its mining operations.

1472 As used above, "net mining revenue" is defined as the gross output from mining operations for a calendar year, less
1473 deductible expenses (inclusive of taxes, duties and fees). Such revenue would roughly be equivalent to "taxable income"
1474 or income before income tax. Definitely, as compared with, say, calculating the additional government share on the basis of
1475 net income (after income tax), the net mining revenue is a better and much more reasonable basis for such computation, as it
1476 gives a truer picture of the profitability of the company.

1477 To demonstrate that the three options or formulations will operate as intended, Messrs. Ramos and de Vera also performed
1478 some quantifications of the government share via a financial modeling of each of the three options discussed above. They
1479 found that the government would get the highest share from the option that is based on the net mining revenue, as compared
1480 with the other two options, considering only the basic and the additional shares; and that, even though production rate
1481 decreases, the government share will actually increase when the net mining revenue and the additional profit-based options
1482 are used.

1483 Furthermore, it should be noted that the three options or formulae do not yet take into account the indirect taxes70and other
1484 financial contributions71 of mining projects. These indirect taxes and other contributions are real and actual benefits enjoyed
1485 by the Filipino people and/or government. Now, if some of the quantifiable items are taken into account in the computations,
1486 the financial modeling would show that the total government share increases to 60 percent or higher -- in one instance, as
1487 much as 77 percent and even 89 percent -- of the net present value of total benefits from the project. As noted in the Ramos-
1488 DeVera paper, these results are not at all shabby, considering that the contractor puts in all the capital requirements and
1489 assumes all the risks, without the government having to contribute or risk anything.

1490 Despite the foregoing explanation, Justice Carpio still insisted during the Court's deliberations that the phrase among other
1491 things refers only to taxes, duties and fees. We are bewildered by his position. On the one hand, he condemns the Mining
1492 Law for allegedly limiting the government's benefits only to taxes, duties and fees; and on the other, he refuses to allow the
1493 State to benefit from the correct and proper interpretation of the DENR/MGB. To remove all doubts then, we hold that the
1494 State's share is not limited to taxes, duties and fees only and that the DENR/MGB interpretation of the phrase among other
1495 things is correct. Definitely, this DENR/MGB interpretation is not only legally sound, but also greatly advantageous to the
1496 government.

1497 One last point on the subject. The legislature acted judiciously in not defining the terms among other things and, instead,
1498 leaving it to the agencies concerned to devise and develop the various modes of arriving at a reasonable and fair amount for

Page 34
1499 the additional government share. As can be seen from DAO 99-56, the agencies concerned did an admirable job of conceiving
1500 and developing not just one formula, but three different formulae for arriving at the additional government share. Each of
1501 these options is quite fair and reasonable; and, as Messrs. Ramos and De Vera stated, other alternatives or schemes for a
1502 possible improvement of the fiscal regime for FTAAs are also being studied by the government.

1503 Besides, not locking into a fixed definition of the term among other things will ultimately be more beneficial to the
1504 government, as it will have that innate flexibility to adjust to and cope with rapidly changing circumstances, particularly
1505 those in the international markets. Such flexibility is especially significant for the government in terms of helping our
1506 mining enterprises remain competitive in world markets despite challenging and shifting economic scenarios.

1507 In conclusion, we stress that we do not share the view that in FTAAs with foreign contractors under RA 7942, the
1508 government's share is limited to taxes, fees and duties. Consequently, we find the attacks on the second paragraph of Section
1509 81 of RA 7942 totally unwarranted.

1510 Collections Not Made Uncertain

1511 by the Third Paragraph of Section 81

1512 The third or last paragraph of Section 8172 provides that the government share in FTAAs shall be collected when the
1513 contractor shall have recovered its pre-operating expenses and exploration and development expenditures. The objection has
1514 been advanced that, on account of the proviso, the collection of the State's share is not even certain, as there is no time limit
1515 in RA 7942 for this grace period or recovery period.

1516 We believe that Congress did not set any time limit for the grace period, preferring to leave it to the concerned agencies,
1517 which are, on account of their technical expertise and training, in a better position to determine the appropriate durations for
1518 such recovery periods. After all, these recovery periods are determined, to a great extent, by technical and technological
1519 factors peculiar to the mining industry. Besides, with developments and advances in technology and in the geosciences, we
1520 cannot discount the possibility of shorter recovery periods. At any rate, the concerned agencies have not been remiss in this
1521 area. The 1995 and 1996 Implementing Rules and Regulations of RA 7942 specify that the period of recovery, reckoned from
1522 the date of commercial operation, shall be for a period not exceeding five years, or until the date of actual recovery,
1523 whichever comes earlier.

1524 Approval of Pre-Operating

1525 Expenses Required by RA 7942

1526 Still, RA 7942 is criticized for allegedly not requiring government approval of pre-operating, exploration and development
1527 expenses of the foreign contractors, who are in effect given unfettered discretion to determine the amounts of such expenses.
1528 Supposedly, nothing prevents the contractors from recording such expenses in amounts equal to the mining revenues
1529 anticipated for the first 10 or 15 years of commercial production, with the result that the share of the State will be zero for
1530 the first 10 or 15 years. Moreover, under the circumstances, the government would be unable to say when it would start to
1531 receive its share under the FTAA.

1532 We believe that the argument is based on incorrect information as well as speculation. Obviously, certain crucial provisions
1533 in the Mining Law were overlooked. Section 23, dealing with the rights and obligations of the exploration permit grantee,
1534 states: "The permittee shall undertake exploration work on the area as specified by its permit based on an approved work
1535 program." The next proviso reads: "Any expenditure in excess of the yearly budget of the approved work program may be
1536 carried forward and credited to the succeeding years covering the duration of the permit. x x x." (underscoring supplied)

1537 Clearly, even at the stage of application for an exploration permit, the applicant is required to submit -- for approval by the
1538 government -- a proposed work program for exploration, containing a yearly budget of proposed expenditures. The State has
1539 the opportunity to pass upon (and approve or reject) such proposed expenditures, with the foreknowledge that -- if approved -
1540 - these will subsequently be recorded as pre-operating expenses that the contractor will have to recoup over the grace period.
1541 That is not all.

1542 Under Section 24, an exploration permit holder who determines the commercial viability of a project covering a mining area
1543 may, within the term of the permit, file with the Mines and Geosciences Bureau a declaration of mining project
1544 feasibility. This declaration is to be accompanied by a work program for development for the Bureau's approval, the
1545 necessary prelude for entering into an FTAA, a mineral production sharing agreement (MPSA), or some other mineral

Page 35
1546 agreement. At this stage, too, the government obviously has the opportunity to approve or reject the proposed work program
1547 and budgeted expenditures for development works on the project. Such expenditures will ultimately become the pre-
1548 operating and development costs that will have to be recovered by the contractor.

1549 Naturally, with the submission of approved work programs and budgets for the exploration and the
1550 development/construction phases, the government will be able to scrutinize and approve or reject such expenditures. It will
1551 be well-informed as to the amounts of pre-operating and other expenses that the contractor may legitimately recover and the
1552 approximate period of time needed to effect such a recovery. There is therefore no way the contractor can just randomly post
1553 any amount of pre-operating expenses and expect to recover the same.

1554 The aforecited provisions on approved work programs and budgets have counterparts in Section 35, which deals with the
1555 terms and conditions exclusively applicable to FTAAs. The said provision requires certain terms and conditions to be
1556 incorporated into FTAAs; among them, "a firm commitment x x x of an amount corresponding to the expenditure obligation
1557 that will be invested in the contract area" and "representations and warranties x x x to timely deploy these [financing,
1558 managerial and technical expertise and technological] resources under its supervision pursuant to the periodic work
1559 programs and related budgets x x x," as well as "work programs and minimum expenditures commitments." (underscoring
1560 supplied)

1561 Unarguably, given the provisions of Section 35, the State has every opportunity to pass upon the proposed expenditures
1562 under an FTAA and approve or reject them. It has access to all the information it may need in order to determine in advance
1563 the amounts of pre-operating and developmental expenses that will have to be recovered by the contractor and the amount of
1564 time needed for such recovery.

1565 In summary, we cannot agree that the third or last paragraph of Section 81 of RA 7942 is in any manner unconstitutional.

1566 No Deprivation of Beneficial Rights

1567 It is also claimed that aside from the second and the third paragraphs of Section 81 (discussed above), Sections 80, 84 and
1568 112 of RA 7942 also operate to deprive the State of beneficial rights of ownership over mineral resources; and give them away
1569 for free to private business enterprises (including foreign owned corporations). Likewise, the said provisions have been
1570 construed as constituting, together with Section 81, an ingenious attempt to resurrect the old and discredited system of
1571 "license, concession or lease."

1572 Specifically, Section 80 is condemned for limiting the State's share in a mineral production-sharing agreement (MPSA) to
1573 just the excise tax on the mineral product. Under Section 151(A) of the Tax Code, such tax is only 2 percent of the market
1574 value of the gross output of the minerals. The colatilla in Section 84, the portion considered offensive to the Constitution,
1575 reiterates the same limitation made in Section 80.73

1576 It should be pointed out that Section 80 and the colatilla in Section 84 pertain only to MPSAs and have no application to
1577 FTAAs. These particular statutory provisions do not come within the issues that were defined and delineated by this Court
1578 during the Oral Argument -- particularly the third issue, which pertained exclusively to FTAAs. Neither did the parties
1579 argue upon them in their pleadings. Hence, this Court cannot make any pronouncement in this case regarding the
1580 constitutionality of Sections 80 and 84 without violating the fundamental rules of due process. Indeed, the two provisos will
1581 have to await another case specifically placing them in issue.

1582 On the other hand, Section 11274 is disparaged for allegedly reverting FTAAs and all mineral agreements to the old and
1583 discredited "license, concession or lease" system. This Section states in relevant part that "the provisions of Chapter
1584 XIV [which includes Sections 80 to 82] on government share in mineral production-sharing agreement x x x shall
1585 immediately govern and apply to a mining lessee or contractor." (underscoring supplied) This provision is construed as
1586 signifying that the 2 percent excise tax which, pursuant to Section 80, comprises the government share in MPSAs shall now
1587 also constitute the government share in FTAAs -- as well as in co-production agreements and joint venture agreements -- to
1588 the exclusion of revenues of any other nature or from any other source.

1589 Apart from the fact that Section 112 likewise does not come within the issues delineated by this Court during the Oral
1590 Argument, and was never touched upon by the parties in their pleadings, it must also be noted that the criticism hurled
1591 against this Section is rooted in unwarranted conclusions made without considering other relevant provisions in the statute.

Page 36
1592 Whether Section 112 may properly apply to co-production or joint venture agreements, the fact of the matter is that it cannot
1593 be made to apply to FTAAs.

1594 First, Section 112 does not specifically mention or refer to FTAAs; the only reason it is being applied to them at all is the fact
1595 that it happens to use the word "contractor." Hence, it is a bit of a stretch to insist that it covers FTAAs as well. Second,
1596 mineral agreements, of which there are three types -- MPSAs, co-production agreements, and joint venture agreements -- are
1597 covered by Chapter V of RA 7942. On the other hand, FTAAs are covered by and in fact are the subject of Chapter VI, an
1598 entirely different chapter altogether. The law obviously intends to treat them as a breed apart from mineral agreements,
1599 since Section 35 (found in Chapter VI) creates a long list of specific terms, conditions, commitments, representations and
1600 warranties -- which have not been made applicable to mineral agreements -- to be incorporated into FTAAs.

1601 Third, under Section 39, the FTAA contractor is given the option to "downgrade" -- to convert the FTAA into a mineral
1602 agreement at any time during the term if the economic viability of the contract area is inadequate to sustain large-scale
1603 mining operations. Thus, there is no reason to think that the law through Section 112 intends to exact from FTAA
1604 contractors merely the same government share (a 2 percent excise tax) that it apparently demands from contractors under
1605 the three forms of mineral agreements. In brief, Section 112 does not apply to FTAAs.

1606 Notwithstanding the foregoing explanation, Justices Carpio and Morales maintain that the Court must rule now on the
1607 constitutionality of Sections 80, 84 and 112, allegedly because the WMCP FTAA contains a provision which grants the
1608 contractor unbridled and "automatic" authority to convert the FTAA into an MPSA; and should such conversion happen, the
1609 State would be prejudiced since its share would be limited to the 2 percent excise tax. Justice Carpio adds that there are five
1610 MPSAs already signed just awaiting the judgment of this Court on respondents' and intervenor's Motions for
1611 Reconsideration. We hold however that, at this point, this argument is based on pure speculation. The Court cannot rule on
1612 mere surmises and hypothetical assumptions, without firm factual anchor. We repeat: basic due process requires that we
1613 hear the parties who have a real legal interest in the MPSAs (i.e. the parties who executed them) before these MPSAs can be
1614 reviewed, or worse, struck down by the Court. Anything less than that requirement would be arbitrary and capricious.

1615 In any event, the conversion of the present FTAA into an MPSA is problematic. First, the contractor must comply with the
1616 law, particularly Section 39 of RA 7942; inter alia, it must convincingly show that the "economic viability of the contract is
1617 found to be inadequate to justify large-scale mining operations;" second, it must contend with the President's exercise of the
1618 power of State control over the EDU of natural resources; and third, it will have to risk a possible declaration of the
1619 unconstitutionality (in a proper case) of Sections 80, 84 and 112.

1620 The first requirement is not as simple as it looks. Section 39 contemplates a situation in which an FTAA has already been
1621 executed and entered into, and is presumably being implemented, when the contractor "discovers" that the mineral ore
1622 reserves in the contract area are not sufficient to justify large-scale mining, and thus the contractor requests the conversion
1623 of the FTAA into an MPSA. The contractor in effect needs to explain why, despite its exploration activities, including the
1624 conduct of various geologic and other scientific tests and procedures in the contract area, it was unable to determine correctly
1625 the mineral ore reserves and the economic viability of the area. The contractor must explain why, after conducting such
1626 exploration activities, it decided to file a declaration of mining feasibility, and to apply for an FTAA, thereby leading the
1627 State to believe that the area could sustain large-scale mining. The contractor must justify fully why its earlier findings,
1628 based on scientific procedures, tests and data, turned out to be wrong, or were way off. It must likewise prove that its new
1629 findings, also based on scientific tests and procedures, are correct. Right away, this puts the contractor's technical
1630 capabilities and expertise into serious doubt. We wonder if anyone would relish being in this situation. The State could even
1631 question and challenge the contractor's qualification and competence to continue the activity under an MPSA.

1632 All in all, while there may be cogent grounds to assail the aforecited Sections, this Court -- on considerations of due process --
1633 cannot rule upon them here. Anyway, if later on these Sections are declared unconstitutional, such declaration will not affect
1634 the other portions since they are clearly separable from the rest.

1635 Our Mineral Resources Not

1636 Given Away for Free by RA 7942

1637 Nevertheless, if only to disabuse our minds, we should address the contention that our mineral resources are effectively
1638 given away for free by the law (RA 7942) in general and by Sections 80, 81, 84 and 112 in particular.

Page 37
1639 Foreign contractors do not just waltz into town one day and leave the next, taking away mineral resources without paying
1640 anything. In order to get at the minerals, they have to invest huge sums of money (tens or hundreds of millions of dollars) in
1641 exploration works first. If the exploration proves unsuccessful, all the cash spent thereon will not be returned to the foreign
1642 investors; rather, those funds will have been infused into the local economy, to remain there permanently. The benefits
1643 therefrom cannot be simply ignored. And assuming that the foreign contractors are successful in finding ore bodies that are
1644 viable for commercial exploitation, they do not just pluck out the minerals and cart them off. They have first to build camp
1645 sites and roadways; dig mine shafts and connecting tunnels; prepare tailing ponds, storage areas and vehicle depots; install
1646 their machinery and equipment, generator sets, pumps, water tanks and sewer systems, and so on.

1647 In short, they need to expend a great deal more of their funds for facilities, equipment and supplies, fuel, salaries of local
1648 labor and technical staff, and other operating expenses. In the meantime, they also have to pay taxes,75 duties, fees, and
1649 royalties. All told, the exploration, pre-feasibility, feasibility, development and construction phases together add up to as
1650 many as eleven years.76 The contractors have to continually shell out funds for the duration of over a decade, before they can
1651 commence commercial production from which they would eventually derive revenues. All that money translates into a lot of
1652 "pump-priming" for the local economy.

1653 Granted that the contractors are allowed subsequently to recover their pre-operating expenses, still, that eventuality will
1654 happen only after they shall have first put out the cash and fueled the economy. Moreover, in the process of recouping their
1655 investments and costs, the foreign contractors do not actually pull out the money from the economy. Rather, they recover or
1656 recoup their investments out of actual commercial production by not paying a portion of the basic government share
1657 corresponding to national taxes, along with the additional government share, for a period of not more than five
1658 years77 counted from the commencement of commercial production.

1659 It must be noted that there can be no recovery without commencing actual commercial production . In the meantime that the
1660 contractors are recouping costs, they need to continue operating; in order to do so, they have to disburse money to meet their
1661 various needs. In short, money is continually infused into the economy.

1662 The foregoing discussion should serve to rid us of the mistaken belief that, since the foreign contractors are allowed to
1663 recover their investments and costs, the end result is that they practically get the minerals for free, which leaves the Filipino
1664 people none the better for it.

1665 All Businesses Entitled

1666 to Cost Recovery

1667 Let it be put on record that not only foreign contractors, but all businessmen and all business entities in general, have to
1668 recoup their investments and costs. That is one of the first things a student learns in business school. Regardless of its
1669 nationality, and whether or not a business entity has a five-year cost recovery period, it will -- must -- have to recoup its
1670 investments, one way or another. This is just common business sense. Recovery of investments is absolutely indispensable
1671 for business survival; and business survival ensures soundness of the economy, which is critical and contributory to the
1672 general welfare of the people. Even government corporations must recoup their investments in order to survive and continue
1673 in operation. And, as the preceding discussion has shown, there is no business that gets ahead or earns profits without any
1674 cost to it.

1675 It must also be stressed that, though the State owns vast mineral wealth, such wealth is not readily accessible or
1676 transformable into usable and negotiable currency without the intervention of the credible mining companies. Those
1677 untapped mineral resources, hidden beneath tons of earth and rock, may as well not be there for all the good they do us right
1678 now. They have first to be extracted and converted into marketable form, and the country needs the foreign contractor's
1679 funds, technology and know-how for that.

1680 After about eleven years of pre-operation and another five years for cost recovery, the foreign contractors will have just
1681 broken even. Is it likely that they would at that point stop their operations and leave? Certainly not. They have yet to make
1682 profits. Thus, for the remainder of the contract term, they must strive to maintain profitability. During this period, they pay
1683 the whole of the basic government share and the additional government share which, taken together with indirect taxes and
1684 other contributions, amount to approximately 60 percent or more of the entire financial benefits generated by the mining
1685 venture.

Page 38
1686 In sum, we can hardly talk about foreign contractors taking our mineral resources for free. It takes a lot of hard cash to even
1687 begin to do what they do. And what they do in this country ultimately benefits the local economy, grows businesses,
1688 generates employment, and creates infrastructure, as discussed above. Hence, we definitely disagree with the sweeping claim
1689 that no FTAA under Section 81 will ever make any real contribution to the growth of the economy or to the general welfare of
1690 the country. This is not a plea for foreign contractors. Rather, this is a question of focusing the judicial spotlight squarely on
1691 all the pertinent facts as they bear upon the issue at hand, in order to avoid leaping precipitately to ill-conceived conclusions
1692 not solidly grounded upon fact.

1693 Repatriation of After-Tax Income

1694 Another objection points to the alleged failure of the Mining Law to ensure real contributions to the economic growth and
1695 general welfare of the country, as mandated by Section 2 of Article XII of the Constitution. Pursuant to Section 81 of the law,
1696 the entire after-tax income arising from the exploitation of mineral resources owned by the State supposedly belongs to the
1697 foreign contractors, which will naturally repatriate the said after-tax income to their home countries, thereby resulting in no
1698 real contribution to the economic growth of this country. Clearly, this contention is premised on erroneous assumptions.

1699 First, as already discussed in detail hereinabove, the concerned agencies have correctly interpreted the second paragraph of
1700 Section 81 of RA 7942 to mean that the government is entitled to an additional share, to be computed based on any one of the
1701 following factors: net mining revenues, the present value of the cash flows, or excess profits reckoned against a benchmark
1702 rate of return on investments. So it is not correct to say that all of the after-tax income will accrue to the foreign FTAA
1703 contractor, as the government effectively receives a significant portion thereof.

1704 Second, the foreign contractors can hardly "repatriate the entire after-tax income to their home countries." Even a bit of
1705 knowledge of corporate finance will show that it will be impossible to maintain a business as a "going concern" if the entire
1706 "net profit" earned in any particular year will be taken out and repatriated. The "net income" figure reflected in the bottom
1707 line is a mere accounting figure not necessarily corresponding to cash in the bank, or other quick assets. In order to produce
1708 and set aside cash in an amount equivalent to the bottom line figure, one may need to sell off assets or immediately collect
1709 receivables or liquidate short-term investments; but doing so may very likely disrupt normal business operations.

1710 In terms of cash flows, the funds corresponding to the net income as of a particular point in time are actually in usein the
1711 normal course of business operations. Pulling out such net income disrupts the cash flows and cash position of the
1712 enterprise and, depending on the amount being taken out, could seriously cripple or endanger the normal operations and
1713 financial health of the business enterprise. In short, no sane business person, concerned with maintaining the mining
1714 enterprise as a going concern and keeping a foothold in its market, can afford to repatriate the entire after-tax income to the
1715 home country.

1716 The State's Receipt of Sixty

1717 Percent of an FTAA Contractor's
1718 After-Tax Income Not Mandatory

1719 We now come to the next objection which runs this way: In FTAAs with a foreign contractor, the State must receive at least
1720 60 percent of the after-tax income from the exploitation of its mineral resources. This share is the equivalent of the
1721 constitutional requirement that at least 60 percent of the capital, and hence 60 percent of the income, of mining companies
1722 should remain in Filipino hands.

1723 First, we fail to see how we can properly conclude that the Constitution mandates the State to extract at least 60 percent of
1724 the after-tax income from a mining company run by a foreign contractor. The argument is that the Charter requires the
1725 State's partner in a co-production agreement, joint venture agreement or MPSA to be a Filipino corporation (at least 60
1726 percent owned by Filipino citizens).

1727 We question the logic of this reasoning, premised on a supposedly parallel or analogous situation. We are, after all, dealing
1728 with an essentially different equation, one that involves different elements. The Charter did not intend to fix an iron-clad
1729 rule on the 60 percent share, applicable to all situations at all times and in all circumstances.If ever such was the intention
1730 of the framers, they would have spelt it out in black and white. Verba legis will serve to dispel unwarranted and untenable
1731 conclusions.

Page 39
1732 Second, if we would bother to do the math, we might better appreciate the impact (and reasonableness) of what we are
1733 demanding of the foreign contractor. Let us use a simplified illustration. Let us base it on gross revenues of, say, P500. After
1734 deducting operating expenses, but prior to income tax, suppose a mining firm makes a taxable incomeof P100. A corporate
1735 income tax of 32 percent results in P32 of taxable income going to the government, leaving the mining firm with P68.
1736 Government then takes 60 percent thereof, equivalent to P40.80, leaving only P27.20 for the mining firm.

1737 At this point the government has pocketed P32.00 plus P40.80, or a total of P72.80 for every P100 of taxable income, leaving
1738 the mining firm with only P27.20. But that is not all. The government has also taken 2 percent excise tax "off the top,"
1739 equivalent to another P10. Under the minimum 60 percent proposal, the government nets around P82.80 (not counting other
1740 taxes, duties, fees and charges) from a taxable income of P100 (assuming gross revenues of P500, for purposes of illustration).
1741 On the other hand, the foreign contractor, which provided all the capital, equipment and labor, and took all the
1742 entrepreneurial risks -- receives P27.20. One cannot but wonder whether such a distribution is even remotely equitable and
1743 reasonable, considering the nature of the mining business. The amount of P82.80 out of P100.00 is really a lot – it does not
1744 matter that we call part of it excise tax or income tax, and another portion thereof income from exploitation of mineral
1745 resources. Some might think it wonderful to be able to take the lion's share of the benefits. But we have to ask ourselves if we
1746 are really serious in attracting the investments that are the indispensable and key element in generating the monetary
1747 benefits of which we wish to take the lion's share. Fairness is a credo not only in law, but also in business.

1748 Third, the 60 percent rule in the petroleum industry cannot be insisted upon at all times in the mining business. The reason
1749 happens to be the fact that in petroleum operations, the bulk of expenditures is in exploration, but once the contractor has
1750 found and tapped into the deposit, subsequent investments and expenditures are relatively minimal. The crude (or gas)
1751 keeps gushing out, and the work entailed is just a matter of piping, transporting and storing. Not so in mineral mining. The
1752 ore body does not pop out on its own. Even after it has been located, the contractor must continually invest in machineries
1753 and expend funds to dig and build tunnels in order to access and extract the minerals from underneath hundreds of tons of
1754 earth and rock.

1755 As already stated, the numerous intrinsic differences involved in their respective operations and requirements, cost
1756 structures and investment needs render it highly inappropriate to use petroleum operations FTAAs as benchmarks for
1757 mining FTAAs. Verily, we cannot just ignore the realities of the distinctly different situations and stubbornly insist on the
1758 "minimum 60 percent."

1759 The Mining and the Oil Industries

1760 Different From Each Other

1761 To stress, there is no independent showing that the taking of at least a 60 percent share in the after-tax income of a
1762 mining company operated by a foreign contractor is fair and reasonable under most if not all circumstances . The fact that
1763 some petroleum companies like Shell acceded to such percentage of sharing does not ipso facto mean that it is per se
1764 reasonable and applicable to non-petroleum situations (that is, mining companies) as well . We can take judicial notice of the
1765 fact that there are, after all, numerous intrinsic differences involved in their respective operations and equipment or
1766 technological requirements, costs structures and capital investment needs, and product pricing and markets .

1767 There is no showing, for instance, that mining companies can readily cope with a 60 percent government share in the same
1768 way petroleum companies apparently can. What we have is a suggestion to enforce the 60 percent quota on the basis of a
1769 disjointed analogy. The only factor common to the two disparate situations is the extraction of natural resources.

1770 Indeed, we should take note of the fact that Congress made a distinction between mining firms and petroleum companies. In
1771 Republic Act No. 7729 -- "An Act Reducing the Excise Tax Rates on Metallic and Non-Metallic Minerals and Quarry
1772 Resources, Amending for the Purpose Section 151(a) of the National Internal Revenue Code, as amended" -- the lawmakers
1773 fixed the excise tax rate on metallic and non-metallic minerals at two percent of the actual market value of the annual gross
1774 output at the time of removal. However, in the case of petroleum, the lawmakers set the excise tax rate for the first taxable
1775 sale at fifteen percent of the fair international market price thereof.

1776 There must have been a very sound reason that impelled Congress to impose two very dissimilar excise tax rate. We cannot
1777 assume, without proof, that our honorable legislators acted arbitrarily, capriciously and whimsically in this instance. We
1778 cannot just ignore the reality of two distinctly different situations and stubbornly insist on going "minimum 60 percent."

Page 40
1779 To repeat, the mere fact that gas and oil exploration contracts grant the State 60 percent of the net revenues does not
1780 necessarily imply that mining contracts should likewise yield a minimum of 60 percent for the State. Jumping to that
1781 erroneous conclusion is like comparing apples with oranges. The exploration, development and utilization of gas and oil are
1782 simply different from those of mineral resources.

1783 To stress again, the main risk in gas and oil is in the exploration. But once oil in commercial quantities is struck and the
1784 wells are put in place, the risk is relatively over and black gold simply flows out continuously with comparativelyless need for
1785 fresh investments and technology.

1786 On the other hand, even if minerals are found in viable quantities, there is still need for continuous fresh capital and
1787 expertise to dig the mineral ores from the mines. Just because deposits of mineral ores are found in one area is no guarantee
1788 that an equal amount can be found in the adjacent areas. There are simply continuing risks and need for more capital,
1789 expertise and industry all the time.

1790 Note, however, that the indirect benefits -- apart from the cash revenues -- are much more in the mineral industry. As mines
1791 are explored and extracted, vast employment is created, roads and other infrastructure are built, and other multiplier effects
1792 arise. On the other hand, once oil wells start producing, there is less need for employment. Roads and other public works
1793 need not be constructed continuously. In fine, there is no basis for saying that government revenues from the oil industry and
1794 from the mineral industries are to be identical all the time.

1795 Fourth, to our mind, the proffered "minimum 60 percent" suggestion tends to limit the flexibility and tie the hands of
1796 government, ultimately hampering the country's competitiveness in the international market, to the detriment of the
1797 Filipino people. This "you-have-to-give-us-60-percent-of-after-tax-income-or-we-don't-do- business-with-you" approach is
1798 quite perilous. True, this situation may not seem too unpalatable to the foreign contractor during good years, when
1799 international market prices are up and the mining firm manages to keep its costs in check. However, under unfavorable
1800 economic and business conditions, with costs spiraling skywards and minerals prices plummeting, a mining firm may
1801 consider itself lucky to make just minimal profits.

1802 The inflexible, carved-in-granite demand for a 60 percent government share may spell the end of the mining venture, scare
1803 away potential investors, and thereby further worsen the already dismal economic scenario. Moreover, such an unbending or
1804 unyielding policy prevents the government from responding appropriately to changing economic conditions and shifting
1805 market forces. This inflexibility further renders our country less attractive as an investment option compared with other
1806 countries.

1807 And fifth, for this Court to decree imperiously that the government's share should be not less than 60 percent of the after-tax
1808 income of FTAA contractors at all times is nothing short of dictating upon the government. The result, ironically, is that the
1809 State ends up losing control. To avoid compromising the State's full control and supervision over the exploitation of mineral
1810 resources, this Court must back off from insisting upon a "minimum 60 percent" rule. It is sufficient that the State has the
1811 power and means, should it so decide, to get a 60 percent share (or more) in the contractor's net mining revenues or after-tax
1812 income, or whatever other basis the government may decide to use in reckoning its share. It is not necessary for it to do so in
1813 every case, regardless of circumstances.

1814 In fact, the government must be trusted, must be accorded the liberty and the utmost flexibility to deal, negotiate and
1815 transact with contractors and third parties as it sees fit; and upon terms that it ascertains to be most favorable or most
1816 acceptable under the circumstances, even if it means agreeing to less than 60 percent. Nothing must prevent the State from
1817 agreeing to a share less than that, should it be deemed fit; otherwise the State will be deprived of full control over mineral
1818 exploitation that the Charter has vested in it.

1819 To stress again, there is simply no constitutional or legal provision fixing the minimum share of the government in an
1820 FTAA at 60 percent of the net profit. For this Court to decree such minimum is to wade into judicial legislation, and thereby
1821 inordinately impinge on the control power of the State. Let it be clear: the Court is not against the grant of more benefits to
1822 the State; in fact, the more the better. If during the FTAA negotiations, the President can secure 60 percent, 78 or even 90
1823 percent, then all the better for our people. But, if under the peculiar circumstances of a specific contract, the President could
1824 secure only 50 percent or 55 percent, so be it. Needless to say, the President will have to report (and be responsible for) the
1825 specific FTAA to Congress, and eventually to the people.

Page 41
1826 Finally, if it should later be found that the share agreed to is grossly disadvantageous to the government, the officials
1827 responsible for entering into such a contract on its behalf will have to answer to the courts for their malfeasance. And the
1828 contract provision voided. But this Court would abuse its own authority should it force the government's hand to adopt the
1829 60 percent demand of some of our esteemed colleagues.

1830 Capital and Expertise Provided,

1831 Yet All Risks Assumed by Contractor

1832 Here, we will repeat what has not been emphasized and appreciated enough: the fact that the contractor in an FTAA
1833 provides all the needed capital, technical and managerial expertise, and technology required to undertake the project.

1834 In regard to the WMCP FTAA, the then foreign-owned WMCP as contractor committed, at the very outset, to make capital
1835 investments of up to US$50 million in that single mining project. WMCP claims to have already poured in well over P800
1836 million into the country as of February 1998, with more in the pipeline. These resources, valued in the tens or hundreds of
1837 millions of dollars, are invested in a mining project that provides no assurance whatsoever that any part of the investment
1838 will be ultimately recouped.

1839 At the same time, the contractor must comply with legally imposed environmental standards and the social obligations, for
1840 which it also commits to make significant expenditures of funds. Throughout, the contractor assumes all the risks79 of the
1841 business, as mentioned earlier. These risks are indeed very high, considering that the rate of success in exploration is
1842 extremely low. The probability of finding any mineral or petroleum in commercially viable quantities is estimated to be about
1843 1:1,000 only. On that slim chance rides the contractor's hope of recouping investments and generating profits. And when the
1844 contractor has recouped its initial investments in the project, the government share increases to sixty percent of net benefits
1845 -- without the State ever being in peril of incurring costs, expenses and losses.

1846 And even in the worst possible scenario -- an absence of commercial quantities of minerals to justify development -- the
1847 contractor would already have spent several million pesos for exploration works, before arriving at the point in which it can
1848 make that determination and decide to cut its losses. In fact, during the first year alone of the exploration period, the
1849 contractor was already committed to spend not less than P24 million. The FTAA therefore clearly ensures benefits for the
1850 local economy, courtesy of the contractor.

1851 All in all, this setup cannot be regarded as disadvantageous to the State or the Filipino people; it certainly cannot be said to
1852 convey beneficial ownership of our mineral resources to foreign contractors.

1853 Deductions Allowed by the

1854 WMCP FTAA Reasonable

1855 Petitioners question whether the State's weak control might render the sharing arrangements ineffective. They cite the so-
1856 called "suspicious" deductions allowed by the WMCP FTAA in arriving at the net mining revenue, which is the basis for
1857 computing the government share. The WMCP FTAA, for instance, allows expenditures for "development within and outside
1858 the Contract Area relating to the Mining Operations,"80 "consulting fees incurred both inside and outside the Philippines for
1859 work related directly to the Mining Operations,"81 and "the establishment and administration of field offices including
1860 administrative overheads incurred within and outside the Philippines which are properly allocatable to the Mining
1861 Operations and reasonably related to the performance of the Contractor's obligations and exercise of its rights under this
1862 Agreement."82

1863 It is quite well known, however, that mining companies do perform some marketing activities abroad in respect of selling
1864 their mineral products and by-products. Hence, it would not be improper to allow the deduction of reasonable consulting fees
1865 incurred abroad, as well as administrative expenses and overheads related to marketing offices also located abroad --
1866 provided that these deductions are directly related or properly allocatable to the mining operations and reasonably related to
1867 the performance of the contractor's obligations and exercise of its rights. In any event, more facts are needed. Until we see
1868 how these provisions actually operate, mere "suspicions" will not suffice to propel this Court into taking action.

1869 Section 7.9 of the WMCP FTAA

1870 Invalid and Disadvantageous

Page 42
1871 Having defended the WMCP FTAA, we shall now turn to two defective provisos. Let us start with Section 7.9 of the WMCP
1872 FTAA. While Section 7.7 gives the government a 60 percent share in the net mining revenues of WMCP from the
1873 commencement of commercial production, Section 7.9 deprives the government of part or all of the said 60 percent. Under the
1874 latter provision, should WMCP's foreign shareholders -- who originally owned 100 percent of the equity -- sell 60 percent or
1875 more of its outstanding capital stock to a Filipino citizen or corporation, the State loses its right to receive its 60 percent
1876 share in net mining revenues under Section 7.7.

1877 Section 7.9 provides:

1878 The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7 shall be reduced by 1percent of
1879 Net Mining Revenues for every 1percent ownership interest in the Contractor (i.e., WMCP) held by a Qualified Entity .83

1880 Evidently, what Section 7.7 grants to the State is taken away in the next breath by Section 7.9 without any offsetting
1881 compensation to the State. Thus, in reality, the State has no vested right to receive any income from the FTAA for the
1882 exploitation of its mineral resources. Worse, it would seem that what is given to the State in Section 7.7 is by mere tolerance
1883 of WMCP's foreign stockholders, who can at any time cut off the government's entire 60 percent share. They can do so by
1884 simply selling 60 percent of WMCP's outstanding capital stock to a Philippine citizen or corporation. Moreover, the proceeds
1885 of such sale will of course accrue to the foreign stockholders of WMCP, not to the State.

1886 The sale of 60 percent of WMCP's outstanding equity to a corporation that is 60 percent Filipino-owned and 40 percent
1887 foreign-owned will still trigger the operation of Section 7.9. Effectively, the State will lose its right to receive all 60 percent of
1888 the net mining revenues of WMCP; and foreign stockholders will own beneficially up to 64 percent of WMCP , consisting of
1889 the remaining 40 percent foreign equity therein, plus the 24 percent pro-rata share in the buyer-corporation.84

1890 In fact, the January 23, 2001 sale by WMCP's foreign stockholder of the entire outstanding equity in WMCP to Sagittarius
1891 Mines, Inc. -- a domestic corporation at least 60 percent Filipino owned -- may be deemed to have automatically triggered the
1892 operation of Section 7.9, without need of further action by any party, and removed the State's right to receive the 60 percent
1893 share in net mining revenues.

1894 At bottom, Section 7.9 has the effect of depriving the State of its 60 percent share in the net mining revenues of
1895 WMCP without any offset or compensation whatsoever. It is possible that the inclusion of the offending provision was
1896 initially prompted by the desire to provide some form of incentive for the principal foreign stockholder in WMCP to
1897 eventually reduce its equity position and ultimately divest in favor of Filipino citizens and corporations. However, as finally
1898 structured, Section 7.9 has the deleterious effect of depriving government of the entire 60 percent share in WMCP's net
1899 mining revenues, without any form of compensation whatsoever. Such an outcome is completely unacceptable.

1900 The whole point of developing the nation's natural resources is to benefit the Filipino people, future generations included.
1901 And the State as sovereign and custodian of the nation's natural wealth is mandated to protect, conserve, preserve and
1902 develop that part of the national patrimony for their benefit. Hence, the Charter lays great emphasis on "real contributions
1903 to the economic growth and general welfare of the country" 85 as essential guiding principles to be kept in mind when
1904 negotiating the terms and conditions of FTAAs.

1905 Earlier, we held (1) that the State must be accorded the liberty and the utmost flexibility to deal, negotiate and transact with
1906 contractors and third parties as it sees fit, and upon terms that it ascertains to be most favorable or most acceptable under
1907 the circumstances, even if that should mean agreeing to less than 60 percent; (2) that it is not necessary for the State to
1908 extract a 60 percent share in every case and regardless of circumstances; and (3) that should the State be prevented from
1909 agreeing to a share less than 60 percent as it deems fit, it will be deprived of the full control over mineral exploitation that
1910 the Charter has vested in it.

1911 That full control is obviously not an end in itself; it exists and subsists precisely because of the need to serve and protect the
1912 national interest. In this instance, national interest finds particular application in the protection of the national patrimony
1913 and the development and exploitation of the country's mineral resources for the benefit of the Filipino people and the
1914 enhancement of economic growth and the general welfare of the country. Undoubtedly, such full control can be misused and
1915 abused, as we now witness.

1916 Section 7.9 of the WMCP FTAA effectively gives away the State's share of net mining revenues (provided for in Section 7.7)
1917 without anything in exchange. Moreover, this outcome constitutes unjust enrichment on the part of the local and foreign

Page 43
1918 stockholders of WMCP. By their mere divestment of up to 60 percent equity in WMCP in favor of Filipino citizens and/or
1919 corporations, the local and foreign stockholders get a windfall. Their share in the net mining revenues of WMCP is
1920 automatically increased, without their having to pay the government anything for it. In short, the provision in question is
1921 without a doubt grossly disadvantageous to the government, detrimental to the interests of the Filipino people, and violative
1922 of public policy.

1923 Moreover, it has been reiterated in numerous decisions86 that the parties to a contract may establish any agreements, terms
1924 and conditions that they deem convenient; but these should not be contrary to law, morals, good customs, public order or
1925 public policy.87 Being precisely violative of anti-graft provisions and contrary to public policy, Section 7.9 must therefore be
1926 stricken off as invalid.

1927 Whether the government officials concerned acceded to that provision by sheer mistake or with full awareness of the ill
1928 consequences, is of no moment. It is hornbook doctrine that the principle of estoppel does not operate against the government
1929 for the act of its agents,88 and that it is never estopped by any mistake or error on their part. 89 It is therefore possible and
1930 proper to rectify the situation at this time. Moreover, we may also say that the FTAA in question does not involve mere
1931 contractual rights; being impressed as it is with public interest, the contractual provisions and stipulations must yield to the
1932 common good and the national interest.

1933 Since the offending provision is very much separable 90 from Section 7.7 and the rest of the FTAA, the deletion of Section 7.9
1934 can be done without affecting or requiring the invalidation of the WMCP FTAA itself. Such a deletion will preserve for the
1935 government its due share of the benefits. This way, the mandates of the Constitution are complied with and the interests of
1936 the government fully protected, while the business operations of the contractor are not needlessly disrupted.

1937 Section 7.8(e) of the WMCP FTAA

1938 Also Invalid and Disadvantageous

1939 Section 7.8(e) of the WMCP FTAA is likewise invalid. It provides thus:

1940 "7.8 The Government Share shall be deemed to include all of the following sums:

1941 "(a) all Government taxes, fees, levies, costs, imposts, duties and royalties including excise tax, corporate income tax, customs
1942 duty, sales tax, value added tax, occupation and regulatory fees, Government controlled price stabilization schemes, any
1943 other form of Government backed schemes, any tax on dividend payments by the Contractor or its Affiliates in respect of
1944 revenues from the Mining Operations and any tax on interest on domestic and foreign loans or other financial arrangements
1945 or accommodations, including loans extended to the Contractor by its stockholders;

1946 "(b) any payments to local and regional government, including taxes, fees, levies, costs, imposts, duties, royalties, occupation
1947 and regulatory fees and infrastructure contributions;

1948 "(c) any payments to landowners, surface rights holders, occupiers, indigenous people or Claimowners;

1949 "(d) costs and expenses of fulfilling the Contractor's obligations to contribute to national development in accordance with
1950 Clause 10.1(i) (1) and 10.1(i) (2);

1951 "(e) an amount equivalent to whatever benefits that may be extended in the future by the Government to the Contractor or to
1952 financial or technical assistance agreement contractors in general;

1953 "(f) all of the foregoing items which have not previously been offset against the Government Share in an earlier Fiscal Year,
1954 adjusted for inflation." (underscoring supplied)

1955 Section 7.8(e) is out of place in the FTAA. It makes no sense why, for instance, money spent by the government for the
1956 benefit of the contractor in building roads leading to the mine site should still be deductible from the State's share in net
1957 mining revenues. Allowing this deduction results in benefiting the contractor twice over. It constitutes unjust enrichment on
1958 the part of the contractor at the expense of the government, since the latter is effectively being made to pay twice for the
1959 same item.91 For being grossly disadvantageous and prejudicial to the government and contrary to public policy, Section 7.8(e)
1960 is undoubtedly invalid and must be declared to be without effect. Fortunately, this provision can also easily be stricken off
1961 without affecting the rest of the FTAA.

Page 44
1962 Nothing Left Over
1963 After Deductions?

1964 In connection with Section 7.8, an objection has been raised: Specified in Section 7.8 are numerous items of deduction from
1965 the State's 60 percent share. After taking these into account, will the State ever receive anything for its ownership of the
1966 mineral resources?

1967 We are confident that under normal circumstances, the answer will be yes. If we examine the various items of "deduction"
1968 listed in Section 7.8 of the WMCP FTAA, we will find that they correspond closely to the components or elements of the basic
1969 government share established in DAO 99-56, as discussed in the earlier part of this Opinion.

1970 Likewise, the balance of the government's 60 percent share -- after netting out the items of deduction listed in Section 7.8 --
1971 corresponds closely to the additional government share provided for in DAO 99-56 which, we once again stress, has nothing
1972 at all to do with indirect taxes. The Ramos-DeVera paper92 concisely presents the fiscal contribution of an FTAA under DAO
1973 99-56 in this equation:

1974 Receipts from an FTAA = basic gov't share + add'l gov't share

1975 Transposed into a similar equation, the fiscal payments system from the WMCP FTAA assumes the following formulation:

1976 Government's 60 percent share in net mining revenues of WMCP = items listed in Sec. 7.8 of the FTAA + balance of Gov't
1977 share, payable 4 months from the end of the fiscal year

1978 It should become apparent that the fiscal arrangement under the WMCP FTAA is very similar to that under DAO 99-56,
1979 with the "balance of government share payable 4 months from end of fiscal year" being the equivalent of the additional
1980 government share computed in accordance with the "net-mining-revenue-based option" under DAO 99-56, as discussed
1981 above. As we have emphasized earlier, we find each of the three options for computing the additional government share -- as
1982 presented in DAO 99-56 -- to be sound and reasonable.

1983 We therefore conclude that there is nothing inherently wrong in the fiscal regime of the WMCP FTAA, and certainly nothing
1984 to warrant the invalidation of the FTAA in its entirety.

1985 Section 3.3 of the WMCP

1986 FTAA Constitutional

1987 Section 3.3 of the WMCP FTAA is assailed for violating supposed constitutional restrictions on the term of FTAAs. The
1988 provision in question reads:

1989 "3.3 This Agreement shall be renewed by the Government for a further period of twenty-five (25) years under the same terms
1990 and conditions provided that the Contractor lodges a request for renewal with the Government not less than sixty (60) days
1991 prior to the expiry of the initial term of this Agreement and provided that the Contractor is not in breach of any of the
1992 requirements of this Agreement."

1993 Allegedly, the above provision runs afoul of Section 2 of Article XII of the 1987 Constitution, which states:

1994 "Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential
1995 energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the
1996 exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development and
1997 utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake
1998 such activities, or it may enter into co-production, joint venture or production-sharing agreements with Filipino citizens or
1999 corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for
2000 a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and
2001 conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other
2002 than the development of water power, beneficial use may be the measure and limit of the grant.

2003 "The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone,
2004 and reserve its use and enjoyment exclusively to Filipino citizens.

Page 45
2005 "The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish
2006 farming, with priority to subsistence fishermen and fish-workers in rivers, lakes, bays and lagoons.

2007 "The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance
2008 for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the
2009 general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the
2010 country. In such agreements, the State shall promote the development and use of local scientific and technical resources.

2011 "The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days
2012 from its execution."93

2013 We hold that the term limitation of twenty-five years does not apply to FTAAs. The reason is that the above provision is
2014 found within paragraph 1 of Section 2 of Article XII, which refers to mineral agreements -- co-production agreements, joint
2015 venture agreements and mineral production-sharing agreements -- which the government may enter into with Filipino
2016 citizens and corporations, at least 60 percent owned by Filipino citizens. The word "such" clearly refers to these three mineral
2017 agreements -- CPAs, JVAs and MPSAs -- not to FTAAs.

2018 Specifically, FTAAs are covered by paragraphs 4 and 5 of Section 2 of Article XII of the Constitution. It will be noted
2019 that there are no term limitations provided for in the said paragraphs dealing with FTAAs. This shows that FTAAs are sui
2020 generis, in a class of their own. This omission was obviously a deliberate move on the part of the framers. They probably
2021 realized that FTAAs would be different in many ways from MPSAs, JVAs and CPAs. The reason the framers did not fix term
2022 limitations applicable to FTAAs is that they preferred to leave the matter to the discretion of the legislature and/or the
2023 agencies involved in implementing the laws pertaining to FTAAs, in order to give the latter enough flexibility and elbow
2024 room to meet changing circumstances.

2025 Note also that, as previously stated, the exploratory phrases of an FTAA lasts up to eleven years. Thereafter, a few more
2026 years would be gobbled up in start-up operations. It may take fifteen years before an FTAA contractor can start earning
2027 profits. And thus, the period of 25 years may really be short for an FTAA. Consider too that in this kind of agreement, the
2028 contractor assumes all entrepreneurial risks. If no commercial quantities of minerals are found, the contractor bears all
2029 financial losses. To compensate for this long gestation period and extra business risks, it would not be totally unreasonable to
2030 allow it to continue EDU activities for another twenty five years.

2031 In any event, the complaint is that, in essence, Section 3.3 gives the contractor the power to compel the government to renew
2032 the WMCP FTAA for another 25 years and deprives the State of any say on whether to renew the contract.

2033 While we agree that Section 3.3 could have been worded so as to prevent it from favoring the contractor, this provision does
2034 not violate any constitutional limits, since the said term limitation does not apply at all to FTAAs. Neither can the provision
2035 be deemed in any manner to be illegal, as no law is being violated thereby. It is certainly not illegal for the government to
2036 waive its option to refuse the renewal of a commercial contract.

2037 Verily, the government did not have to agree to Section 3.3. It could have said "No" to the stipulation, but it did not. It
2038 appears that, in the process of negotiations, the other contracting party was able to convince the government to agree to the
2039 renewal terms. Under the circumstances, it does not seem proper for this Court to intervene and step in to undo what might
2040 have perhaps been a possible miscalculation on the part of the State. If government believes that it is or will be aggrieved by
2041 the effects of Section 3.3, the remedy is the renegotiation of the provision in order to provide the State the option to not
2042 renew the FTAA.

2043 Financial Benefits for Foreigners

2044 Not Forbidden by the Constitution

2045 Before leaving this subject matter, we find it necessary for us to rid ourselves of the false belief that the Constitution
2046 somehow forbids foreign-owned corporations from deriving financial benefits from the development of our natural or mineral
2047 resources.

2048 The Constitution has never prohibited foreign corporations from acquiring and enjoying "beneficial interest" in the
2049 development of Philippine natural resources. The State itself need not directly undertake exploration, development, and
2050 utilization activities. Alternatively, the Constitution authorizes the government to enter into joint venture agreements

Page 46
2051 (JVAs), co-production agreements (CPAs) and mineral production sharing agreements (MPSAs) with contractors who are
2052 Filipino citizens or corporations that are at least 60 percent Filipino-owned. They may do the actual "dirty work" -- the
2053 mining operations.

2054 In the case of a 60 percent Filipino-owned corporation, the 40 percent individual and/or corporate non-Filipino
2055 stakeholders obviously participate in the beneficial interest derived from the development and utilization of our natural
2056 resources. They may receive by way of dividends, up to 40 percent of the contractor's earnings from the mining project.
2057 Likewise, they may have a say in the decisions of the board of directors, since they are entitled to representation therein to
2058 the extent of their equity participation, which the Constitution permits to be up to 40 percent of the contractor's equity.
2059 Hence, the non-Filipino stakeholders may in that manner also participate in the management of the contractor's natural
2060 resource development work. All of this is permitted by our Constitution, for any natural resource, and without limitation
2061 even in regard to the magnitude of the mining project or operations (see paragraph 1 of Section 2 of Article XII).

2062 It is clear, then, that there is nothing inherently wrong with or constitutionally objectionable about the idea of foreign
2063 individuals and entities having or enjoying "beneficial interest" in -- and participating in the management of operations
2064 relative to -- the exploration, development and utilization of our natural resources.

2065 FTAA More Advantageous

2066 Than Other Schemes
2067 Like CPA, JVA and MPSA

2068 A final point on the subject of beneficial interest. We believe the FTAA is a more advantageous proposition for the
2069 government as compared with other agreements permitted by the Constitution. In a CPA that the government enters into
2070 with one or more contractors, the government shall provide inputs to the mining operations other than the mineral resource
2071 itself.94

2072 In a JVA, a JV company is organized by the government and the contractor, with both parties having equity shares
2073 (investments); and the contractor is granted the exclusive right to conduct mining operations and to extract minerals found
2074 in the area.95 On the other hand, in an MPSA, the government grants the contractor the exclusive right to conduct mining
2075 operations within the contract area and shares in the gross output; and the contractor provides the necessary financing,
2076 technology, management and manpower.

2077 The point being made here is that, in two of the three types of agreements under consideration, the government has to ante
2078 up some risk capital for the enterprise. In other words, government funds (public moneys) are withdrawn from other possible
2079 uses, put to work in the venture and placed at risk in case the venture fails. This notwithstanding, management and control
2080 of the operations of the enterprise are -- in all three arrangements -- in the hands of the contractor, with the government
2081 being mainly a silent partner. The three types of agreement mentioned above apply to any natural resource, without
2082 limitation and regardless of the size or magnitude of the project or operations.

2083 In contrast to the foregoing arrangements, and pursuant to paragraph 4 of Section 2 of Article XII, the FTAA is limited to
2084 large-scale projects and only for minerals, petroleum and other mineral oils. Here, the Constitution removes the 40 percent
2085 cap on foreign ownership and allows the foreign corporation to own up to 100 percent of the equity. Filipino capital may not
2086 be sufficient on account of the size of the project, so the foreign entity may have to ante up all the risk capital.

2087 Correlatively, the foreign stakeholder bears up to 100 percent of the risk of loss if the project fails. In respect of the particular
2088 FTAA granted to it, WMCP (then 100 percent foreign owned) was responsible, as contractor, for providing the entire equity,
2089 including all the inputs for the project. It was to bear 100 percent of the risk of loss if the project failed, but its maximum
2090 potential "beneficial interest" consisted only of 40 percent of the net beneficial interest, because the other 60 percent is the
2091 share of the government, which will never be exposed to any risk of loss whatsoever.

2092 In consonance with the degree of risk assumed, the FTAA vested in WMCP the day-to-day management of the mining
2093 operations. Still such management is subject to the overall control and supervision of the State in terms of regular reporting,
2094 approvals of work programs and budgets, and so on.

2095 So, one needs to consider in relative terms, the costs of inputs for, degree of risk attendant to, and benefits derived or to be
2096 derived from a CPA, a JVA or an MPSA vis-à-vis those pertaining to an FTAA. It may not be realistically asserted that the
2097 foreign grantee of an FTAA is being unduly favored or benefited as compared with a foreign stakeholder in a corporation

Page 47
2098 holding a CPA, a JVA or an MPSA. Seen the other way around, the government is definitely better off with an FTAA than a
2099 CPA, a JVA or an MPSA.

2100 Developmental Policy on the Mining Industry

2101 During the Oral Argument and in their Final Memorandum , petitioners repeatedly urged the Court to consider whether
2102 mining as an industry and economic activity deserved to be accorded priority, preference and government support as against,
2103 say, agriculture and other activities in which Filipinos and the Philippines may have an "economic advantage." For instance,
2104 a recent US study96 reportedly examined the economic performance of all local US counties that were dependent on mining
2105 and 20 percent of whose labor earnings between 1970 and 2000 came from mining enterprises.

2106 The study -- covering 100 US counties in 25 states dependent on mining -- showed that per capita income grew about 30
2107 percent less in mining-dependent communities in the 1980s and 25 percent less for the entire period 1980 to 2000; the level
2108 of per capita income was also lower. Therefore, given the slower rate of growth, the gap between these and other local
2109 counties increased.

2110 Petitioners invite attention to the OXFAM America Report's warning to developing nations that mining brings with it
2111 serious economic problems, including increased regional inequality, unemployment and poverty. They also cite the final
2112 report97 of the Extractive Industries Review project commissioned by the World Bank (the WB-EIR Report), which warns of
2113 environmental degradation, social disruption, conflict, and uneven sharing of benefits with local communities that bear the
2114 negative social and environmental impact. The Report suggests that countries need to decide on the best way to exploit their
2115 natural resources, in order to maximize the value added from the development of their resources and ensure that they are on
2116 the path to sustainable development once the resources run out.

2117 Whatever priority or preference may be given to mining vis-à-vis other economic or non-economic activities is a question of
2118 policy that the President and Congress will have to address; it is not for this Court to decide. This Court declares what the
2119 Constitution and the laws say, interprets only when necessary, and refrains from delving into matters of policy .

2120 Suffice it to say that the State control accorded by the Constitution over mining activities assures a proper balancing of
2121 interests. More pointedly, such control will enable the President to demand the best mining practices and the use of the best
2122 available technologies to protect the environment and to rehabilitate mined-out areas. Indeed, under the Mining Law, the
2123 government can ensure the protection of the environment during and after mining. It can likewise provide for the
2124 mechanisms to protect the rights of indigenous communities, and thereby mold a more socially-responsive, culturally-
2125 sensitive and sustainable mining industry.

2126 Early on during the launching of the Presidential Mineral Industry Environmental Awards on February 6, 1997, then
2127 President Fidel V. Ramos captured the essence of balanced and sustainable mining in these words:

2128 "Long term, high profit mining translates into higher revenues for government, more decent jobs for the population, more
2129 raw materials to feed the engines of downstream and allied industries, and improved chances of human resource and
2130 countryside development by creating self-reliant communities away from urban centers.

2131 xxxxxxxxx

2132 "Against a fragile and finite environment, it is sustainability that holds the key. In sustainable mining, we take a middle
2133 ground where both production and protection goals are balanced, and where parties-in-interest come to terms."

2134 Neither has the present leadership been remiss in addressing the concerns of sustainable mining operations. Recently, on
2135 January 16, 2004 and April 20, 2004, President Gloria Macapagal Arroyo issued Executive Orders Nos. 270 and 270-A,
2136 respectively, "to promote responsible mineral resources exploration, development and utilization, in order to enhance
2137 economic growth, in a manner that adheres to the principles of sustainable development and with due regard for justice and
2138 equity, sensitivity to the culture of the Filipino people and respect for Philippine sovereignty." 98

2139 REFUTATION OF DISSENTS

2140 The Court will now take up a number of other specific points raised in the dissents of Justices Carpio and Morales.

Page 48
2141 1. Justice Morales introduced us to Hugh Morgan, former president and chief executive officer of Western Mining
2142 Corporation (WMC) and former president of the Australian Mining Industry Council, who spearheaded the vociferous
2143 opposition to the filing by aboriginal peoples of native title claims against mining companies in Australia in the aftermath of
2144 the landmark Mabo decision by the Australian High Court. According to sources quoted by our esteemed colleague, Morgan
2145 was also a racist and a bigot. In the course of protesting Mabo, Morgan allegedly uttered derogatory remarks belittling the
2146 aboriginal culture and race.

2147 An unwritten caveat of this introduction is that this Court should be careful not to permit the entry of the likes of Hugh
2148 Morgan and his hordes of alleged racist-bigots at WMC. With all due respect, such scare tactics should have no place in the
2149 discussion of this case. We are deliberating on the constitutionality of RA 7942, DAO 96-40 and the FTAA originally granted
2150 to WMCP, which had been transferred to Sagittarius Mining, a Filipino corporation. We are not discussing the apparition of
2151 white Anglo-Saxon racists/bigots massing at our gates.

2152 2. On the proper interpretation of the phrase agreements involving either technical or financial assistance, Justice Morales
2153 points out that at times we "conveniently omitted" the use of the disjunctive either…or, which according to her denotes
2154 restriction; hence the phrase must be deemed to connote restriction and limitation.

2155 But, as Justice Carpio himself pointed out during the Oral Argument, the disjunctive phrase either technical or financial
2156 assistance would, strictly speaking, literally mean that a foreign contractor may provide only one or the other, but not both.
2157 And if both technical and financial assistance were required for a project, the State would have to deal with at least two
2158 different foreign contractors -- one for financial and the other for technical assistance. And following on that, a foreign
2159 contractor, though very much qualified to provide both kinds of assistance, would nevertheless be prohibited from providing
2160 one kind as soon as it shall have agreed to provide the other.

2161 But if the Court should follow this restrictive and literal construction, can we really find two (or more) contractors who are
2162 willing to participate in one single project -- one to provide the "financial assistance" only and the other the "technical
2163 assistance" exclusively; it would be excellent if these two or more contractors happen to be willing and are able to cooperate
2164 and work closely together on the same project (even if they are otherwise competitors). And it would be superb if no conflicts
2165 would arise between or among them in the entire course of the contract. But what are the chances things will turn out this
2166 way in the real world? To think that the framers deliberately imposed this kind of restriction is to say that they were either
2167 exceedingly optimistic, or incredibly naïve. This begs the question -- What laudable objective or purpose could possibly be
2168 served by such strict and restrictive literal interpretation?

2169 3. Citing Oposa v. Factoran Jr., Justice Morales claims that a service contract is not a contract or property right which merits
2170 protection by the due process clause of the Constitution, but merely a license or privilege which may be validly revoked,
2171 rescinded or withdrawn by executive action whenever dictated by public interest or public welfare.

2172 Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy Executive Secretary as authority. The latter cases dealt
2173 specifically with timber licenses only. Oposa allegedly reiterated that a license is merely a permit or privilege to do what
2174 otherwise would be unlawful, and is not a contract between the authority, federal, state or municipal, granting it and the
2175 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.
2176 Thus this Court held that the granting of license does not create irrevocable rights, neither is it property or property rights.

2177 Should Oposa be deemed applicable to the case at bar, on the argument that natural resources are also involved in this
2178 situation? We do not think so. A grantee of a timber license, permit or license agreement gets to cut the timber already
2179 growing on the surface; it need not dig up tons of earth to get at the logs. In a logging concession, the investment of the
2180 licensee is not as substantial as the investment of a large-scale mining contractor. If a timber license were revoked, the
2181 licensee packs up its gear and moves to a new area applied for, and starts over; what it leaves behind are mainly the trails
2182 leading to the logging site.

2183 In contrast, the mining contractor will have sunk a great deal of money (tens of millions of dollars) into the ground, so to
2184 speak, for exploration activities, for development of the mine site and infrastructure, and for the actual excavation and
2185 extraction of minerals, including the extensive tunneling work to reach the ore body. The cancellation of the mining contract
2186 will utterly deprive the contractor of its investments (i.e., prevent recovery of investments), most of which cannot be pulled
2187 out.

Page 49
2188 To say that an FTAA is just like a mere timber license or permit and does not involve contract or property rights which merit
2189 protection by the due process clause of the Constitution, and may therefore be revoked or cancelled in the blink of an eye, is
2190 to adopt a well-nigh confiscatory stance; at the very least, it is downright dismissive of the property rights of businesspersons
2191 and corporate entities that have investments in the mining industry, whose investments, operations and expenditures do
2192 contribute to the general welfare of the people, the coffers of government, and the strength of the economy. Such a
2193 pronouncement will surely discourage investments (local and foreign) which are critically needed to fuel the engine of
2194 economic growth and move this country out of the rut of poverty. In sum, Oposa is not applicable.

2195 4. Justice Morales adverts to the supposedly "clear intention" of the framers of the Constitution to reserve our natural
2196 resources exclusively for the Filipino people. She then quoted from the records of the ConCom deliberations a passage in
2197 which then Commissioner Davide explained his vote, arguing in the process that aliens ought not be allowed to participate in
2198 the enjoyment of our natural resources. One passage does not suffice to capture the tenor or substance of the entire extensive
2199 deliberations of the commissioners, or to reveal the clear intention of the framers as a group. A re-reading of the entire
2200 deliberations (quoted here earlier) is necessary if we are to understand the true intent of the framers.

2201 5. Since 1935, the Filipino people, through their Constitution, have decided that the retardation or delay in the exploration,
2202 development or utilization of the nation's natural resources is merely secondary to the protection and preservation of their
2203 ownership of the natural resources, so says Justice Morales, citing Aruego. If it is true that the framers of the 1987
2204 Constitution did not care much about alleviating the retardation or delay in the development and utilization of our natural
2205 resources, why did they bother to write paragraph 4 at all? Were they merely paying lip service to large-scale exploration,
2206 development and utilization? They could have just completely ignored the subject matter and left it to be dealt with through
2207 a future constitutional amendment. But we have to harmonize every part of the Constitution and to interpret each provision
2208 in a manner that would give life and meaning to it and to the rest of the provisions. It is obvious that a literal interpretation
2209 of paragraph 4 will render it utterly inutile and inoperative.

2210 6. According to Justice Morales, the deliberations of the Constitutional Commission do not support our contention that the
2211 framers, by specifying such agreements involving financial or technical assistance, necessarily gave implied assent to
2212 everything that these agreements implicitly entailed, or that could reasonably be deemed necessary to make them tenable
2213 and effective, including management authority in the day-to-day operations. As proof thereof, she quotes one single
2214 passage from the ConCom deliberations, consisting of an exchange among Commissioners Tingson, Garcia and Monsod.

2215 However, the quoted exchange does not serve to contradict our argument; it even bolsters it. Comm. Christian Monsod was
2216 quoted as saying: "xxx I think we have to make a distinction that it is not really realistic to say that we will borrow on our
2217 own terms. Maybe we can say that we inherited unjust loans, and we would like to repay these on terms that are not
2218 prejudicial to our own growth. But the general statement that we should only borrow on our own terms is a bit
2219 unrealistic." Comm. Monsod is one who knew whereof he spoke.

2220 7. Justice Morales also declares that the optimal time for the conversion of an FTAA into an MPSA is after completion of the
2221 exploration phase and just before undertaking the development and construction phase, on account of the fact that the
2222 requirement for a minimum investment of $50 million is applicable only during the development, construction and utilization
2223 phase, but not during the exploration phase, when the foreign contractor need merely comply with minimum ground
2224 expenditures. Thus by converting, the foreign contractor maximizes its profits by avoiding its obligation to make the
2225 minimum investment of $50 million.

2226 This argument forgets that the foreign contractor is in the game precisely to make money. In order to come anywhere near
2227 profitability, the contractor must first extract and sell the mineral ore. In order to do that, it must also develop and construct
2228 the mining facilities, set up its machineries and equipment and dig the tunnels to get to the deposit. The contractor is thus
2229 compelled to expend funds in order to make profits. If it decides to cut back on investments and expenditures, it will
2230 necessarily sacrifice the pace of development and utilization; it will necessarily sacrifice the amount of profits it can make
2231 from the mining operations. In fact, at certain less-than-optimal levels of operation, the stream of revenues generated may
2232 not even be enough to cover variable expenses, let alone overhead expenses; this is a dismal situation anyone would want to
2233 avoid. In order to make money, one has to spend money. This truism applies to the mining industry as well.

2234 8. Mortgaging the minerals to secure a foreign FTAA contractor's obligations is anomalous, according to Justice Morales
2235 since the contractor was from the beginning obliged to provide all financing needed for the mining operations. However, the
2236 mortgaging of minerals by the contractor does not necessarily signify that the contractor is unable to provide all financing
2237 required for the project, or that it does not have the financial capability to undertake large-scale operations. Mortgaging of

Page 50
2238 mineral products, just like the assignment (by way of security) of manufactured goods and goods in inventory, and the
2239 assignment of receivables, is an ordinary requirement of banks, even in the case of clients with more than sufficient financial
2240 resources. And nowadays, even the richest and best managed corporations make use of bank credit facilities -- it does not
2241 necessarily signify that they do not have the financial resources or are unable to provide the financing on their own; it is just
2242 a manner of maximizing the use of their funds.

2243 9. Does the contractor in reality acquire the surface rights "for free," by virtue of the fact that it is entitled to reimbursement
2244 for the costs of acquisition and maintenance, adjusted for inflation? We think not. The "reimbursement" is possible only at
2245 the end of the term of the contract, when the surface rights will no longer be needed, and the land previously acquired will
2246 have to be disposed of, in which case the contractor gets reimbursement from the sales proceeds. The contractor has to pay
2247 out the acquisition price for the land. That money will belong to the seller of the land. Only if and when the land is finally
2248 sold off will the contractor get any reimbursement. In other words, the contractor will have been cash-out for the entire
2249 duration of the term of the contract -- 25 or 50 years, depending. If we calculate the cost of money at say 12 percent per
2250 annum, that is the cost or opportunity loss to the contractor, in addition to the amount of the acquisition price. 12 percent per
2251 annum for 50 years is 600 percent; this, without any compounding yet. The cost of money is therefore at least 600 percent of
2252 the original acquisition cost; it is in addition to the acquisition cost. "For free"? Not by a long shot.

2253 10. The contractor will acquire and hold up to 5,000 hectares? We doubt it. The acquisition by the State of land for the
2254 contractor is just to enable the contractor to establish its mine site, build its facilities, establish a tailings pond, set up its
2255 machinery and equipment, and dig mine shafts and tunnels, etc. It is impossible that the surface requirement will aggregate
2256 5,000 hectares. Much of the operations will consist of the tunneling and digging underground, which will not require
2257 possessing or using any land surface. 5,000 hectares is way too much for the needs of a mining operator. It simply will not
2258 spend its cash to acquire property that it will not need; the cash may be better employed for the actual mining operations, to
2259 yield a profit.

2260 11. Justice Carpio claims that the phrase among other things (found in the second paragraph of Section 81 of the Mining Act)
2261 is being incorrectly treated as a delegation of legislative power to the DENR secretary to issue DAO 99-56 and prescribe the
2262 formulae therein on the State's share from mining operations. He adds that the phrase among other things was not intended
2263 as a delegation of legislative power to the DENR secretary, much less could it be deemed a valid delegation of legislative
2264 power, since there is nothing in the second paragraph of Section 81 which can be said to grant any delegated legislative
2265 power to the DENR secretary. And even if there were, such delegation would be void, for lack of any standards by which the
2266 delegated power shall be exercised.

2267 While there is nothing in the second paragraph of Section 81 which can directly be construed as a delegation of legislative
2268 power to the DENR secretary, it does not mean that DAO 99-56 is invalid per se, or that the secretary acted without any
2269 authority or jurisdiction in issuing DAO 99-56. As we stated earlier in our Prologue, "Who or what organ of
2270 government actually exercises this power of control on behalf of the State? The Constitution is crystal clear: the President.
2271 Indeed, the Chief Executive is the official constitutionally mandated to 'enter into agreements with foreign owned
2272 corporations.' On the other hand, Congress may review the action of the President once it is notified of 'every contract
2273 entered into in accordance with this [constitutional] provision within thirty days from its execution.'" It is the President who
2274 is constitutionally mandated to enter into FTAAs with foreign corporations, and in doing so, it is within the President's
2275 prerogative to specify certain terms and conditions of the FTAAs, for example, the fiscal regime of FTAAs -- i.e., the sharing
2276 of the net mining revenues between the contractor and the State.

2277 Being the President's alter ego with respect to the control and supervision of the mining industry, the DENR secretary,
2278 acting for the President, is necessarily clothed with the requisite authority and power to draw up guidelines delineating
2279 certain terms and conditions, and specifying therein the terms of sharing of benefits from mining, to be applicable to FTAAs
2280 in general. It is important to remember that DAO 99-56 has been in existence for almost six years, and has not been
2281 amended or revoked by the President.

2282 The issuance of DAO 99-56 did not involve the exercise of delegated legislative power. The legislature did not delegate the
2283 power to determine the nature, extent and composition of the items that would come under the phrase among other
2284 things. The legislature's power pertains to the imposition of taxes, duties and fees. This power was not delegated to the
2285 DENR secretary. But the power to negotiate and enter into FTAAs was withheld from Congress, and reserved for the
2286 President. In determining the sharing of mining benefits, i.e., in specifying what the phrase among other things include, the
2287 President (through the secretary acting in his/her behalf) was not determining the amount or rate of taxes, duties and fees,
2288 but rather the amount of INCOME to be derived from minerals to be extracted and sold, income which belongs to the State
Page 51
2289 as owner of the mineral resources. We may say that, in the second paragraph of Section 81, the legislature in a sense
2290 intruded partially into the President's sphere of authority when the former provided that

2291 "The Government share in financial or technical assistance agreement shall consist of, among other things, the contractor's
2292 corporate income tax, excise tax, special allowance, withholding tax due from the contractor's foreign stockholders arising
2293 from dividend or interest payments to the said foreign stockholder in case of a foreign national and all such other taxes,
2294 duties and fees as provided for under existing laws." (Italics supplied)

2295 But it did not usurp the President's authority since the provision merely included the enumerated items as part of the
2296 government share, without foreclosing or in any way preventing (as in fact Congress could not validly prevent) the President
2297 from determining what constitutes the State's compensation derived from FTAAs. In this case, the President in effect
2298 directed the inclusion or addition of "other things," viz., INCOME for the owner of the resources, in the government's share,
2299 while adopting the items enumerated by Congress as part of the government share also.

2300 12. Justice Carpio's insistence on applying the ejusdem generis rule of statutory construction to the phrase among other
2301 things is therefore useless, and must fall by the wayside. There is no point trying to construe that phrase in relation to the
2302 enumeration of taxes, duties and fees found in paragraph 2 of Section 81, precisely because "the constitutional power to
2303 prescribe the sharing of mining income between the State and mining companies,"to quote Justice Carpio pursuant to an
2304 FTAA is constitutionally lodged with the President, not with Congress. It thus makes no sense to persist in giving the
2305 phrase among other things a restricted meaning referring only to taxes, duties and fees.

2306 13. Strangely, Justice Carpio claims that the DENR secretary can change the formulae in DAO 99-56 any time even without
2307 the approval of the President, and the secretary is the sole authority to determine the amount of consideration that the State
2308 shall receive in an FTAA, because Section 5 of the DAO states that "xxx any amendment of an FTAA other than the
2309 provision on fiscal regime shall require the negotiation with the Negotiation Panel and the recommendation of the Secretary
2310 for approval of the President xxx". Allegedly, because of that provision, if an amendment in the FTAA involves non-fiscal
2311 matters, the amendment requires approval of the President, but if the amendment involves a change in the fiscal regime, the
2312 DENR secretary has the final authority, and approval of the President may be dispensed with; hence the secretary is more
2313 powerful than the President.

2314 We believe there is some distortion resulting from the quoted provision being taken out of context. Section 5 of DAO 99-56
2315 reads as follows:

2316 "Section 5. Status of Existing FTAAs. All FTAAs approved prior to the effectivity of this Administrative Order shall remain
2317 valid and be recognized by the Government: Provided, That should a Contractor desire to amend its FTAA, it shall do so by
2318 filing a Letter of Intent (LOI) to the Secretary thru the Director. Provided, further, That if the Contractor desires to amend
2319 the fiscal regime of its FTAA, it may do so by seeking for the amendment of its FTAA's whole fiscal regime by adopting the
2320 fiscal regime provided hereof: Provided, finally, That any amendment of an FTAA other than the provision on fiscal regime
2321 shall require the negotiation with the Negotiating Panel and the recommendation of the Secretary for approval of the
2322 President of the Republic of the Philippines." (underscoring supplied)

2323 It looks like another case of misapprehension. The proviso being objected to by Justice Carpio is actually preceded by a
2324 phrase that requires a contractor desiring to amend the fiscal regime of its FTAA, to amend the same by adopting the fiscal
2325 regime prescribed in DAO 99-56 -- i.e., solely in that manner, and in no other. Obviously, since DAO 99-56 was issued by the
2326 secretary under the authority and with the presumed approval of the President, the amendment of an FTAA by merely
2327 adopting the fiscal regime prescribed in said DAO 99-56 (and nothing more) need not have the express clearance of the
2328 President anymore. It is as if the same had been pre-approved. We cannot fathom the complaint that that makes the
2329 secretary more powerful than the President, or that the former is trying to hide things from the President or Congress.

2330 14. Based on the first sentence of Section 5 of DAO 99-56, which states "[A]ll FTAAs approved prior to the effectivity of this
2331 Administrative Order shall remain valid and be recognized by the Government", Justice Carpio concludes that said
2332 Administrative Order allegedly exempts FTAAs approved prior to its effectivity -- like the WMCP FTAA -- from having to
2333 pay the State any share from their mining income, apart from taxes, duties and fees.

2334 We disagree. What we see in black and white is the statement that the FTAAs approved before the DAO came into effect are
2335 to continue to be valid and will be recognized by the State. Nothing is said about their fiscal regimes. Certainly, there is no

Page 52
2336 basis to claim that the contractors under said FTAAs were being exempted from paying the government a share in their
2337 mining incomes.

2338 For the record, the WMCP FTAA is NOT and has never been exempt from paying the government share. The WMCP FTAA
2339 has its own fiscal regime -- Section 7.7 -- which gives the government a 60 percent share in the net mining revenues of
2340 WMCP from the commencement of commercial production.

2341 For that very reason, we have never said that DAO 99-56 is the basis for claiming that the WMCP FTAA has a consideration.
2342 Hence, we find quite out of place Justice Carpio's statement that ironically, DAO 99-56, the very authority cited to support
2343 the claim that the WMCP FTAA has a consideration, does not apply to the WMCP FTAA. By its own express terms, DAO 99-
2344 56 does not apply to FTAAs executed before the issuance of DAO 99-56, like the WMCP FTAA. The majority's position has
2345 allegedly no leg to stand on since even DAO 99-56, assuming it is valid, cannot save the WMCP FTAA from want of
2346 consideration. Even assuming arguendo that DAO 99-56 does not apply to the WMCP FTAA, nevertheless, the WMCP FTAA
2347 has its own fiscal regime, found in Section 7.7 thereof. Hence, there is no such thing as "want of consideration" here.

2348 Still more startling is this claim: The majority supposedly agrees that the provisions of the WMCP FTAA, which grant a
2349 sham consideration to the State, are void. Since the majority agrees that the WMCP FTAA has a sham consideration, the
2350 WMCP FTAA thus lacks the third element of a valid contract. The Decision should declare the WMCP FTAA void for want of
2351 consideration unless it treats the contract as an MPSA under Section 80. Indeed the only recourse of WMCP to save the
2352 validity of its contract is to convert it into an MPSA.

2353 To clarify, we said that Sections 7.9 and 7.8(e) of the WMCP FTAA are provisions grossly disadvantageous to government
2354 and detrimental to the interests of the Filipino people, as well as violative of public policy, and must therefore be stricken off
2355 as invalid. Since the offending provisions are very much separable from Section 7.7 and the rest of the FTAA, the deletion of
2356 Sections 7.9 and 7.8(e) can be done without affecting or requiring the invalidation of the WMCP FTAA itself, and such
2357 deletion will preserve for government its due share of the 60 percent benefits. Therefore, the WMCP FTAA is NOT bereft of a
2358 valid consideration (assuming for the nonce that indeed this is the "consideration" of the FTAA).

2359 SUMMATION

2360 To conclude, a summary of the key points discussed above is now in order.

2361 The Meaning of "Agreements Involving

2362 Either Technical or Financial Assistance"

2363 Applying familiar principles of constitutional construction to the phrase agreements involving either technical or financial
2364 assistance, the framers' choice of words does not indicate the intent to exclude other modes of assistance, but rather implies
2365 that there are other things being included or possibly being made part of the agreement, apart from financial or technical
2366 assistance. The drafters avoided the use of restrictive and stringent phraseology; a verba legis scrutiny of Section 2 of Article
2367 XII of the Constitution discloses not even a hint of a desire to prohibit foreign involvement in the management or operation
2368 of mining activities, or to eradicate service contracts. Such moves would necessarily imply an underlying drastic shift in
2369 fundamental economic and developmental policies of the State. That change requires a much more definite and irrefutable
2370 basis than mere omission of the words "service contract" from the new Constitution.

2371 Furthermore, a literal and restrictive interpretation of this paragraph leads to logical inconsistencies. A constitutional
2372 provision specifically allowing foreign-owned corporations to render financial or technical assistance in respect of mining or
2373 any other commercial activity was clearly unnecessary; the provision was meant to refer to more than mere financial or
2374 technical assistance.

2375 Also, if paragraph 4 permits only agreements for financial or technical assistance, there would be no point in requiring that
2376 they be "based on real contributions to the economic growth and general welfare of the country." And considering that there
2377 were various long-term service contracts still in force and effect at the time the new Charter was being drafted, the absence
2378 of any transitory provisions to govern the termination and closing-out of the then existing service contracts strongly militates
2379 against the theory that the mere omission of "service contracts" signaled their prohibition by the new Constitution.

2380 Resort to the deliberations of the Constitutional Commission is therefore unavoidable, and a careful scrutiny thereof
2381 conclusively shows that the ConCom members discussed agreements involving either technical or financial assistance in the

Page 53
2382 same sense as service contracts and used the terms interchangeably. The drafters in fact knew that the agreements with
2383 foreign corporations were going to entail not mere technical or financial assistance but, rather, foreign investment in and
2384 management of an enterprise for large-scale exploration, development and utilization of minerals.

2385 The framers spoke about service contracts as the concept was understood in the 1973 Constitution. It is obvious from their
2386 discussions that they did not intend to ban or eradicate service contracts. Instead, they were intent on crafting provisions to
2387 put in place safeguards that would eliminate or minimize the abuses prevalent during the martial law regime. In brief, they
2388 were going to permit service contracts with foreign corporations as contractors, but with safety measures to prevent abuses,
2389 as an exception to the general norm established in the first paragraph of Section 2 of Article XII, which reserves or limits to
2390 Filipino citizens and corporations at least 60 percent owned by such citizens the exploration, development and utilization of
2391 mineral or petroleum resources. This was prompted by the perceived insufficiency of Filipino capital and the felt need for
2392 foreign expertise in the EDU of mineral resources.

2393 Despite strong opposition from some ConCom members during the final voting, the Article on the National Economy and
2394 Patrimony -- including paragraph 4 allowing service contracts with foreign corporations as an exception to the general norm
2395 in paragraph 1 of Section 2 of the same Article -- was resoundingly and overwhelmingly approved.

2396 The drafters, many of whom were economists, academicians, lawyers, businesspersons and politicians knew that foreign
2397 entities will not enter into agreements involving assistance without requiring measures of protection to ensure the success of
2398 the venture and repayment of their investments, loans and other financial assistance, and ultimately to protect the business
2399 reputation of the foreign corporations. The drafters, by specifying such agreements involving assistance, necessarily gave
2400 implied assent to everything that these agreements entailed or that could reasonably be deemed necessary to make them
2401 tenable and effective -- including management authority with respect to the day-to-day operations of the enterprise, and
2402 measures for the protection of the interests of the foreign corporation, at least to the extent that they are consistent with
2403 Philippine sovereignty over natural resources, the constitutional requirement of State control, and beneficial ownership of
2404 natural resources remaining vested in the State.

2405 From the foregoing, it is clear that agreements involving either technical or financial assistance referred to in paragraph 4
2406 are in fact service contracts, but such new service contracts are between foreign corporations acting as contractors on the one
2407 hand, and on the other hand government as principal or "owner" (of the works), whereby the foreign contractor provides the
2408 capital, technology and technical know-how, and managerial expertise in the creation and operation of the large-scale
2409 mining/extractive enterprise, and government through its agencies (DENR, MGB) actively exercises full control and
2410 supervision over the entire enterprise.

2411 Such service contracts may be entered into only with respect to minerals, petroleum and other mineral oils. The grant of such
2412 service contracts is subject to several safeguards, among them: (1) that the service contract be crafted in accordance with a
2413 general law setting standard or uniform terms, conditions and requirements; (2) the President be the signatory for the
2414 government; and (3) the President report the executed agreement to Congress within thirty days.

2415 Ultimate Test: Full State Control

2416 To repeat, the primacy of the principle of the State's sovereign ownership of all mineral resources, and its full control and
2417 supervision over all aspects of exploration, development and utilization of natural resources must be upheld. But "full control
2418 and supervision" cannot be taken literally to mean that the State controls and supervises everything down to the minutest
2419 details and makes all required actions, as this would render impossible the legitimate exercise by the contractor of a
2420 reasonable degree of management prerogative and authority, indispensable to the proper functioning of the mining
2421 enterprise. Also, government need not micro-manage mining operations and day-to-day affairs of the enterprise in order to be
2422 considered as exercising full control and supervision.

2423 Control, as utilized in Section 2 of Article XII, must be taken to mean a degree of control sufficient to enable the State
2424 to direct, restrain, regulate and govern the affairs of the extractive enterprises. Control by the State may be on a macro level,
2425 through the establishment of policies, guidelines, regulations, industry standards and similar measures that would enable
2426 government to regulate the conduct of affairs in various enterprises, and restrain activities deemed not desirable or
2427 beneficial, with the end in view of ensuring that these enterprises contribute to the economic development and general
2428 welfare of the country, conserve the environment, and uplift the well-being of the local affected communities. Such a degree
2429 of control would be compatible with permitting the foreign contractor sufficient and reasonable management authority over
2430 the enterprise it has invested in, to ensure efficient and profitable operation.

Page 54
2431 Government Granted Full Control
2432 by RA 7942 and DAO 96-40

2433 Baseless are petitioners' sweeping claims that RA 7942 and its Implementing Rules and Regulations make it possible for
2434 FTAA contracts to cede full control and management of mining enterprises over to fully foreign owned corporations. Equally
2435 wobbly is the assertion that the State is reduced to a passive regulator dependent on submitted plans and reports, with weak
2436 review and audit powers and little say in the decision-making of the enterprise, for which reasons "beneficial ownership" of
2437 the mineral resources is allegedly ceded to the foreign contractor.

2438 As discussed hereinabove, the State's full control and supervision over mining operations are ensured through the following
2439 provisions in RA 7942: Sections 8, 9, 16, 19, 24, 35[(b), (e), (f), (g), (h), (k), (l), (m) and (o)], 40, 57, 66, 69, 70, and Chapters XI
2440 and XVII; as well as the following provisions of DAO 96-40: Sections7[(d) and (f)], 35(a-2), 53[(a-4) and (d)], 54, 56[(g), (h), (l),
2441 (m) and (n)], 56(2), 60, 66, 144, 168, 171 and 270, and also Chapters XV, XVI and XXIV.

2442 Through the foregoing provisions, the government agencies concerned are empowered to approve or disapprove -- hence, in a
2443 position to influence, direct, and change -- the various work programs and the corresponding minimum expenditure
2444 commitments for each of the exploration, development and utilization phases of the enterprise. Once they have been
2445 approved, the contractor's compliance with its commitments therein will be monitored. Figures for mineral production and
2446 sales are regularly monitored and subjected to government review, to ensure that the products and by-products are disposed
2447 of at the best prices; copies of sales agreements have to be submitted to and registered with MGB.

2448 The contractor is mandated to open its books of accounts and records for scrutiny, to enable the State to determine that the
2449 government share has been fully paid. The State may likewise compel compliance by the contractor with mandatory
2450 requirements on mine safety, health and environmental protection, and the use of anti-pollution technology and facilities.
2451 The contractor is also obligated to assist the development of the mining community, and pay royalties to the indigenous
2452 peoples concerned. And violation of any of the FTAA's terms and conditions, and/or non-compliance with statutes or
2453 regulations, may be penalized by cancellation of the FTAA. Such sanction is significant to a contractor who may have yet to
2454 recover the tens or hundreds of millions of dollars sunk into a mining project.

2455 Overall, the State definitely has a pivotal say in the operation of the individual enterprises, and can set directions and
2456 objectives, detect deviations and non-compliances by the contractor, and enforce compliance and impose sanctions should the
2457 occasion arise. Hence, RA 7942 and DAO 96-40 vest in government more than a sufficient degree of control and supervision
2458 over the conduct of mining operations.

2459 Section 3(aq) of RA 7942 was objected to as being unconstitutional for allowing a foreign contractor to apply for and hold an
2460 exploration permit. During the exploration phase, the permit grantee (and prospective contractor) is spending and investing
2461 heavily in exploration activities without yet being able to extract minerals and generate revenues. The exploration permit
2462 issued under Sections 3(aq), 20 and 23 of RA 7942, which allows exploration but not extraction, serves to protect the interests
2463 and rights of the exploration permit grantee (and would-be contractor), foreign or local. Otherwise, the exploration works
2464 already conducted, and expenditures already made, may end up only benefiting claim-jumpers. Thus, Section 3(aq) of RA
2465 7942 is not unconstitutional.

2466 WMCP FTAA Likewise Gives the

2467 State Full Control and Supervision

2468 The WMCP FTAA obligates the contractor to account for the value of production and sale of minerals (Clause 1.4); requires
2469 that the contractor's work program, activities and budgets be approved by the State (Clause 2.1); gives the DENR secretary
2470 power to extend the exploration period (Clause 3.2-a); requires approval by the State for incorporation of lands into the
2471 contract area (Clause 4.3-c); requires Bureau of Forest Development approval for inclusion of forest reserves as part of the
2472 FTAA contract area (Clause 4.5); obligates the contractor to periodically relinquish parts of the contract area not needed for
2473 exploration and development (Clause 4.6); requires submission of a declaration of mining feasibility for approval by the State
2474 (Clause 4.6-b); obligates the contractor to report to the State the results of its exploration activities (Clause 4.9); requires the
2475 contractor to obtain State approval for its work programs for the succeeding two year periods, containing the proposed work
2476 activities and expenditures budget related to exploration (Clause 5.1); requires the contractor to obtain State approval for its
2477 proposed expenditures for exploration activities (Clause 5.2); requires the contractor to submit an annual report on
2478 geological, geophysical, geochemical and other information relating to its explorations within the FTAA area (Clause 5.3-a);
2479 requires the contractor to submit within six months after expiration of exploration period a final report on all its findings in

Page 55
2480 the contract area (Clause 5.3-b); requires the contractor after conducting feasibility studies to submit a declaration of mining
2481 feasibility, along with a description of the area to be developed and mined, a description of the proposed mining operations
2482 and the technology to be employed, and the proposed work program for the development phase, for approval by the DENR
2483 secretary (Clause 5.4); obligates the contractor to complete the development of the mine, including construction of the
2484 production facilities, within the period stated in the approved work program (Clause 6.1); requires the contractor to submit
2485 for approval a work program covering each period of three fiscal years (Clause 6.2); requires the contractor to submit reports
2486 to the secretary on the production, ore reserves, work accomplished and work in progress, profile of its work force and
2487 management staff, and other technical information (Clause 6.3); subjects any expansions, modifications, improvements and
2488 replacements of mining facilities to the approval of the secretary (Clause 6.4); subjects to State control the amount of funds
2489 that the contractor may borrow within the Philippines (Clause 7.2); subjects to State supervisory power any technical,
2490 financial and marketing issues (Clause 10.1-a); obligates the contractor to ensure 60 percent Filipino equity in the contractor
2491 within ten years of recovering specified expenditures unless not so required by subsequent legislation (Clause 10.1); gives the
2492 State the right to terminate the FTAA for unremedied substantial breach thereof by the contractor (Clause 13.2); requires
2493 State approval for any assignment of the FTAA by the contractor to an entity other than an affiliate (Clause 14.1).

2494 In short, the aforementioned provisions of the WMCP FTAA, far from constituting a surrender of control and a grant of
2495 beneficial ownership of mineral resources to the contractor in question, vest the State with control and supervision over
2496 practically all aspects of the operations of the FTAA contractor, including the charging of pre-operating and operating
2497 expenses, and the disposition of mineral products.

2498 There is likewise no relinquishment of control on account of specific provisions of the WMCP FTAA. Clause 8.2 provides a
2499 mechanism to prevent the mining operations from grinding to a complete halt as a result of possible delays of more than 60
2500 days in the government's processing and approval of submitted work programs and budgets. Clause 8.3 seeks to provide a
2501 temporary, stop-gap solution in case a disagreement between the State and the contractor (over the proposed work program
2502 or budget submitted by the contractor) should result in a deadlock or impasse, to avoid unreasonably long delays in the
2503 performance of the works.

2504 The State, despite Clause 8.3, still has control over the contract area, and it may, as sovereign authority, prohibit work
2505 thereon until the dispute is resolved, or it may terminate the FTAA, citing substantial breach thereof. Hence, the State
2506 clearly retains full and effective control.

2507 Clause 8.5, which allows the contractor to make changes to approved work programs and budgets without the prior approval
2508 of the DENR secretary, subject to certain limitations with respect to the variance/s, merely provides the contractor a certain
2509 amount of flexibility to meet unexpected situations, while still guaranteeing that the approved work programs and budgets
2510 are not abandoned altogether. And if the secretary disagrees with the actions taken by the contractor in this instance, he
2511 may also resort to cancellation/termination of the FTAA as the ultimate sanction.

2512 Clause 4.6 of the WMCP FTAA gives the contractor discretion to select parts of the contract area to be relinquished. The
2513 State is not in a position to substitute its judgment for that of the contractor, who knows exactly which portions of the
2514 contract area do not contain minerals in commercial quantities and should be relinquished. Also, since the annual occupation
2515 fees paid to government are based on the total hectarage of the contract area, net of the areas relinquished, the contractor's
2516 self-interest will assure proper and efficient relinquishment.

2517 Clause 10.2(e) of the WMCP FTAA does not mean that the contractor can compel government to use its power of eminent
2518 domain. It contemplates a situation in which the contractor is a foreign-owned corporation, hence, not qualified to own land.
2519 The contractor identifies the surface areas needed for it to construct the infrastructure for mining operations, and the State
2520 then acquires the surface rights on behalf of the former. The provision does not call for the exercise of the power of eminent
2521 domain (or determination of just compensation); it seeks to avoid a violation of the anti-dummy law.

2522 Clause 10.2(l) of the WMCP FTAA giving the contractor the right to mortgage and encumber the mineral products extracted
2523 may have been a result of conditions imposed by creditor-banks to secure the loan obligations of WMCP. Banks lend also
2524 upon the security of encumbrances on goods produced, which can be easily sold and converted into cash and applied to the
2525 repayment of loans. Thus, Clause 10.2(l) is not something out of the ordinary. Neither is it objectionable, because even
2526 though the contractor is allowed to mortgage or encumber the mineral end-products themselves, the contractor is not thereby
2527 relieved of its obligation to pay the government its basic and additional shares in the net mining revenue. The contractor's
2528 ability to mortgage the minerals does not negate the State's right to receive its share of net mining revenues.

Page 56
2529 Clause 10.2(k) which gives the contractor authority "to change its equity structure at any time," means that WMCP, which
2530 was then 100 percent foreign owned, could permit Filipino equity ownership. Moreover, what is important is that the
2531 contractor, regardless of its ownership, is always in a position to render the services required under the FTAA, under the
2532 direction and control of the government.

2533 Clauses 10.4(e) and (i) bind government to allow amendments to the FTAA if required by banks and other financial
2534 institutions as part of the conditions of new lendings. There is nothing objectionable here, since Clause 10.4(e) also provides
2535 that such financing arrangements should in no event reduce the contractor's obligations or the government's rights under the
2536 FTAA. Clause 10.4(i) provides that government shall "favourably consider" any request for amendments of this agreement
2537 necessary for the contractor to successfully obtain financing. There is no renunciation of control, as the proviso does not say
2538 that government shall automatically grant any such request. Also, it is up to the contractor to prove the need for the
2539 requested changes. The government always has the final say on whether to approve or disapprove such requests.

2540 In fine, the FTAA provisions do not reduce or abdicate State control.

2541 No Surrender of Financial Benefits

2542 The second paragraph of Section 81 of RA 7942 has been denounced for allegedly limiting the State's share in FTAAs with
2543 foreign contractors to just taxes, fees and duties, and depriving the State of a share in the after-tax income of the enterprise.
2544 However, the inclusion of the phrase "among other things" in the second paragraph of Section 81 clearly and unmistakably
2545 reveals the legislative intent to have the State collect more than just the usual taxes, duties and fees.

2546 Thus, DAO 99-56, the "Guidelines Establishing the Fiscal Regime of Financial or Technical Assistance Agreements," spells
2547 out the financial benefits government will receive from an FTAA, as consisting of not only a basic government share,
2548 comprised of all direct taxes, fees and royalties, as well as other payments made by the contractor during the term of the
2549 FTAA, but also an additional government share, being a share in the earnings or cash flows of the mining enterprise, so as to
2550 achieve a fifty-fifty sharing of net benefits from mining between the government and the contractor.

2551 The additional government share is computed using one of three (3) options or schemes detailed in DAO 99-56, viz., (1) the
2552 fifty-fifty sharing of cumulative present value of cash flows; (2) the excess profit-related additional government share; and (3)
2553 the additional sharing based on the cumulative net mining revenue. Whichever option or computation is used, the additional
2554 government share has nothing to do with taxes, duties, fees or charges. The portion of revenues remaining after the
2555 deduction of the basic and additional government shares is what goes to the contractor.

2556 The basic government share and the additional government share do not yet take into account the indirect taxes and other
2557 financial contributions of mining projects, which are real and actual benefits enjoyed by the Filipino people; if these are
2558 taken into account, total government share increases to 60 percent or higher (as much as 77 percent, and 89 percent in one
2559 instance) of the net present value of total benefits from the project.

2560 The third or last paragraph of Section 81 of RA 7942 is slammed for deferring the payment of the government share in
2561 FTAAs until after the contractor shall have recovered its pre-operating expenses, exploration and development expenditures.
2562 Allegedly, the collection of the State's share is rendered uncertain, as there is no time limit in RA 7942 for this grace period
2563 or recovery period. But although RA 7942 did not limit the grace period, the concerned agencies (DENR and MGB) in
2564 formulating the 1995 and 1996 Implementing Rules and Regulations provided that the period of recovery, reckoned from the
2565 date of commercial operation, shall be for a period not exceeding five years, or until the date of actual recovery, whichever
2566 comes earlier.

2567 And since RA 7942 allegedly does not require government approval for the pre-operating, exploration and development
2568 expenses of the foreign contractors, it is feared that such expenses could be bloated to wipe out mining revenues anticipated
2569 for 10 years, with the result that the State's share is zero for the first 10 years. However, the argument is based on incorrect
2570 information.

2571 Under Section 23 of RA 7942, the applicant for exploration permit is required to submit a proposed work program for
2572 exploration, containing a yearly budget of proposed expenditures, which the State passes upon and either approves or rejects;
2573 if approved, the same will subsequently be recorded as pre-operating expenses that the contractor will have to recoup over
2574 the grace period.

Page 57
2575 Under Section 24, when an exploration permittee files with the MGB a declaration of mining project feasibility, it must
2576 submit a work program for development, with corresponding budget, for approval by the Bureau, before government may
2577 grant an FTAA or MPSA or other mineral agreements; again, government has the opportunity to approve or reject the
2578 proposed work program and budgeted expenditures for development works, which will become the pre-operating and
2579 development costs that will have to be recovered. Government is able to know ahead of time the amounts of pre-operating
2580 and other expenses to be recovered, and the approximate period of time needed therefor. The aforecited provisions have
2581 counterparts in Section 35, which deals with the terms and conditions exclusively applicable to FTAAs. In sum, the third or
2582 last paragraph of Section 81 of RA 7942 cannot be deemed defective.

2583 Section 80 of RA 7942 allegedly limits the State's share in a mineral production-sharing agreement (MPSA) to just the excise
2584 tax on the mineral product, i.e., only 2 percent of market value of the minerals. The colatilla in Section 84 reiterates the
2585 same limitation in Section 80. However, these two provisions pertain only to MPSAs, and have no application to FTAAs.
2586 These particular provisions do not come within the issues defined by this Court. Hence, on due process grounds, no
2587 pronouncement can be made in this case in respect of the constitutionality of Sections 80 and 84.

2588 Section 112 is disparaged for reverting FTAAs and all mineral agreements to the old "license, concession or lease" system,
2589 because it allegedly effectively reduces the government share in FTAAs to just the 2 percent excise tax which pursuant to
2590 Section 80 comprises the government share in MPSAs. However, Section 112 likewise does not come within the issues
2591 delineated by this Court, and was never touched upon by the parties in their pleadings. Moreover, Section 112 may not
2592 properly apply to FTAAs. The mining law obviously meant to treat FTAAs as a breed apart from mineral agreements . There
2593 is absolutely no basis to believe that the law intends to exact from FTAA contractors merely the same government share (i.e.,
2594 the 2 percent excise tax) that it apparently demands from contractors under the three forms of mineral agreements.

2595 While there is ground to believe that Sections 80, 84 and 112 are indeed unconstitutional, they cannot be ruled upon here. In
2596 any event, they are separable; thus, a later finding of nullity will not affect the rest of RA 7942.

2597 In fine, the challenged provisions of RA 7942 cannot be said to surrender financial benefits from an FTAA to the foreign
2598 contractors.

2599 Moreover, there is no concrete basis for the view that, in FTAAs with a foreign contractor, the State must receive at least 60
2600 percent of the after-tax income from the exploitation of its mineral resources, and that such share is the equivalent of the
2601 constitutional requirement that at least 60 percent of the capital, and hence 60 percent of the income, of mining companies
2602 should remain in Filipino hands. Even if the State is entitled to a 60 percent share from other mineral agreements (CPA,
2603 JVA and MPSA), that would not create a parallel or analogous situation for FTAAs. We are dealing with an essentially
2604 different equation. Here we have the old apples and oranges syndrome.

2605 The Charter did not intend to fix an iron-clad rule of 60 percent share, applicable to all situations, regardless of
2606 circumstances. There is no indication of such an intention on the part of the framers. Moreover, the terms and conditions of
2607 petroleum FTAAs cannot serve as standards for mineral mining FTAAs, because the technical and operational requirements,
2608 cost structures and investment needs of off-shore petroleum exploration and drilling companies do not have the remotest
2609 resemblance to those of on-shore mining companies.

2610 To take the position that government's share must be not less than 60 percent of after-tax income of FTAA contractors is
2611 nothing short of this Court dictating upon the government. The State resultantly ends up losing control. To avoid
2612 compromising the State's full control and supervision over the exploitation of mineral resources, there must be no attempt to
2613 impose a "minimum 60 percent" rule. It is sufficient that the State has the power and means, should it so decide, to get a 60
2614 percent share (or greater); and it is not necessary that the State does so in every case.

2615 Invalid Provisions of the WMCP FTAA

2616 Section 7.9 of the WMCP FTAA clearly renders illusory the State's 60 percent share of WMCP's revenues. Under Section 7.9,
2617 should WMCP's foreign stockholders (who originally owned 100 percent of the equity) sell 60 percent or more of their equity
2618 to a Filipino citizen or corporation, the State loses its right to receive its share in net mining revenues under Section
2619 7.7, without any offsetting compensation to the State. And what is given to the State in Section 7.7 is by mere tolerance of
2620 WMCP's foreign stockholders, who can at any time cut off the government's entire share by simply selling 60 percent of
2621 WMCP's equity to a Philippine citizen or corporation.

Page 58
2622 In fact, the sale by WMCP's foreign stockholder on January 23, 2001 of the entire outstanding equity in WMCP to
2623 Sagittarius Mines, Inc., a domestic corporation at least 60 percent Filipino owned, can be deemed to have automatically
2624 triggered the operation of Section 7.9 and removed the State's right to receive its 60 percent share. Section 7.9 of the WMCP
2625 FTAA has effectively given away the State's share without anything in exchange.

2626 Moreover, it constitutes unjust enrichment on the part of the local and foreign stockholders in WMCP, because by the mere
2627 act of divestment, the local and foreign stockholders get a windfall, as their share in the net mining revenues of WMCP is
2628 automatically increased, without having to pay anything for it.

2629 Being grossly disadvantageous to government and detrimental to the Filipino people, as well as violative of public policy,
2630 Section 7.9 must therefore be stricken off as invalid. The FTAA in question does not involve mere contractual rights but,
2631 being impressed as it is with public interest, the contractual provisions and stipulations must yield to the common good and
2632 the national interest. Since the offending provision is very much separable from the rest of the FTAA, the deletion of Section
2633 7.9 can be done without affecting or requiring the invalidation of the entire WMCP FTAA itself.

2634 Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing the sums spent by government for the benefit of the
2635 contractor to be deductible from the State's share in net mining revenues, it results in benefiting the contractor twice over.
2636 This constitutes unjust enrichment on the part of the contractor, at the expense of government. For being grossly
2637 disadvantageous and prejudicial to government and contrary to public policy, Section 7.8(e) must also be declared without
2638 effect. It may likewise be stricken off without affecting the rest of the FTAA.

2639 EPILOGUE

2640 AFTER ALL IS SAID AND DONE, it is clear that there is unanimous agreement in the Court upon the key principle that the
2641 State must exercise full control and supervision over the exploration, development and utilization of mineral resources.

2642 The crux of the controversy is the amount of discretion to be accorded the Executive Department, particularly the President
2643 of the Republic, in respect of negotiations over the terms of FTAAs, particularly when it comes to the government share of
2644 financial benefits from FTAAs. The Court believes that it is not unconstitutional to allow a wide degree of discretion to the
2645 Chief Executive, given the nature and complexity of such agreements, the humongous amounts of capital and financing
2646 required for large-scale mining operations, the complicated technology needed, and the intricacies of international trade,
2647 coupled with the State's need to maintain flexibility in its dealings, in order to preserve and enhance our country's
2648 competitiveness in world markets.

2649 We are all, in one way or another, sorely affected by the recently reported scandals involving corruption in high places,
2650 duplicity in the negotiation of multi-billion peso government contracts, huge payoffs to government officials, and other
2651 malfeasances; and perhaps, there is the desire to see some measures put in place to prevent further abuse. However,
2652 dictating upon the President what minimum share to get from an FTAA is not the solution.It sets a bad precedent since such
2653 a move institutionalizes the very reduction if not deprivation of the State's control. The remedy may be worse than the
2654 problem it was meant to address. In any event, provisions in such future agreements which may be suspected to be grossly
2655 disadvantageous or detrimental to government may be challenged in court, and the culprits haled before the bar of justice.

2656 Verily, under the doctrine of separation of powers and due respect for co-equal and coordinate branches of government, this
2657 Court must restrain itself from intruding into policy matters and must allow the President and Congress maximum
2658 discretion in using the resources of our country and in securing the assistance of foreign groups to eradicate the grinding
2659 poverty of our people and answer their cry for viable employment opportunities in the country.

2660 "The judiciary is loath to interfere with the due exercise by coequal branches of government of their official functions ."99 As
2661 aptly spelled out seven decades ago by Justice George Malcolm, " Just as the Supreme Court, as the guardian of
2662 constitutional rights, should not sanction usurpations by any other department of government, so should it as strictly confine
2663 its own sphere of influence to the powers expressly or by implication conferred on it by the Organic Act."100 Let the
2664 development of the mining industry be the responsibility of the political branches of government. And let not this Court
2665 interfere inordinately and unnecessarily.

2666 The Constitution of the Philippines is the supreme law of the land. It is the repository of all the aspirations and hopes
2667 of all the people. We fully sympathize with the plight of Petitioner La Bugal B'laan and other tribal groups, and commend

Page 59
2668 their efforts to uplift their communities. However, we cannot justify the invalidation of an otherwise constitutional statute
2669 along with its implementing rules, or the nullification of an otherwise legal and binding FTAA contract.

2670 We must never forget that it is not only our less privileged brethren in tribal and cultural communities who deserve the
2671 attention of this Court; rather, all parties concerned -- including the State itself, the contractor (whether Filipino or foreign),
2672 and the vast majority of our citizens -- equally deserve the protection of the law and of this Court. To stress, the benefits to be
2673 derived by the State from mining activities must ultimately serve the great majority of our fellow citizens. They have as
2674 much right and interest in the proper and well-ordered development and utilization of the country's mineral resources as the
2675 petitioners.

2676 Whether we consider the near term or take the longer view, we cannot overemphasize the need for an appropriate balancing
2677 of interests and needs -- the need to develop our stagnating mining industry and extract what NEDA Secretary Romulo Neri
2678 estimates is some US$840 billion (approx. PhP47.04 trillion) worth of mineral wealth lying hidden in the ground, in order to
2679 jumpstart our floundering economy on the one hand, and on the other, the need to enhance our nationalistic aspirations,
2680 protect our indigenous communities, and prevent irreversible ecological damage.

2681 This Court cannot but be mindful that any decision rendered in this case will ultimately impact not only the cultural
2682 communities which lodged the instant Petition, and not only the larger community of the Filipino people now struggling to
2683 survive amidst a fiscal/budgetary deficit, ever increasing prices of fuel, food, and essential commodities and services, the
2684 shrinking value of the local currency, and a government hamstrung in its delivery of basic services by a severe lack of
2685 resources, but also countless future generations of Filipinos.

2686 For this latter group of Filipinos yet to be born, their eventual access to education, health care and basic services, their
2687 overall level of well-being, the very shape of their lives are even now being determined and affected partly by the policies and
2688 directions being adopted and implemented by government today. And in part by the this Resolution rendered by this Court
2689 today.

2690 Verily, the mineral wealth and natural resources of this country are meant to benefit not merely a select group of people
2691 living in the areas locally affected by mining activities, but the entire Filipino nation, present and future, to whom the
2692 mineral wealth really belong. This Court has therefore weighed carefully the rights and interests of all concerned, and
2693 decided for the greater good of the greatest number. JUSTICE FOR ALL, not just for some; JUSTICE FOR THE PRESENT
2694 AND THE FUTURE, not just for the here and now.

2695 WHEREFORE, the Court RESOLVES to GRANT the respondents' and the intervenors' Motions for Reconsideration;
2696 to REVERSE and SET ASIDE this Court's January 27, 2004 Decision; to DISMISS the Petition; and to issue this new
2697 judgment declaring CONSTITUTIONAL (1) Republic Act No. 7942 (the Philippine Mining Law), (2) its Implementing Rules
2698 and Regulations contained in DENR Administrative Order (DAO) No. 9640 -- insofar as they relate to financial and technical
2699 assistance agreements referred to in paragraph 4 of Section 2 of Article XII of the Constitution; and (3) the Financial and
2700 Technical Assistance Agreement (FTAA) dated March 30, 1995 executed by the government and Western Mining Corporation
2701 Philippines Inc. (WMCP), except Sections 7.8 and 7.9 of the subject FTAA which are hereby INVALIDATED for being
2702 contrary to public policy and for being grossly disadvantageous to the government.

2703 SO ORDERED.

2704

2705

2706

2707

2708

2709

2710

Page 60
2711

2712 Davide Jr., C.J., Sandoval-Gutierrez, Austria-Martinez, and Garcia, JJ., concur.
2713 Puno, J., in the result and votes to invalidate sections 3.3; 7.8 and 7.9 of the WMC FTAA.
2714 Quisumbing, J., in the result.
2715 Ynares-Santiago, J., joins dissenting opinion of J. Antonio Carpio & J. Conchita C. Morales.
2716 Carpio, and Carpio-Morales, JJ., see dissenting opinion.
2717 Corona, J., certifies he voted affirmatively with the majority and he was allowed to do so although he is on leave.
2718 Callejo, Sr., J., concurs to the dissenting opinion of J. Carpio.
2719 Azcuna, J., took no part-same reason.
2720 Tinga, and Chico-Nazario, JJ., concur with a separate opinion.

2721
2722

2723 CONCURRING OPINION

2724 CHICO-NAZARIO, J.:

2725 I concur in the well-reasoned ponencia of my esteemed colleague Mr. Justice Artemio V. Panganiban. I feel obligated,
2726 however, to add the following observations:

2727 I. RE "FULL CONTROL AND SUPERVISION"

2728 With all due respect, I believe that the issue of unconstitutionality of Republic Act No. 7942, its implementing rules, and the
2729 Financial Assistance Agreement between the Philippine Government and WMPC (Philippines) Inc. (WMPC FTAA) executed
2730 pursuant to Rep. Act No. 7942 hinges, to a large extent, on the interpretation of the phrase in Section 2, Article XII of the
2731 1987 Constitution, which states:

2732 (T)he exploration, development, and utilization of natural resources shall be under the full control and supervision of the
2733 State. x x x. (Emphasis supplied)

2734 Construing said phrase vis-à-vis the entire provision, it appears from the deliberations in the Constitutional Commission
2735 that the term "control" does not have the meaning it ordinarily has in political law which is the power of a superior to
2736 substitute his judgment for that of an inferior.1 Thus –

2737 MR. NOLLEDO: Suppose a judicial entity is given the power to exploit natural resources and, of course, there are decisions
2738 made by the governing board of that judicial entity, can the state change the decisions of the governing board of that entity
2739 based on the words "full control".

2740 MR. VILLEGAS: If it is within the context of the contract, I think the State cannot violate the laws of the land. 2

2741 Moreover, "full control and supervision" does not mean that foreign stockholders cannot be legally elected as members of the
2742 board of a corporation doing business under, say, a co-production, joint venture or profit-sharing agreement, 40% of whose
2743 capital is foreign owned. Otherwise, and as Commissioner Romulo declared, it would be unfair to the foreign
2744 stockholder3 and, per Commissioner Padilla, "refusing them a voice in management would make a co-production, joint
2745 venture and production sharing illusory."4

2746 It is apparently for the foregoing reasons that there was a disapproval of the amendment proposed by Commissioner, now
2747 Mr. Chief Justice Davide, that the governing and managing bodies of such corporations shall be vested exclusively in citizens
2748 of the Philippines5 so that control of all corporations involved in the business of utilizing our natural resources would always
2749 be in Filipino hands.

2750 The disapproval must be juxtaposed with the fact that a provision substantially similar to the proposed Davide amendment
2751 was approved with regard to educational institutions, viz:

Page 61
2752 Section 4 (2). Educational institutions, other than those established by religious groups and mission boards, shall be owned
2753 solely by citizens of the Philippines or corporations or associations at least sixty per centum of the capital of which is owned
2754 by such citizens. The Congress may, however, require increased Filipino equity participation in all educational institutions.

2755 The control and administration of educational institutions shall be vested in citizens of the Philippines. (Emphasis supplied)

2756 From the foregoing, it can be clearly inferred that it was NOT the intention of the framers of the Constitution to deprive
2757 governing boards of domestic corporations with non-Filipino members, the right to control and administer the corporation
2758 that explores, develops and utilizes natural resources insofar as agreements with the State for co-production, joint venture
2759 and production-sharing are concerned, otherwise the Davide amendment would have been approved and, like the prohibition
2760 in above-quoted Section 4(2), Article XIV, control and supervision of all business involved in the exploration and development
2761 of mineral resources would have been left solely in Filipino hands.

2762 Accordingly, to the extent that the corporate board governs and manages the operations for the exploration and use of
2763 natural resources, to that extent the "full control and supervision" thereof by the State is diminished.

2764 In effect, therefore, when the State enters into such agreements as provided in the Constitution, it allows itself to surrender
2765 part of its sovereign right to full control and supervision of said activities, the State having the right to partly surrender the
2766 exercise of sovereign powers under the doctrine of auto-limitation.6

2767 If foreigners (under joint ventures etc.) have a say in the management of the business of utilizing natural resources as
2768 corporate directors of domestic corporations, there is no justification for holding that foreign corporations who put in
2769 considerably large amounts of money under agreements involving either technical or financial assistance for large scale
2770 exploration, development and utilization of minerals, petroleum and other mineral oils are prohibited from managing such
2771 business.

2772 Indeed, to say that the Constitution requires the State to have full and total control and supervision of the exploration,
2773 development and utilization of minerals when undertaken in a large scale under agreements with foreign corporations
2774 involving huge amounts of money is to divorce oneself from reality. As Mr. Justice Panganiban said, no firm would invest
2775 funds in such enterprise unless it has a say in the management of the business.

2776 To paraphrase this Court in one of its landmark cases, the fundamental law does not intend an impossible undertaking. 7 It
2777 must therefore be presumed that the Constitution did not at all intend an interpretation of Section 2, Article XII which
2778 deprives the foreign corporation engaged in large scale mining activities a measure of control in the management and
2779 operation of such activities, and in said manner, remove from the realm of the possible the enterprise the Constitution
2780 envisions thereunder.

2781 This brings me to the final point raised by my esteemed colleague, Mme. Justice Conchita Carpio Morales, that it is of no
2782 moment that the declaration of Rep. Act No. 7942 may discourage foreign assistance and/or retard or delay the exploration,
2783 development or utilization of the nation's natural resources as the Filipino people, as early as the 1935 Constitution, have
2784 determined such matters as secondary to the protection and preservation of their ownership of these natural resources. With
2785 due respect, I find such proposition not legally justifiable as it looks backward to the justification in the 1935 Constitution
2786 instead of forward under the 1987 Constitution which expressly allows foreign participation in the exploration, development
2787 or utilization of the nation's marine wealth to allow the State to take advantage of foreign funding or technical assistance. As
2788 long as the means employed by such foreign assistance result in real contributions to the economic growth of our country and
2789 enhance the general welfare of our people, the development of our mineral resources by and through foreign corporations,
2790 such FTAAs are not unconstitutional.

2791 II. RE: REQUIREMENT THAT FTAAs MUST BE "BASED

2792 ON REAL CONTRIBUTIONS TO THE ECONOMIC GROWTH
2793 AND GENERAL WELFARE OF THE COUNTRY"

2794 The policy behind Rep. Act No. 7942 is to promote the "rational exploration, development, utilization and conservation" of the
2795 State-owned mineral resources "through the combined efforts of government and the private sector in order to enhance
2796 national growth in a way that effectively safe-guards the environment and protect the rights of affected communities".8 This
2797 policy, with reference specifically to FTAAs, is in keeping with the constitutional precept that FTAAs must be based on real
2798 contributions to the economic growth and general welfare of the country. As has been said, "a statute derives its vitality from

Page 62
2799 the purpose for which it is enacted and to construe it in a manner that disregards or defeats such purpose is to nullify or
2800 destroy the law."9 In this regard, much has been said about the alleged unconstitutionality of Section 81 of Rep. Act No. 7942
2801 as it allegedly allows for the waiver of the State's right to receive income from the exploitation of its mineral resources as it
2802 limits the State's share in FTAAs with foreign contractors to taxes, duties and fees. For clarity, the provision states –

2803 SEC. 81. Government Share in Other Mineral Agreements. -- The share of the Government in co-production and joint-
2804 venture agreements shall be negotiated by the Government and the contractor taking into consideration the: (a) capital
2805 investment of the project, (b) risks involved, (c) contribution of the project to the economy, and (d) other factors that will
2806 provide for a fair and equitable sharing between the Government and the contractor. The Government shall also be entitled
2807 to compensations for its other contributions which shall be agreed upon by the parties, and shall consist, among other things,
2808 the contractor's income tax, excise tax, special allowance, withholding tax due from the contractor's foreign stockholders,
2809 arising from dividend or interest payments to the said foreign stockholders, in case of a foreign national, and all such other
2810 taxes, duties and fees as provided for under existing laws.

2811 The Government share in financial or technical assistance agreement shall consist of, among other things,the contractor's
2812 corporate income tax, excise tax, special allowance, withholding tax due from the contractor's foreign stockholders arising
2813 from dividend or interest payments to the said foreign stockholder in case of foreign national and all such other taxes, duties
2814 and fees as provided for under existing laws.

2815 The collection of Government share in financial or technical assistance agreement shall commence after the financial or
2816 technical assistance agreement contractor has fully recovered its pre-operating expenses, exploration, and development
2817 expenditures, inclusive. (Emphasis supplied)

2818 The controversy revolves around the proper interpretation of "among other things" stated in the second paragraph of Section
2819 81. Mr. Justice Carpio is of the opinion that "among other things" could only mean "among other taxes", referring to the
2820 unnamed "other taxes, duties, and fees as provided for under existing laws" contained in the last clause of Section 81,
2821 paragraph 2. If such were the correct interpretation, then truly, the provision is unconstitutional as a sharing based only on
2822 taxes cannot be considered as contributing to the economic growth and general welfare of the country. I am bothered,
2823 however, by the interpretation that the phrase "among other things" refers to "and all such other taxes, duties and fees as
2824 provided for under existing laws" since it would render the former phrase superfluous. In other words, there would have been
2825 no need to include the phrase "among other things" if all it means is "all other taxes" since the latter is already expressly
2826 stated in the provision. As it is a truism that all terms/phrases used in a statute has relevance to the object of the law, then I
2827 find the view of Mr. Justice Panganiban – that "all other things" means "additional government share" in the form of
2828 "earnings or cash flow of the mining enterprise" as interpreted by the DENR -- more compelling. Besides, such an
2829 interpretation would affirm the constitutionality of the provision which would then be in keeping with the rudimentary
2830 principle that a law shall not be declared invalid unless the conflict with the Constitution is clear beyond reasonable
2831 doubt.10 To justify nullification of a law, there must be a clear and unequivocal breach of the Constitution, not a doubtful and
2832 argumentative implication.11

2833 Finally, I wish to stress that it would appear that the constitutional mandate that large-scale mining activities under FTAAs
2834 must be based on real contributions to the economic growth and general welfare of the country is both a standard for the
2835 statute required to implement subject provision as well as the vehicle for the exercise of the State's resultant residual control
2836 and supervision of the mining activities.

2837 In all FTAAs, the State is deemed to reserve its right to control the end to be achieved so that real contributions to the
2838 economy can be realized and, in the final analysis, the business will redound to the general welfare of the country.

2839 However, the question of whether or not the FTAA will, in fact, redound to the general welfare of the public involves a
2840 "judgment call" by our policy makers who are answerable to our people during the appropriate electoral exercises and are not
2841 subject to judicial pronouncements based on grave abuse of discretion. 12

2842 For the foregoing reasons, I vote to grant the motion for reconsideration.

2843
2844

2845 DISSENTING OPINION

Page 63
2846 CARPIO, J.:

2847 I dissent and vote to deny respondents' motions for reconsideration. I find that Section 3(aq), Section 39, Section 80, the
2848 second paragraph of Section 81, the proviso in Section 84, and the first proviso in Section 112 of Republic Act No. 7942 1 ("RA
2849 7942") violate Section 2, Article XII of the 1987 Constitution and are therefore unconstitutional.

2850 In essence, these provisions of RA 7942 waive the State's ownership rights under the Constitution over mineral
2851 resources. These provisions also abdicate the State's constitutional duty to control and supervise fully the exploitation of
2852 mineral resources.

2853 A. The Threshold Issue for Resolution

2854 Petitioners claim that respondent Department of Environment and Natural Resources Secretary Victor O. Ramos, in issuing
2855 the rules to implement RA 7942, gravely abused his discretion amounting to lack or excess of jurisdiction. Petitioners assert
2856 that RA 7942 is unconstitutional for the following reasons:

2857 1. RA 7942 "allows fully foreign owned corporations to explore, develop, utilize and exploit mineral resources in a manner
2858 contrary to Section 2, paragraph 4, Article XII of the Constitution";

2859 2. RA 7942 "allows enjoyment by foreign citizens as well as fully foreign owned corporations of the nation's marine wealth
2860 contrary to Section 2, paragraph 2 of Article XII of the Constitution";

2861 3. RA 7942 "violates Section 1, Article III of the Constitution";

2862 4. RA 7942 "allows priority to foreign and fully foreign owned corporations in the exploration, development and utilization of
2863 mineral resources contrary to Article XII of the Constitution";

2864 5. RA 7942 "allows the inequitable sharing of wealth contrary to Section 1, paragraph 1, and Section 2, paragraph 4, Article
2865 XII of the Constitution."2 (Emphasis supplied)

2866 Petitioners also assail the validity of the Financial and Technical Assistance Agreement between the Philippine Government
2867 and WMCP (Philippines), Inc. dated 2 March 19953 ("WMCP FTAA") for violation of Section 2, Article XII of the 1987
2868 Constitution.

2869 The issues that petitioners raise boil down to whether RA 7942 and the WMCP FTAA violate Section 2, Article XII of the
2870 1987 Constitution.

2871 B. The Constitutional Declaration and Mandate

2872 Section 2, Article XII of the 1987 Constitution4 provides as follows:

2873 All x x x minerals, x x x petroleum, and other mineral oils, x x x and other natural resources are owned by the State. x x x
2874 The exploration, development, and utilization of natural resources shall be under the full control and supervision of the
2875 State. x x x. (Emphasis supplied)

2876 Two basic principles flow from this constitutional provision. First, the Constitution vests in the State ownership of all
2877 mineral resources. Second, the Constitution mandates the State to exercise full control and supervisionover the exploitation
2878 of mineral resources.

2879 The first principle reiterates the Regalian doctrine, which established State ownership of natural resources since the arrival
2880 of the Spaniards in the Philippines in the 16th century. The 1935, 1973 and 1987 Constitutions incorporate the Regalian
2881 doctrine.5 The State, as owner of the nation's natural resources, exercises the attributes of ownership over its natural
2882 resources.6 An important attribute of ownership is the right to receive the income from any commercial exploitation of the
2883 natural resources.7

2884 The second principle insures that the benefits of State ownership of natural resources accrue to the Filipino people. The
2885 framers of the 1987 Constitution introduced the second principle to avoid the adverse effects of the "license, concession or
2886 lease"8 system of exploitation under the 1935 and 1973 Constitutions.9 The "license, concession or lease" system enriched the
2887 private concessionaires who controlled the exploitation of natural resources. However, the "license, concession or lease"

Page 64
2888 system left the Filipino people impoverished, starkly exemplified by the nation's denuded forests whose exploitation did not
2889 benefit the Filipino people.

2890 The framers of the 1987 Constitution clearly intended to abandon the "license, concession or lease" system prevailing under
2891 the 1935 and 1973 Constitutions. This exchange in the deliberations of the Constitutional Commission reveals this clear
2892 intent:

2893 MR. DAVIDE: Thank you, Mr. Vice-President. I would like to seek some clarifications.

2894 MR. VILLEGAS: Yes.

2895 MR. DAVIDE: Under the proposal, I notice that except for the lands of the public domain, all the other natural resources
2896 cannot be alienated and in respect to lands of the public domain, private corporations with the required ownership by
2897 Filipino citizens can only lease the same. Necessarily, insofar as other natural resources are concerned, it would only be the
2898 State which can exploit, develop, explore and utilize the same. However, the State may enter into a joint venture, co-
2899 production or production-sharing. Is that not correct?

2900 MR. VILLEGAS: Yes.

2901 MR. DAVIDE: Consequently, henceforth upon the approval of this Constitution, no timber or forest concessions, permits or
2902 authorization can be exclusively granted to any citizen of the Philippines nor to any corporation qualified to acquire lands of
2903 the public domain?

2904 MR. VILLEGAS: Would Commissioner Monsod like to comment on that? I think his answer is "yes."

2905 MR. DAVIDE: So, what will happen now to licenses or concessions earlier granted by the Philippine government to private
2906 corporations or to Filipino citizens? Would they be deemed repealed?

2907 MR. VILLEGAS: This is not applied retroactively. They will be respected. 10 (Emphasis supplied)

2908 To carry out this intent, the 1987 Constitution uses a different phraseology from that used in the 1935 and 1973
2909 Constitutions. The previous Constitutions used the phrase "license, concession or lease" in referring to exploitation of natural
2910 resources. The 1987 Constitution uses the phrase "co-production, joint venture or production-sharing agreements," with "full
2911 control and supervision" by the State. The change in language was a clear rejection of the old system of "license, concession
2912 or lease."

2913 The 1935 and 1973 Constitutions also used the words "belong to" in stating the Regalian doctrine, thus declaring that
2914 natural resources "belong to the State." The 1987 Constitution uses the word "owned," thus prescribing that natural
2915 resources are "owned" by the State. In using the word "owned," the 1987 Constitution emphasizes the attributes of
2916 ownership, among which is the right to the income of the property owned. 11

2917 The State as owner of the natural resources must receive income from the exploitation of its natural resources. The payment
2918 of taxes, fees and charges, derived from the taxing or police power of the State, is not a substitute.The State is duty bound to
2919 secure for the Filipino people a fair share of the income from any exploitation of the nation's precious and exhaustible
2920 natural resources. As explained succinctly by a textbook writer:

2921 Under the former licensing, concession, or lease schemes, the government benefited from such activities only through fees,
2922 charges and taxes. Such benefits were very minimal compared with the enormous profits reaped by the licensees,
2923 concessionaires or lessees who had control over the particular resources over which they had been given exclusive right to
2924 exploit. Moreover, some of them disregarded the conservation of natural resources. With the new role, the State will be able
2925 to obtain a greater share in the profits. It can also actively husband our natural resources and engage in development
2926 programs that will be beneficial to the nation.12 (Emphasis supplied)

2927 Thus, the 1987 Constitution commands the State to exercise full control and supervision over the exploitation of natural
2928 resources to insure that the State receives its fair share of the income. In Miners Association of the Philippines v. Hon.
2929 Factoran, Jr., et al.,13 the Court ruled that "the old system of exploration, development and utilization of natural resources
2930 through 'license, concession or lease' x x x has been disallowed by Article XII, Section 2 of the 1987 Constitution." The Court
2931 explained:

Page 65
2932 Upon the effectivity of the 1987 Constitution on February 2, 1987, the State assumed a more dynamic role in the exploration,
2933 development and utilization of the natural resources of the country. Article XII, Section 2 of the said Charter explicitly
2934 ordains that the exploration, development and utilization of natural resources shall be under the full control and supervision
2935 of the State. Consonant therewith, the exploration, development and utilization of natural resources may be undertaken by
2936 means of direct act of the State, or it may opt to enter into co-production, joint venture, or production-sharing agreements, or
2937 it may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-
2938 scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms
2939 and conditions provided by law, based on real contributions to the economic growth and general welfare of the country.
2940 (Emphasis supplied)

2941 The old system of "license, concession or lease" which merely gave the State a pittance in the form of taxes, fees and charges
2942 is now buried in history. Any attempt to resurrect it is unconstitutional and deserves outright rejection by this Court.

2943 The Constitution prohibits the alienation of all natural resources except agricultural lands. 14 The Constitution, however,
2944 allows the State to exploit commercially its natural resources and sell the marketable products from such exploitation. This
2945 the State may do through a co-production, joint venture or production-sharing arrangement with companies at least 60%
2946 Filipino owned. The necessary implication is that the State, as owner of the natural resources, must receive a fair share of
2947 the income from such commercial operation. The State may receive its share of the net income in cash or in kind.

2948 The State may also directly exploit its natural resources in either of two ways. The State may set up its own company to
2949 engage in the exploitation of natural resources. Alternatively, the State may enter into a financial or technical assistance
2950 agreement ("FTAA") with private companies who act as contractors of the State. The State may seek from such contractors
2951 either financial or technical assistance, or both, depending on the State's own needs. Under an FTAA, the contractor, foreign
2952 or local, manages the contracted work or operations to the extent of its financial or technical contribution, subject to the
2953 State's control and supervision.

2954 Except in large-scale exploitation of certain minerals, the State's contractors must be 60% Filipino owned companies. The
2955 State pays such contractors, for their technical services or financial assistance, a share of the income from the exploitation of
2956 the natural resources. The State retains the remainder of the income after paying the Filipino owned contractor.

2957 In large-scale exploitation of minerals, petroleum and other mineral oils, the Constitution allows the State to contract
2958 with "foreign-owned corporations" under an FTAA. This is still a direct exploitation by the State but using a foreign instead
2959 of a local contractor. However, the Constitution requires that the participation of foreign contractors must make a real
2960 contribution to the national economy and the general welfare. The State pays the foreign contractor, for its technical services
2961 or financial assistance, a share of the income from the exploitation of the minerals, petroleum or other mineral oils. The
2962 State retains the rest of the income after paying the foreign contractor.

2963 Whether the FTAA contractor is local or foreign, the State must retain its fair share of the income from the exploitation of
2964 the natural resources that it owns. To insure it retains its fair share of the income, the State must exercise full control and
2965 supervision over the exploitation of its natural resources. And whether the FTAA contractor is local or foreign, the State
2966 is directly undertaking the exploitation of its natural resources, with the FTAA contractor providing technical services or
2967 financing to the State. Since the State is directly undertaking the exploitation, all exploration permits and similar
2968 authorizations are in the name of the Philippine Government, which then authorizes the contractor to act on its behalf.

2969 The State exercises full control and supervision over the mining operations in the Philippines of the foreign contractor.
2970 However, the State does not exercise control and supervision over the foreign contractor itself or its board of directors. The
2971 State does not also exercise any control or supervision over the foreign contractor's mining operations in other countries, or
2972 even its non-mining operations in the Philippines. There is no conflict of power between the State and the foreign contractor's
2973 board of directors. By entering into an FTAA, the foreign contractor, through its board of directors, agrees to manage the
2974 contracted work or operations to the extent of its financial or technical contribution subject to the State's control and
2975 supervision.

2976 No government should contract with a corporation, local or foreign, to exploit commercially the nation's natural resources
2977 without the State receiving any income as owner of the natural resources. Natural resources are non-renewable and
2978 exhaustible assets of the State. Certainly, no government in its right mind should give away for free its natural resources to
2979 private business enterprises, local or foreign, amidst widespread poverty among its people.

Page 66
2980 In sum, two basic constitutional principles govern the exploitation of natural resources in the country. First, the State owns
2981 the country's natural resources and must benefit as owner from any exploitation of its natural resources. Second, to insure
2982 that it receives its fair share as owner of the natural resources, the State must exercise full control and supervision over the
2983 exploitation of its natural resources.

2984 We shall subject RA 7942 to constitutional scrutiny based on these two basic principles.

2985 C. Waiver of Beneficial Rights from Ownership of Mineral Resources

2986 RA 7942 contains five provisions which waive the State's right to receive income from the exploitation of its mineral
2987 resources. These provisions are Sections 39, 80, 81, 84 and 112:

2988 Section 39. Option to Convert into a Mineral Agreement. — The contractor has the option to convert the financial or
2989 technical assistance agreement to a mineral agreement at any time during the term of the agreement, if the economic
2990 viability of the contract area is found to be inadequate to justify large-scale mining operations, after proper notice to the
2991 Secretary as provided for under the implementing rules and regulations: Provided, That the mineral agreement shall only be
2992 for the remaining period of the original agreement.

2993 In the case of a foreign contractor, it shall reduce its equity to forty percent (40%) in the corporation, partnership,
2994 association, or cooperative. Upon compliance with this requirement by the contractor, the Secretary shall approve the
2995 conversion and execute the mineral production-sharing agreement.

2996 Section 80. Government Share in Mineral Production Sharing Agreement. — The total government share in a mineral
2997 production sharing agreement shall be the excise tax on mineral products as provided in Republic Act No. 7729, amending
2998 Section 151(a) of the National Internal Revenue Code, as amended.

2999 Section 81. Government Share in Other Mineral Agreements. — The share of the Government in co-production and joint-
3000 venture agreements shall be negotiated by the Government and the contractor taking into consideration the: (a) capital
3001 investment of the project, (b) risks involved, (c) contribution of the project to the economy, and (d) other factors that will
3002 provide for a fair and equitable sharing between the Government and the contractor. The Government shall also be entitled
3003 to compensation for its other contributions which shall be agreed upon by the parties, and shall consist, among other things,
3004 the contractor's income tax, excise tax, special allowance, withholding tax due from the contractor's foreign stockholders
3005 arising from dividend or interest payments to the said foreign stockholders, in case of a foreign national, and all such other
3006 taxes, duties and fees as provided for under existing laws.

3007 The Government share in financial or technical assistance agreement shall consist of, among other things, the contractor's
3008 corporate income tax, excise tax, special allowance, withholding tax due from the contractor's foreign stockholders arising
3009 from dividend or interest payments to the said foreign stockholder in case of a foreign national and all such other taxes,
3010 duties and fees as provided for under existing laws.

3011 The collection of Government share in financial or technical assistance agreement shall commence after the financial or
3012 technical assistance agreement contractor has fully recovered its pre-operating expenses, exploration, and development
3013 expenditures, inclusive.

3014 Section 84. Excise Tax on Mineral Products. — The contractor shall be liable to pay the excise tax on mineral products as
3015 provided for under Section 151 of the National Internal Revenue Code: Provided, however, That with respect to a mineral
3016 production sharing agreement, the excise tax on mineral products shall be the government share under said agreement.

3017 Section 112. Non-impairment of Existing Mining/Quarrying Rights. - All valid and existing mining lease contracts,
3018 permits/licenses, leases pending renewal, mineral production–sharing agreements granted under Executive Order No. 279,
3019 at the date of effectivity of this Act, shall remain valid x x x Provided, That the provisions of Chapter XIV15 on government
3020 share in mineral production-sharing agreement x x x shall immediately govern and apply to a mining lessee or
3021 contractor unless the mining lessee or contractor indicates his intention to the Secretary, in writing, not to avail of said
3022 provisions: x x x.

3023 (Emphasis supplied)

Page 67
3024 Section 80 of RA 7942 limits to the excise tax the State's share in a mineral production-sharing agreement ("MPSA"). Section
3025 80 expressly states that the excise tax on mineral products shall constitute the "total government share in a mineral
3026 production sharing agreement." Under Section 151(A) of the Tax Code, this excise tax on metallic and non-metallic minerals
3027 is only 2% of the market value, as follows:

3028 Section 151. Mineral Products. —

3029 (A) Rates of Tax. — There shall be levied, assessed and collected on minerals, mineral products and quarry resources, excise
3030 tax as follows:

3031 (1) On coal and coke, a tax of Ten pesos (P10.00) per metric ton;

3032 (2) On all nonmetallic minerals and quarry resources, a tax of two percent (2%) based on the actual market value of the gross
3033 output thereof at the time of removal, in the case of those locally extracted or produced; or the value used by the Bureau of
3034 Customs in determining tariff and customs duties, net of excise tax and value-added tax, in the case of importation.

3035 xxx

3036 (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
3037 case of those locally extracted or produced; or the value used by the Bureau of Customs in determining tariff and customs
3038 duties, net of excise tax and value-added tax, in the case of importation, in accordance with the following schedule:

3039 (a) Copper and other metallic minerals:

3040 (i) On the first three (3) years upon the effectivity of Republic Act No. 7729, one percent (1%);

3041 (ii) On the fourth and the fifth years, one and a half percent (1½%); and

3042 (iii) On the sixth year and thereafter, two percent (2%).

3043 (b) Gold and chromite, two percent (2%).

3044 x x x. (Emphasis supplied)

3045 Section 80 of RA 7942 does not allow the State to receive any income as owner of the mineral resources.The proviso in
3046 Section 84 of RA 7942 reiterates this when it states that "the excise tax on mineral products shall be the government share
3047 under said agreement."16 The State receives only an excise tax flowing from its taxing power, not from its ownership of the
3048 mineral resources. The excise tax is imposed not only on mineral products, but also on alcohol, tobacco and
3049 automobiles17 produced by companies that do not exploit natural resources owned by the State. The excise tax is not payment
3050 for the exploitation of the State's natural resources, but payment for the "privilege of engaging in business." 18 Clearly, under
3051 Section 80 of RA 7942, the State does not receive as owner of the mineral resources any income from the exploitation of its
3052 mineral resources.

3053 The second paragraph of Section 81 of RA 7942 also limits the State's share in FTAAs with foreign contractors to taxes,
3054 duties and fees. Section 81 of RA 7942 provides that the State's share in FTAAs with foreign contractors –

3055 shall consist of, among other things, the contractor's corporate income tax, excise tax, special allowance, withholding tax due
3056 from the contractor's foreign stockholders arising from dividend or interest payments to the said foreign stockholder in case
3057 of a foreign national and all such other taxes, duties and fees as provided for under existing laws. (Emphasis supplied)

3058 RA 7942 does not explain the phrase "among other things." The Solicitor General states correctly that the phrase refers to
3059 taxes.19 The phrase is an ejusdem generis phrase, and means "among other taxes, duties and fees" since the items specifically
3060 enumerated are all taxes, duties and fees. The last phrase "all such other taxes, duties and fees as provided for under
3061 existing laws" at the end of the sentence clarifies further that the phrase "among other things" refers to taxes, duties and
3062 fees.

3063 The second paragraph of Section 81 does not require the Government and the foreign FTAA contractor to negotiate the
3064 State's share. In contrast, the first paragraph of Section 81 expressly provides that the "share of the Government in co-

Page 68
3065 production and joint-venture agreements shall be negotiated by the Government and the contractor" which is 60% Filipino
3066 owned.

3067 In a co-production or joint venture agreement, the Government contributes other inputs or equity in addition to its mineral
3068 resources.20 Thus, the first paragraph of Section 81 requires the Government and the 60% Filipino owned company to
3069 negotiate the State's share. However, in an FTAA with a foreign contractor under the second paragraph of Section 81, the
3070 Government's contribution is only the mineral resources. Section 81 does not require the Government and the foreign
3071 contractor to negotiate the State's share from the net proceeds because there is no share for the State. Section 81 does not
3072 recognize the State's contribution of mineral resources as worthy of any share of the net proceeds from the mining
3073 operations.

3074 Thus, in FTAAs with foreign contractors under RA 7942, the State's share is limited to taxes, fees and duties. The taxes
3075 include "withholding tax due from the contractor's foreign stockholders arising from dividend or interest payments." All these
3076 taxes, fees and duties are imposed pursuant to the State's taxing power. The tax on income, including dividend and interest
3077 income, is imposed on all taxpayers whether or not they are stockholders of mining companies. These taxes, fees and duties
3078 are not contractual payments to the State as owner of the mineral resources but are mandatory exactions based on the
3079 taxing power of the State.

3080 Section 112 of RA 7942 is another provision that violates Section 2, Article XII of the 1987 Constitution. Section
3081 112 "immediately" reverts all mineral agreements to the old and discredited "license, concession or lease" system outlawed by
3082 the 1987 Constitution. Section 112 states that "the provisions of Chapter XIV21 on government share in mineral production-
3083 sharing agreement x x x shall immediately govern and apply to a mining lessee or contractor." The contractor, local or
3084 foreign, will now pay only the "government share in a mineral production-sharing agreement" under RA 7942. Section 80 of
3085 RA 7942, which specifically governs MPSAs, limits the "government share" solely to the excise tax on mineral products - 2%
3086 on metallic and non-metallic minerals and 3% on indigenous petroleum.

3087 In allowing the payment of the excise tax as the only share of the government in any mineral agreement, whether co-
3088 production, joint venture or production-sharing, Section 112 of RA 7942 reinstates the old "license, concession or lease"
3089 system where the State receives only minimal taxes, duties and fees. This clearly violates Section 2, Article XII of the
3090 Constitution and is therefore unconstitutional. Section 112 of RA 7942 is a sweeping negation of the clear letter and intent of
3091 the 1987 Constitution that the exploitation of the State's natural resources must benefit primarily the Filipino people.

3092 Of course, Section 112 gives contractors the option not to avail of the benefit of Section 112. This is in the guise that the
3093 enactment of RA 7942 shall not impair pre-existing mining rights, as the heading of Section 112 states. It is doubtful,
3094 however, if any contractor of sound mind would refuse to receive 100% rather than only 40% of the net proceeds from the
3095 exploitation of minerals under the FTAA.

3096 Another provision that violates Section 2, Article XII of the Constitution is Section 39 of RA 7942. Section 39 grants the
3097 foreign contractor the option to convert the FTAA into a "mineral production-sharing agreement" if the foreign contractor
3098 finds that the mineral deposits do not justify large-scale mining operations. Section 39 of RA 7942 operates to deprive the
3099 State of income from the mining operations and limits the State to the excise tax on mineral products.

3100 Section 39 grants the foreign contractor the option to revert to the "license, concession or lease" system which the 1987
3101 Constitution has banned. The only requirement for the exercise of the option is for the foreign contractor to divest 60% of its
3102 equity to a Philippine citizen or to a corporation 60% Filipino owned. Section 39 states, "Upon compliance with this
3103 requirement by the contractor, the Secretary shall approve the conversion and execute the mineral production-sharing
3104 agreement." The foreign contractor only needs to give "proper notice to the Secretary as provided for under the implementing
3105 rules and regulations" if the contractor finds the contract area not viable for large-scale mining. Thus, Section 39 of RA 7942
3106 is unconstitutional.

3107 Sections 39, 80, 81, 84 and 112 of RA 7942 operate to deprive the State of the beneficial rights arising from its ownership of
3108 mineral resources. What Section 2, Article XII of the 1987 Constitution vests in absolute ownership to the State, Sections 80,
3109 81, 84 and 112 of RA 7942 take away and give for free to private business enterprises, including foreign-owned companies.

3110 The legislature has discretion whether to tax a business or product. If the legislature chooses to tax a business or product, it
3111 is free to determine the rate or amount of the tax, provided it is not confiscatory. 22 The legislature has the discretion to
3112 impose merely a 2% excise tax on mineral products. Courts cannot inquire into the wisdom of the amount of such tax, no

Page 69
3113 matter how meager it may be. This discretion of the legislature emanates from the State's taxing power, a power vested
3114 solely in the legislature.

3115 However, the legislature has no power to waive for free the benefits accruing to the State from its ownership of mineral
3116 resources. Absent considerations of social justice, the legislature has no power to give away for free what forms part of the
3117 national patrimony of the State. Any surrender by the legislature of the nation's mineral resources, especially to foreign
3118 private enterprises, is repugnant to the concept of national patrimony. Mineral resources form part of the national patrimony
3119 under Article XII (National Economy and Patrimony) of the 1987 Constitution.

3120 Under the last paragraph of Section 81, the collection of the State's so-called "share" (consisting of taxes) in FTAAs with
3121 foreign contractors is not even certain. This paragraph provides that the State's "share x x x shall commence after the
3122 financial or technical assistance agreement contractor has fully recovered its pre-operating expenses, exploration, and
3123 development expenditures." There is no time limit in RA 7942 for this grace period when the collection of the State's "share"
3124 does not run.23

3125 RA 7942 itself does not require government approval for the pre-operating, exploration and development expenses of the
3126 foreign contractor. The determination of the amount of pre-operating, exploration and development expenses is left solely to
3127 the discretion of the foreign contractor. Nothing prevents the foreign contractor from recording pre-operating, exploration
3128 and development expenses equal to the mining revenues it anticipates for the first 10 years. If that happens, the State's
3129 share is ZERO for the first 10 years.

3130 The Government cannot tell the Filipino people when the State will start to receive its "share" (consisting of taxes) in mining
3131 revenues under the FTAA. The Executive Department cannot correct these deficiencies in RA 7942 through remedial
3132 implementing rules. The correction involves substantive legislation, not merely filling in the implementing details of the law.

3133 Taxes, fees and duties cannot constitute payment for the State's share as owner of the mineral resources. This was the mode
3134 of payment used under the old system of "license, concession or lease" which the 1987 Constitution abrogated. Obviously,
3135 Sections 80, 81, 84 and 112 of RA 7942 constitute an ingenious attempt to resurrect the old and discredited system, which
3136 the 1987 Constitution has now outlawed. Under the 1987 Constitution, the State must receive its fair share as owner of the
3137 mineral resources, separate from taxes, fees and duties paid by taxpayers. The legislature may waive taxes, fees and duties,
3138 but it cannot waive the State's share in mining operations.

3139 Any law waiving for free the State's right to the benefits arising from its ownership of mineral resources is unconstitutional.
3140 Such law negates Section 2, Article XII of the 1987 Constitution vesting ownership of mineral resources in the State. Such
3141 law will not contribute to "economic growth and the general welfare of the country" as required in the fourth paragraph of
3142 Section 2. Thus, in waiving the State's income from the exploitation of mineral resources, Section 80, the second paragraph of
3143 Section 81, the proviso in Section 84, and Section 112 of RA 7942 violate the Constitution and are therefore void.

3144 D. Abdication of the State's Duty to Control and Supervise

3145 Fully the Exploitation of Mineral Resources

3146 The 1987 Constitution commands the State to exercise "full control and supervision" over the exploitation of natural
3147 resources. The purpose of this mandatory directive is to insure that the State receives its fair share in the exploitation of
3148 natural resources. The framers of the Constitution were determined to avoid the disastrous mistakes of the past. Under the
3149 old system of "license, concession or lease," the State gave full control to the concessionaires who enriched themselves while
3150 paying the State minimal taxes, fees and charges.

3151 Under the 1987 Constitution, for a co-production, joint venture or production-sharing agreement to be valid the State must
3152 exercise full control and supervision over the mining operations. This means that the State should approve all capital and
3153 operating expenses in the exploitation of the natural resources. Approval of capital expenses determines how much capital is
3154 recoverable by the mining contractor. Approval of operating expenses determines the reasonable amounts deductible from
3155 the annual income from mining operations. Such approvals are essential because the net income from mining operations,
3156 which is the basis of the State's share, depends on the allowable amount of capital and operating expenses. There is approval
3157 of capital and operating expenses when the State approves them, or if the State disapproves them and a dispute arises, when
3158 their final allowance is subject to arbitration.

Page 70
3159 The provisions of RA 7942 on MPSAs and FTAAs do not give the State any control and supervision over mining operations.
3160 The reason is obvious. The State's so-called "share" in a mineral production-sharing agreement under Section 80 is limited
3161 solely to the excise tax on mineral products. This excise tax is based on the market value of the mineral product determined
3162 without reference to the capital or operating expenses of the mining contractor.

3163 Likewise, the State's "share" in an FTAA under Section 81 has no relation to the capital or operating expenses of the foreign
3164 contractor. The State's "share" constitutes the same excise tax on mineral products, in addition to other direct and indirect
3165 taxes. The basis of the excise tax is the selling price of the mineral product. Hence, there is no reason for the State to approve
3166 or disapprove the capital or operating expenses of the mining contractor. Consequently, RA 7942 does not give the State any
3167 control and supervision over mining operations contrary to the express command of the Constitution. This makes Section 80,
3168 the second paragraph of Section 81, the proviso in Section 84, and Section 112 of RA 7942 unconstitutional.

3169 E. RA 7942 Will Not Contribute to Economic

3170 Growth or General Welfare of the Country

3171 The fourth paragraph of Section 2, Article XII of the 1987 Constitution requires that FTAAs with foreign contractors must
3172 make "real contributions to the economic growth and general welfare of the country." Under Section 81 of RA 7942, all the
3173 net proceeds arising from the exploitation of mineral resources accrue to the foreign contractor even if the State owns the
3174 mineral resources. The foreign contractor will naturally repatriate the entire after-tax net proceeds to its home country.
3175 Sections 94(a) and 94(b) of RA 7942 guarantee the foreign contractor the right to repatriate its after-tax net proceeds, as well
3176 as its entire capital investment, after the termination of its mining operations in the country. 24

3177 Clearly, no FTAA under Section 81 will ever make any real contribution to the growth of the economy or to the general
3178 welfare of the country. The foreign contractor, after it ceases to operate in the country, can even remit to its home country
3179 the scrap value of its capital equipment. Thus, the second paragraph of Section 81 of RA 7942 is unconstitutional for failure
3180 to meet the constitutional requirement that the FTAA with a foreign contractor should make a real contribution to the
3181 national economy and general welfare.

3182 F. Example of FTAA that Complies with Section 2, Article XII of the 1987 Constitution

3183 The Solicitor General warns that declaring unconstitutional RA 7942 or its provisions will endanger the Philippine
3184 Government's contract with the foreign contractor extracting petroleum in Malampaya, Palawan.25 On the contrary, the
3185 FTAA with the foreign petroleum contractor meets the essential constitutional requirements since the State receives a fair
3186 share of the income from the petroleum operations. The State also exercises control and supervision over the exploitation of
3187 the petroleum. The petroleum FTAA provides enough safeguards to insure that the petroleum operations will make a real
3188 contribution to the national economy and general welfare.

3189 The Service Contract dated 11 December 1990 between the Philippine Government as the first party, and Occidental
3190 Philippines, Inc. and Shell Exploration B.V. as the second party26 ("Occidental-Shell FTAA"), covering offshore exploitation of
3191 petroleum in Northwest Palawan, contains the following provisions:

3192 a. There is express recognition that the "conduct of Petroleum Operations shall be under the full control and supervision of
3193 the Office of Energy Affairs,"27 now Department of Energy ("DOE"), and that the "CONTRACTOR shall undertake and
3194 execute the Petroleum Operations contemplated hereunder under the full control and supervision of the OFFICE OF
3195 ENERGY AFFAIRS;"28

3196 b. The State receives 60% of the net proceeds from the petroleum operations, while the foreign contractor receives the
3197 remaining 40%;29

3198 c. The DOE has a right to inspect and audit every year the foreign contractor's books and accounts relating to the petroleum
3199 operations, and object in writing to any expense (operating and capital expenses) 30within 60 days from completion of the
3200 audit, and if there is no amicable settlement, the dispute goes to arbitration; 31

3201 d. The operating expenses in any year cannot exceed 70% of the gross proceeds from the sale of petroleum in the same year,
3202 and any excess may be carried over in succeeding years;32

3203 e. The Bureau of Internal Revenue ("BIR") can inspect and examine all the accounts, books and records of the foreign
3204 contractor relating to the petroleum operations upon 24 hours written notice; 33

Page 71
3205 f. The petroleum output is sold at posted or market prices;34

3206 g. The foreign contractor pays the 32% Philippine corporate income tax on its 40% share of the net proceeds, including
3207 withholding tax on dividends or remittances of profits.35 (Emphasis supplied)

3208 The Occidental-Shell FTAA gives the State its fair share of the income from the petroleum operations of the foreign
3209 contractor. There is no question that the State receives its rightful share, amounting to 60% of the net proceeds,in
3210 recognition of its ownership of the petroleum resources. In addition, Occidental-Shell's 40% share in the net proceeds is
3211 subject to the 32% Philippine income tax. The Occidental-Shell FTAA also gives the State, through the DOE and BIR, full
3212 control and supervision over the petroleum operations of the foreign contractor. The foreign contractor can recover only the
3213 capital and operating expenses approved by the DOE or by the arbitral panel. 36 The Occidental-Shell FTAA also contains
3214 other safeguards to protect the interest of the State as owner of the petroleum resources. While the foreign contractor
3215 manages the contracted work or operations to the extent of its financial or technical contribution, there are sufficient
3216 safeguards in the FTAA to insure compliance with the constitutional requirements. The terms of the Occidental-Shell FTAA
3217 are fair to the State and to Occidental-Shell.

3218 In FTAAs with a foreign contractor, the State must receive at least 60% percent of the net proceeds from the exploitation of
3219 its mineral resources. This share is the equivalent of the constitutional requirement that at least 60% of the capital, and
3220 hence 60% of the income, of mining companies should remain in Filipino hands. Intervenor CMP and even respondent
3221 WMCP agree that the State has a 60% interest in the mining operations under an FTAA with a foreign
3222 contractor. Intervenor CMP asserts that the Philippine Government "stands in the place of the 60% Filipino-owned
3223 company."37 Intervenor CMP also states that "the contractor will get 40% of the financial benefits,"38 admitting that the
3224 State, which is the owner of the mineral resources, will retain the remaining 60% of the net proceeds.

3225 Respondent WMCP likewise admits that the 60%-40% "sharing ratio between the Philippine Government and the Contractor
3226 is also in accordance with the 60%-40% equity requirement for Filipino-owned corporations."39 Respondent WMCP even adds
3227 that the 60%-40% sharing ratio is "in line with the intent behind Section 2 of Article XII that the Filipino people, as
3228 represented by the State, benefit primarily from the exploration, development, and utilization of the Philippines' natural
3229 resources."40 If the State has a 60% interest in the mining operations under an FTAA, then it must retain at least 60% of the
3230 net proceeds.

3231 Otherwise, there is no sense exploiting the State's natural resources if all or a major part of the profits are remitted abroad,
3232 precluding any real contribution to the national economy or the general welfare. The constitutional requirement of full
3233 control and supervision necessarily means that the State must receive the income that corresponds to the party exercising
3234 full control, and this logically means a majority of the income.

3235 The Occidental-Shell FTAA satisfies these constitutional requirements because the State receives 60% of the net proceeds
3236 and exercises full control and supervision of the petroleum operations. The State's right to receive 60% of the net proceeds
3237 and its exercise of full control and supervision are the essential constitutional requirements for the validity of any FTAA.
3238 The name given to the contract is immaterial – whether a "Service Contract" or any other name - provided these two
3239 essential constitutional requirements are present. Thus, the designation of the Occidental-Shell FTAA as a "Service
3240 Contract" is inconsequential since the two essential constitutional requirements for the validity of the contract as an FTAA
3241 are present.

3242 With the State's right to receive 60% of the net proceeds, coupled with its control and supervision, the petroleum operations
3243 in the Occidental-Shell FTAA are legally and in fact 60% owned and controlled by Filipinos. Indeed, the State is directly
3244 undertaking the petroleum exploitation with Occidental-Shell as the foreign contractor. The Occidental-Shell FTAA does not
3245 provide for the issuance of exploration permits to Occidental-Shell precisely because the State itself is directly undertaking
3246 the petroleum exploitation.

3247 Section 3(aq) of RA 7942 allows the foreign contractor to hold the exploration permit under the FTAA. However, Section 2,
3248 Article XII of the 1987 Constitution does not allow foreign owned corporations to undertake directly mining operations.
3249 Foreign owned corporations can only act as contractors of the State under the FTAA, which is one method for the State to
3250 undertake directly the exploitation of its natural resources. The State, as the party directly undertaking the exploitation of
3251 its natural resources, must hold through the Government all exploration permits and similar authorizations. Section 3(aq) of
3252 RA 7942, in allowing foreign owned corporations to hold exploration permits, is unconstitutional.

Page 72
3253 The Occidental-Shell FTAA, involving a far riskier offshore venture than land-based mining operations, is a modelfor
3254 emulation if foreign contractors want to comply with the constitutional requirements. Section 112 of RA 7942, however,
3255 negates the benefits of the State from the Occidental-Shell FTAA.

3256 Occidental-Shell can invoke Section 112 of RA 7942 and deny the State its 60% share of the net proceeds from the
3257 exploitation of petroleum. Section 112 allows the foreign contractor to pay only the "government share in a mineral
3258 production-sharing agreement" under RA 7942. Section 80 of RA 7942 on MPSAs limits the "government share" solely to the
3259 excise tax – 2% on metallic and non-metallic mineral products and 3% on petroleum. Section 112 of RA 7942 is
3260 unconstitutional since it is contrary to Section 2, Article XII of the 1987 Constitution.

3261 G. The WMCP FTAA Violates Section 2, Article XII of the 1987 Constitution

3262 The WMCP FTAA41 ostensibly gives the State 60% share of the net mining revenue. In reality, this 60% share is illusory.
3263 Section 7.7 of the WMCP FTAA provides that:

3264 From the Commencement of Commercial Production, the Contractor shall pay a government share of sixty per centum (60%)
3265 of Net Mining Revenues, calculated in accordance with the following provisions (the Government Share). The Contractor
3266 shall be entitled to retain the balance of all revenues from the Mining Operations. (Emphasis supplied)

3267 However, under Section 7.9 of the WMCP FTAA, if WMCP's foreign stockholders sell 60% of their equity to a Philippine
3268 citizen or corporation, the State loses its right to receive its 60% share of the net mining revenues under Section 7.7. Thus,
3269 Section 7.9 provides:

3270 The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7 shall be reduced by 1% of Net
3271 Mining Revenues for every 1% ownership interest in the Contractor held by a Qualified Entity. (Emphasis supplied)

3272 What Section 7.7 gives to the State, Section 7.9 takes away without any offsetting compensation to the State. In reality, the
3273 State has no vested right to receive any income from the exploitation of its mineral resources. What the WMCP FTAA gives
3274 to the State in Section 7.7 is merely by tolerance of WMCP's foreign stockholders, who can at anytime cut off the State's
3275 entire 60% share by selling 60% of WMCP's equity to a Philippine citizen or corporation.42 The proceeds of such sale do not
3276 accrue to the State but belong entirely to the foreign stockholders of WMCP.

3277 Section 2.1 of the WMCP FTAA defines a "Qualified Entity" to include a corporation 60% Filipino owned and 40% foreign
3278 owned.43 WMCP's foreign stockholders can sell 60% of WMCP's equity to such corporation and the sale will still trigger the
3279 operation of Section 7.9 of the WMCP FTAA. Thus, the State will receive ZERO percent of the income but the foreign
3280 stockholders will own beneficially 64% of WMCP, consisting of their remaining 40% equity and 24% pro-rata share in the
3281 buyer-corporation. WMCP will then invoke Section 39 of RA 7942 allowing it to convert the FTAA into an MPSA, thus
3282 subjecting WMCP to pay only 2% excise tax on mineral products in lieu of sharing its mining income with the State. This
3283 violates Section 2, Article XII of the 1987 Constitution requiring that only corporations "at least sixty per centum of whose
3284 capital is owned by such citizens" can enter into co-production, joint venture or production-sharing agreements with the
3285 State.

3286 The State, as owner of the mineral resources, must receive a fair share of the income from any commercial exploitation of its
3287 mineral resources. Mineral resources form part of the national patrimony, and so are the net proceeds from such resources.
3288 The Legislature or Executive Department cannot waive the State's right to receive a fair share of the income from such
3289 mineral resources.

3290 The intervenor Chamber of Mines of the Philippines ("CMP") admits that under an FTAA with a foreign contractor, the
3291 Philippine Government "stands in the place of the 60% Filipino owned company" and hence must retain 60% of the net
3292 proceeds. Thus, intervenor CMP concedes that:

3293 x x x In other words, in the FTAA situation, the Government stands in the place of the 60% Filipino-owned company, and the
3294 100% foreign-owned contractor company takes all the risks of failure to find a commercially viable large-scale ore body or oil
3295 deposit, for which the contractor will get 40% of the financial benefits.44 (Emphasis supplied)

3296 For this reason, intervenor CMP asserts that the "contractor's stipulated share under the WMCP FTAA is limited to a
3297 maximum of 40% of the net production."45 Intervenor CMP further insists that "60% of its (contractor's) net returns from
3298 mining, if any, will go to the Government under the WMCP FTAA." 46Intervenor CMP, however, fails to consider that the

Page 73
3299 Government's 60% share is illusory because under Section 7.9 of the WMCP FTAA the foreign stockholders of WMCP can
3300 reduce at any time to ZERO percent the Government's share.

3301 If WMCP's foreign stockholders do not immediately sell 60% of WMCP's equity to a Philippine citizen or corporation, the
3302 State in the meantime receives its 60% share. However, under Section 7.10 of the WMCP FTAA, the State shall receive its
3303 share "after the offsetting of the items referred to in Clauses 7.8 and 7.9," namely:

3304 7.8. The Government Share shall be deemed to include all of the following sums:

3305 (a) all Government taxes, fees, levies, costs, imposts, duties and royalties including excise tax, corporate income tax, customs
3306 duty, sales tax, value added tax, occupation and regulatory fees, Government controlled price stabilization schemes, any
3307 other form of Government backed schemes, any tax on dividend payments by the Contractor or its Affiliates in respect of
3308 revenues from the Mining Operations and any tax on interest on domestic and foreign loans or other financial arrangements
3309 or accommodation, including loans extended to the Contractor by its stockholders;

3310 (b) any payments to local and regional government, including taxes, fees, levies, costs, imposts, duties, royalties, occupation
3311 and regulatory fees and infrastructure contributions;

3312 (c) any payments to landowners, surface rights holders, occupiers, indigenous people or Claim-owners;

3313 (d) costs and expenses of fulfilling the Contractor's obligations to contribute to national development in accordance with
3314 Clause 10.1(i)(1) and 10.1(i)(2);

3315 (e) an amount equivalent to whatever benefits that may be extended in the future by the Government to the Contractor or to
3316 financial or technical assistance agreement contractors in general;

3317 (f) all of the foregoing items which have not previously been offset against the Government Share in an earlier Fiscal year,
3318 adjusted for inflation.

3319 7.9. The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7 shall be reduced by 1% of
3320 Net Mining Revenues for every 1% ownership interest in the Contractor held by a Qualified Entity.

3321 It makes no sense why under Section 7.8(e) money spent by the Government for the benefit of the contractor, like building
3322 roads leading to the mine site, is deductible from the State's 60% share of the Net Mining Revenues. Unless of course the
3323 purpose is solely to reduce further the State's share regardless of any reason. In any event, the numerous deductions from
3324 the State's 60% share make one wonder if the State will ever receive anything for its ownership of the mineral resources.
3325 Even assuming the State will receive something, the foreign stockholders of WMCP can at anytime take it away by selling
3326 60% of WMCP's equity to a Philippine citizen or corporation.

3327 In short, the State does not have any right to any share in the net income from the mining operations under the WMCP
3328 FTAA. The stipulated 60% share of the Government is illusory. The State is left to collect only the 2% excise tax as its sole
3329 share from the mining operations.

3330 Indeed, on 23 January 2001, WMCP's foreign stockholders sold 100% of WMCP's equity to Sagittarius Mines, Inc., a domestic
3331 corporation 60% Filipino owned and 40% foreign owned.47 This sale automatically triggered the operation of Section 7.9 of
3332 the WMCP FTAA reducing the State's share in the Net Mining Revenues to ZERO percent without any offsetting
3333 compensation to the State. Thus, as of now, the State has no right under the WMCP FTAA to receive any share in the mining
3334 revenues of the contractor, even though the State owns the mineral resources being exploited under the WMCP FTAA.

3335 Intervenor CMP anchors its arguments on the erroneous interpretation that the WMCP FTAA gives the State 60% of the net
3336 income of the foreign contractor. Thus, intervenor CMP states that "60% of its (WMCP's) net returns from mining, if any, will
3337 go to the Government under the WMCP FTAA."48 This basic error in interpretation leads intervenor CMP to erroneous
3338 conclusions of law and fact.

3339 Like intervenor CMP, respondent WMCP also maintains that under the WMCP FTAA, the State is "guaranteed" a 60% share
3340 of the foreign contractor's Net Mining Revenues. Respondent WMCP contends, after quoting Section 7.7 of the WMCP FTAA,
3341 that:

Page 74
3342 In other words, the State is guaranteed a sixty per centum (60%) share of the Mining Revenues, or 60% of the actual fruits of
3343 the endeavor. This is in line with the intent behind Section 2 of Article XII that the Filipino people, as represented by the
3344 State, benefit primarily from the exploration, development, and utilization of the Philippines' natural resources.

3345 Incidentally, this sharing ratio between the Philippine Government and the Contractor is also in accordance with the 60%-
3346 40% equity requirement for Filipino-owned corporations in Paragraph 1 of Section 2 of Article XII.49 (Italics and underscoring
3347 in the original)

3348 This so-called "guarantee" is a sham. Respondent WMCP gravely misleads this Court. Section 7.9 of the WMCP FTAA
3349 provides that the State's share "shall be reduced by 1% of Net Mining Revenues for every 1% ownership interest in the
3350 Contractor held by a Qualified Entity." This reduction is without any offsetting compensation to the State and constitutes a
3351 waiver of the State's share to WMCP's foreign stockholders. The Executive Department cannot give away for free, especially
3352 to foreigners, what forms part of the national patrimony. This negates the constitutionally mandated State ownership of
3353 mineral resources for the benefit of the Filipino people.

3354 WMCP's stockholders may also invoke Section 112 of RA 7942 allowing a mining contractor to pay the State's share in
3355 accordance with Section 80 of RA 7942. WMCP will end up paying only the 2% excise tax to the Philippine Government for
3356 the exploitation of the mineral resources the State owns. In short, the old and discredited system of "license, concession or
3357 lease" will govern the WMCP FTAA.

3358 The WMCP FTAA is also emphatic in stating that WMCP shall have exclusive right to exploit, utilize, process and dispose of
3359 all mineral products produced under the WMCP FTAA. Section 1.3 of the WMCP FTAA provides:

3360 The Contractor shall have the exclusive right to explore, exploit, utilise, process and dispose of all Mineral products and by-
3361 products thereof that may be derived or produced from the Contract Area but shall not, by virtue only of this Agreement,
3362 acquire any title to lands encompassed within the Contract Area.

3363 Under the WMCP FTAA, the contractor has exclusive right to exploit, utilize and process the mineral resources to the
3364 exclusion of third parties and even the Philippine Government. Since WMCP's right is exclusive, the Government has no
3365 participation in approving the operating expenses of the foreign contractor relating to the exploitation, utilization, and
3366 processing of mineral resources. The Government will have to accept whatever operating expenses the contractor decides to
3367 incur in exploiting, utilizing and processing mineral resources.

3368 Under the WMCP FTAA, the contractor has exclusive right to dispose of the minerals recovered in the mining operations.
3369 This means that the contractor can sell the minerals to any buyer, local or foreign, at the price and terms the contractor
3370 chooses without any intervention from the State. There is no requirement in the WMCP FTAA that the contractor must sell
3371 the minerals at posted or market prices. The contractor has the sole right to "mortgage, charge or encumber" the "Minerals
3372 produced from the Mining Operations."50

3373 Section 8.3 of the WMCP FTAA also makes a sham of the DENR Secretary's authority to approve the foreign contractor's
3374 Work Program. Section 8.3 provides:

3375 If the Secretary gives a Rejection Notice the Parties shall promptly meet and endeavour to agree on amendments to the Work
3376 Program or budget. If the Secretary and the Contractor fail to agree on the proposed revision within 30 days from delivery of
3377 the Rejection Notice then the Work Programme or Budget or variation thereof proposed by the Contractor shall be deemed
3378 approved, so as not to unnecessarily delay the performance of the Agreement. (Emphasis supplied)

3379 The DENR Secretary is the representative of the State which owns the mineral resources. The DENR Secretary implements
3380 the mining laws, including RA 7942. Section 8.3, however, treats the DENR Secretary like a subservient non-entity whom
3381 the contractor can overrule at will. Under Section 8.3 of the WMCP FTAA, the DENR Secretary has no authority whatsoever
3382 to disapprove the Work Program. This is not what the Constitution means by full control and supervision by the State of
3383 mining operations.

3384 Section 10.4(i) of the WMCP FTAA compels the Philippine Government to agree to any request by the foreign contractor to
3385 amend the WMCP FTAA to satisfy the conditions of creditors of the contractor. Thus, Section 10.4(i) states:

3386 (i) the Government shall favourably consider any request, from Contractor for amendments of this Agreement which are
3387 necessary in order for the Contractor to successfully obtain the financing;

Page 75
3388 x x x. (Emphasis supplied)

3389 This provision requires the Government to favorably consider any request from the contractor - which means that
3390 the Government must render a response favorable to the contractor. In effect, the contractor has the right to amend the
3391 WMCP FTAA even against the will of the Philippine Government just so the contractor can borrow money from banks.

3392 True, the preceding Section 10.4(e) of the WMCP FTAA provides that "such financing arrangements will in no event reduce
3393 the Contractor's obligations or the Government's rights." However, Section 10.4(i) binds the Government to agree to any
3394 future amendment requested by the foreign contractor even if the Government does not agree with the wisdom of the
3395 amendment. This provision is contrary to the State's full control and supervision in the exploitation of mineral resources.

3396 Clearly, under the WMCP FTAA the State has no full control and supervision over the mining operations of the contractor.
3397 Provisions in the WMCP FTAA that grant the State full control and supervision are negated by other provisions that take
3398 away such control and supervision.

3399 The WMCP FTAA also violates the constitutional limits on the term of an FTAA. Section 2, Article XII of the 1987
3400 Constitution limits the term of a mineral agreement to "a period not exceeding twenty-five years, renewable for not more
3401 than twenty-five years, and under such terms and conditions as may be provided by law." The original term cannot exceed 25
3402 years, and at the end of such term, either the Government or the contracting party may decide not to renew the mineral
3403 agreement. However, both the Government and the contracting party may also decide to renew the agreement, in which case
3404 the renewal cannot exceed another 25 years. What is essential is that either party has the option to renew or not to
3405 renew the mineral agreement at the end of the original term.

3406 However, Section 3.3 of the WMCP FTAA binds the Philippine Government to an ironclad 50-year term. Section 3.3 compels
3407 the Government to renew the FTAA for another 25 years after the original 25-year term expires.Thus, Section 3.3 states:

3408 This Agreement shall be renewed by the Government for a further period of twenty-five (25) years under the same terms and
3409 conditions provided that the Contractor lodges a request for a renewal with the Government not less than sixty (60) days
3410 prior to the expiry of the initial term of this Agreement and provided that the Contractor is not in breach of any of the
3411 requirements of this Agreement. (Emphasis supplied)

3412 Under Section 3.3, the contractor has the option to renew or not to renew the agreement. The Government has no such option
3413 and must renew the agreement once the contractor makes a request for renewal. Section 3.3 violates the constitutional limits
3414 because it binds the Government to a 50-year FTAA at the sole option of the contractor.

3415 H. Arguments of the Solicitor General and the NEDA Secretary

3416 The Solicitor General states that the "basic share" of the State in FTAAs involving large-scale exploitation of minerals,
3417 petroleum and other mineral oils –

3418 x x x consists of all direct taxes, fees and royalties, as well as other payments made by the Contractor during the term of the
3419 FTAA. The amounts are paid to the (i) national government, (ii) local governments, and (iii) persons directly affected by the
3420 mining project. Some of the major taxes paid are as follows Section 3(g) of DAO-99-56:

3421 A. Payments to National Government

3422 · Excise tax on minerals – 2% of gross output of mining operations

3423 · Contractor's income tax – 32% of taxable income for corporation

3424 · Customs duties and fees - rate is set by Tariff and Customs Code

3425 · VAT on imported equipment, goods and services - 10% of value

3426 · Royalty on minerals extracted from mineral reservations, if applicable – 5% of the actual market value of the minerals
3427 produced

3428 · Documentary stamp tax – rate depends on the type of transaction

Page 76
3429 · Capital gains tax on traded stocks – 5 to 10% of the value

3430 · Tax on interest payments on foreign loans – 15% of the interest

3431 · Tax on foreign stockholders dividends - 15% of the dividend

3432 · Wharfage and port fees

3433 · Licensing fees (e.g., radio permit, firearms permit, professional fees)

3434 B. Payments to Local Governments

3435 · Local business tax - maximum of 2% of gross sale or receipt

3436 · Real property tax - 2% of the fair market value of property based on an assessment level set by the local government

3437 · Local business tax - maximum of 2% of gross sale or receipt

3438 · Special education levy - 1% of the basis used in real property tax

3439 · Occupation tax - 50 pesos per hectare per year; 100 pesos per hectare per year if located in a mineral concession

3440 · Community tax - 10,500 pesos maximum per year

3441 · Other local taxes and fees - rate and type depends on the local government

3442 C. Other Payments

3443 · Royalty to indigenous cultural communities, if any - not less than 1% of the gross output from mining operations

3444 · Special allowance – payment to claim owners or surface right owners

3445 The Solicitor General argues that the phrase "among other things" in the second paragraph of Section 81 of RA 7942 means
3446 that the State "is entitled to an additional government share to be paid by the Contractor." The Solicitor General explains:

3447 An additional government share is collected from an FTAA contractor to fulfill the intent of Section 81 of RA No. 7942, to wit:

3448 Sec. 81. The Government share in an FTAA shall consist of, among other things, the Contractor's corporate income tax,
3449 excise tax, special allowance, withholding tax due from the Contractor's foreign stockholders arising from dividends or
3450 interest payments to the said foreign stockholders in case of a foreign-owned corporation and all such other taxes, duties and
3451 fees as provided for in existing laws. (Underscoring supplied)

3452 The phrase "among other things" indicates that the Government is entitled to an additional share to be paid by the
3453 Contractor, aside from the basic share in order to achieve the fifty-fifty sharing of net benefits from mining.

3454 By including indirect taxes and other financial contributions in the form of fuel tax; employees' payroll and fringe benefits;
3455 various withholding taxes on royalties to land owners and claim owners, and employees' income; value added tax on local
3456 goods, equipment, supplies and services; and expenditures for social infrastructures in the mine site (hospitals, schools, etc.)
3457 and development of host and neighboring communities, geosciences and mining technology, the government share will be in
3458 the range of 60% or more of the total financial benefits. (Bold and underscoring in the original)

3459 The Solicitor General enumerates this "additional government share" as "indirect taxes and other financial contributions in
3460 the form of fuel tax; employees' payroll and fringe benefits; various withholding taxes on royalties to land owners and claim
3461 owners, and employees' income; value added tax on local goods, equipment, supplies and services; x x x." The Solicitor
3462 General's argument merely confirms that under Section 81 of RA 7942 the State only receives taxes, duties and fees under
3463 the FTAA. The State does not receive, as owner of the mineral resources, any income from the mining operations of the
3464 contractor.

3465 In short, the "basic share" of the State consists of direct taxes by the national and local governments. The "additional
3466 share" of the State consists of indirect taxes including even fringe benefits to employees and compensation to private surface
Page 77
3467 right owners. Direct and indirect taxes, however, are impositions by the taxing authority, a burden borne by all taxpayers
3468 whether or not they exploit the State's mineral resources. Fringe benefits of employees are compensation for services
3469 rendered under an employer-employee relationship. Compensation to surface right owners is payment for the damage
3470 suffered by private landowners arising from the mining operations. All these direct and indirect taxes, as well as other
3471 expenses of the contractor, do not constitute payment for the share of the State as owner of the mineral resources.

3472 Clearly, the so-called "share" of the State consists only of direct and indirect taxes, as well as other operating expenses not
3473 even payable to the State. The Solicitor General in effect concedes that under the second paragraph of Section 81, the State
3474 does not receive any share of the net proceeds from the mining operations of the FTAA contractor. Despite this, the Solicitor
3475 General insists that the State remains the owner of the mineral resources and exercises full control over the mining
3476 operations of the FTAA contractor. The Solicitor General has redefined the civil law concept of ownership, 51 by giving the
3477 owner full control in the exploitation of the property he owns but denying him the fruits or income from such exploitation.
3478 The only satisfaction of the owner is that the FTAA contractor pays taxes to the Government.

3479 However, even this psychological satisfaction is dubious. Under the third paragraph of Section 81 of RA 7942, the "collection
3480 of Government share in financial and technical assistance agreement shall commence after the financial and technical
3481 assistance agreement contractor has fully recovered its pre-operating expenses, exploration, and development expenditures,
3482 inclusive." This provision does not defer the collection of the State's "share," but prevents the accrual of the State's "share"
3483 until the contractor has fully recovered all its pre-operating, exploration and development expenditures. This provision
3484 exempts for an undefined period the contractor from all existing taxes that are part of the Government's so-called "share"
3485 under Section 81.52 The Solicitor General has interpreted these taxes to include "other national taxes and fees" as well as
3486 "other local taxes and fees."

3487 Secretary Romulo L. Neri of the National Economic and Development Authority ("NEDA") has warned this Court of the
3488 supposed dire repercussions to the nation's long-term economic growth if this Court declares the assailed provisions of RA
3489 7942 unconstitutional.53 Under the Constitution, the NEDA is the "independent (economic) planning agency of the
3490 government."54 However, in this case the NEDA Secretary has joined the chorus of the foreign chambers of commerce to
3491 uphold the validity of RA 7942 as essential to entice foreign investors to exploit the nation's mineral resources.

3492 We cannot fault the foreign chambers of commerce for driving a hard bargain to maximize the profits of foreign investors. We
3493 are, however, saddened that the NEDA Secretary is willing to give away for free to foreign investors the State's share of the
3494 income from its ownership of mineral resources. If the NEDA Secretary owns the mineral resources instead of the State, will
3495 he allow the foreign contractor to exploit his mineral resources for free, the only obligation of the foreign contractor being to
3496 pay taxes to the Government?

3497 Secretary Neri claims that the potential tax collection from the mining industry alone is P57 billion as against the present
3498 collection of P2 billion. Secretary Neri adds that the potential tax collection from incremental activities linked to mining is
3499 another P100 billion, thus putting the total potential tax collection from mining and related industries at P157
3500 billion.55 Secretary Neri also estimates the "potential mining wealth in the Philippines" at P47 trillion or US$840 billion, 15
3501 times our total foreign debt of US$56 billion.56

3502 If all that the State will receive from its P47 trillion potential mineral wealth is the P157 billion in direct and indirect taxes,
3503 then the State will truly receive only a pittance. The P157 billion in taxes constitute a mere .33% or a third of 1% of the total
3504 mineral wealth of P47 trillion. Even if the P157 billion is collected annually over 25 years, the original term of an FTAA, the
3505 total tax collection will amount to only P3.92 trillion, or a mere 8.35% of the total mineral wealth. The rest of the country's
3506 mineral wealth will flow out of the country if foreign contractors exploit our mineral resources under FTAAs pursuant to RA
3507 7942.

3508 Secretary Neri also warns that foreign investors who have acquired local cement factories in the last ten years will find their
3509 investments illegal if the Court declares unconstitutional the assailed provisions of RA 7942. 57 Such specious arguments
3510 deserve scant consideration. Cement manufacturing is not a nationalized activity. Hence, foreigners can own 100% of cement
3511 companies in this country. When the foreign investors acquired the local cement factories, they spun off the quarry
3512 operations into separate companies 60% owned by Filipino citizens. The foreign investors knew the constitutional
3513 requirements of holding quarry permits.

3514 Besides, the quarrying requirement of cement companies is just a simple surface mining of limestone. Such activity does not
3515 constitute large-scale exploitation of mineral resources. It definitely cannot qualify for FTAAs with foreign contractors under

Page 78
3516 the fourth paragraph of Section 2, Article XII of the Constitution. Obviously, only a company at least 60% Filipino owned can
3517 engage in such mining activity.

3518 The offshore Occidental-Shell FTAA shows that even in riskier ventures involving far more capital investments, the State
3519 can negotiate and secure at least 60% of the net proceeds from the exploitation of mineral resources. Foreign contractors like
3520 Occidental-Shell are willing to pay the State 60% of the net proceeds from petroleum operations, in addition to paying the
3521 Government the 32% corporate income tax on its 40% share of the net proceeds. Even intervenor CMP and respondent
3522 WMCP agree that the State has a 60% interest in mining operations under an FTAA. I simply cannot fathom why the NEDA
3523 Secretary is willing to accept a ZERO percent share in the income from the exploitation of inland mineral resources.

3524 FTAAs like the WMCP FTAA, which gives the State an illusory 60% share of the net proceeds from mining revenues, will
3525 only impoverish further the Filipino people. The nation's potential mineral wealth of P47 trillion will contribute to economic
3526 development only if the bulk of the wealth remains in the country, not if remitted abroad by foreign contractors.

3527 I. Refutation of Arguments of Majority Opinion

3528 The majority opinion advances the following arguments:

3529 1. DENR Department Administrative Order No. 56-99 ("DAO 56-99") is the basis for determining the State's share in the
3530 mining income of the foreign FTAA contractor. The DENR Secretary issued DAO 56-99 pursuant to the phrase "among other
3531 things" in Section 81 of RA 7942. The majority opinion claims that the phrase "among other things" "clearly and
3532 unmistakably reveals the legislative intent to have the State collect more than just the usual taxes, duties and fees." The
3533 majority opinion anchors on the phrase "among other things" its argument that RA 7942 allows the State to collect a share in
3534 the mining income of the foreign FTAA contractor, in addition to taxes, duties and fees. Thus, on the phrase "among other
3535 things" depends whether the State and the Filipino people are entitled under RA 7942 to share in the vast mineral wealth of
3536 the nation, estimated by NEDA at P47 trillion or US$840 billion.

3537 2. FTAAs, like the WMCP FTAA, are not subject to the term limit in Section 2, Article XII of the 1987 Constitution. In short,
3538 while co-production, joint venture and production-sharing agreements cannot exceed 25 years, renewable for another 25
3539 years, as provided in Section 2, Article XII of the 1987 Constitution, the WMCP FTAA is not governed by the constitutional
3540 limitation. The majority opinion states that the "constitutional term limitations do not apply to FTAAs." Thus, the majority
3541 opinion upholds the validity of Section 3.3 of the WMCP FTAA providing for a 50-year term at the sole option of WMCP.

3542 3. Section 112 of RA 7942, placing "all valid and existing" mining agreements under the fiscal regime prescribed in Section
3543 80 of RA 7942, does not apply to FTAAs. Thus, the majority opinion states, "[W]hether Section 112 may properly apply to co-
3544 production or joint venture agreements, the fact of the matter is that it cannot be made to apply to FTAAs."

3545 4. Foreign FTAA contractors and even foreign corporations can hold exploration permits, despite Section 2, Article XII of the
3546 1987 Constitution reserving to Philippine citizens and to corporations 60% Filipino owned the "exploration, development and
3547 utilization of natural resources." Thus, the majority opinion states that "there is no prohibition at all against foreign or
3548 local corporations or contractors holding exploration permits."

3549 5. The Constitution does not require that the State's share in FTAAs or other mineral agreements should be at least 60% of
3550 the net mining revenues. Thus, the majority opinion states that "the Charter did not intend to fix an iron-clad rule on the 60
3551 percent share, applicable to all situations at all times and in all circumstances."

3552 I respond to the arguments of the majority opinion.

3553 1. DAO 99-56 as Basis for Government's Share in FTAAs

3554 The main thrust of my separate opinion is that mineral agreements under RA 7942, whether FTAAs under Section 81 or
3555 MPSAs under Section 80, do not allow the State to receive any share from the income of mining companies. The State can
3556 collect only taxes, duties and fees from mining companies.

3557 The majority opinion, however, points to the phrase "among other things" in the second paragraph of Section 81 as the
3558 authority of the State to collect in FTAAs a share in the mining income separate from taxes, duties and fees. The majority
3559 opinion can point to no other provision in RA 7942 allowing the State to collect any share. The majority opinion admits that
3560 limiting the State's share in any mineral agreement to taxes, duties and fees is unconstitutional. Thus, the majority opinion's

Page 79
3561 case rises or falls on whether the phrase "among other things" allows the State to collect from FTAA contractors any income
3562 in addition to taxes, duties and fees.

3563 In the case of MPSAs, the majority opinion cannot point to any provision in RA 7942 allowing the State to collect any share
3564 in MPSAs separate from taxes, duties and fees. The language of Section 80 is so crystal clear – "the total government share
3565 in a mineral production sharing agreement shall be the excise tax on mineral products" - that there is no dispute whatsoever
3566 about it. The majority opinion merely states that the constitutionality of Section 80 is not in issue in the present case.
3567 Section 81, the constitutionality of which the majority opinion admits is in issue here, is intertwined with Sections 39, 80, 84
3568 and 112. Resolving the constitutionality of Section 81 necessarily involves a determination of the constitutionality of Sections
3569 39, 80, 84 and 112.

3570 The WMCP FTAA, the constitutionality of which is certainly in issue, is governed not only by Section 81 but also by Sections
3571 39, 80 and 112. The reason is that the WMCP FTAA is a reversible contract that gives WMCP the absolute option at
3572 anytime to convert the FTAA into an MPSA. In short, the WMCP FTAA is like a single coin with two sides - one an FTAA
3573 and the other an MPSA.

3574 a. The Integrated Intent, Plan and Structure of RA 7942

3575 The clear intent of RA 7942 is to limit the State's share from mining operations to taxes, duties and fees, unless the State
3576 contributes equity in addition to the mineral resources. RA 7942 does not recognize the mere contribution of mineral
3577 resources as entitling the State to receive a share in the net mining revenues separate from taxes, duties and fees. Thus,
3578 Section 80 expressly states that the "total government share in a mineral production sharing agreement shall be the excise
3579 tax on mineral products." Section 84 reiterates this by stating that "with respect to mineral production sharing agreement,
3580 the excise tax on mineral products shall be the government share under said agreement." The only share of the State in an
3581 MPSA is the excise tax. Ironically, Sections 80 and 84 disallow the State from sharing in the production or income, even as
3582 the contract itself is called a mineral production sharing agreement.

3583 In co-production and joint venture agreements, where the State contributes equity in addition to the mineral resources, the
3584 first paragraph of Section 81 expressly requires that "the share of the government x x x shall be negotiated by the
3585 Government and the contractor." However, in FTAAs where the State contributes only its mineral resources, the second
3586 paragraph of Section 81 states –

3587 The Government share in financial or technical assistance agreement shall consist of, among other things, the contractor's
3588 corporate income tax, excise tax, special allowance, withholding tax due from the contractor's foreign stockholders arising
3589 from dividend or interest payments to the said foreign stockholder in case of a foreign national and all such other taxes,
3590 duties and fees as provided for under existing laws.

3591 All the items enumerated in the second paragraph of Section 81 as comprising the "Government share" refer totaxes, duties
3592 and fees. The phrase "all such other taxes, duties and fees as provided for under existing laws" makes this clear.

3593 Section 112 places "all valid and existing mining" agreements "at the date of effectivity" of RA 7942 under the fiscal regime
3594 prescribed in Section 80. Section 112 expressly states that the "government share in mineral production sharing agreement x
3595 x x shall immediately govern and apply to a mining lessee or contractor."Section 112 provides:

3596 Section 112. Non-impairment of Existing Mining/Quarrying Rights. — All valid and existing mining lease contracts,
3597 permits/licenses, leases pending renewal, mineral production-sharing agreements granted under Executive Order No. 279, at
3598 the date of effectivity of this Act, shall remain valid, shall not be impaired, and shall be recognized by the
3599 Government: Provided, That the provisions of Chapter XIV on government share in mineral production-sharing
3600 agreement and of Chapter XVI on incentives of this Act shall immediately govern and apply to a mining lessee or
3601 contractor unless the mining lessee or contractor indicates his intention to the secretary, in writing, not to avail of said
3602 provisions: Provided, further, That no renewal of mining lease contracts shall be made after the expiration of its
3603 term: Provided, finally, That such leases, production-sharing agreements, financial or technical assistance agreements shall
3604 comply with the applicable provisions of this Act and its implementing rules and regulations. (Emphasis supplied)

3605 Thus, Section 112 requires "all" FTAAs and MPSAs, as of the date of effectivity of RA 7942, to pay only the excise tax - 2% on
3606 metallic and non-metallic minerals and 3% on petroleum58 - instead of the stipulated mining income sharing, if any, in their
3607 respective FTAAs or MPSAs.

Page 80
3608 This means that Section 112 applies even to the Occidental-Shell FTAA, which was executed before the enactment of RA
3609 7942. This reduces the State's share in the Malampaya gas extraction from 60% of net proceeds to 3% of the market price of
3610 the gas as provided in Section 80 of RA 7942 in relation to Section 151 of the National Internal Revenue Code. This is
3611 disastrous to the national economy because Malampaya under the original Occidental-Shell FTAA generates annually some
3612 US$0.5 billion to the National Treasury.

3613 Section 112 applies to all agreements executed "under Executive Order No. 279." The WMCP FTAA expressly states in its
3614 Section 1.1, "This Agreement is a Financial & Technical Assistance Agreement entered into pursuant to Executive Order No.
3615 279." Thus, Section 112 applies to the WMCP FTAA.

3616 Section 39 of RA 7942 grants the FTAA contractor the "option to convert" the FTAA into an MPSA "at any time during the
3617 term" of the FTAA if the contract areas are not economically viable for large-scale mining. Once the contractor reduces its
3618 foreign equity to not more than 40%, the Secretary "shall approve the conversion and execute the mineral production sharing
3619 agreement. Thus, Section 39 provides:

3620 Section 39. Option to Convert into a Mineral Agreement. — The contractor has the option to convert the financial or
3621 technical assistance agreement to a mineral agreement at any time during the term of the agreement, if the economic
3622 viability of the contract area is found to be inadequate to justify large-scale mining operations, after proper notice to the
3623 Secretary as provided for under the implementing rules and regulations: Provided, That the mineral agreement shall only be
3624 for the remaining period of the original agreement.

3625 In the case of a foreign contractor, it shall reduce its equity to forty percent (40%) in the corporation, partnership,
3626 association, or cooperative. Upon compliance with this requirement by the contractor, the Secretary shall approve the
3627 conversion and execute the mineral production-sharing agreement. (Emphasis supplied)

3628 The only requirement in the second paragraph of Section 39 is that the FTAA contractor shall reduce its foreign equity to
3629 40%. The second paragraph states, "Upon compliance with this requirement, the Secretary shall approve the conversion and
3630 execute the mineral production sharing agreement." The determination of the economic viability of the contract area for
3631 large-scale mining, which is left to the foreign contractor with "proper notice" only to the DENR Secretary, is not even made
3632 a condition for the conversion.

3633 Under Section 3(aq) of RA 7942, the foreign contractor holds the exploration permit and conducts the physical exploration.
3634 The foreign contractor controls the release of the technical data on the mineral resources. The foreign contractor can easily
3635 justify the non-viability of the contract area for large-scale mining. The Philippine Government will have to depend on the
3636 foreign contractor for technical data on whether the contract area is viable for large-scale mining. Obviously, such a situation
3637 gives the foreign contractor actual control in determining whether the contract area is viable for large-scale mining.

3638 The conversion from an FTAA into an MPSA is solely at the will of the foreign contractor because the contractor can choose
3639 at any time to sell 60% of its equity to a Philippine citizen. The price or consideration for the sale of the contractor's 60%
3640 equity does not go to the State but to the foreign stockholders of the contractor. Under Section 80 of RA 7942, once the FTAA
3641 is converted into an MPSA the only share of the State is the 2% excise tax on mineral products. Thus, under RA 7942 the
3642 FTAA contractor has the absolute option to pay the State only the 2% excise tax, despite any other stipulated consideration
3643 in the FTAA.

3644 Clearly, Sections 3(aq), 39, 80, 81, 84 and 112 are tightly integrated under a single intent, plan and structure: unless the
3645 State contributes equity in addition to the mineral resources, the State shall receive only taxes, duties and fees. The State's
3646 contribution of mineral resources is not sufficient to entitle the State to receive any income from the mining operations
3647 separate from taxes, duties and fees.

3648 b. The Meaning of the Phrase "Among Other Things"

3649 As far as the State and the Filipino people are concerned, the most important part of an FTAA is the consideration: how
3650 much will the State receive from the exploitation of its non-renewable and exhaustible mineral resources?

3651 Section 81 of RA 7942 does not require the foreign FTAA contractor to pay the State any share from the mining income apart
3652 from taxes, duties and fees. The second paragraph of Section 81, just like Section 80, only allows the State to collect taxes,
3653 duties and fees as the State's share from the mining operations. The intent of RA 7942 is that the State cannot share in the

Page 81
3654 income from mining operations, separate from taxes, duties and fees, based only on the mineral resources that the State
3655 contributes to the mining operations.

3656 This is also the position of the Solicitor General – that the State's share under Section 81 refers only to direct and indirect
3657 taxes. Thus, the Solicitor General agrees that Section 81 does not allow the State to collect any share from the mining income
3658 separate from taxes, duties and fees. The majority opinion agrees that Section 81 is unconstitutional if it does not require the
3659 foreign FTAA contractor to pay the State any share of the net mining income apart from taxes, duties and fees.

3660 However, the majority opinion says that the phrase "among other things" in Section 81 is the authority to require the FTAA
3661 contractor to pay a consideration separate from taxes, duties and fees. The majority opinion cites the phrase "among other
3662 things" as the source of power of the DENR Secretary to adopt DAO 56-9959prescribing the formulae on the State's share
3663 from mining operations separate from taxes, duties and fees.

3664 In short, the majority opinion says that the phrase "among other things" is a delegation of legislative power to the DENR
3665 Secretary to adopt the formulae on the share of the State from mining operations. The issue now is whether the phrase
3666 "among other things" in the second paragraph of Section 81 is intended as a delegation of legislative power to the DENR
3667 Secretary. If so, the issue turns on whether it is a valid delegation of legislative power. I reproduce again the second
3668 paragraph of Section 81 for easy reference:

3669 The Government share in financial or technical assistance agreement shall consist of, among other things,the contractor's
3670 corporate income tax, excise tax, special allowance, withholding tax due from the contractor's foreign stockholders arising
3671 from dividend or interest payments to the said foreign stockholder in case of a foreign national and all such other taxes,
3672 duties and fees as provided for under existing laws. (Emphasis supplied)

3673 Section 81 of RA 7942 does not delegate any legislative power to the DENR Secretary to adopt the formulae in determining
3674 the share of the State. There is absolutely no language in the second paragraph of Section 81 granting the DENR Secretary
3675 any delegated legislative power. Thus, the DENR Secretary acted without authority or jurisdiction in issuing DAO 56-99
3676 based on a supposed delegated power in the second paragraph of Section 81. This makes DAO 56-99 void.

3677 Even assuming, for the sake of argument, that there is language in Section 81 delegating legislative power to the DENR
3678 Secretary to adopt the formulae in DAO 56-99, such delegation is void. Section 81 has no standards by which the delegated
3679 power shall be exercised. There is no specification on the minimum or maximum share that the State must receive from
3680 mining operations under FTAAs. No parameters on the extent of the delegated power to the DENR Secretary are found in
3681 Section 81. Neither were such parameters ever discussed even remotely by Congress when it enacted RA 7942.

3682 In sharp contrast, the first paragraph of the same Section 81, in prescribing the State's share in co-production and joint
3683 venture agreements, expressly specifies the standards in determining the State's share as follows: "(a) capital investment of
3684 the project, (b) risks involved, (c) contribution of the project to the economy, and (d) other factors that will provide for a fair
3685 and equitable sharing between the Government and the contractor." The reason for the absence of similar standards in the
3686 succeeding paragraph of Section 81 in determining the State's share in FTAAs is obvious - the State's share in FTAAs is
3687 limited solely to taxes, duties and fees. Thus, such standards are inapplicable and irrelevant.

3688 The majority opinion now makes the formulae in DAO 56-99 the heart and soul of RA 7942 because the formulae supposedly
3689 determine the consideration of the FTAA. The consideration is the most important part of the FTAA as far as the State and
3690 Filipino people are concerned. The formulae in DAO 56-99 derive life solely from the phrase "among other things." DAO 56-
3691 99 itself states that it is issued "[P]ursuant to Section 81 and other pertinent provisions of Republic Act No. 7942." Without
3692 the phrase "among other things," the majority opinion could not point to any other provision in RA 7942 to support the
3693 existence of the formulae in DAO 56-99.

3694 Thus, the phrase "among other things" determines whether the FTAA has the third element of a valid contract – the
3695 commercial value or consideration that the State will receive. The majority opinion in effect says that Congress made the
3696 wealth and even the future prosperity of the nation to depend on the phrase "among other things."

3697 The DENR Secretary can change the formulae in DAO 56-99 any time even without the approval of the President or
3698 Congress. The DENR Secretary is the sole authority to determine the amount of consideration that the State shall receive in
3699 an FTAA. Section 5 of DAO 56-99 states:

Page 82
3700 x x x any amendment of an FTAA other than the provision on fiscal regime shall require the negotiation with the Negotiation
3701 Panel and the recommendation of the Secretary for approval of the President of the Republic of the Philippines. (Emphasis
3702 supplied)

3703 Under Section 5, if the amendment in the FTAA involves non-fiscal matters, the amendment requires the approval of the
3704 President. However, if the amendment involves a change in the fiscal regime –referring to the consideration of the FTAA -
3705 the DENR Secretary has the final authority and approval of the President is not required. This makes the DENR Secretary
3706 more powerful than the President.

3707 Section 5 of DAO 56-99 violates paragraphs 4 and 5 of Section 2, Article XII of the 1987 Constitution mandating that the
3708 President shall approve all FTAAs and send copies of all approved FTAAs to Congress. The consideration of the FTAA is the
3709 most important part of the FTAA as far as the State and the Filipino people are concerned. The DENR Secretary, in issuing
3710 DAO 56-99, has arrogated to himself the power to approve FTAAs, a power vested by the Constitution solely in the
3711 President. By not even informing the President of changes in the fiscal regime and thus preventing such changes from
3712 reaching Congress, DAO 56-99 even seeks to hide changes in the fiscal regime from Congress. By its provisions alone, DAO
3713 56-99 is clearly unconstitutional and void.

3714 Section 5 of DAO 56-99 also states that "[A]ll FTAAs approved prior to the effectivity of this Administrative Order shall
3715 remain valid and be recognized by the Government." This means that the fiscal regime of an FTAA executed prior to the
3716 effectivity of DAO 56-99 "shall remain valid and be recognized." If the earlier FTAA provides for a fiscal regime different
3717 from DAO 56-99, then the fiscal regime in the earlier FTAA shall prevail. In effect, DAO 56-99 exempts an FTAA approved
3718 prior to its effectivity from paying the State the share prescribed in the formulae under DAO 56-99 if the earlier FTAA
3719 provides for a different fiscal regime. Such is the case of the WMCP FTAA.

3720 Based on the majority opinion's position that the 1987 Constitution requires payment in addition to taxes, duties and fees,
3721 this makes DAO 56-99 unconstitutional and void. DAO 56-99 does not require prior FTAAs to pay the State the share
3722 prescribed in the formulae under DAO 56-99 even if the consideration in the prior FTAAs is limited only to taxes, duties and
3723 fees. DAO 56-99 recognizes such payment of taxes, duties and fees as a "valid" consideration. Certainly, the DENR Secretary
3724 has no authority to exempt foreign FTAA contractors from a constitutional requirement. Not even Congress or the President
3725 can do so.

3726 Ironically, DAO 56-99, the very authority the majority opinion cites to support its claim that the WMCP FTAA has a
3727 consideration, does not apply to the WMCP FTAA. By its own express terms, DAO 56-99 does not apply to FTAAs executed
3728 before the issuance of DAO 56-99, like the WMCP FTAA. The majority opinion's position has no leg to stand on since even
3729 DAO 56-99, assuming it is valid, cannot save the WMCP FTAA from want of consideration.

3730 The formulae prescribed in DAO 56-99 are totally alien to the phrase "among other things." There is no relationship
3731 whatsoever between the phrase "among other things" and the highly esoteric formulae prescribed in DAO 56-99. No one in
3732 this Court can assure the Filipino people that the formulae in DAO 56-99 will guarantee the State 60%, or 30% or even 10%
3733 of the net proceeds from the mining operations. And yet the majority opinion trumpets DAO 56-99 as the savior of Section 81
3734 from certain constitutional infirmity.

3735 The majority opinion gives the stamp of approval and legitimacy on DAO 56-99. This assumes that the majority understand
3736 fully the formulae in DAO 56-99. Can the majority tell the Court and the Filipino people the minimum share that the State
3737 will receive under the formulae in DAO 56-99? The formulae in DAO 56-99 are fuzzy since they do not guarantee the
3738 minimum share of the State, unlike the clear and specific income sharing provisions in the Occidental-Shell FTAA or in the
3739 case of Consolidated Mines, Inc. v. Court of Tax Appeals.60

3740 The Solicitor General asserts that the phrase "among other things" refers to indirect taxes, an interpretation that contradicts
3741 the DENR Secretary's interpretation under DAO 56-99. The Solicitor General is correct. The ejusdem generis rule of
3742 statutory interpretation applies squarely to the phrase "among other things."

3743 In Philippine Bank of Communications v. Court of Appeals,61 the Court held:

3744 Under the rule of ejusdem generis, where a description of things of a particular class or kind is 'accompanied by words of a
3745 generic character, the generic words will usually be limited to things of a kindred nature with those particularly enumerated
3746 x x x.'

Page 83
3747 In Grapilon v. Municipal Council of Cigara,62 the Court construed the general word "absence" in the phrase "absence,
3748 suspension or other temporary disability of the mayor" in Section 2195 of the Revised Administrative Code as "on the same
3749 level as 'suspension' and 'other forms of temporary disability'." The Court quoted with approval the following Opinion of the
3750 Secretary of Interior:

3751 The phrase 'other temporary disability' found in section 2195 of the Code, follows the words 'absence' and 'suspension' and is
3752 used as a modifier of the two preceding words, under the principle of statutory construction known as ejusdem generis.

3753 In City of Manila v. Entote,63 the Court ruled that broad expressions such as "and all others" or "any others" or "other
3754 matters," when accompanied by an enumeration of items of the same kind or class, "are usually to be restricted to persons or
3755 things of the same kind or class with those specifically named" in the enumeration. Thus, the Court held:

3756 In our jurisdiction, this Court in Ollada vs. Court of Tax Appeals, et al. applied the rule of "ejusdem generis" to construe the
3757 purview of a general phrase "other matters" appearing after an enumeration of specific cases decided by the Collector of
3758 Internal Revenue and appealable to the Court of Tax Appeals found in section 7, paragraph 1, of Republic Act No. 1125, and
3759 it held that in order that a matter may come under said general clause, it is necessary that it belongs to the same kind or
3760 class of cases therein specifically enumerated. (Emphasis supplied)

3761 The four requisites of the ejusdem generis rule64 are present in the phrase "among other things" as appearing in Section 81 of
3762 RA 7942. First, the general phrase "among other things" is accompanied by an enumeration of specific items, namely, "the
3763 contractor's corporate income tax, excise tax, special allowance, withholding tax due from the contractor's foreign
3764 stockholders arising from dividend or interest payments to the said foreign stockholder in case of a foreign national and all
3765 such other taxes, duties and fees as provided for under existing laws." Second, all the items enumerated are of the same kind
3766 or class - they are all taxes, duties and fees. Third, the enumeration of the specific items is not exhaustive because "all such
3767 other taxes, duties and fees" are included. Thus, the enumeration of specific items is merely illustrative. Fourth, there is no
3768 indication of legislative intent to give the general phrase "among other things" a broader meaning. On the contrary, the
3769 legislative intent of RA 7942 is to limit the State's share from mining operations to taxes, duties and fees.

3770 In short, the phrase "among other things" refers to taxes, duties and fees. The phrase "among other things" is even followed
3771 at the end of the sentence by the phrase "and all such other taxes, duties, and fees," reinforcing even more the restriction of
3772 the phrase "among other things" to taxes, duties and fees. The function of the phrase "and such other taxes, duties and fees"
3773 is to clarify that the taxes enumerated are not exhaustive but merely illustrative.

3774 c. Formulae in DAO 56-99 a Mere Creation of DENR

3775 The majority opinion praises the DENR for "conceiving and developing" the formulae in DAO 56-99. Thus, the majority
3776 opinion states:

3777 As can be seen from DAO 56-99, the agencies concerned did an admirable job of conceiving and developing not just one
3778 formula, but three different formulas for arriving at the additional government share. (Emphasis supplied)

3779 Indeed, we credit the DENR for conceiving and developing on their own the formulae in DAO 56-99. The formulae are the
3780 creation of DENR, not of Congress.

3781 The DENR conceived and developed the formulae to save Section 81 not only from constitutional infirmity, but also from
3782 blatantly depriving the State and Filipino people from any share in the income of mining companies. However, the DENR's
3783 admittedly "admirable job" cannot amend Section 81 of RA 7942. The DENR has no legislative power to correct constitutional
3784 infirmities in RA 7942. The DENR does not also possess the constitutional power to prescribe the sharing of mining income
3785 between the State and mining companies, the act the DENR attempts to do in adopting DAO 56-99.

3786 d. DAO 56-99 is an Exercise in Futility

3787 Even assuming arguendo the majority opinion is correct that the phrase "among other things" constitutes sufficient legal
3788 basis to issue DAO 56-99, the FTAA contractor can still prevent the State from collecting any share of the mining income. By
3789 invoking Section 39 of RA 7942 giving the foreign FTAA contractor the option to convert the FTAA into an MPSA, the FTAA
3790 contractor can easily place itself outside the scope of DAO 56-99 which expressly applies only to FTAAs.

Page 84
3791 Also, by invoking Section 112, the foreign contractor need not even convert its FTAA into a mineral production agreement to
3792 place its contract under Section 80 and outside of Section 81. Section 112 automatically and immediately places all FTAAs
3793 under the fiscal regime applicable to MPSAs, forcing the State to collect only the 2% excise tax. Thus, DAO 56-99 is an
3794 exercise in futility. This now compels the Court to resolve the constitutionality of Sections 39 and 112 of RA 7942 in the
3795 present case.

3796 e. Congress Prescribes the Terms and Conditions of FTAAs.

3797 In a last-ditch attempt to justify the constitutionality of DAO 56-99, the majority opinion now claims that the President has
3798 the prerogative to prescribe the terms and conditions of FTAAs, including the fiscal regime of FTAAs. The majority opinion
3799 states:

3800 x x x It is the President who is constitutionally mandated to enter into FTAAs with foreign corporations, and in doing so, it is
3801 within the President's prerogative to specify certain terms and conditions of the FTAAs, for example, the fiscal regime of
3802 FTAAs - i.e., the sharing of the net revenues between the contractor and the State. (Emphasis in the original; underscoring
3803 supplied)

3804 The majority opinion is re-writing the 1987 Constitution and even RA 7942. Paragraph 4, Section 2, Article XII of the 1987
3805 Constitution expressly provides:

3806 The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance
3807 for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the
3808 general terms and conditions provided by law, x x x. (Emphasis supplied)

3809 Clearly, the 1987 Constitution mandates that the President may enter into FTAAs only "according to the general terms and
3810 conditions provided by law." There is no doubt whatsoever that it is Congress that prescribes the terms and conditions of
3811 FTAAs, not the President as the majority opinion claims. The 1987 Constitution mandates the President to comply with the
3812 terms and conditions prescribed by Congress for FTAAs.

3813 Indeed, RA 7942 stipulates the terms and conditions for FTAAs. Section 35 of RA 7942 provides that the "following terms,
3814 conditions, and warranties shall be incorporated in the financial or technical assistance agreement to wit: x x x." Section 38
3815 of RA 7942 expressly limits an FTAA to a "term not exceeding twenty-five (25) years,"which is one of the issues in the
3816 present case.

3817 The majority opinion claims that the President has the power to prescribe "the fiscal regime of FTAAs – i.e., the sharing of
3818 the net mining revenues between the contractor and the State." This claim of the majority opinion renders the entire Chapter
3819 XIV of RA 7942 an act of usurpation by Congress of Presidential power. Chapter XIV – entitled "Government Share" -
3820 prescribes the fiscal regimes of MPSAs and FTAAs. The constitutionality of Sections 80 and 81 of Chapter XIV - whether the
3821 fiscal regimes prescribed in these sections of RA 7942 comply with the 1987 Constitution - is the threshold issue in this case.

3822 The majority opinion seeks to uphold the constitutionality of Section 81 of RA 7942, an act of Congress prescribing the fiscal
3823 regime of FTAAs. If it is the President who has the constitutional authority to prescribe the fiscal regime of FTAAs, then
3824 Section 81 is unconstitutional for being a usurpation by Congress of a Presidential power. The majority opinion not only re-
3825 writes the 1987 Constitution, it also contradicts itself.

3826 That is not all. By claiming that the President has the prerogative to prescribe the fiscal regime of FTAAs, the majority
3827 opinion contradicts its basic theory that DAO 56-99 draws life from the phrase "among other things" in Section 81 of RA
3828 7942. Apparently, the majority opinion is no longer confident of its position that DAO 56-99 draws life from the
3829 phrase "among other things." The majority opinion now invokes a non-existent Presidential power that directly collides with
3830 the express constitutional power of Congress to prescribe the "general terms and conditions" of FTAAs.

3831 f. Sections 80 and 84 of RA 7942 are Void on their Face

3832 Definitely, Section 80 of RA 7942 is constitutionally infirm even based on the reasoning of the majority opinion. The majority
3833 opinion agrees that the 1987 Constitution requires the mining contractor to pay the State "more than just the usual taxes,
3834 duties and fees." Under Section 80, the excise tax – 2% for metallic and non-metallic minerals and 3% for petroleum - is the
3835 only and total share of the State from mining operations. Section 80 provides:

Page 85
3836 Section 80. Government Share in Mineral Production Sharing Agreement. — The total government share in a mineral
3837 production sharing agreement shall be the excise tax on mineral products as provided in Republic Act No. 7729, amending
3838 Section 151(a) of the National Internal Revenue Code, as amended. (Emphasis supplied)

3839 Section 80 has no ifs or buts. Section 84 even reiterates Section 80 that "with respect to a mineral production sharing
3840 agreement, the excise tax on mineral products shall be the government share under said agreement." There is no ejusdem
3841 generis phrase like "among other things" in Section 80 that the majority opinion can cling on to save it from constitutional
3842 infirmity. DAO 56-99, the magic wand of the majority opinion, expressly applies only to FTAAs and not to MPSAs. By any
3843 legal yardstick, even by the arguments of the majority opinion, Sections 80 and 84 are void and unconstitutional.

3844 g. Necessity of Resolving Constitutionality of Sections 39, 80 and 84

3845 The majority opinion states that the constitutionality of Sections 80 and 84 of RA 7942 is not in issue in the present case.
3846 The majority opinion forgets that petitioners have assailed the constitutionality of RA 7942 and the WMCP FTAA for
3847 violation of Section 2, Article XII of the 1987 Constitution. Petitioner specifically assails the "inequitable sharing of wealth"
3848 in the WMCP FTAA, which petitioners assert is "contrary to Section 1, paragraph 1, and Section 2, paragraph 4, Article XII
3849 of the Constitution."

3850 Section 9.1 of the WMCP FTAA grants WMCP the absolute option, by mere notice to the DENR Secretary, to convert the
3851 FTAA into an MPSA under Section 80. The "sharing of wealth" in Section 80 is "inequitable" and "contrary to x x x Section 2,
3852 paragraph 4, Article XII of the Constitution" because the State will only collect the 2% excise tax in an MPSA. Such a
3853 pittance of a sharing will not make any "real contributions to the economic growth and general welfare of the country" as
3854 required in paragraph 4, Section 2, Article XII of the 1987 Constitution.

3855 Section 39 of RA 7942 also grants foreign FTAA contractors the option, by mere notice to the DENR Secretary, to convert
3856 their FTAAs into MPSAs under Section 80. Necessarily, the constitutionality of the WMCP FTAA must be resolved in
3857 conjunction with Section 80 of RA 7942.

3858 The WMCP FTAA is like a coin with two sides, one side is an FTAA, and the other an MPSA. By mere notice to the DENR
3859 Secretary, WMCP can convert the contract from an FTAA to an MPSA, a copy of which, complete with all terms and
3860 conditions, is annexed to the WMCP FTAA.65 The DENR Secretary has no option but to sign the annexed MPSA. There are
3861 only two conditions to WMCP's exercise of this option: the reduction of foreign equity in WMCP to 40%, and notice to the
3862 DENR Secretary. The first condition is already fulfilled since all the equity of WMCP is now owned by a corporation 60%
3863 Filipino owned. The notice to the DENR Secretary is solely at the will of WMCP.

3864 What this Court is staring at right now is a dual contract - an FTAA which, by mere notice to the DENR Secretary,
3865 immediately becomes an MPSA. The majority opinion agrees that the provisions of the WMCP FTAA, which grant a sham
3866 consideration to the State, are void. Since the majority opinion agrees that the WMCP FTAA has a sham consideration, the
3867 WMCP FTAA thus lacks the third element of a valid contract. The majority opinion should declare the WMCP FTAA void for
3868 want of consideration unless the majority opinion treats the contract as an MPSA under Section 80. Indeed, the only recourse
3869 of WMCP to save the validity of its contract is to convert it into an MPSA.

3870 Thus, with the absence of consideration in the WMCP FTAA, what is actually before this Court is an MPSA. This squarely
3871 puts in issue whether an MPSA is constitutional if the only consideration or payment to the State is the 2% excise tax as
3872 provided in Section 80 of RA 7942.

3873 The basic constitutional infirmity of the WMCP FTAA is the absence of a fair consideration to the State as owner of the
3874 mineral resources. Petitioners call this the "inequitable sharing of wealth." The constitutionality of the consideration for the
3875 WMCP FTAA cannot be resolved without determining the validity of both Sections 80 and 81 of RA 7942 because the
3876 consideration for the WMCP FTAA is anchored on both Sections 80 and 81.

3877 The majority opinion refuses to face the issue of whether the WMCP contract can validly rely on Section 80 for its
3878 consideration. If this issue is not resolved now, then the WMCP FTAA has no consideration. The majority opinion admits
3879 that the consideration in the WMCP FTAA granting the State 60% share in the mining revenues is a sham and thus void ab
3880 initio.

Page 86
3881 Strangely, the majority opinion claims that the share of the State in the mining revenues is not the principal consideration of
3882 the FTAA. The majority opinion claims that the principal consideration of the FTAA is the "development" of the minerals by
3883 the foreign contractor. The foreign contractor can bring equipment to the mine site, tunnel the mines, and construct
3884 underground rails to bring the minerals to the surface - in short develop the mines. What will the State and the Filipino
3885 people benefit from such activities unless they receive a share of the mining proceeds? After the minerals are exhausted,
3886 those equipment, tunnels and rails would be dilapidated and even obsolete. Besides, those equipment belong to the foreign
3887 contractor even after the expiration of the FTAA.

3888 Plainly, even a businessman with limited experience will not agree that the principal consideration in an FTAA, as far as the
3889 State and Filipino people are concerned, is the development of the mines. It is obvious why the majority opinion will not
3890 accept that the principal consideration is the share of the State in the mining proceeds. Otherwise, the majority opinion will
3891 have to admit that the WMCP FTAA lacks the third element of a valid contract - the consideration. This will compel the
3892 majority opinion to admit that the WMCP FTAA is void ab initio.

3893 The only way for the majority opinion to save the WMCP FTAA from nullity is to treat it as an MPSA and thus apply Section
3894 80 of RA 7942. This puts in issue the constitutionality of Section 80. The majority opinion, however, refuses to treat the
3895 WMCP FTAA as an MPSA. Thus, the WMCP FTAA still lacks a valid consideration. However, the majority opinion insists
3896 that the WMCP FTAA is valid.

3897 If the majority opinion puts the constitutionality of Section 80 in issue, the majority opinion will have to declare Section 80
3898 unconstitutional. The majority opinion agrees that the 1987 Constitution requires the State to collect "more than the usual
3899 taxes, duties and fees." Section 80 indisputably limits the State to collect only the excise tax and nothing more.

3900 The equivocal stance of the majority opinion will not put an end to this litigation. Once WMCP converts its FTAA into an
3901 MPSA to avoid paying "more than the usual taxes, duties and fees," petitioners will immediately question the validity of
3902 WMCP's MPSA as well as the constitutionality of Section 80. The case will end up again in this Court on the same issue of
3903 whether there is a valid consideration for such MPSA, which necessarily involves a determination of the constitutionality of
3904 Section 80. Clearly, this Court has no recourse but to decide now the constitutionality of Section 80.

3905 As the Solicitor General reported in his Compliance dated 20 October 2004, the DENR has signed five MPSAs with different
3906 parties.66 These five MPSAs uniformly contain the following provision:

3907 Share of the Government - The Government Share shall be the excise tax on mineral products at the time of removal and at
3908 the rate provided for in Republic Act No. 7729 amending Section 151(a) of the National Internal Revenue Code, as amended,
3909 as well as other taxes, duties, and fees levied by existing laws. (Emphasis supplied)

3910 If the constitutionality of Section 80 is not resolved now, these five MPSAs, including the WMCP FTAA once converted into
3911 an MPSA, will remain in limbo. There will be no implementation of these MPSAs until the Court finally resolves this
3912 constitutional issue.

3913 Even if evaded now, the constitutionality of Section 80 will certainly resurface, resulting in a repeat of this litigation, most
3914 probably even between the same parties. To avoid unnecessary delay, this Court must rule now on the constitutionality of
3915 Section 80 of RA 7942.

3916 2. The Constitutional Term Limit Applies to FTAAs

3917 Section 3.3 of the WMCP FTAA provides a fixed contract term of 50 years at the option of WMCP. Thus, Section 3.3 provides:

3918 This Agreement shall be renewed by the Government for a further period of twenty-five (25) years under the same terms and
3919 conditions provided that the Contractor lodges a request for a renewal with the Government not less than sixty (60) days
3920 prior to the expiry of the initial term of this Agreement and provided that the Contractor is not in breach of any of the
3921 requirements of this Agreement. (Emphasis supplied)

3922 This provision grants WMCP the absolute right to extend the first 25-year term of the FTAA to another 25-year term upon
3923 mere lodging of a request or notice to the Philippine Government. WMCP has the absolute right to extend the term of the
3924 FTAA to 50 years and all that the Government can do is to acquiesce to the wish of WMCP.

Page 87
3925 Section 3.3 of the WMCP FTAA is void because it violates Section 2, Article XII of the 1987 Constitution, the first paragraph
3926 of which provides:

3927 All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy,
3928 fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception
3929 of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of
3930 natural resources shall be under the full control and supervision of the State. The State may directly undertake such
3931 activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or
3932 corporations or associations at least sixty per centumof whose capital is owned by such citizens. Such agreements may be for
3933 a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and
3934 conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other
3935 than the development of water power, beneficial use may be the measure and limit of the grant. (Emphasis supplied)

3936 The majority opinion, however, makes the startling assertion that FTAAs are not covered by the term limit under Section 2,
3937 Article XII of the 1987 Constitution. The majority opinion states:

3938 I believe that the constitutional term limits do not apply to FTAAs. The reason is that the above provision is found within
3939 paragraph 1 of Section 2 of Article XII, which refers to mineral agreements – co-production agreements, joint venture
3940 agreements and mineral production sharing agreements - which the government may enter into with Filipino citizens and
3941 corporations, at least 60 percent owned by Filipino citizens. (Emphasis supplied)

3942 If the term limit does not apply to FTAAs because the term limit is found in the first paragraph of Section 2, then the other
3943 limitations in the same first paragraph of Section 2 do not also apply to FTAAs. These limitations are three: first, that the
3944 State owns the natural resources; second, except for agricultural lands, natural resources shall not be alienated; third, the
3945 State shall exercise full control and supervision in the exploitation of natural resources. Under the majority opinion's
3946 interpretation, these three limitations will no longer apply to FTAAs, leading to patently absurd results. The majority
3947 opinion will also contradict its own admission that even in FTAAs the State must exercise full control and supervision in the
3948 exploitation of natural resources.

3949 Section 2, Article XII of the 1987 Constitution is a consolidation of Sections 8 and 9, Article XIV of the 1973 Constitution,
3950 which state:

3951 Section 8. All lands of public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy,
3952 fisheries, wildlife, and other natural resources of the Philippines belong to the State. With the exception of agricultural,
3953 industrial or commercial, residential, or resettlement lands of the public domain, natural resources shall not be alienated,
3954 and no license, concession, or lease for the exploration, or utilization of any of the natural resources shall be granted for a
3955 period exceeding twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other
3956 than development of water power, in which cases, beneficial use may be the measure and the limit of the grant.

3957 Section 9. The disposition, exploration, development, exploitation, or utilization of any of the natural resources of the
3958 Philippines shall be limited to citizens of the Philippines, or to corporations or associations at least sixty per centum of the
3959 capital which is owned by such citizens. The Batasang Pambansa, in the national interest, may allow such citizens,
3960 corporations or associations to enter into service contracts for financial, technical, management, or other forms of assistance
3961 with any foreign person or entity for the exploration, or utilization of any of the natural resources. Existing valid and binding
3962 service contracts for financial, technical, management, or other forms of assistance are hereby recognized as such.

3963 Section 9, Article XIV of the 1973 Constitution, a one-paragraph section, contained the provision reserving the exploration,
3964 development and utilization of natural resources to Philippine citizens or corporations 60% Filipino owned as well as the
3965 provision on FTAAs. The provision on the 25-year term limit was found in the preceding Section 8 of Article XIV. If the 25-
3966 year term limit under the 1973 Constitution did not apply to FTAAs, then it should not also have applied to non-FTAA
3967 mining contracts, an interpretation that is obviously wrong. Thus, the term limit in Section 8, Article XIV of the 1973
3968 Constitution necessarily applied to both non-FTAA mining contracts and FTAAs in Section 9.

3969 What the framers of the 1987 Constitution did was to consolidate Sections 8 and 9, Article XIV of the 1973 Constitution into
3970 one section, the present Section 2, Article XII of the 1987 Constitution. The consolidation necessitated re-arranging the
3971 sentences and paragraphs without any intention of destroying their unity and coherence. Certainly, the consolidation did not
3972 mean that the FTAAs are no longer subject to the 25-year term limit. If anything, the consolidation merely strengthened the

Page 88
3973 need, following the rules of statutory construction, to read and interpret together all the paragraphs, and even the sentences,
3974 of Section 2, Article XII of the 1987 Constitution.

3975 In his book The 1987 Constitution of the Republic of the Philippines: A Commentary , Father Joaquin G. Bernas, S.J., who
3976 was a leading member of the 1986 Constitutional Commission, discussed the limitations on the exploitation of natural
3977 resources. Father Bernas states:

3978 4. Other limitations

3979 Agreements for the exploitation of the natural resources can have a life of only twenty-five years. This twenty-five year limit
3980 dates back to the 1935 Constitution and is considered to be a "reasonable time to attract capital, local and foreign, and to
3981 enable them to recover their investment and make a profit. The twenty-five year limit on the exploitation of natural
3982 resources is not applicable to "water rights for irrigation, water supply, fisheries, or industrial uses other than the
3983 development of water power." In these cases, "beneficial use may be the measure and the limit of the grant." But in the case
3984 of water rights for water power, the twenty-five year limit is applicable."67 (Emphasis supplied)

3985 The 1935, 1973 and 1987 Constitutions all limit the exploitation of natural resources to 25-year terms. They also limit
3986 franchises for public utilities, leases of alienable lands of public domain, and water rights for power development to 25-year
3987 terms. If a different term is intended, the Constitution expressly says so as in water rights for uses other than power
3988 development. Under the 1973 and 1987 Constitutions, there is no separate term for FTAAs other than the 25-year term for
3989 the exploitation of natural resources.

3990 The WMCP FTAA draws life from Executive Order No. 279 issued on 25 July 1987 by then President Corazon C. Aquino
3991 when she still exercised legislative powers. Section 1.1 of the WMCP FTAA expressly states, "This Agreement is a Financial
3992 & Technical Assistance Agreement entered into pursuant to Executive Order No. 279." Section 7 of Executive Order No. 279
3993 provides:

3994 Section 7. All provisions of Presidential Decree No. 463, as amended, other existing mining laws, and their implementing
3995 rules and regulations, or parts thereof, which are not inconsistent with the provisions of this Executive Order, shall continue
3996 in force and effect. (Emphasis supplied)

3997 Section 40 of Presidential Decree No. 463 ("PD 463"), as amended by Presidential Decree No. 1385, provides:

3998 Section 40. Issuance of Mining Lease Contracts - x x x After the mining claim has been verified as to its mineral contents and
3999 its actual location on the ground as determined through reports submitted to the Director, the Secretary shall approve and
4000 issue the corresponding mining lease contract, which shall be for a period not exceeding twenty-five (25) years, renewable
4001 upon the expiration thereof for another period not exceeding twenty-five (25) years under such terms and conditions as
4002 provided by law. (Emphasis supplied)

4003 Thus, at the time of execution of the WMCP FTAA, statutory law limited the term of all mining contracts to 25-year terms.
4004 PD 463 merely implemented the mandate of the 1973 Constitution on the 25-year term limit, which is the same 25-year term
4005 limit in the 1987 Constitution. Under Section 7 of Executive Order No. 279, Section 40 of PD 463 limiting mining contracts to
4006 a 25-year term applies to the WMCP FTAA. Therefore, Section 3.3 of the WMCP FTAA providing for a 50-year term is void.

4007 Then President Aquino also issued Executive Order No. 211 on 10 July 1987, a bare 17 days before issuing Executive Order
4008 No. 279. Section 3 of Executive Order No. 211 states:

4009 Section 3. The processing, evaluation and approval of all mining applications, declarations of locations, operating agreements
4010 and service contracts as provided for in Section 2 above, shall be governed by Presidential Decree No. 463, as amended, other
4011 existing mining laws, and their implementing rules and regulations: Provided, However, that the privileges granted as well
4012 as the terms and conditions thereof shall be subject to any and all modifications or alterations which Congress may adopt
4013 pursuant to Section 2, Article XII of the 1987 Constitution. (Emphasis supplied)

4014 Section 3 of Executive Order No. 211 applies to the WMCP FTAA which was executed on 22 March 1995, more than seven
4015 years after the issuance of Executive Order No. 211. Subsequently, Congress enacted RA 7942 to prescribe new terms and
4016 conditions for all mineral agreements. RA 7942 took effect on 9 April 1995.

Page 89
4017 RA 7942 governs the WMCP FTAA because Executive Order No. 211 expressly makes mining agreements like the WMCP
4018 FTAA subject to "any and all modifications or alterations which Congress may adopt pursuant to Section 2, Article XII of the
4019 1987 Constitution." Section 38 of RA 7942 provides for a 25-year term limit specifically for FTAAs, thus:

4020 Section 38. Term of Financial or Technical Assistance Agreement. — A financial or technical assistance agreement shall have
4021 a term not exceeding twenty-five (25) years to start from the execution thereof, renewable for not more than twenty-five (25)
4022 years under such terms and conditions as may be provided by law. (Emphasis supplied)

4023 Thus, the 25-year term limit specifically for FTAAs in Section 38 of RA 7942 applies to the WMCP FTAA. Again, Section 3.3
4024 of the WMCP FTAA providing for a 50-year term is void.

4025 What is clear from the foregoing is that the 25-year statutory term limit on mining contracts is merely an implementation of
4026 the 25-year constitutional term limit, whether under the 1935, 1973 or 1987 Constitutions. The majority opinion's assertion
4027 that the 25-year term in the first paragraph of Section 2, Article XII of the 1987 Constitutions does not apply to FTAAs is
4028 obviously wrong.

4029 3. Section 112 of RA 7942 Applies to the WMCP FTAA

4030 The majority opinion insists that Section 112 of RA 7942 does not apply to the WMCP FTAA. Section 112 provides:

4031 Section 112. Non-impairment of Existing Mining/Quarrying Rights. — All valid and existing mining lease contracts,
4032 permits/licenses, leases pending renewal, mineral production-sharing agreements granted under Executive Order No. 279, at
4033 the date of effectivity of this Act, shall remain valid, shall not be impaired, and shall be recognized by the
4034 Government: Provided, That the provisions of Chapter XIV on government share in mineral production-sharing
4035 agreement and of Chapter XVI on incentives of this Act shall immediately govern and apply to a mining lessee or contractor
4036 unless the mining lessee or contractor indicates his intention to the secretary, in writing, not to avail of said provisions:
4037 Provided, further, That no renewal of mining lease contracts shall be made after the expiration of its term: Provided, finally,
4038 That such leases, production-sharing agreements, financial or technical assistance agreements shall comply with the
4039 applicable provisions of this Act and its implementing rules and regulations. (Emphasis supplied)

4040 Section 112 "immediately" applies the fiscal regime under Section 80 on "mineral production sharing agreement" to "all valid
4041 and existing mining" contracts, including those "granted under Executive Order No. 279." If Section 112 applies to the
4042 WMCP FTAA, then the WMCP FTAA is subject only to the 2% excise tax under Section 80 as the "total share" of the
4043 Philippine Government.

4044 The majority opinion states, "Whether Section 112 may properly apply to co-production or joint venture agreements, the fact
4045 of the matter is that it cannot be made to apply to FTAAs." This position of the majority opinion is understandable. If Section
4046 112 applies to FTAAs, the majority opinion would have to rule on the constitutionality of Section 80 of RA 7942. The majority
4047 opinion already agrees that the 1987 Constitution requires the FTAA contractor to pay the State "more than the usual taxes,
4048 duties and fees." If Section 112 applies to FTAAs, the majority opinion would have no choice but declare unconstitutional
4049 Section 80.

4050 Thus, the majority opinion insists that Section 112 "cannot be made to apply to FTAAs." This insistence of the majority
4051 opinion collides with the very clear and plain language of Section 112 of RA 7942 and Section 1.1 of the WMCP FTAA. This
4052 insistence of the majority opinion will lead to absurd results.

4053 First, Section 112 of RA 7942 speaks of "all valid and existing mining" contracts. The phrase "all valid and existing
4054 mining" contracts means the entire or total mining contracts in existence "at the date of effectivity" of RA 7942 without
4055 exception. The word "all" negates any exception. This certainly includes the WMCP FTAA, unless the majority opinion
4056 concedes that the WMCP FTAA is not a mining contract, or if it is, that it is not a valid contract.

4057 Second, the last proviso of Section 112 itself expressly states that "financial or technical assistance agreementsshall comply
4058 with the applicable provisions of this Act and its implementing rules and regulations." There is no shadow of doubt
4059 whatsoever that Section 112, by its own plain, clear and indisputable language, commands that FTAAs shall comply with RA
4060 7942. I truly cannot fathom how the majority opinion can assert that Section 112 cannot apply to FTAAs.

4061 Third, Section 112 expressly refers to Chapters XIV and XVI of RA 7942. Chapter XIV refers to the "Government Share" and
4062 covers Sections 80, 81 and 82 of RA 7942. Section 81, as the majority opinion concedes, applies to FTAAs. Chapter XVI refers

Page 90
4063 to "Incentives" and covers Section 90 to 94 of RA 7942. Section 90 states that the "contractors in mineral agreements,
4064 and financial technical and assistance agreements shall be entitled to the fiscal and non-fiscal incentives as provided under
4065 Executive Order No. 226 x x x." Clearly, Section 112 applies to FTAAs.

4066 Fourth, Section 1.1 of the WMCP FTAA expressly states, "This Agreement is a Financial & Technical Assistance Agreement
4067 entered into pursuant to Executive Order No. 279." Section 112 states in unequivocal language that "all valid and existing"
4068 agreements "granted under Executive Order No. 279" are immediately placed under the fiscal regime of MPSAs. In short,
4069 mining agreements granted under Executive Order No. 279 are expressly among the agreements included in Section 112 and
4070 placed under the fiscal regime prescribed in Section 80. There is no doubt whatsoever that Section 112 applies to the WMCP
4071 FTAA which was "entered into pursuant to Executive Order No. 279."

4072 Fifth, Section 3 of Executive Order No. 211 expressly subjects all mining contracts executed by the Executive Department to
4073 the terms and conditions of new mining laws that Congress might enact in the future. Thus, Section 3 of Executive Order No.
4074 211 states:

4075 Section 3. The processing, evaluation and approval of all mining applications, declarations of locations, operating agreements
4076 and service contracts as provided for in Section 2 above, shall be governed by Presidential Decree No. 463, as amended, other
4077 existing mining laws, and their implementing rules and regulations: Provided, However, that the privileges granted as well
4078 as the terms and conditions thereof shall be subject to any and all modifications or alterations which Congress may adopt
4079 pursuant to Section 2, Article XII of the 1987 Constitution. (Emphasis supplied)

4080 There is no dispute that Executive Order No. 211, issued prior to the execution of the WMCP FTAA, applies to the WMCP
4081 FTAA. There is also no dispute that RA 7942 took effect after the issuance of Executive Order No. 211 and after the
4082 execution of the WMCP FTAA. Therefore, Section 112 of RA 7942 applies specifically to the WMCP FTAA.

4083 Indeed, it is plain to see why Section 112 of RA 7942 applies to FTAAs, like the WMCP FTAA, that were executed prior to the
4084 enactment of RA 7942. Section 112 is found in Chapter XX of RA 7942 on "Transitory and Miscellaneous Provisions." The
4085 title of Section 112 refers to the "[N]on-impairment of Existing Mining Quarrying Rights." RA 7942 is the general law
4086 governing all kinds of mineral agreements, including FTAAs. In fact, Chapter VI of RA 7942, covering nine sections, deals
4087 exclusively on FTAAs. The fiscal regime in FTAAs executed prior to the enactment of RA 7942 may differ from the fiscal
4088 regime prescribed in RA 7942. Hence, Section 112 provides the transitory provisions to resolve differences in the fiscal
4089 regimes, ostensibly to avoid impairment of contract obligations. Clearly, Section 112 applies to FTAAs.

4090 There are no ifs or buts in Section 112. The plain, simple and clear language of Section 112 makes FTAAs, like the WMCP
4091 FTAA, subject to Section 112. We repeat the express words of Section 112 -

4092 (1) "All valid and existing mining lease contracts x x x mineral production-sharing agreements granted under Executive
4093 Order No. 279, at the date of effectivity of this Act x x x."

4094 (2) the "x x x government share in mineral production- sharing agreement x x x shall immediately govern and apply to a
4095 mining lessee or contractor x x x."

4096 (3) "financial or technical assistance agreements shall comply with the applicable provisions of this Act and its implementing
4097 rules and regulations."

4098 With such clear and unequivocal language, how can the majority opinion blithely state that Section 112 "cannot be made to
4099 apply to FTAAs"? It defies common sense, simple logic and plain English to assert that Section 112 does not apply to FTAAs.
4100 It defies the fundamental rule of statutory construction as repeated again and again in jurisprudence:

4101 Time and time again, it has been repeatedly declared by this Court that where the law speaks in clear and categorical
4102 language, there is no room for interpretation. There is only room for application.68

4103 For nothing is better settled than that the first and fundamental duty of courts is to apply the law as they find it, not as they
4104 like it to be. Fidelity to such a task precludes construction or interpretation, unless application is impossible or inadequate
4105 without it.69

4106 Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court has no choice but to
4107 see to it that its mandate is obeyed.70

Page 91
4108 If Section 112 of RA 7942 does not apply to FTAAs as the majority opinion asserts, what will govern FTAAs executed before
4109 the enactment of RA 7942, like the WMCP FTAA? Section 112 expressly addresses FTAAs executed before the enactment of
4110 RA 7942, requiring these earlier FTAAs to comply with the provisions of RA 7942 and its implementing rules. Executive
4111 Order No. 211, issued seven years before the execution of the WMCP FTAA, requires all FTAAs subsequently executed to
4112 comply with the terms and conditions of any future mining law that Congress may enact. That law is RA 7942 which took
4113 effect after the execution of the WMCP FTAA.

4114 The majority opinion allows the WMCP FTAA to become sui generis, an FTAA outside the scope of RA 7942 which expressly
4115 governs "all" mining agreements, whether MPSAs or FTAAs. This means that the WMCP FTAA is not even governed by
4116 Section 81 of RA 7942 and its phrase "among other things," which the majority opinion claims is the authority to subject the
4117 WMCP FTAA to the payment of consideration that is "more than the usual taxes, duties and fees."

4118 This makes the majority opinion's position self-contradictory and inutile. The majority opinion claims that the WMCP FTAA
4119 is subject to the phrase "among other things" in Section 81. At the same time, the majority opinion asserts that Section 112,
4120 which requires earlier FTAAs to comply with Section 81 and other provisions of RA 7942, does not apply to the WMCP
4121 FTAA. The majority opinion is caught in a web of self-contradictions.

4122 This exemption by the majority opinion of the WMCP FTAA from Section 112 is judicial class legislation.Why is the WMCP
4123 FTAA so special that the majority opinion wants it exempted from Section 112 of RA 7942? Why are only "all" other FTAAs
4124 subject to the terms and conditions of RA 7942 and not the WMCP FTAA?

4125 4. Foreign Corporations and Contractors Cannot Hold Exploration Permits

4126 The majority opinion states that "there is no prohibition at all against foreign or local corporations or contractors holding
4127 exploration permits." This is another assertion of the majority opinion that directly collides with the plain language of the
4128 1987 Constitution.

4129 Section 2, Article XII of the 1987 Constitution expressly reserves to Philippine citizens and corporations 60% Filipino owned
4130 the "exploration, development and utilization of natural resources." The majority opinion rationalizes its assertion in this
4131 manner:

4132 Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified person the right to conduct exploration
4133 for minerals in specified areas. Such a permit does not amount to an authorization to extract and carry off the mineral
4134 resources that may be discovered. x x x. (Italics in original)

4135 The issue is not whether an exploration permit allows a foreign contractor or corporation to extract mineral resources, for
4136 apparently by its language alone a mere exploration permit does not. There is no dispute that an exploration permit merely
4137 means authority to explore, not to extract. The issue is whether the issuance of an exploration permit to a foreign contractor
4138 violates the constitutional limitation that only Philippine citizens or corporations 60% Filipino owned can engage in
4139 the "exploration x x x of natural resources."

4140 The plain language of Section 2, Article XII of the 1987 Constitution clearly limits to Philippine citizens or to corporations
4141 60% Filipino owned the right to engage in the "exploration x x x of natural resources." To engage in "exploration" is simply to
4142 explore, not to develop, utilize or extract. To engage in exploration one must secure an exploration permit. The mere issuance
4143 of the exploration permit is the authority to engage in the exploration of natural resources.

4144 This activity of exploration, which requires an exploration permit, is a reserved activity not allowed to foreign contractors or
4145 foreign corporations. Foreign contractors and foreign corporations cannot secure exploration permits because they cannot
4146 engage in the exploration of natural resources. If, as the majority opinion asserts, foreign contractors or foreign corporations
4147 can secure and hold exploration permits, then they can engage in the "exploration x x x of natural resources." This violates
4148 Section 2, Article XII of the 1987 Constitution.

4149 Consequently, Section 3(aq) of RA 7942, which provides that "a legally organized foreign-owned corporation shall be deemed
4150 a qualified person for purposes of granting an exploration permit," is void and unconstitutional.

4151 However, the State may directly undertake to explore, develop and utilize the natural resources. To do this the State may
4152 contract a foreign corporation to conduct the physical act of exploration in the State's behalf, as in an FTAA. In such a case,
4153 the foreign FTAA contractor is merely an agent of the State which holds the right to explore. No exploration permit is given

Page 92
4154 to the foreign contractor because it is the State that is directly undertaking the exploration, development and utilization of
4155 the natural resources.

4156 The requirement reserving "exploration x x x of natural resources" to Philippine citizens or to corporations 60% Filipino
4157 owned is not a matter of constitutional whim. The State cannot allow foreign corporations, except as contractual agents
4158 under the full control and supervision of the State, to explore our natural resources because information derived from such
4159 exploration may have national security implications.

4160 If a Chinese company from the People's Republic of China is allowed to explore for oil and gas in the Spratlys, the technical
4161 information obtained by the Chinese company may only bolster the resolve of the Chinese Government to hold on to their
4162 occupied reefs in the Spratlys despite these reefs being within the Exclusive Economic Zone of the Philippines. Certainly, we
4163 cannot expect the Chinese company to disclose to the Philippine Government the important technical data obtained from
4164 such exploration.

4165 In Africa, foreign mining companies who have explored the mineral resources of certain countries shift their support back
4166 and forth between government and rebel forces depending on who can give them better terms in exploiting the mineral
4167 resources. Technical data obtained from mineral exploration have triggered or fueled wars and rebellions in many countries.
4168 The right to explore mineral resources is not a trivial matter as the majority opinion would want us to believe.

4169 Even if the foreign companies come from countries with no territorial dispute with the Philippines, can we expect them to
4170 disclose fully to the Philippine Government all the technical data they obtain on our mineral resources? These foreign
4171 companies know that the Philippine Government will use the very same data in negotiating from them a higher share of the
4172 mining revenues. Why will the foreign companies give to the Philippine Government technical data justifying a higher share
4173 for the Philippine Government and a lower share for the foreign companies? The framers of the 1935, 1973 and 1986
4174 Constitutions were acutely aware of this problem. That is why the 1987 Constitution not only reserves the "exploration x x x
4175 of natural resources" to Philippine citizens and to corporations 60% Filipino owned, it also now requires the State to
4176 exercise "full control and supervision" over the "exploration x xx of natural resources."

4177 5. The State is Entitled to 60% Share in the Net Mining Revenues

4178 The majority opinion claims that the Constitution does not require that the State's share in FTAAs or other mineral
4179 agreements should be at least 60% of the net mining revenues. Thus, the majority opinion states that "the Charter did not
4180 intend to fix an iron-clad rule on the 60 percent share, applicable to all situations at all times and in all circumstances."

4181 The majority opinion makes this claim despite the express admission by intervenor CMP and respondent WMCP that the
4182 State, as owner of the natural resources, is entitled to 60% of the net mining revenues. The intervenor CMP admits that
4183 under an FTAA, the Philippine Government "stands in the place of the 60% Filipino owned company" and hence must retain
4184 60% of the net income. Thus, intervenor CMP concedes that:

4185 x x x In other words, in the FTAA situation, the Government stands in the place of the 60% Filipino-owned company, and the
4186 100% foreign-owned contractor company takes all the risks of failure to find a commercially viable large-scale ore body or oil
4187 deposit, for which the contractor will get 40% of the financial benefits.71 (Emphasis supplied)

4188 As applied to the WMCP FTAA, intervenor CMP asserts that the "contractor's stipulated share under the WMCP FTAA
4189 is limited to a maximum of 40% of the net production."72 Intervenor CMP further insists that "60% of its (contractor's) net
4190 returns from mining, if any, will go to the Government under the WMCP FTAA."73

4191 Like intervenor CMP, respondent WMCP also maintains that under an FTAA, the State is "guaranteed" a 60% share of the
4192 foreign contractor's Net Mining Revenues. Respondent WMCP admits that:

4193 In other words, the State is guaranteed a sixty per centum (60%) share of the Mining Revenues, or 60% of the actual fruits of
4194 the endeavor. This is in line with the intent behind Section 2 of Article XII that the Filipino people, as represented by the
4195 State, benefit primarily from the exploration, development, and utilization of the Philippines' natural resources.

4196 Incidentally, this sharing ratio between the Philippine Government and the Contractor is also in accordance with the 60%-
4197 40% equity requirement for Filipino-owned corporations in Paragraph 1 of Section 2 of Article XII.74 (Emphasis supplied)

Page 93
4198 In short, the entire mining industry, as represented by intervenor CMP, is willing to pay the State a share equivalent to 60%
4199 of the net mining revenues. Even the foreign contractor WMCP agrees to pay the State 60% of its net mining revenues, albeit
4200 dishonestly.

4201 However, the majority opinion refuses to accept that the State is entitled to what the entire mining industry is willing to pay
4202 the State. Incredibly, the majority opinion claims that "there is no independent showing that the taking of at least 60 percent
4203 share in the after-tax income of a mining company operated by a foreign contractor is fair and reasonable under most if not
4204 all circumstances." Despite the willingness of the entire mining industry to pay the State a 60% share without exception, the
4205 majority opinion insists that such sharing is not fair and reasonable to the mining industry "under most if not all
4206 circumstances." What is the basis of the majority opinion in saying this when the entire mining industry already admits,
4207 concedes and accepts that the State is entitled, without exception, to 60% of the net mining revenues?

4208 Oddly, the majority opinion cites only the personal experience of the ponente, who had previously "been engaged in private
4209 business for many years." The majority opinion even states, in insisting that the State should receive less than 60% share,
4210 that "[F]airness is a credo not only in law, but also in business." The majority opinion cannot be more popish than the
4211 Pope. The majority opinion ponente's business judgment cannot supplant the unanimous business judgment of the entire
4212 mining industry, as manifested by intervenor CMP before this Court. What is obvious is that it is not fair to deprive the
4213 Filipino people, many of whom live in hand to mouth existence, of what is legally their share of the national patrimony, in
4214 light of the willingness of the entire mining industry to pay the Filipino people their rightful share.

4215 The majority opinion gives a "simplified illustration" to show that the State does not deserve a 60% share of the net proceeds
4216 from mining revenues. The majority opinion states:

4217 x x x Let us base it on gross revenues of, say, P500. After deducting operating expenses, but prior to income tax, suppose a
4218 mining makes a taxable income of P100. A corporate income tax of 32 percent results in P32 of taxable income going to the
4219 government, leaving the mining firm with P68. Government then takes 60 percent thereof, equivalent to P40.80, leaving
4220 only P27.20 for the mining firm.

4221 The majority opinion's "simplified illustration" is indeed too simplified because it does not even consider the exploration,
4222 development and capital expenses. The majority opinion's "simplified illustration" deducts from gross revenues only
4223 "operating expenses." This is an egregious error that makes this "simplified illustration" misleading. Exploration,
4224 development and other capital expenses constitute a huge part of the deductions from gross revenues. In the early years of
4225 commercial production, the exploration, development and capital expenses, if not subject to a cap or limitation, can wipe out
4226 the gross revenues.

4227 The majority opinion's operating expenses are not even taken from mining industry rates. One can even zero out the taxable
4228 income by simply jacking up the operating expenses. A "simplified illustration" of an income statement of an operating
4229 mining company, omitting the deduction of amortized capital expenses, serves no purpose whatsoever. What is important is
4230 the return on the investment of the foreign contractor. The absolute amount that goes to the contractor may be smaller than
4231 what goes to the State. However, the amount that goes to the contractor may be a hundred times its investment. This can
4232 only be determined if the capital expenditures of the contractor are taken into account.

4233 Under an FTAA, the State is directly undertaking the exploitation of mineral resources. The net proceeds are not subject to
4234 income tax since there is no separate taxable entity. The State is an entity but not a taxable corporate entity. The State does
4235 not pay income tax to itself, and even if it does, it is just a book entry since it is the payor and payee at the same time. Only
4236 the 40% share of the FTAA contractor is subject to the 32% corporate income tax. On this score alone, the majority opinion's
4237 "simplified illustration" is wrong.

4238 Intervenor CMP and respondent WMCP are correct in anchoring on Section 2, Article XII of the 1987 Constitution their
4239 admission that the State is entitled to 60% of the net mining revenues. Their common position is based on the Constitution,
4240 existing laws and industry practice.

4241 First, the State owns the mineral resources. To the owner of the mineral resources belongs the income from any exploitation
4242 of the mineral resources. The owner may share its income with the contractor as compensation to the contractor, which is an
4243 agent of the owner. The industry practice is the owner receives an equal or larger share of the income as against the share of
4244 the contractor or agent.

Page 94
4245 In the Occidental-Shell FTAA covering Malampaya, where the contractor contributed all the capital and technology, the
4246 State receives 60% of the net proceeds. In addition, Occidental-Shell's 40% share is subject to the 32% Philippine income tax.
4247 Occidental-Shell's US$2 billion investment75 in Malampaya is by far the single biggest foreign investment in the Philippines.
4248 The offshore Malampaya gas extraction is also by far more capital intensive and riskier than land-based mineral extraction.
4249 Over the 20-year life of the natural gas reserves, the State will receive US$8-10 billion76 from its share in the Occidental-
4250 Shell FTAA.

4251 In Consolidated Mines, Inc. v. Court of Tax Appeals,77 a case decided under the 1973 Constitution, Consolidated Mines, the
4252 concessionaire of the mines, shared equally the net mining income with Benguet Consolidated Mines, the mining operator or
4253 contractor. Thus, as quoted in Consolidated Mines, the agreement between the concessionaire and operator stated:

4254 X. After Benguet has been fully reimbursed for its expenditures, advances and disbursements as aforesaid the net profits
4255 from the operation shall be divided between Benguet and Consolidated share and share alike, it being understood however,
4256 that the net profits as the term is used in this agreement shall be computed by deducting from gross income all operating
4257 expenses and all disbursements of any nature whatsoever as may be made in order to carry out the terms of this agreement.
4258 (Emphasis supplied)

4259 Incidentally, in Consolidated Mines the State did not receive any share in the net mining income because of the "license,
4260 concession or lease" system under the 1935 and 1973 Constitutions. The State and the Filipino people received only taxes,
4261 duties and fees.

4262 Second, the State exercises "full control and supervision" over the exploitation of mineral resources. "Full control" as used in
4263 the Constitution means more than ordinary majority control. In corporate practice, ordinary control of a corporation means a
4264 simple majority control, or at least 50% plus one of the total voting stock. In contrast, full or total control means two-thirds of
4265 the voting stock, which enables the owner of the two-thirds equity to amend any provision in the charter of the corporation.
4266 However, since foreigners can own up to 40% of the equity of mining companies, "full control" cannot exceed the control
4267 corresponding to the State's 60% equity. Thus, the State's share in the net proceeds of mining companies should correspond
4268 to its 60% interest and control in mining companies.

4269 Third, Section 2, Article XII of the 1987 Constitution requires that the FTAA must make "real contributions to the economic
4270 growth and general welfare of the country." As respondent WMCP aptly admits, "the intent behind Section 2 of Article XII
4271 (is) that the Filipino people, as represented by the State, (shall) benefit primarily from the exploration, development, and
4272 utilization of the Philippines' natural resources." For the Filipino people to benefit primarily from the exploitation of natural
4273 resources, and for FTAAs to make real contributions to the national economy, the majority of the net proceeds from mining
4274 operations must accrue to the State.

4275 Fourth, the 1987 Constitution ordains the State to "conserve and develop our patrimony." The nation's mineral resources are
4276 part of our national patrimony. The State can "conserve" our mineral resources only if the majority of the net proceeds from
4277 the exploitation of mineral resources accrue to the State.

4278 In sum, only the majority opinion refuses to accept that the State has a right to receive at least 60% of the net proceeds from
4279 mining operations. The principal parties involved in this case do not object that the State shall receive such share. The entire
4280 mining industry and respondent WMCP admit that the State is entitled to a 60% share of the net proceeds. The State,
4281 represented by the Government, will certainly not object to such share.

4282 More than anything else, the intent and language of the 1987 Constitution require that the State receive the bulk of the
4283 income from mining operations. Only Congress, through a law, may allow a share lesser than 60% if certain compelling
4284 conditions are present. Congress may authorize the President to make such determination subject to standards and
4285 limitations that Congress shall prescribe.

4286 The majority opinion wants to give the President the absolute discretion to determine the State's share from mining
4287 revenues. The President will be hard put accepting anything less than 60% of the net proceeds. If the President accepts less
4288 than 60%, the President is open to a charge of entering into a manifestly and grossly disadvantageous contract to the
4289 Government because the entire mining industry, including WMCP, has already agreed to pay 60% of the net proceeds to the
4290 State. The only way to avoid this is for Congress to enact a law providing for the conditions when the State may receive less
4291 than 60% of the net proceeds.

Page 95
4292 Conclusion

4293 Let us assume that one of the Justices of this Court is the owner of mineral resources – say gold reserves. A foreigner offers
4294 to extract the gold and pay for all development, capital and operating expenses. How much will the good Justice demand as
4295 his or her share of the gold extracted by the foreigner? If the Justice follows the Malampaya precedent, he or she will demand
4296 a 60% share of the net proceeds. If the Justice follows the manifestation of intervenor CMP and respondent WMCP before
4297 this Court, he or she will also demand a 60% share in the net proceeds. If the Justice follows the Consolidated
4298 Mines precedent, he or she will demand no less than 50% of the net proceeds. In either case, the 2% excise tax on the gold
4299 extracted is part of the operating expenses to be paid by the foreigner but deducted from the gross proceeds.

4300 Now, under the Regalian doctrine the State, not the Justice, owns the gold reserves. How much should the State demand
4301 from the foreigner as the State's share of the gold that is extracted? If we follow Sections 39, 80, 81, 84 and 112 of RA 7942,
4302 the State will receive only 2% excise tax as its "total share" from the gold that is extracted.

4303 Is this fair to the State and the Filipino people, many of whom live below the poverty line? Is this what the 1987 Constitution
4304 mandates when it says that (a) the State must conserve and develop the nation's patrimony, (b) the State owns all the
4305 natural resources, (c) the State must exercise full control and supervision over the exploitation of its natural resources, and
4306 (d) FTAAs must make real contributions to the national economy and the general welfare?

4307 How this Court decides the present case will determine largely whether our country will remain poor, or whether we can
4308 progress as a nation. Based on NEDA's estimates, the total mineral wealth of the nation is P47 trillion, or US$840 billion.
4309 This is 15 times more than our US$56 billion foreign debt. Can this Court in conscience agree that the State will receive only
4310 2% of the P47 trillion mineral wealth of the nation?

4311 In Miners Association, this Court ruled that the 1987 Constitution has abandoned the old system of "license, concession or
4312 lease" and instead installed full State control and supervision over the exploitation of natural resources. No amount of dire
4313 warnings or media publicity should intimidate this Court into resurrecting the old and discredited system that has caused
4314 the denudation of almost all of the nation's virgin forests without any visible benefit to the Filipino people.

4315 The framers of the 1987 Constitution have wisely instituted the new system to prevent a repeat of the denudation of our
4316 forestlands that did not even make any real contribution to the economic growth of the nation. This Court must do its solemn
4317 duty to uphold the intent and letter of the Constitution and, in the words of the Preamble of the 1987 Constitution, "conserve
4318 and develop our patrimony" for the benefit of the Filipino people.

4319 This Court cannot trivialize the Filipino people's right to be the primary beneficiary of the nation's mineral resources by
4320 ruling that the phrase "among other things" is sufficient to insure that FTAAs will "make real contributions to the economic
4321 growth and general welfare of the country." This Court cannot tell the Filipino people that the phrase "among other things"
4322 is sufficient to "preserve and develop the national patrimony." This Court cannot tell the Filipino people that the phrase
4323 "among other things" means that they will receive the bulk of mining revenues.

4324 This Court cannot tell the Filipino people that Congress deliberately used the phrase "among other things" to guarantee that
4325 the Filipino people will receive their equitable share from mining revenues of foreign contractors. This Court cannot tell the
4326 Filipino people that with the phrase "among other things," this Court has protected the national interest as mandated by the
4327 1987 Constitution.

4328 I therefore vote to deny the motions for reconsideration. I vote to declare unconstitutional Section 3(aq), Section 39, Section
4329 80, the second paragraph of Section 81, the proviso in Section 84, and the first proviso in Section 112 of RA 7942 for violation
4330 of Section 2, Article XII of the 1987 Constitution. In issuing the rules to implement these void provisions of RA 7942, DENR
4331 Secretary Victor O. Ramos gravely abused his discretion amounting to lack or excess of jurisdiction.

4332 I also vote to declare unconstitutional the present WMCP FTAA for violation of the same Section 2, Article XII of the 1987
4333 Constitution. However, WMCP may negotiate with the Philippine Government for a new mineral agreement covering the
4334 same area consistent with this Decision.

4335
4336

Page 96
4337 DISSENTING OPINION

4338 CARPIO MORALES, J.:

4339 Regrettably, a majority of the members of this Court has voted to reverse its January 27, 2004 Decision in La Bugal-B'Laan
4340 Tribal Association, Inc. v. Ramos1 by which it declared certain provisions2 of the Mining Act of 19953 on Financial or
4341 Technical Assistance Agreements (FTAAs), the related provisions of Department of Environment and Natural Resources
4342 Administrative Order 96-40 (DAO No. 96-40), and the March 22, 1995 Financial and Technical Assistance Agreement
4343 (FTAA) executed between the Government of the Republic of the Philippines and WMC Philippines, Inc. (WMCP) in violation
4344 of Section 2, Article XII of the Constitution.

4345 Because I find that: (1) the "agreements … involving either technical or financial assistance" contemplated by the fourth
4346 paragraph of Section 2, Article XII of the 1987 Constitution are distinct and dissimilar from the "service contracts" under the
4347 1973 Constitution; and (2) these certain provisions of the Mining Act, its implementing rules, and the WMCP FTAA
4348 unconstitutionally convey beneficial ownership and control over Philippine mineral and petroleum resources to foreign
4349 contractors, I most respectfully dissent.

4350 Antecedents

4351 By motion, private respondent WMCP seeks a reconsideration of this Court's Decision, it arguing essentially that FTAAs are
4352 the same as service contracts which were sanctioned under the 1973 Constitution.

4353 By Resolution of June 22, 2004, this Court, upon motion,4 impleaded Philippine Chamber of Mines (PCM), as respondent-in-
4354 intervention. Intervenor PCM argues that the "agreements" referred to in paragraph 4 of Section 2, Article XII of the
4355 Constitution were intended to involve or include the "service contracts" provided for in the 1973 Constitution.

4356 The parties were, on June 29, 2004, heard on oral arguments during which two major issues were tackled: first, the proper
4357 interpretation of the phrase "agreements… involving either technical or financial assistance" in Section 2, Article XII of the
4358 Constitution, and second, mootness.

4359 Thereafter, the parties submitted their respective memoranda, as required by Resolution of this Court. However, despite the
4360 verbal request of Associate Justice Artemio V. Panganiban during the oral arguments, 5 intervenor PCM failed to submit
4361 along with its memorandum any documents to establish international mining practices, particularly in developing countries.

4362 Issues for Resolution

4363 The majority opinion holds that the resolution of the Motions for Reconsideration in this case should be confined to the issues
4364 taken up during the oral arguments on June 29, 2004. These were: (1) the proper interpretation of the phrase "agreements…
4365 involving either technical or financial assistance" in Section 2, Article XII of the Constitution, and (2) mootness.

4366 It further holds that the issue of whether the Mining Act and the WMCP FTAA are manifestly disadvantageous to the
4367 government could not be passed upon because the same was supposedly not raised in the original petition.

4368 These rulings, while well intentioned, cannot be accepted.

4369 First, there is no rule of procedure, whether in Rule 52 or elsewhere, which restricts the resolution of a case to the issues
4370 taken up in the oral arguments. The reason is obvious. The issues for resolution in any given case are determined by the
4371 conflicting arguments of the parties as set forth in their pleadings. On the other hand, the matters to be taken up in an oral
4372 argument may be limited, by order of the court, to only such points as the court may deem necessary. Thus, Section 1 of Rule
4373 49 provides:

4374 Section 1. When allowed. – At its own instance or upon motion of a party, the court may hear the parties in oral argument on
4375 the merits of a case, or on any material incident in connection therewith.

4376 The oral argument shall be limited to such matters as the court may specify in its order or resolution(Emphasis supplied)

4377 A narrow delimitation of matters to be taken up during oral argument is a matter of practical necessity since often not all the
4378 relevant issues can be thoroughly discussed without unduly imposing on the time of the Court. However, unlike a pre-trial

Page 97
4379 order,6 the delimitation does not control or limit the issues to be resolved. These issues may be subject matter of the parties'
4380 memoranda, as in this case.

4381 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
4382 the proceeds of its natural resources was in fact raised by the petitioners, viz:

4383 Petitioners claim that the DENR Secretary acted without or in excess of jurisdiction:

4384 I

4385 x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter
4386 being unconstitutional in that it allows fully foreign owned corporations to explore, develop, utilize and exploit mineral
4387 resources in a manner contrary to Section 2, paragraph 4, Article XII of the Constitution;

4388 II

4389 x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter
4390 being unconstitutional in that it allows the taking of private property without the determination of public use and for just
4391 compensation;

4392 III

4393 x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter
4394 being unconstitutional in that it violates Sec. 1, Art. III of the Constitution;

4395 IV

4396 x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter
4397 being unconstitutional in that it allows enjoyment by foreign citizens as well as fully foreign owned corporations of the
4398 nation's marine wealth contrary to Section 2, paragraph 2 of Article XII of the Constitution;

4399 V

4400 x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter
4401 being unconstitutional in that it allows priority to foreign and fully foreign owned corporations in the exploration,
4402 development and utilization of mineral resources contrary to Article XII of the Constitution;

4403 VI

4404 x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter
4405 being unconstitutional in that it allows the inequitable sharing of wealth contrary to Sections [sic] 1, paragraph 1, and
4406 Section 2, paragraph 4[,] [Article XII] of the Constitution;

4407 VII

4408 x x x in recommending approval of and implementing the Financial and Technical Assistance Agreement between the
4409 President of the Republic of the Philippines and Western Mining Corporation Philippines Inc. because the same is illegal and
4410 unconstitutional.8 (Emphasis and underscoring supplied)

4411 Indeed, this Court expressly passed upon this issue in the Decision when it held that:

4412 With the foregoing discussion in mind, this Court finds that R.A. No. 7942 is invalid insofar as said Act authorizes service
4413 contracts. Although the statute employs the phrase "financial and technical agreements" in accordance with the 1987
4414 Constitution, it actually treats these agreements as service contracts that grant beneficial ownership to foreign
4415 contractors contrary to the fundamental law.9 (Emphasis and underscoring supplied)

4416 Moreover, the issue of whether the State is deprived of its just share in the proceeds from mining was touched upon by the
4417 parties in their memoranda. Thus, respondent WMCP argues that:

Page 98
4418 Section 10.2 (a) of the COLUMBIO FTAA does not prohibit the State from partaking of the fruits of the exploration. In fact,
4419 Section 7.7 of the COLUMBIO FTAA provides:

4420 "7.7 Government Share

4421 From the Commencement of Commercial Production, the Contractor shall pay a government share of sixty per centum (60%)
4422 of Net Mining Revenues, calculated in accordance with the following provisions (the "Government Share"). The Contractor
4423 shall be entitled to retain the balance of all revenues from the Mining Operations."

4424 In other words, the State is guaranteed a sixty per centum (60%) share of the Net Mining Revenues, or 60% of the actual
4425 fruits of the endeavor. This is in line with the intent behind Section 2 of Article XII that the Filipino people, as represented
4426 by the State, benefit primarily from the exploration, development, and utilization of the Philippines' natural
4427 resources. 10 (Emphasis and underscoring supplied)

4428 while the petitioners, for their part, claim:

4429 For instance, government share is computed on the basis of net mining revenue. Net mining revenue is gross mining revenue
4430 less, among others, deductible expenses. Some of the allowable deductions from the base amount to be used to compute
4431 government share are suspicious. The WMCP FTAA contract, for instance, allows expenditures for development "outside the
4432 Contract Area," consulting fees for work done "outside the Philippines," and the "establishment and administration of field
4433 offices including administrative overheads incurred within and outside the Philippines."

4434 xxx

4435 One mischief inherent in past service contracts was the practice of transfer pricing. UNCTAD defines this as the "pricing of
4436 transfers of goods, services and other assets within a TNC network." If government does not control the exploration,
4437 development and utilization of natural resources, then the intra-transnational corporation pricing of expenditures may not
4438 become transparent. 11 (Emphasis supplied; footnotes omitted)

4439 In fine, the majority opinion skirts an issue raised in the original Petition for Prohibition and Mandamus, passed upon in its
4440 Decision of January 27, 2004 and argued by the parties in the present Motion for Reconsideration.

4441 Instead, I find that the myriad arguments raised by the parties may be grouped according to two broad categories: first, the
4442 arguments pertaining to the constitutionality of FTAA provisions of the Mining Act; and second, those pertaining to the
4443 validity of the WMCP FTAA. Within these categories, the following issues are submitted for resolution: (1) whether in
4444 invalidating certain provisions of the Mining Act a non-justiciable political question is passed upon; (2) whether the FTAAs
4445 contemplated in Section 2, Article XII of the 1987 Constitution are identical to, or inclusive of, the "service contracts"
4446 provided for in the 1973 Constitution; (3) whether the declaration of the unconstitutionality of certain provisions of the
4447 Mining Act should be reconsidered; (4) whether the question of validity of the WMCP FTAA was rendered moot before the
4448 promulgation of the Decision; and (5) whether the decision to declare the WMCP FTAA unconstitutional and void should be
4449 reconsidered.

4450 Following the foregoing framework of analysis, I now proceed to resolve the issues raised in the motion for reconsideration.

4451 I

4452 Constitutionality of the Philippine Mining Act of 1995

4453 The issues presented constitute

4454 justiciable questions.

4455 Contrary to the posture of respondent WMCP, this Court did not tread on a political question in rendering its Decision of
4456 January 27, 2004.

4457 The Constitution delineates the parameters of the powers of the legislative, the executive and the judiciary. 12Whether the
4458 first and second great departments of government exceeded those parameters is the function of the third. 13 Thus, the
4459 Constitution defines judicial power to include "the duty… to determine whether or not there has been a grave abuse of
4460 discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government." 14

Page 99
4461 Judicial power does not extend to political questions, which are concerned with issues dependent upon the wisdom, not the
4462 legality, of a particular measure.15 The reason is that, under our system of government, policy issues are within the domain
4463 of the political branches of government and of the people themselves as the repository of all state power.16 In short, the
4464 judiciary does not settle policy issues.17

4465 The distinction between a truly political question and an ostensible one lies in the answer to the question of whether there
4466 are constitutionally imposed limits on powers or functions conferred upon political bodies. 18 If there are constitutionally
4467 imposed limits, then the issue is justiciable, and a court is duty-bound to examine whether the branch or instrumentality of
4468 the government properly acted within those limits.19

4469 Respondent WMCP argues that the "exploration, development, and utilization of natural resources are matters of policy, in
4470 other words, political matters or questions," over which this Court has no jurisdiction.

4471 Respondent is mistaken. The questions involved in this case are not political. The provisions of paragraph 4, Section 2 of
4472 Article XII of the Constitution, including the phrase "agreements… involving either technical or financial assistance,"
4473 incorporate limitations20 on the scope of such agreements or FTAAs. Consequently, they constitute limitations on the powers
4474 of the legislative to determine their terms, as well as the powers of the Executive to enter into them. In its Decision, this
4475 Court found that, by enacting the objectionable portions of the Mining Act and in entering into the subject FTAA, the
4476 Congress and the President went beyond the constitutionally delimited scope of such agreements and thereby transgressed
4477 the boundaries of their constitutional powers.

4478 The "agreements" contemplated in paragraph 4, Section 2,

4479 Article XII of the Constitution are distinct and dissimilar from the old "service contracts."

4480 The majority and respondents share a common thesis: that the fourth paragraph of Sec. 2, Article XII contemplates not only
4481 financial or technical assistance but, just like the service contracts which were allowed under the 1973 Constitution,
4482 management assistance as well.

4483 The constitutional provision in dispute reads:

4484 Art. XII

4485 National Economy and Patrimony

4486 xxx

4487 Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy,
4488 fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception
4489 of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of
4490 natural resources shall be under the full control and supervisionof the State. The State may directly undertake such
4491 activities or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or
4492 corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for
4493 a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and
4494 conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other
4495 than the development of water power, beneficial use may be the measure and limit of the grant.

4496 The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone,
4497 and reserve its use and enjoyment exclusively to Filipino citizens.

4498 The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish
4499 farming, with priority to subsistence fishermen and fish workers in rivers, lakes, bays, and lagoons.

4500 The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance
4501 for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the
4502 general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the
4503 country. In such agreements, the State shall promote the development and use of local scientific and technical resources.

Page 100
4504 The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days
4505 from its execution. (Emphasis and underscoring supplied)

4506 Its counterpart provision in Article XIV of the 1973 Constitution authorized "service contracts" as follows:

4507 Sec. 9. The disposition, exploration, development, exploitation, or utilization of any of the natural resources of the
4508 Philippines shall be limited to citizens, or to corporations or associations at least sixty per centum of which is owned by such
4509 citizens. The Batasang Pambansa, in the national interest, may allow such citizens, corporations or associations to enter
4510 into service contracts for financial, technical, management, or other forms of assistance with any person or entity for the
4511 exploration, development, exploration, or utilization of any of the natural resources. Existing valid and binding service
4512 contracts for financial, technical, management, or other forms of assistance are hereby recognized as such. (Emphasis and
4513 underscoring supplied)

4514 Respondent WMCP contends that the fourth paragraph of Section 2 is an exception to the rule that participation in the
4515 country's natural resources is reserved to Filipinos.21 It hastens to add, however, that the word "may" therein is permissive
4516 not restrictive;22 and that consistent with the provision's permissive nature, the word "involving" therein should be construed
4517 to mean "to include," such that the assistance by foreign corporations should not be confined to technical or financial, but also
4518 to management forms.23 And it notes that the Constitution used "involving" instead of such restrictive terms as "solely,"
4519 "only," or "limited to."24

4520 To the Office of the Solicitor General (OSG), the intent behind the fourth paragraph is to prevent the practice under the 1973
4521 Constitution of allowing foreigners to circumvent the capitalization requirement,25 as well as to address the absence of a
4522 governing law that led to the abuse of service contracts.26 The phrase "technical or financial" is merely for emphasis, the OSG
4523 adds, that it is descriptive, not definitive, of the forms of assistance that the State needs and which foreign corporations may
4524 provide in the large-scale exploration, development and utilization of the specified resources. 27 Furthermore, the OSG
4525 contends that the denomination of the subject FTAA as a "financial and technical assistance agreement" is a misnomer and
4526 should more properly be called "agreements for large-scale exploration, development, and utilization of minerals, petroleum,
4527 and other mineral oils."28 It argues that the President has broad discretion to enter into any agreement, regardless of the
4528 scope of assistance, with foreign corporations.29 Driving its point, the OSG poses: If the framers of the Constitution intended
4529 to limit the service of foreign corporations to "passive assistance," such as simple loan agreements, why confine them to
4530 large-scale ventures?30 Why does the Constitution require that such agreements be based on real contributions to economic
4531 growth and general welfare of the country?31 Why the condition in the last paragraph of Section 2 that the President report
4532 to Congress?32 Finally, the OSG asserts that these requirements would be superfluous if the assistance to be rendered were
4533 merely technical or financial.33 And that it would make more sense if the phrase "agreements… involving technical or
4534 financial assistance" were construed to mean the same concept as the service contracts under the 1973 Constitution.

4535 The OSG's contentions are complemented by intervenor PCM which maintains that the FTAA "is an agreement for [the]
4536 rendition of a whole range of services of an integrated and comprehensive character, ranging from discovery through
4537 development and utilization and production of minerals or petroleum by the foreign-owned corporation."34 In fine, intervenor
4538 posits that the change in phraseology in the 1987 Constitution does not relate to the substance of the agreement, 35 otherwise,
4539 the State itself would be compelled to conduct the exploration, development and utilization of natural resources, ventures
4540 that it is ill-equipped to undertake.36

4541 Primary Concepts in Article XII of the Constitution

4542 Before passing upon the foregoing arguments and for better clarity, it may be helpful to first examine the concepts of (a)
4543 "beneficial ownership," (b) "full control and supervision," and (c) "real contributions to the economic growth and general
4544 welfare of the country" which are at the heart of Section 2, Article XII of the Constitution.

4545 Beneficial Ownership

4546 Beneficial ownership, as the plain meaning of the words implies, refers to the right to the gains, rewards and advantages
4547 generated by the property.37

4548 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
4549 ownership of the property entrusted to him, he is nevertheless not the beneficial owner. Rather, he holds and administers the
4550 property for the benefit of another, called the beneficiary or the cestui que trust. Hence, the profits realized from the

Page 101
4551 administration and management of the property by the trustee, who is the "naked owner," less any lawful fees due to the
4552 latter, accrue to the cestui que trust, who is the "beneficial" or "equitable" owner.39

4553 The foregoing concepts are directly applicable to the statement in Section 2, Article XII of the Constitution that "[a]ll lands of
4554 the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests
4555 or timber, wildlife, flora and fauna, and other natural resources are owned by the State."

4556 The words "owned" and "State" should both be understood on two levels. "Owned" or "ownership" refers to both the legal title
4557 to and the beneficial ownership of the natural resources. Similarly, "State" should be understood as denoting both the body
4558 politic making up the Republic of the Philippines, i.e., the Filipino people, as well as the Government which represents them
4559 and acts on their behalf.

4560 Thus, the phrase "natural resources are owned by the State" simultaneously vests the legal title to the nation's natural
4561 resources in the Government, and the beneficial ownership of these resources in the sovereign Filipino people, from whom all
4562 governmental authority emanates.40

4563 On this point, petitioners and respondent WMCP appear to be in rare agreement. Thus, petitioners, in their Memorandum
4564 state:

4565 xxx With respect to exploration, development and utilization of mineral resources, the State should not merely be concerned
4566 about passing laws. It is expected that it holds these natural resources covered in Article XII, Section 2 in dominium and in
4567 trust for [the] Filipino people.41 (Emphasis and underscoring supplied; italics in the original)

4568 Respondent WMCP is even more emphatic:

4569 The Regalian Doctrine, as embodied under the Constitution, is a recognition that sovereignty resides in the Filipino people,
4570 and the prime duty of government or the State is to serve and protect the people. Thus, the ownership of natural resources by
4571 the State under Section 2, Article XII of the Constitution is actually a beneficial trust in favor of the Filipino people.

4572 Stated differently, it is the Filipino people who own the nation's natural resources, and the State is merely the guardian-in-
4573 trust therof.42 (Emphasis and underscoring supplied; italics in the original; citations omitted)

4574 Clearly, in the exploration, development and utilization of the nation's natural resources, the Government is in a position
4575 analogous to a trustee, holding title to and managing these resources for the benefit of the Filipino people, including future
4576 generations.43 As the trustee of the sovereign, the Government has a fiduciary duty to ensure that the gains, rewards and
4577 advantages generated by the Philippines' natural resources accrue to the benefit of the Filipino people. Corollary to this, the
4578 Government cannot, without violating its sacred trust, enter into any agreement or arrangement which effectively deprives
4579 the Filipino people of their beneficial ownership of these resources – e.g., when it enters into an agreement whereby the vast
4580 majority of the resources, or the profit generated from the resources, is bargained away in favor of a foreign entity.

4581 Full Control and Supervision

4582 In the context of its role as trustee, the Government's "full control and supervision" over the exploration, development and
4583 utilization of the nation's natural resources, in its most basic and fundamental sense, is accomplished by maintaining a
4584 position whereby it can carry out its fiduciary duty to protect the beneficial interest of its cestui que trust in these resources.

4585 Significantly, Section 2, Article XII of the Constitution provides that the Government may undertake the exploration,
4586 development and utilization of these resources by itself or together with a third party. 44 In the first case, where no third
4587 party is involved, the Government's "full control and supervision" over the resources is easily achieved. In the second case,
4588 where the third party may naturally be expected to seek participation in the operation of the venture and ask for
4589 compensation in proportion to its contribution(s), the Government must still maintain a position vis-à-vis its third party
4590 partner whereby it can adequately protect the interest of the Filipino people, who are the beneficial owners of the resources.

4591 By way of concrete example, the Government may enter into a joint venture agreement 45 with a third party to explore,
4592 develop or utilize certain natural resources through a jointly owned corporation, wherein the government has the controlling
4593 interest. Under this arrangement, the Government would clearly be in a position to protect the interest of the beneficial
4594 owners of the natural resources.

Page 102
4595 In the alternative, as suggested by the OSG,46 the Government may be allowed one or more directors (holding nominal
4596 shares) on the governing board and executive committee(s) of the private corporation contracted to undertake mining
4597 activities in behalf of the government. Depending on the by-laws of the private corporation, strategic representation of the
4598 Government in its governing board and executive committee(s) may afford sufficient protection to the interest of the people.

4599 However, Section 2, Article XII of the Constitution does not limit the options available to the Government, when dealing with
4600 prospective mining partners, to joint ventures or representation in the contractor's board of directors. To be sure, the
4601 provision states that the Government may enter into "co-production, joint venture, or production-sharing agreements with
4602 Filipino citizens, or corporations or associations," or, for large scale exploration, development and utilization, "agreements
4603 with foreign-owned corporations involving either technical or financial assistance." But whatever form the agreement
4604 entered into by the Government and its third party partner(s) may take, the same must contain, as an absolute
4605 minimum, provisions that ensure that the Government can effectively perform its fiduciary duty to safeguard the beneficial
4606 interest of the Filipino people in their natural resources, as mandated by the Constitution.

4607 Real Contributions to the Economy

4608 and the General Welfare of the Country

4609 Section 2, Article XII likewise requires that "agreements … involving financial or technical assistance" be "based on real
4610 contributions to the economic growth and general welfare of the country." This provision articulates the value which the
4611 Constitution places on natural resources, and recognizes their potential benefits. It likewise acknowledges the fact that the
4612 impact of mining operations is not confined to the economy but, perhaps to a greater extent, affects Philippine society as a
4613 whole as well.

4614 "Minerals, petroleum and other mineral oils," are part of the non-renewable wealth of the Filipino people. By pursuing large
4615 scale exploration, development and utilization of these resources, the State would be allowing the consumption or exhaustion
4616 of these resources, and thus deprive future Filipino generations the enjoyment thereof. Mining – especially large-scale
4617 mining – often results in the displacement of local residents. Its negative effects on the environment are well-documented.47

4618 Thus, for benefits from the exploration, development and utilization of these resources to be real, they must yield profits over
4619 and above 1) the capital and operating costs incurred, 2) the resulting damage to the environment, and 3) the social costs to
4620 the people who are immediately and adversely affected thereby.

4621 Moreover, the State must ensure that the real benefits from the utilization of these resources are sufficient to offset the
4622 corresponding loss of these resources to future generations. Real benefits are intergenerational benefits because the
4623 motherland's natural resources are the birthright not only of the present generation of Filipinos but of future generations as
4624 well.48

4625 The requirement of real benefit is applicable even when the exploration, development and utilization are being undertaken
4626 directly by the Government or with the aid of Filipinos or Filipino corporations. But it takes on greater significance when a
4627 foreign entity is involved. In the latter instance, the foreign entity would naturally expect to be compensated for its
4628 assistance. In that event, it is inescapable that a foreigner would be benefiting from an activity ( i.e. mining) which also
4629 results in numerous, serious and long term harmful consequences to the environment and to Philippine society.

4630 Moreover, as recognized by the 1935 Constitutional Convention, foreign involvement in the exploitation of Philippine natural
4631 resources has serious implications on national security. As recounted by delegate Jose Aruego:

4632 The nationalization of the natural resources was also intended as an instrument of national defense. The Convention felt
4633 that to permit foreigners to own or control the natural resources would be to weaken the national defense. It would be
4634 making possible the gradual extension of foreign influence into our politics, thereby increasing the possibility of foreign
4635 control. xxx

4636 Not only these. The nationalization of the natural resources, it was believed, would prevent making the Philippines a source
4637 of international conflicts with the consequent danger to its internal security and independence. For unless the natural
4638 resources were nationalized, with the nationals of foreign countries having the opportunity to own or control them, conflicts
4639 of interest among them might arise inviting danger to the safety and independence of the nation.49 (Emphasis supplied)

Page 103
4640 Significantly, and contrary to the posture of the OSG, it is immaterial whether the foreign involvement takes the form of
4641 "active" participation in the mining concern or "passive" assistance such as a foreign mining loan or the licensing of mining
4642 technology. Whether the foreign involvement is passive or active, the fact remains that the foreigner will expect to be
4643 compensated and, as a necessary consequence, a fraction of the gains, rewards and advantages generated by Philippine
4644 natural resources will be diverted to foreign hands even as the long term pernicious "side effects" of the mining activity will
4645 be borne solely by the Filipino people.

4646 Under such circumstances, the Executive, in determining whether or not to avail of the assistance of a foreign corporation in
4647 the large scale exploration, development and utilization of Philippine natural resources, must carefully weigh the costs and
4648 benefits if it is to faithfully discharge its fiduciary duty to protect the beneficial interest of the Filipino people in these
4649 resources.

4650 These same considerations likewise explain why the last paragraph of Section 2 mandates that the President "notify the
4651 Congress of every contract entered into in accordance with this provision, within thirty days from its execution." The
4652 Constitution requires that the Legislative branch, which is perceived to be more broadly representative of the people and
4653 therefore more immediately sensitive to their concerns, be given a timely opportunity to scrutinize and evaluate the
4654 Executive's decision.

4655 With these concepts in mind, I now turn to what I believe to be the proper interpretation of "agreements… involving either
4656 technical or financial assistance" in paragraph 4 of Section 2, Article XII of the Constitution.

4657 Construction of paragraph 4, Section 2,

4658 Article XII of the Constitution

4659 The suggestion that the avoidance of the term "service contracts" in the fourth paragraph is to prevent the circumvention,
4660 prevalent under the 1973 Constitution, of the 60-40 capital requirement does not persuade, it being too narrow an
4661 interpretation of that provision. If that were the only purpose in the change of phraseology, this Court reiterates, there would
4662 have been no need to replace the term "service contracts" with "agreements… involving either technical or financial
4663 assistance."

4664 The loophole in the 1973 Constitution that sanctioned dummyism is easily plugged by the provision in the present
4665 Constitution that the President, not Congress or the Batasan Pambansa (under the 1973 Constitution), may enter into either
4666 technical or financial agreements with foreign corporations. The framers then could have easily employed the more
4667 traditional term "service contracts" in designating the agreements contemplated, and thus obviated confusion, especially
4668 since the term was employed by the legal system then prevailing 50 and had a settled acceptation.

4669 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
4670 of service contracts, is equally unpersuasive. In truth, there were a host of laws governing service contracts pertaining to
4671 various natural resources, as this Court noted when it traced the history of Section 2, Article XII in its Decision. 51

4672 Respondent WMCP nevertheless correctly states that the fourth paragraph establishes an exception to the rule limiting the
4673 exploration, development and utilization of the nation's natural resources to Filipinos. As an exception, however, it is illogical
4674 to deduce that the provision should be interpreted liberally, not restrictively. It bears repeating that the provision, being an
4675 exception, should be strictly construed against foreign participation.

4676 In any case, the constitutional provision allowing the President to enter into FTAAs with foreign-owned corporations is an
4677 exception to the rule that participation in the nation's natural resources is reserved exclusively to Filipinos. Accordingly,
4678 such provision must be construed strictly against their enjoyment by non-Filipinos. As Commissioner Villegas emphasized,
4679 the provision is "very restrictive." Commissioner Nolledo also remarked that "entering into service contracts is an exception
4680 to the rule on protection of natural resources for the interest of the nation and, therefore, being an exception, it should be
4681 subject, whenever possible, to stringent rules." Indeed, exceptions should be strictly but reasonably construed; they extend
4682 only so far as their language fairly warrants and all doubts should be resolved in favor of the general provision rather than
4683 the exception.52 (Emphasis and underscoring supplied; citations omitted).

4684 That the fourth paragraph employs the word "may" does not make it non-restrictive. Indeed, "may" does make the provision
4685 permissive, but only as opposed to mandatory, 53 and operates to confer discretion upon a party.54 Thus, as used in the fourth
4686 paragraph, "may" provides the President with the option to enter into FTAAs. It is, however, not incumbent upon the

Page 104
4687 President to do so for, as owner of the natural resources, the "State [itself] may directly undertake such activities." 55 If the
4688 President opts to exercise the prerogative to enter into FTAAs, the agreement must conform to the restrictions laid down by
4689 Section 2, including the scope of the assistance, which must be limited to financial or technical forms.

4690 "May" in the fourth paragraph, therefore, should be understood in the same sense as it is used in the first paragraph, that is,
4691 that the State "may enter into… agreements with Filipino citizens, or corporations or association at least sixty per centum of
4692 whose capital is owned by such citizens."

4693 The majority, however, opines that the "agreements involving either technical or financial assistance" referred to in
4694 paragraph 4 of Section 2 of Article XII of the 1987 Constitution are indeed service contracts. In support of this conclusion, the
4695 majority maintains that the use of the phrase "agreements… involving either technical or financial assistance" does not
4696 indicate the intent to exclude other modes of assistance because the use of the word "involving" signifies the possibility of the
4697 inclusion of other forms of assistance or activities. And it proffers that the word "involving" has three connotations that can
4698 be differentiated as follows: (1) the sense of concerning, having to do with, or affecting; (2) entailing, requiring, implying or
4699 necessitating; (3) including, containing or comprising. None of these three connotations, it is contended, convey a sense of
4700 exclusivity. Thus, it concludes that had the framers intended to exclude other forms of assistance, they would have simply
4701 said "agreements for technical or financial assistance" as opposed to "agreements including technical or financial assistance."

4702 To interpret the term "involving" in the fourth paragraph to mean "including," as the majority contends, would run counter
4703 to the restrictive spirit of the provision. Notably, the 1987 Constitution uses "involving" not "including." As admitted in the
4704 majority opinion, the word "involve" may also mean concerning, having to do with or affecting. Following the majority
4705 opinion's own methodology of substitution, "agreements… involving either technical or financial assistance" means
4706 "agreements…concerning either technical or financial assistance." And the word "concerning" according to Webster's Third
4707 New International Dictionary means "regarding", "respecting" or "about." To reiterate, these terms indicate exclusivity. More
4708 tellingly, the 1987 Constitution not only deleted the term "management" in the 1973 Constitution, but also the catch-all
4709 phrase "or other forms of assistance,"56 thus reinforcing the exclusivity of "either technical or financial assistance."

4710 That the fourth paragraph does not employ the terms "solely," "only," or "limited to" to qualify "either technical or financial
4711 assistance" does not detract from the provision's restrictive nature. Moreover, the majority opinion's illustration conveniently
4712 omits "either… or." As Senior Associate Justice Reynato S. Puno pointed out during the oral arguments, the use of the
4713 disjunctive "either… or" denotes restriction.57

4714 According to the Penguin Dictionary, the word "either" may be used as (1) an adjective or (2) a pronoun or (3) a conjunction or
4715 (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.
4716 As a pronoun, the word "either" means the one or the other. As a conjunction, the word "either" is used before two or more
4717 sentence elements of the same class or function joined usually by "or" to indicate what immediately follows is the first of two
4718 or more alternatives. Lastly, as an adverb, "either" is used for emphasis after a negative or implied negation ( i.e. for that
4719 matter or likewise). The traditional rule holds that "either" should be used only to refer to one of two items and that "any" is
4720 required when more than two items are involved.58 However, modern English usage has relaxed this rule when "either" is
4721 used as a conjunction.59 Thus, the word "either" may indicate the choice between two or more possibilities.

4722 "Either" in paragraph 4, section 2, Article XII, is clearly used as a conjunction, joining two (and only two) concepts – financial
4723 and technical. The use of the word "either" clearly limits the President to only two possibilities, financial and technical
4724 assistance. Other forms of assistance are plainly not allowed, since only the words "financial and technical" follow the word
4725 "either."

4726 In accordance with the intent of the provision, "agreements… involving either technical or financial" is deemed restrictive
4727 and not just descriptive. It is a condition, a limitation, not a mere description.

4728 The OSG's suggestion that the President may enter into "any" agreement, the scope of which may go beyond technical or
4729 financial assistance, with a foreign-owned corporation, does not impress. The first paragraph of Section 2 limits contracts
4730 with Filipino citizens or corporations to co-production, joint venture or production-sharing agreements. To subscribe to the
4731 OSG's theory would allow foreign-owned corporations participation in the country's natural resources equal to, perhaps even
4732 greater than, that of Filipino citizens or corporations.

Page 105
4733 The OSG cites the Separate Opinion of Justice Jose C. Vitug, now retired, who proposed that, on the premise that the State
4734 itself may undertake the exploration, development and utilization of natural resources, a foreign-owned corporation may
4735 engage in such activities in behalf of the State:

4736 The Constitution has not prohibited the State from itself exploring, developing, or utilizing the country's natural resources,
4737 and, for this purpose, it may, I submit, enter into the necessary agreements with individuals or entities in the pursuit of a
4738 feasible operation.

4739 The fundamental law is deemed written in every contract. The FTAA entered into by the government and WMCP recognizes
4740 this vital principle. Thus, two of the agreement's clauses provide:

4741 "WHEREAS, the 1987 Constitution of the Republic of the Philippines provides in Article XII, Section 2 that all lands of the
4742 public domain, waters, minerals, coal, petroleum, and other natural resources are owned by the State, and that the
4743 exploration, development and utilization of natural resources shall be under the full control and supervision of the State; and

4744 "WHEREAS, the Constitution further provides that the Government may enter into agreements with foreign-owned
4745 corporations involving either technical or financial assistance for large scale exploration, development and utilization of
4746 minerals."

4747 The assailed contract or its provisions must then be read in conformity with abovementioned constitutional mandate. Hence,
4748 Section 10.2(a) of the FTAA, for instance, which states that "the Contractor shall have the exclusive right to explore for,
4749 exploit, utilize, process, market, export and dispose of all minerals and products and by-products thereof that may be derived
4750 or produced from the Contract Area and to otherwise conduct Mining Operations in the Contract Area in accordance with the
4751 terms and conditions hereof," must be taken to mean that the foregoing rights are to be exercised by WMCP for and in behalf
4752 of the State and that WMCP, as the Contractor, would be bound to carry out the terms and conditions of the agreement
4753 acting for and in behalf of the State. In exchange for the financial and technical assistance, inclusive of its services, the
4754 Contractor enjoys an exclusivity of the contract and a corresponding compensation therefor.60 (Underscoring supplied).

4755 This proposition must be rejected since it sanctions the circumvention, if not outright violation, of the fourth paragraph by
4756 allowing foreign corporations to render more than technical or financial assistance on the pretext that it is an agent of the
4757 State. Quando aliquid prohibitur ex directo, prohibitur et per obliquum. What is prohibited directly is prohibited
4758 indirectly.61 Further, the proposition lends itself to mischievous consequences. If followed to its logical conclusion, nothing
4759 would stop the State from engaging the services of a foreign corporation to undertake in its behalf the exploration,
4760 development and utilization of all other natural resources, not just "minerals, petroleum and mineral oils," even on a small
4761 scale, not just "large-scale."

4762 The present Constitution restricts foreign involvement to large-scale activities because the idea is to limit the participation of
4763 foreign corporations only to areas where they are needed.

4764 MS. QUESADA. Going back to Section 3, the section suggests that:

4765 The exploration, development, and utilization of natural resources … may be directly undertaken by the State, or it may
4766 enter into co-production, joint venture or production-sharing agreement with … corporations or associations at least sixty
4767 percent of whose voting stock or controlling interest is owned by such citizens.

4768 Lines 25 to 30 on the other hand, suggest that in the large-scale exploration, development and utilization of natural
4769 resources, the President with the concurrence of Congress may enter into agreements with foreign-owned corporations even
4770 for technical or financial assistance.

4771 I wonder if this first part of Section 3 contradicts the second part. I am raising this point for fear that foreign investors will
4772 use their enormous capital resources to facilitate the actual exploitation or exploration, development and effective disposition
4773 of our natural resources to the detriment of Filipino investors. I am not saying that we should not consider borrowing money
4774 from foreign sources. What I refer to is that foreign interest should be allowed to participate only to the extent that they lend
4775 us money and give us technical assistance with the appropriate government permit. In this way, we can insure the
4776 enjoyment of our natural resources by out people.

Page 106
4777 MR. VILLEGAS. Actually, the second provision about the President does not permit foreign investors to participate. It is
4778 only technical or financial assistance – they do not own anything – but on conditions that have to be determined by law with
4779 the concurrence of Congress. So, it is very restrictive.

4780 If the Commissioner will remember, this removes the possibility for service contracts which we said yesterday were avenues
4781 used in the previous regime to go around the 60-40 requirement.62 (Emphasis and underscoring supplied)

4782 The intent is to allow Filipinos to benefit from Filipino resources.

4783 MR. DAVIDE. May I be allowed to explain the proposal?

4784 MR. MAAMBONG. Subject to the three-minute rule, Madam President.

4785 MR. DAVIDE. It will not take me three minutes.

4786 The Commission had just approved the Preamble. In the Preamble we clearly sated there that the Filipino people are
4787 sovereign and that one of the objectives for the creation or establishment of a government is to conserve and develop the
4788 national patrimony. The implication is that the national patrimony or our natural resources are exclusively reserved for the
4789 Filipino people. No alien must be allowed to enjoy, exploit and develop our natural resources. As a matter of fact, that
4790 principle proceeds from the fact that our natural resources are gifts from God to the Filipino people and it would be a breach
4791 of that special blessing from God if we will allow aliens to exploit our natural resources.

4792 I voted in favor of the Jamir proposal because it is not really exploitation that we granted to the aliencorporations but only fo
4793 r them to render financial or technical assistance. It is not for them to enjoyour natural resources. Madam President, our
4794 natural resources are depleting; our population is increasing by leaps and bounds. Fifty years from now, if we will allow
4795 these aliens to exploit our natural resources, there will be no more natural resources for the next generations of Filipinos. It
4796 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
4797 natural resources, and we became victims of foreign dominance and control. The aliens are interested in coming to the
4798 Philippines because they would like to enjoy the bounty of nature exclusively intended for the Filipinos by God.

4799 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
4800 the national patrimony for the sovereign Filipino people and for the generations to come," we must at this time decide once
4801 and for all that our natural resources must be reserved only to Filipino citizens.

4802 Thank you.63 (Emphasis and underscoring supplied)

4803 The intent loses all significance if foreign-owned corporations are likewise allowed to participate even in small or medium-
4804 scale ventures.

4805 Thus, in keeping with the clear intent and rationale of the Constitution, financial or technical assistance by foreign
4806 corporations are allowable only where there is no Filipino or Filipino-owned corporation (including corporations at least 60%
4807 of the capital of which are owned by Filipinos) which can provide the same or similar assistance.

4808 To reiterate, the over-arching letter and intent of the Constitution is to reserve the exploration, development and utilization
4809 of natural resources to Filipinos.

4810 The justification for foreign involvement in the exploration, development and utilization of natural resources was that
4811 Filipino nationals or corporations may not possess the necessary capital, technical knowledge or technology to mount a large
4812 scale undertaking. In the words of the "Draft of the 1986 U.P. Law Constitution Project" (U.P. Law Draft) which was taken
4813 into consideration during the deliberation of the CONCOM:64

4814 Under the proposed provision, only technical assistance or financial assistance agreements may be entered into, and only for
4815 large-scale activities. These are contract forms which recognize and assert our sovereignty and ownership over natural
4816 resources since the foreign entity is just a pure contractor and not a beneficial owner of our economic resources. The proposal
4817 recognizes the need for capital and technology to develop our natural resources without sacrificing our sovereignty and
4818 control over such resources65 x x x (Emphasis and underscoring supplied)

Page 107
4819 Thus, the contention that Section 2, Article XII allows for any agreement for assistance by a foreign corporation "so long as
4820 such assistance requires specialized knowledge or skills, and are related to the exploration, development and utilization of
4821 mineral resources" is erroneous.66

4822 Where a foreign corporation does not offer financial or technological assistance beyond the capabilities of its Philippine
4823 counterparts, an FTAA with such a corporation would be highly questionable. Similarly, where the scope of the undertaking
4824 does not qualify as "large scale," an FTAA with a foreign corporation is equally suspect.

4825 "Agreements" in Section 2, Article XII

4826 do not include "service contracts."

4827 This Court's ruling in the Decision under reconsideration that the agreements involving either technical or financial
4828 assistance contemplated by the 1987 Constitution are different and dissimilar from the service contracts under the 1973
4829 Constitution must thus be affirmed. That there is this difference, as noted in the Decision, is gathered from the change in
4830 phraseology.67 There was no need to employ strongly prohibitory language, like that found in the Bill of Rights. 68 For the
4831 framers to expressly prohibit "management and other forms of assistance" would be redundant inasmuch as the elimination
4832 of such phrase serves the same purpose. The deletion is simply too significant to ignore and speaks just as profoundly – it is
4833 an outright rejection.

4834 It bears noting that the fourth paragraph does not employ the same language adopted in the first paragraph, which
4835 specifically denominates the agreements that the State may enter into with Filipinos or Filipino-owned corporations. The
4836 fourth paragraph does not state "The President may also enter into co-production, joint venture, or production-sharing
4837 agreements with foreign-owned corporations for large-scale exploration, development, and utilization of minerals, petroleum,
4838 and other mineral oils…." On the other hand, the fourth paragraph cannot be construed as a grant of boundless discretion to
4839 the President to enter into any agreement regardless of the scope of assistance because it would result in a bias against
4840 Filipino citizens and corporations.

4841 On this point, the following observations from the U.P. Law Draft on the odious and objectionable features of service
4842 contracts bear restating:

4843 5. The last paragraph is a modification of the service contract provision found in Section 9, Article XIV of the 1973
4844 Constitution as amended. This 1973 provision shattered the framework of nationalism in our fundamental law (see
4845 Magallona, "Nationalism and its Subversion in the Constitution"). Through the service contract, the 1973 Constitution had
4846 legitimized that which was prohibited under the 1935 constitution—the exploitation of the country's natural resources by
4847 foreign nationals. Through the service contract, acts prohibited by the Anti-Dummy Law were recognized as legitimate
4848 arrangements. Service contracts lodge exclusive management and control of the enterprise to the service contractor, not
4849 unlike the old concession regime where the concessionaire had complete control over the country's natural resources, having
4850 been given exclusive and plenary rights to exploit a particular resource and, in effect, having been assured of ownership of
4851 that resource at the point of extraction (see Agabin, "Service Contracts: Old Wine in New Bottles"). Service contracts, hence,
4852 are antithetical to the principle of sovereignty over our natural resources, as well as the constitutional provision on
4853 nationalization or Filipinization of the exploitation of our natural resources. 69 (Emphasis supplied)

4854 Furthermore, Professor Pacifico A. Agabin, a member of the working group of the U.P. Law Constitution Project and now
4855 counsel for intervenor PCM, stated in his position paper:

4856 Recognizing the service contract for what it is, we have to expunge it from the Constitution and reaffirm ownership over our
4857 natural resources. That is the only way we can exercise effective control over ournatural resources.

4858 This should not mean complete isolation of the country's natural resources from foreign investment. Other contract
4859 forms which are less derogatory to our sovereignty and control over natural resources – like technical assistance agreements,
4860 financial assistance [agreements], co-production agreements, joint ventures, production-sharing [agreements] – could still be
4861 utilized and adopted without violating constitutional provisions. In other words, we can adopt contract forms which recognize
4862 and assert our sovereignty and ownership over natural resources, and where the entity is just a pure contractor instead of
4863 the beneficial owner of our economic resources.70 (Emphasis & underscoring supplied),

4864 indicating that the proposed financial or technical assistance agreements are contract forms different from the 1973
4865 Constitution service contracts.

Page 108
4866 Thus the phrase "agreements with foreign-owned corporations involving either technical or financial assistance" in Section 2,
4867 Article XII of the Constitution must be interpreted as restricting foreign involvement in the exploration, development and
4868 utilization of natural resources to large scale undertakings requiring foreign financial or technicalassistance and not, as
4869 alleged by respondents, inclusive of any possible agreement under the sun.

4870 The majority however argues that the deletion or omission from the 1987 Constitution of the term "service contracts" found
4871 in the 1973 Constitution does not sufficiently prove the drafters' intent to exclude foreigners from management since such
4872 intent cannot be definitively and conclusively established. This argument overlooks three basic principles of statutory
4873 construction.

4874 First, casus omisus pro omisso habendus est.71 As recently as 2001 in Commission on Audit of the Province of Cebu v.
4875 Province of Cebu,72 this Court held that a person, object or thing omitted from an enumeration must be held to have been
4876 omitted intentionally.73 That there is a difference between technical or financial assistance contemplated by the 1987
4877 Constitution and the service contracts under the 1973 Constitution is gathered from the omission of the phrase
4878 "management or other forms of assistance."

4879 As earlier noted, the phrase "service contracts" has been deleted in the 1987 Constitution's Article on National Economy and
4880 Patrimony. If the CONCOM intended to retain the concept of service contracts under the 1973 Constitution, it would have
4881 simply adopted the old terminology ("service contracts") instead of employing new and unfamiliar terms
4882 ("agreements…involving either technical or financial assistance.") Such a difference between the language of a provision in a
4883 revised constitution and that of a similar provision in the preceding constitution is viewed as indicative of a difference in
4884 purpose. If, as respondents suggest, the concept of "technical or financial assistance" agreements is identical to that of
4885 "service contracts," the CONCOM would not have bothered to fit the same dog with a new collar. To uphold respondents'
4886 theory would reduce the first to a mere euphemism for the second render the change in phraseology
4887 meaningless.74 (Emphasis and underscoring supplied; citation omitted)

4888 Second, expressio unius est exclusion alterius.75 The express mention of one person, thing, act, or consequence excludes all
4889 others.76

4890 Third and lastly, expressium facit cessare tacitum.77 What is expressed puts an end to that which is implied. 78 Since the
4891 constitutional provision, by its terms, is expressly limited to financial or technical agreements, it may not, by interpretation
4892 or construction, be extended to other forms of assistance.

4893 These three principles of statutory construction, derived from the well-settled principle of verba legis, proceed from the
4894 premise that the Constitutional Commission would not have made specific enumerations in the provision if it had the
4895 intention not to restrict its meaning and confine its terms to those expressly mentioned. And this Court may not, in the guise
4896 of interpretation, enlarge the scope of a constitutional provision and include therein situations not provided nor intended by
4897 the framers. To do so would be to do violence to the very language of the Constitution, the same Constitution which this
4898 Court has sworn to uphold.

4899 The majority counters, however, that service contracts were not de-constitutionalized since the deliberations of the members
4900 of the Constitutional Commission conclusively show that they discussed agreements involving either technical or financial
4901 assistance in the same breath as service contracts and used the terms interchangeably. This argument merely echoes that of
4902 private respondent WMCP which had already been addressed in this Court's Decision of January 27, 2004, (the Decision) viz:

4903 While certain commissioners may have mentioned the term "service contracts" during the CONCOM deliberations, they may
4904 not have been necessarily referring to the concept of service contracts under the 1973 Constitution. As noted earlier "service
4905 contracts" is a term that assumes different meanings to different people. The commissioners may have been using the term
4906 loosely, and not in its technical and legal sense, to refer, in general, to agreements concerning natural resources entered into
4907 by the Government with foreign corporations. These loose statements do not necessarily translate to the adoption of the 1973
4908 Constitution provision allowing service contracts.

4909 It is true that, as shown in the earlier quoted portions of the proceedings in [the] CONCOM, in response to Sr. Tan's
4910 question, Commissioner Villegas commented that, other than congressional notification, the only difference between "future"
4911 and "past" "service contracts" is the requirement of a general law as there were no laws previously authorizing the
4912 same.79 However, such remark is far outweighed by his more categorical statement in his exchange with Commissioner

Page 109
4913 Quesada that the draft article "does not permit foreign investors to participate" in the nation's natural resources – which was
4914 exactly what service contracts did – except to provide "technical or financial assistance."

4915 In the case of the other commissioners, Commissioner Nolledo himself clarified in his work that the present charter prohibits
4916 service contracts. Commissioner Gascon was not totally averse to foreign participation, but favored stricter restrictions in the
4917 form of majority congressional concurrence. On the other hand, Commissioners Garcia and Tadeo may have veered to the
4918 extreme side of the spectrum and their objections may be interpreted as votes against any foreign participation in our
4919 natural resources whatsoever.80(Emphasis and underscoring supplied; citations omitted)

4920 In fact, the opinion of Commissioner Nolledo in his textbook which is cited in this Court's January 27, 2004 Decision should
4921 leave no doubt as to the intention of the framers to eliminate service contracts altogether.

4922 Are service contracts allowed under the new Constitution? No. Under the new Constitution, foreign investors (fully alien-
4923 owned) can NOT participate in Filipino enterprises except to provide: (1) Technical Assistance for highly technical
4924 enterprises; and (2) Financial Assistance for large-scale enterprises.

4925 The intention of this provision, as well as other provisions on foreign investments, is to prevent the practice (prevalent in the
4926 Marcos government) of skirting the 60/40 equation using the cover of service contracts. 81

4927 Next, the majority opinion asserts that if the framers had meant to ban service contracts altogether, they would have
4928 provided for the termination or pre-termination of the existing service contracts.

4929 There was no need for a constitutional provision to govern the termination or pre-termination of existing service contracts
4930 since the intention of the framers was to apply the rule banning service contracts prospectively.

4931 MR. DAVIDE. Under the proposal, I notice that except for the lands of the public domain, all other natural resources cannot
4932 be alienated and in respect to lands of the public domain, private corporations with the required ownership by Filipino
4933 citizens can only lease the same. Necessarily, insofar as other natural resources are concerned, it would only be the State
4934 which can exploit, develop, explore and utilize the same. However, the State may enter into a joint venture, coproduction ( sic)
4935 or production-sharing. Is that not correct?

4936 MR. VILLEGAS. Yes.

4937 MR. DAVIDE. Consequently, henceforth upon the approval of this Constitution, no timber or forest concessions, permits or
4938 authorization can be exclusively granted to any citizen of the Philippines nor to any corporation qualified to acquire lands of
4939 the public domain?

4940 MR. VILLEGAS. Would Commissioner Monsod like to comment on that? I think his answer is "yes."

4941 MR. DAVIDE. So, what will happen now to licenses or concessions earlier granted by the Philippine government to private
4942 corporations or to Filipino citizens? Would they be deemed repealed?

4943 MR. VILLEGAS. This is not applied retroactively. They will be respected.

4944 MR. DAVIDE. In effect, they will be deemed repealed?

4945 MR. VILLEGAS. No.82 (Emphasis and underscoring supplied)

4946 Besides, a service contract is only a license or privilege, not a contract or property right which merits protection by the due
4947 process clause of the Constitution. Thus in the landmark case of Oposa v. Factoran, Jr,83 this Court held:

4948 x x
4949 x Needless to say, all licenses may thus be revoked or rescinded by executive action. It is not acontract, property or a propert
4950 y right protected by the due process clause of the Constitution. In Tan vs. Director of Forestry, this Court held:

4951 "x x x A timber license is an instrument by which the State regulates the utilization and disposition of forest resources to the
4952 end that public welfare is promoted. A timber license is not a contract within the purview of the due process clause; it is only
4953 a license or privilege, which can be validly withdrawn whenever dictated by public interest or public welfare as in this case.

Page 110
4954 'A license is merely a permit or privilege to do what otherwise would be unlawful, and is not a contract between the
4955 authority, federal, state, or municipal, granting it and the person to whom it is granted; neither is it property or a property
4956 right, nor does it create a vested right; nor is it taxation' Thus, this Court held that the granting of license does not create
4957 irrevocable rights, neither is it property or property rights."

4958 We reiterated this pronouncement in Felipe Ysmael, Jr. & Co, Inc. vs. Deputy Executive Secretary:

4959 "x x x Timber licenses, permits and license agreements are the principal instruments by which the State regulates the
4960 utilization and disposition of forest resources to the end that public welfare is promoted. And it can hardly be gainsaid that
4961 they merely evidence a privilege granted by the State to qualified entities, and do not vest in the latter a permanent or
4962 irrevocable right to the particular concession area and the forest products therein. They may be validly amended, modified,
4963 replaced or rescinded by the Chief Executive when national interests so require. Thus, they are not deemed contracts within
4964 the purview of the due process clause."

4965 Since timber licenses are not contracts, the non-impairment clause which reads:

4966 "SEC 10. No law impairing, the obligation of contracts shall be passed."

4967 cannot be invoked.

4968 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
4969 executive issuance declaring the cancellation or modification of existing timber licenses. Hence, the non-impairment clause
4970 cannot as yet be invoked. Nevertheless, granting further that a law has actually been passed mandating cancellations or
4971 modifications, the same cannot still be stigmatized as a violation of the non-impairment clause. This is because by its very
4972 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
4973 advancing the right of the people to a balanced and healthful ecology, promoting their health and enhancing the general
4974 welfare. In Abe vs. Foster Wheeler Corp., this Court stated:

4975 "The freedom of contract, under our system of government, is not meant to be absolute. The same is understood to be subject
4976 to reasonable legislative regulation aimed at the promotion of public health, moral, safety and welfare. In other words, the
4977 constitutional guaranty of non-impairment of obligations of contract is limited by the exercise of the police power of the
4978 State, in the interest of public health, safety, moral and general welfare."

4979 The reason for this is emphatically set forth in Nebia vs. New York quoted in Philippine American Life Insurance Co. vs.
4980 Auditor General, to wit:

4981 "Under our form of government the use of property and the making of contracts are normally matters of private and not of
4982 public concern. The general rule is that both shall be free of governmental interference. But neither property rights nor
4983 contract rights are absolute; for government cannot exist if the citizen may at will use his property to the detriment of his
4984 fellows, or exercise his freedom of contract to work them harm. Equally fundamental with the private right is that of the
4985 public to regulate it in the common interest."

4986 In short, the non-impairment clause must yield to the police power of the state.84 (Emphasis and underscoring supplied;
4987 citations omitted)

4988 The majority however argues that Oposa is not applicable since the investment in a logging concession is not as substantial
4989 an investment as that of a large scale mining contractor. Such a contention is patently absurd. Taken to its logical
4990 conclusion, the majority would have this Court exempt firms in highly capital intensive industries from the exercise of police
4991 power simply to protect their investment. That would mean that the legislature would, for example, be powerless to revoke or
4992 amend legislative franchises of public utilities, such as power and telecommunications firms, which no doubt require huge
4993 sums of capital.

4994 The majority opinion then proffers that the framers of the Constitution were pragmatic enough to know that foreign entities
4995 would not enter into such agreements without requiring arrangements for the protection of their investments, gains, and
4996 benefits or other forms of conditionalities. It goes on to argue that "by specifying such 'agreements involving assistance,' the
4997 framers of the Constitution necessarily gave implied assent to everything that these agreements necessarily entailed; or that
4998 could reasonably be deemed necessary to make them tenable and effective, including management authority with respect to
4999 the day-to-day operations of the enterprise and measures for the protection of the interests of the foreign corporation."

Page 111
5000 The deliberations of the Constitutional Commission, however, do not support the immediately foregoing contentions.

5001 MR. TINGSON. Within the purview of what the Gentleman is saying, would he welcome friendly foreigners to lend us their
5002 technical expertise in helping develop our country?

5003 MR. GARCIA. Part 2 of this proposal, Filipino control of the economy, in fact, says that the entry of foreign capital,
5004 technology and business enterprises into the national economy shall be effectively regulated to ensure the protection of the
5005 interest of our people.

5006 In other words, we welcome them but on our own terms. This is very similar to our position on loans. We welcome loans as
5007 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.
5008 They decided first to develop and grow, and were willing to pay only 10 percent of their foreign exchange earnings. That, I
5009 think, is a very commendable position given the economic situation of a country such as Peru. The Philippines is a similar
5010 case, especially when we realize that the foreign debt was made by a government that was bankrupt in its desire to serve the
5011 people.

5012 MR. MONSOD. Mr. Vice-President, I think we have to make a distinction that it is not really realistic to say that we will
5013 borrow on our own terms. Maybe we can say that we inherited unjust loans, and we would like to repay these on terms that
5014 are not prejudicial to our own growth. But the general statement that we should only borrow on our own terms is a bit
5015 unrealistic.

5016 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
5017 on our terms. In other words, banks do not lend out of the goodness of their hearts. Banks lend to make a profit.

5018 MR. TINGSON. Mr. Vice-President, I think the trouble in our country is that we have forgotten the scriptural injunction that
5019 the borrower becomes a slave to the lender. That is the trouble with our country; we have borrowed and borrowed but we
5020 forget that we become slaves to those who lend us.85 (Emphasis and underscoring supplied)

5021 By public respondent's information, "[t]he potential mining wealth in the Philippines is estimated at $840 billion or P47
5022 trillion or 10 times our annual GDP, and 15 times our total foreign debt of $56 billion. Globally, the Philippines ranks third
5023 in gold, fourth in copper, fifth in nickel and sixth in chromite." 86 With such high concentration of valuable minerals coupled
5024 with the Filipino people's willingness to protect and preserve ownership of their natural resources at the expense of retarding
5025 or postponing the exploration, development, and utilization of these resources, the Philippines clearly has the superior
5026 bargaining position and should be able to dictate its terms. No foreign entity should be able to bully the Philippines and
5027 intimidate the Government into conceding to certain conditions incompatible with the Constitution.

5028 Extent of foreign corporation's

5029 participation in the management of an FTAA

5030 Foreign-owned corporations, however, are not precluded from a limited participation in the management of the exploration,
5031 development and utilization of natural resources.

5032 Some degree of participation by the contractor in management, to assure the proper application of its investment and/or to
5033 facilitate the technical assistance and transfer of technology may be unavoidable and not necessarily undesirable. Thus,
5034 there is merit in respondent WMCP's contention, to which even petitioners conceded during the oral arguments, that a
5035 foreign-owned corporation is not prevented from having limited participation in the management assistance or participation
5036 so long as it is incidental to the financial or technical assistance being rendered:

5037 JUSTICE PANGANIBAN:

5038 Alright. Going back to verba legis, you say that the FTAA's are limited to financial or technical assistance only.

5039 ATTY. LEONEN:

5040 Either financial or technical assistance, yes your Honor.

5041 ATTY. LEONEN:

Page 112
5042 Full management, your Honor.

5043 JUSTICE PANGANIBAN:

5044 Full management is excluded.

5045 ATTY. LEONEN:

5046 Yes your Honor.

5047 JUSTICE PANGANIBAN:

5048 But incidental management to protect the financial or technical assistance should be allowed.

5049 ATTY. LEONEN:

5050 If a mining company would get the technical expertise to bring in drilling rig your Honor, and that is the sole contract, then
5051 we cannot imagine a situation were it is not the technicians that we will do the actual drilling your Honor, but for the entire
5052 contract area your Honor as it is now in the FTAA then I think that would be different.

5053 JUSTICE PANGANIBAN:

5054 Yes I agree. In other words, the words financial or technical may include parts of management, isn't it? Its reasonable in
5055 other words if I may re state it, it's reasonable to expect that entities,foreign entities who don't know anything about this
5056 country, well that is an exaggeration, who know not too much about this country, would not just extend money, period. They
5057 would want to have a say a little bit of say management and sometimes even in auditing of the company, isn't it reasonable
5058 to expect.

5059 ATTY. LEONEN:

5060 I would qualify my answer your Honor with management of what your Honor. It means if it's for development and utilization
5061 of the minerals.

5062 JUSTICE PANGANIBAN:

5063 No.

5064 ATTY. LEONEN:

5065 Yes your Honor, but if it's management of sub-contracted activity like a symposium then that would be all right your Honor.
5066 Mining companies do symposiums also.

5067 JUSTICE PANGANIBAN:

5068 Management to protect their own investments, whether it be technical or financial.

5069 ATTY. LEONEN:

5070 Their investment, your Honor, which cannot be the entire mining operation from my perspective, your Honor.

5071 JUSTICE PANGANIBAN:

5072 Yes I agree because there is the Constitutional provision of control and supervision, full control and supervision to the State.

5073 ATTY. LEONEN:

5074 And Filipino corporations your Honor.

5075 JUSTICE PANGANIBAN:

Page 113
5076 Or even Filipino corporation, the full control and supervision is still with the State.

5077 ATTY. LEONEN:

5078 Yes your Honor.

5079 JUSTICE PANGANIBAN:

5080 Even with Filipino citizens being the contractors, full control and supervision is still with the State.

5081 ATTY. LEONEN:

5082 Yes, your Honor.

5083 JUSTICE PANGANIBAN:

5084 In all these contract full control and supervision is with the State.

5085 ATTY. LEONEN:

5086 Yes your Honor and we can only hope that the State is responsive to the people we represent.

5087 xxx

5088 JUSTICE PANGANIBAN:

5089 Yes, yes. Can it also not be said reading that the Constitution that the safeguards on contracts with foreigners was left by
5090 the Constitutional Commission or by Constitution itself to Congress to craft out.

5091 ATTY. LEONEN:

5092 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
5093 they removed the word management and other arrangement and put the words either financial and technical.

5094 JUSTICE PANGANIBAN:

5095 Yes but you just admitted earlier that these two words would also include some form of management or other things to
5096 protect the investment or the technology being put by the foreign company.

5097 ATTY. LEONEN:

5098 Yes your Honor for so long as it's not the entire.

5099 JUSTICE PANGANIBAN:

5100 Yes, yes provided the State does not lose control and supervision, isn't it?

5101 ATTY. LEONEN:

5102 Yes your Honor.87 (Emphasis and underscoring supplied)

5103 Thus, the degree of the foreign corporation's participation in the management of the mining concern is co-extensive with and
5104 strictly limited to the degree of financial or technical assistance extended. The scope of the assistance defines the limits of
5105 the participation in management.

5106 However, to whatever extent the foreign corporation's incidental participation in the management of the mining concern may
5107 be, full control and supervision, sufficient to protect the interest of the Filipino people, over all aspects of mining operations
5108 must be retained by the Government. While this does not necessarily mean that the Government must assume the role of a
5109 back seat driver, actively second guessing every decision made by the foreign corporation, it does mean that sufficient

Page 114
5110 safeguards must be incorporated into the FTAA to insure that the people's beneficial interest in their natural resources are
5111 protected at all times.

5112 Moreover, the foreign contractor's limited participation in management, as the Court held in its Decision, should not
5113 effectively grant foreign-owned corporations beneficial ownership over the natural resources.

5114 The opinion, submitted by the OSG, of Bernardo M. Villegas, who was a Member of the Constitutional Commission and
5115 Chair of its Committee on National Economy and Patrimony, is not inconsistent with the foregoing conclusion. Commissioner
5116 Villegas opined:

5117 The phrase "service contracts" contained in the 1973 Constitution was deleted in the 1987 Constitution because there was
5118 the general perception among the Concom members that it was used during the Marcos regime as an instrument to
5119 circumvent the 60-40 limit in favor of Filipino ownership. There was also the impression that the inclusion of the word
5120 "management" in the description of the service contract concept in the 1973 Constitution was tantamount to ownership by
5121 the foreign partner.

5122 The majority of the Concom members, however, recognized the vital need of the Philippine economy for foreign capital and
5123 technology in the exploitation of natural resources to benefit Filipinos, especially the poor in the countryside where the
5124 mining sites are located. For this reason, the majority voted for "agreements involving financial or technical assistance" or
5125 FTAA.

5126 I maintain that the majority who voted Yes to this FTAA provision realized that an FTAA involved more than borrowing
5127 money and/or buying technology from foreigners. If an FTAA involved only a loan and/or purchase of technology, there would
5128 not have been a need for a constitutional provision because existing laws in the Philippines more than adequately regulate
5129 these transactions.

5130 It can be deducted from the various comments of both those who voted Yes and No to the FTAA provision that an FTAA also
5131 involves the participation in management of the foreign partner. What was then assumed in 1986 is now even clearer in the
5132 way business organizations have evolved in the last decade or so under the modern concept of good governance. There are
5133 numerous stakeholders in a business other than the stockholders or equity owners who participate actively in the
5134 management of a business enterprise. Not only do creditors and suppliers demand representation in boards of directors.
5135 There are also other so-called independent directors who actively participate in management.

5136 In summary, the word "management" was deleted from the description of the FTAA because some CONCOM delegates
5137 identified management with beneficial ownership. In order not to prolong the debate, those in favor of the FTAA provision
5138 agreed not to include the word management. But from what has been discussed above, it was clear in the minds of those who
5139 voted YES that the FTAA included more than just a loan and/or purchase of technology from foreigners but necessarily
5140 allowed the active participation of the foreign partners in the management of the enterprise engaged in the exploitation of
5141 natural resources.88 (Emphasis supplied).

5142 Under no circumstances should the execution of an FTAA be tantamount to the grant of a roving commission whereby a
5143 foreign contractor is given blanket and unfettered discretion to do whatever it deems necessary – denude watersheds, divert
5144 sources of water, drive communities from their homes – in pursuit of its pecuniary goals.

5145 Nor should the scope of an FTAA be broadened to include "managerial assistance." As discussed extensively in the
5146 Decision,89 "managerial assistance" – a euphemism by which full control and beneficial ownership of natural resources were
5147 vested in foreigners – is part and parcel of the martial law era "service contracts" and the old "concession regime" which the
5148 1987 Constitution has consigned to the dust bin of history.

5149 The elimination of the phrase "service contracts" effectuates another purpose. Intervenor PCM agrees that the Constitution
5150 tries to veer away from the old concession system, 90 which vested foreign-owned corporations control and beneficial
5151 ownership over Philippine natural resources. Hence, the 1987 Constitution also deleted the provision in the 1935 and 1973
5152 Constitutions authorizing the State to grant licenses, concessions, or leases for the exploration, exploitation, development, or
5153 utilization of natural resources.91

5154 Prof. Agabin had no flattering words for the concession system, which he described in his position paper as follows:

Page 115
5155 Under the concession system, the concessionaire makes a direct equity investment for the purpose of exploiting a particular
5156 natural resource within a given area. Thus, the concession amounts to a complete control by the concessionaire over the
5157 country's natural resource, for it is given exclusive and plenary rights to exploit a particular resource and is in effect assured
5158 ownership of that resource at the point of extraction. In consideration for the right to exploit a natural resource, the
5159 concessionaire either pays rent or royalty which is a fixed percentage of the gross proceeds. But looking beyond the legal
5160 significance of the concession regime, we can see that there are functional implications which give the concessionaire great
5161 economic power arising from its exclusive equity holding. This includes, first, appropriation of the returns of the
5162 undertaking, subject to a modest royalty; second, exclusive management of the project; third, control of production of the
5163 natural resource, such as volume of production, expansion, research and development; and fourth, exclusive responsibility for
5164 downstream operations, like processing, marketing, and distribution. In short, even if nominally, the state is the sovereign
5165 and owner of the natural resource being exploited, it has been shorn of all elements of control over such natural resource
5166 because of the exclusive nature of the contractual regime of the concession. The concession system, investing as it does
5167 ownership of natural resources, constitutes a consistent inconsistency with the principle embodied in our Constitution that
5168 natural resources belong to the State and shall not be alienated, not to mention the fact that the concession was the bedrock
5169 of the colonial system in the exploitation of natural resources.92 (Underscoring in the original)

5170 Vestiges of the concession system endured in the service contract regime, including the vesting on the contractor of the
5171 management of the enterprise, as well as the control of production and other matters, such as expansion and
5172 development. 93 Also, while title to the resource discovered was nominally in the name of the government, the contractor had
5173 almost unfettered control over its disposition and sale.94

5174 The salutary intent of the 1987 Constitution notwithstanding, these stubborn features of the concession system persist in the
5175 Mining Act of 1995. The statute allows a foreign-owned corporation to carry out mining operations,95which includes the
5176 conduct of exploration,96 development97 and utilization98 of the resources.99 The same law grants foreign contractors auxiliary
5177 mining rights, i.e., timber rights,100 water rights,101 the right to possess explosives,102 easement rights,103 and entry into
5178 private lands and concession areas.104 These are the very same rights granted under the old concession and service contract
5179 systems.

5180 The majority opinion proposes two alternative standards of Government control over FTAA operations. Thus, in the opening
5181 paragraphs it states:

5182 Full control is not anathema to day-to-day management by the contractor, provided that the State retains the power to direct
5183 overall strategy; and to set aside, reverse, or modify plans and actions of the contractor. The idea of full control is similar to
5184 that which is exercised by the board of directors of a private corporation x x x (Emphasis and underscoring supplied)

5185 However, the majority opinion subsequently substantially reduces the scope of its definition of "control" in this wise:

5186 The concept of control adopted in Section 2 of Article XII must be taken to mean less than dictatorial, all-encompassing
5187 control; but nevertheless sufficient to give the State the power to direct, restrain, regulate and govern the affairs of the
5188 extractive enterprises. Control by the State may be on a macro level, through the establishment of policies, guidelines,
5189 regulations, industry standards and similar measures that would enable the government to control the conduct of affairs in
5190 various enterprises and restrain activities deemed not desirable or beneficial. (Emphasis and underscoring supplied;
5191 citations omitted; italics in the original)

5192 This second definition is apparently analogous to regulatory control which the Government is automatically presumed to
5193 exercise over all business activities by virtue of the Police Power. This definition of the "full control and supervision"
5194 mandated by Section 2, Article XII of the Constitution strikes a discordant and unconvincing chord as it gives no effect to the
5195 mandated "full" character of the State's control but merely places it at par with any other business activity or industry
5196 regulated by the Government.

5197 But even under this second and more limited concept of regulatory control, the provisions of the Mining Act pertaining to
5198 FTAAs do not pass the test of constitutionality.

5199 To be sure, the majority opinion cites a litany of documents, plans, reports and records which the foreign FTAA contractor is
5200 obliged to submit or make available under the Mining Act and DAO 96-40. However, the mere fact that the Act requires the
5201 submission of work programs and minimum expenditure commitments 105 does not provide adequate protection. These were

Page 116
5202 also required under the old concession106 and service contract107 systems, but did not serve to place full control and
5203 supervision of the country's natural resources in the hands of the Government.

5204 Conspicuously absent from the Mining Act are effective means by which the Government can protect the beneficial interest
5205 of the Filipino people in the exploration, development and utilization of their resources. It appears from the provisions of the
5206 Mining Act that the Government, once it has determined that a foreign corporation is eligible for an FTAA and enters into
5207 such an agreement, has very little say in the corporation's actual operations.

5208 Thus, when pressed to identify the mechanism by which the Government can administratively compel compliance with the
5209 foregoing requirements as well as the other terms and conditions of the Mining Act, DAO 96-40 and DAO 99-56, the majority
5210 can only point to the cancellation of the agreement(s) and/or the incentives concerned under Section 95 to 99 of the Mining
5211 Act:108

5212 CHAPTER XVII

5213 Ground for Cancellation, Revocation, and Termination

5214 SECTION 95. Late or Non-filing of Requirements. — Failure of the permittee or contractor to comply with any of the
5215 requirements provided in this Act or in its implementing rules and regulations, without a valid reason, shall be sufficient
5216 ground for the suspension of any permit or agreement provided under this Act.

5217 SECTION 96. Violation of the Terms and Conditions of Permit or Agreements. — Violation of the terms and conditions of the
5218 permits or agreements shall be a sufficient ground for cancellation of the same.

5219 SECTION 97. Non-payment of Taxes and Fees. — Failure to pay taxes and fees due the Government for two (2) consecutive
5220 years shall cause the cancellation of the exploration permit, mineral agreement, financial or technical assistance agreement
5221 and other agreements and the re-opening of the area subject thereof to new applicants.

5222 SECTION 98. Suspension or Cancellation of Tax Incentives and Credits. — Failure to abide by the terms and conditions of
5223 tax incentives and credits shall cause the suspension or cancellation of said incentives and credits.

5224 SECTION 99. Falsehood or Omission of Facts in the Statement — All statements made in the exploration permit, mining
5225 agreement and financial or technical assistance agreement shall be considered as conditions and essential parts thereof and
5226 any falsehood in said statements or omission of facts therein which may alter, change or affect substantially the facts set
5227 forth in said statements may cause the revocation and termination of the exploration permit, mining agreement and
5228 financial or technical assistance agreement.

5229 An examination of the foregoing fails to impress. For instance, how does cancellation of the FTAA under Section 97 for
5230 nonpayment of taxes and fees (comprising the "basic share" of the government) for two consecutive years facilitate the
5231 collection of the unpaid taxes and fees? How does it preserve and protect the beneficial interest of the Filipino people? For
5232 that matter, how does the DENR administratively compel compliance with the anti-pollution and other requirements?109 If
5233 minerals are found to have been sold overseas at less than the most advantageous market prices, how does the DENR obtain
5234 satisfaction from the offending foreign FTAA contractor for the difference?

5235 In sum, the enforcement provisions of the Mining Act and its Implementing Rules are scarcely effective, and, worse,
5236 perceptibly less than the analogous provisions of other Government Regulatory Agencies.

5237 For instance, the Bangko Sentral Ng Pilipinas, the Central Monetary Authority mandated by the Constitution to exercise
5238 supervision (but not full control and supervision) over banks,110 is empowered to (1) appoint a conservator with such powers
5239 as shall be deemed necessary to take charge of the assets, liabilities and management of a bank or quasi-bank;111 (2) under
5240 certain well defined conditions, summarily and without need for prior hearing forbid a bank from doing business in the
5241 Philippines and appoint the Philippine Deposit Insurance Corporation as receiver; 112 and (3) impose a number of
5242 administrative sanctions such as (a) fines not to exceed P30,000 per day for each violation, (b) suspension of a bank's
5243 rediscounting privileges, (c) suspension of lending or foreign exchange operations or authority to accept new deposits or make
5244 new investments, (d) suspension of interbank clearing privileges, and (e) revocation of quasi-banking license.113

5245 Similarly, to give effect to the Constitutional mandate to afford full protection to labor, 114 the Labor Code115 grants the
5246 Secretary of Labor the power to (1) issue compliance orders to give effect to the labor standards provisions of the Code; 116 and

Page 117
5247 (2) enjoin an intended or impending strike or lockout by assuming jurisdiction over a labor dispute in an industry determined
5248 to be indispensable to the national interest.117

5249 Under the Tax Code, the Commissioner of Internal Revenue has the power to (1) temporarily suspend the business
5250 operations of a taxpayer found to have committed certain specified violations;118 (2) order the constructive distraint of the
5251 property of a taxpayer;119 and (3) impose the summary remedies of distraint of personal property and or levy on real property
5252 for nonpayment of taxes.120

5253 In comparison, the Mining Act and its Implementing Rules conspicuously fail to provide the DENR with anything remotely
5254 analogous to the foregoing regulatory and enforcement powers of other government agencies.

5255 In fine, the provisions of the Mining Act and its Implementing Rules give scarcely more than lip service to the constitutional
5256 mandate for the State to exercise full control and supervision over the exploration, development and utilization of Philippine
5257 Natural Resources. Evaluated as a whole and in comparison with other government agencies, the provisions of the Mining
5258 Act and its Implementing Rules fail to meet even the reduced standard of effective regulatory control over mining operations.
5259 In effect, they abdicate control over mining operations in favor of the foreign FTAA contractor. For this reason, the provisions
5260 of the Mining Act, insofar as they pertain to FTAA contracts, must be declared unconstitutional and void.

5261 The majority opinion vigorously asserts that it is the Chief Executive who exercises the power of control on behalf of the
5262 State.

5263 This only begs the question. How does President effectively enforce the terms and conditions of an FTAA? What specific
5264 powers are subsumed within the constitutionally mandated "power of control?" On these particular matters the majority
5265 opinion, like the Mining Act, is silent.

5266 Provisions of the Mining Act pertaining to FTAAs

5267 void for conveying beneficial ownership of
5268 Philippine mineral resources to foreign contractors

5269 An examination of the Mining Act reveals that the law grants the lion's share of the proceeds of the mining operation to the
5270 foreign corporation. Thus the second and third paragraphs of Section 81 of the law provide:

5271 SECTION 81. Government Share in Other Mineral Agreements. — x x x

5272 The Government share in financial or technical assistance agreement shall consist of, among other things, the contractor's
5273 corporate income tax, excise tax, special allowance, withholding tax due from the contractor's foreign stockholders arising
5274 from dividend or interest payments to the said foreign stockholder in case of a foreign national and all such other taxes,
5275 duties and fees as provided for under existing laws.

5276 The collection of Government share in financial or technical assistance agreement shall commence after the financial or
5277 technical assistance agreement contractor has fully recovered its pre-operating expenses, exploration, and development
5278 expenditures, inclusive. (Emphasis supplied)

5279 Under the foregoing provisions, the Government does not receive a share in the proceeds of the mining operation. All it
5280 receives are taxes and fees from the foreign corporation, just as in the old concession 121 and service contract122 regimes. The
5281 collection of taxes and fees cannot be considered a return on the resources mined corresponding to beneficial ownership of the
5282 Filipino people. Taxes are collected under the State's power to generate funds to finance the needs of the citizenry and to
5283 advance the common weal.123 They are not a return on investment or property. Similarly, fees are imposed under the police
5284 power primarily for purposes of regulation.124Again, they do not correspond to a return on investment or property.

5285 Even more galling is the stipulation in the above-quoted third paragraph that the Government's share (composed only of
5286 taxes and fees) shall not be collected until after the foreign corporation has "fully recovered its pre-operating expenses,
5287 exploration, and development expenditures, inclusive." In one breath this provision virtually guarantees the foreigner a
5288 return on his investment while simultaneously leaving the Government's (and People's) share to chance.

5289 It is, therefore, clearly evident that the foregoing provisions of the Mining Act effectively transfer the beneficial ownership
5290 over the resources covered by the agreement to a foreigner, in contravention of the letter and spirit of the Constitution.

Page 118
5291 Consequently, the assailed Decision inescapably concluded that:

5292 The underlying assumption in all these provisions is that the foreign contractor manages the mineral resources, just like the
5293 foreign contractor in a service contract.125

5294 The Mining Act gives the foreign-owned corporation virtually complete control, not mere "incidental" participation in
5295 management, over the entire operations.

5296 The law is thus at its core a retention of the concession system. It still grants beneficial ownership of the natural resources to
5297 the foreign contractor and does little to affirm the State's ownership over them, and its supervision and control over their
5298 exploration, development and utilization.

5299 While agreeing that the Constitution vests the beneficial ownership of Philippine minerals with the Filipino people, entitling
5300 them to gains, rewards and advantages generated by these minerals, the majority opinion nevertheless maintains that the
5301 Mining Act, as implemented by DENR Administrative Order 99-56126 (DAO 99-56), is constitutional as, so it claims, it does
5302 not "convey beneficial ownership of any mineral resource or product to any foreign FTAA contractor." The majority opinion
5303 adds that the State's share, as expounded by DAO 99-56, amounts to "real contributions to the economic growth and general
5304 welfare of the country," at the same time allowing the contractor to recover "a reasonable return on its investments in the
5305 project."

5306 Under DAO 99-56, the "government's share" in an FTAA is divided into (1) a "basic government share" composed of a number
5307 of taxes and fees127 and (2) an "additional government share"128 computed according to one of three possible methods – (a) a
5308 50-50 sharing in the cumulative present value of cash flows, 129 (b) a profit related additional government share 130 or (c) an
5309 additional share based on the cumulative net mining revenue131 – at the option of the contractor.

5310 Thus, the majority opinion claims that the total government share, equal to the sum of the "basic government share" and the
5311 "additional government share," will achieve "a fifty-fifty sharing – between the government and the contractor – of net
5312 benefits from mining."

5313 This claim is misleading and meaningless for two reasons:

5314 First, as priorly discussed, the taxes and fees which make up the government's "basic share" cannot be considered a return
5315 on the resources mined corresponding to the beneficial ownership of the Filipino people. Again, they do not correspond to a
5316 return on investment or property.

5317 Second, and more importantly, the provisions of the Mining Act effectively allow the foreign contractor to circumvent all the
5318 provisions of DAO 99-56, including its intended "50-50 sharing" of the net benefits from mining, and reduce government's
5319 total share to as low as TWO percent (2%) of the value of the minerals mined.

5320 The foreign contractor can do this because Section 39 of the Mining Act allows it to convert its FTAA into a Mineral
5321 Production-Sharing Agreement (MPSA) by the simple expedient of reducing its equity in the corporation undertaking the
5322 FTAA to 40%:

5323 SECTION 39. Option to Convert into a Mineral Agreement. — The contractor has the option to convert the financial or
5324 technical assistance agreement to a mineral agreement at any time during the term of the agreement, if the economic
5325 viability of the contract area is found to be inadequate to justify large-scale mining operations, after proper notice to the
5326 Secretary as provided for under the implementing rules and regulations: Provided, That the mineral agreement shall only be
5327 for the remaining period of the original agreement.

5328 In the case of a foreign contractor, it shall reduce its equity to forty percent (40%) in the corporation, partnership,
5329 association, or cooperative. Upon compliance with this requirement by the contractor, the Secretary shall approve the
5330 conversion and execute the mineral production-sharing agreement.(Emphasis and underscoring supplied)

5331 And under Section 80 of the Mining Act, in connection with Section 151(a) of the National Internal Revenue Code 132(Tax
5332 Code), the TOTAL GOVERNMENT SHARE in an MPSA is ONLY TWO PERCENT (2%) of the value of the minerals. Section
5333 80 of the Mining Act provides:

Page 119
5334 SECTION 80. Government Share in Mineral Production Sharing Agreement. — The total government share in a mineral
5335 production sharing agreement shall be the excise tax on mineral products as provided inRepublic Act No. 7729,
5336 amending Section 151(a) of the National Internal Revenue Code, as amended. (Emphasis supplied)

5337 While Section 151(a) of the Tax Code reads:

5338 Sec. 151. Mineral Products. — (a) Rates of Tax. — There shall be levied, assessed and collected on mineral, mineral
5339 products and quarry resources, excise tax as follows:

5340 (1) On coal and coke, a tax of ten pesos (P10.00) per metric ton.

5341 (2) On non-metallic minerals and quarry resources, a tax of two percent (2%) based on the actual market value of the annual
5342 gross output thereof at the time of removal, in the case of those locally extracted or produced; or the value used by the
5343 Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax, in the case of
5344 importation.

5345 (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
5346 case of those locally extracted or produced; or the value used by the Bureau of Customs in determining tariff and customs
5347 duties, net of excise tax and value-added tax, in the case of importation, in accordance with the following schedule:

5348 (a) Copper and other metallic minerals:

5349 (i) On the first three (3) years upon the effectivity of this Act, one percent (1%);

5350 (ii) On the fourth and fifth year, one and a half percent (1 1/2%); and

5351 (iii) On the sixth year and thereafter, two percent (2%)

5352 (b) Gold and chromite, two percent (2%)

5353 (4) On indigenous petroleum, a tax of fifteen percent (15%) of the fair international market price thereof, on the first taxable
5354 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
5355 buyer or purchaser. The phrase 'first taxable sale, barter, exchange or similar transaction' means the transfer of indigenous
5356 petroleum in its original state to a first taxable transferee. The fair international market price shall be determined in
5357 consultation with an appropriate government agency.

5358 For the purpose of this subsection, 'indigenous petroleum' shall include locally extracted mineral oil, hydrocarbon gas,
5359 bitumen, crude asphalt, mineral gas and all other similar or naturally associated substances with the exception of coal, peat,
5360 bituminous shale and/or stratified mineral deposits. (Emphasis supplied)

5361 By taking advantage of the foregoing provisions and selling 60% of its equity to a Filipino corporation (such as any of the
5362 members of respondent-in-intervention Philippine Chamber of Mines) a foreign contractor can easily reduce the total
5363 government's share (held in trust for the benefit of the Filipino People) in the minerals mined to a paltry 2% while
5364 maintaining a 40% beneficial interest in the same.

5365 What is more, if the Filipino corporation acquiring the foreign contractor's stake is itself 60% Filipino-owned and 40%
5366 foreign-owned (a "60-40" Filipino corporation such as Sagittarius Mines, the putative purchaser of WMC's 100% equity in
5367 WMCP), then the total beneficial interest of foreigners in the mineral output of the mining concern would constitute a
5368 majority of 64%133 while the beneficial ownership of Filipinos would, at most,134 amount to 36% – 34% for the Filipino
5369 stockholders of the 60-40 Filipino corporation and 2% for the Government (in trust for the Filipino People).

5370 The foregoing scheme, provided for in the Mining Act itself, is no different and indeed is virtually identical to that embodied
5371 in Section 7.9 of the WMCP FTAA which the majority opinion itself found to be "without a doubt grossly disadvantageous to
5372 the government, detrimental to the interests of the Filipino people, and violative of public policy:"

5373 x x x While Section 7.7 gives the government a 60 percent share in the net mining revenues of WMCP from the
5374 commencement of commercial production; Section 7.9 deprives the government of part or all of the said 60 percent. Under the
5375 latter provision, should WMCP's foreign shareholders – who originally owned 100 percent of the equity – sell 60 percent or

Page 120
5376 more of its outstanding capital stock to a Filipino citizen or corporation, the State loses its right to receive its 60 percent
5377 share in net mining revenues under Section 7.7.

5378 Section 7.9 provides

5379 The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7 shall be reduced by 1percent of
5380 Net Mining Revenues for every 1percent ownership interest in the Contractor (i.e., WMCP) held by a Qualified Entity .

5381 Evidently, what Section 7.7 grants to the State is taken away in the next breath by Section 7.9 without any offsetting
5382 compensation to the State. Thus, in reality, the State has no vested right to receive any income from the FTAA for the
5383 exploration of its mineral resources. Worse, it would seem that what is given to the State in Section 7.7 is by mere tolerance
5384 of WMCP's foreign stockholders, who can at any time cut off the government's entire 60 percent share. They can do so by
5385 simply selling 60 percent of WMCP's outstanding stock to a Philippine citizen or corporation. Moreover, the proceeds of such
5386 sale will of course accrue to the foreign stockholders of WMCP, not to the State.

5387 The sale of 60 percent of WMCP's outstanding equity to a corporation that is 60 percent Filipino-owned and 40 percent
5388 foreign-owned will still trigger the operation of Section 7.9. Effectively, the State will lose its right to receive all 60 percent of
5389 the net mining revenues of WMCP; and foreign stockholders will own beneficially up to 64 percent of WMCP , consisting of
5390 the remaining 40percent foreign equity therein, plus the 24 percent pro-rata share in the buyer-corporation.

5391 xxx

5392 At bottom, Section 7.9 has the effect of depriving the State of its 60 percent share in the net mining revenues of
5393 WMCP without any offset or compensation whatsoever. It is possible that the inclusion of the offending provision was
5394 initially prompted by the desire to provide some form of incentive for the principal foreign stockholder in WMCP to
5395 eventually reduce its equity position and ultimately divest itself thereof in favor of Filipino citizens and
5396 corporations. However, as finally structured, Section 7.9 has the deleterious effect of depriving government of the entire 60
5397 percent share in WMCP's net mining revenues, without any form of compensation whatsoever. Such an outcome is
5398 completely unacceptable.

5399 The whole point of developing the nation's natural resources is to benefit the Filipino people, future generations included.
5400 And the State as sovereign and custodian of the nation's natural wealth is mandated to protect, conserve, preserve and
5401 develop that part of the national patrimony for their benefit. Hence, the Charter lays great emphasis on "real contributions
5402 to the economic growth and general welfare of the country" [Footnote 75 of the Dissent omitted] as essential guiding
5403 principles to be kept in mind when negotiating the terms and conditions of FTAAs.

5404 xxx

5405 Section 7.9 of the WMCP FTAA effectively gives away the State's share of net mining revenues (provided for in Section 7.7)
5406 without anything in exchange. Moreover, this outcome constitutes unjust enrichment on the part of local and foreign
5407 stockholders of WMCP. By their mere divestment of up to 60 percent equity in WMCP in favor of Filipino citizens and/or
5408 corporations, the local and foreign stockholders get a windfall. Their share in the net mining revenues of WMCP is
5409 automatically increased, without their having to pay the government anything for it. In short, the provision in question is
5410 without a doubt grossly disadvantageous to the government, detrimental to the interests of the Filipino people, and violative
5411 of public policy. (Emphasis supplied; italics and underscoring in the original; footnotes omitted)

5412 The foregoing disquisition is directly applicable to the provisions of the Mining Act. By selling 60% of its outstanding equity
5413 to a 60% Filipino-owned and 40% foreign-owned corporation, the foreign contractor can readily convert its FTAA into an
5414 MPSA. Effectively, the State's share in the net benefits from mining will be automatically and drastically reduced from the
5415 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
5416 but eliminated by Sections 39 and 80. At the same time, foreign stockholders will beneficially own up to 64% of the mining
5417 concern, consisting of the remaining 40% foreign equity therein plus the 24% pro-rata share in the buyer-corporation.

5418 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
5419 incentive for the foreign FTAA contractor to eventually reduce its equity position and ultimately divest itself thereof in favor
5420 of Filipino citizens and corporations. However, the net effect is to allow the Filipino people to be robbed of their just share in
5421 Philippine mineral resources. Such an outcome is completely unacceptable and cannot be sanctioned by this Court.

Page 121
5422 By this simple conversion, which may be availed of at any time, the local and foreign stockholders will obtain a windfall at
5423 the expense of the Government, which is the trustee of the Filipino people. The share of these stockholders in the net mining
5424 revenues from Philippine resources will be automatically increased without their having to pay the government anything in
5425 exchange.

5426 On this basis alone, and despite whatever other differences of opinion might exist, the majority must concede that the
5427 provisions of the Mining Act are grossly disadvantageous to the government, detrimental to the interests of the Filipino
5428 people, and violative of Section 2, Article XII of the Constitution.

5429 En passant, it is significant to note that Section 39 of the Mining Act allows an FTAA holder to covert its agreement to an
5430 MPSA "at any time during the term of the agreement."

5431 As any reasonable person with a modicum of business experience can readily determine, the optimal time for the foreign
5432 contractor to convert its FTAA into an MPSA is after the completion of the exploration phase and just before undertaking the
5433 development, construction and utilization phase. This is because under Section 56 (a) of DAO 40-96, the requirement for a
5434 minimum investment of Fifty Million U.S. Dollars (US$ 50,000,000.00) 135 is only applicable during the development,
5435 construction and utilization phase and NOT during the exploration phase where the foreign contractor need only comply
5436 with the stipulated minimum ground expenditures:

5437 SECTION 56. Terms and Conditions of an FTAA. — The following terms, conditions and warranties shall be incorporated in
5438 the FTAA, namely:

5439 a. A firm commitment, in the form of a sworn statement during the existence of the Agreement, that the Contractor shall
5440 comply with minimum ground expenditures during the exploration and pre-feasibility periods as follows:

5441 Year US $/Hectare

5442 12

5443 22

5444 38

5445 48

5446 5 18

5447 6 23

5448 and a minimum investment of Fifty Million US Dollars ($50,000,000.00) or its Philippine Peso equivalent in the case of
5449 Filipino Contractor for infrastructure and development in the contract area. If a Temporary/Special Exploration Permit has
5450 been issued prior to the approval of an FTAA, the exploration expenditures incurred shall form part of the expenditures
5451 during the first year of the exploration period of the FTAA.

5452 In the event that the Contractor exceeds the minimum expenditure requirement in any one (1) year, the amount in excess
5453 may be carried forward and deducted from the minimum expenditure required in the subsequent year. In case the minimum
5454 ground expenditure commitment for a given year is not met for justifiable reasons as determined by the Bureau/concerned
5455 Regional Office, the unexpended amount may be spent on the subsequent year(s) of the exploration period. (Emphasis
5456 supplied)

5457 By converting its FTAA to an MPSA just before undertaking development, construction and utilization activities, a foreign
5458 contractor further maximizes its profits by avoiding its obligation to make a minimum investment of US$ 50,000,000.00.
5459 Assuming an exploration term of 6 years, it will have paid out only a little over US$ 2.4 million 136 in minimum ground
5460 expenditures.

5461 Clearly, under the terms and provisions of the Mining Act, even the promised influx of tens of millions of dollars in direct
5462 foreign investments is merely hypothetical and ultimately illusory.

Page 122
5463 Grant of Exploration Permits to Foreign
5464 Corporations is Unconstitutional

5465 The majority is also convinced that Section 3(aq) of the Mining Act, defining foreign corporations as a qualified entity for the
5466 purposes of granting exploration permits, is "not unconstitutional."

5467 The questioned provision reads:

5468 SECTION 3. Definition of Terms. — As used in and for purposes of this Act, the following terms, whether in singular or
5469 plural, shall mean:

5470 xxx

5471 (aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation, partnership,
5472 association, or cooperative organized or authorized for the purpose of engaging in mining, with technical and financial
5473 capability to undertake mineral resources development and duly registered in accordance with law at least sixty per centum
5474 (60%) of the capital of which is owned by citizens of the Philippines: Provided, That a legally organized foreign-owned
5475 corporation shall be deemed a qualified person for purposes of granting an exploration permit, financial or technical
5476 assistance agreement or mineral processing permit. (Emphasis supplied)

5477 In support of its contention that the above-quoted provision does not offend against the Constitution, the majority opinion
5478 states that: (1) "there is no prohibition at all against foreign or local corporations or contractors holding exploration permits;"
5479 and (2) an "exploration permit serves a practical and legitimate purpose in that it protects the interests and preserves the
5480 rights of the exploration permit grantee x x x during the period of time that it is spending heavily on exploration works,
5481 without yet being able to earn revenues x x x."

5482 The majority opinion also characterizes an exploration permit as "an authorization for the grantee to spend its funds on
5483 exploration programs that are pre-approved by the government." And it comments that "[t]he State risks nothing and loses
5484 nothing by granting these permits" to foreign firms.

5485 These contentions fail for two obvious reasons.

5486 First, setting aside for the moment all disagreements pertaining to the construction of Section 2, Article XII of the
5487 Constitution, the following, at the very least, may be said to have been conclusively determined by this Court: (1) the only
5488 constitutionally sanctioned method by which a foreign entity may participate in the natural resources of the Philippines is by
5489 virtue of paragraph 4 of Section 2, Article XII of the Constitution; (2) said provision requires that an agreement be entered
5490 into (3) between the President and the foreign corporation (4) for the large-scale exploration, development, and utilization of
5491 minerals, petroleum, and other mineral oils (5) according to the general terms and conditions provided by law, (6) based
5492 on real contributions to the economic growth and general welfare of the country; (7) such agreements will promote the
5493 development and use of local scientific and technical resources; and (8) the President shall notify the Congress of every
5494 contract entered into in accordance with this provision, within thirty days from its execution.

5495 However, by the majority opinion's express admission, the grant of an exploration permit does not even contemplate the
5496 entry into an agreement between the State and the applicant foreign corporation since "prior to the issuance of such FTAA or
5497 mineral agreement, the exploration permit grantee (or prospective contractor) cannot yet be deemed to have entered into any
5498 contract or agreement with the State."

5499 Consequently, the grant of an exploration permit – which is not an agreement – cannot possibly be construed as being
5500 favorably sanctioned by paragraph 4 of Section 2, Article XII of the Constitution which refers to "agreements … involving
5501 either financial or technical assistance." Not falling within the exception embodied in paragraph 4 of Section 2, Article XII of
5502 the Constitution, the grant of such a permit to a foreign corporation is prohibited and the proviso providing for such grant in
5503 Section 3 (aq) of the Mining Act is void for being unconstitutional.

5504 Second, given the foregoing discussion on the circumvention of the State's share in an FTAA, it is clearly evident that to
5505 allow the grant of exploration permits to foreign corporations is to allow the whole-sale circumvention of the entire system of
5506 FTAAs mandated by the Constitution.

Page 123
5507 For Chapter IV of the Mining Act on Exploration Permits grants to the permit holder, including foreign corporations, the
5508 principal rights conferred on an FTAA contractor during the exploration phase, including (1) the right to enter, occupy and
5509 explore the permit area under Section 23,137 and (2) the exclusive right to an MPSA or other mineral agreements or FTAAs
5510 upon the filing of a Declaration of Mining Project Feasibility under Sections 23 and 24; 138 but requires none of the obligations
5511 of an FTAA – not even the obligation under Section 56 of DAO 40-96 to pay the minimum ground expenditures during the
5512 exploration and feasibility period.139

5513 Thus, all that a foreign mining company need do to further maximize its profits and further reduce the Government's
5514 revenue from mining operations is to apply for an exploration permit and content itself with the "smaller" permit area of 400
5515 meridional blocks onshore (which itself is not small considering that it is equivalent to 32,400 hectares or 324,000,000 square
5516 meters).140 It is not obligated to pay any minimum ground expenditures during the exploration period.

5517 Should it discover minerals in commercial quantities, it can circumvent the Fiscal Regime in DAO 99-56 by divesting 60% of
5518 its equity in favor of a Philippine corporation and opting to enter into an MPSA. By doing so it automatically reduces the
5519 Government's TOTAL SHARE to merely 2% of value of the minerals mined by operation of Section 81.

5520 And if the Philippine corporation to which it divested its 60% foreign equity is itself a 60-40 Philippine Corporation, then the
5521 beneficial interest of foreigners in the minerals mined would be a minimum of 64%.

5522 In light of the foregoing, Section 3 (aq), in so far as it allows the granting of exploration permits to foreign corporations, is
5523 patently unconstitutional, hence, null and void.

5524 II

5525 Invalidity of the WMCP FTAA Sale of foreign

5526 interest in WMCP to a Filipino corporation
5527 did not render the case moot and academic.

5528 Respondent WMCP, now renamed Tampakan Mineral Resources Corporation, submits that the case has been rendered moot
5529 since "[e]xcept for the nominal shares of directors, 100% of TMRC's share are now owned by Sagittarius Mines, which is a
5530 Filipino-owned corporation. More than 60% of the equity of Sagittarius is owned by Filipinos or Filipino-owned
5531 corporations."141 This Court initially reserved judgment on this issue.142

5532 Petitioner invokes by analogy the rule that where land is invalidly transferred to an alien who subsequently becomes a
5533 Filipino citizen or transfers it to one, the infirmity in the original transaction is considered cured and the title of the
5534 transferee is rendered valid, citing Halili v. Court of Appeals.143 The rationale for this rule is that if the ban on aliens from
5535 acquiring lands is to preserve the nation's lands for future generations of Filipinos, that aim or purpose would not be
5536 thwarted but achieved by making lawful the acquisition of real estate by Filipino citizens. 144

5537 Respondent WMCP's analogy is fallacious. Whether the legal title to the corporate vehicle holding the FTAA has been
5538 transferred from a foreigner to a Filipino is irrelevant. What is relevant is whether a foreigner has improperly and illegally
5539 obtained an FTAA and has therefore benefited from the exploration, development or utilization of Philippine natural
5540 resources in a manner contrary to the provisions of the Constitution.

5541 As above-stated the doctrine enunciated in Halili is based on the premise that the purpose of the Constitution in prohibiting
5542 alien ownership of agricultural land is to retain the ownership or legal title of the land in the hands of Filipinos. This
5543 purpose is not identical or even analogous to that in Section 2, Article XII of the Constitution. As priorly discussed, the
5544 primary purpose of the provisions on National Patrimony is to preserve to the Filipino people the beneficial ownership of
5545 their natural resources – i.e. the right to the gains, rewards and advantages generated by their natural resources. Except
5546 under the terms of Section 2, Article XII, foreigners are prohibited from involving themselves in the exploration, development
5547 or utilization of these resources, much less from profiting from them.

5548 Divestment by a foreigner of an illegally acquired right to mine Philippine resources does not alter the illegal character of the
5549 right being divested or sold. Indeed, such divestment or sale is obviously a method by which the foreigner may derive
5550 pecuniary benefit from his unlawful act since he receives payment for his illegally acquired interest in the country's natural
5551 resources.

Page 124
5552 To rule otherwise would be to condone, even to invite, foreign entities to obtain Philippine mining interests in violation of the
5553 Constitution with the assurance that they can escape liability and at the same time make a tidy sum by later selling these
5554 interests to Filipinos. This is nothing less than allowing foreign speculation in Philippine natural resources. Worse, there is
5555 the very real possibility that these foreign entities may intentionally inflate the value of their illegally–acquired mineral
5556 rights to the detriment of their Filipino purchasers as the past Bre-X scandal145 and recent Shell oil reserve
5557 controversy146 vividly illustrate.

5558 To allow a foreigner to profit from illegally obtained mining rights or FTAAs subverts and circumvents the letter and intent
5559 of Article XII of the Constitution. It facilitates rather than prevents the rape and plunder of the nation's natural resources by
5560 unscrupulous neo-colonial entities. It thwarts, rather than achieves, the purpose of the fundamental law.

5561 As applied to the facts of this case, respondent WMCP, in essence, claims that now that the operation and management of
5562 the WMCP FTAA is in the hands of a Filipino company, no serious question as to the FTAA's validity need arise.

5563 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
5564 – directly leads to some very serious questions concerning the WMCP FTAA and its validity. First, if a Filipino corporation is
5565 capable of undertaking the terms of the FTAA, why was an agreement with a foreign owned corporation entered into in the
5566 first place? Second, does not the fact that, as alleged by petitioners 147 and admitted by respondent WMCP,148 Sagittarius,
5567 WMCP's putative new owner, is capitalized at less than half the purchase price 149 of WMC's shares in WMCP, a strong
5568 indication that Sagittarius is merely acting as the dummy of WMC? Third, if indeed WMCP has, to date, spent
5569 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
5570 only US$10,000,000.00? Finally, considering that, as emphasized by WMCP, 151 "payment of the purchase price by Sagittarius
5571 to WMC will come only after the commencement of commercial production," hasn't WMC effectively acquired a beneficial
5572 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
5573 beneficial interest by a foreign corporation permitted under our Constitution?

5574 Succinctly put, the question remains: What is the validity of the FTAA by which WMC, a fully foreign owned corporation, has
5575 acquired a more than half billion peso152 interest in Philippine mineral resources located in a contract area of 99,387 (alleged
5576 to have later been reduced to 30,000)153 hectares of land spread across the four provinces of South Cotabato, Sultan Kudarat,
5577 Davao del Sur and North Cotabato?

5578 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
5579 corporation, whether the latter be Sagittarius or Lepanto. If the FTAA is held to be valid under the Constitution, then the
5580 sale is valid and, more importantly, WMC's US$10,000,000.00 interest in Philippine mineral deposit, arising as it did from
5581 the sale and its prior 100% ownership of WMCP, is likewise valid. However, if the FTAA is held to be invalid, then neither
5582 WMC's interest nor the sale which gave rise to said interest is valid for no foreigner may profit from the natural resources of
5583 the Republic of the Philippines in a manner contrary to the terms of the Philippine Constitution. If held unconstitutional, the
5584 WMCP FTAA is void ab initio for being contrary to the fundamental law and no rights may arise from it, either in favor of
5585 WMC or its Filipino transferee.

5586 Evidently, the transfer of the shares in WMCP from WMC Resources International Pty. Ltd. (WMC), a foreign-owned
5587 corporation, to a Filipino-owned one, whether Sagittarius or Lepanto, now presently engaged in a dispute over said
5588 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
5589 those pending cases moot for the invalidation of the FTAA leaves Sagittarius and Lepanto with nothing to dispute.

5590 Terms of the WMCP FTAA are

5591 contrary to the Constitution and
5592 render said FTAA null and void.

5593 The WMCP FTAA is clearly contrary to the agreements provided for in Section 2, Article XII of the Constitution. In the
5594 Decision under reconsideration, this Court observed:

5595 Section 1.3 of the WMCP FTAA grants WMCP "the exclusive right to explore, exploit, utilise[,] process and dispose of all
5596 Minerals products and by-products thereof that may be produced from the Contract Area." The FTAA also imbues WMCP
5597 with the following rights:

Page 125
5598 (b) to extract and carry away any Mineral samples from the Contract area for the purpose of conducting tests and studies in
5599 respect thereof;

5600 (c) to determine the mining and treatment processes to be utilized during the Development/Operating Period and the project
5601 facilities to be constructed during the Development and Construction Period;

5602 (d) have the right of possession of the Contract Area, with full right of ingress and egress and the right to occupy the same,
5603 subject to the provisions of Presidential Decree No. 512 (if applicable) and not be prevented from entry into private lands by
5604 surface owners and/or occupants thereof when prospecting, exploring and exploiting for minerals therein;

5605 xxx

5606 (f) to construct roadways, mining, drainage, power generation and transmission facilities and all other types of works on the
5607 Contract Area;

5608 (g) to erect, install or place any type of improvements, supplies, machinery and other equipment relating to the Mining
5609 Operations and to use, sell or otherwise dispose of, modify, remove or diminish any and all parts thereof;

5610 (h) enjoy, subject to pertinent laws, rules and regulations and the rights of third Parties, easement rights and the use of
5611 timber, sand, clay, stone, water and other natural resources in the Contract Area without cost for the purposes of the Mining
5612 Operations;

5613 xxx

5614 (l) have the right to mortgage, charge or encumber all or part of its interest and obligations under this Agreement, the plant,
5615 equipment and infrastructure and the Minerals produced from the Mining Operations;

5616 x x x.

5617 All materials, equipment, plant and other installations erected or placed on the Contract Area remain the property of
5618 WMCP, which has the right to deal with and remove such items within twelve months from the termination of the FTAA.

5619 Pursuant to Section 1.2 of the FTAA, WMCP shall provide "[all] financing, technology, management and personnel necessary
5620 for the Mining Operations." The mining company binds itself to "perform all Mining Operations . . . providing all necessary
5621 services, technology and financing in connection therewith," and to "furnish all materials, labour, equipment and other
5622 installations that may be required for carrying on all Mining Operations." WMCP may make expansions, improvements and
5623 replacements of the mining facilities and may add such new facilities as it considers necessary for the mining operations.

5624 These contractual stipulations, taken together, grant WMCP beneficial ownership over natural resources that properly
5625 belong to the State and are intended for the benefit of its citizens. These stipulations are abhorrent to the 1987 Constitution.
5626 They are precisely the vices that the fundamental law seeks to avoid, the evils that it aims to suppress. Consequently, the
5627 contract from which they spring must be struck down.155 (Citations omitted)

5628 Indeed, save for the fact that the contract covers a larger area, the subject FTAA is actually a mineral production sharing
5629 agreement. Respondent WMCP admitted as much in its Memorandum. 156 The first paragraph of Section 2, Article XII of the
5630 Constitution, however, allows this type of agreement only with Filipino citizens or corporations.

5631 That the subject FTAA is void for having an unlawful cause bears reaffirmation. In onerous contracts the cause is understood
5632 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
5633 foreign-owned corporation, the cause was to extend not only technical or financial assistance but management assistance as
5634 well. The management prerogatives contemplated by the FTAA are not merely incidental to the two other forms of
5635 assistance, but virtually grant WMCP full control over its mining operations. Thus, in Section 8.3 158 of the FTAA, in case of a
5636 dispute between the DENR and WMCP, it is WMCP's decision which will prevail.

5637 The questioned FTAA also grants beneficial ownership over Philippine natural resources to WMCP, which is prohibited from
5638 entering into such contracts not only by the fourth paragraph of Section 2, Article XII of the Constitution, but also by the
5639 first paragraph, the FTAA practically being a production-sharing agreement reserved to Filipinos.

Page 126
5640 Contracts whose cause is contrary to law or public policy are inexistent and void from the beginning.159 They produce no
5641 effect whatsoever.160 They cannot be ratified,161 and so cannot the WMCP FTAA.

5642 The terms of the WMCP FTAA effectively give away

5643 the Beneficial Ownership of Philippine minerals

5644 As previously observed, the majority opinion finds Section 7.9. of the WMCP FTAA to be "grossly disadvantageous to the
5645 government, detrimental to the interests of the Filipino people, and violative of public policy" since it "effectively gives away
5646 the State's share of net mining revenues (provided for in Section 7.7) without anything in exchange."

5647 It likewise finds Section 7.8(e) of the WMCP FTAA to be invalid. Said provision states:

5648 7.8 The Government Share shall be deemed to include all of the following sums:

5649 xxx

5650 (e) an amount equivalent to whatever benefits that may be extended in the future by the Government to the Contractor or to
5651 financial or technical assistance agreement contractors in general. (Emphasis supplied)

5652 And in its own estimation:

5653 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
5654 government for the benefit of the contractor in building roads leading to the mine site should still be deductible from the
5655 State's share in net mining revenues. Allowing this deduction results in benefiting the contractor twice over. To do so would
5656 constitute unjust enrichment on the part of the contractor at the expense of the government, since the latter is effectively
5657 being made to pay twice for the same item. For being grossly disadvantageous and prejudicial to the government and
5658 contrary to public policy, Section 7.8(e) is undoubtedly invalid and must be declared to be without effect. xxx (Emphasis
5659 supplied; citations omitted; underscore in the original)

5660 The foregoing estimation notwithstanding, the majority opinion declines to invalidate the WMCP FTAA on the theory that
5661 Section 7.9 and 7.8 are separable from the rest of the agreement, which may supposedly be given effect without the offending
5662 provisions.

5663 As previously discussed, the same deleterious results are easily achieved by the foreign contractor's conversion of its FTAA
5664 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
5665 will not suffice; the provisions pertaining to FTAAs in the Mining Act must be stricken out for being unconstitutional as well.

5666 Moreover, Section 7.8 (e) and 7.9 are not the only provisions of the WMCP FTAA which convey beneficial ownership of
5667 mineral resources to a foreign corporation.

5668 Under Section 10.2 (l) of the WMCP FTAA, the foreign FTAA contractor shall have the right to mortgage and encumber, not
5669 only its rights and interests in the FTAA, but the very minerals themselves:

5670 10.2 Rights of Contractor

5671 The Government agrees that the Contractor shall:-

5672 xxx

5673 (l) have the right to mortgage, charge or encumber all or part of its interest and obligations under this Agreement, the plant,
5674 equipment and infrastructure and the Minerals produced from the Mining Operations; (Emphasis supplied)

5675 Although respondents did not proffer their own explanation, the majority opinion theorizes that the foregoing provision is
5676 necessitated by the conditions that may be imposed by creditor-banks on the FTAA contractor:

5677 xxx I believe that this provision may have to do with the conditions imposed by the creditor-banks of the then foreign
5678 contractor WMCP to secure the lendings made to the latter. Ordinarily, banks lend not only on the security of mortgages
5679 on fixed assets, but also on encumbrances of goods produced that can easily be sold and converted into cash that can be

Page 127
5680 applied to the repayment of loans. Banks even lend on the security of accounts receivable that are collectible within 90 days.
5681 (Citations omitted; underscore in the original)

5682 It, however, overlooks the provision of Art. 2085 of the Civil Code which enumerates the essential requisites of a contract of
5683 mortgage:

5684 Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

5685 (1) That they be constituted to secure the fulfillment of a principal obligation;

5686 (2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

5687 (3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof,
5688 that they be legally authorized for the purpose.

5689 Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own
5690 property. (Emphasis and underscoring supplied)

5691 From the foregoing provision of law, it is abundantly clear

5692 that only the absolute owner of the minerals has theright to mortgage the same, and under Section 2, Article XII of the Const
5693 itution the absolute owner of theminerals is none other than the State. While the foreign FTAA contractor may have an
5694 interest in the proceeds of the minerals, it does not acquire ownership over the minerals themselves.

5695 Put differently, the act of mortgaging the minerals is an act of ownership, which, under the Constitution, is reserved solely to
5696 the State. In purporting to grant such power to a foreign FTAA contractor, Section 10.2 (l) of the WMCP FTAA clearly runs
5697 afoul of the Constitution.

5698 Moreover, it bears noting that to encumber natural resources of the State to secure a foreign FTAA contractor's obligations is
5699 anomalous since Section 1.2 of the WMCP FTAA provides that "[a]ll financing, technology, management and personnel
5700 necessary for the Mining Operations shall be provided by the Contractor."

5701 Indeed, even the provisions of the Mining Act, irredeemably flawed though they may be, require that the FTAA contractor
5702 have the financial capability to undertake the large-scale exploration, development and utilization of mineral resources in
5703 the Philippines;162 and, specifically, that the contractor warrant that it has or has access to all the financing required to
5704 promptly and effectively carry out the objectives of the FTAA.163

5705 Under Section 10.2 (e) of the WMCP FTAA, the foreign FTAA Contractor has the power to require the Government to acquire
5706 surface rights in its behalf at such price and terms acceptable to it:

5707 10.2 Rights of Contractor

5708 The Government agrees that the Contractor shall:-

5709 xxx

5710 (e) have the right to require the Government at the Contractor's own cost, to purchase or acquire surface areas for and on
5711 behalf of the Contractor at such price and terms as may be acceptable to the Contractor. At the termination of this
5712 Agreement such areas shall be sold by public auction or tender and the Contractor shall be entitled to reimbursement of the
5713 costs of acquisition and maintenance, adjusted for inflation, from the proceeds of sale; (Emphasis supplied)

5714 Petitioners, in their Memorandum, point out that pursuant to the foregoing, the foreign FTAA contractor may compel the
5715 Government to exercise its power of eminent domain to acquire the title to the land under which the minerals are located for
5716 and in its behalf.

5717 The majority opinion, however, readily accepts the explanation proffered by respondent WMCP, thus:

5718 Section 10.2 (e) sets forth the mechanism whereby the foreign-owned contractor, disqualified to own land, identifies to the
5719 government the specific surface areas within the FTAA contract area to be acquired for the mine infrastructure. The

Page 128
5720 government then acquires ownership of the surface land areas on behalf of the contractor, in order to enable the latter to
5721 proceed to fully implement the FTAA.

5722 The contractor, of course, shoulders the purchase price of the land. Hence, the provision allows it, after the termination of the
5723 FTAA to be reimbursed from proceeds of the sale of the surface areas, which the government will dispose of through public
5724 bidding.

5725 And it concludes that "the provision does not call for the exercise of the power of eminent domain" and the determination of
5726 just compensation.

5727 The foregoing arguments are specious.

5728 First, the provision in question clearly contemplates a situation where the surface area is not already owned by the
5729 Government – i.e. when the land over which the minerals are located is owned by some private person.

5730 Second, the logical solution in that situation is not, as asserted by respondent WMCP, to have the Government purchase or
5731 acquire the land, but for the foreign FTAA contractor to negotiate a lease over the property with the private owner.

5732 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
5733 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
5734 10.2 (e) to compel the State, as the only entity which can legally compel the landowner to involuntarily part with his
5735 property, to acquire the land at a price dictated by the foreign FTAA contractor.

5736 Clearly, the State's power of eminent domain is very much related to the practical workings of Section 10.2 (e) of the WMCP
5737 FTAA. It is the very instrument by which the contractor assures itself that it can obtain the "surface right" to the property at
5738 a price of its own choosing. Moreover, under Section 60 of DAO 40-96, the contractor may, after final relinquishment, hold up
5739 to 5,000 hectares of land in this manner.

5740 More. While the foreign FTAA contractor advances the purchase price for the property, in reality it acquires the "surface
5741 right" for free since under the same provision of the WMCP FTAA it is entitled to reimbursement of the costs of acquisition
5742 and maintenance, adjusted for inflation. And as if the foregoing were not enough, when read together with Section 3.3, 164 the
5743 foreign FTAA contractor would have the right to hold the "surface area" for a maximum of 50 years, at its option.

5744 In sum, by virtue of Sections 10.2 (e) and 3.3. of the WMCP
5745 FTAA, the foreign FTAA contractor is given thepower to hold inalienable mineral land of up to 5,000 hectares, with the assist
5746 ance of the State's power ofeminent domain, free of charge, for a period of up to 50 years in contravention of Section 3, Article
5747 XII of theConstitution:

5748 Section 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands, and national parks.
5749 Agricultural lands of the public domain may be further classified by law according to the uses which they may be
5750 devoted. Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may
5751 not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, renewable for
5752 not more than twenty-five years, and not to exceed one thousand hectares in area. Citizens of the Philippines may lease not
5753 more than five hundred hectares, or acquire not more than twelve hectares thereof by purchase, homestead, or grant.

5754 Taking into account the requirements of conservation, ecology, and development, and subject to the requirements of agrarian
5755 reform, the Congress shall determine, by law, the size of lands of the public domain which may be acquired, developed, held,
5756 or leased and the conditions therefor. (Emphasis supplied)

5757 Taken together, the foregoing provisions of the WMCP FTAA amount to a conveyance to a foreign corporation of the
5758 beneficial ownership of both the minerals and the surface rights to the same in contravention of the clear provisions of the
5759 Constitution.

5760 The majority opinion posits that "[t]he acquisition by the State of land for the contractor is just to enable the contractor to
5761 establish its mine site, build its facilities, establish a tailings pond, set up its machinery and equipment, and dig mine shafts
5762 and tunnels, etc." It thus concludes that "5,000 hectares is way too much for the needs of a mining operator."

Page 129
5763 Evidently, the majority opinion does not take into account open pit mining. Open pit or opencut mining, as differentiated
5764 from methods that require tunneling into the earth, is a method of extracting minerals by their removal from an open pit or
5765 borrow;165 it is a mine working in which excavation is performed from the surface.166 It entails a surface mining operation in
5766 which blocks of earth are dug from the surface to extract the ore contained in them. During the mining process, the surface of
5767 the land is excavated forming a deeper and deeper pit until the end of mining operations. 167 It is used extensively in mining
5768 metal ores, copper, gold, iron, aluminum168 – the very minerals which the Philippines is believed to possess in vast
5769 quantities; and is considered the most cost-effective mining method.169

5770 Furthermore, considering that FTAAs deal with large scale exploration, development and utilization of mineral resources
5771 and that the original contract area of the WMCP FTAA was 99,387 hectares, an open pit mining operation covering a total of
5772 5,000 hectares is not outside the realm of possibility.

5773 In any event, regardless of what the majority opinion considers "way too much" (or too little), it is undisputed that under
5774 Section 60 of DAO 40-96, which is among the enactments under review, the contractor may, after final relinquishment, hold
5775 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
5776 renewable for another 25 years, at the option of the contractor.

5777 The majority opinion also argues that, although entitled to reimbursement of its acquisition cost at the end of the contract
5778 term, the FTAA contractor does not acquire its surface rights for free since "the contractor will have been cash-out for the
5779 entire duration of the term of the contract – 25 to 50 years, depending," thereby foregoing any interest income he might have
5780 earned. This is the "opportunity cost" of the contractor's decision to use its money to acquire the surface rights instead of
5781 leaving it in the bank.

5782 The majority opinion does not consider the fact that "opportunity cost" is more theoretical rather than actual and, for that
5783 reason, is not an allowable deduction from gross income in an income statement. In layman's terms it is equivalent to "the
5784 value of the chickens that might have been hatched if only the cook had not scrambled the eggs." Neither does it consider the
5785 fact that the contractor's foregone interest income does not find its way to the pockets of either the previous land owner (in
5786 this case, the Bugal B'Laans) or the State.

5787 But even if the contractor does incur some opportunity cost in holding the surface rights for 35 to 50 years. The fact remains
5788 that, under the terms of the WMCP FTAA, the contractor is given the power to hold inalienable mineral land of up to 5,000
5789 hectares, with the assistance of the State's power of eminent domain for a period of up to 50 years in contravention of Section
5790 3, Article XII of the Constitution.

5791 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
5792 foreign corporation of the beneficial ownership of both the minerals and the surface rights over the same, in contravention of
5793 the clear provisions of the Constitution.

5794 The terms of the WMCP FTAA abdicate all control over the
5795 mining operation in favor of the foreign FTAA contractor

5796 The majority opinion's defense of the constitutionality of Section 8.1, 8.2, 8.3 of the WMCP FTAA is similarly unpersuasive.
5797 These Sections provide:

5798 8.1 The Secretary shall be deemed to have approved any Work Programme or Budget or variation thereof submitted by the
5799 Contractor unless within sixty (60) days after submission by the Contractor the Secretary gives notice declining such
5800 approval or proposing a revision of certain features and specifying its reasons therefore ("the Rejection Notice").

5801 8.2 If the Secretary gives a Rejection Notice the Parties shall promptly meet and endeavour to agree on amendments to the
5802 Work Programme or budget. If the Secretary and the Contractor fail to agree on the proposed revision within 30 days from
5803 delivery of the Rejection Notice then the Work Programme or Budget or variation thereof proposed by the Contractor shall be
5804 deemed approved so as not to unnecessarily delay the performance of this Agreement.

5805 Even measured against the majority opinion's standards of control – i.e. either (1) the power to set aside, reverse, or modify
5806 plans and actions of the contractor; or (2) regulatory control – the foregoing provisions cannot pass muster. This is because,
5807 by virtue of the foregoing provisions, the foreign FTAA contractor has unfettered discretion to countermand the orders of its
5808 putative regulator, the DENR.

Page 130
5809 Contrary to the majority's assertions, the foregoing provisions do not provide merely temporary or stop-gap solutions. The
5810 determination of the FTAA contractor permanently reverses the "Rejection Notice" of the DENRsince, by the majority
5811 opinion's own admission, there is no available remedy for the DENR under the agreement except to seek the cancellation of
5812 the same.

5813 Indeed, the justification for the foregoing provisions is revealing:

5814 xxx First, avoidance of long delays in these situations will undoubtedly redound to the benefit of the State as well as to the
5815 contractor. Second, who is to say that the work program or budget proposed by the contractor and deemed approved under
5816 Clause 8.3 would not be the better or more reasonable or more effective alternative? The contractor, being the "insider," as it
5817 were, may be said to be in a better position than the State – an outsider looking in – to determine what work program or
5818 budget would be appropriate, more effective, or more suitable under the circumstances. (Emphasis and underscoring
5819 supplied)

5820 Both reasons tacitly rely on the unstated assumption that the interest of the foreign FTAA contractor and that of the
5821 Government are identical. They are not.

5822 Private businesses, including large foreign-owned corporations brimming with capital and technical expertise, are primarily
5823 concerned with maximizing the pecuniary returns to their owners or shareholders. To this extent, they can be relied upon to
5824 pursue the most efficient courses of action which maximize their profits at the lowest possible cost.

5825 The Government, on the other hand, is mandated to concern itself with more than just narrow self-interest. With respect to
5826 the nation's natural wealth, as the majority opinion points out, the Government is mandated to preserve, protect and even
5827 maximize the beneficial interest of the Filipino people in their natural resources. Moreover, it is directed to ensure that the
5828 large-scale exploration, development and utilization of these resources results in real contributions to the economic growth
5829 and general welfare of the nation. To achieve these broader goals, the Constitution mandates that the State exercise full
5830 control and supervision over the exploration, development and utilization of the country's natural resources.

5831 However, taking the majority opinion's reasoning to its logical conclusion, the business "insider's opinion" would always be
5832 superior to the Government's administrative or regulatory determination with respect to mining operations. Consequently, it
5833 is the foreign contractor's opinion that should always prevail. Ultimately, this means that, at least for the majority, foreign
5834 private business interests outweigh those of the State – at least with respect to the conduct of mining operations.

5835 Indeed, in what other industry can the person regulated permanently overrule the administrative determinations of the
5836 regulatory agency?

5837 To any reasonable mind, the absence of an effective means to enforce even administrative determinations over an FTAA
5838 contractor, except to terminate the contract itself, falls far too short of the concept of "full control and supervision" as to cause
5839 the offending FTAA to fall outside the ambit of Section 2, Article XII of the Constitution.

5840 Verily, viewed in its entirety, the WMCP FTAA cannot withstand a rigid constitutional scrutiny since, by its provisions, it
5841 conveys both the beneficial ownership of Philippine minerals and control over their exploration, development and utilization
5842 to a foreign corporation. Being contrary to both the letter and intent of Section 2, Article XII of the Constitution, the WMCP
5843 FTAA must be declared void and of no effect whatsoever.

5844 A Final Note

5845 For over 350 years, the natural resources of this nation have been under the control and domination of foreign powers –
5846 whether political or corporate. Philippine mineral wealth, viciously wrenched from the bosom of the motherland, has
5847 enriched foreign shores while the Filipino people, to whom such wealth justly belongs, have remained impoverished and
5848 unrecompensed.

5849 Time and time again the Filipino people have sought an end to this intolerable situation. From 1935 they have struggled to
5850 assert their legal control and ownership over their patrimony only to have their efforts repeatedly subverted – first, by the
5851 parity amendment to the 1935 Constitution and subsequently by the service contract provision in the 1973 Constitution.

5852 It is not surprising that an industry, overly dependent on foreign support and now in decline, should implore this Court to
5853 reverse itself if only to perpetuate its otherwise economically unsustainable conduct. It is even understandable, however

Page 131
5854 regrettable, that a government, strapped for cash and in the midst of a self-proclaimed fiscal crisis, would be inclined to turn
5855 a blind eye to the consequences of unconstitutional legislation in the hope, however false or empty, of obtaining fabulous
5856 amounts of hard currency.

5857 But these considerations should not outweigh the Constitution.

5858 As always, the one overriding consideration of this Court should be the will of the sovereign Filipino people as embodied in
5859 their Constitution. The Constitution which gives life to and empowers this Court. The same Constitution to which the
5860 members of this Court have sworn their unshakable loyalty and their unwavering fidelity.

5861 Now, the unmistakable letter and intent of the 1987 Constitution notwithstanding, the majority of this Court has chosen to
5862 reverse its earlier Decision which, to me, would once again open the doors to foreign control and ownership of Philippine
5863 natural resources. The task of reclaiming Filipino control over Philippine natural resources now belongs to another
5864 generation.

5865 ACCORDINGLY, I vote to deny respondents' Motions for Reconsideration.

5866
5867

5868 SEPARATE OPINION

5869 TINGA, J.:

5870 The Constitution was crafted by men and women of divergent backgrounds and varying ideologies. Understandably, the
5871 resultant document is accommodative of these distinct, at times competing philosophies. Untidy as any mélange would seem,
5872 our fundamental law nevertheless hearkens to the core democratic ethos over and above the obvious inconveniences it
5873 spawns.

5874 However, when the task of judicial construction of the Constitution comes to fore, clarity is demanded from this Court. In
5875 turn, there is a need to balance and reconcile the diverse views that animate the provisions of the Constitution, so as to
5876 effectuate its true worth as an instrument of national unity and progress.

5877 The variances and consequent challenges are vividly reflected in Article XII of the Constitution on National Patrimony, in a
5878 manner akin to Article II on Declaration of Principles and State Policies. Some of the provisions impress as protectionist, yet
5879 there is also an undisguised accommodation of liberal economic policies. Section 2, Article XII, 1 the provision key to this case,
5880 is one such Janus-faced creature. It seems to close the door on foreign handling of our natural resources, but at the same
5881 time it leaves open a window for alien participation in some aspects. The central question before us is how wide is the entry
5882 of opportunity created by the provision.

5883 My vote on the motions for reconsideration is hinged on a renewed exegesis of Section 2 2 of Article XII in conjunction with
5884 the proper understanding of the nature of the power vested on the President under Section 2. It has to be appreciated in
5885 relation to the inherent functions of the executive branch of government.

5886 The Contract-Making Power of the President

5887 While all government authority emanates from the people, the breadth and depth of such authority are not brought to bear
5888 by direct popular action, but through representative government in accord with the principles of republicanism. 3 By
5889 investiture of the Constitution, the function of executive power is parceled solely to the duly elected President. 4 The
5890 Constitution contains several express manifestations of executive power, such as the provision on control over all executive
5891 departments, bureaus and offices,5 as well as the so-called "Commander-in-Chief" clause.6

5892 Yet it has likewise been recognized in this jurisdiction that "executive power" is not limited to such powers as are expressly
5893 granted by the Constitution. Marcos v. Manglapus7 concedes that the President has powers other than those expressly stated
5894 under the Constitution,8 and thus implies that these powers may be exercised without being derivative from constitutional
5895 authority.9 The precedental value of Marcos v. Manglapus may be controvertible,10 but the cogency of its analysis of the scope
5896 of executive power is indisputable. Neither is the concept of plenary executive power novel, as discussed by Justice Irene
5897 Cortes in her ponencia:

Page 132
5898 It has been advanced that whatever power inherent in the government that is neither legislative nor judicial has to be
5899 executive. Thus, in the landmark decision of Springer v. Government of the Philippine Islands, 277 U.S. 189 (1928), on the
5900 issue of who between the Governor-General of the Philippines and the Legislature may vote the shares of stock held by the
5901 Government to elect directors in the National Coal Company and the Philippine National Bank, the U.S. Supreme Court, in
5902 upholding the power of the Governor-General to do so, said:

5903 . . . Here the members of the legislature who constitute a majority of the "board" and "committee" respectively, are not
5904 charged with the performance of any legislative functions or with the doing of anything which is in aid of performance of any
5905 such functions by the legislature. Putting aside for the moment the question whether the duties devolved upon these
5906 members are vested by the Organic Act in the Governor-General, it is clear that they are not legislative in character, and
5907 still more clear that they are not judicial. The fact that they do not fall within the authority of either of these two constitutes
5908 logical ground for concluding that they do fall within that of the remaining one among which the powers of government are
5909 divided . . . [At 202-203; emphasis supplied.]

5910 We are not unmindful of Justice Holmes' strong dissent. But in his enduring words of dissent we find reinforcement for the
5911 view that it would indeed be a folly to construe the powers of a branch of government to embrace only what are specifically
5912 mentioned in the Constitution:

5913 The great ordinances of the Constitution do not establish and divide fields of black and white. Even the more specific of them
5914 are found to terminate in a penumbra shading gradually from one extreme to the other. . . .

5915 xxx xxx xxx

5916 It does not seem to need argument to show that however we may disguise it by veiling words we do not and cannot carry out
5917 the distinction between legislative and executive action with mathematical precision and divide the branches into watertight
5918 compartments, were it ever so desirable to do so, which I am far from believing that it is, or that the Constitution
5919 requires.[At 210-211.]11

5920 Such general power has not been diminished notwithstanding the avowed intent of some of the framers of the 1987
5921 Constitution to limit the powers of the President as a reaction to abuses under President Marcos, for as the Court noted, "the
5922 result was a limitation of the specific powers of the President, particularly those relating to the commander-in-chief clause,
5923 but not a diminution of the general grant of executive power." 12 The critical perspective of this case should spring from a
5924 recognition of this elemental fact.

5925 Undeniably, the particular power now in question is expressly provided for by Section 2, Article XII of the Constitution. Still,
5926 it originates from the concept of executive power that is not explicitly provided for by the Constitution. As a necessary
5927 incident of the functions of the executive office, it can be concluded that the President has the authority to enter into
5928 contracts in behalf of the State in matters which are not denied him or her or not otherwise assigned to the other great
5929 branches of government, even if such general power is not categorically recognized in the Constitution. Among these
5930 traditional functions of the executive branch is the power to determine economic policy.

5931 As once noted by Justice Feliciano, the Republic of the Philippines is itself a body corporate and juridical person vested with
5932 the full panoply of powers and attributes which are compendiously described as "legal personality." 13 As "Chief of State" the
5933 President is also regarded as the head of this body corporate, 14 and thus is capacitated to represent the State when engaging
5934 with other entities. Such executive function, in theory, does not require a constitutional provision, or even a Constitution, in
5935 order to be operative. It is a power possessed by every duly constituted presidency starting with Aguinaldo's. This faculty is
5936 complementary to the traditional regard of a Head of State as emblematic of the State he/she represents.

5937 The power to contract in behalf of the State is clearly an executive function, as opposed to legislative or judicial. This is easily
5938 discernible through the process of exclusion. The other branches of government — the legislative and the judiciary — are not
5939 similarly capacitated since their core functions pertain to legislating and adjudicating respectively.

5940 However, I am not making any pretense that such executive power to contract is unimpeachable or limitless. The
5941 Constitution frowns on unchecked executive power, mandating in broad strokes, the power of judicial review 15 and legislative
5942 oversight.16 The Constitution itself may expressly restrict the exercise of any sort of executive function. Section 2 undeniably
5943 constrains the exercise of the executive power to contract in several regards.

Page 133
5944 Constitutional Limitations under Section 2, Article XII

5945 What are the express limitations under Section 2 on the power of the executive to contract with foreign corporations
5946 regarding the exploration, development and utilization of our natural resources?

5947 There are two fundamental restrictions, both of which are asserted in the second paragraph of Section 2. These are that the
5948 State retains legal ownership of all natural resources,17 and that the State shall have full control and supervision over the
5949 exploration, development and utilization of natural resources.18 These key postulates are facially broad and warrant
5950 clarification. They also predicate several specific restrictions laid down in the fourth paragraph of Section 2 on the power of
5951 the President to enter into agreements with foreign corporations. These specific limitations are as follows:

5952 First, the natural resources that may be subject of the agreement are a limited class, particularly minerals, petroleum, and
5953 other mineral oils. Among the natural resources which are excluded from these agreements are lands of the public domain,
5954 waters, coal, fisheries, forests or timbers, wildlife, flora and fauna. Most notable of the exclusions are forests and timbers
5955 which are in all respects expressly limited to Filipinos.

5956 It is noteworthy that a previous version of the fourth paragraph of Section 2 deliberated upon during the 1987 Constitutional
5957 Commission allowed agreements with foreign-owned corporations with respect to all classes of natural resources.19 However,
5958 on the initiative of Commissioner (now Chief Justice) Davide, the provision was amended to limit the scope of such
5959 agreements to minerals, petroleum and other mineral oils, which Commissioner Davide recognized as "those particular areas
5960 where Filipino capital may not be sufficient."20

5961 The exclusion of timber resources from the scope of financial/technical assistance agreements marks a significant distinction
5962 from the service contracts of old. This does not come as a surprise, considering well-reported abuses under the old regime of
5963 issuing timber licensing agreements, which numbered in the thousands prior to the 1987 Constitution. On the other hand, no
5964 similar extensive collateral damage has been reported for the petroleum and mining industry, capital-intensive industries
5965 whose potential for government revenues in billions of pesos has long been sought after by the State. 21 Hence, the variance in
5966 treatment from the timber industry and the rest of the natural resources.

5967 Second, these agreements with foreign-owned corporations can only be entered into for only large-scale exploration,
5968 development and utilization of minerals, petroleum, and other mineral oils.

5969 Third, it is only the President who may enter into these agreements. This is another pronounced change from the 1973
5970 Constitution, which allowed private persons to enter into service contracts with foreign corporations.

5971 Fourth, these agreements must be in accord with the general terms and conditions provided by law. This proviso by itself,
5972 and more so when taken together, as it should, with another provision, 22 entails legislative intervention and affirmance in
5973 the exercise of this executive power. While it is the President who enters into these contracts, he/she must act within such
5974 terms and conditions as may be prescribed by Congress through legislation. The value of legislative input as a means of
5975 influencing policy should not be discounted. Policy initiatives grounded on particular economic ideologies may find enactment
5976 through legislation when approved by the necessary majorities in Congress. Legislative work includes consultative processes
5977 with persons of diverse interests, assuring that economic decisions need not be made solely from an ivory tower. There is also
5978 the possible sanction of repudiation by the voters of legislators who prove insensate to the economic concerns of their
5979 constituents.

5980 Fifth, the President is mandated to base the decision of entering into these agreements on "real contributions to the economic
5981 growth and general welfare of the country." In terms of real limitations, this condition has admittedly little effect. The
5982 discretion as to whether or not to enter into these agreements is vested solely by the Constitution in the President, and such
5983 exercise of discretion, pertaining as it does to the political wisdom of a co-equal branch, generally deserves respect from the
5984 courts.

5985 The above conditionalities, particularly the first three, effect the desire of the framers of the 1987 Constitution to limit
5986 foreign participation in natural resource-oriented enterprises. They provide a vivid contrast to the 1973 Constitution, which
5987 permitted private persons to enter into service contracts for financial, technical, management, or other forms of assistance
5988 with any person or entity, including foreigners, and for the exploration or utilization of any of the natural resources.23 These
5989 requisites imposed by the 1987 Constitution, which are significantly more onerous than those laid down in the 1973
5990 Constitution, warrant obeisance by the executive branch and recognition by this Court.

Page 134
5991 Not Strictly Technical or Financial Assistance

5992 The Court's previous Decision, now for reconsideration, insisted on another restriction purportedly imposed by the fourth
5993 paragraph of Section 2. It is argued that foreign–owned corporations are allowed to render only technical or financial
5994 assistance in the large-scale exploration, development and utilization of minerals, petroleum and mineral oils. This
5995 conservative view is premised on the sentiment that the Constitution limits foreign involvement only to areas where they are
5996 needed, the overpowering intent being to allow Filipinos to benefit from Filipino resources. 24Towards that end, the perception
5997 arises that the power of the executive to enter into agreements with foreign-owned corporations is an executive privilege,
5998 hampered by the limitations that generally attach to the grant of privileges.

5999 On the fundamental nature of this power, I harbor an entirely different view. The actual art of governing under our
6000 Constitution does not and cannot conform to judicial definitions of the power of any of its branches based on isolated clauses
6001 or even single articles torn from context.25 The previously adopted approach is rigidly formalist, and impervious to the
6002 traditional prerogatives of executive power.

6003 As I stated earlier, the executive authority to contract is a right emanating from traditional executive functions, and is
6004 connected with the power of the executive branch to determine economic policy. Hence, the proper approach in interpreting
6005 Section 2, Article XII is to tilt in favor of asserting the right rather than view the provision as a limitation on a privilege. To
6006 subscribe to the Court's previous view will necessitate adopting as a fundamental premise that absent an express grant of
6007 power, the executive branch has no capacity to contract since such capacity arises from a privilege.

6008 Had the provision been worded to state that the President may enter into agreements for technical or financial assistance
6009 only, then this unambiguous limitation should be affirmed. Yet the Constitution does not express such an intent. The
6010 controversial provision is crafted in such a way that allows any type of agreement, so long as they involve either technical or
6011 financial assistance. In fact, the provision does not restrict the scope of the agreement so as to pertain exclusively either to
6012 technical or financial assistance.

6013 The Constitution, in allowing foreign participation specifically in the large scale exploration, development and utilization of
6014 natural resources, is cognizant of the sad truth that such activities entail significant outlay of capital and advanced
6015 technological know-how that domestic corporations may not yet have. 26 The provision expressly adverts to "technical" and
6016 "financial" assistance in recognition of the reality that these two facets are the indispensable requisites to qualify foreign
6017 participants in the exploration, development, and utilization of mineral and petroleum resources.

6018 Had the framers chosen to restrict all aspects of all mining activities to domestic persons, the real fear would have
6019 materialized that our mineral reserves could remain untapped for a significant period of time, owing to the paucity of
6020 venture capital. There was a real option to heed dogmatic guns who insisted that the mineral resources remain unutilized
6021 until the day when the domestic mining industry becomes capacitated to undertake the extraction without need of foreign
6022 aid. Obviously, the more pragmatic view won the day.

6023 If indeed the foreign entity is limited only to technical or financial participation, the implication is that it is up to the State to
6024 do all the rest. Considering the lack of know-how and financial capital, matters which were appreciated by the framers of the
6025 Constitution, this intended effect is preposterous. Even the State itself would hesitate to undertake such extractive activities
6026 owing to the intensive capital and extensive training such enterprise would entail. By allowing this expansive set-up under
6027 Section 2, the Constitution enables the minimization of risk on the part of the State should it desire to undertake large-scale
6028 mineral extractive activities. The pay-off though, understandably, is an atypical cession of several State prerogatives in the
6029 development of its mineral and petroleum resources.

6030 Perhaps there is need to be explicit and incisive about the implications of Section 2. The word "assistance," shorn of context,
6031 implies a charitable grant offered without any quid pro quo attached. Unconditional foreign aid may be more prevalent this
6032 day and age with the acceptance of the notion that there are base minimum standards of decent living which all persons are
6033 entitled to. However, such concept is alien to the mining industry. There is no such entity as an International Benevolent
6034 Association for Extraction of Minerals. If "assistance" is to be restrictively interpreted according to ordinary parlance, no
6035 entity would be interested in undertaking this regulated industry.

6036 Any decision by any enterprise to assist in the exploration, development or utilization of mineral resources does not arise
6037 from a philanthropic impulse. It is a pure and simple investment, and one that is not engaged in unless there is the
6038 expectation or hope of a reasonable return. I hasten to add that the deliberate incorporation of the fourth paragraph of

Page 135
6039 Section 2 has created a window of opportunity for foreign investments in the extractive enterprises involving petroleum and
6040 other mineral oils, subject of course to limitations under the law. The term may prove discomfiting to the ideologically
6041 committed, the sentimental nationalist or the visceral oppositionist. Still, the notion is not inconsistent with the general
6042 power of the executive to enter into agreements for the purpose of enticing foreign investments.

6043 Why then the term "assistance?" Apart from its apparent political palatability in comparison with "investment," as intimated
6044 before, the term is useful in underscoring the essential facets of the foreign investment which is assistance in the financial or
6045 technical areas, as well as the fundamental limitations and conditionalities of the investment. What is allowed is
6046 participation, though limited, by foreign corporations which in turn are entitled to expect a return on their investments.

6047 The Court had earlier premised the invalidity of several provisions of the Mining Act on the argument that those provisions
6048 authorized service contracts. But while the 1987 Constitution does not utilize the term "service contracts," it actually
6049 contemplates a broader expanse of agreements beyond mere contracts for services rendered. Still, although the provision
6050 sanctions a more numerous class of agreements, these are subjected to more stringent restrictions than what had been
6051 allowed under the 1973 Constitution. Thus, the test should be whether the law and the contract take away the State's full
6052 control and supervision over the exploration, development and utilization of the country's mineral resources and negate or
6053 defeat the State's ownership thereof.

6054 In line with the test, Section 2 should be accorded a liberal interpretation so as to recognize this fundamental prerogative of
6055 the presidency. Such "liberal interpretation" does not equate to a wholesale concession of mining resources to foreigners,
6056 much less to an atmosphere of complaisance, whether from their perception or the Filipinos.' The fourth paragraph sets
6057 specific limitations on the exercise by the President of this contract-making power. On the other hand, the second paragraph
6058 of Section 2 lays down the fundamental limitations which likewise may not be countermanded.

6059 On the basis of the foregoing discussion, and as a necessary consequence of my view that the agreements under Section 2 are
6060 not strictly limited to financial or technical assistance, I would consider the following questioned provisions of Republic Act
6061 No. 7942 as valid —Sections 3 (g), 34 to 38, 40 to 41, 56 and 90. These provisions were struck down on the premise that they
6062 allowed the constitution of "service contracts," an agreement which to my mind is still within the contemplation of Section 2,
6063 Article XII.

6064 State Ownership over Mineral and Petroleum Resources

6065 There is need to clarify the specific meaning of these general limitations arising from the State's assertion of ownership, full
6066 control and supervision.

6067 In respect to the petition, the question of ownership has become material to the proper share the State should receive from
6068 the exploration, development and utilization of mineral resources. I perceive that all the members of the Court agree that
6069 such profit may not be limited to only such revenue derived from the taxation of the mining activities. Since the right of the
6070 State to obtain a share in the net proceeds and not merely through taxes arises as an attribute of ownership unequivocally
6071 reserved by the Constitution for the State, such right may not be proscribed either by legislative provision or contractual
6072 stipulation.

6073 Yet it should be conceded that the State has the right to enter into an agreement concerning such profits. There are, as
6074 probably should be, political consequences if the President opts to surrender all of the State's profits to a foreign corporation,
6075 yet in bare theory, the right to bargain profits pertains to the wisdom of a political act not ordinarily justiciable before this
6076 Court. Still, the overriding adherence of the Constitution to the regalian doctrine should be given due respect, and an
6077 interpretation allowing "beneficial ownership" by the foreign corporation should not be favored.

6078 For purposes of the present judicial review, I would consider it prudent to limit myself to conceding that the Court had
6079 previously erred in invalidating certain provisions of Rep. Act No. 7942 and the WMC FTAA on the mistaken notion that the
6080 law and the agreement cede beneficial ownership of mineral resources to a foreign corporation.

6081 Section 4 of Rep. Act No. 7942 expressly recognizes State ownership over mineral resources, though it is silent on the
6082 operational terms of such ownership. Of course, such general submission would not be in itself curative of whatever
6083 contraventions to State ownership are contained in the same law; hence, the need for deeper inquiry.

Page 136
6084 The dissenters wish to strike down the second paragraph of Section 81 of Rep. Act No. 7942 because it purportedly precludes
6085 the Government from obtaining profits under the agreement from sources other than its share in taxation. However, as
6086 the ponencia points out, the phrase "among other things" sufficiently allows the government from demanding a share in the
6087 cash flow or earnings of the mining enterprise. A contrary view is anchored on a rule of statutory construction that concludes
6088 that "among other things" refers only to taxes. Yet, there is also a rule of construction that laws should be interpreted with a
6089 view of upholding rather than destroying it. Thus, the ponencia's formulation, which achieves the result of the minority
6090 without need of statutory invalidation, is highly preferable.

6091 The provisions of Rep. Act No. 7942 which authorize the conversion of a financial or technical assistance into a mineral
6092 production sharing agreement (MPSA) turned out to be just as controversial. In this regard, the minority wishes to strike
6093 down Section 39, which in conjunction with Sections 80 and 84 of the law would purportedly allow such conversion, in that it
6094 would effectively limit the government share in the profits to only the excise tax on mineral products under internal revenue
6095 law.

6096 These concerns are valid and raise troubling questions. Yet equally troubling is that the Court is being called upon to rule on
6097 a premature question. There is no such creature yet as an FTAA converted into an MPSA, and so there is no occasion that
6098 calls for the application of Sections 39, 80 and 84. I do not subscribe to judicial pre-emptive strikes, as they preclude the
6099 application of still undisclosed considerations which may prove illuminating and even crucial to the proper disposition of the
6100 case. By seeking invalidation of these "MPSA provisions," the Court is also asked to strike down an enactment of a co-equal
6101 branch which has not given rise to an actual case or controversy. After all, such enactment deserves due respect from this
6102 branch of government. Assuming that the provisions are indeed invalid, the Court will not hesitate, at the proper time, to
6103 strike them down or at least impose a proper interpretation that does not run afoul of the Constitution. 27 However, in the
6104 absence of any actual attempt to convert an FTAA to an MPSA, the time is not now.

6105 I likewise agree with the ponencia that Section 7.9 deprives the State of its rightful share as an incident of ownership
6106 without offsetting compensation. The provisions of the FTAA are fair game for judicial review considering their present
6107 applicability. In fact, the invalidation of Section 7.9 becomes even more proper now under the circumstances since the
6108 provision has become effectual considering the sale of the foreign equity in WMCP to a domestic corporation. It is within the
6109 competence of this Court to invalidate Section 7.9 here and now. For that matter, Section 7.8(e) of the FTAA may be
6110 similarly invalidated as it can already serve to unduly deprive the Government of its proper share by allowing double
6111 recovery by WMC.

6112 "Full Control and Supervision" of the State

6113 The matter of "full control and supervision" emerges just as controversial. Does this grant of power mandate that the State
6114 exercise management over the activity, or exclude the exercise of managerial control by the foreign corporation?

6115 I don't think it proper to construe the word "full" as implying that such control or supervision may not be at all yielded or
6116 delegated, for reasons I shall elaborate upon. Instead, "full" should be read as pertaining to the encompassing scope of the
6117 concerns of the State relating to the extractive enterprises on which it may interfere or impose its will.

6118 It must be conceded that whichever party obtains managerial control must be allowed considerable elbow room in the
6119 exercise of management prerogatives. Management is in the most informed position to make resources productive in the
6120 pursuit of the enterprise's objectives.28 In this age of specialization, corporations have benefited with the devolution of
6121 operational control to specialists, rather than generalists. The era of the buccaneer entrepreneur chartering his industry
6122 solely on gut feel is over. The vagaries of international finance have dictated that prudent capitalists cede to the opinion of
6123 their experts who are hired because they trained within their particular fields to know better than the persons who employ
6124 them. The Constitution does not prescribe a particular manner of management; thus, we can conclude that the State is not
6125 compelled to adopt outmoded methods that could tend to minimize profits.

6126 Still, the question as to who should exercise management is best left to the parties of the agreement, namely the President
6127 and the foreign corporations. They would be in the best position to determine who is best qualified to exert managerial
6128 control. This prerogative of management can be exercised by the State if it so insists and the co-parties agree, and the
6129 wisdom of such arrogation is ultimately a policy question this Court has little control over. And even if the State cedes
6130 management to a different entity such as the foreign corporation, it has the duty to safeguard that the actual exercise of
6131 managerial power does not contravene our laws and public policy.

Page 137
6132 There is barely any support of the view that only the State may exert managerial control. Even the minority concede that
6133 these foreign corporations are not precluded from participating in the management of the project. I think it unwise to
6134 construe "full supervision and control" to the effect that the State's assent or opinion is necessary before any day-to-day
6135 operational questions may be resolved. There is neither an express rule to that effect, nor any law of construction that
6136 necessitates such interpretation. Ideally of course, the most qualified party should be allowed to manage the enterprise, and
6137 we should not allow an interpretation that compels a possibly unsuited entity, such as the State, to operationalize the
6138 business.29 Such a limited construction would be inconvenient and absurd,30 not to mention potentially wasteful.

6139 The Constitution itself concedes that the State may not have the best sense as to how to undertake large-scale exploration,
6140 development and utilization of mineral and petroleum resources. This is evinced by the allowance of foreign technical
6141 assistance and foreign participation in the extractive enterprise. Had the Constitution recognized that the State was
6142 supremely qualified to undertake the operational aspects of the activity, then it could have phrased the provision in such a
6143 way that would strictly limit the foreign participation to monetary investment or a financial grant of assistance.

6144 The absence of an express provision on management permits consideration of the following sensible critique on yielding too
6145 many management prerogatives to a remote overseer such as the State. An early United Nations report once noted that
6146 while it is theoretically possible to endow a government department with a high degree of operating flexibility, it is in
6147 practice difficult to do so.31 It has been proposed that the further away a decision-maker is to the market, the higher the
6148 information cost, or the opportunity cost to the gaining of information. 32 Remoteness can be achieved through the layering of
6149 bureaucratic structure, and because of the information loss that accompanies the transmission of information and judgments
6150 from lower levels of the hierarchy to higher levels, the ultimate basis of a decision may be misleading at best and erroneous
6151 at worst.33

6152 The same conclusion arises from the view that what the provision authorizes is foreign investment. The foreign player
6153 necessarily at least has a reasonable say in how the mining venture is run. The interest of the investor in seeing that the
6154 investment is not wasted should be recognized not only as a right available to the investor, but from the broader view that
6155 such say would lead to a more prudent management of the project. It must be noted that mineral and petroleum resources
6156 are non-renewable, thus a paramount interest arises to ensure against wasteful exploitation.

6157 Next for consideration is the situation, as in this case, if management is ceded to the foreign corporation, or even to a private
6158 domestic corporation for that matter. What should be the proper dichotomy, if any, between the private entity's exercise of
6159 managerial control, and the State's full control and supervision?

6160 The President may insist on conditions into the agreement pertaining to the State's degree of control and supervision in the
6161 mining activity. This was certainly done with the WMC FTAA, which is replete with stipulations delineating the State's
6162 control which are judicially enforceable, imposed presumably at the President's call. But the FTAA itself is not the only
6163 vehicle by which State control and supervision is exercised. These can similarly be enforced through statutes, as well as
6164 executive or administrative issuances. The Mining Act itself is an expression of State control and supervision, implemented
6165 in coordination with the executive and legislative branches.

6166 As a general point, I believe that State control and supervision is unconstitutionally yielded if either of the Mining Act or the
6167 FTAA precludes the application of the laws and regulations of the Philippines, enunciatory as they are of State policy.
6168 Neither the Mining Act nor the WMC FTAA are flawed in that regard. The agreements under contemplation are not beyond
6169 the ambit of our regular laws, or regulatory enactments pertaining to such areas as environmental concerns. Violations of
6170 these laws uttered in the name of the FTAA are punishable in this jurisdiction.

6171 Still, the fact that the Constitution requires "full control and supervision" indicates an expectation of a more activist role on
6172 the part of the State in the operations of the mining enterprise, perhaps to the prejudice of the laissez-fairecapitalist. Most
6173 importantly, the State cannot abdicate its traditional functions by contractual limitations. It could compel the mining
6174 operations to comply with existing environmental regulations, as well as with future issuances. It may compel the foreign
6175 corporation payment of all assessable levies. It may evict officers of the foreign corporation for violation of immigration laws.
6176 It may preclude mining operations that affect prerogatives granted by law to indigenous peoples. It could restrict particular
6177 mining operations which are established to be disasters or nuisances to the affected communities. The power of the State to
6178 enforce its police powers needs no statutory grant and are certainly not limited either by the Mining Act or the WMC FTAA.

6179 As to "business decisions," I think that the State may exercise control for the purpose of ensuring profit of the enterprise as a
6180 whole. This may involve visitorial activity, the conduct of periodic audits, and such powers normally attributed to an overseer

Page 138
6181 of a business. Just as the foreign corporation is expected to guard against waste of financial capital, the State is expected
6182 likewise to guard against the waste of resource capital.

6183 I might as well add that, in my view, the constitutional objective of maintaining full control and supervision over the
6184 exploration, development and utilization of the country's mineral resources in the State would be best served by the creation
6185 of a public corporation for the development and utilization of these resources, accountable to the State for all actions in its
6186 behalf. The device of a corporation properly utilized provides sufficient protection to the State's interests while affording
6187 flexibility and efficiency in the conduct of mining operations.34

6188 The creation of a public corporation could remedy a number of potential problems regarding full State control and
6189 supervision of extractive activities concerning our mineral resources by entities which have the funds and/or technical know-
6190 how but which cannot have a great degree of control and supervision over such activities. Persons knowledgeable and
6191 competent in mining operations may sit in the corporation's board of directors and craft policies which implement and
6192 further concretize the broad aims of R.A. No. 7942, taking into consideration the nature of the mining industry. The Board
6193 would also be in charge of studying existing contracts for mining activities, and approving proposed contracts. The Board
6194 may also employ corporate officers and employees to take charge of the day-to-day operations of the mining activities
6195 pursuant to the corporation's contracts with other entities.

6196 Under such a scheme, the perceived abdication by the State of control and supervision over mining activities in favor of the
6197 foreign entities rendering financial and/or technical assistance would be greatly diminished. It would be the public
6198 corporation which would principally undertake mining activities and contract with foreign entities for financial and/or
6199 technical assistance if necessary. The foreign contractor in such cases would not have the power to determine the course of
6200 the project or the major policies involved therein because these functions would belong to the public corporation as the agent
6201 of the State.

6202 A public corporation would also have the additional benefit of compelling the input of not only the executive branch, but also
6203 that of the legislative. Such executive-legislative coordination is necessary since public corporations may only be created
6204 through statute.

6205 Section 3.3 of WMC FTAA Constitutional

6206 Finally, it is argued that Section 3.3 of the WMC FTAA violates paragraph 1, Section 2, Article XII of the Constitution, which
6207 imposes a limitation on the term of mineral agreements. I agree with the ponencia that the constitutional provision does not
6208 pertain to FTAAs. It is clear from reading Section 1 that the agreements limited in term therein are co-production
6209 agreements, joint venture agreements, and mineral production-sharing agreements, which are all referred to in Section 1,
6210 and not the FTAAs mentioned only in Section 4. Accordingly, Section 3.3 of the WMC FTAA is not infirm.

6211 Epilogue

6212 Behind the legal issues presented by the petition are fundamental policy questions from which highly opinionated views can
6213 develop, even from the members of this Court. The promise brought about by the large-scale exploitation of our mineral and
6214 petroleum resources may bring in much needed revenue, but Filipinos should properly inquire at what cost. As a Filipino, I
6215 am distressed whenever the government crosses the line from cooperation to subservience to foreign partners in
6216 development. Popular Western wisdom aside, what is good for General Motors is not necessarily good for the country. The
6217 propagation of a foreign-influenced mining industry may lead to a whole slew of social problems 35 which shall be exacerbated
6218 if the government is complicit, either through active participation or benign neglect, to abuses committed by the mining
6219 industry against the Filipino people. Unlike the foreign corporation, the bottom line which the State should consider is not
6220 found below a ledger, but in the socio-economic dynamic that will confront the government as a result of the large-scale
6221 mining venture. Political capital is more fickle than financial capital.

6222 Still, the right to vote I exercise today is that as of a member of the Court, and not that of the general electorate. The limits
6223 of judicial power would exasperate any well-meaning judge who feels duty-bound to affirm a constitutionally valid law or
6224 principle he or she may otherwise disagree with. My views on how the government should act are segregate from my view on
6225 whether the government has the power to act at all.

6226 My conclusions are borne out of a close textual analysis of Section 2 in light of my fundamental understanding of the
6227 constitutional powers of the executive branch. This is in line with my perception of the judicial duty as being limited to

Page 139
6228 charting the scope and boundaries of the law. The philosophy of inclusiveness that drives my interpretation of Section 2 is
6229 bolstered not because it might lead to benefits to the economy, but because it gives due regard to the discretion of the
6230 Executive to determine what is good for the economy. This judicial attitude may not always ensure the economic good. But
6231 before we carve that judicial path out of what we believe are good intentions, restraint is imperative out of due deference to
6232 our co-equal branches, since the duty of formulating and implementing economic policies falls exclusively within their
6233 purview.

6234 In view of the foregoing, I concur with the opinion of Justice Panganiban.

6235
6236

6237 Footnotes

6238 1
Spelled as "Nequito" in the caption of the Petition, but "Nequinto" in the body. Rollo, p. 12.

6239 2
As spelled in the body of the Petition. Id., p. 13. The caption of the Petition does not include Louel A. Peria as one of the
6240 petitioners; only the name of his father, Elpidio V. Peria, appears therein.

6241 3
Stated as "Kaisahan Tungo sa Kaunlaran at Repormang Pansakahan (KAISAHAN)" in the caption of the Petition, but
6242 "Philippine Kaisahan Tungo sa Kaunlaran at Repormang Pansakahan (KAISAHAN)" in the body. Id., p. 14.

6243 4
Erroneously designated in the Petition as "Western Mining Philippines Corporation." Id., p. 212.

6244 5
This is dependent upon the discussion, infra, of the invalidity of Sections 7.8(e) and 7.9 of the subject FTAA, for violation of
6245 the Civil Code and the Anti-Graft Law -- these provisions being contrary to public policy and grossly disadvantageous to the
6246 government.

6247 6
The FTAA is for the exploration, development and commercial exploitation of mineral deposits in South Cotabato, Sultan
6248 Kudarat, Davao del Sur and North Cotabato, covering an area of 99,387 hectares.

6249 7
At the time of execution of the subject FTAA in 1995, WMCP was owned by WMC Resources International Pty., Ltd. (WMC)
6250 -- "a wholly owned subsidiary of Western Mining Corporation Holdings Limited, a publicly listed major Australian mining
6251 and exploration company." See WMCP FTAA, p. 2.

6252 On Jan. 23, 2001, WMC sold all its shares in WMCP to Sagittarius Mines, Inc. (Sagittarius), a corporation organized under
6253 Philippine laws, 60% the equity of which is owned by Filipino citizens or Filipino-owned corporations and 40% by Indophil
6254 Resources, NL, an Australian company. WMCP was then renamed "Tampakan Mineral Resources Corporation," and now it
6255 claims that by virtue of the sale and transfer of shares, it has ceased to be connected in any way with WMC. On account of
6256 such sale and transfer of shares, the then DENR Secretary approved by Order dated Dec. 18, 2001 the transfer and
6257 registration of the subject FTAA from WMCP to Sagittarius (Tampakan). Lepanto Consolidated Mining Co., which was
6258 interested in acquiring the shares in WMCP, appealed this Order of the DENR Secretary, but the Office of the President, and
6259 subsequently, the Court of Appeals (CA), upheld said Order.

6260 8
Penned by the esteemed Justice Conchita Carpio Morales, the Decision was promulgated on a vote of 8-5-1. Chief Justice
6261 Davide and Justices Puno, Quisumbing, Carpio, Corona, Callejo, and Tinga concurred. Justices Santiago, Gutierrez, and
6262 Martinez joined the Dissent of Justice Panganiban, while Justice Vitug wrote a separate Dissent. Justice Azcuna took no
6263 part.

6264 9
Promulgated on Dec. 31, 1972, Presidential Decree No. 87 (PD 87, otherwise known as "The Oil Exploration and
6265 Development Act of 1972" in §1 thereof) permitted the government to explore for and produce indigenous petroleum through
6266 service contracts. A service contract has been defined as a contractual arrangement for engaging in the exploitation and
6267 development of petroleum, mineral, energy, land and other natural resources, whereby a government or an agency thereof, or
6268 a private person granted a right or privilege by said government, authorizes the other party -- the service contractor -- to
6269 engage or participate in the exercise of such right or the enjoyment of the privilege, by providing financial or technical
6270 resources, undertaking the exploitation or production of a given resource, or directly managing the productive enterprise,
6271 operations of the exploration and exploitation of the resources, or the disposition or marketing of said resources. See Prof. M.
6272 Magallona, Service Contracts in Philippine Natural Resources, 9 World Bulletin 1, 4 (1993).
Page 140
6273 Under PD 87, the service contractor undertook and managed the petroleum operations subject to government oversight. The
6274 service contractor was required to be technically competent and financially capable to undertake the necessary operations, as
6275 it provided all needed services, technology and financing; performed the exploration work obligations; and assumed all
6276 related risks. It could not recover any of its expenditures, if no petroleum was produced. In the event petroleum is discovered
6277 in commercial quantity, the contractor operated the field for the government. Proceeds of sale of the petroleum produced
6278 under the contract were then applied to pay the service fee due the contractor and reimburse it for its operating expenses
6279 incurred.

6280 10
Sec. 9 of Art. XIV (National Economy and Patrimony) of the 1973 Constitution allowed Filipino citizens, with the approval
6281 of the Batasang Pambansa, to enter into service contracts with any person or entity for the exploration and utilization of
6282 natural resources.

6283 "Sec. 9. The disposition, exploration, development, exploitation, or utilization of any of the natural resources of the
6284 Philippines shall be limited to citizens, or to corporations or associations at least sixty per centum of which is owned by such
6285 citizens. The Batasang Pambansa, in the national interest, may allow such citizens, corporations or associations to enter into
6286 service contracts for financial, technical, management or other forms of assistance with any person or entity for the
6287 exploration or utilization of any of the natural resources. Existing valid and binding service contracts for financial, technical,
6288 management or other forms of assistance are hereby recognized as such."

6289 The intention behind the provision, according to a delegate, was to promote proper development of the natural resources,
6290 given the lack of Filipino capital and technical skills needed therefor. The original proposal was to authorize government to
6291 enter into such service contracts with foreign entities, but as finally approved, the provision permitted the Batasang
6292 Pambansa to authorize a citizen or private entity to be party to such contract. Following the ratification of the 1973 Charter,
6293 PD Nos. 151, 463, 704, 705, 1442 were promulgated, authorizing service contracts for exploration, development, exploitation
6294 or utilization of lands of the public domain; exploration, development, etc. of a lessee's mining claims and the processing and
6295 marketing of the products thereof; production, storage, marketing and processing of fish and fishery/aquatic products;
6296 exploration, development, and utilization of forest resources; and exploration, development, and exploitation of geothermal
6297 resources, respectively.

6298 11
Renamed Tampakan Mineral Resources Corporation.

6299 12
That is, the Court of Appeals' resolution of the petition for review -- docketed as CA-GR No. 74161 and lodged by Lepanto
6300 Consolidated Mining -- of the decision of the Office of the President which upheld the order of the DENR Secretary approving
6301 the transfer and registration of the FTAA to Sagittarius Mines, Inc.

6302 13
At p. 68.

6303 14
433 Phil. 506, July 9, 2002; 403 SCRA 1, May 6, 2003; and 415 SCRA 403, November 11, 2003.

6304 15
300 Phil. 906, March 12, 1998.

6305 16
Chavez v. Public Estates Authority, 403 SCRA, 1, 28-29, supra, per Carpio, J.

6306 17
The pendency of a motion for reconsideration shall stay the final resolution sought to be reconsidered. §4 of Rule 52, and §4
6307 of Rule 56B of the Rules of Court.

6308 18
See Enrile v. Senate Electoral Tribunal, GR No. 132986, May 19, 2004.

6309 Per the "List of Financial/Technical Assistance Agreement (FTAA applications)" as of June 30, 2002 prepared by the Mines
19

6310 and Geosciences Bureau's (MGB) Mining Tenements Management Division, cited in petitioners' Final Memorandum.

6311 20
Instead of allowing Sec. Gen. Neri to speak during the Oral Argument, the Court in its Resolution of June 29, 2004 required
6312 him to submit his Position Paper through the Office of the Solicitor General. Said paper was made part of
6313 the Memorandum of the public respondents.

6314 21
27 SCRA 853, April 18, 1969.

Page 141
6315 Gonzales v. COMELEC, 137 Phil. 471, 489, April 18, 1969, per Fernando, J. (later CJ.), citing People v. Vera, 65 Phil. 56,
22

6316 94, November 16, 1937, per Laurel, J.

6317 433 Phil. 62, 68, July 2, 2002, citing Alunan III v. Mirasol, 342 Phil. 467, 477, July 31, 1997 and Viola v. Alunan III, 343
23

6318 Phil. 184, 191, August 15, 1997.

6319 24
Southern Pacific Terminal Co. v. ICC, 219 US 498, 31 S.Ct. 279, 283, February 20, 1911, per McKenna, J.

6320 25
134 SCRA 438, 463-464, February 18, 1985, per Gutierrez Jr., J.

6321 26
§1 of Rule 63 of the Rules of Court:

6322 "Section 1. Who may file petition. – Any person interested under a deed, will, contract or other written instrument, whose
6323 rights are affected by a statute, executive order or regulation, ordinance, or any other governmental regulation may, before
6324 breach or violation thereof, bring an action in the appropriate Regional Trial Court to determine any question of construction
6325 or validity arising, and for a declaration of his rights or duties, thereunder."

6326 27
§2 of Rule 65 of the Rules of Court:

6327 "Section 2. Petition for prohibition. – When the proceedings of any tribunal, corporation, board, officer or person, whether
6328 exercising judicial, quasi-judicial or ministerial functions, are without or in excess of its or his jurisdiction, or with grave
6329 abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any other plain, speedy, and
6330 adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court,
6331 alleging the facts with certainty and praying that judgment be rendered commanding the respondent to desist from further
6332 proceedings in the action or matter specified therein, or otherwise granting such incidental reliefs as law and justice may
6333 require."

6334 28
Pimentel Jr. v. Aguirre, 391 Phil. 84, 107, July 19, 2000, per Panganiban, J.

6335 29
338 Phil. 546, May 2, 1997.

6336 30
Tañada v. Angara, pp. 47-49, per Panganiban, J. Italics supplied.

6337 31
Emphasis supplied.

6338 32
Ang Bagong Bayani v. COMELEC, 412 Phil. 308, 338-339, June 26, 2001, per Panganiban, J., citing JM Tuason & Co., Inc.
6339 v. LTA, 31 SCRA 413, 422-423, February 18, 1970, as cited in Agpalo, Statutory Construction (1990), pp. 311 and 313.

6340 GR Nos. 160261, 160262, 160263, 160277, 160292, 160295, 160310, 160318, 160342, 160343, 160360,
33

6341 160365, 160370, 160376, 160392, 160397, 160403, and 160405, November 10, 2003, per Carpio Morales, J.

6342 34
Francisco v. The House of Representatives, 415 SCRA 44, 126-127, November 10, 2003, per Carpio
6343 Morales, J. Citations omitted.

6344 35
During the Oral Argument, petitioner's counsel, Atty. Marvic Leonen conceded that the foreign contractor may exercise
6345 limited management prerogatives to the extent of the financial or technical assistance given. TSN, pp. 181-186. How such
6346 "limited management" can be operationalized was not explained.

6347 36
In the January 27, 2004 Decision, this Court held that the fourth paragraph of Section 2 of Art. XII limits foreign
6348 involvement in the local mining industry to agreements strictly for financial and/or technical assistance only, and precludes
6349 agreements which grant to foreign corporations the management of local mining operations, since the latter agreements are
6350 purportedly in the nature of service contracts, as this concept was understood under the 1973 Constitution. Such contracts
6351 were supposedly deconstitutionalized and proscribed by the omission of the phrase "service contracts" from the 1987
6352 Constitution. Since the WMCP FTAA contains provisions that permit the contractor's management of the concern, the
6353 Decision struck down the FTAA for being a prohibited service contract. Provisions of RA 7942 which granted managerial
6354 authority to the foreign contractor were also declared unconstitutional.

6355 37
Intervenor's Memorandum, pp. 7, 11 and 12.

Page 142
6356 38
www.dictionary.com provides the following meanings for "involving":

6357 1. To contain as a part; include.

6358 2. To have as a necessary feature or consequence; entail: was told that the job would involve travel.

6359 3. To engage as a participant; embroil: involved the bystanders in his dispute with the police.

6360 4. a. To connect closely and often incriminatingly; implicate: evidence that involved the governor in the scandal.

6361 b. To influence or affect: The matter is serious because it involves your reputation.

6362 5. To occupy or engage the interest of: a story that completely involved me for the rest of the evening.

6363 6. To make complex or intricate; complicate.

6364 7. To wrap; envelop: a castle that was involved in mist.

6365 8. Archaic. To wind or coil about.

6366 39
It reads as follows: "Section 20. The President may contract or guarantee foreign loans on behalf of the Republic of the
6367 Philippines with the prior concurrence of the Monetary Board, and subject to such limitations as may be provided by law.
6368 The Monetary Board shall, within thirty days from the end of every quarter of the calendar year, submit to the Congress a
6369 complete report of its decision on applications for loans to be contracted or guaranteed by the Government or government-
6370 owned and controlled corporations which would have the effect of increasing the foreign debt, and containing other matters
6371 as may be provided by law."

6372 40
According to estimates by the MGB, the success-to-failure ratio of large-scale mining or hydrocarbon projects is about
6373 1:1,000. It goes without saying that such a miniscule success ratio hardly encourages the investment of tremendous amounts
6374 of risk capital and modern technology required for the discovery, extraction and treatment of mineral ores, and oil and gas
6375 deposits.

6376 41
The Constitutional Commission (ConCom) began its work in 1986, three short years after the assassination in August 21,
6377 1983 of former Senator Benigno "Ninoy" Aquino, Jr. During the early part of this three-year period, the country underwent a
6378 wracking economic crisis characterized by scarcity of funds, capital flight, stringent import controls, grave lack of foreign
6379 exchange needed to fund critical importations of raw materials, panic-buying, hoarding of commodities, and grave lack of
6380 foreign exchange needed to fund critical importations of raw materials. Many businesses were on the verge of failure and
6381 collapse, and many in fact did. The members of the ConCom were unlikely to forget the critical condition of the Philippine
6382 economy and the penury of its government.

6383 42
The management of every business has two primary objectives. The first is to earn profit. The second is to stay solvent, that
6384 is, to have on hand sufficient cash to pay debts as they fall due. Other objectives may be targeted, but a business cannot hope
6385 to accomplish them, unless it meets these two basic tests of survival -- operating profitably and staying solvent. Meigs and
6386 Meigs, Accounting: The Basis for Business Decisions (5thed., 1982), p. 11.

6387 43
Art. XVIII, "Transitory Provisions," of the 1987 Constitution.

6388 44
III Record of the Constitutional Commission, p. 348. Emphasis supplied.

6389 45
Id., pp. 349-352. Emphasis supplied.

6390 46
Id., p. 354. Emphasis supplied.

6391 47
Id., pp. 355-356. Emphasis supplied.

6392 48
Id., p. 361. Emphasis supplied.

6393 49
V Records of the Constitutional Commission, p. 845.

Page 143
6394 50
Id., p. 841.

6395 51
Id., p. 844.

6396 52
Civil Liberties Union v. Executive Secretary, 194 SCRA 317, 337-338, February 22, 1991, per Fernan, CJ.

6397 The transitive verb 'control' has the following meanings -- to exercise restraining or directing influence over; to regulate; to
53

6398 have power over; to rule; to govern. The noun 'control' refers to an act or instance of controlling; the power or authority to
6399 guide or manage; and the regulation of economic activity especially by government directive (as in price controls). From
6400 Merriam-Webster Online, Online Dictionary, www.m-w.com.

6401 54
On p. 2 of the Final Memorandum for Petitioners.

6402 55
Sec. 3(aq) of RA 7942 reads as follows: "aq. Qualified person means any citizen of the Philippines with capacity to contract,
6403 or a corporation, partnership, association, or cooperative organized or authorized for the purpose of engaging in miring, with
6404 technical and financial capability to undertake mineral resources development and duly registered in accordance with law at
6405 least sixty per centum (60 percent) of the capital of which is owned by citizens of the Philippines: Provided, That a legally
6406 organized foreign-owned corporation shall be deemed a qualified person for purposes of granting an exploration permit,
6407 financial or technical assistance agreement or mineral processing permit." Underscoring supplied.

6408 56
Per Clause 4.6 of the WMCP FTAA, the contractor is required to relinquish each year during the exploration period at least
6409 ten percent (10%) of the original contract area, by identifying and dropping from the FTAA coverage those areas which do not
6410 have mineral potentials, in order that by the time actual mining operations commence, the FTAA contract area shall have
6411 been reduced to only 5,000 hectares.

6412 57
Memorandum (in support of WMCP's Motion and Supplemental Motion for Reconsideration), p. 61.

6413 58
Id., pp. 63-64.

6414 59
Accounts receivable may be converted to cash in one of three ways: (1) assignment of receivables, which is a borrowing
6415 arrangement with receivables pledged as security on the loan; (2) factoring receivables, which is a sale of receivables without
6416 recourse for cash to a third party, usually a bank or other financial institution; and (3) the transfer of receivables with
6417 recourse, which is a hybrid of the other two forms of receivable financing. Smith and Skousen, Intermediate
6418 Accounting, (1992, 11th ed.), pp. 317-321.

6419 Banks usually prefer lending against the security of accounts receivable backed up by postdated checks. They refer to these
6420 facilities as "bills discounting lines."

6421 60
Decision, p. 83; bold types supplied.

6422 "Beneficial interest has been defined as the profit, benefit, or advantage resulting from a contract, or the ownership of an
61

6423 estate as distinct from the legal ownership or control." Christiansen v. Department of Social Security, 131 P. 2d 189, 191, 15
6424 Wash. 2d 465, 467, November 25, 1942, per Driver, J.

6425 Beneficial use, ownership or interest in property means "such a right to its enjoyment as exists where the legal title is in one
6426 person and the right to such beneficial use or interest is in another x x x." Montana Catholic Missions v. Missoula County, 26
6427 S Ct. 197, 200, 200 U.S. 118, 127-128, January 2, 1906, per Peckham, J.

6428 62
See p. 1138 thereof.

6429 63
Ramos and De Vera, "The Fiscal Regime of Financial or Technical Assistance Agreements", p. 2. A photocopy of their paper
6430 is attached as Annex 2 to the Motion for Reconsideration of public respondents.

6431 64
These incentives consist principally of the waiver of national taxes during the cost recovery period of the FTAA. During
6432 such period, the contractor pays only part of the basic government's share in taxes consisting of local government taxes and
6433 fees. These are the local business tax, real property tax, community tax, occupation fees, regulatory fees, all other local taxes
6434 and fees in force, and royalty payments to indigenous cultural communities, if any.

Page 144
6435 These national taxes, however, are not to be paid by the contractor: (i) excise tax on minerals; (ii) contractor's income tax; (iii)
6436 customs duties and fees on imported capital equipment; (iv) value added tax on purchases of imported equipment, goods and
6437 services; (v) withholding tax on interest payments on foreign loans; (vi) withholding tax on dividends to foreign stockholders;
6438 and (vii) royalties due the government on mineral reservations.

6439 Other incentives to the contractor include those under the Omnibus Investment Code of 1997; those for the use of pollution
6440 control devices and facilities; income tax carry-forward of losses (five-year net loss carry forward); and income tax accelerated
6441 depreciation.

6442 65
See §3(g), DAO 99-56. According to the paper by Messrs. Ramos and De Vera, supra, who are, respectively, the director of
6443 the MGB and chief of the Mineral Economics, Information and Publication Division of the MGB, majority of the payments
6444 listed under Sec. 3(g) are relatively small in value. The most significant payments in terms of amount are the excise tax,
6445 royalties to mineral reservations and indigenous cultural communities, income tax and real property tax.

6446 66
Per Messrs. Ramos and De Vera, supra, "(t)he term of a successful FTAA may be divided into a pre-operating period, a cost
6447 recovery period and a post recovery period. The pre-operating period consists of the exploration, pre-feasibility, feasibility,
6448 development and construction phases. The aggregate of this period is a maximum of eleven (11) years. The cost recovery
6449 period, on the other hand, consists of the initial years of commercial operation where the contractor is allowed to recover its
6450 pre-operating expenses. The end of this period is when the aggregate of the net cash flow from the mining operation becomes
6451 equal to the total pre-operating expenses or a maximum of five (5) years from commencement of commercial production,
6452 whichever comes first. The post recovery period is the remaining term of the FTAA immediately following the cost recovery
6453 period. The additional government share from an FTAA is collected after the cost recovery period."

6454 67
Ramos and De Vera, supra, pp. 3-4.

6455 The discussion on pp. 4-7 of the Ramos-DeVera report, focusing on the modes of computation of the additional government
68

6456 share as spelled out in DAO 99-56, is significant:

6457 The phrase "among other things" demands that Government is entitled to additional share aside from the normal taxes and
6458 fees paid during operation. Simple as it was formulated, the phrase is another challenging task to operationalize. In 1997,
6459 the Philippine government conducted several consultative meetings with various investor groups, national government
6460 agencies concerned with taxation and incentives and other stakeholders of the mining industry to formulate the possible
6461 modes of determining the additional government share for FTAA. The negotiation took into consideration the following:

6462 · Capital investment in the project;

6463 · Risks involved;

6464 · Contribution of the project to the economy;

6465 · Contribution of the project to community and local government;

6466 · Technical complexity of the project; and

6467 · Other factors that will provide for a fair and equitable sharing between the government and the contractor.

6468 During these consultations, some investor groups have repeatedly expressed their objections to the imposition of an
6469 additional government share. However, since Government is firmly committed to adhere to its interpretation of Section 81 of
6470 the mining law on government share in an FTAA, it decided to push through with the collection of this additional
6471 government share by formally making part of the mining regulation through the issuance by the Department of
6472 Environment and Natural Resources of Administrative Order No. 99-56 providing for the guidelines in establishing the fiscal
6473 regime of Financial or Technical Assistance Agreements.

6474 There were three schemes for computing the additional government share presented in the administrative order.

6475 5.1 Net Mining Revenue-Based Option

Page 145
6476 Net mining revenue means the gross output from mining operations during a calendar year less deductible expenses. These
6477 deductible expenses consist of expenses incurred by the Contractor directly, reasonably and necessarily related to mining
6478 operations in the contract area during a calendar year, namely:

6479 · Mining, milling, transport and handling expenses together with smelting and refining costs other than smelting and
6480 refining costs paid to third parties;

6481 · General and administrative expenses actually incurred by the Contractor in the Philippines;

6482 · Consulting fees incurred for work related to the project; provided that those expenses incurred outside of the Philippines
6483 are justifiable and allowable subject to the approval of the Director of Mines and Geosciences Bureau;

6484 · Environmental expenses of the Contractor including such expenses necessary to fully comply with its environmental
6485 obligations;

6486 · Expenses for the development of host and neighboring communities and for the development of geoscience and mining
6487 technology together with training costs and expenses;

6488 · Royalty payments to claim owners or surface land owners relating to the Contract Area during the Operating Phase;

6489 · Continuing exploration and mine development expenses within the Contract Area after the pre-operating period; and

6490 · Interest expenses charged on loans or such other financing-related expenses incurred by the Contractor subject to
6491 limitations in debt/equity ratio as given in the contract and which shall not be more than the prevailing international rates
6492 charged for similar types of transactions at the time the financing was arranged, and where such loans are necessary for the
6493 operations; and

6494 · Government taxes, duties and fees.

6495 The additional government share from this option for any year i is the difference between 50% of the cumulative annual net
6496 mining revenues CNi and the cumulative total government share CGi (basic and additional). The intention is to distribute
6497 the cumulative net mining revenue equally between the Government and the contractor. It can be expressed through the
6498 following formula:

6499 If 50% of CNi < CGi

6500 Additional Government Share = 0

6501 Else, if 50% of CNi > CGi

6502 Additional Gov't Share = (50% x CNi) - CGi

6503 5.2 Cash Flow-Based Option

6504 Project cash flow before financing and tax (CFi) is calculated as follows:

6505 CFi = GO - DE + I - PE - OC

6506 In this formula, GO is the gross output; DE are the deductible expenses; I is the interest expense; PE is unrecovered pre-
6507 operating expense; and OC is on-going capital expenditures. This option provides that Government gets an additional share
6508 from the project cash flow if the cumulative present value of the previous total government share collected (basic and
6509 additional) is less than 50% of the cumulative present value of the project cash flows. The additional government share AGS
6510 is therefore the difference between 50% and the percentage of the cumulative present value of total government shares CGA
6511 over the cumulative present value of the project cash flows CP. The cumulative present value of project cash flow for any
6512 year i is given by the following formula:

6513 CPi = CPi-1 x (1.10) + CFi

Page 146
6514 The factor 1.10 is a future value factor based on the cost of borrowed money with allowance for inflation of the US dollar. The
6515 cumulative present value of the total government share before additional government share CGB for year i is:

6516 CGBi = CGAi-1 x (1 + Cost of Capital) + BGSi

6517 where CGAi is the cumulative present value of total government share inclusive of the additional government share during
6518 the year is CGAi = CGBi + AGSi.

6519 If CGBi > 50% of CPi :

6520 Additional Government Share = 0

6521 Else, if CGBi < 50% of CPi :

6522 Additional Government Share = (50% x CPi) – CGBi

6523 5.3 Profit-Based Option

6524 This third option provides that Government shall receive an additional share of twenty-five percent (25%) of the additional or
6525 excess profits during a taxable year when the two-year average ratio of the net income after tax (NIAT) to gross output (GO)
6526 is 0.40 or better. The trigger level of 0.40 ratio is approximately equivalent to a 20% return on investment when computed
6527 based on the life of the project. Investors have indicated that their minimum return on investment before they would invest
6528 on a mining project in the Philippine is 15%. It was agreed upon that a return on investment below 20% but not lower than
6529 15% is normal profit. If the project reaches 20% or better, there is then an additional or excess profits. The computation of
6530 the 0.40 trigger shall be based on a 2-year moving average which is the average of the previous year's ratio and the current
6531 year's ratio. The additional or excess profit is computed using the following formula:

6532 Additional Profits = [NIAT - (0.40 x GO)] / (1 - ITR)

6533 In the above formula, ITR refers to the prevailing income tax rate applied by the Bureau of Internal Revenue in computing
6534 the income tax of the contractor during a taxable year.

6535 If the two-year average ratio is less than 0.40:

6536 Additional Government Share = 0

6537 Else, if the two-year average ratio is 0.40 or better:

6538 Additional Government Share = 25% x Excess Profits

6539 The government shares 25% of any marginal profit derived by the contractor at 20% or higher return on investment.

6540 In all of these three options, the basis of computation are all in US dollars based on prevailing foreign exchange rate at the
6541 time the expenses were incurred. Alternatives or options aside from these three schemes are studied by Government for
6542 possible improvement of the current fiscal system. The basic guideline, however, is that the total government share should
6543 not be less than fifty percent of the sharing.

6544 6. Collection of the Additional Government Share

6545 The term of a successful FTAA may be divided into a pre-operating period, a cost recovery period and a post recovery period.
6546 The pre-operating period consists of the exploration, pre-feasibility, feasibility, development and construction phases. The
6547 aggregate of this period is a maximum of eleven (11) years. The cost recovery period, on the other hand, consists of the initial
6548 years of commercial operation where the contractor is allowed to recover its pre-operating expenses. The end of this period is
6549 when the aggregate of the net cash flow from the mining operation becomes equal to the total pre-operating expenses or a
6550 maximum of five (5) years from commencement of commercial production, whichever comes first. The post recovery period is
6551 the remaining term of the FTAA immediately following the cost recovery period. The additional government share from an
6552 FTAA is collected after the cost recovery period. (underscoring supplied)

Page 147
6553 The cash flows of a business concern tend to be more accurate and realistic indicia of the financial capacity of the
69

6554 enterprise, rather than net income or taxable income, which are arrived at after netting out non-cash items like depreciation,
6555 doubtful accounts expense for probable losses, and write-offs of bad debts.

6556 Cash flows provide relevant information about the cash effects of an entity's operations, and its investing and financing
6557 transactions. Smith and Skousen, supra, p. 184.

6558 Some of these indirect taxes are: fuel taxes; withholding tax on payrolls, on royalty payments to claim owners and surface
70

6559 owners and on royalty payments for technology transfer; value added tad on local equipment, supplies and services.

6560 71
Other contributions of mining projects include: infrastructure (hospitals, roads, schools, public markets, churches, and the
6561 like) and social development projects; payroll and fringe benefits (direct and indirect employment); expenditures by the
6562 contractor for development of host and neighboring communities; expenditures for the development of geosciences/mining
6563 technology; expenditures for social infrastructures; and the resulting multiplier effects of mining operations.

6564 The third paragraph of §81, RA 7942 states: "The collection of Government share in financial or technical assistance
72

6565 agreement shall commence after the financial or technical assistance agreement contractor has fully recovered its pre-
6566 operating expenses, exploration, and development expenditures, inclusive."

6567 73
§§80 and 84 of RA 7942 are reproduced below:

6568 Sec. 80. Government Share in Mineral Production Sharing Agreement. – The total government share in a mineral production
6569 sharing agreement shall be the excise tax on mineral products as provided in Republic Act No. 7729, amending Section
6570 151(a) of the National Internal Revenue Code, as amended.

6571 Sec. 84. Excise Tax on Mineral Products. – The contractor shall be liable to pay the excise tax on mineral products as
6572 provided for under Section 151 of the National Internal Revenue Code: Provided, however, That with respect to a mineral
6573 production sharing agreement, the excise tax on mineral products shall be the government share under said agreement.
6574 (Underscoring supplied)

6575 74
§112 of RA 7942 is reproduced below:

6576 Sec. 112. Non-impairment of Existing Mining/Quarrying Rights. – All valid and existing mining lease contracts,
6577 permits/licenses, leases pending renewal, mineral production-sharing agreements granted under Exec. Order No. 279, at the
6578 date of effectivity of this Act, shall remain valid, shall not be impaired, and shall be recognized by the Government: Provided,
6579 That the provisions of Chapter XIV on government share in mineral production sharing agreement and of Chapter XVI on
6580 incentives of this Act shall immediately govern and apply to a mining lessee or contractor unless the mining lessee or
6581 contractor indicates his intention to the Secretary, in writing, not to avail of such provisions: Provided, further, That no
6582 renewal of mining lease contracts shall be made after the expiration of its term: Provided, finally, That such leases,
6583 production-sharing agreements, financial or technical assistance agreements shall comply with the applicable provisions of
6584 this Act and its implementing rules and regulations. (Underscoring supplied)

6585 75
Even during the cost recovery period, the contractor will still have to pay a portion of the basic government share consisting
6586 of local government taxes and fees, such as local business taxes, real property taxes, community taxes, occupation fees,
6587 regulatory fees, and all other local taxes and fees, plus royalty payments to indigenous cultural communities, if any.

6588 76
Ramos and DeVera, supra, p. 7.

6589 77
Ibid., p. 11. See also §3e of DAO 99-56.

6590 78
Justice Carpio argues thus: The WMCP FTAA grants the State 60 percent of net profit; CMP likewise agrees to 60 percent;
6591 the Malampaya-Shell FTAA provides for 60 percent also; so the Court should decree a minimum of 60 percent. Our answer:
6592 no law authorizes this Court to issue such a decree. It is up to the State to negotiate the most advantageous percentage. This
6593 Court cannot be stampeded into the realm of legislation.

6594 Clause 1.2 thereof states: "All financing, technology, management and personnel necessary for the Mining Operations shall
79

6595 be provided by the Contractor in accordance with the provisions of this Agreement. If no Minerals in commercial quantity are

Page 148
6596 developed and produced, the Contractor acknowledges that it will not be entitled to reimbursement of its expenses incurred
6597 in conducting the Mining Operations."

6598 80
WMCP FTAA Clause 2.1 (iv), p. 6.

6599 81
Id., Clause 2.1 (v), p. 6.

6600 82
Id., Clause 2.1 (vii), p. 6.

6601 "Qualified Entity" is defined as "an entity that at the relevant time is qualified to enter into a mineral production sharing
83

6602 agreement with the Government under the laws restricting foreign ownership and equity in natural resource projects." §2 --
6603 Definitions, WMCP FTAA, p. 10. (Underscoring supplied.)

6604 Pursuant to §26a in relation to §§3g and 3aq of RA 7942, a contractor in an MPSA should be a citizen of the Philippines or a
6605 corporation at least 60 percent of the capital of which is owned by citizens of the Philippines.

6606 Since we assume that the buyer-corporation, which buys up 60% equity in WMCP, is 60% Filipino-owned and 40% foreign-
84

6607 owned, therefore, the foreign stockholders in such buyer-corporation hold 24% beneficial interest in WMCP.

6608 85
Fourth paragraph of Sec. 2, Art. XII of the 1987 Constitution.

6609 86
See, for instance, Maestrado v. CA, 327 SCRA 678, 692, March 9, 2000 and Philippine Telegraph and Telephone Co.
6610 v. NLRC, 338 Phil. 1093, 1111, May 23, 1997.

6611 Art. 1306 of the Civil Code provides: "The contracting parties may establish such stipulations, clauses, terms and conditions
87

6612 as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.".

6613 88
Republic v. CA, 354 SCRA 148, March 9, 2001, per Ynares-Santiago, J.

6614 89
Philippine Basketball Association v. CA, 337 SCRA 358, 369, August 8, 2000. Likewise, §11 of Book I of Chapter 3 of
6615 Exec. Order No. 292, otherwise known as "The Administrative Code of 1987," states: "Sec. 11. The State's Responsibility for
6616 Acts of Agents. – (1) The State shall be legally bound and responsible only through the acts performed in accordance with the
6617 Constitution and the laws by its duly authorized representatives. (2) The State shall not be bound by the mistakes or errors
6618 of its officers or agents in the exercise of their functions."

6619 90 Art. 1420 of the Civil Code provides: "In case of a divisible contract, if the illegal terms can be separated from the legal
6620 ones, the latter may be enforced."

6621 91
Sarmiento v. CA, 353 Phil. 834, 853, July 2, 1998.

6622 92
Ramos-DeVera, supra, p. 2.

6623 93
Bold types supplied.

6624 94
§3[h] in relation to §26[b] of RA 7942.

6625 95
§26[c] of RA 7942.

6626 96
OXFAM America Research Report, September 2002.

6627 97
Dated December 2003.

6628 98
§1 of EO 270.

6629 99
Decena v. Malayaon, AM No. RTJ-02-1669, April 14, 2004, per Tinga, J.

6630 100
Manila Electric Company v. Pasay Transportation, 57 Phil. 600, 605, November 25, 1932, per Malcolm, J.

6631 CHICO-NAZARIO, J.:

Page 149
6632 1 Mondano v. Silvosa, GR No. L-7708, 30 May 1955, 97 Phil. 143

6633 2 J. Bernas, S.J. The Intent of the 1987 Constitution Writers, 1995 Ed., p. 812.

6634 3 Id. at 818

6635 4 Ibid.

6636 5 Id. at 817-818.

6637 6In Reagan v. Commission on Internal Revenue (L-26379, 27 December 1969, 30 SCRA 968,973) the Court discussed the
6638 concept of auto-limitation in this wise: "It is to be admitted that any State may by its consent, express or implied, submit to a
6639 restriction of its sovereignty rights. That is the concept of sovereignty as auto-limitation which, in the succinct language of
6640 Jellinek, 'is the property of a state-force due to which it has the exclusive capacity of legal-self determination and self-
6641 restriction.' A State then, if it chooses to, may refrain from the exercise of what otherwise is illimitable competence." See
6642 also Tañada v. Angara, GR No. 118295, 2 May 1997, 272 SCRA 18

6643 7 Cf. Akbayan-Youth v. Commission on Elections, 355 SCRA 318 (2001).

6644 8 Section 2, Rep. Act. No. 7942

6645 9 Pilipinas Kao, Inc. vs. Court of Appeals, G.R. No. 105014, 18 December 2001, 372 SCRA 548

6646 10 Aris (Phis.) Inc. v. National Labor Relations Commission, G.R. No. 90501, 05 August 1991, 200 SCRA 246

6647 11 Ibid.

6648 12 See Tanada v. Angara, 272 SCRA 18.

6649 CARPIO, J.:

6650 1 Philippine Mining Act of 1995.

6651 2 Rollo, pp. 23–24.

6652 3Ibid., pp. 65-120. Then Executive Secretary Teofisto Guingona, Jr. signed the WMCP FTAA on behalf of then President
6653 Fidel V. Ramos upon recommendation of then DENR Secretary Angel C. Alcala.

6654 4 Section 2, Article XII of the 1987 Constitution provides in full: "All lands of the public domain, waters, minerals, coal,
6655 petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
6656 other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not
6657 be alienated. The exploration, development, and utilization of natural resources shall be under the full control and
6658 supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture,
6659 or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose
6660 capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not
6661 more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for
6662 irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the
6663 measure and limit of the grant.

6664 The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone,
6665 and reserve its use and enjoyment exclusively to Filipino citizens.

6666 The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish
6667 farming, with priority to subsistence fishermen and fishworkers in rivers, lakes, bays, and lagoons.

6668 The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance
6669 for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the

Page 150
6670 general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the
6671 country. In such agreements, the State shall promote the development and use of local scientific and technical resources.

6672 The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days
6673 from its execution."

6674 5 Chavez v. Public Estates Authority, 433 Phil. 506 (2002).

6675 6The only limitation is that the State cannot alienate its natural resources except for agricultural lands. However, the State
6676 can exploit commercially its natural resources and sell the marketable products from such exploitation. See note 12.

6677 7 Article 441, Civil Code.

6678 8 Section 1, Article XIII of the 1935 Constitution; Section 8, Article XIV of the 1973 Constitution.

6679 9 Miners Association of the Philippines v. Hon. Factoran, Jr., et al., 310 Phil. 113 (1995).

6680 10 Records of the Constitutional Commission, Vol. III, p. 260.

6681 11 See note 7.

6682 12 Hector de Leon, PHILIPPINE CONSTITUTIONAL LAW, Vol. 2, p. 804 (1999 Ed.).

6683 13 See note 9.

6684 14Section 2, Article XII of the 1987 Constitution provides in part: "x x x With the exception of agricultural lands, all other
6685 natural resources shall not be alienated."

6686 15 Chapter XIV covers Sections 80 to 82 of RA 7942.

6687 16The five Mineral Production Sharing Agreements (Annexes A to F) attached to the 20 October 2004 Compliance of the
6688 Solicitor General uniformly contain the following provision:

6689 Share of the Government - The Government Share shall be the excise tax on mineral products at the time of removal and at
6690 the rate provided for in Republic Act No. 7729 amending Section 151(a) of the National Internal Revenue Code, as amended,
6691 as well as other taxes, duties, and fees levied by existing laws. (Emphasis supplied)

6692 Clearly, the State's share is limited to taxes, duties and fees just like under the old system of "license, concession or lease."
6693 See the (1) Mineral Production Sharing Agreement between the Republic of the Philippines and Ungay-Malobago Mines, Inc.
6694 and Rapu-Rapu Minerals, Inc. dated 12 September 2000; (2) Mineral Production Sharing Agreement between the Republic of
6695 the Philippines and Ungay-Malobago Mines, Inc. and TVI Resource Development (Phils.), Inc. dated 17 June 1998; (3)
6696 Mineral Production Sharing Agreement between the Republic of the Philippines and Base Metals Mineral Resources
6697 Corporation (BMMRC) dated 20 November 1997; (4) Mineral Production Sharing Agreement between the Republic of the
6698 Philippines and Philex Gold Philippines, Inc. dated 29 December 1999 (MPSA No. 148-99XIII); and (5) Mineral Production
6699 Sharing Agreement between the Republic of the Philippines and Philex Gold Philippines, Inc. dated 29 December 1999
6700 (MPSA No. 149-99-XIII).

6701 17 Sections 144, 145 and 149, National Internal Revenue Code.

6702 18 Commissioner of Internal Revenue v. Court of Appeals, 312 Phil. 337 (1995).

6703 19 Memorandum dated 13 July 2004, p. 56.

6704 20 Section 26, RA 7942.

6705 21 Chapter XIV covers Sections 80 to 82 of RA 7942.

6706 22 China Banking Corporation v. Court of Appeals, G.R. Nos. 146749 & 147938, 10 June 2003, 403 SCRA 634; City of
6707 Baguio v. De Leon, 134 Phil. 912 (1968).

Page 151
6708 23The 1995 Implementing Rules and Regulations of RA 7942 attempt to limit the period to five years. Thus, Section 236 of
6709 the Implementing Rules states that the "period of recovery which is reckoned from the date of commercial operation shall be
6710 for a period not exceeding five years or until the date of actual recovery, whichever comes first." However, the succeeding
6711 sentence of Section 236 also states, "For clarification, the Government's entitlement to its share shall commence after the
6712 FTAA contractor has fully recovered its pre-operating, exploration and development stage expenses, inclusive and the
6713 contractor's obligations under Chapter XXVII (on Taxes and Fees) of the rules and regulations do not arise until this time."
6714 What the first sentence limits the succeeding sentence cancels. The 1996 Revised Implementing Rules and Regulations of RA
6715 7942 omit the clarificatory sentence.

6716 24Section 94(a) of RA 7942 guarantees the foreign contractor the "right to repatriate the entire proceeds of the liquidation of
6717 the foreign investment in the currency in which the investment was originally made and at the exchange rate prevailing at
6718 the time of repatriation." Section 94(b) guarantees the "right to remit earnings from the investment in the currency in which
6719 the foreign investment was originally made and at the exchange rate prevailing at the time of remittance."

6720 25 Memorandum dated 13 July 2004, p. 65.

6721 26 Annex 8, Compliance of the Solicitor General dated 20 October 2004.

6722 27 Fifth Whereas Clause, Occidental-Shell FTAA.

6723 28 Section 1.1, Occidental-Shell FTAA.

6724 29 Sections 7.3 and 7.4, Occidental-Shell FTAA.

6725 30 Section 2.19, Occidental-Shell FTAA.

6726 31 Sections 12.1 and 15.2, Occidental-Shell FTAA; Paragraph 4, Annex B on Accounting Procedures.

6727 32 Section 7.2, Occidental-Shell FTAA.

6728 33 Section 6.1.i, Occidental-Shell FTAA.

6729 34
Sections 2.16 and 2.17, Occidental-Shell FTAA.

6730 35 Sections 2.24, 6.1.j, 6.3 and 8.1, Occidental-Shell FTAA.

6731 36Under Section 12.1 of the Occidental-Shell FTAA, the three-man arbitral panel consists of the Philippine Government's
6732 nominee, Occidental-Shell's nominee, and a third member mutually chosen by the nominees of the Government and
6733 Occidental-Shell.

6734 37 Intervenor CMP's Motion for Reconsideration dated 10 July 2004, p. 22.

6735 38 Ibid.

6736 39 Respondent WMCP's Memorandum dated 15 July 2004, p. 42.

6737 40 Ibid.

6738 41 See note 3.

6739 42The same provision appears in the FTAA between the Republic of the Philippines and ARIMCO Mining Corporation dated
6740 20 June 1994. ARIMCO, a domestic corporation owned and controlled by an Australian mining company, does not need to
6741 pay the 60% share of the Philippine Government in the mining revenues if ARIMCO's foreign parent company sells 60% of
6742 ARIMCO's equity to a Philippine citizen or to a 60% Filipino owned corporation. In such event, the share of the Philippine
6743 Government in the mining revenues is ZERO percent. ARIMCO will only pay the Philippine Government the 2% excise tax
6744 due on mineral products under a mineral production sharing agreement. See Annex 5, Compliance of Solicitor General dated
6745 20 October 2004.

Page 152
6746 43Section 2.1 of the WMCP FTAA defines a "Qualified Entity" as an "entity that at the relevant time is qualified to enter into
6747 a mineral production sharing agreement with the Government under the laws restricting foreign ownership and equity in
6748 natural resource projects."

6749 44 Motion for Reconsideration dated 14 July 2004, p. 22.

6750 45 Ibid., p. 20.

6751 46 Ibid., p. 12.

6752 47 Decision dated 27 January 2004.

6753 48 Memorandum dated 14 April 2004, p.12.

6754 49 Memorandum dated 15 July 2004, p. 42.

6755 50 Section 10.2 (l), WMCP FTAA.

6756 51 Article 441, Civil Code.

6757 52Section 2.1 of the WMCP FTAA allows WMCP to recover pre-operating expenses over 10 years from the start of
6758 commercial production.

6759 53 Memorandum dated 13 July 2004, p. 65.

6760 54 Section 9, Article XII of the 1987 Constitution.

6761 55 Memorandum dated 13 July 2004, p. 60.

6762 56 Ibid., p. 59.

6763 57 Ibid., p. 65.

6764 58 Section 151, National Internal Revenue Code.

6765 59 DENR ADMINISTRATIVE ORDER NO. 56-99

6766 SUBJECT: Guidelines Establishing the Fiscal Regime of Financial or Technical Assistance Agreements Pursuant to Section
6767 81 and other pertinent provisions of Republic Act No. 7942, otherwise known as the Philippine Mining Act of 1995 (the
6768 "Mining Act"), the following guidelines establishing the fiscal regime of Financial or Technical Assistance Agreements
6769 (FTAA) are hereby promulgated.

6770 SECTION 1. Scope

6771 This Administrative Order is promulgated to:

6772 a. Establish the fiscal regime for FTAAs which the Government and the FTAA Contractors shall adopt for the large-scale
6773 exploration, development and commercial utilization of mineral resources in the country; and

6774 b. Provide for the formulation of a Pro Forma FTAA embodying the fiscal regime established herein and such other terms
6775 and conditions as provided in the Mining Act and the Implementing Rules and Regulations (IRR) of the Mining Act.

6776 SECTION 2. Objectives

6777 The objectives of this Administrative Order are:

6778 a. To achieve an equitable sharing among the Government, both National and Local, the FTAA Contractor and the concerned
6779 communities of the benefits derived from mineral resources to ensure sustainable mineral resources development; and

Page 153
6780 b. To ensure a fair, equitable, competitive and stable investment regime for the large scale exploration, development and
6781 commercial utilization of minerals.

6782 SECTION 3. Fiscal Regime of a Financial or Technical Assistance Agreement

6783 The Financial or Technical Assistance Agreement which the Government and the FTAA Contractor shall enter into shall
6784 have a Fiscal Regime embodying the following provisions:

6785 a. General Principles. The Government Share derived from Mining Operations after the Date of Commencement of
6786 Commercial Production shall be determined in accordance with this Section.

6787 b. Occupation Fees. Prior to or upon registration of the FTAA and on the same date every year thereafter, the Contractor
6788 shall pay to the concerned Treasurer of the municipality(ies) or city(ies) the required Occupation Fee over the Contract Area
6789 at the rate provided for by existing laws, rules and regulations.

6790 c. Deductible Expenses. Allowable deductible expenses shall include all the expenses incurred by the Contractor directly,
6791 reasonably and necessarily related to the Mining Operations in the Contract Area in a Calendar Year during the Operating
6792 Phase. Allowable deductible expenses shall include the following:

6793 1. Mining, milling, transport and handling expenses together with smelting and refining costs other than smelting and
6794 refining costs paid to third parties;

6795 2. General and administrative expenses actually incurred by the Contractor in the Philippines;

6796 3. Consulting fees:

6797 a) incurred within the Philippines for work related to the project

6798 b) incurred outside the Philippines for work related to the project: Provided, That such fees are justifiable and subject to the
6799 approval of the Director.

6800 4. Environmental expenses of the Contractor including such expenses necessary to fully comply with its environmental
6801 obligations as stipulated in the environmental protection provision of the FTAA and in the IRR;

6802 5. Expenses for the development of host and neighboring communities and for the development of geoscience and mining
6803 technology as stipulated in the FTAA and in the IRR together with the training costs and expenses referred to in the FTAA;

6804 6. Royalty payments to Claimowners or surface land owners relating to the Contract Area during the Operating Phase;

6805 7. Continuing exploration and mine development expenses within the Contract Area after the pre-operating period;

6806 8. Interest expenses charged on loans or such other financing-related expenses incurred by the Contractor subject to the
6807 financing requirement in the FTAA, which shall not be more than the prevailing international rates charged for similar
6808 types of transactions at the time the financing was arranged, and where such loans are necessary for the operations; and

6809 9. Government taxes, duties and fees.

6810 Ongoing Capital Expenditures shall be considered as capital expenses subject to Depreciation Charges.

6811 "Ongoing Capital Expenditures" shall mean expenses for approved acquisitions of equipment and approved construction of
6812 buildings necessary for the Mining Operations as provided in its approved Mining Project Feasibility Study.

6813 "Depreciation Charges" means the annual non-cash deduction from the Operating Income for the use of fixed assets that are
6814 subject to exhaustion, wear and tear and obsolescence during their employment in a Mining Operation. Its applicability and
6815 computation are regulated by existing taxation laws, the Mining Act and the IRR. Incentives relating to depreciation
6816 allowance shall be in accordance to the provisions of the Mining Act and the IRR.

6817 "Operating Income" means the Gross Output less Deductible Expenses, while "Gross Output" has the meaning ascribed to it
6818 in the National Internal Revenue Code.

Page 154
6819 d. Payment of Government Taxes and Fees. The Contractor shall promptly pay all the taxes and fees required by the
6820 Government in carrying out the activities covered in the FTAA and in such amount, venue, procedure and time as stipulated
6821 by the particular law and implementing rules and regulations governing such taxes and fees subject to all rights of objection
6822 or review as provided for in relevant laws, rules and regulations. In case of non-collection as covered by Clause 3-g-1 of this
6823 Section, the Contractor shall follow the prevailing procedures for availment of such non-collection in accordance with
6824 pertinent laws, rules and regulations. Where prevailing orders, rules and regulations do not fully recognize and implement
6825 the provisions covered by Clause 3-g-1 of this Section, the Government shall exert its best efforts to ensure that all such
6826 orders, rules and regulations are revised or modified accordingly.

6827 e. Recovery of Pre-Operating Expenses. Considering the high risk, high cost and long term nature of Mining Operations, the
6828 Contractor is given the opportunity to recover its Pre-Operating Expenses incurred during the pre-operating period, after
6829 which the Government shall receive its rightful share of the national patrimony. The Recovery Period, which refers to the
6830 period allowed to the Contractor to recover its Pre-Operating Expenses as provided in the Mining Act and the IRR, shall be
6831 for a maximum of five (5) years or at a date when the aggregate of the Net Cash Flows from the Mining Operations is equal
6832 to the aggregate of its Pre-operating Expenses, reckoned from the Date of Commencement of Commercial Production,
6833 whichever comes first. The basis for determining the Recovery Period shall be the actual Net Cash Flows from Mining
6834 Operations and actual Pre-Operating Expenses converted into its US dollar equivalent at the time the expenditure was
6835 incurred.

6836 "Net Cash Flow" means the Gross Output less Deductible Expenses, Pre-Operating Expenses, Ongoing Capital Expenditures
6837 and Working Capital charges.

6838 f. Recoverable Pre-Operating Expenses. Pre-Operating Expenses for recovery which shall be approved by the Secretary upon
6839 recommendation of the Director shall consist of actual expenses and capital expenditures relating to the following:

6840 1. Acquisition, maintenance and administration of any mining or exploration tenements or agreements covered by the FTAA;

6841 2. Exploration, evaluation, feasibility and environmental studies, production, mining, milling, processing and rehabilitation,

6842 3. Stockpiling, handling, transport services, utilities and marketing of minerals and mineral products;

6843 4. Development within the Contract Area relating to the Mining Operations;

6844 5. All Government taxes and fees;

6845 6. Payments made to local Governments and infrastructure contributions;

6846 7. Payments to landowners, surface rights holders, Claimowners, including the Indigenous Cultural Communities, if any;

6847 8. Expenses incurred in fulfilling the Contractor's obligations to contribute to national development and training of
6848 Philippine personnel;

6849 9. Consulting fees incurred inside and outside the Philippines for work related directly to the Mining Operations;

6850 10. The establishment and administration of field and regional offices including administrative overheads incurred within
6851 the Philippines which are properly allocatable to the Mining Operations and directly related to the performance of the
6852 Contractor's obligations and exercise of its rights under the FTAA;

6853 11. Costs incurred in financial development, including interest loans payable within or outside the Philippines, subject to the
6854 financing requirements required in the FTAA and to a limit on debt-equity ratio of 5:1 for investments equivalent to 200
6855 Million US Dollars or less, or for the first 200 Million US Dollars of investments in excess of 200 Million US Dollars, or 8:1
6856 for that part of the investment which exceeds 200 Million US Dollars: Provided, That the interests shall not be more than the
6857 prevailing international rates charged for similar types of transaction at the time the financing was arranged;

6858 12. All costs of constructing and developing the mine incurred before the Date of Commencement of Commercial Production,
6859 including capital and property as hereinafter defined irrespective as to their means of financing, subject to the limitations
6860 defined by Clause 3-f-11 hereof, and inclusive of the principal obligation and the interests arising from any Contractor's

Page 155
6861 leasing, hiring, purchasing or similar financing arrangements including all payments made to Government both National
6862 and Local; and

6863 13. General and administrative expenses actually incurred by the Contractor for the benefit of the Contract Area.

6864 The foregoing recoverable Pre-Operating Expenses shall be subject to verification of its actual expenditure by an independent
6865 audit recognized by the Government and chargeable against the Contractor.

6866 g. Government Share.

6867 1. Basic Government Share. The following taxes, fees and other such charges shall constitute the Basic Government Share:

6868 a) Excise tax on minerals;

6869 b) Contractor's income tax;

6870 c) Customs duties and fees on imported capital equipment;

6871 d) Value added tax on the purchase of imported equipment, goods and services;

6872 e) Withholding tax on interest payments on foreign loans;

6873 f) Withholding tax on dividends to foreign stockholders;

6874 g) Royalties due the Government on Mineral Reservations;

6875 h) Documentary stamps taxes,

6876 i) Capital gains tax;

6877 j) Local business tax;

6878 k) Real property tax,

6879 l) Community tax;

6880 m) Occupation fees;

6881 n) All other local Government taxes, fees and imposts as of the effective date of the FTAA;

6882 o) Special Allowance, as defined in the Mining Act; and

6883 p) Royalty payments to any Indigenous People(s)/Indigenous Cultural Community(ies).

6884 From the Effective Date, the foregoing taxes, fees and other such charges constituting the Basic Government Share, if
6885 applicable, shall be paid by the Contractor: Provided, That above items (a) to (g) shall not be collected from the Contractor
6886 upon the date of approval of the Mining Project Feasibility Study up to the end of the Recovery Period. Any taxes, fees,
6887 royalties, allowances or other imposts, which should not be collected by the Government, but nevertheless paid by the
6888 Contractor and are not refunded by the Government before the end of the next taxable year, shall be included in the
6889 Government Share in the next taxable year. Any Value-Added Tax refunded or credited shall not form part of Government
6890 Share.

6891 2. Additional Government Share. Prior to the commencement of Development and Construction Phase, the Contractor may
6892 select one of the formula for calculating the Additional Government Share set out below which the Contractor wishes to
6893 apply to all of its Mining Operations and notify the Government in writing of that selection. Upon the issuance of such notice,
6894 the formula so selected shall thereafter apply to all of the Contractor's Mining Operations.

6895 a) Fifty-Fifty Sharing of the Cumulative Present Value of Cash Flows. The Government shall collect an Additional
6896 Government Share from the Contractor equivalent to an amount which when aggregated with the cumulative present value
6897 of Government Share during the previous Contract Years and the Basic Government Share for the current Contract Year is

Page 156
6898 equivalent to a minimum of fifty percent (50%) of the Cumulative Present Value of Project Cash Flow before financing for the
6899 current Contract Year. as defined below.

6900 Computation. The computation of the Additional Government Share shall commence immediately after the Recovery Period.
6901 If the computation covers a period of less than one year, the Additional Government Share corresponding to this period shall
6902 be computed pro-rata wherein the Additional Government Share during the year shall be multiplied by the fraction of the
6903 year after recovery. The Additional Government Share shall be computed as follows:

6904 Project Cash Flow Before Financing and Tax ("CF") for a taxable year shall be calculated as follows:

6905 CF = GO - DE +I - PE - OC

6906 Cumulative Present Value of Project Cash Flow ("CP") shall be the sum of the present value of the cumulative present value
6907 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
6908 current year ("CF"), and shall be calculated as follows:

6909 CP = (CP i-1 x 1.10)

6910 Cumulative Present Value of Total Government Share Before Additional Government Share ("CGB") shall be the sum of: the
6911 present value of the cumulative present value of the Total Government Share during the previous year (CGA i-J x 1.10), and
6912 the Basic Government Share for the current year (BGS), and shall be calculated as follows:

6913 CGB = (CGA i-1 x 1.10) + BGS

6914 The Additional Government Share ("AGS") shall be:

6915 If: CGB > CP x 0.5 then AGS = 0

6916 If CGB < CP x 0.5 then AGS = [CP x 0.5] - CGB

6917 Cumulative Present Value of Total Government Share (CGA):

6918 CGA = CGB + AGS

6919 where:

6920 BGS = Basic Government Share shall have the meaning as described in Clause 3-g-1 hereof;

6921 GO = Gross Output shall have the same meaning as defined in the National Internal Revenue Code;

6922 DE = Deductible Expenses shall have the meaning as described in Clause 3-c hereof;

6923 I = Interest payments on loans included in the Deductible Expenses shall be equivalent to those referred to in Clause 3-c-8
6924 hereof;

6925 PE = unrecovered Pre-Operating Expenses;

6926 OC = On-going Capital Expenditures as defined in Clause 3-c hereof;

6927 CPi-1 = cumulative present value of project cash flow during the previous year; and

6928 CGA = cumulative present value of total Government Share during the previous year.

6929 b) Profit Related Additional Government Share. The Government shall collect an Additional Government Share from the
6930 Contractor based on twenty-five percent (25%) of the additional profits once the arithmetic average of the ratio of Net Income
6931 After Tax To Gross Output as defined in the National Internal Revenue Code, for the current and previous taxable years is
6932 0.40 or higher rounded off to the nearest two decimal places.

6933 Computation. The computation of the Additional Government Share from additional profit shall commence immediately after
6934 the Recovery Period. If the computation covers a period of less than a year, the additional profit corresponding to this period

Page 157
6935 shall be computed pro-rata wherein the total additional profit during the year shall be multiplied by the fraction of the year
6936 after recovery.

6937 The additional profit shall be derived from the following formula.:

6938 If the computed average ratio as derived from above is less than 0.40:

6939 Additional Profit = 0

6940 If the computed average ratio is 0.40 or higher:

6941 [NIAT-(0.40xGO)]

6942 Additional Profit = ------------------------------

6943 (1-ITR)

6944 The Additional Government Share from the additional profit is computed using the following formula:

6945 Additional Government Share

6946 From Additional Profit = 25% x Additional Profit

6947 where:

6948 NIAT = Net Income After Tax for the particular taxable year under consideration.

6949 GO = Gross Output from operations during the same taxable year.

6950 ITR = Income Tax Rate applied by the Bureau of Internal Revenue in computing the income tax of the Contractor during the
6951 taxable year.

6952 c) Additional Share Based from the Cumulative Net Mining Revenue. The Additional Government Share for a given taxable
6953 year shall be calculated as follows:

6954 (i) Fifty percent (50%) of cumulative Net Mining Revenue from the end of the Recovery Period to the end of that taxable year;

6955 LESS

6956 (ii) Cumulative Basic Government Share for that period as calculated under Clause 3-g-1 hereof;

6957 AND LESS (if applicable)

6958 (iii) Cumulative Additional Government Share in respect of the period commencing at the end of the Recovery Period and
6959 expiring at the end of the taxable year immediately preceding the taxable year in question.

6960 "Net Mining Revenue" means the Gross Output from Mining Operations during a Calendar year less Deductible Expenses,
6961 plus Government taxes, duties and fees included as part of Deductible Expenses.

6962 3. Failure to Notify. If the Contractor does not notify the Government within the time contemplated by Clause 3-g-2 of the
6963 formula for calculating the Additional Government Share which the Contractor wishes to apply to all of its Mining
6964 Operations, the Government shall select and inform the Contractor which option will apply to the latter.

6965 4. Filing and Payment of Additional Government Share. Payment of the Additional Government Share shall commence after
6966 the Recovery Period. The Additional Government Share shall be computed, filed and paid to the MGB within fifteen (15)
6967 clays after the filing and payment of the final income tax return during the taxable year to the Bureau of Internal Revenue.
6968 Late filing and payment of the Additional Government Share shall be subject to the same penalties applicable to late filing of
6969 income tax returns. The Contractor shall furnish the Director a copy of its income tax return not later than fifteen (15) days
6970 after the date of filing.

Page 158
6971 A record of all transactions relating to the computation of the Additional Government Share shall be maintained by the
6972 Contractor and shall be made available to the Secretary or his/her authorized representative for audit.

6973 h. Sales and Exportation — The Contractor shall endeavor to dispose of the minerals and by-products produced in the
6974 Contract Area at the highest commercially achievable market price and lowest commercially achievable commissions and
6975 related fees in the circumstances then prevailing and to negotiate for sales terms and conditions compatible with world
6976 market conditions. The Contractor may enter into long term sales and marketing contracts or foreign exchange and
6977 commodity hedging contracts which the Government acknowledges to be acceptable notwithstanding that the sale price of
6978 minerals may from time to time be lower, or that the terms and conditions of sales are less favorable, than those available
6979 elsewhere.

6980 The Government shall be informed by the Contractor when it enters into a marketing agreement with both foreign and local
6981 buyers. The Contractor shall provide the Government a copy of the final marketing agreement entered into with buyers
6982 subject to the confidentiality clause of the FTAA.

6983 The Government shall be entitled to check and inspect all sales and exportation of minerals and/or mineral products
6984 including the terms and conditions of all sales commitments.

6985 Sales commitments with affiliates, if any, shall be made only at prices based on or equivalent to arm's length sales and in
6986 accordance with such terms and conditions at which such agreement would be made if the parties had not been affiliated,
6987 with due allowance for normal selling discounts or commissions. Such discounts or commissions allowed the affiliates must
6988 be no greater than the prevailing rate so that such discounts or commissions will not reduce the net proceeds of sales to the
6989 Contractor below those which it would have received if the parties had not been affiliated. The Contractor shall, subject to
6990 confidentiality clause of the FTAA, submit to the Government evidence of the correctness of the figures used in computing
6991 the prices discounts and commissions, and a copy of the sales contract.

6992 The Contractor undertakes that any mining, processing or treatment of Ore by the Contractor shall be conducted in
6993 accordance with such generally accepted international standards as are economically and technically feasible, and in
6994 accordance with such standards the Contractor undertakes to use all reasonable efforts to optimize the mining recovery of
6995 Ore from proven reserves and metallurgical recovery of minerals from the Ore: Provided, That it is economically and
6996 technically feasible to do so.

6997 For purposes of this Clause 3-h, an affiliate of an affiliated company means:

6998 a) any company in which the Contractor holds fifty percent (50%) or more of the shares;

6999 b) any company which holds fifty percent (50%) or more of the Contractor's shares;

7000 c) any company affiliated by the same definition in (a) or (b) to an affiliated company of the Contractor is itself considered an
7001 affiliated company for purposes of the FTAA;

7002 d) any company which, directly or indirectly, is controlled by or controls, or is under common control by the Contractor;

7003 e) any shareholder or group of shareholders of the Contractor or of an affiliated company; or

7004 f) any individual or group of individuals in the employment of the Contractor or of any affiliated company.

7005 Control means the power exercisable, directly or indirectly, to direct or cause the direction of the management and policies of
7006 a company exercised by any other company and shall include the right to exercise control or power to acquire control directly
7007 or indirectly, over the company's affairs and the power to acquire not less than fifty percent (50%) of the share capital or
7008 voting power of the Contractor. For this purpose, a creditor who lends, directly or indirectly, to the contractor, unless he has
7009 lent money to the Contractor in the ordinary course of money-lending business, may be deemed to be a Person with power to
7010 acquire not less than fifty percent (50%) of the share capital or voting power of the Contractor if the amount of the total of its
7011 loan is not less than fifty percent (50%) of the total loan capital of the company. cdll

7012 If a person ("x") would not be an affiliate of an affiliated company ("y") on the basis of the above definition but would be an
7013 affiliate if each reference in that definition to "fifty percent (50%)" was read as a reference to "forty percent (40%)" and the
7014 Government has reasonable grounds for believing that "x" otherwise controls "y" or "x" is otherwise controlled by "y," then,

Page 159
7015 upon the Contractor being notified in writing by the Government of that belief and the grounds therefore, "x" and "y" shall be
7016 deemed to be affiliates unless the Contractor is able to produce reasonable evidence to the contrary.

7017 i. Price or Cost Transfers. The Contractor commits itself not to engage in transactions involving price or cost transfers in the
7018 sale of minerals or mineral products and in the purchase of input goods and services resulting either in the illegitimate loss
7019 or reduction of Government Share or illegitimate increase in Contractor's share. If the Contractor engages affiliates or an
7020 affiliated company in the sale of its mineral products or in providing goods, services, loans or other forms of financing
7021 hereunder, it shall do so on terms no less than would be the case with unrelated persons in arms-length transactions.

7022 SECTION 4. Pro Forma FTAA Contract

7023 The fiscal regime provided herein, and the terms and conditions provided in the Mining Act and IRR shall be embodied in a
7024 Pro Forma FTAA Contract to be prepared by the Department of Environment and Natural Resources. The Pro Forma FTAA
7025 Contract shall also incorporate such other provisions as the DENR may formulate as a result of consultations or negotiations
7026 conducted for that purpose with concerned entities.

7027 The Pro Forma FTAA Contract shall be used by the DENR, the Negotiating Panel and the mining applicant for negotiation
7028 of the terms and conditions of the FTAA: Provided, That the terms and conditions provided in the Pro Forma FTAA Contract
7029 shall be incorporated in each and every FTAA.

7030 SECTION 5. Status of Existing FTAAs

7031 All FTAAs approved prior to the effectivity of this Administrative Order shall remain valid and be recognized by the
7032 Government: Provided, That should a Contractor desire to amend its FTAA, it shall do so by filing a Letter of Intent (LOI) to
7033 the Secretary thru the Director. Provided, further, That if the Contractor desires to amend the fiscal regime of its FTAA, it
7034 may do so by seeking for the amendment of its FTAA's whole fiscal regime by adopting the fiscal regime provided hereof:
7035 Provided, finally, That any amendment of an FTAA other than the provision on fiscal regime shall require the negotiation
7036 with the Negotiating Panel and the recommendation of the Secretary for approval of the President of the Republic of the
7037 Philippines.

7038 SECTION 6. Repealing Clause

7039 All orders and circulars or parts thereof inconsistent with or contrary to the provisions of this Order are hereby repealed,
7040 amended or modified accordingly.

7041 SECTION 7. Effectivity

7042 This Order shall take effect fifteen (15) days upon its complete publication in newspaper of general circulation and fifteen
7043 (15) days after registration with the Office of the National Administrative Register.

7044 (SGD.) ANTONIO H. CERILLES

7045 Secretary

7046 60 G.R. Nos. L-18843 & 18844, 29 August 1974; Supra, note 77.

7047 61 323 Phil. 297 (1996).

7048 62 112 Phil. 24 (1961).

7049 63 156 Phil. 498 (1974).

7050 64Ruben E. Agpalo, STATUTORY CONSTRUCTION, p. 217 (1998 Ed.), citing Commissioner of Customs v. Court of Appeals,
7051 G.R. No. 33471, 31 January 1972, 43 SCRA 192; Asturias Sugar Central, Inc. v. Commissioner of Customs, G.R. No. 19337,
7052 30 September 1969, 29 SCRA 617; People v. Kottinger, 45 Phil. 352 (1923).

7053 65 Section IX of the WMCP FTAA, entitled "Option to Convert into MPSA," provides:

Page 160
7054 9.1 The Contractor may, at any time, give notice to the Secretary of its intention to convert this Agreement either in whole or
7055 in part into one or more Mineral Production Sharing Agreements in the form of the Agreement annexed hereto in Annexure
7056 B ("the MPSA") over such part or parts of the Contract Area as are specified in the notice.

7057 66The five Mineral Production Sharing Agreements (Annexes A to F) attached to the 20 October 2004 Compliance of the
7058 Solicitor General are: (1) Mineral Production Sharing Agreement between the Republic of the Philippines and Ungay-
7059 Malobago Mines, Inc. and Rapu-Rapu Minerals, Inc. dated 12 September 2000; (2) Mineral Production Sharing Agreement
7060 between the Republic of the Philippines and Ungay-Malobago Mines, Inc. and TVI Resource Development (Phils.), Inc. dated
7061 17 June 1998; (3) Mineral Production Sharing Agreement between the Republic of the Philippines and Base Metals Mineral
7062 Resources Corporation (BMMRC) dated 20 November 1997; (4) Mineral Production Sharing Agreement between the Republic
7063 of the Philippines and Philex Gold Philippines, Inc. dated 29 December 1999 (MPSA No. 148-99XIII); and (5) Mineral
7064 Production Sharing Agreement between the Republic of the Philippines and Philex Gold Philippines, Inc. dated 29 December
7065 1999 (MPSA No. 149-99-XIII).

7066 67 p. 1140, 2003 Edition.

7067 68 Cebu Portland Cement Company v. Municipality of Naga, Cebu, et al., 133 Phil. 695 (1968).

7068 69 Resins, Inc. v. Auditor General, 134 Phil. 697 (1968).

7069 70Luzon Surety Co., Inc. v. De Garcia, et al., 140 Phil. 509 (1969); Quijano, et al. v. Development Bank of the Phils., et al.,
7070 146 Phil. 283 (1970); Chartered Bank Employees Association v. Ople, No. L-44717, 28 August 1985, 138 SCRA 273.

7071 71 Motion for Reconsideration dated 14 July 2004, p. 22.

7072 72 Ibid., p. 20.

7073 73 Ibid., p. 12.

7074 74 Memorandum dated 15 July 2004, p. 42.

7075 75 www.malampaya.com

7076 76 Ibid.

7077 77 157 Phil. 608 (1974).

7078 CARPIO MORALES, J.:

7079 1 421 SCRA 148 (2004).

7080 2 Section 3 (aq); Section 23; Sections 33-41; Section 56; Section 81, pars. 2-3; and Section 90.

7081 3 Rep. Act No. 7942 (1995).

7082 4In its Motion for Intervention, intervenor PCM alleged that the Court's January 27, 2004 Decision in this case would
7083 adversely affect the ability of domestic mining companies to contract with their foreign counterparts with regard to mining
7084 operations beyond the resources of the local companies. (Rollo, at 2096.)

7085 5 Transcript of Stenographic Notes, June 29, 2004 (TSN) at 129.

7086 6 Rules of Court, Rule 18, sec. 7.

7087 7 La Buga-B'Laan Tribal Association, Inc. v. Ramos, 421 SCRA 148 (2004).

7088 8 Id. at 173-174.

7089 9 Id. at 234.

7090 10 Memorandum (In support of WMCP's Motion and Supplemental Motion for Reconsideration) at 42-43.

Page 161
7091 11 Final Memorandum for the Petitioners at 9.

7092 12 Angara v. Electoral Commission, 63 Phil. 139, 156-158 (1936).

7093 13 Bengson v. Senate Blue Ribbon Committee, 203 SCRA 767, 775-776 (1991).

7094 14 Const., art. VIII, sec. 1.

7095 15 Tañada v. Cuenco, 103 Phil. 1051, 1067 (1957).

7096 16 Valmonte v. Belmonte, Jr., 170 SCRA 256, 268 (1989).

7097 17 Ibid.

7098 18 Francisco, Jr. v. House of Representatives, 415 SCRA 44, 143-151 (2003).

7099 19 Ibid.

7100 20
Vide: La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 207-208.

7101 21 Memorandum for WMCP at 37.

7102 22 Id. at 38.

7103 23 Id. at 39.

7104 24 Ibid.

7105 25 Memorandum for Public Respondents at 34.

7106 26 Id. at 37.

7107 27 Id. at 21.

7108 28 Id. at 22.

7109 29 Rollo at 1373-1374.

7110 30 Memorandum for Public Respondents at 24.

7111 31 Ibid.

7112 32 Id. at 25.

7113 33 Id. at 23.

7114 34 Memorandum for Intervenor at 7.

7115 35 Statement for Intervenor at 1.

7116 36 Memorandum for Intervenor at 9.

7117 37 Vide: Black's Law Dictionary 156 (6th ed., 1991).

7118 38 Article 1440 of the Civil Code provides:

7119 Art. 1440. A person who establishes a trust is called a trustor; one in whom confidence is reposed as regards property for the
7120 benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to
7121 as the beneficiary.

7122 Justice Jose C. Vitug (ret.) describes a trust relationship as follows:

Page 162
7123 A trust is a juridical relationship that exists between one person having the equitable title or beneficial enjoyment of
7124 property, real or personal, and another having the legal title thereto. The person who establishes the trust is the trustor (or
7125 grantor); one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee
7126 (fiduciary), and the person for whose benefit the trust has been created is referred to as the beneficiary ( cestui que trust).
7127 The Code has adopted the principles of the general law of trusts, insofar as they are not in conflict with its provisions, the
7128 Code of Commerce, the Rules of Court and special laws. [III J.C. Vitug Civil Law 175 (2003); citations omitted]

7129 39 Vide: Black's Law Dictionary 156 (6th ed., 1991).

7130 40 Const. art. II, sec. 1.

7131 41 Memorandum for Petitioners at 11.

7132 42 Memorandum for WMCP at 59.

7133 43 Oposa v. Factoran, Jr., 224 SCRA 792, 803 (1993).

7134 44 Vide: Miners Association of the Philippines, Inc. v. Factoran, Jr., 240 SCRA 100, 106 (1995).

7135 45 Vide: Rep. Act No. 7942 (1995), sec. 26 (c).

7136 46 Memorandum for Public Respondents at 49.

7137 47 For instance an article written by Patricia Thompson describes the 1996 Marcopper environmental disaster:

7138 Between 2.4 and 4 million tons of tailings solids escaped from an open pit impoundment at Marcopper's copper mine on the
7139 island of Marinduque in the Philippines on March 24, 1996, when a concrete drainage plug gave way. The sediment-laden
7140 water flowed into the Boac River system at rates of 5 to 10 cubic meters per second. Although "independent studies by the
7141 United Nations and the Philippine Department of Science and Technology have concluded that the escaped material is not
7142 toxic," the increased sediment load in the Boac River led to substantial salt and freshwater kills. An impact assessment
7143 estimated that ten years would elapse before freshwater fish would be viable in the river again and predicted a seventy
7144 percent reduction in the "salt water fish catch from the mouth of the Boac River," however, there are some indications that
7145 this initial estimate may be too high. Although the Boac River itself is not a drinking water source, the release threatened
7146 potable water supplies along the banks of the river and necessitated airdrops of food and medical supplies. [P. Thompson, II.
7147 Mining Criminal Sanctions Sought in Philippine Mine Tailings Spill, 1996 Colo. J. Int'l Envt'l. l. & Pol'y 54 (1996).]

7148 48 Vide: Oposa v. Factoran, Jr., supra.

7149 49 II J. Aruego, The Framing of the Philippine Constitution 605-606 (1949); vide: La Bugal-B'Laan Tribal Association, Inc. v.
7150 Ramos, supra at 192, note 111.

7151 50Vide: Pres. Decree No. 87 (Amending Presidential Decree No. 8 issued on October 2, 1972, and Promulgating an Amended
7152 Act to Promote the Discovery and Production of Indigenous Petroleum and Appropriate Funds therefor), Pres. Decree
7153 No. 151 (Allowing Citizens of the Philippines or Corporations or Associations at least Sixty Per Centum of the Capital of
7154 which is Owned by such Citizens to Enter into Service Contracts with Foreign Persons, Corporations for the Exploration,
7155 Development, Exploitation or Utilization of Lands of the Public Domain, amending for the purpose certain provisions of
7156 Commonwealth Act No. 141), Pres. Decree No. 463 (Providing for A Modernized System of Administration and Disposition of
7157 Mineral Lands and to Promote and Encourage the Development and Exploitation thereof), and Pres. Decree No. 1442 (An Act
7158 to Promote the Exploration and Development of Geothermal Resources).

7159 51 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 199-205 & 233, note 252.

7160 52 Id. at 234.

7161 53 Caltex (Philippines), Inc. v. Court of Appeals, 212 SCRA 448, 463 (1992).

7162 54 Capati v. Ocampo, 113 SCRA 794, 796 (1982).

7163 55 Const., art. XII, sec. 2, first par.

Page 163
7164 56 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 208 & 218-222.

7165 57 TSN at 37-40.

7166 58 http://dictionary.reference.com/search?q=either

7167 59 Ibid.

7168 60 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 252-253.

7169 61 Laurel v. Civil Service Commission, 203 SCRA 195, 209 (1991).

7170 62 III Record of the Constitutional Commission 316-317.

7171 63 Id. at 358-359.

7172 64 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 224.

7173 65
I Draft Proposal of the 1986 U.P. Law Constitution Project, Article XV at 12 -13.

7174 66 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 217-218.

7175 67 Id. at 208 & 218-222.

7176 68 Vide: Section 1 ("No person shall be deprived of life, liberty or property without due process of law, nor shall any person be
7177 denied of the equal protection of the laws."); Section 4 ("No law shall be passed abridging the freedom of speech, of
7178 expression, or of the press, or the right of the people peaceably to assemble and petition the government for redress of
7179 grievances."); Section 5 ("No law shall be made respecting an establishment of religion, or prohibiting the exercise thereof.
7180 The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be
7181 allowed. No religious test shall be required for the exercise of civil or political rights.")

7182 69 I Draft Proposal of the 1986 U.P. Law Constitution Project, Article XV at 11-12.

7183 70P. A. Agabin, Service Contracts: Old Wines in New Bottles?, II Draft Proposal of the 1986 U.P. Law Constitution Project
7184 16, cited in La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 229.

7185 71 A case omitted is to be held as intentionally omitted. [Black's Law Dictionary 219 (6 th ed., 1991)]

7186 72 371 SCRA 196 (2001).

7187 73 Id. at 205.

7188 74 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 220.

7189 75 The expression of one thing is the exclusion of another. [Black's Law Dictionary 581 (6 th ed., 1991)]

7190 76Vide: Canet v. Decena, G.R. No. 155344, January 20, 2004; Commissioner of Internal Revenue v. Michel J.
7191 Lhuiller Pawnshop, Inc., 406 SCRA 178, 186 (2003); National Power Corporation v. City of Cabanatuan,401 SCRA
7192 259, 280 (2003); Malinias v. Commission on Elections, 390 SCRA 480, 491 (2002); Integrated Bar of the Philippines v.
7193 Zamora, 338 SCRA 81, 109 (2000); People v. Mamac, 332 SCRA 547, 556 (2000); Mathay, Jr. v. Court of Appeals, 320
7194 SCRA 703, 711 (1999); Miranda v. Abaya, 311 SCRA 617, 624 (1999); City Government of San Pablo, Laguna v.
7195 Reyes, 305 SCRA 353, 361 (1999); Centeno v. Villalon-Pornillos, 236 SCRA 197, 203 (1994); Phil. American Life Insurance
7196 Company v. Ansaldo, 234 SCRA 509, 515 (1994); Commissioner of Customs v. Court of Tax Appeals, 224 SCRA 665, 669-670
7197 (1993); Ledesma v. Court of Appeals, 211 SCRA 753, 760 (1992); Montoya v. Escayo, 171 SCRA 442, 448 (1989); Singapore
7198 Airlines Local Employees Association v. NLRC, 130 SCRA 472, 479 (1984); Vera v. Fernandez, 89 SCRA 199, 203
7199 (1979); Central Barrio v. City Treasurer of Davao, 23 SCRA 6, 9 (1968); Catuiza v. People, 13 SCRA 538, 542 (1965); Ursal v.
7200 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.
7201 Commission on Elections, 76 Phil. 516, 530 (1946).

Page 164
7202 77 That which is expressed makes that which is implied to cease. [Black's Law Dictionary 581 (6 th ed., 1991)]

7203 78 Vide: Canet v. Decena, G.R. No. 155344, January 20, 2004; Malinias v. Commission on Election 390 SCRA 480,
7204 491 (2002); National Electrification Administration v. Commission on Audit, 377 SCRA 223, 232 (2002); Espiritu v.
7205 Cipriano, 55 SCRA 533, 538 (1974).

7206 79Comm. Villegas' response that there was no requirement in the 1973 Constitution for a law to govern service contracts and
7207 that, in fact, there were then no such laws is inaccurate. The 1973 Charter required similar legislative approval, although it
7208 did not specify the form it should take: "The Batasang Pambansa, in the national interest, may allow such citizens … to
7209 enter into service contracts …" As previously noted in this Court's Decision of January 27, 2004, however, laws authorizing
7210 service contracts were actually enacted by presidential decree [i.e. Presidential Decree No. 87 (Amending Presidential Decree
7211 No. 8 issued on October 2, 1972, and Promulgating an Amended Act to Promote the Discovery and Production of Indigenous
7212 Petroleum and Appropriate Funds therefore), Pres. Decree No. 151 (Allowing Citizens of the Philippines or Corporations or
7213 Associations at least Sixty Per Centum of the Capital of which is Owned by such Citizens to Enter into Service Contracts
7214 with Foreign Persons, Corporations for the Exploration, Development, Exploitation or Utilization of Lands of the Public
7215 Domain, amending for the purpose certain provisions of Commonwealth Act No. 141), Pres. Decree No. 463 (Providing for a
7216 Modernized System of Administration and Disposition of Mineral Lands and to Promote and Encourage the Development
7217 and Exploitation thereof), and Pres. Decree No. 1442 (An Act to Promote the Exploration and Development of Geothermal
7218 Resources)]

7219 80 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 233-234.

7220 81 Id. at 224.

7221 82 III Record of the Constitutional Commission 260.

7222 83 224 SCRA 792 (1993).

7223 84 Id. at 811-813.

7224 85 III Record of the Constitutional Commission 319.

7225 86 Rollo at 2779.

7226 87 TSN at 181-186.

7227 88 Memorandum for Public Respondents, Annex 1.

7228 89 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 227-234.

7229 90 Statement for Intervenor, p. 2.

7230 91La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 206; vide: Miners Association of the Philippines v.
7231 Factoran, 240 SCRA 100, 104 (1995).

7232 92 P. A. Agabin, Service Contracts: Old Wines in New Bottles?, II Draft Proposal of the 1986 U.P. Law Constitution Project 3-
7233 4.

7234 93 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 227-228 citing Agabin, supra, at 15-16.

7235 94 Ibid.

7236 95 Rep. Act No. 7942 (1995), secs. 35 (g), sec. 3 (af).

7237 96 Id., sec. 3 (q).

7238 97 Id., sec. 3 (j).

7239 98 Id., sec. 3 (az).

Page 165
7240 99 Id., sec. 33.

7241 100 Id., sec. 72.

7242 101 Id., sec. 73.

7243 102 Id., sec. 74.

7244 103 Id., sec. 75.

7245 104 Id., sec. 76.

7246 105 Id., sec. 35 (h).

7247 106 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 195.

7248 107 Vide: Pres. Decree No. 87, sec. 8 (c), (e) and (f).

7249 108
The DENR Secretary is also empowered to charge fines for late or non-submission of reports under Section 111 of the
7250 Mining Act, but the majority opinion either overlooked this provision or considered it too insubstantial to be able to compel
7251 enforcement of the law and its implementing rules.

7252 109Section 108 provides a criminal penalty for violation of the terms and conditions of an environmental compliance
7253 certificate, but this remedy is judicial and not administrative. In any event, what is the likelihood of a Philippine court
7254 acquiring criminal jurisdiction over the person of the foreign corporate officers of the foreign FTAA contractor who may be
7255 responsible for such violations?

7256 110 Const., art. XII, sec. 20.

7257 111 Rep. Act. No. 7653 (1993), sec. 29.

7258 112 Id. sec. 30

7259 113 Id. sec. 37.

7260 114 Const. art. XIII, sec. 3.

7261 115 Pres. Decree No. 442 as amended.

7262 116 Id. art. 128 (b).

7263 117 Id. art. 263 (g).

7264 118 Rep. Act No. 8424 (1997), sec. 115.

7265 119 Id. sec. 206.

7266 120 Id. sec. 207.

7267 121 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 196.

7268 122 Vide: Pres. Decree No. 87, sec. 8 (k) and sec. 9 (e).

7269 123 National Power Corporation v. Province of Albay, 186 SCRA 198, 207 (1990).

7270 124 Progressive Development Corporation v. Quezon City, 172 SCRA 629, 635 (1989).

7271 125 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 236.

7272 126 Guidelines Establishing the Fiscal Regime of financial or Technical Assistance Agreements.

Page 166
7273 127 Section 3 (g) (1) of DAO 99-56 provides:

7274 Section 3. Fiscal Regime of a Financial or Technical Assistance Agreement

7275 xxx

7276 g. Government Share.

7277 1. Basic Government Share. The following taxes, fees and other such charges shall constitute the Basic Government Share:

7278 a) Excise tax on minerals;

7279 b) Contractor's income tax;

7280 c) Customs duties and fees on imported capital equipment;

7281 d) Value added tax on the purchase of imported equipment, goods and services;

7282 e) Withholding tax on interest payments on foreign loans;

7283 f) Withholding tax on dividends to foreign stockholders;

7284 g) Royalties due the Government on Mineral Reservations;

7285 h) Documentary stamps taxes;

7286 i) Capital gains tax;

7287 j) Local business tax;

7288 k) Real property tax;

7289 l) Community tax;

7290 m) Occupation fees;

7291 n) All other local Government taxes, fees and imposts as of the effective date of the FTAA;

7292 o) Special Allowance, as defined in the Mining Act; and

7293 p) Royalty payments to any Indigenous People(s)/Indigenous Cultural Community (ies).

7294 From the Effective Date, the foregoing taxes, fees and other such charges constituting the Basic Government Share, if
7295 applicable, shall be paid by the Contractor: Provided, That above items (a) to (g) shall not be collected from the Contractor
7296 upon the date of approval of the Mining Project Feasibility Study up to the end of the Recovery Period. Any taxes, fees,
7297 royalties, allowances or other imposts, which should not be collected by the Government, but nevertheless paid by the
7298 Contractor and are not refunded by the Government before the end of the next taxable year, shall be included in the
7299 Government Share in the next taxable year. Any Value-Added Tax refunded or credited shall not form part of Government
7300 Share.

7301 128 Section 3 (g) (2) of DAO 99-56 provides:

7302 2. Additional Government Share. Prior to the commencement of Development and Construction Phase, the Contractor may
7303 select one of the formula for calculating the Additional Government Share set out below which the Contractor wishes to
7304 apply to all of its Mining Operations and notify the Government in writing of that selection. Upon the issuance of such notice,
7305 the formula so selected shall thereafter apply to all of the Contractor's Mining Operations.

7306 xxx

7307 129 Section 3 (g) (2) (1) of DAO 99-56 provides:

Page 167
7308 a) Fifty-Fifty Sharing of the Cumulative Present Value of Cash Flows. The Government shall collect an Additional
7309 Government Share from the Contractor equivalent to an amount which when aggregated with the cumulative present value
7310 of Government Share during the previous Contract Years and the Basic Government Share for the current Contract Year is
7311 equivalent to a minimum of fifty percent (50%) of the Cumulative Present Value of Project Cash Flow before financing for the
7312 current Contract Year, as defined below.

7313 Computation. The computation of the Additional Government Share shall commence immediately after the Recovery Period.
7314 If the computation covers a period of less than one year, the Additional Government Share corresponding to this period shall
7315 be computed pro-rata wherein the Additional Government Share during the year shall be multiplied by the fraction of the
7316 year after recovery. The Additional Government Share shall be computed as follows:

7317 Project Cash Flow Before Financing and Tax ("CF") for a taxable year shall be calculated as follows:

7318 CF = GO - DE + I - PE - OC

7319 Cumulative Present Value of Project Cash Flow ("CP") shall be the sum of the present value of the cumulative present value
7320 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
7321 current year ("CF"), and shall be calculated as follows:

7322 CP = (CP i-1 x 1.10) + CF

7323 Cumulative Present Value of Total Government Share Before Additional Government Share ("CGB") shall be the sum of: the
7324 present value of the cumulative present value of the Total Government Share during the previous year (CGAi-1 x 1.10), and
7325 the Basic Government Share for the current year (BGS), and shall be calculated as follows:

7326 CGB = (CGA i-1 x 1.10) + BGS

7327 The Additional Government Share ("AGS") shall be:

7328 If: CGB > CP □ 0.5 then AGS = 0

7329 If: CGB < CP □ 0.5 then AGS = [ CP x 0.5 ] - CGB

7330 Cumulative Present Value of Total Government Share (CGA):

7331 CGA = CGB + AGS

7332 where:

7333 BGS = Basic Government Share shall have the meaning as

7334 described in Clause 3-g-1 hereof;

7335 GO = Gross Output shall have the same meaning as defined in

7336 the National Internal Revenue Code;

7337 DE = Deductible Expenses shall have the meaning as

7338 described in Clause 3-c hereof;

7339 I = Interest payments on loans included in the Deductible

7340 Expenses shall be equivalent to those referred to in Clause 3-c-8 hereof;

7341 PE = unrecovered Pre-Operating Expenses;

7342 OC = On-going Capital Expenditures as defined in Clause 3-c

7343 hereof;

Page 168
7344 CP i-1 = cumulative present value of project cash flow during the

7345 previous year; and

7346 CGAi-1 = cumulative present value of total Government Share

7347 during the previous year.

7348 130 Section 3 (g) (2) (2) of DAO 99-56 provides:

7349 b) Profit Related Additional Government Share. The Government shall collect an Additional Government Share from the
7350 Contractor based on twenty-five percent (25%) of the additional profits once the arithmetic average of the ratio of Net Income
7351 After Tax To Gross Output as defined in the National Internal Revenue Code, for the current and previous taxable years is
7352 0.40 or higher rounded off to the nearest two decimal places.

7353 Computation. The computation of the Additional Government Share from additional profit shall commence immediately after
7354 the Recovery Period. If the computation covers a period of less than a year, the additional profit corresponding to this period
7355 shall be computed pro-rata wherein the total additional profit during the year shall be multiplied by the fraction of the year
7356 after recovery.

7357 The additional profit shall be derived from the following formula:

7358 If the computed average ratio as derived from above is less than 0.40:

7359 Additional Profit = 0

7360 If the computed average ratio is 0.40 or higher:

7361 [NIAT-(0.40 x GO)]

7362 Additional Profit = ------------------------

7363 ( 1 - ITR )

7364 The Additional Government Share from the additional profit is computed using the following formula:

7365 Additional Government Share

7366 From Additional Profit = 25% x Additional Profit

7367 where:

7368 NIAT = Net Income After Tax for the particular taxable year under consideration.

7369 GO = Gross Output from operations during the same taxable year.

7370 ITR = Income Tax Rate applied by the Bureau of Internal Revenue in computing the income tax of the Contractor during the
7371 taxable year.

7372 131 Section 3 (g) (2) (3) of DAO 99-56 provides:

7373 c) Additional Share Based from the Cumulative Net Mining Revenue. The Additional Government Share for a given taxable
7374 year shall be calculated as follows:

7375 (i) Fifty percent (50%) of cumulative Net Mining Revenue from the end of the Recovery Period to the end of that taxable year;

7376 LESS

7377 (ii) Cumulative Basic Government Share for that period as calculated under Clause 3-g-1 hereof;

Page 169
7378 AND LESS (if applicable)

7379 (iii) Cumulative Additional Government Share in respect of the period commencing at the end of the Recovery Period and
7380 expiring at the end of the taxable year immediately preceding the taxable year in question.

7381 "Net Mining Revenue" means the Gross Output from Mining Operations during a Calendar year less Deductible Expenses,
7382 plus Government taxes, duties and fees included as part of Deductible Expenses.

7383 132 Republic Act No. 8424 as amended.

7384 133The 40% equity of the foreign stockholders in a 60-40 Filipino corporation would translate to a 24% (40% x 60%) beneficial
7385 interest in the corporation undertaking the MPSA.

7386 134Of course, the 60% Filipino equity in a 60-40 Filipino corporation could also be held by another 60-40 Filipino corporation
7387 or corporations, further diluting actual Filipino beneficial interest and increasing foreign beneficial interest.

7388 135As noted in the Decision (La Bugal-B'Laan Tribal Association, Inc., supra at 212-213), unlike E.O. 279, the Mining Act
7389 does not define "large-scale" in terms of capital expenditure although this was evidently the way it was understood by the
7390 1986 Constitutional Commission. (vide: III Records of the Constitutional Commission 255).

7391 In fact, the Mining Act does not categorically define "large-scale" at all. However, a comparison of the maximum areas for
7392 exploration in Section 22 for Exploration Permits (400 meridional blocks onshore for corporations), Section 28 for Mineral
7393 Agreements (200 meridional blocks for corporations) and Section 34 for FTAAs (1,000 meridional blocks for corporations)
7394 indicates that "large-scale" under the Mining Act refers to the size of the contract area.

7395 It is only Section 56 of DAO 40-96 that any reference to the US$50,000,000.00 minimum capital investment prescribed by
7396 E.O. 279 is made.

7397 136Applying the formula in Section 56 (a) of DAO 40-96 and assuming: (1) the foreign FTAA contractor began with the
7398 maximum contract area of 1,000 meridional blocks onshore, (2) an exploration period of 6 years and (3) compliance with
7399 Section 60 of DAO 40-96 on relinquishment of areas covered by FTAA.

7400 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
7401 million.

7402 One meridional block is equivalent to 81 hectares. (Website of the Philippine Mines and Geosciences
7403 Bureau www.mgb.gov.ph/epprimer.htm)

7404 137SECTION 23. Rights and Obligations of the Permittee. — An exploration permit shall grant to the permittee, his heirs or
7405 successors-in-interest, the right to enter, occupy and explore the area: Provided, That if private or other parties are affected,
7406 the permittee shall first discuss with the said parties the extent, necessity, and manner of his entry, occupation and
7407 exploration and in case of disagreement, a panel of arbitrators shall resolve the conflict or disagreement.

7408 The permittee shall undertake an exploration work on the area as specified by its permit based on an approved work
7409 program.

7410 Any expenditure in excess of the yearly budget of the approved work program may be carried forward and credited to the
7411 succeeding years covering the duration of the permit. The Secretary, through the Director, shall promulgate rules and
7412 regulations governing the terms and conditions of the permit.

7413 The permittee may apply for a mineral production sharing agreement, joint venture agreement, co-production agreement or
7414 financial or technical assistance agreement over the permit area, which application shall be granted if the permittee meets
7415 the necessary qualifications and the terms and conditions of any such agreement: Provided, That the exploration period
7416 covered by the exploration permit shall be included as part of the exploration period of the mineral agreement or financial or
7417 technical assistance agreement. (Emphasis supplied)

7418 138SECTION 24. Declaration of Mining Project Feasibility. — A holder of an exploration permit who determines the
7419 commercial viability of a project covering a mining area may, within the term of the permit, file with the Bureau a

Page 170
7420 declaration of mining project feasibility accompanied by a work program for development. The approval of the mining project
7421 feasibility and compliance with other requirements provided in this Act shall entitle the holder to an exclusive right to a
7422 mineral production sharing agreement or other mineral agreements or financial or technical assistance agreement.
7423 (Emphasis supplied)

7424 139Sections 17-30 of DAO 40-96 on exploration permits contains absolutely no minimum requirement for ground
7425 expenditures, much less the minimum required investment of US$ 50,000,000.00 for development, infrastructure and
7426 utilization.

7427 140 Vide: note 20.

7428 141 Memorandum for WMCP, p. 2.

7429 142 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 176.

7430 143287 SCRA 465, 474 (1998). The Constitution prohibits non-Filipinos from acquiring or holding title to private lands or to
7431 lands of the public domain, except only by way of legal succession.

7432 144 Id. at 475.

7433 145In 1997 Bre-X, a large Canadian mining firm, was found to have inflated the prospective amount of gold deposits in its
7434 Busang, Indonesia mining operation by "salting" and tampering with gold samples taken from the site. After news of the gold
7435 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
7436 Gone' Available at http:// www.businessweek.com/1997/15/b352267.htm]

7437 146In January, 2004, 20% of Royal Dutch/Shell's reserves of oil and gas were reclassified from "proven" to merely "probable"
7438 or other even less certain categories. As a result, Shell's share prices fell by 7% ['Shell shock' Available at
7439 http:// www.economist.co.uk/business/PrinterFriendly.cfm?Story_ID=2354469]

7440 147 Memorandum for Petitioners at 14.

7441 148 Memorandum for WMCP at 67.

7442 149 US$ 4,000,000.00 or approximately P224,000,000.00.

7443 150 Memorandum for WMCP at 16.

7444 151 Id. at 67.

7445 At the prevailing rate of exchange, the US$10,000,000.00 selling price of WMC's shares in WMCP is worth approximately
152

7446 P560,000,000.00.

7447 153 TSN at 155-156; Memorandum for WMCP at 60-61.

7448 154 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, supra at 176.

7449 155 Id. at 243-245.

7450 156 Memorandum for WMCP at 5.

7451 157 Civil Code, art. 1350.

7452 158 Section 8.3 provides:

7453 If the Secretary gives a Rejection Notice the Parties shall promptly meet and endeavour to agree on amendments to the Work
7454 Programme or budget. If the Secretary and the Contractor fail to agree on the proposed revision within 30 days from delivery
7455 of the Rejection Notice then the Work Programme or Budget or variation thereof proposed by the Contractor shall be deemed
7456 approved, so as not to unnecessarily delay the performance of this Agreement. (Emphasis supplied; Rollo, p. 92-93.)

Page 171
7457 159 Civil Code, art. 1409 (1).

7458 160 Id. art. 1352.

7459 161 Id. art. 1409.

7460 162 R.A. No. 7942, sec. 33.

7461 163 Id, sec. 35 (e).

7462 1643.3. This Agreement shall be renewed by the Government for a further period of twenty-five (25) years under the same
7463 terms and conditions provided that the Contractor lodges a request for renewal with the Government not less than sixty (60)
7464 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
7465 requirements of this Agreement.

7466 165 http://en.wikipedia.org/wiki/Open-pit_mining htm.

7467 166 Webster's Third New International Dictionary 1579 (1976).

7468 167 http://riot.ieor.berkeley.edu/riot/Applications/OPM/OPMDetails.html.

7469 168 http://www.mine-engineer.com/mining/open_pit.htm; http://en.wikipedia.org/wiki/Open-pit_mining htm.

7470 169 http://www.mcq.org/roc/en/exploitation/exploitation_2_1_2.html.

7471 TINGA, J.:

7472 1SECTION 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential
7473 energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the
7474 exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and
7475 utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake
7476 such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or
7477 corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for
7478 a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and
7479 conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other
7480 than the development of water power, beneficial use may be the measure and limit of the grant.

7481 The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone,
7482 and reserve its use and enjoyment exclusively to Filipino citizens.

7483 The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish
7484 farming, with priority to subsistence fishermen and fishworkers in rivers, lakes, bays, and lagoons.

7485 The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance
7486 for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the
7487 general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the
7488 country. In such agreements, the State shall promote the development and use of local scientific and technical resources.

7489 The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days
7490 from its execution. (Emphasis supplied)

7491 2 Each time Sec. 2 is hereafter mentioned, it is understood to be Sec. 2, Art. XII of the Constitution.

7492 3 "The Philippines is a democratic and republican State. xxx" See Section 1, Article II, Constitution. "Republicanism, in so far
7493 as it implies the adoption of a representative type of government, necessarily points to the enfranchised citizen as a particle
7494 of popular sovereignty and as the ultimate source of the established authority." Moya v. Del Fierro, 69 Phil. 199, 204
7495 (1939), See also Badelles v. Cabili, 136 Phil. 383, 395-396 (1969).

7496 4 Section 1, Article VII of the Constitution states: "The executive power shall be vested in the President of the Philippines."
Page 172
7497 5See Section 17, Article VII, Constitution, which reads: "The President shall have control of all the executive departments,
7498 bureaus and offices. He shall ensure that the laws be faithfully executed."

7499 6
See Section 18, Article VII, Constitution, which begins: "The President shall be the Commander-in-Chief of all armed forces
7500 of the Philippines and whenever it becomes necessary, he may call out such armed forces to prevent or suppress lawless
7501 violence, invasion or rebellion. xxx"

7502 7 G.R. No. 88211, 27 October 1989, 178 SCRA 760.

7503 8Id. at 764. Citing the eminent American legal scholar Laurence Tribe, who notes that US jurisprudence makes clear "that
7504 the constitutional concept of inherent power is not a synonym for power without limit; rather, the concept suggests only that
7505 not all powers granted in the Constitution are themselves exhausted by internal enumeration, so that, within a sphere
7506 properly regarded as one of "executive" power, authority is implied unless there or elsewhere expressly limited." Ibid.

7507 9Justice Irene Cortes, who penned the Court's decision in Marcos v. Manglapus, has opined elsewhere on the grant of
7508 plenary executive powers on the President, "[who] personifies the executive branch. There is a unity in the executive branch
7509 absent from the two other branches of government. The president is not the chief of many executives. He is the executive. His
7510 direction of the executive branch can be more immediate and direct than the United States president because he is given by
7511 express provision of the constitution control over all executive departments, bureaus and offices." I. Cortes, The Philippine
7512 Presidency: A Study of Executive Power, pp. 68-69; cited in Sanlakas v. Executive Secretary et al., G.R. Nos. 159086, 159103,
7513 159185, 159196, 3 February 2004.

7514 10"This case is unique. It should not create a precedent, for the case of a dictator forced out of office and into exile after
7515 causing twenty years of political, economic and social havoc in the country and who within the short space of three years
7516 seeks to return, is in a class by itself." Marcos v. Manglapus, supra note 7, at 682.

7517 11Id. at 692. See also supra note 8. In light of the U.S. Supreme Court decision in the famed Steel Seizure case, Youngstown
7518 Sheet v. Sawyer, supra note 2, and the competing analyses of Justice Black (whose "formalist" approach led to rigid
7519 categorization of separate legislative, executive and judicial functions), and Justices Frankfurter and Jackson (who opted for
7520 a more flexible, functional approach), Gunther and Sullivan note that "[m]uch scholarly commentary on separation of powers
7521 has endorsed the functional approach, and cite this following argument for the "functional" view: "When the Constitution
7522 confers power, it confers power on the three generalist political heads of authority, not on branches as such. [Its] silence
7523 about the shape of the inevitable, actual government was a product both of drafting compromises and of the explicit purpose
7524 to leave Congress free to make whatever arrangements it deemed 'necessary and proper' for the detailed pursuit of
7525 government purposes." G. Gunther and K. Sullivan, Constitutional Law (14th ed., 2001), at 342; citing Strauss, "Formal and
7526 Functional Approaches to Separation of Powers Questions – A Foolish Inconsistency," 72 Corn.L.Rev. 488 (1987).

7527 Another analysis is proferred by Chemerinsky, who acknowledges that the debate on inherent presidential power has existed
7528 "from the earliest days of the country." E. Chemerinsky, Constitutional Law: Principles and Policies (2nd ed., 2002), at 329.
7529 In analyzing the U.S. Supreme Court's divided opinions in the seminal case of Youngstown Sheet, supra note 2, he notes that
7530 while the majority opinion of Justice Black seems to deny the existence of any inherent presidential power, the concurring
7531 opinions of Justices Douglas, Frankfurter and Jackson do seem to acknowledge the existence of such power, albeit subject to
7532 proscription by the legislative branch. Chemerinsky also notes that the view of inherent presidential authority had been
7533 affirmed in the earlier case of U.S. v. Curtiss-Wright Export Corporation, 299 U.S. 304 (1936), which pertained to the
7534 presidential power to conduct foreign policy. Id. at 334.

7535 12 Ibid. See also Sanlakas v. Executive Secretary; supra note 9.

7536 13 Iron and Steel Authority v. Court of Appeals, 319 Phil. 648, 658 (1995).

7537 14Apropos to the nature of the Filipino presidency is the following comment on the U.S. presidency by an American historian,
7538 "As our Chief of State, and as such the embodiment of the people's elective will, the President is clad with the prerogative of
7539 the office, and possesses more actual sovereign power than any British king since George III. In his role as Chief of Foreign
7540 Relations, from the beginning he has been the sole organ of the nation in its external relations, and its sole representative
7541 with foreign nations. While the Senate must advise and consent to any treaty, the President has exclusive initiative in their
7542 negotiation." G.F. Milton, The Use of Presidential Power: 1789-1943 (1980 ed.), at 3.

Page 173
7543 15Section 1, Article VIII, Constitution enables the courts to determine whether or not there has been a grave abuse of
7544 discretion amounting to lack or excess of jurisdiction on the part of the executive, a duty which is made easier if there is a
7545 specifically prescribed constitutional standard which warrants obeisance by the executive branch.

7546 16 See Secs. 21 and 22, Art. VI, Const., which read:

7547 Sec. 21. The Senate or the House of Representatives or any of its respective committees may conduct inquiries in aid of
7548 legislation in accordance with its duly published rules of procedure. The rights of persons appearing in or affected by such
7549 inquiries shall be respected.

7550 Sec. 22. The heads of departments may upon their own initiative, with the consent of the President, or upon the request of
7551 either House, as the rules of each House shall provide, appear before and be heard by such House or any matter pertaining to
7552 their departments. Written questions shall be submitted to the President of the Senate or the Speaker of the House of
7553 Representatives at least three days before their scheduled appearance. Interpellations shall not be limited to written
7554 questions, but may cover matters related thereto. When the security of the State or the public interest so requires and the
7555 President so states in writing, the appearance shall be conducted in executive session.

7556 17
See Section 2, Article XII, Constitution, which states in part, "All lands of the public domain, waters, minerals, coal,
7557 petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
7558 other natural resources are owned by the State." An offshoot of the long-standing Regalian doctrine recognized in this
7559 jurisdiction.

7560 18"The exploration, development, and utilization of natural resources shall be under the full control and supervision of the
7561 State." Id.

7562 19The so-called "Jamir amendment," proposed by Commissioner Alberto M.K. Jamir, which read "The President may enter
7563 into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration,
7564 development and utilization of natural resources according to the general terms and conditions provided by law based on real
7565 contributions to the long-term growth of the economy." 3 Record of the Constitutional Commission: Proceedings and Debates
7566 (1987), at 351.

7567 20
Id. at 356.

7568 21Indeed, since 1973 when the service contract system for petroleum was implemented, the government has earned over
7569 1.882 Billion Pesos and 10.160 Billion Pesos in revenues from oil and natural gas production, respectively. Based on data
7570 provided by the Department of Energy.

7571 22Paragraph 5, Sec. 2, Art. XII. It provides: The President shall notify the Congress of every contract entered into in
7572 accordance with this provision, within thirty days from its execution.

7573 23 See Section 9, Article XIV, 1973 Constitution.

7574 24 Resolution, p. 26.

7575 25 Per Jackson, J., concurring, Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952).

7576 26The following exchanges during the debates of the 1987 Constitutional Commission indicate that the absence of domestic
7577 capital for mineral and petroleum development was duly considered by the framers.

7578 MR. GASCON. As far as investment is concerned in developing certain priority areas for our economic development, are
7579 there areas where there is much need for foreign investments?

7580 MR. VILLEGAS. During the public hearings, we heard people from the mining and oil exploration industries, who presented
7581 a very strong case, that foreign investment is actually indispensable because there is no risk capital available in the
7582 Philippines. If the Gentleman will remember, the figure cited over the last ten years is that P800 million literally went down
7583 the drain in oil exploration and up to now, no oil has been found, and all that money was foreign money. These people asked
7584 a rhetorical question: Can you imagine if that money belonged to Filipinos? 3 Record of the Constitutional Commission:
7585 Proceedings and Debates (1987), at 310.

Page 174
7586 xxx

7587 MR. DAVIDE. I am very glad that Commissioner Padilla emphasized minerals, petroleum and mineral oils. The Commission
7588 has just approved the possible foreign entry into the development, exploration and utilization of these minerals, petroleum
7589 and other mineral oils by virtue of the Jamir amendment. I voted in favor of the Jamir amendment because it will eventually
7590 give way to vesting in exclusively Filipino citizens and corporations wholly owned by Filipino citizens the right to utilize the
7591 other natural resources. This means that as a matter of policy, natural resources should be utilized and exploited only by
7592 Filipino citizens or corporations wholly owned by such citizens. But by virtue of the Jamir amendment, since we feel that
7593 Filipino capital may not be enough for the development and utilization of minerals, petroleum and other mineral oils, the
7594 President can enter into service contracts with foreign corporations precisely for the development and utilization of such
7595 resources. 3 Record of the Constitutional Commission: Proceedings and Debates (1987), at 361.

7596 27Invalidity of provisions which do not adequately assert constitutional rights or prerogatives need not always be the proper
7597 remedy, considering, as Justice Vitug noted in his separate opinion in this case, that "[t]he fundamental law is deemed
7598 written in every contract." Vitug, J., Separate Opinion, La Bugal-B'laan Tribal Association, Inc. v. Ramos, G.R. No.
7599 127882, 27 January 2004.

7600 28N. Hamilton, The Iron Range Resources and Rehabilitation Board: An Unconstitutional and Confused Delegation of
7601 Executive Power to Legislators, 25 William Mitchell Law Rev. 1204, 1235 (1999).

7602 29 The following traditional observation of John Thurston, as cited in a periodical article, bears noting:

7603 [Thurston] explained that the day-to-day administration of the corporation should be independent of the executive and the
7604 legislature, but "[I]n matters of general and public policy, the corporation must necessarily be subject to executive and
7605 legislative control." In addition to having control over "general and public policy," the executive and legislature also should
7606 monitor the efficiency of the public corporation. However, Thurston perceived a dilemma in balancing the need "to ensure
7607 that the corporation functions efficiently and without waste," and the problem of "preventing unnecessary interference with
7608 details of administration." xxx Id., at 1231.

7609 30Interpretatio talis in ambiguis simper fienda est, ut evitur inconveniens et absurdum. Where there is ambiguity, such
7610 interpretation as will avoid inconvenience and absurdity is to be adopted. Cosico v. NLRC, 338 Phil. 1080, 1089
7611 (1997); citing Commissioner of Internal Revenue v. TMX Sales, Inc., 205 SCRA 184, 188 (1992).

7612 31United Nations Technical Assistance Administration, Some Problems in the Organization and Administration of Public
7613 Enterprise in the Industrial Field 8 (1954), cited in Hamilton, supra note 35, at 1230. "As long as an enterprise is not clearly
7614 differentiated from other types of governmental activity, strong pressures will be brought to make it conform to standard
7615 government regulations and procedures." Ibid.

7616 32 Id. at 1228.

7617 33 Ibid.

7618 34 The employment of the corporate entity was suggested by Neil W. Hamilton, a Professor of Regulatory Policy in the
7619 William Mitchell College of Law, in his article analyzing the effectiveness and economic efficiency of a government board for
7620 the rehabilitation iron mines in Minnesota, U.S.A. which were being depleted. Professor Hamilton proffered the view that
7621 the executive and the legislative branches of government would have control over the general and public policy concerning
7622 the operation of iron mines and should monitor the efficiency of the public corporation created to take care of the operation of
7623 iron mines, but the corporation, through its board of directors and officers, would have control over day-to-day operations.
7624 ("The Iron Range Resources and Rehabilitation Board: An Unconstitutional and Confused Delegation of Executive Power to
7625 Legislators," 25 William Mitchell Law Review 1203 [1999] ).

7626 35 The following perspective from sectors not affiliated with the business community deserve contemplation:

7627 "Creating a favorable investment climate for foreign mining companies has led to new social problems, namely human rights
7628 problems and dislocation of indigenous peoples. The country has experienced incidents of armed violence from mining guards
7629 and military personnel assigned to assist the mining companies. Indigenous tribes have been displaced as military
7630 operations facilitate the entry of corporations into mining areas. Mining operations are severely infringing on communities

Page 175
7631 and their livelihoods. In 1996, a mining tailings spill from the Marcopper tailing dam in Marinduque seriously polluted the
7632 Boac River and Calancan Bay on which the local communities depend."
7633 See http://www.foe.org/camps/intl/imf/selling/asia4.html.

7634 "At risk to the peoples of the Philippines is their remaining patrimony and economic sovereignty. Mining legislation opens up
7635 the country to further foreign domination and control. It perpetuates the semi-feudal, semi-capitalist neocolonial character of
7636 the economy. It is creating mass displacement, especially of indigenous communities and upland farmers. Foreign companies
7637 have an abominable history of creating environmental disasters as well, and turning virgin forests and clean water sources
7638 and farming lands into wastelands and deserts. They also have a terrible reputation for excessive exploitation of workers and
7639 mass unemployment. Finally, foreign owned mines will bring militarization as the owners will guard mining areas." B.J.
7640 Warden, at http://www.canadianliberty.bcca/relatedinfo/miningco.html.

7641

Page 176