G.R. No.

127882           January 27, 2004 The present petition for mandamus and prohibition
assails the constitutionality of Republic Act No.
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., 7942,5 otherwise known as the PHILIPPINE MINING
represented by its Chairman F'LONG MIGUEL M. ACT OF 1995, along with the Implementing Rules and
LUMAYONG, WIGBERTO E. TAÑADA, PONCIANO Regulations issued pursuant thereto, Department of
BENNAGEN, JAIME TADEO, RENATO R. Environment and Natural Resources (DENR)
CONSTANTINO, JR., F'LONG AGUSTIN M. DABIE, Administrative Order 96-40, and of the Financial and
ROBERTO P. AMLOY, RAQIM L. DABIE, SIMEON Technical Assistance Agreement (FTAA) entered into
H. DOLOJO, IMELDA M. GANDON, LENY B. on March 30, 1995 by the Republic of the Philippines
GUSANAN, MARCELO L. GUSANAN, QUINTOL A. and WMC (Philippines), Inc. (WMCP), a corporation
LABUAYAN, LOMINGGES D. LAWAY, BENITA P. organized under Philippine laws.
TACUAYAN, minors JOLY L. BUGOY, represented
by his father UNDERO D. BUGOY, ROGER M. On July 25, 1987, then President Corazon C. Aquino
DADING, represented by his father ANTONIO L. issued Executive Order (E.O.) No. 279 6 authorizing
DADING, ROMY M. LAGARO, represented by his the DENR Secretary to accept, consider and evaluate
father TOTING A. LAGARO, MIKENY JONG B. proposals from foreign-owned corporations or foreign
LUMAYONG, represented by his father MIGUEL M. investors for contracts or agreements involving either
LUMAYONG, RENE T. MIGUEL, represented by his technical or financial assistance for large-scale
mother EDITHA T. MIGUEL, ALDEMAR L. SAL, exploration, development, and utilization of minerals,
represented by his father DANNY M. SAL, DAISY which, upon appropriate recommendation of the
RECARSE, represented by her mother LYDIA S. Secretary, the President may execute with the foreign
SANTOS, EDWARD M. EMUY, ALAN P. proponent. In entering into such proposals, the
MAMPARAIR, MARIO L. MANGCAL, ALDEN S. President shall consider the real contributions to the
TUSAN, AMPARO S. YAP, VIRGILIO CULAR, economic growth and general welfare of the country
MARVIC M.V.F. LEONEN, JULIA REGINA CULAR, that will be realized, as well as the development and
GIAN CARLO CULAR, VIRGILIO CULAR, JR., use of local scientific and technical resources that will
represented by their father VIRGILIO CULAR, be promoted by the proposed contract or agreement.
PAUL ANTONIO P. VILLAMOR, represented by his Until Congress shall determine otherwise, large-scale
parents JOSE VILLAMOR and ELIZABETH PUA- mining, for purpose of this Section, shall mean those
VILLAMOR, ANA GININA R. TALJA, represented proposals for contracts or agreements for mineral
by her father MARIO JOSE B. TALJA, SHARMAINE resources exploration, development, and utilization
R. CUNANAN, represented by her father involving a committed capital investment in a single
ALFREDO M. CUNANAN, ANTONIO JOSE A. mining unit project of at least Fifty Million Dollars in
VITUG III, represented by his mother ANNALIZA A. United States Currency (US $50,000,000.00).7
VITUG, LEAN D. NARVADEZ, represented by his
father MANUEL E. NARVADEZ, JR., ROSERIO On March 3, 1995, then President Fidel V. Ramos
MARALAG LINGATING, represented by her father approved R.A. No. 7942 to "govern the exploration,
RIO OLIMPIO A. LINGATING, MARIO JOSE B. development, utilization and processing of all mineral
TALJA, DAVID E. DE VERA, MARIA MILAGROS L. resources."8 R.A. No. 7942 defines the modes of
SAN JOSE, SR., SUSAN O. BOLANIO, OND, mineral agreements for mining operations,9 outlines
LOLITA G. DEMONTEVERDE, BENJIE L. the procedure for their filing and
NEQUINTO,1 ROSE LILIA S. ROMANO, ROBERTO approval,10 assignment/transfer11 and withdrawal,12 and
S. VERZOLA, EDUARDO AURELIO C. REYES, fixes their terms.13 Similar provisions govern financial
LEAN LOUEL A. PERIA, represented by his father or technical assistance agreements.14
ELPIDIO V. PERIA,2 GREEN FORUM PHILIPPINES,
GREEN FORUM WESTERN VISAYAS, (GF-WV), The law prescribes the qualifications of
ENVIRONMETAL LEGAL ASSISTANCE CENTER contractors15 and grants them certain rights, including
(ELAC), PHILIPPINE KAISAHAN TUNGO SA timber,16 water17 and easement18 rights, and the right to
KAUNLARAN NG KANAYUNAN AT REPORMANG possess explosives.19 Surface owners, occupants, or
PANSAKAHAN (KAISAHAN),3 KAISAHAN TUNGO concessionaires are forbidden from preventing
SA KAUNLARAN NG KANAYUNAN AT holders of mining rights from entering private lands
REPORMANG PANSAKAHAN (KAISAHAN), and concession areas.20 A procedure for the
PARTNERSHIP FOR AGRARIAN REFORM and settlement of conflicts is likewise provided for.21
RURAL DEVELOPMENT SERVICES, INC.
(PARRDS), PHILIPPINE PART`NERSHIP FOR THE
The Act restricts the conditions for
DEVELOPMENT OF HUMAN RESOURCES IN THE
exploration,22 quarry23 and other24 permits. It regulates
RURAL AREAS, INC. (PHILDHRRA), WOMEN'S
the transport, sale and processing of minerals, 25 and
LEGAL BUREAU (WLB), CENTER FOR
promotes the development of mining communities,
ALTERNATIVE DEVELOPMENT INITIATIVES, INC.
science and mining technology,26 and safety and
(CADI), UPLAND DEVELOPMENT INSTITUTE
environmental protection.27
(UDI), KINAIYAHAN FOUNDATION, INC., SENTRO
NG ALTERNATIBONG LINGAP PANLIGAL
(SALIGAN), LEGAL RIGHTS AND NATURAL The government's share in the agreements is spelled
RESOURCES CENTER, INC. (LRC), petitioners, out and allocated,28 taxes and fees are
vs. imposed,  incentives granted.30 Aside from penalizing
29

VICTOR O. RAMOS, SECRETARY, DEPARTMENT certain acts,31 the law likewise specifies grounds for
OF ENVIRONMENT AND NATURAL RESOURCES the cancellation, revocation and termination of
(DENR), HORACIO RAMOS, DIRECTOR, MINES agreements and permits.32
AND GEOSCIENCES BUREAU (MGB-DENR),
RUBEN TORRES, EXECUTIVE SECRETARY, and On April 9, 1995, 30 days following its publication on
WMC (PHILIPPINES), INC.4 respondents. March 10, 1995 in Malaya and Manila Times, two
newspapers of general circulation, R.A. No. 7942 took
DECISION effect.33 Shortly before the effectivity of R.A. No. 7942,
1

however, or on March 30, 1995, the President entered

Page

into an FTAA with WMCP covering 99,387 hectares of

CARPIO-MORALES, J.:
land in South Cotabato, Sultan Kudarat, Davao del development and utilization of mineral resources
Sur and North Cotabato.34 contrary to Article XII of the Constitution;

On August 15, 1995, then DENR Secretary Victor O. VI

Ramos issued DENR Administrative Order (DAO) No.
95-23, s. 1995, otherwise known as the Implementing x x x in signing and promulgating DENR
Rules and Regulations of R.A. No. 7942. This was Administrative Order No. 96-40 implementing
later repealed by DAO No. 96-40, s. 1996 which was Republic Act No. 7942, the latter being
adopted on December 20, 1996. unconstitutional in that it allows the inequitable
sharing of wealth contrary to Sections [sic] 1,
On January 10, 1997, counsels for petitioners sent a paragraph 1, and Section 2, paragraph 4[,] [Article XII]
letter to the DENR Secretary demanding that the of the Constitution;
DENR stop the implementation of R.A. No. 7942 and
DAO No. 96-40,35 giving the DENR fifteen days from VII
receipt36 to act thereon. The DENR, however, has yet
to respond or act on petitioners' letter.37 x x x in recommending approval of and implementing
the Financial and Technical Assistance Agreement
Petitioners thus filed the present petition for between the President of the Republic of the
prohibition and mandamus, with a prayer for a Philippines and Western Mining Corporation
temporary restraining order. They allege that at the Philippines Inc. because the same is illegal and
time of the filing of the petition, 100 FTAA applications unconstitutional.40
had already been filed, covering an area of 8.4 million
hectares,38 64 of which applications are by fully They pray that the Court issue an order:
foreign-owned corporations covering a total of 5.8
million hectares, and at least one by a fully foreign-
(a) Permanently enjoining respondents from
owned mining company over offshore areas.39
acting on any application for Financial or
Technical Assistance Agreements;
Petitioners claim that the DENR Secretary acted
without or in excess of jurisdiction:
(b) Declaring the Philippine Mining Act of 1995
or Republic Act No. 7942 as unconstitutional
I and null and void;

x x x in signing and promulgating DENR (c) Declaring the Implementing Rules and
Administrative Order No. 96-40 implementing Regulations of the Philippine Mining Act
Republic Act No. 7942, the latter being contained in DENR Administrative Order No.
unconstitutional in that it allows fully foreign owned 96-40 and all other similar administrative
corporations to explore, develop, utilize and exploit issuances as unconstitutional and null and
mineral resources in a manner contrary to Section 2, void; and
paragraph 4, Article XII of the Constitution;
(d) Cancelling the Financial and Technical
II Assistance Agreement issued to Western
Mining Philippines, Inc. as unconstitutional,
x x x in signing and promulgating DENR illegal and null and void.41
Administrative Order No. 96-40 implementing
Republic Act No. 7942, the latter being Impleaded as public respondents are Ruben Torres,
unconstitutional in that it allows the taking of private the then Executive Secretary, Victor O. Ramos, the
property without the determination of public use and then DENR Secretary, and Horacio Ramos, Director
for just compensation; of the Mines and Geosciences Bureau of the DENR.
Also impleaded is private respondent WMCP, which
III entered into the assailed FTAA with the Philippine
Government. WMCP is owned by WMC Resources
x x x in signing and promulgating DENR International Pty., Ltd. (WMC), "a wholly owned
Administrative Order No. 96-40 implementing subsidiary of Western Mining Corporation Holdings
Republic Act No. 7942, the latter being Limited, a publicly listed major Australian mining and
unconstitutional in that it violates Sec. 1, Art. III of the exploration company."42 By WMCP's information, "it is
Constitution; a 100% owned subsidiary of WMC LIMITED."43

IV Respondents, aside from meeting petitioners'

contentions, argue that the requisites for judicial
x x x in signing and promulgating DENR inquiry have not been met and that the petition does
Administrative Order No. 96-40 implementing not comply with the criteria for prohibition and
Republic Act No. 7942, the latter being mandamus. Additionally, respondent WMCP argues
unconstitutional in that it allows enjoyment by foreign that there has been a violation of the rule on hierarchy
citizens as well as fully foreign owned corporations of of courts.
the nation's marine wealth contrary to Section 2,
paragraph 2 of Article XII of the Constitution; After petitioners filed their reply, this Court granted
due course to the petition. The parties have since filed
V their respective memoranda.

x x x in signing and promulgating DENR WMCP subsequently filed a Manifestation dated

Administrative Order No. 96-40 implementing September 25, 2002 alleging that on January 23,
2

Republic Act No. 7942, the latter being 2001, WMC sold all its shares in WMCP to Sagittarius
Page

unconstitutional in that it allows priority to foreign and Mines, Inc. (Sagittarius), a corporation organized
fully foreign owned corporations in the exploration, under Philippine laws.44 WMCP was subsequently
renamed "Tampakan Mineral Resources When an issue of constitutionality is raised, this Court
Corporation."45 WMCP claims that at least 60% of the can exercise its power of judicial review only if the
equity of Sagittarius is owned by Filipinos and/or following requisites are present:
Filipino-owned corporations while about 40% is
owned by Indophil Resources NL, an Australian (1) The existence of an actual and appropriate
company.46 It further claims that by such sale and case;
transfer of shares, "WMCP has ceased to be
connected in any way with WMC."47 (2) A personal and substantial interest of the
party raising the constitutional question;
By virtue of such sale and transfer, the DENR
Secretary, by Order of December 18, (3) The exercise of judicial review is pleaded
2001,48 approved the transfer and registration of the at the earliest opportunity; and
subject FTAA from WMCP to Sagittarius. Said Order,
however, was appealed by Lepanto Consolidated
(4) The constitutional question is the lis mota
Mining Co. (Lepanto) to the Office of the President
of the case. 58
which upheld it by Decision of July 23, 2002. 49 Its
motion for reconsideration having been denied by the
Office of the President by Resolution of November 12, Respondents claim that the first three requisites are
2002,50 Lepanto filed a petition for review51 before the not present.
Court of Appeals. Incidentally, two other petitions for
review related to the approval of the transfer and Section 1, Article VIII of the Constitution states that
registration of the FTAA to Sagittarius were recently "(j)udicial power includes the duty of the courts of
resolved by this Court.52 justice to settle actual controversies involving rights
which are legally demandable and enforceable." The
It bears stressing that this case has not been power of judicial review, therefore, is limited to the
rendered moot either by the transfer and registration determination of actual cases and controversies.59
of the FTAA to a Filipino-owned corporation or by the
non-issuance of a temporary restraining order or a An actual case or controversy means an existing case
preliminary injunction to stay the above-said July 23, or controversy that is appropriate or ripe for
2002 decision of the Office of the President.53 The determination, not conjectural or anticipatory, 60 lest the
validity of the transfer remains in dispute and awaits decision of the court would amount to an advisory
final judicial determination. This assumes, of course, opinion.61 The power does not extend to hypothetical
that such transfer cures the FTAA's alleged questions62 since any attempt at abstraction could only
unconstitutionality, on which question judgment is lead to dialectics and barren legal questions and to
reserved. sterile conclusions unrelated to actualities.63

WMCP also points out that the original claimowners of "Legal standing" or locus standi has been defined as
the major mineralized areas included in the WMCP a personal and substantial interest in the case such
FTAA, namely, Sagittarius, Tampakan Mining that the party has sustained or will sustain direct injury
Corporation, and Southcot Mining Corporation, are all as a result of the governmental act that is being
Filipino-owned corporations,54 each of which was a challenged,64 alleging more than a generalized
holder of an approved Mineral Production Sharing grievance.65 The gist of the question of standing is
Agreement awarded in 1994, albeit their respective whether a party alleges "such personal stake in the
mineral claims were subsumed in the WMCP outcome of the controversy as to assure that concrete
FTAA;55 and that these three companies are the same adverseness which sharpens the presentation of
companies that consolidated their interests in issues upon which the court depends for illumination
Sagittarius to whom WMC sold its 100% equity in of difficult constitutional questions."66 Unless a person
WMCP.56 WMCP concludes that in the event that the is injuriously affected in any of his constitutional rights
FTAA is invalidated, the MPSAs of the three by the operation of statute or ordinance, he has no
corporations would be revived and the mineral claims standing.67
would revert to their original claimants.57
Petitioners traverse a wide range of sectors. Among
These circumstances, while informative, are hardly them are La Bugal B'laan Tribal Association, Inc., a
significant in the resolution of this case, it involving the farmers and indigenous people's cooperative
validity of the FTAA, not the possible consequences organized under Philippine laws representing a
of its invalidation. community actually affected by the mining activities of
WMCP, members of said cooperative,68 as well as
Of the above-enumerated seven grounds cited by other residents of areas also affected by the mining
petitioners, as will be shown later, only the first and activities of WMCP.69 These petitioners have standing
the last need be delved into; in the latter, the to raise the constitutionality of the questioned FTAA
discussion shall dwell only insofar as it questions the as they allege a personal and substantial injury. They
effectivity of E. O. No. 279 by virtue of which order the claim that they would suffer "irremediable
questioned FTAA was forged. displacement"70 as a result of the implementation of
the FTAA allowing WMCP to conduct mining activities
in their area of residence. They thus meet the
I
appropriate case requirement as they assert an
interest adverse to that of respondents who, on the
Before going into the substantive issues, the other hand, insist on the FTAA's validity.
procedural questions posed by respondents shall first
be tackled.
In view of the alleged impending injury, petitioners
also have standing to assail the validity of E.O. No.
REQUISITES FOR JUDICIAL REVIEW 279, by authority of which the FTAA was executed.
3

Public respondents maintain that petitioners, being

Page

strangers to the FTAA, cannot sue either or both

contracting parties to annul it.71 In other words, they apply to a mining lessee or contractor unless the
contend that petitioners are not real parties in interest mining lessee or contractor indicates his intention to
in an action for the annulment of contract. the secretary, in writing, not to avail of said provisions
x x x Provided, finally, That such leases, production-
Public respondents' contention fails. The present sharing agreements, financial or technical assistance
action is not merely one for annulment of contract but agreements shall comply with the applicable
for prohibition and mandamus. Petitioners allege that provisions of this Act and its implementing rules and
public respondents acted without or in excess of regulations.
jurisdiction in implementing the FTAA, which they
submit is unconstitutional. As the case involves As there is no suggestion that WMCP has indicated
constitutional questions, this Court is not concerned its intention not to avail of the provisions of Chapter
with whether petitioners are real parties in interest, but XVI of R.A. No. 7942, it can safely be presumed that
with whether they have legal standing. As held in they apply to the WMCP FTAA.
Kilosbayan v. Morato:72
Misconstruing the application of the third requisite for
x x x. "It is important to note . . . that standing judicial review – that the exercise of the review is
because of its constitutional and public policy pleaded at the earliest opportunity – WMCP points out
underpinnings, is very different from questions relating that the petition was filed only almost two years after
to whether a particular plaintiff is the real party in the execution of the FTAA, hence, not raised at the
interest or has capacity to sue. Although all three earliest opportunity.
requirements are directed towards ensuring that only
certain parties can maintain an action, standing The third requisite should not be taken to mean that
restrictions require a partial consideration of the the question of constitutionality must be raised
merits, as well as broader policy concerns relating to immediately after the execution of the state action
the proper role of the judiciary in certain areas.["] complained of. That the question of constitutionality
(FRIEDENTHAL, KANE AND MILLER, CIVIL has not been raised before is not a valid reason for
PROCEDURE 328 [1985]) refusing to allow it to be raised later.73 A contrary rule
would mean that a law, otherwise unconstitutional,
Standing is a special concern in constitutional law would lapse into constitutionality by the mere failure of
because in some cases suits are brought not by the proper party to promptly file a case to challenge
parties who have been personally injured by the the same.
operation of a law or by official action taken, but by
concerned citizens, taxpayers or voters who actually PROPRIETY OF PROHIBITION AND MANDAMUS
sue in the public interest. Hence, the question in
standing is whether such parties have "alleged such a Before the effectivity in July 1997 of the Revised
personal stake in the outcome of the controversy as to Rules of Civil Procedure, Section 2 of Rule 65 read:
assure that concrete adverseness which sharpens the
presentation of issues upon which the court so largely
SEC. 2. Petition for prohibition. – When the
depends for illumination of difficult constitutional
proceedings of any tribunal, corporation, board, or
questions." (Baker v. Carr, 369 U.S. 186, 7 L.Ed.2d
person, whether exercising functions judicial or
633 [1962].)
ministerial, are without or in excess of its or his
jurisdiction, or with grave abuse of discretion, and
As earlier stated, petitioners meet this requirement. there is no appeal or any other plain, speedy, and
adequate remedy in the ordinary course of law, a
The challenge against the constitutionality of R.A. No. person aggrieved thereby may file a verified petition in
7942 and DAO No. 96-40 likewise fulfills the the proper court alleging the facts with certainty and
requisites of justiciability. Although these laws were praying that judgment be rendered commanding the
not in force when the subject FTAA was entered into, defendant to desist from further proceeding in the
the question as to their validity is ripe for adjudication. action or matter specified therein.

The WMCP FTAA provides: Prohibition is a preventive remedy.74 It seeks a

judgment ordering the defendant to desist from
14.3 Future Legislation continuing with the commission of an act perceived to
be illegal.75
Any term and condition more favourable to Financial
&Technical Assistance Agreement contractors The petition for prohibition at bar is thus an
resulting from repeal or amendment of any existing appropriate remedy. While the execution of the
law or regulation or from the enactment of a law, contract itself may be fait accompli, its implementation
regulation or administrative order shall be considered is not. Public respondents, in behalf of the
a part of this Agreement. Government, have obligations to fulfill under said
contract. Petitioners seek to prevent them from
It is undisputed that R.A. No. 7942 and DAO No. 96- fulfilling such obligations on the theory that the
40 contain provisions that are more favorable to contract is unconstitutional and, therefore, void.
WMCP, hence, these laws, to the extent that they are
favorable to WMCP, govern the FTAA. The propriety of a petition for prohibition being upheld,
discussion of the propriety of the mandamus aspect of
In addition, R.A. No. 7942 explicitly makes certain the petition is rendered unnecessary.
provisions apply to pre-existing agreements.
HIERARCHY OF COURTS
SEC. 112. Non-impairment of Existing
Mining/Quarrying Rights. – x x x That the provisions of The contention that the filing of this petition violated
Chapter XIV on government share in mineral the rule on hierarchy of courts does not likewise lie.
4

production-sharing agreement and of Chapter XVI on The rule has been explained thus:
Page

incentives of this Act shall immediately govern and

Between two courts of concurrent original jurisdiction, (2) It allows foreign-owned companies to
it is the lower court that should initially pass upon the extend both technical and financial
issues of a case. That way, as a particular case goes assistance, instead of "either technical or
through the hierarchy of courts, it is shorn of all but financial assistance."
the important legal issues or those of first impression,
which are the proper subject of attention of the To appreciate the import of these issues, a visit to the
appellate court. This is a procedural rule borne of history of the pertinent constitutional provision, the
experience and adopted to improve the administration concepts contained therein, and the laws enacted
of justice. pursuant thereto, is in order.

This Court has consistently enjoined litigants to Section 2, Article XII reads in full:
respect the hierarchy of courts. Although this Court
has concurrent jurisdiction with the Regional Trial Sec. 2. All lands of the public domain, waters,
Courts and the Court of Appeals to issue writs of minerals, coal, petroleum, and other mineral oils, all
certiorari, prohibition, mandamus, quo warranto, forces of potential energy, fisheries, forests or timber,
habeas corpus and injunction, such concurrence does wildlife, flora and fauna, and other natural resources
not give a party unrestricted freedom of choice of are owned by the State. With the exception of
court forum. The resort to this Court's primary agricultural lands, all other natural resources shall not
jurisdiction to issue said writs shall be allowed only be alienated. The exploration, development, and
where the redress desired cannot be obtained in the utilization of natural resources shall be under the full
appropriate courts or where exceptional and control and supervision of the State. The State may
compelling circumstances justify such invocation. We directly undertake such activities or it may enter into
held in People v. Cuaresma that: co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or
A becoming regard for judicial hierarchy most associations at least sixty per centum of whose capital
certainly indicates that petitions for the issuance of is owned by such citizens. Such agreements may be
extraordinary writs against first level ("inferior") courts for a period not exceeding twenty-five years,
should be filed with the Regional Trial Court, and renewable for not more than twenty-five years, and
those against the latter, with the Court of Appeals. A under such terms and conditions as may be provided
direct invocation of the Supreme Court's original by law. In cases of water rights for irrigation, water
jurisdiction to issue these writs should be allowed only supply, fisheries, or industrial uses other than the
where there are special and important reasons development of water power, beneficial use may be
therefor, clearly and specifically set out in the petition. the measure and limit of the grant.
This is established policy. It is a policy necessary to
prevent inordinate demands upon the Court's time The State shall protect the nation's marine wealth in
and attention which are better devoted to those its archipelagic waters, territorial sea, and exclusive
matters within its exclusive jurisdiction, and to prevent economic zone, and reserve its use and enjoyment
further over-crowding of the Court's docket x x exclusively to Filipino citizens.
x.76 [Emphasis supplied.]
The Congress may, by law, allow small-scale
The repercussions of the issues in this case on the utilization of natural resources by Filipino citizens, as
Philippine mining industry, if not the national well as cooperative fish farming, with priority to
economy, as well as the novelty thereof, constitute subsistence fishermen and fish-workers in rivers,
exceptional and compelling circumstances to justify lakes, bays, and lagoons.
resort to this Court in the first instance.
The President may enter into agreements with
In all events, this Court has the discretion to take foreign-owned corporations involving either technical
cognizance of a suit which does not satisfy the or financial assistance for large-scale exploration,
requirements of an actual case or legal standing when development, and utilization of minerals, petroleum,
paramount public interest is involved.77 When the and other mineral oils according to the general terms
issues raised are of paramount importance to the and conditions provided by law, based on real
public, this Court may brush aside technicalities of contributions to the economic growth and general
procedure.78 welfare of the country. In such agreements, the State
shall promote the development and use of local
II scientific and technical resources.

Petitioners contend that E.O. No. 279 did not take The President shall notify the Congress of every
effect because its supposed date of effectivity came contract entered into in accordance with this
after President Aquino had already lost her legislative provision, within thirty days from its execution.
powers under the Provisional Constitution.
THE SPANISH REGIME AND THE REGALIAN
And they likewise claim that the WMC FTAA, which DOCTRINE
was entered into pursuant to E.O. No. 279, violates
Section 2, Article XII of the Constitution because, The first sentence of Section 2 embodies the Regalian
among other reasons: doctrine or jura regalia. Introduced by Spain into these
Islands, this feudal concept is based on the State's
(1) It allows foreign-owned companies to power of dominium, which is the capacity of the State
extend more than mere financial or technical to own or acquire property.79
assistance to the State in the exploitation,
development, and utilization of minerals, In its broad sense, the term "jura regalia" refers to
petroleum, and other mineral oils, and even royal rights, or those rights which the King has by
permits foreign owned companies to "operate virtue of his prerogatives. In Spanish law, it refers to a
5

and manage mining activities." right which the sovereign has over anything in which a
Page

subject has a right of property or propriedad. These

were rights enjoyed during feudal times by the king as minerals within his property.89 Thus, earlier
the sovereign. jurisprudence90 held that:

The theory of the feudal system was that title to all A valid and subsisting location of mineral land, made
lands was originally held by the King, and while the and kept up in accordance with the provisions of the
use of lands was granted out to others who were statutes of the United States, has the effect of a grant
permitted to hold them under certain conditions, the by the United States of the present and exclusive
King theoretically retained the title. By fiction of law, possession of the lands located, and this exclusive
the King was regarded as the original proprietor of all right of possession and enjoyment continues during
lands, and the true and only source of title, and from the entire life of the location. x x x.
him all lands were held. The theory of jura regalia was
therefore nothing more than a natural fruit of x x x.
conquest.80
The discovery of minerals in the ground by one who
The Philippines having passed to Spain by virtue of has a valid mineral location perfects his claim and his
discovery and conquest,81 earlier Spanish decrees location not only against third persons, but also
declared that "all lands were held from the Crown."82 against the Government. x x x. [Italics in the original.]

The Regalian doctrine extends not only to land but The Regalian doctrine and the American system,
also to "all natural wealth that may be found in the therefore, differ in one essential respect. Under the
bowels of the earth."83 Spain, in particular, recognized Regalian theory, mineral rights are not included in a
the unique value of natural resources, viewing them, grant of land by the state; under the American
especially minerals, as an abundant source of doctrine, mineral rights are included in a grant of land
revenue to finance its wars against other by the government.91
nations.84 Mining laws during the Spanish regime
reflected this perspective.85 Section 21 also made possible the concession
(frequently styled "permit", license" or
THE AMERICAN OCCUPATION AND THE "lease")92 system.93 This was the traditional regime
CONCESSION REGIME imposed by the colonial administrators for the
exploitation of natural resources in the extractive
By the Treaty of Paris of December 10, 1898, Spain sector (petroleum, hard minerals, timber, etc.).94
ceded "the archipelago known as the Philippine
Islands" to the United States. The Philippines was Under the concession system, the concessionaire
hence governed by means of organic acts that were in makes a direct equity investment for the purpose of
the nature of charters serving as a Constitution of the exploiting a particular natural resource within a given
occupied territory from 1900 to 1935.86 Among the area.95 Thus, the concession amounts to complete
principal organic acts of the Philippines was the Act of control by the concessionaire over the country's
Congress of July 1, 1902, more commonly known as natural resource, for it is given exclusive and plenary
the Philippine Bill of 1902, through which the United rights to exploit a particular resource at the point of
States Congress assumed the administration of the extraction.96 In consideration for the right to exploit a
Philippine Islands.87 Section 20 of said Bill reserved natural resource, the concessionaire either pays rent
the disposition of mineral lands of the public domain or royalty, which is a fixed percentage of the gross
from sale. Section 21 thereof allowed the free and proceeds.97
open exploration, occupation and purchase of mineral
deposits not only to citizens of the Philippine Islands Later statutory enactments by the legislative bodies
but to those of the United States as well: set up in the Philippines adopted the contractual
framework of the concession.98 For instance, Act No.
Sec. 21. That all valuable mineral deposits in public 2932,99 approved on August 31, 1920, which provided
lands in the Philippine Islands, both surveyed and for the exploration, location, and lease of lands
unsurveyed, are hereby declared to be free and open containing petroleum and other mineral oils and gas in
to exploration, occupation and purchase, and the land the Philippines, and Act No. 2719,100 approved on May
in which they are found, to occupation and purchase, 14, 1917, which provided for the leasing and
by citizens of the United States or of said Islands: development of coal lands in the Philippines, both
Provided, That when on any lands in said Islands utilized the concession system.101
entered and occupied as agricultural lands under the
provisions of this Act, but not patented, mineral THE 1935 CONSTITUTION AND THE
deposits have been found, the working of such NATIONALIZATION OF NATURAL RESOURCES
mineral deposits is forbidden until the person,
association, or corporation who or which has entered
By the Act of United States Congress of March 24,
and is occupying such lands shall have paid to the
1934, popularly known as the Tydings-McDuffie Law,
Government of said Islands such additional sum or
the People of the Philippine Islands were authorized
sums as will make the total amount paid for the
to adopt a constitution.102 On July 30, 1934, the
mineral claim or claims in which said deposits are
Constitutional Convention met for the purpose of
located equal to the amount charged by the
drafting a constitution, and the Constitution
Government for the same as mineral claims.
subsequently drafted was approved by the
Convention on February 8, 1935.103 The Constitution
Unlike Spain, the United States considered natural was submitted to the President of the United States
resources as a source of wealth for its nationals and on March 18, 1935.104 On March 23, 1935, the
saw fit to allow both Filipino and American citizens to President of the United States certified that the
explore and exploit minerals in public lands, and to Constitution conformed substantially with the
grant patents to private mineral lands.88 A person who provisions of the Act of Congress approved on March
acquired ownership over a parcel of private mineral 24, 1934.105 On May 14, 1935, the Constitution was
6

land pursuant to the laws then prevailing could ratified by the Filipino people.106
Page

exclude other persons, even the State, from exploiting

The 1935 Constitution adopted the Regalian doctrine, source of international conflicts with the consequent
declaring all natural resources of the Philippines, danger to its internal security and independence.111
including mineral lands and minerals, to be property
belonging to the State.107 As adopted in a republican The same Section 1, Article XIII also adopted the
system, the medieval concept of jura regalia is concession system, expressly permitting the State to
stripped of royal overtones and ownership of the land grant licenses, concessions, or leases for the
is vested in the State.108 exploitation, development, or utilization of any of the
natural resources. Grants, however, were limited to
Section 1, Article XIII, on Conservation and Utilization Filipinos or entities at least 60% of the capital of which
of Natural Resources, of the 1935 Constitution is owned by Filipinos.lawph!l.ne+

provided:
The swell of nationalism that suffused the 1935
SECTION 1. All agricultural, timber, and Constitution was radically diluted when on November
mineral lands of the public domain, waters, 1946, the Parity Amendment, which came in the form
minerals, coal, petroleum, and other mineral of an "Ordinance Appended to the Constitution," was
oils, all forces of potential energy, and other ratified in a plebiscite.112 The Amendment extended,
natural resources of the Philippines belong to from July 4, 1946 to July 3, 1974, the right to utilize
the State, and their disposition, exploitation, and exploit our natural resources to citizens of the
development, or utilization shall be limited to United States and business enterprises owned or
citizens of the Philippines, or to corporations controlled, directly or indirectly, by citizens of the
or associations at least sixty per centum of the United States:113
capital of which is owned by such citizens,
subject to any existing right, grant, lease, or Notwithstanding the provision of section one, Article
concession at the time of the inauguration of Thirteen, and section eight, Article Fourteen, of the
the Government established under this foregoing Constitution, during the effectivity of the
Constitution. Natural resources, with the Executive Agreement entered into by the President of
exception of public agricultural land, shall not the Philippines with the President of the United States
be alienated, and no license, concession, or on the fourth of July, nineteen hundred and forty-six,
lease for the exploitation, development, or pursuant to the provisions of Commonwealth Act
utilization of any of the natural resources shall Numbered Seven hundred and thirty-three, but in no
be granted for a period exceeding twenty-five case to extend beyond the third of July, nineteen
years, except as to water rights for irrigation, hundred and seventy-four, the disposition,
water supply, fisheries, or industrial uses other exploitation, development, and utilization of all
than the development of water power, in agricultural, timber, and mineral lands of the public
which cases beneficial use may be the domain, waters, minerals, coals, petroleum, and other
measure and the limit of the grant. mineral oils, all forces and sources of potential
energy, and other natural resources of the Philippines,
The nationalization and conservation of the natural and the operation of public utilities, shall, if open to
resources of the country was one of the fixed and any person, be open to citizens of the United States
dominating objectives of the 1935 Constitutional and to all forms of business enterprise owned or
Convention.109 One delegate relates: controlled, directly or indirectly, by citizens of the
United States in the same manner as to, and under
There was an overwhelming sentiment in the the same conditions imposed upon, citizens of the
Convention in favor of the principle of state ownership Philippines or corporations or associations owned or
of natural resources and the adoption of the Regalian controlled by citizens of the Philippines.
doctrine. State ownership of natural resources was
seen as a necessary starting point to secure The Parity Amendment was subsequently modified by
recognition of the state's power to control their the 1954 Revised Trade Agreement, also known as
disposition, exploitation, development, or utilization. the Laurel-Langley Agreement, embodied in Republic
The delegates of the Constitutional Convention very Act No. 1355.114
well knew that the concept of State ownership of land
and natural resources was introduced by the THE PETROLEUM ACT OF 1949 AND THE
Spaniards, however, they were not certain whether it CONCESSION SYSTEM
was continued and applied by the Americans. To
remove all doubts, the Convention approved the In the meantime, Republic Act No. 387,115 also known
provision in the Constitution affirming the Regalian as the Petroleum Act of 1949, was approved on June
doctrine. 18, 1949.

The adoption of the principle of state ownership of the The Petroleum Act of 1949 employed the concession
natural resources and of the Regalian doctrine was system for the exploitation of the nation's petroleum
considered to be a necessary starting point for the resources. Among the kinds of concessions it
plan of nationalizing and conserving the natural sanctioned were exploration and exploitation
resources of the country. For with the establishment concessions, which respectively granted to the
of the principle of state ownership of the natural concessionaire the exclusive right to explore for116 or
resources, it would not be hard to secure the develop117 petroleum within specified areas.
recognition of the power of the State to control their
disposition, exploitation, development or utilization.110
Concessions may be granted only to duly qualified
persons118 who have sufficient finances, organization,
The nationalization of the natural resources was resources, technical competence, and skills
intended (1) to insure their conservation for Filipino necessary to conduct the operations to be
posterity; (2) to serve as an instrument of national undertaken.119
defense, helping prevent the extension to the country
7

of foreign control through peaceful economic

Nevertheless, the Government reserved the right to
Page

penetration; and (3) to avoid making the Philippines a

undertake such work itself.120 This proceeded from the
theory that all natural deposits or occurrences of and drawbacks of the concession system insofar as it
petroleum or natural gas in public and/or private lands applied to the petroleum industry:
in the Philippines belong to the State.121 Exploration
and exploitation concessions did not confer upon the Advantages of Concession. Whether it emphasizes
concessionaire ownership over the petroleum lands income tax or royalty, the most positive aspect of the
and petroleum deposits.122 However, they did grant concession system is that the State's financial
concessionaires the right to explore, develop, exploit, involvement is virtually risk free and administration is
and utilize them for the period and under the simple and comparatively low in cost. Furthermore, if
conditions determined by the law.123 there is a competitive allocation of the resource
leading to substantial bonuses and/or greater royalty
Concessions were granted at the complete risk of the coupled with a relatively high level of taxation,
concessionaire; the Government did not guarantee revenue accruing to the State under the concession
the existence of petroleum or undertake, in any case, system may compare favorably with other financial
title warranty.124 arrangements.

Concessionaires were required to submit information Disadvantages of Concession. There are, however,
as maybe required by the Secretary of Agriculture and major negative aspects to this system. Because the
Natural Resources, including reports of geological and Government's role in the traditional concession is
geophysical examinations, as well as production passive, it is at a distinct disadvantage in managing
reports.125 Exploration126 and and developing policy for the nation's petroleum
exploitation127 concessionaires were also required to resource. This is true for several reasons. First, even
submit work programs. lavvphi1.net though most concession agreements contain
covenants requiring diligence in operations and
Exploitation concessionaires, in particular, were production, this establishes only an indirect and
obliged to pay an annual exploitation tax,128 the object passive control of the host country in resource
of which is to induce the concessionaire to actually development. Second, and more importantly, the fact
produce petroleum, and not simply to sit on the that the host country does not directly participate in
concession without developing or exploiting resource management decisions inhibits its ability to
it.129 These concessionaires were also bound to pay train and employ its nationals in petroleum
the Government royalty, which was not less than 12½ development. This factor could delay or prevent the
% of the petroleum produced and saved, less that country from effectively engaging in the development
consumed in the operations of the of its resources. Lastly, a direct role in management is
concessionaire.130 Under Article 66, R.A. No. 387, the usually necessary in order to obtain a knowledge of
exploitation tax may be credited against the royalties the international petroleum industry which is important
so that if the concessionaire shall be actually to an appreciation of the host country's resources in
producing enough oil, it would not actually be paying relation to those of other countries.142
the exploitation tax.131
Other liabilities of the system have also been noted:
Failure to pay the annual exploitation tax for two
consecutive years,132 or the royalty due to the x x x there are functional implications which give the
Government within one year from the date it becomes concessionaire great economic power arising from its
due,133 constituted grounds for the cancellation of the exclusive equity holding. This includes, first,
concession. In case of delay in the payment of the appropriation of the returns of the undertaking, subject
taxes or royalty imposed by the law or by the to a modest royalty; second, exclusive management
concession, a surcharge of 1% per month is exacted of the project; third, control of production of the natural
until the same are paid.134 resource, such as volume of production, expansion,
research and development; and fourth, exclusive
As a rule, title rights to all equipment and structures responsibility for downstream operations, like
that the concessionaire placed on the land belong to processing, marketing, and distribution. In short, even
the exploration or exploitation concessionaire. 135 Upon if nominally, the state is the sovereign and owner of
termination of such concession, the concessionaire the natural resource being exploited, it has been
had a right to remove the same.136 shorn of all elements of control over such natural
resource because of the exclusive nature of the
The Secretary of Agriculture and Natural Resources contractual regime of the concession. The concession
was tasked with carrying out the provisions of the law, system, investing as it does ownership of natural
through the Director of Mines, who acted under the resources, constitutes a consistent inconsistency with
Secretary's immediate supervision and control.137 The the principle embodied in our Constitution that natural
Act granted the Secretary the authority to inspect any resources belong to the state and shall not be
operation of the concessionaire and to examine all the alienated, not to mention the fact that the concession
books and accounts pertaining to operations or was the bedrock of the colonial system in the
conditions related to payment of taxes and royalties.138 exploitation of natural resources.143

The same law authorized the Secretary to create an Eventually, the concession system failed for reasons
Administration Unit and a Technical Board.139 The explained by Dimagiba:
Administration Unit was charged, inter alia, with the
enforcement of the provisions of the law.140 The Notwithstanding the good intentions of the Petroleum
Technical Board had, among other functions, the duty Act of 1949, the concession system could not have
to check on the performance of concessionaires and properly spurred sustained oil exploration activities in
to determine whether the obligations imposed by the the country, since it assumed that such a capital-
Act and its implementing regulations were being intensive, high risk venture could be successfully
complied with.141 undertaken by a single individual or a small company.
In effect, concessionaires' funds were easily
8

Victorio Mario A. Dimagiba, Chief Legal Officer of the exhausted. Moreover, since the concession system
Page

Bureau of Energy Development, analyzed the benefits practically closed its doors to interested foreign
investors, local capital was stretched to the limits. The
old system also failed to consider the highly Ostensibly, the service contract system had certain
sophisticated technology and expertise required, advantages over the concession regime.159 It has been
which would be available only to multinational opined, though, that, in the Philippines, our concept of
companies.144 a service contract, at least in the petroleum industry,
was basically a concession regime with a production-
A shift to a new regime for the development of natural sharing element.160
resources thus seemed imminent.
On January 17, 1973, then President Ferdinand E.
PRESIDENTIAL DECREE NO. 87, THE 1973 Marcos proclaimed the ratification of a new
CONSTITUTION AND THE SERVICE CONTRACT Constitution.161 Article XIV on the National Economy
SYSTEM and Patrimony contained provisions similar to the
1935 Constitution with regard to Filipino participation
The promulgation on December 31, 1972 of in the nation's natural resources. Section 8, Article
Presidential Decree No. 87,145 otherwise known as XIV thereof provides:
The Oil Exploration and Development Act of 1972
signaled such a transformation. P.D. No. 87 permitted Sec. 8. All lands of the public domain, waters,
the government to explore for and produce indigenous minerals, coal, petroleum and other mineral oils, all
petroleum through "service contracts."146 forces of potential energy, fisheries, wildlife, and other
natural resources of the Philippines belong to the
"Service contracts" is a term that assumes varying State. With the exception of agricultural, industrial or
meanings to different people, and it has carried many commercial, residential and resettlement lands of the
names in different countries, like "work contracts" in public domain, natural resources shall not be
Indonesia, "concession agreements" in Africa, alienated, and no license, concession, or lease for the
"production-sharing agreements" in the Middle East, exploration, development, exploitation, or utilization of
and "participation agreements" in Latin America. 147 A any of the natural resources shall be granted for a
functional definition of "service contracts" in the period exceeding twenty-five years, renewable for not
Philippines is provided as follows: more than twenty-five years, except as to water rights
for irrigation, water supply, fisheries, or industrial uses
other than the development of water power, in which
A service contract is a contractual arrangement for
cases beneficial use may be the measure and the
engaging in the exploitation and development of
limit of the grant.
petroleum, mineral, energy, land and other natural
resources by which a government or its agency, or a
private person granted a right or privilege by the While Section 9 of the same Article maintained the
government authorizes the other party (service Filipino-only policy in the enjoyment of natural
contractor) to engage or participate in the exercise of resources, it also allowed Filipinos, upon authority of
such right or the enjoyment of the privilege, in that the the Batasang Pambansa, to enter into service
latter provides financial or technical resources, contracts with any person or entity for the exploration
undertakes the exploitation or production of a given or utilization of natural resources.
resource, or directly manages the productive
enterprise, operations of the exploration and Sec. 9. The disposition, exploration, development,
exploitation of the resources or the disposition of exploitation, or utilization of any of the natural
marketing or resources.148 resources of the Philippines shall be limited to
citizens, or to corporations or associations at least
In a service contract under P.D. No. 87, service and sixty per centum of which is owned by such citizens.
technology are furnished by the service contractor for The Batasang Pambansa, in the national interest,
which it shall be entitled to the stipulated service may allow such citizens, corporations or associations
fee.149 The contractor must be technically competent to enter into service contracts for financial, technical,
and financially capable to undertake the operations management, or other forms of assistance with any
required in the contract.150 person or entity for the exploration, or utilization of
any of the natural resources. Existing valid and
binding service contracts for financial, technical,
Financing is supposed to be provided by the
management, or other forms of assistance are hereby
Government to which all petroleum produced
recognized as such. [Emphasis supplied.]
belongs.151 In case the Government is unable to
finance petroleum exploration operations, the
contractor may furnish services, technology and The concept of service contracts, according to one
financing, and the proceeds of sale of the petroleum delegate, was borrowed from the methods followed by
produced under the contract shall be the source of India, Pakistan and especially Indonesia in the
funds for payment of the service fee and the operating exploration of petroleum and mineral oils.162 The
expenses due the contractor.152 The contractor shall provision allowing such contracts, according to
undertake, manage and execute petroleum another, was intended to "enhance the proper
operations, subject to the government overseeing the development of our natural resources since Filipino
management of the operations.153 The contractor citizens lack the needed capital and technical know-
provides all necessary services and technology and how which are essential in the proper exploration,
the requisite financing, performs the exploration work development and exploitation of the natural resources
obligations, and assumes all exploration risks such of the country."163
that if no petroleum is produced, it will not be entitled
to reimbursement.154 Once petroleum in commercial The original idea was to authorize the government,
quantity is discovered, the contractor shall operate the not private entities, to enter into service contracts with
field on behalf of the government.155 foreign entities.164 As finally approved, however, a
citizen or private entity could be allowed by the
P.D. No. 87 prescribed minimum terms and conditions National Assembly to enter into such service
for every service contract.156 It also granted the contract.165 The prior approval of the National
9

contractor certain privileges, including exemption from Assembly was deemed sufficient to protect the
Page

taxes and payment of tariff duties,157 and permitted the national interest.166 Notably, none of the laws allowing
repatriation of capital and retention of profits abroad.158 service contracts were passed by the Batasang
Pambansa. Indeed, all of them were enacted by The 1987 Constitution retained the Regalian doctrine.
presidential decree. The first sentence of Section 2, Article XII states: "All
lands of the public domain, waters, minerals, coal,
On March 13, 1973, shortly after the ratification of the petroleum, and other mineral oils, all forces of
new Constitution, the President promulgated potential energy, fisheries, forests or timber, wildlife,
Presidential Decree No. 151.167 The law allowed flora and fauna, and other natural resources are
Filipino citizens or entities which have acquired lands owned by the State."
of the public domain or which own, hold or control
such lands to enter into service contracts for financial, Like the 1935 and 1973 Constitutions before it, the
technical, management or other forms of assistance 1987 Constitution, in the second sentence of the
with any foreign persons or entity for the exploration, same provision, prohibits the alienation of natural
development, exploitation or utilization of said lands.168 resources, except agricultural lands.

Presidential Decree No. 463,169 also known as The The third sentence of the same paragraph is new:
Mineral Resources Development Decree of 1974, was "The exploration, development and utilization of
enacted on May 17, 1974. Section 44 of the decree, natural resources shall be under the full control and
as amended, provided that a lessee of a mining claim supervision of the State." The constitutional policy of
may enter into a service contract with a qualified the State's "full control and supervision" over natural
domestic or foreign contractor for the exploration, resources proceeds from the concept of jura regalia,
development and exploitation of his claims and the as well as the recognition of the importance of the
processing and marketing of the product thereof. country's natural resources, not only for national
economic development, but also for its security and
Presidential Decree No. 704170 (The Fisheries Decree national defense.178 Under this provision, the State
of 1975), approved on May 16, 1975, allowed Filipinos assumes "a more dynamic role" in the exploration,
engaged in commercial fishing to enter into contracts development and utilization of natural resources.179
for financial, technical or other forms of assistance
with any foreign person, corporation or entity for the Conspicuously absent in Section 2 is the provision in
production, storage, marketing and processing of fish the 1935 and 1973 Constitutions authorizing the State
and fishery/aquatic products.171 to grant licenses, concessions, or leases for the
exploration, exploitation, development, or utilization of
Presidential Decree No. 705172 (The Revised Forestry natural resources. By such omission, the utilization of
Code of the Philippines), approved on May 19, 1975, inalienable lands of public domain through "license,
allowed "forest products licensees, lessees, or concession or lease" is no longer allowed under the
permitees to enter into service contracts for financial, 1987 Constitution.180
technical, management, or other forms of assistance .
. . with any foreign person or entity for the exploration, Having omitted the provision on the concession
development, exploitation or utilization of the forest system, Section 2 proceeded to introduce "unfamiliar
resources."173 language":181

Yet another law allowing service contracts, this time The State may directly undertake such activities or it
for geothermal resources, was Presidential Decree may enter into co-production, joint venture, or
No. 1442,174 which was signed into law on June 11, production-sharing agreements with Filipino citizens,
1978. Section 1 thereof authorized the Government to or corporations or associations at least sixty per
enter into service contracts for the exploration, centum of whose capital is owned by such citizens.
exploitation and development of geothermal
resources with a foreign contractor who must be Consonant with the State's "full supervision and
technically and financially capable of undertaking the control" over natural resources, Section 2 offers the
operations required in the service contract. State two "options."182 One, the State may directly
undertake these activities itself; or two, it may enter
Thus, virtually the entire range of the country's natural into co-production, joint venture, or production-sharing
resources –from petroleum and minerals to agreements with Filipino citizens, or entities at least
geothermal energy, from public lands and forest 60% of whose capital is owned by such citizens.
resources to fishery products – was well covered by
apparent legal authority to engage in the direct A third option is found in the third paragraph of the
participation or involvement of foreign persons or same section:
corporations (otherwise disqualified) in the exploration
and utilization of natural resources through service The Congress may, by law, allow small-scale
contracts.175 utilization of natural resources by Filipino citizens, as
well as cooperative fish farming, with priority to
THE 1987 CONSTITUTION AND TECHNICAL OR subsistence fishermen and fish-workers in rivers,
FINANCIAL ASSISTANCE AGREEMENTS lakes, bays, and lagoons.

After the February 1986 Edsa Revolution, Corazon C. While the second and third options are limited only to
Aquino took the reins of power under a revolutionary Filipino citizens or, in the case of the former, to
government. On March 25, 1986, President Aquino corporations or associations at least 60% of the
issued Proclamation No. 3,176 promulgating the capital of which is owned by Filipinos, a fourth allows
Provisional Constitution, more popularly referred to as the participation of foreign-owned corporations. The
the Freedom Constitution. By authority of the same fourth and fifth paragraphs of Section 2 provide:
Proclamation, the President created a Constitutional
Commission (CONCOM) to draft a new constitution, The President may enter into agreements with
which took effect on the date of its ratification on foreign-owned corporations involving either technical
10

February 2, 1987.177 or financial assistance for large-scale exploration,

development, and utilization of minerals, petroleum,
Page

and other mineral oils according to the general terms

and conditions provided by law, based on real Constitution of the term "service contracts"
contributions to the economic growth and general notwithstanding, the said E.O. still referred to them in
welfare of the country. In such agreements, the State Section 2 thereof:
shall promote the development and use of local
scientific and technical resources. Sec. 2. Applications for the exploration, development
and utilization of mineral resources, including renewal
The President shall notify the Congress of every applications and applications for approval of operating
contract entered into in accordance with this agreements and mining service contracts, shall be
provision, within thirty days from its execution. accepted and processed and may be approved x x x.
[Emphasis supplied.]
Although Section 2 sanctions the participation of
foreign-owned corporations in the exploration, The same law provided in its Section 3 that the
development, and utilization of natural resources, it "processing, evaluation and approval of all mining
imposes certain limitations or conditions to applications . . . operating agreements and service
agreements with such corporations. contracts . . . shall be governed by Presidential
Decree No. 463, as amended, other existing mining
First, the parties to FTAAs. Only the laws, and their implementing rules and
President, in behalf of the State, may enter regulations. . . ."
into these agreements, and only with
corporations. By contrast, under the 1973 As earlier stated, on the 25th also of July 1987, the
Constitution, a Filipino citizen, corporation or President issued E.O. No. 279 by authority of which
association may enter into a service contract the subject WMCP FTAA was executed on March 30,
with a "foreign person or entity." 1995.

Second, the size of the activities: only large- On March 3, 1995, President Ramos signed into law
scale exploration, development, and utilization R.A. No. 7942. Section 15 thereof declares that the
is allowed. The term "large-scale usually Act "shall govern the exploration, development,
refers to very capital-intensive activities."183 utilization, and processing of all mineral resources."
Such declaration notwithstanding, R.A. No. 7942 does
Third, the natural resources subject of the not actually cover all the modes through which the
activities is restricted to minerals, petroleum State may undertake the exploration, development,
and other mineral oils, the intent being to limit and utilization of natural resources.
service contracts to those areas where Filipino
capital may not be sufficient.184 The State, being the owner of the natural resources,
is accorded the primary power and responsibility in
Fourth, consistency with the provisions of the exploration, development and utilization thereof.
statute. The agreements must be in As such, it may undertake these activities through four
accordance with the terms and conditions modes:
provided by law.
The State may directly undertake such activities.
Fifth, Section 2 prescribes certain standards
for entering into such agreements. The (2) The State may enter into co-production,
agreements must be based on real joint venture or production-sharing
contributions to economic growth and general agreements with Filipino citizens or qualified
welfare of the country. corporations.

Sixth, the agreements must contain (3) Congress may, by law, allow small-scale
rudimentary stipulations for the promotion of utilization of natural resources by Filipino
the development and use of local scientific citizens.
and technical resources.
(4) For the large-scale exploration,
Seventh, the notification requirement. The development and utilization of minerals,
President shall notify Congress of every petroleum and other mineral oils, the
financial or technical assistance agreement President may enter into agreements with
entered into within thirty days from its foreign-owned corporations involving technical
execution. or financial assistance.186

Finally, the scope of the agreements. While Except to charge the Mines and Geosciences Bureau
the 1973 Constitution referred to "service of the DENR with performing researches and
contracts for financial, technical, surveys,187 and a passing mention of government-
management, or other forms of assistance" owned or controlled corporations,188 R.A. No. 7942
the 1987 Constitution provides for does not specify how the State should go about the
"agreements. . . involving either financial or first mode. The third mode, on the other hand, is
technical assistance." It bears noting that the governed by Republic Act No. 7076189 (the People's
phrases "service contracts" and "management Small-Scale Mining Act of 1991) and other pertinent
or other forms of assistance" in the earlier laws.190 R.A. No. 7942 primarily concerns itself with
constitution have been omitted. the second and fourth modes.

By virtue of her legislative powers under the Mineral production sharing, co-production and joint
Provisional Constitution,185 President Aquino, on July venture agreements are collectively classified by R.A.
10, 1987, signed into law E.O. No. 211 prescribing the No. 7942 as "mineral agreements." 191 The
11

interim procedures in the processing and approval of Government participates the least in a mineral
applications for the exploration, development and production sharing agreement (MPSA). In an MPSA,
Page

utilization of minerals. The omission in the 1987 the Government grants the contractor192 the exclusive
right to conduct mining operations within a contract and FTAAs is the maximum contract area to which a
area193 and shares in the gross output. 194 The MPSA qualified person may hold or be granted.211 "Large-
contractor provides the financing, technology, scale" under R.A. No. 7942 is determined by the size
management and personnel necessary for the of the contract area, as opposed to the amount
agreement's implementation.195 The total government invested (US $50,000,000.00), which was the
share in an MPSA is the excise tax on mineral standard under E.O. 279.
products under Republic Act No. 7729,196 amending
Section 151(a) of the National Internal Revenue Like a CA or a JVA, an FTAA is subject to
Code, as amended.197 negotiation.212 The Government's contributions, in the
form of taxes, in an FTAA is identical to its
In a co-production agreement (CA),198 the Government contributions in the two mineral agreements, save that
provides inputs to the mining operations other than in an FTAA:
the mineral resource,199 while in a joint venture
agreement (JVA), where the Government enjoys the The collection of Government share in financial or
greatest participation, the Government and the JVA technical assistance agreement shall commence after
contractor organize a company with both parties the financial or technical assistance agreement
having equity shares.200 Aside from earnings in equity, contractor has fully recovered its pre-operating
the Government in a JVA is also entitled to a share in expenses, exploration, and development
the gross output.201 The Government may enter into a expenditures, inclusive.213
CA202 or JVA203 with one or more contractors. The
Government's share in a CA or JVA is set out in III
Section 81 of the law:
Having examined the history of the constitutional
The share of the Government in co-production and provision and statutes enacted pursuant thereto, a
joint venture agreements shall be negotiated by the consideration of the substantive issues presented by
Government and the contractor taking into the petition is now in order.
consideration the: (a) capital investment of the project,
(b) the risks involved, (c) contribution of the project to
THE EFFECTIVITY OF EXECUTIVE ORDER NO.
the economy, and (d) other factors that will provide for
279
a fair and equitable sharing between the Government
and the contractor. The Government shall also be
entitled to compensations for its other contributions Petitioners argue that E.O. No. 279, the law in force
which shall be agreed upon by the parties, and shall when the WMC FTAA was executed, did not come
consist, among other things, the contractor's income into effect.
tax, excise tax, special allowance, withholding tax due
from the contractor's foreign stockholders arising from E.O. No. 279 was signed into law by then President
dividend or interest payments to the said foreign Aquino on July 25, 1987, two days before the opening
stockholders, in case of a foreign national and all such of Congress on July 27, 1987.214 Section 8 of the E.O.
other taxes, duties and fees as provided for under states that the same "shall take effect immediately."
existing laws. This provision, according to petitioners, runs counter
to Section 1 of E.O. No. 200,215 which provides:
All mineral agreements grant the respective
contractors the exclusive right to conduct mining SECTION 1. Laws shall take effect after fifteen days
operations and to extract all mineral resources found following the completion of their publication either in
in the contract area.204 A "qualified person" may enter the Official Gazette or in a newspaper of general
into any of the mineral agreements with the circulation in the Philippines, unless it is otherwise
Government.205 A "qualified person" is provided.216 [Emphasis supplied.]

any citizen of the Philippines with capacity to contract, On that premise, petitioners contend that E.O. No.
or a corporation, partnership, association, or 279 could have only taken effect fifteen days after its
cooperative organized or authorized for the purpose publication at which time Congress had already
of engaging in mining, with technical and financial convened and the President's power to legislate had
capability to undertake mineral resources ceased.
development and duly registered in accordance with
law at least sixty per centum (60%) of the capital of Respondents, on the other hand, counter that the
which is owned by citizens of the Philippines x x x.206 validity of E.O. No. 279 was settled in Miners
Association of the Philippines v. Factoran, supra. This
The fourth mode involves "financial or technical is of course incorrect for the issue in Miners
assistance agreements." An FTAA is defined as "a Association was not the validity of E.O. No. 279 but
contract involving financial or technical assistance for that of DAO Nos. 57 and 82 which were issued
large-scale exploration, development, and utilization pursuant thereto.
of natural resources."207 Any qualified person with
technical and financial capability to undertake large- Nevertheless, petitioners' contentions have no merit.
scale exploration, development, and utilization of
natural resources in the Philippines may enter into It bears noting that there is nothing in E.O. No. 200
such agreement directly with the Government through that prevents a law from taking effect on a date other
the DENR.208 For the purpose of granting an FTAA, a than – even before – the 15-day period after its
legally organized foreign-owned corporation (any publication. Where a law provides for its own date of
corporation, partnership, association, or cooperative effectivity, such date prevails over that prescribed by
duly registered in accordance with law in which less E.O. No. 200. Indeed, this is the very essence of the
than 50% of the capital is owned by Filipino phrase "unless it is otherwise provided" in Section 1
citizens)209 is deemed a "qualified person."210 thereof. Section 1, E.O. No. 200, therefore, applies
12

only when a statute does not provide for its own date
Page

Other than the difference in contractors' qualifications, of effectivity.

the principal distinction between mineral agreements
What is mandatory under E.O. No. 200, and what due alter it, based on the postulate that the framers and
process requires, as this Court held in Tañada v. the people mean what they say.225 Accordingly,
Tuvera,217 is the publication of the law for without such following the literal text of the Constitution, assistance
notice and publication, there would be no basis for the accorded by foreign-owned corporations in the large-
application of the maxim "ignorantia legis n[eminem] scale exploration, development, and utilization of
excusat." It would be the height of injustice to punish petroleum, minerals and mineral oils should be limited
or otherwise burden a citizen for the transgression of to "technical" or "financial" assistance only.
a law of which he had no notice whatsoever, not even
a constructive one. WMCP nevertheless submits that the word "technical"
in the fourth paragraph of Section 2 of E.O. No. 279
While the effectivity clause of E.O. No. 279 does not encompasses a "broad number of possible services,"
require its publication, it is not a ground for its perhaps, "scientific and/or technological in basis."226 It
invalidation since the Constitution, being "the thus posits that it may also well include "the area of
fundamental, paramount and supreme law of the management or operations . . . so long as such
nation," is deemed written in the law.218 Hence, the assistance requires specialized knowledge or skills,
due process clause,219 which, so Tañada held, and are related to the exploration, development and
mandates the publication of statutes, is read into utilization of mineral resources."227
Section 8 of E.O. No. 279. Additionally, Section 1 of
E.O. No. 200 which provides for publication "either in This Court is not persuaded. As priorly pointed out,
the Official Gazette or in a newspaper of general the phrase "management or other forms of
circulation in the Philippines," finds suppletory assistance" in the 1973 Constitution was deleted in
application. It is significant to note that E.O. No. 279 the 1987 Constitution, which allows only "technical or
was actually published in the Official Gazette220 on financial assistance." Casus omisus pro omisso
August 3, 1987. habendus est. A person, object or thing omitted from
an enumeration must be held to have been omitted
From a reading then of Section 8 of E.O. No. 279, intentionally.228 As will be shown later, the
Section 1 of E.O. No. 200, and Tañada v. Tuvera, this management or operation of mining activities by
Court holds that E.O. No. 279 became effective foreign contractors, which is the primary feature of
immediately upon its publication in the Official Gazette service contracts, was precisely the evil that the
on August 3, 1987. drafters of the 1987 Constitution sought to eradicate.

That such effectivity took place after the convening of Respondents insist that "agreements involving
the first Congress is irrelevant. At the time President technical or financial assistance" is just another term
Aquino issued E.O. No. 279 on July 25, 1987, she for service contracts. They contend that the
was still validly exercising legislative powers under the proceedings of the CONCOM indicate "that although
Provisional Constitution.221 Article XVIII (Transitory the terminology 'service contract' was avoided [by the
Provisions) of the 1987 Constitution explicitly states: Constitution], the concept it represented was not."
They add that "[t]he concept is embodied in the
Sec. 6. The incumbent President shall continue to phrase 'agreements involving financial or technical
exercise legislative powers until the first Congress is assistance.'"229 And point out how members of the
convened. CONCOM referred to these agreements as "service
contracts." For instance:
The convening of the first Congress merely precluded
the exercise of legislative powers by President SR. TAN. Am I correct in thinking that the only
Aquino; it did not prevent the effectivity of laws she difference between these future service
had previously enacted. contracts and the past service contracts under
Mr. Marcos is the general law to be enacted
There can be no question, therefore, that E.O. No. by the legislature and the notification of
279 is an effective, and a validly enacted, statute. Congress by the President? That is the only
difference, is it not?
THE CONSTITUTIONALITY OF THE WMCP FTAA
MR. VILLEGAS. That is right.
Petitioners submit that, in accordance with the text of
Section 2, Article XII of the Constitution, FTAAs SR. TAN. So those are the safeguards[?]
should be limited to "technical or financial assistance"
only. They observe, however, that, contrary to the MR. VILLEGAS. Yes. There was no law at all
language of the Constitution, the WMCP FTAA allows governing service contracts before.
WMCP, a fully foreign-owned mining corporation, to
extend more than mere financial or technical SR. TAN. Thank you, Madam
assistance to the State, for it permits WMCP to President.230 [Emphasis supplied.]
manage and operate every aspect of the mining
activity. 222 WMCP also cites the following statements of
Commissioners Gascon, Garcia, Nolledo and
Petitioners' submission is well-taken. It is a cardinal Tadeo who alluded to service contracts as
rule in the interpretation of constitutions that the they explained their respective votes in the
instrument must be so construed as to give effect to approval of the draft Article:
the intention of the people who adopted it. 223 This
intention is to be sought in the constitution itself, and MR. GASCON. Mr. Presiding Officer, I vote no
the apparent meaning of the words is to be taken as primarily because of two reasons: One, the
expressing it, except in cases where that assumption provision on service contracts. I felt that if we
would lead to absurdity, ambiguity, or would constitutionalize any provision on
13

contradiction.224 What the Constitution says according service contracts, this should always be with
to the text of the provision, therefore, compels the concurrence of Congress and not guided
Page

acceptance and negates the power of the courts to

only by a general law to be promulgated by ang service contract, ang 60-40 equity sa
Congress. x x x.231 [Emphasis supplied.] natural resources. Habang naghihirap ang
sambayanang Pilipino, ginagalugad naman ng
x x x. mga dayuhan ang ating likas na yaman.
Kailan man ang Article on National Economy
MR. GARCIA. Thank you. and Patrimony ay hindi nagpaalis sa
pagkaalipin ng ating ekonomiya sa kamay ng
mga dayuhan. Ang solusyon sa suliranin ng
I vote no. x x x.
bansa ay dalawa lamang: ang pagpapatupad
ng tunay na reporma sa lupa at ang national
Service contracts are given constitutional industrialization. Ito ang tinatawag naming
legitimization in Section 3, even when they pagsikat ng araw sa Silangan. Ngunit ang
have been proven to be inimical to the mga landlords and big businessmen at ang
interests of the nation, providing as they do mga komprador ay nagsasabi na ang free
the legal loophole for the exploitation of our trade na ito, ang kahulugan para sa amin, ay
natural resources for the benefit of foreign ipinipilit sa ating sambayanan na ang araw ay
interests. They constitute a serious negation sisikat sa Kanluran. Kailan man hindi
of Filipino control on the use and disposition of puwedeng sumikat ang araw sa Kanluran. I
the nation's natural resources, especially with vote no.234 [Emphasis supplied.]
regard to those which are
nonrenewable.232 [Emphasis supplied.]
This Court is likewise not persuaded.
xxx
As earlier noted, the phrase "service contracts" has
been deleted in the 1987 Constitution's Article on
MR. NOLLEDO. While there are objectionable National Economy and Patrimony. If the CONCOM
provisions in the Article on National Economy intended to retain the concept of service contracts
and Patrimony, going over said provisions under the 1973 Constitution, it could have simply
meticulously, setting aside prejudice and adopted the old terminology ("service contracts")
personalities will reveal that the article instead of employing new and unfamiliar terms
contains a balanced set of provisions. I hope ("agreements . . . involving either technical or financial
the forthcoming Congress will implement such assistance"). Such a difference between the language
provisions taking into account that Filipinos of a provision in a revised constitution and that of a
should have real control over our economy similar provision in the preceding constitution is
and patrimony, and if foreign equity is viewed as indicative of a difference in purpose. 235 If, as
permitted, the same must be subordinated to respondents suggest, the concept of "technical or
the imperative demands of the national financial assistance" agreements is identical to that of
interest. "service contracts," the CONCOM would not have
bothered to fit the same dog with a new collar. To
x x x. uphold respondents' theory would reduce the first to a
mere euphemism for the second and render the
It is also my understanding that service change in phraseology meaningless.
contracts involving foreign corporations or
entities are resorted to only when no Filipino An examination of the reason behind the change
enterprise or Filipino-controlled enterprise confirms that technical or financial assistance
could possibly undertake the exploration or agreements are not synonymous to service contracts.
exploitation of our natural resources and that
compensation under such contracts cannot [T]he Court in construing a Constitution should bear in
and should not equal what should pertain to mind the object sought to be accomplished by its
ownership of capital. In other words, the adoption, and the evils, if any, sought to be prevented
service contract should not be an instrument or remedied. A doubtful provision will be examined in
to circumvent the basic provision, that the light of the history of the times, and the condition and
exploration and exploitation of natural circumstances under which the Constitution was
resources should be truly for the benefit of framed. The object is to ascertain the reason which
Filipinos. induced the framers of the Constitution to enact the
particular provision and the purpose sought to be
Thank you, and I vote yes.233 [Emphasis accomplished thereby, in order to construe the whole
supplied.] as to make the words consonant to that reason and
calculated to effect that purpose.236
x x x.
As the following question of Commissioner Quesada
MR. TADEO. Nais ko lamang ipaliwanag ang and Commissioner Villegas' answer shows the
aking boto. drafters intended to do away with service contracts
which were used to circumvent the capitalization
Matapos suriin ang kalagayan ng Pilipinas, (60%-40%) requirement:
ang saligang suliranin, pangunahin ang
salitang "imperyalismo." Ang ibig sabihin nito MS. QUESADA. The 1973 Constitution used
ay ang sistema ng lipunang pinaghaharian ng the words "service contracts." In this particular
iilang monopolyong kapitalista at ang salitang Section 3, is there a safeguard against the
"imperyalismo" ay buhay na buhay sa possible control of foreign interests if the
National Economy and Patrimony na nating Filipinos go into coproduction with them?
ginawa. Sa pamamagitan ng salitang "based
on," naroroon na ang free trade sapagkat tayo
14

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

ay mananatiling tagapagluwas ng hilaw na the phrase "service contracts" was our first
Page

sangkap at tagaangkat ng yaring produkto. attempt to avoid some of the abuses in the
Pangalawa, naroroon pa rin ang parity rights, past regime in the use of service contracts to
 go around the 60-40 arrangement. The permit. In this way, we can insure the enjoyment of
safeguard that has been introduced – and our natural resources by our own people.
this, of course can be refined – is found in
Section 3, lines 25 to 30, where Congress will MR. VILLEGAS. Actually, the second provision about
have to concur with the President on any the President does not permit foreign investors to
agreement entered into between a foreign- participate. It is only technical or financial assistance –
owned corporation and the government they do not own anything – but on conditions that
involving technical or financial assistance for have to be determined by law with the concurrence of
large-scale exploration, development and Congress. So, it is very restrictive.
utilization of natural resources.237 [Emphasis
supplied.] If the Commissioner will remember, this removes the
possibility for service contracts which we said
In a subsequent discussion, Commissioner yesterday were avenues used in the previous regime
Villegas allayed the fears of Commissioner to go around the 60-40 requirement.238 [Emphasis
Quesada regarding the participation of foreign supplied.]
interests in Philippine natural resources, which
was supposed to be restricted to Filipinos. The present Chief Justice, then a member of the
CONCOM, also referred to this limitation in scope in
MS. QUESADA. Another point of clarification proposing an amendment to the 60-40 requirement:
is the phrase "and utilization of natural
resources shall be under the full control and MR. DAVIDE. May I be allowed to explain the
supervision of the State." In the 1973 proposal?
Constitution, this was limited to citizens of the
Philippines; but it was removed and
MR. MAAMBONG. Subject to the three-
substituted by "shall be under the full control
minute rule, Madam President.
and supervision of the State." Was the
concept changed so that these particular
resources would be limited to citizens of the MR. DAVIDE. It will not take three minutes.
Philippines? Or would these resources only be
under the full control and supervision of the The Commission had just approved the Preamble. In
State; meaning, noncitizens would have the Preamble we clearly stated that the Filipino people
access to these natural resources? Is that the are sovereign and that one of the objectives for the
understanding? creation or establishment of a government is to
conserve and develop the national patrimony. The
MR. VILLEGAS. No, Mr. Vice-President, if the implication is that the national patrimony or our natural
Commissioner reads the next sentence, it resources are exclusively reserved for the Filipino
states: people. No alien must be allowed to enjoy, exploit and
develop our natural resources. As a matter of fact,
that principle proceeds from the fact that our natural
Such activities may be directly undertaken by the
resources are gifts from God to the Filipino people
State, or it may enter into co-production, joint venture,
and it would be a breach of that special blessing from
production-sharing agreements with Filipino citizens.
God if we will allow aliens to exploit our natural
resources.
So we are still limiting it only to Filipino citizens.
I voted in favor of the Jamir proposal because it is not
x x x. really exploitation that we granted to the alien
corporations but only for them to render financial or
MS. QUESADA. Going back to Section 3, the technical assistance. It is not for them to enjoy our
section suggests that: natural resources. Madam President, our natural
resources are depleting; our population is increasing
The exploration, development, and utilization of by leaps and bounds. Fifty years from now, if we will
natural resources… may be directly undertaken by the allow these aliens to exploit our natural resources,
State, or it may enter into co-production, joint venture there will be no more natural resources for the next
or production-sharing agreement with . . . corporations generations of Filipinos. It may last long if we will
or associations at least sixty per cent of whose voting begin now. Since 1935 the aliens have been allowed
stock or controlling interest is owned by such citizens. to enjoy to a certain extent the exploitation of our
natural resources, and we became victims of foreign
Lines 25 to 30, on the other hand, suggest that in the dominance and control. The aliens are interested in
large-scale exploration, development and utilization of coming to the Philippines because they would like to
natural resources, the President with the concurrence enjoy the bounty of nature exclusively intended for
of Congress may enter into agreements with foreign- Filipinos by God.
owned corporations even for technical or financial
assistance. And so I appeal to all, for the sake of the future
generations, that if we have to pray in the Preamble
I wonder if this part of Section 3 contradicts the "to preserve and develop the national patrimony for
second part. I am raising this point for fear that foreign the sovereign Filipino people and for the generations
investors will use their enormous capital resources to to come," we must at this time decide once and for all
facilitate the actual exploitation or exploration, that our natural resources must be reserved only to
development and effective disposition of our natural Filipino citizens.
resources to the detriment of Filipino investors. I am
not saying that we should not consider borrowing Thank you.239 [Emphasis supplied.]
money from foreign sources. What I refer to is that
15

foreign interest should be allowed to participate only The opinion of another member of the CONCOM is
to the extent that they lend us money and give us persuasive240 and leaves no doubt as to the intention
Page

technical assistance with the appropriate government

of the framers to eliminate service contracts shall be under activities may be and utilization
altogether. He writes: the full control directly of natural
and undertaken by resources
Paragraph 4 of Section 2 specifies large-scale, supervision of the State, or it shall be under
capital-intensive, highly technological undertakings for the State. may enter into the full control
which the President may enter into contracts with Such activities co-production, and
foreign-owned corporations, and enunciates strict may be joint venture, supervision of
conditions that should govern such contracts. x x x. directly production- the State. The
undertaken by sharing State may
This provision balances the need for foreign capital the state, or it agreements with directly
and technology with the need to maintain the national may enter into Filipino citizens undertake
sovereignty. It recognizes the fact that as long as co-production, or corporations such activities
Filipinos can formulate their own terms in their own joint venture, or associations or it may enter
territory, there is no danger of relinquishing production at least sixty per into co-
sovereignty to foreign interests. sharing cent of whose production,
agreements voting stock or joint venture,
Are service contracts allowed under the new with Filipino controlling or production-
Constitution? No. Under the new Constitution, foreign citizens or interest is owned sharing
investors (fully alien-owned) can NOT participate in corporations by such citizens. agreements
Filipino enterprises except to provide: (1) Technical or Such with Filipino
Assistance for highly technical enterprises; and (2) associations agreements shall citizens, or
Financial Assistance for large-scale enterprises. sixty per cent be for a period of corporations
of whose twenty-five or
voting stock or years, renewable associations at
The intent of this provision, as well as other provisions controlling for not more than least sixty per
on foreign investments, is to prevent the practice interest is twenty-five centum of
(prevalent in the Marcos government) of skirting the owned by years, and under whose capital
60/40 equation using the cover of service such citizens such term and is owned by
contracts.241 [Emphasis supplied.] for a period of conditions as such citizens.
not more than may be provided Such
Furthermore, it appears that Proposed Resolution No. twenty-five by law. In cases agreements
496,242 which was the draft Article on National years, of water rights may be for a
Economy and Patrimony, adopted the concept of renewable for for irrigation, period not
"agreements . . . involving either technical or financial not more than water supply, exceeding
assistance" contained in the "Draft of the 1986 U.P. twenty-five fisheries or twenty-five
Law Constitution Project" (U.P. Law draft) which was years and industrial uses years,
taken into consideration during the deliberation of the under such other than the renewable for
CONCOM.243 The former, as well as Article XII, as terms and development for not more than
adopted, employed the same terminology, as the conditions as water power, twenty-five
comparative table below shows: may be beneficial use years, and
provided by may be the under such
DRAFT OF PROPOSED ARTICLE XII law. In case as measure and terms and
THE UP LAW RESOLUTION OF THE 1987 to water rights limit of the grant. conditions as
CONSTITUTI NO. 496 OF THE CONSTITUTI for irrigation, may be
ON PROJECT CONSTITUTION ON water supply, The Congress provided by
AL fisheries, or may by law allow law. In case of
COMMISSION industrial uses small-scale water rights for
Sec. 1. All Sec. 3. All lands Sec. 2. All other than the utilization of irrigation,
lands of the of the public lands of the development natural water supply,
public domain, domain, waters, public domain, of water resources by fisheries, or
waters, minerals, coal, waters, power, Filipino citizens, industrial uses
minerals, coal, petroleum and minerals, coal, beneficial use as well as other than the
petroleum and other mineral petroleum, may be the cooperative fish development
other mineral oils, all forces of and other measure and farming in rivers, of water
oils, all forces potential energy, mineral oils, all limit of the lakes, bays, and power,
of potential fisheries, forests, forces of grant. lagoons. beneficial use
energy, flora and fauna, potential may be the
fisheries, flora and other natural energy, The National The President measure and
and fauna and resources are fisheries, Assembly may with the limit of the
other natural owned by the forests or by law allow concurrence of grant.
resources of State. With the timber, wildlife, small scale Congress, by
the Philippines exception of flora and utilization of special law, shall The State
are owned by agricultural fauna, and natural provide the shall protect
the State. With lands, all other other natural resources by terms and the nation's
the exception natural resources are Filipino conditions under marine wealth
of agricultural resources shall owned by the citizens. which a foreign- in its
lands, all other not be alienated. State. With the owned archipelagic
natural The exploration, exception of The National corporation may waters,
resources development, agricultural Assembly, enter into territorial sea,
shall not be and utilization of lands, all other may, by two- agreements with and exclusive
alienated. The natural natural thirds vote of the government economic
exploration, resources shall resources all its involving either zone, and
16

development be under the full shall not be members by technical or reserve its use
and utilization control and alienated. The special law financial and enjoyment
Page

of natural supervision of exploration, provide the assistance for exclusively to

resources the State. Such development, Filipino
terms and large-scale citizens. within thirty
conditions exploration, days from its
under which a development, The Congress execution.
foreign-owned and utilization of may, by law,
corporation natural allow small- The insights of the proponents of the U.P. Law draft
may enter into resources. scale are, therefore, instructive in interpreting the phrase
agreements [Emphasis utilization of "technical or financial assistance."
with the supplied.] natural
government resources by In his position paper entitled Service Contracts: Old
involving eithe Filipino Wine in New Bottles?, Professor Pacifico A. Agabin,
r technical or citizens, as who was a member of the working group that
financial well as prepared the U.P. Law draft, criticized service
assistance for cooperative contracts for they "lodge exclusive management and
large-scale fish farming, control of the enterprise to the service contractor,
exploration, with priority to which is reminiscent of the old concession regime.
development, subsistence Thus, notwithstanding the provision of the Constitution
or utilization of fishermen and that natural resources belong to the State, and that
natural fish-workers in these shall not be alienated, the service contract
resources. rivers, lakes, system renders nugatory the constitutional provisions
[Emphasis bays, and cited."244 He elaborates:
supplied.] lagoons.
Looking at the Philippine model, we can discern the
The President following vestiges of the concession regime, thus:
may enter into
agreements 1. Bidding of a selected area, or leasing the
with foreign- choice of the area to the interested party and
owned then negotiating the terms and conditions of
corporations the contract; (Sec. 5, P.D. 87)
involving eithe
r technical or
2. Management of the enterprise vested on
financial
the contractor, including operation of the field
assistance for
if petroleum is discovered; (Sec. 8, P.D. 87)
large-scale
exploration,
development, 3. Control of production and other matters
and utilization such as expansion and development; (Sec. 8)
of minerals,
petroleum, 4. Responsibility for downstream operations –
and other marketing, distribution, and processing may
mineral oils be with the contractor (Sec. 8);
according to
the general 5. Ownership of equipment, machinery, fixed
terms and assets, and other properties remain with
conditions contractor (Sec. 12, P.D. 87);
provided by
law, based on 6. Repatriation of capital and retention of
real profits abroad guaranteed to the contractor
contributions (Sec. 13, P.D. 87); and
to the
economic 7. While title to the petroleum discovered may
growth and nominally be in the name of the government,
general the contractor has almost unfettered control
welfare of the over its disposition and sale, and even the
country. In domestic requirements of the country is
such relegated to a pro rata basis (Sec. 8).
agreements,
the State shall
In short, our version of the service contract is just a
promote the
rehash of the old concession regime x x x. Some
development
people have pulled an old rabbit out of a magician's
and use of
hat, and foisted it upon us as a new and different
local scientific
animal.
and technical
resources.
[Emphasis The service contract as we know it here is antithetical
supplied.] to the principle of sovereignty over our natural
resources restated in the same article of the [1973]
Constitution containing the provision for service
The President
contracts. If the service contractor happens to be a
shall notify the
foreign corporation, the contract would also run
Congress of
counter to the constitutional provision on
every contract
nationalization or Filipinization, of the exploitation of
entered into in
17

our natural resources.245 [Emphasis supplied.

accordance
Underscoring in the original.]
with this
Page

provision,
Professor Merlin M. Magallona, also a member of the In the annotations on the proposed Article on National
working group, was harsher in his reproach of the Economy and Patrimony, the U.P. Law draft
system: summarized the rationale therefor, thus:

x x x the nationalistic phraseology of the 1935 5. The last paragraph is a modification of the service
[Constitution] was retained by the [1973] Charter, but contract provision found in Section 9, Article XIV of
the essence of nationalism was reduced to hollow the 1973 Constitution as amended. This 1973
rhetoric. The 1973 Charter still provided that the provision shattered the framework of nationalism in
exploitation or development of the country's natural our fundamental law (see Magallona, "Nationalism
resources be limited to Filipino citizens or and its Subversion in the Constitution"). Through the
corporations owned or controlled by them. However, service contract, the 1973 Constitution had legitimized
the martial-law Constitution allowed them, once these that which was prohibited under the 1935 constitution
resources are in their name, to enter into service —the exploitation of the country's natural resources
contracts with foreign investors for financial, technical, by foreign nationals. Through the service contract,
management, or other forms of assistance. Since acts prohibited by the Anti-Dummy Law were
foreign investors have the capital resources, the recognized as legitimate arrangements. Service
actual exploitation and development, as well as the contracts lodge exclusive management and control of
effective disposition, of the country's natural the enterprise to the service contractor, not unlike the
resources, would be under their direction, and control, old concession regime where the concessionaire had
relegating the Filipino investors to the role of second- complete control over the country's natural resources,
rate partners in joint ventures. having been given exclusive and plenary rights to
exploit a particular resource and, in effect, having
Through the instrumentality of the service contract, been assured of ownership of that resource at the
the 1973 Constitution had legitimized at the highest point of extraction (see Agabin, "Service Contracts:
level of state policy that which was prohibited under Old Wine in New Bottles"). Service contracts, hence,
the 1973 Constitution, namely: the exploitation of the are antithetical to the principle of sovereignty over our
country's natural resources by foreign nationals. The natural resources, as well as the constitutional
drastic impact of [this] constitutional change becomes provision on nationalization or Filipinization of the
more pronounced when it is considered that the active exploitation of our natural resources.
party to any service contract may be a corporation
wholly owned by foreign interests. In such a case, the Under the proposed provision, only technical
citizenship requirement is completely set aside, assistance or financial assistance agreements may be
permitting foreign corporations to obtain actual entered into, and only for large-scale activities. These
possession, control, and [enjoyment] of the country's are contract forms which recognize and assert our
natural resources.246 [Emphasis supplied.] sovereignty and ownership over natural resources
since the foreign entity is just a pure contractor and
Accordingly, Professor Agabin recommends that: not a beneficial owner of our economic resources.
The proposal recognizes the need for capital and
Recognizing the service contract for what it is, we technology to develop our natural resources without
have to expunge it from the Constitution and reaffirm sacrificing our sovereignty and control over such
ownership over our natural resources. That is the only resources by the safeguard of a special law which
way we can exercise effective control over our natural requires two-thirds vote of all the members of the
resources. Legislature. This will ensure that such agreements will
be debated upon exhaustively and thoroughly in the
National Assembly to avert prejudice to the
This should not mean complete isolation of the
nation.249 [Emphasis supplied.]
country's natural resources from foreign investment.
Other contract forms which are less derogatory to our
sovereignty and control over natural resources – like The U.P. Law draft proponents viewed service
technical assistance agreements, financial assistance contracts under the 1973 Constitution as grants of
[agreements], co-production agreements, joint beneficial ownership of the country's natural
ventures, production-sharing – could still be utilized resources to foreign owned corporations. While, in
and adopted without violating constitutional theory, the State owns these natural resources – and
provisions. In other words, we can adopt contract Filipino citizens, their beneficiaries – service contracts
forms which recognize and assert our sovereignty and actually vested foreigners with the right to dispose,
ownership over natural resources, and where the explore for, develop, exploit, and utilize the same.
foreign entity is just a pure contractor instead of the Foreigners, not Filipinos, became the beneficiaries of
beneficial owner of our economic Philippine natural resources. This arrangement is
resources.247 [Emphasis supplied.] clearly incompatible with the constitutional ideal of
nationalization of natural resources, with the Regalian
doctrine, and on a broader perspective, with
Still another member of the working group, Professor
Philippine sovereignty.
Eduardo Labitag, proposed that:
The proponents nevertheless acknowledged the need
2. Service contracts as practiced under the 1973
for capital and technical know-how in the large-scale
Constitution should be discouraged, instead the
exploitation, development and utilization of natural
government may be allowed, subject to authorization
resources – the second paragraph of the proposed
by special law passed by an extraordinary majority to
draft itself being an admission of such scarcity.
enter into either technical or financial assistance. This
Hence, they recommended a compromise to reconcile
is justified by the fact that as presently worded in the
the nationalistic provisions dating back to the 1935
1973 Constitution, a service contract gives full control
Constitution, which reserved all natural resources
over the contract area to the service contractor, for
exclusively to Filipinos, and the more liberal 1973
him to work, manage and dispose of the proceeds or
Constitution, which allowed foreigners to participate in
18

production. It was a subterfuge to get around the

these resources through service contracts. Such a
nationality requirement of the
compromise called for the adoption of a new system
Page

constitution.248 [Emphasis supplied.]
in the exploration, development, and utilization of
natural resources in the form of technical agreements proponents in employing the phrase "agreements . . .
or financial agreements which, necessarily, are involving either technical or financial assistance."
distinct concepts from service contracts.
While certain commissioners may have mentioned the
The replacement of "service contracts" with term "service contracts" during the CONCOM
"agreements… involving either technical or financial deliberations, they may not have been necessarily
assistance," as well as the deletion of the phrase referring to the concept of service contracts under the
"management or other forms of assistance," assumes 1973 Constitution. As noted earlier, "service
greater significance when note is taken that the U.P. contracts" is a term that assumes different meanings
Law draft proposed other equally crucial changes that to different people.251 The commissioners may have
were obviously heeded by the CONCOM. These been using the term loosely, and not in its technical
include the abrogation of the concession system and and legal sense, to refer, in general, to agreements
the adoption of new "options" for the State in the concerning natural resources entered into by the
exploration, development, and utilization of natural Government with foreign corporations. These loose
resources. The proponents deemed these changes to statements do not necessarily translate to the
be more consistent with the State's ownership of, and adoption of the 1973 Constitution provision allowing
its "full control and supervision" (a phrase also service contracts.
employed by the framers) over, such resources. The
Project explained: It is true that, as shown in the earlier quoted portions
of the proceedings in CONCOM, in response to Sr.
3. In line with the State ownership of natural Tan's question, Commissioner Villegas commented
resources, the State should take a more active role in that, other than congressional notification, the only
the exploration, development, and utilization of natural difference between "future" and "past" "service
resources, than the present practice of granting contracts" is the requirement of a general law as there
licenses, concessions, or leases – hence the were no laws previously authorizing the
provision that said activities shall be under the full same.252 However, such remark is far outweighed by
control and supervision of the State. There are three his more categorical statement in his exchange with
major schemes by which the State could undertake Commissioner Quesada that the draft article "does
these activities: first, directly by itself; second, by not permit foreign investors to participate" in the
virtue of co-production, joint venture, production nation's natural resources – which was exactly what
sharing agreements with Filipino citizens or service contracts did – except to provide "technical or
corporations or associations sixty per cent (60%) of financial assistance."253
the voting stock or controlling interests of which are
owned by such citizens; or third, with a foreign-owned In the case of the other commissioners,
corporation, in cases of large-scale exploration, Commissioner Nolledo himself clarified in his work
development, or utilization of natural resources that the present charter prohibits service
through agreements involving either technical or contracts.  Commissioner Gascon was not totally
254

financial assistance only. x x x. averse to foreign participation, but favored stricter

restrictions in the form of majority congressional
At present, under the licensing concession or lease concurrence.255 On the other hand, Commissioners
schemes, the government benefits from such benefits Garcia and Tadeo may have veered to the extreme
only through fees, charges, ad valorem taxes and side of the spectrum and their objections may be
income taxes of the exploiters of our natural interpreted as votes against any foreign participation
resources. Such benefits are very minimal compared in our natural resources whatsoever.
with the enormous profits reaped by theses licensees,
grantees, concessionaires. Moreover, some of them WMCP cites Opinion No. 75, s. 1987,256 and Opinion
disregard the conservation of natural resources and No. 175, s. 1990257 of the Secretary of Justice,
do not protect the environment from degradation. The expressing the view that a financial or technical
proposed role of the State will enable it to a greater assistance agreement "is no different in concept" from
share in the profits – it can also actively husband its the service contract allowed under the 1973
natural resources and engage in developmental Constitution. This Court is not, however, bound by this
programs that will be beneficial to them. interpretation. When an administrative or executive
agency renders an opinion or issues a statement of
4. Aside from the three major schemes for the policy, it merely interprets a pre-existing law; and the
exploration, development, and utilization of our natural administrative interpretation of the law is at best
resources, the State may, by law, allow Filipino advisory, for it is the courts that finally determine what
citizens to explore, develop, utilize natural resources the law means.258
in small-scale. This is in recognition of the plight of
marginal fishermen, forest dwellers, gold panners, In any case, the constitutional provision allowing the
and others similarly situated who exploit our natural President to enter into FTAAs with foreign-owned
resources for their daily sustenance and survival.250 corporations is an exception to the rule that
participation in the nation's natural resources is
Professor Agabin, in particular, after taking pains to reserved exclusively to Filipinos. Accordingly, such
illustrate the similarities between the two systems, provision must be construed strictly against their
concluded that the service contract regime was but a enjoyment by non-Filipinos. As Commissioner
"rehash" of the concession system. "Old wine in new Villegas emphasized, the provision is "very
bottles," as he put it. The rejection of the service restrictive."259 Commissioner Nolledo also remarked
contract regime, therefore, is in consonance with the that "entering into service contracts is an exception to
abolition of the concession system. the rule on protection of natural resources for the
interest of the nation and, therefore, being an
In light of the deliberations of the CONCOM, the text exception, it should be subject, whenever possible, to
stringent rules."260 Indeed, exceptions should be
19

of the Constitution, and the adoption of other

proposed changes, there is no doubt that the framers strictly but reasonably construed; they extend only so
Page

considered and shared the intent of the U.P. Law far as their language fairly warrants and all doubts
should be resolved in favor of the general provision The underlying assumption in all these provisions is
rather than the exception.261 that the foreign contractor manages the mineral
resources, just like the foreign contractor in a service
With the foregoing discussion in mind, this Court finds contract.
that R.A. No. 7942 is invalid insofar as said Act
authorizes service contracts. Although the statute Furthermore, Chapter XII of the Act grants foreign
employs the phrase "financial and technical contractors in FTAAs the same auxiliary mining rights
agreements" in accordance with the 1987 that it grants contractors in mineral agreements
Constitution, it actually treats these agreements as (MPSA, CA and JV).276 Parenthetically, Sections 72 to
service contracts that grant beneficial ownership to 75 use the term "contractor," without distinguishing
foreign contractors contrary to the fundamental law. between FTAA and mineral agreement contractors.
And so does "holders of mining rights" in Section 76.
Section 33, which is found under Chapter VI A foreign contractor may even convert its FTAA into a
(Financial or Technical Assistance Agreement) of R.A. mineral agreement if the economic viability of the
No. 7942 states: contract area is found to be inadequate to justify
large-scale mining operations,277 provided that it
SEC. 33. Eligibility.—Any qualified person with reduces its equity in the corporation, partnership,
technical and financial capability to undertake large- association or cooperative to forty percent (40%).278
scale exploration, development, and utilization of
mineral resources in the Philippines may enter into a Finally, under the Act, an FTAA contractor warrants
financial or technical assistance agreement directly that it "has or has access to all the financing,
with the Government through the Department. managerial, and technical expertise. . . ."279 This
[Emphasis supplied.] suggests that an FTAA contractor is bound to provide
some management assistance – a form of assistance
"Exploration," as defined by R.A. No. 7942, that has been eliminated and, therefore, proscribed by
the present Charter.
means the searching or prospecting for mineral
resources by geological, geochemical or geophysical By allowing foreign contractors to manage or operate
surveys, remote sensing, test pitting, trending, drilling, all the aspects of the mining operation, the above-
shaft sinking, tunneling or any other means for the cited provisions of R.A. No. 7942 have in effect
purpose of determining the existence, extent, quantity conveyed beneficial ownership over the nation's
and quality thereof and the feasibility of mining them mineral resources to these contractors, leaving the
for profit.262 State with nothing but bare title thereto.

A legally organized foreign-owned corporation may be Moreover, the same provisions, whether by design or
granted an exploration permit,263 which vests it with inadvertence, permit a circumvention of the
the right to conduct exploration for all minerals in constitutionally ordained 60%-40% capitalization
specified areas,264 i.e., to enter, occupy and explore requirement for corporations or associations engaged
the same.265 Eventually, the foreign-owned in the exploitation, development and utilization of
corporation, as such permittee, may apply for a Philippine natural resources.
financial and technical assistance agreement.266
In sum, the Court finds the following provisions of R.A.
"Development" is the work undertaken to explore and No. 7942 to be violative of Section 2, Article XII of the
prepare an ore body or a mineral deposit for mining, Constitution:
including the construction of necessary infrastructure
and related facilities.267 (1) The proviso in Section 3 (aq), which
defines "qualified person," to wit:
"Utilization" "means the extraction or disposition of
minerals."268 A stipulation that the proponent shall Provided, That a legally organized foreign-
dispose of the minerals and byproducts produced at owned corporation shall be deemed a
the highest price and more advantageous terms and qualified person for purposes of granting an
conditions as provided for under the implementing exploration permit, financial or technical
rules and regulations is required to be incorporated in assistance agreement or mineral processing
every FTAA.269 permit.

A foreign-owned/-controlled corporation may likewise (2) Section 23,280 which specifies the rights
be granted a mineral processing permit.270 "Mineral and obligations of an exploration permittee,
processing" is the milling, beneficiation or upgrading insofar as said section applies to a financial or
of ores or minerals and rocks or by similar means to technical assistance agreement,
convert the same into marketable products.271
(3) Section 33, which prescribes the eligibility
An FTAA contractor makes a warranty that the mining of a contractor in a financial or technical
operations shall be conducted in accordance with the assistance agreement;
provisions of R.A. No. 7942 and its implementing
rules272 and for work programs and minimum (4) Section 35,281 which enumerates the terms
expenditures and commitments.273 And it obliges itself and conditions for every financial or technical
to furnish the Government records of geologic, assistance agreement;
accounting, and other relevant data for its mining
operation.274 (5) Section 39,282 which allows the contractor
in a financial and technical assistance
"Mining operation," as the law defines it, means agreement to convert the same into a mineral
20

mining activities involving exploration, feasibility, production-sharing agreement;

development, utilization, and processing.275
Page
 (6) Section 56,283 which authorizes the project facilities to be constructed during the
issuance of a mineral processing permit to a Development and Construction Period;
contractor in a financial and technical
assistance agreement; (d) have the right of possession of the
Contract Area, with full right of ingress and
The following provisions of the same Act are likewise egress and the right to occupy the same,
void as they are dependent on the foregoing subject to the provisions of Presidential
provisions and cannot stand on their own: Decree No. 512 (if applicable) and not be
prevented from entry into private ands by
(1) Section 3 (g),284 which defines the term surface owners and/or occupants thereof
"contractor," insofar as it applies to a financial when prospecting, exploring and exploiting for
or technical assistance agreement. minerals therein;

Section 34,285 which prescribes the maximum xxx

contract area in a financial or technical
assistance agreements; (f) to construct roadways, mining, drainage,
power generation and transmission facilities
Section 36,286 which allows negotiations for and all other types of works on the Contract
financial or technical assistance agreements; Area;

Section 37,287 which prescribes the procedure (g) to erect, install or place any type of
for filing and evaluation of financial or improvements, supplies, machinery and other
technical assistance agreement proposals; equipment relating to the Mining Operations
and to use, sell or otherwise dispose of,
Section 38,288 which limits the term of financial modify, remove or diminish any and all parts
or technical assistance agreements; thereof;

Section 40,289 which allows the assignment or (h) enjoy, subject to pertinent laws, rules and
transfer of financial or technical assistance regulations and the rights of third Parties,
agreements; easement rights and the use of timber, sand,
clay, stone, water and other natural resources
in the Contract Area without cost for the
Section 41,290 which allows the withdrawal of
purposes of the Mining Operations;
the contractor in an FTAA;
xxx
The second and third paragraphs of Section
81,291 which provide for the Government's
share in a financial and technical assistance (i) have the right to mortgage, charge or
agreement; and encumber all or part of its interest and
obligations under this Agreement, the plant,
equipment and infrastructure and the Minerals
Section 90,292 which provides for incentives to
produced from the Mining Operations;
contractors in FTAAs insofar as it applies to
said contractors;
x x x. 295
When the parts of the statute are so mutually
dependent and connected as conditions, All materials, equipment, plant and other installations
considerations, inducements, or compensations for erected or placed on the Contract Area remain the
each other, as to warrant a belief that the legislature property of WMCP, which has the right to deal with
intended them as a whole, and that if all could not be and remove such items within twelve months from the
carried into effect, the legislature would not pass the termination of the FTAA.296
residue independently, then, if some parts are
unconstitutional, all the provisions which are thus Pursuant to Section 1.2 of the FTAA, WMCP shall
dependent, conditional, or connected, must fall with provide "[all] financing, technology, management and
them.293 personnel necessary for the Mining Operations." The
mining company binds itself to "perform all Mining
There can be little doubt that the WMCP FTAA itself is Operations . . . providing all necessary services,
a service contract. technology and financing in connection
therewith,"297 and to "furnish all materials, labour,
equipment and other installations that may be
Section 1.3 of the WMCP FTAA grants WMCP "the
required for carrying on all Mining Operations."298>
exclusive right to explore, exploit, utilise[,] process
WMCP may make expansions, improvements and
and dispose of all Minerals products and by-products
replacements of the mining facilities and may add
thereof that may be produced from the Contract
such new facilities as it considers necessary for the
Area."294 The FTAA also imbues WMCP with the
mining operations.299
following rights:
These contractual stipulations, taken together, grant
(b) to extract and carry away any Mineral
WMCP beneficial ownership over natural resources
samples from the Contract area for the
that properly belong to the State and are intended for
purpose of conducting tests and studies in
the benefit of its citizens. These stipulations are
respect thereof;
abhorrent to the 1987 Constitution. They are precisely
the vices that the fundamental law seeks to avoid, the
(c) to determine the mining and treatment evils that it aims to suppress. Consequently, the
21

processes to be utilised during the contract from which they spring must be struck down.
Development/Operating Period and the
Page
In arguing against the annulment of the FTAA, WMCP financial assistance" only. The agreement in question,
invokes the Agreement on the Promotion and however, is a technical and financial assistance
Protection of Investments between the Philippine and agreement.
Australian Governments, which was signed in Manila
on January 25, 1995 and which entered into force on Petitioners' contention does not lie. To adhere to the
December 8, 1995. literal language of the Constitution would lead to
absurd consequences.303 As WMCP correctly put it:
x x x. Article 2 (1) of said treaty states that it applies to
investments whenever made and thus the fact that x x x such a theory of petitioners would compel the
[WMCP's] FTAA was entered into prior to the entry government (through the President) to enter into
into force of the treaty does not preclude the contract with two (2) foreign-owned corporations, one
Philippine Government from protecting [WMCP's] for financial assistance agreement and with the other,
investment in [that] FTAA. Likewise, Article 3 (1) of for technical assistance over one and the same
the treaty provides that "Each Party shall encourage mining area or land; or to execute two (2) contracts
and promote investments in its area by investors of with only one foreign-owned corporation which has
the other Party and shall [admit] such investments in the capability to provide both financial and technical
accordance with its Constitution, Laws, regulations assistance, one for financial assistance and another
and investment policies" and in Article 3 (2), it states for technical assistance, over the same mining area.
that "Each Party shall ensure that investments are Such an absurd result is definitely not sanctioned
accorded fair and equitable treatment." The latter under the canons of constitutional
stipulation indicates that it was intended to impose an construction.304 [Underscoring in the original.]
obligation upon a Party to afford fair and equitable
treatment to the investments of the other Party and Surely, the framers of the 1987 Charter did not
that a failure to provide such treatment by or under contemplate such an absurd result from their use of
the laws of the Party may constitute a breach of the "either/or." A constitution is not to be interpreted as
treaty. Simply stated, the Philippines could not, under demanding the impossible or the impracticable; and
said treaty, rely upon the inadequacies of its own laws unreasonable or absurd consequences, if possible,
to deprive an Australian investor (like [WMCP]) of fair should be avoided.305 Courts are not to give words a
and equitable treatment by invalidating [WMCP's] meaning that would lead to absurd or unreasonable
FTAA without likewise nullifying the service contracts consequences and a literal interpretation is to be
entered into before the enactment of RA 7942 such as rejected if it would be unjust or lead to absurd
those mentioned in PD 87 or EO 279. results.306 That is a strong argument against its
adoption.307 Accordingly, petitioners' interpretation
This becomes more significant in the light of the fact must be rejected.
that [WMCP's] FTAA was executed not by a mere
Filipino citizen, but by the Philippine Government The foregoing discussion has rendered unnecessary
itself, through its President no less, which, in entering the resolution of the other issues raised by the
into said treaty is assumed to be aware of the existing petition.
Philippine laws on service contracts over the
exploration, development and utilization of natural
WHEREFORE, the petition is GRANTED. The Court
resources. The execution of the FTAA by the
hereby declares unconstitutional and void:
Philippine Government assures the Australian
Government that the FTAA is in accordance with
existing Philippine laws.300 [Emphasis and italics by (1) The following provisions of Republic Act
private respondents.] No. 7942:

The invalidation of the subject FTAA, it is argued, (a) The proviso in Section 3 (aq),
would constitute a breach of said treaty which, in turn,
would amount to a violation of Section 3, Article II of (b) Section 23,
the Constitution adopting the generally accepted
principles of international law as part of the law of the (c) Section 33 to 41,
land. One of these generally accepted principles is
pacta sunt servanda, which requires the performance (d) Section 56,
in good faith of treaty obligations.
(e) The second and third paragraphs
Even assuming arguendo that WMCP is correct in its of Section 81, and
interpretation of the treaty and its assertion that "the
Philippines could not . . . deprive an Australian (f) Section 90.
investor (like [WMCP]) of fair and equitable treatment
by invalidating [WMCP's] FTAA without likewise (2) All provisions of Department of
nullifying the service contracts entered into before the Environment and Natural Resources
enactment of RA 7942 . . .," the annulment of the Administrative Order 96-40, s. 1996 which are
FTAA would not constitute a breach of the treaty not in conformity with this Decision, and
invoked. For this decision herein invalidating the
subject FTAA forms part of the legal system of the
Philippines.301 The equal protection (3) The Financial and Technical Assistance
clause302 guarantees that such decision shall apply to Agreement between the Government of the
all contracts belonging to the same class, hence, Republic of the Philippines and WMC
upholding rather than violating, the "fair and equitable Philippines, Inc.
treatment" stipulation in said treaty.
SO ORDERED.
One other matter requires clarification. Petitioners
22

contend that, consistent with the provisions of Section Davide, Jr., C.J., Puno, Quisumbing, Carpio, Corona,
Callejo, Sr., and Tinga. JJ., concur.
Page

2, Article XII of the Constitution, the President may

enter into agreements involving "either technical or Vitug, J., see Separate Opinion.
Panganiban, J., see Separate Opinion. LUMAYONG; WIGBERTO E. TAÑADA; PONCIANO
Ynares-Santiago, Sandoval-Gutierrez and Austria- BENNAGEN; JAIME TADEO; RENATO R.
Martinez, JJ., joins J., Panganiban's separate opinion. CONSTANTINO JR.; F'LONG AGUSTIN M. DABIE;
Azcuna, no part, one of the parties was a client. ROBERTO P. AMLOY; RAQIM L. DABIE; SIMEON
H. DOLOJO; IMELDA M. GANDON; LENY B.
GUSANAN; MARCELO L. GUSANAN; QUINTOL A.
LABUAYAN; LOMINGGES D. LAWAY; BENITA P.
TACUAYAN; Minors JOLY L. BUGOY,
Represented by His Father UNDERO D. BUGOY
and ROGER M. DADING; Represented by His
Father ANTONIO L. DADING; ROMY M. LAGARO,
Represented by His Father TOTING A. LAGARO;
MIKENY JONG B. LUMAYONG, Represented by
His Father MIGUEL M. LUMAYONG; RENE T.
MIGUEL, Represented by His Mother EDITHA T.
MIGUEL; ALDEMAR L. SAL, Represented by His
Father DANNY M. SAL; DAISY RECARSE,
Represented by Her Mother LYDIA S. SANTOS;
EDWARD M. EMUY; ALAN P. MAMPARAIR;
MARIO L. MANGCAL; ALDEN S. TUSAN; AMPARO
S. YAP; VIRGILIO CULAR; MARVIC M.V.F.
LEONEN; JULIA REGINA CULAR, GIAN CARLO
CULAR, VIRGILIO CULAR JR., Represented by
Their Father VIRGILIO CULAR; PAUL ANTONIO P.
VILLAMOR, Represented by His Parents JOSE
VILLAMOR and ELIZABETH PUA-VILLAMOR; ANA
GININA R. TALJA, Represented by Her Father
MARIO JOSE B. TALJA; SHARMAINE R.
CUNANAN, Represented by Her Father ALFREDO
M. CUNANAN; ANTONIO JOSE A. VITUG III,
Represented by His Mother ANNALIZA A. VITUG,
LEAN D. NARVADEZ, Represented by His Father
MANUEL E. NARVADEZ JR.; ROSERIO MARALAG
LINGATING, Represented by Her Father RIO
OLIMPIO A. LINGATING; MARIO JOSE B. TALJA;
DAVID E. DE VERA; MARIA MILAGROS L. SAN
JOSE; Sr. SUSAN O. BOLANIO, OND; LOLITA G.
DEMONTEVERDE; BENJIE L. NEQUINTO; ROSE 1 

LILIA S. ROMANO; ROBERTO S. VERZOLA;

EDUARDO AURELIO C. REYES; LEAN LOUEL A.
PERIA, Represented by His Father ELPIDIO V.
PERIA; GREEN FORUM PHILIPPINES; GREEN
2 

FORUM WESTERN VISAYAS (GF-WV);

ENVIRONMENTAL LEGAL ASSISTANCE CENTER
(ELAC); KAISAHAN TUNGO SA KAUNLARAN NG
KANAYUNAN AT REPORMANG PANSAKAHAN
(KAISAHAN); PARTNERSHIP FOR AGRARIAN
3 

REFORM and RURAL DEVELOPMENT SERVICES,

INC. (PARRDS); PHILIPPINE PARTNERSHIP FOR
THE DEVELOPMENT OF HUMAN RESOURCES IN
THE RURAL AREAS, INC. (PHILDHRRA);
WOMEN'S LEGAL BUREAU (WLB); CENTER FOR
ALTERNATIVE DEVELOPMENT INITIATIVES, INC.
(CADI); UPLAND DEVELOPMENT INSTITUTE
(UDI); KINAIYAHAN FOUNDATION, INC.; SENTRO
NG ALTERNATIBONG LINGAP PANLIGAL
(SALIGAN); and LEGAL RIGHTS AND NATURAL
RESOURCES CENTER, INC. (LRC), petitioners,
vs.
VICTOR O. RAMOS, Secretary, Department of
Environment and Natural Resources (DENR);
HORACIO RAMOS, Director, Mines and
Geosciences Bureau (MGB-DENR); RUBEN
TORRES, Executive Secretary; and WMC
(PHILIPPINES), INC., respondents.
4 

RESOLUTION
23

G.R. No. 127882             December 1, 2004

Page

LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., PANGANIBAN, J.:

Represented by its Chairman F'LONG MIGUEL M.
All mineral resources are owned by the State. Their On January 27, 2004, the Court en banc promulgated
exploration, development and utilization (EDU) must its Decision granting the Petition and declaring the
8 

always be subject to the full control and supervision of unconstitutionality of certain provisions of RA 7942,
the State. More specifically, given the inadequacy of DAO 96-40, as well as of the entire FTAA executed
Filipino capital and technology in large-scale EDU between the government and WMCP, mainly on the
activities, the State may secure the help of foreign finding that FTAAs are service contracts prohibited
companies in all relevant matters -- especially by the 1987 Constitution.
financial and technical assistance -- provided that, at
all times, the State maintains its right of full control. The Decision struck down the subject FTAA for being
The foreign assistor or contractor assumes all similar to service contracts, which, though permitted
9 

financial, technical and entrepreneurial risks in the under the 1973 Constitution, were subsequently
10 

EDU activities; hence, it may be given reasonable denounced for being antithetical to the principle of
management, operational, marketing, audit and other sovereignty over our natural resources, because they
prerogatives to protect its investments and to enable allowed foreign control over the exploitation of our
the business to succeed. natural resources, to the prejudice of the Filipino
nation.
Full control is not anathematic to day-to-day
management by the contractor, provided that the The Decision quoted several legal scholars and
State retains the power to direct overall strategy; and authors who had criticized service contracts for, inter
to set aside, reverse or modify plans and actions of alia, vesting in the foreign
the contractor. The idea of full control is similar to that contractor exclusive management and control of the
which is exercised by the board of directors of a enterprise, including operation of the field in the event
private corporation: the performance of managerial, petroleum was discovered; control of production,
operational, financial, marketing and other functions expansion and development; nearly unfettered control
may be delegated to subordinate officers or given to over the disposition and sale of the products
contractual entities, but the board retains full residual discovered/extracted; effective ownership of the
control of the business. natural resource at the point of extraction; and
beneficial ownership of our economic resources.
Who or what organ of government actually exercises According to the Decision, the 1987 Constitution
this power of control on behalf of the State? The (Section 2 of Article XII) effectively banned such
Constitution is crystal clear: the President. Indeed, service contracts.
the Chief Executive is the official constitutionally
mandated to "enter into agreements with foreign Subsequently, respondents filed separate Motions for
owned corporations." On the other hand, Congress Reconsideration. In a Resolution dated March 9,
may review the action of the President once it is 2004, the Court required petitioners to comment
notified of "every contract entered into in accordance thereon. In the Resolution of June 8, 2004, it set the
with this [constitutional] provision within thirty days case for Oral Argument on June 29, 2004.
from its execution." In contrast to this express
mandate of the President and Congress in the EDU of After hearing the opposing sides, the Court required
natural resources, Article XII of the Constitution is the parties to submit their respective Memoranda in
silent on the role of the judiciary. However, should the amplification of their arguments. In a Resolution
President and/or Congress gravely abuse their issued later the same day, June 29, 2004, the Court
discretion in this regard, the courts may -- in noted, inter alia, the Manifestation and Motion (in lieu
a proper case -- exercise their residual duty under of comment) filed by the Office of the Solicitor General
Article VIII. Clearly then, the judiciary should not (OSG) on behalf of public respondents. The OSG said
inordinately interfere in the exercise of this that it was not interposing any objection to the Motion
presidential power of control over the EDU of our for Intervention filed by the Chamber of Mines of the
natural resources. Philippines, Inc. (CMP) and was in fact joining and
adopting the latter's Motion for Reconsideration.
The Constitution should be read in broad, life-giving
strokes. It should not be used to strangulate economic  
growth or to serve narrow, parochial interests. Rather,
it should be construed to grant the President and
Memoranda were accordingly filed by the intervenor
Congress sufficient discretion and reasonable leeway
as well as by petitioners, public respondents, and
to enable them to attract foreign investments and
private respondent, dwelling at length on the three
expertise, as well as to secure for our people and our
issues discussed below. Later, WMCP submitted its
posterity the blessings of prosperity and peace.
Reply Memorandum, while the OSG -- in obedience to
an Order of this Court -- filed a Compliance submitting
On the basis of this control standard, this Court copies of more FTAAs entered into by the
upholds the constitutionality of the Philippine Mining government.
Law, its Implementing Rules and Regulations --
insofar as they relate to financial and technical
Three Issues Identified by the Court
agreements -- as well as the subject Financial and
Technical Assistance Agreement (FTAA). 5

During the Oral Argument, the Court identified the

three issues to be resolved in the present controversy,
Background
as follows:
The Petition for Prohibition and Mandamus before the
1. Has the case been rendered moot by the sale of
Court challenges the constitutionality of (1) Republic
WMC shares in WMCP to Sagittarius (60 percent of
Act No. [RA] 7942 (The Philippine Mining Act of
Sagittarius' equity is owned by Filipinos and/or
1995); (2) its Implementing Rules and Regulations
Filipino-owned corporations while 40 percent is owned
24

(DENR Administrative Order No. [DAO] 96-40); and

by Indophil Resources NL, an Australian company)
(3) the FTAA dated March 30, 1995, executed by the
6 

and by the subsequent transfer and registration of the

Page

government with Western Mining Corporation

FTAA from WMCP to Sagittarius?
(Philippines), Inc. (WMCP). 7
2. Assuming that the case has been rendered moot, And, inasmuch as the FTAA is to be implemented
would it still be proper to resolve the constitutionality now by a Filipino corporation, it is no longer possible
of the assailed provisions of the Mining Law, DAO 96- for the Court to declare it unconstitutional. The case
40 and the WMCP FTAA? pending in the Court of Appeals is a dispute between
two Filipino companies (Sagittarius and Lepanto),
3. What is the proper interpretation of the both claiming the right to purchase the foreign shares
phrase Agreements Involving Either Technical or in WMCP. So, regardless of which side eventually
Financial Assistance contained in paragraph 4 of wins, the FTAA would still be in the hands of a
Section 2 of Article XII of the Constitution? qualified Filipino company. Considering that there is
no longer any justiciable controversy, the plea to
Should the Motion for Reconsideration Be nullify the Mining Law has become a virtual petition for
Granted? declaratory relief, over which this Court has no
original jurisdiction.
Respondents' and intervenor's Motions for
Reconsideration should be granted, for the reasons In their Final Memorandum, however, petitioners
discussed below. The foregoing three issues identified argue that the case has not become moot,
by the Court shall now be taken up seriatim. considering the invalidity of the alleged sale of the
shares in WMCP from WMC to Sagittarius, and of the
transfer of the FTAA from WMCP to Sagittarius,
First Issue:
resulting in the change of contractor in the FTAA in
question. And even assuming that the said transfers
Mootness were valid, there still exists an actual case predicated
on the invalidity of RA 7942 and its Implementing
In declaring unconstitutional certain provisions of RA Rules and Regulations (DAO 96-40). Presently, we
7942, DAO 96-40, and the WMCP FTAA, the majority shall discuss petitioners' objections to the transfer of
Decision agreed with petitioners' contention that the both the shares and the FTAA. We shall take up the
subject FTAA had been executed in violation of alleged invalidity of RA 7942 and DAO 96-40 later on
Section 2 of Article XII of the 1987 Constitution. in the discussion of the third issue.
According to petitioners, the FTAAs entered into by
the government with foreign-owned corporations are No Transgression of the Constitution
limited by the fourth paragraph of the said provision to by the Transfer of the WMCP Shares
agreements involving only technical or financial
assistance for large-scale exploration, development
Petitioners claim, first, that the alleged invalidity of
and utilization of minerals, petroleum and other
the transfer of the WMCP shares to Sagittarius
mineral oils. Furthermore, the foreign contractor is
violates the fourth paragraph of Section 2 of Article XII
allegedly permitted by the FTAA in question to fully
of the Constitution; second, that it is contrary to the
manage and control the mining operations and,
provisions of the WMCP FTAA itself; and third, that
therefore, to acquire "beneficial ownership" of our
the sale of the shares is suspect and should therefore
mineral resources.
be the subject of a case in which its validity may
properly be litigated.
The Decision merely shrugged off the Manifestation
by WMPC informing the Court (1) that on January 23,
On the first ground, petitioners assert that paragraph
2001, WMC had sold all its shares in WMCP to
4 of Section 2 of Article XII permits the government to
Sagittarius Mines, Inc., 60 percent of whose equity
enter into FTAAs only with foreign-owned
was held by Filipinos; and (2) that the assailed FTAA
corporations. Petitioners insist that the first paragraph
had likewise been transferred from WMCP to
of this constitutional provision limits the participation
Sagittarius. The ponencia declared that the instant
11 

of Filipino corporations in the exploration,

case had not been rendered moot by the transfer and
development and utilization of natural resources to
registration of the FTAA to a Filipino-owned
only three species of contracts -- production sharing,
corporation, and that the validity of the said transfer
co-production and joint venture -- to the exclusion of
remained in dispute and awaited final judicial
all other arrangements or variations thereof, and the
determination. Patently therefore, the Decision is
12 

WMCP FTAA may therefore not be validly assumed

anchored on the assumption that WMCP had
and implemented by Sagittarius. In short, petitioners
remained a foreign corporation.
claim that a Filipino corporation is not allowed by the
Constitution to enter into an FTAA with the
The crux of this issue of mootness is the fact that government.
WMCP, at the time it entered into the
FTAA, happened to be wholly owned by WMC
However, a textual analysis of the first paragraph of
Resources International Pty., Ltd. (WMC), which in
Section 2 of Article XII does not support petitioners'
turn was a wholly owned subsidiary of Western Mining
argument. The pertinent part of the said provision
Corporation Holdings Ltd., a publicly listed major
states: "Sec. 2. x x x The exploration, development
Australian mining and exploration company.
and utilization of natural resources shall be under the
full control and supervision of the State. The State
The nullity of the FTAA was obviously premised upon may directly undertake such activities, or it may enter
the contractor being a foreign corporation. Had the into co-production, joint venture, or production-
FTAA been originally issued to a Filipino-owned sharing agreements with Filipino citizens, or
corporation, there would have been no corporations or associations at least sixty per centum
constitutionality issue to speak of. Upon the other of whose capital is owned by such citizens. x x
hand, the conveyance of the WMCP FTAA to a x." Nowhere in the provision is there any express
Filipino corporation can be likened to the sale of land limitation or restriction insofar as arrangements other
to a foreigner who subsequently acquires Filipino than the three aforementioned contractual schemes
citizenship, or who later resells the same land to a are concerned.
25

Filipino citizen. The conveyance would be validated,

as the property in question would no longer be owned
Page

Neither can one reasonably discern any implied

by a disqualified vendee.
stricture to that effect. Besides, there is no basis to
believe that the framers of the Constitution, a majority approval and notification may not be deemed fatal as
of whom were obviously concerned with furthering the to render the transfer invalid. Besides, it is not as if
development and utilization of the country's natural approval by the President is entirely absent in this
resources, could have wanted to restrict Filipino instance. As pointed out by private respondent in its
participation in that area. This point is clear, especially Memorandum, the issue of approval is the subject of
13 

in the light of the overarching constitutional principle one of the cases brought by Lepanto against
of giving preference and priority to Filipinos and Sagittarius in GR No. 162331. That case involved the
Filipino corporations in the development of our natural review of the Decision of the Court of Appeals dated
resources. November 21, 2003 in CA-GR SP No. 74161, which
affirmed the DENR Order dated December 31, 2001
Besides, even assuming (purely for argument's sake) and the Decision of the Office of the President dated
that a constitutional limitation barring Filipino July 23, 2002, both approving the assignment of the
corporations from holding and implementing an FTAA WMCP FTAA to Sagittarius.
actually exists, nevertheless, such provision would
apply only to the transfer of the FTAA to Sagittarius, Petitioners also question the sale price and the
but definitely not to the sale of WMC's equity stake in financial capacity of the transferee. According to the
WMCP to Sagittarius. Otherwise, an unreasonable Deed of Absolute Sale dated January 23, 2001,
curtailment of property rights without due process of executed between WMC and Sagittarius, the price of
law would ensue. Petitioners' argument must the WMCP shares was fixed at US$9,875,000,
therefore fail. equivalent to P553 million at an exchange rate of
56:1. Sagittarius had an authorized capital stock
FTAA Not Intended of P250 million and a paid up capital of P60 million.
Solely for Foreign Corporation Therefore, at the time of approval of the sale by the
DENR, the debt-to-equity ratio of the transferee was
Equally barren of merit is the second ground cited by over 9:1 -- hardly ideal for an FTAA contractor,
petitioners -- that the FTAA was intended to apply according to petitioners.
solely to a foreign corporation, as can allegedly be
seen from the provisions therein. They manage to cite However, private respondents counter that the Deed
only one WMCP FTAA provision that can be regarded of Sale specifically provides that the payment of the
as clearly intended to apply only to a foreign purchase price would take place only after Sagittarius'
contractor: Section 12, which provides for commencement of commercial production from
international commercial arbitration under the mining operations, if at all. Consequently, under the
auspices of the International Chamber of Commerce, circumstances, we believe it would not be reasonable
after local remedies are exhausted. This provision, to conclude, as petitioners did, that the transferee's
however, does not necessarily imply that the WMCP high debt-to-equity ratio per se necessarily carried
FTAA cannot be transferred to and assumed by a negative implications for the enterprise; and it would
Filipino corporation like Sagittarius, in which event the certainly be improper to invalidate the sale on that
said provision should simply be disregarded as a basis, as petitioners propose.
superfluity.
FTAA Not Void,
No Need for a Separate Thus Transferrable
Litigation of the Sale of Shares
To bolster further their claim that the case is not moot,
Petitioners claim as third ground the "suspicious" sale petitioners insist that the FTAA is void and, hence
of shares from WMC to Sagittarius; hence, the need cannot be transferred; and that its transfer does not
to litigate it in a separate case. Section 40 of RA 7942 operate to cure the constitutional infirmity that is
(the Mining Law) allegedly requires the President's inherent in it; neither will a change in the
prior approval of a transfer. circumstances of one of the parties serve to ratify the
void contract.
A re-reading of the said provision, however, leads to a
different conclusion. "Sec. 40. Assignment/Transfer While the discussion in their Final Memorandum was
-- A financial or technical assistance agreement may skimpy, petitioners in their Comment (on the MR) did
be assigned or transferred, in whole or in part, to a ratiocinate that this Court had declared the FTAA to
qualified person subject to the prior approval of the be void because, at the time it was executed with
President: Provided, That the President shall notify WMCP, the latter was a fully foreign-owned
Congress of every financial or technical assistance corporation, in which the former vested full control and
agreement assigned or converted in accordance with management with respect to the exploration,
this provision within thirty (30) days from the date of development and utilization of mineral resources,
the approval thereof." contrary to the provisions of paragraph 4 of Section 2
of Article XII of the Constitution. And since the FTAA
Section 40 expressly applies to the assignment or was per se void, no valid right could be transferred;
transfer of the FTAA, not to the sale and transfer of neither could it be ratified, so petitioners conclude.
shares of stock in WMCP. Moreover, when the
transferee of an FTAA is another foreign corporation, Petitioners have assumed as fact that which has yet
there is a logical application of the requirement of to be established. First and foremost, the Decision of
prior approval by the President of the Republic and this Court declaring the FTAA void has not yet
notification to Congress in the event of assignment or become final. That was precisely the reason the Court
transfer of an FTAA. In this situation, such approval still heard Oral Argument in this case. Second, the
and notification are appropriate safeguards, FTAA does not vest in the foreign corporation full
considering that the new contractor is the subject of a control and supervision over the exploration,
foreign government. development and utilization of mineral resources, to
26

the exclusion of the government. This point will be

On the other hand, when the transferee of the FTAA dealt with in greater detail below; but for now, suffice it
Page

happens to be a Filipino corporation, the need for to say that a perusal of the FTAA provisions will prove
such safeguard is not critical; hence, the lack of prior that the government has effective overall direction and
control of the mining operations, including marketing and thus void ab initio. In the present case, the
and product pricing, and that the contractor's work issuance/grant of the subject FTAA to the then
programs and budgets are subject to its review and foreign-owned WMCP was not illegal, void or
approval or disapproval. unconstitutional at the time. The matter had to be
brought to court, precisely for adjudication as to
As will be detailed later on, the government does not whether the FTAA and the Mining Law had indeed
have to micro-manage the mining operations and dip violated the Constitution. Since, up to this point, the
its hands into the day-to-day management of the decision of this Court declaring the FTAA void has yet
enterprise in order to be considered as having overall to become final, to all intents and purposes, the FTAA
control and direction. Besides, for practical and must be deemed valid and constitutional. 17

pragmatic reasons, there is a need for government

agencies to delegate certain aspects of the At bottom, we find completely outlandish petitioners'
management work to the contractor. Thus the basis contention that an FTAA could be entered into by the
for declaring the FTAA void still has to be revisited, government only with a foreign corporation, never
reexamined and reconsidered. with a Filipino enterprise. Indeed, the nationalistic
provisions of the Constitution are all anchored on the
Petitioners sniff at the citation of Chavez v. Public protection of Filipino interests. How petitioners can
Estates Authority, and Halili v. CA, claiming that the
14  15  now argue that foreigners have the exclusive right to
doctrines in these cases are wholly inapplicable to the FTAAs totally overturns the entire basis of the Petition
instant case. -- preference for the Filipino in the exploration,
development and utilization of our natural
Chavez clearly teaches: "Thus, the Court has ruled resources. It does not take deep knowledge of law
consistently that where a Filipino citizen sells land to and logic to understand that what the Constitution
an alien who later sells the land to a Filipino, the grants to foreigners should be equally available to
invalidity of the first transfer is corrected by the Filipinos.
subsequent sale to a citizen. Similarly, where the
alien who buys the land subsequently acquires Second Issue:
Philippine citizenship, the sale is validated since the
purpose of the constitutional ban to limit land Whether the Court Can Still Decide the Case,
ownership to Filipinos has been achieved. In short, Even Assuming It Is Moot
the law disregards the constitutional disqualification of
the buyer to hold land if the land is subsequently All the protagonists are in agreement that the Court
transferred to a qualified party, or the buyer himself has jurisdiction to decide this controversy, even
becomes a qualified party." 16
assuming it to be moot.

In their Comment, petitioners contend that Petitioners stress the following points. First, while a
in Chavez and Halili, the object of the transfer (the case becomes moot and academic when "there is no
land) was not what was assailed for alleged more actual controversy between the parties or no
unconstitutionality. Rather, it was the transaction that useful purpose can be served in passing upon the
was assailed; hence subsequent compliance with merits," what is at issue in the instant case is not only
18 

constitutional provisions would cure its infirmity. In the validity of the WMCP FTAA, but also the
contrast, in the instant case it is the FTAA itself, the constitutionality of RA 7942 and its Implementing
object of the transfer, that is being assailed as invalid Rules and Regulations. Second, the acts of private
and unconstitutional. So, petitioners claim that the respondent cannot operate to cure the law of its
subsequent transfer of a void FTAA to a Filipino alleged unconstitutionality or to divest this Court of its
corporation would not cure the defect. jurisdiction to decide. Third, the Constitution imposes
upon the Supreme Court the duty to declare invalid
Petitioners are confusing themselves. The present any law that offends the Constitution.
Petition has been filed, precisely because the grantee
of the FTAA was a wholly owned subsidiary of a Petitioners also argue that no amendatory laws have
foreign corporation. It cannot be gainsaid that anyone been passed to make the Mining Act of 1995 conform
would have asserted that the same FTAA was void if to constitutional strictures (assuming that, at present,
it had at the outset been issued to a Filipino it does not); that public respondents will continue to
corporation. The FTAA, therefore, is not per se implement and enforce the statute until this Court
defective or unconstitutional. It was questioned only rules otherwise; and that the said law continues to be
because it had been issued to an allegedly non- the source of legal authority in accepting, processing
qualified, foreign-owned corporation. and approving numerous applications for mining
rights.
We believe that this case is clearly analogous
to Halili, in which the land acquired by a non-Filipino Indeed, it appears that as of June 30, 2002, some 43
was re-conveyed to a qualified vendee and the FTAA applications had been filed with the Mines and
original transaction was thereby cured. Geosciences Bureau (MGB), with an aggregate area
Paraphrasing Halili, the same rationale applies to the of 2,064,908.65 hectares -- spread over Luzon, the
instant case: assuming arguendo the invalidity of its Visayas and Mindanao -- applied for. It may be a bit
19 

prior grant to a foreign corporation, the disputed FTAA far-fetched to assert, as petitioners do, that each and
-- being now held by a Filipino corporation -- can no every FTAA that was entered into under the
longer be assailed; the objective of the constitutional provisions of the Mining Act "invites potential
provision -- to keep the exploration, development and litigation" for as long as the constitutional issues are
utilization of our natural resources in Filipino hands -- not resolved with finality. Nevertheless, we must
has been served. concede that there exists the distinct possibility that
one or more of the future FTAAs will be the subject of
27

More accurately speaking, the present situation is one yet another suit grounded on constitutional issues.
degree better than that obtaining in Halili, in which the
Page

original sale to a non-Filipino was clearly and But of equal if not greater significance is the cloud of
indisputably violative of the constitutional prohibition uncertainty hanging over the mining industry, which is
even now scaring away foreign investments. Attesting xxxxxxxxx
to this climate of anxiety is the fact that the Chamber
of Mines of the Philippines saw the urgent need to "As this Court has repeatedly and firmly
intervene in the case and to present its position during emphasized in many cases, it will not shirk,
the Oral Argument; and that Secretary General digress from or abandon its sacred duty and
Romulo Neri of the National Economic Development authority to uphold the Constitution in matters
Authority (NEDA) requested this Court to allow him to that involve grave abuse of discretion brought
speak, during that Oral Argument, on the economic before it in appropriate cases, committed by
consequences of the Decision of January 27, 2004.20 any officer, agency, instrumentality or
department of the government." 30

We are convinced. We now agree that the Court must

recognize the exceptional character of the situation Additionally, the entry of CMP into this case has also
and the paramount public interest involved, as well as effectively forestalled any possible objections arising
the necessity for a ruling to put an end to the from the standing or legal interest of the original
uncertainties plaguing the mining industry and the parties.
affected communities as a result of doubts cast upon
the constitutionality and validity of the Mining Act, the For all the foregoing reasons, we believe that the
subject FTAA and future FTAAs, and the need to Court should proceed to a resolution of the
avert a multiplicity of suits. Paraphrasing Gonzales v. constitutional issues in this case.
Commission on Elections, it is evident that strong
21 

reasons of public policy demand that the

Third Issue:
constitutionality issue be resolved now. 22

The Proper Interpretation of the Constitutional

In further support of the immediate resolution of the
Phrase
constitutionality issue, public respondents cite Acop v.
"Agreements Involving Either Technical or
Guingona, to the effect that the courts will decide a
23 

Financial Assistance"
question -- otherwise moot and academic -- if it
is "capable of repetition, yet evading review." Public
24 

respondents ask the Court to avoid a situation in The constitutional provision at the nucleus of the
which the constitutionality issue may again arise with controversy is paragraph 4 of Section 2 of Article XII
respect to another FTAA, the resolution of which may of the 1987 Constitution. In order to appreciate its
not be achieved until after it has become too late for context, Section 2 is reproduced in full:
our mining industry to grow out of its infancy. They
also recall Salonga v. Cruz Paño, in which this Court
25  "Sec. 2. All lands of the public domain,
declared that "(t)he Court also has the duty to waters, minerals, coal, petroleum, and other
formulate guiding and controlling constitutional mineral oils, all forces of potential energy,
principles, precepts, doctrines or rules. It has the fisheries, forests or timber, wildlife, flora and
symbolic function of educating the bench and bar on fauna, and other natural resources are owned
the extent of protection given by constitutional by the State. With the exception of agricultural
guarantees. x x x." lands, all other natural resources shall not be
alienated. The exploration, development and
The mootness of the case in relation to the WMCP utilization of natural resources shall be under
FTAA led the undersigned ponente to state in his the full control and supervision of the State.
dissent to the Decision that there was no more The State may directly undertake such
justiciable controversy and the plea to nullify the activities, or it may enter into co-production,
Mining Law has become a virtual petition for joint venture or production-sharing
declaratory relief. The entry of the Chamber of Mines
26  agreements with Filipino citizens or
of the Philippines, Inc., however, has put into focus corporations or associations at least sixty per
the seriousness of the allegations of centum of whose capital is owned by such
unconstitutionality of RA 7942 and DAO 96-40 which citizens. Such agreements may be for a
converts the case to one for prohibition in the 27  period not exceeding twenty-five years,
enforcement of the said law and regulations. renewable for not more than twenty-five
years, and under such terms and conditions
as may be provided by law. In cases of water
Indeed, this CMP entry brings to fore that the real
rights for irrigation, water supply, fisheries, or
issue in this case is whether paragraph 4 of Section 2
industrial uses other than the development of
of Article XII of the Constitution is contravened by RA
water power, beneficial use may be the
7942 and DAO 96-40, not whether it was violated by
measure and limit of the grant.
specific acts implementing RA 7942 and DAO 96-40.
"[W]hen an act of the legislative department is
seriously alleged to have infringed the Constitution, "The State shall protect the nation's marine
settling the controversy becomes the duty of this wealth in its archipelagic waters, territorial
Court. By the mere enactment of the questioned law sea, and exclusive economic zone, and
or the approval of the challenged action, the dispute is reserve its use and enjoyment exclusively to
said to have ripened into a judicial controversy even Filipino citizens.
without any other overt act." This ruling can be traced
28 

from Tañada v. Angara, in which the Court said:

29  "The Congress may, by law, allow small-scale
utilization of natural resources by Filipino
"In seeking to nullify an act of the Philippine citizens, as well as cooperative fish farming,
Senate on the ground that it contravenes the with priority to subsistence fishermen and
Constitution, the petition no doubt raises a fish-workers in rivers, lakes, bays and
justiciable controversy. Where an action of the lagoons.
legislative branch is seriously alleged to have
28

infringed the Constitution, it becomes not only "The President may enter
into agreements with foreign-owned
Page

the right but in fact the duty of the judiciary to

settle the dispute. corporations involving either technical or
 financial assistance for large-scale 2. The exploration, development and
exploration, development, and utilization utilization (EDU) of natural resources shall be
of minerals, petroleum, and other mineral under the full control and supervision of the
oils according to the general terms and State.
conditions provided by law, based on real
contributions to the economic growth and 3. The State may undertake these EDU
general welfare of the country. In such activities through either of the following:
agreements, the State shall promote the
development and use of local scientific and (a) By itself directly and solely
technical resources.
(b) By (i) co-production; (ii) joint
"The President shall notify the Congress of venture; or (iii) production sharing
every contract entered into in accordance with agreements with Filipino citizens or
this provision, within thirty days from its corporations, at least 60 percent of the
execution." 31
capital of which is owned by such
citizens
No Restriction of Meaning by
a  Verba Legis  Interpretation 4. Small-scale utilization of natural resources
may be allowed by law in favor of Filipino
To interpret the foregoing provision, petitioners citizens.
adamantly assert that the language of the Constitution
should prevail; that the primary method of interpreting 5. For large-scale EDU of minerals, petroleum
it is to seek the ordinary meaning of the words used in and other mineral oils, the President may
its provisions. They rely on rulings of this Court, such enter into "agreements with foreign-owned
as the following: corporations involving either technical or
financial assistance according to the general
"The fundamental principle in constitutional terms and conditions provided by law x x x."
construction however is that the primary
source from which to ascertain constitutional Note that in all the three foregoing mining activities
intent or purpose is the language of the -- exploration, development and utilization -- the State
provision itself. The presumption is that the may undertake such EDU activities by itself or in
words in which the constitutional provisions tandem with Filipinos or Filipino corporations, except
are couched express the objective sought to in two instances: first, in small-scale utilization of
be attained. In other words, verba natural resources, which Filipinos may be allowed by
legis prevails. Only when the meaning of the law to undertake; and second, in large-scale EDU of
words used is unclear and equivocal should minerals, petroleum and mineral oils, which may be
resort be made to extraneous aids of undertaken by the State via "agreements with foreign-
construction and interpretation, such as the owned corporations involving either technical or
proceedings of the Constitutional Commission financial assistance" as provided by law.
or Convention to shed light on and ascertain
the true intent or purpose of the provision
Petitioners claim that the phrase "agreements x x x
being construed." 32

involving either technical or financial

assistance" simply means technical assistance or
Very recently, in Francisco v. The House of financial assistance agreements, nothing more and
Representatives, this Court indeed had the occasion
33 
nothing else. They insist that there is no ambiguity in
to reiterate the well-settled principles of constitutional the phrase, and that a plain reading of paragraph 4
construction: quoted above leads to the inescapable conclusion
that what a foreign-owned corporation may enter into
"First, verba legis, that is, wherever possible, with the government is merely an agreement
the words used in the Constitution must be for either financial or technical assistance only, for the
given their ordinary meaning except where large-scale exploration, development and utilization of
technical terms are employed. x x x. minerals, petroleum and other mineral oils; such a
limitation, they argue, excludes foreign management
xxxxxxxxx and operation of a mining enterprise. 35

"Second, where there is ambiguity, ratio legis This restrictive interpretation, petitioners believe, is in
est anima. The words of the Constitution line with the general policy enunciated by the
should be interpreted in accordance with the Constitution reserving to Filipino citizens and
intent of its framers. x x x. corporations the use and enjoyment of the country's
natural resources. They maintain that this Court's
xxxxxxxxx Decision of January 27, 2004 correctly declared the
36 

WMCP FTAA, along with pertinent provisions of RA

"Finally, ut magis valeat quam pereat. The 7942, void for allowing a foreign contractor to have
Constitution is to be interpreted as a whole." 34 direct and exclusive management of a mining
enterprise. Allowing such a privilege not only runs
counter to the "full control and supervision" that the
For ease of reference and in consonance with verba
State is constitutionally mandated to exercise over the
legis, we reconstruct and stratify the aforequoted
exploration, development and utilization of the
Section 2 as follows:
country's natural resources; doing so also vests in the
foreign company "beneficial ownership" of our mineral
1. All natural resources are owned by the resources. It will be recalled that the Decision of
State. Except for agricultural lands, natural
29

January 27, 2004 zeroed in on "management or other

resources cannot be alienated by the State. forms of assistance" or other activities associated with
Page

the "service contracts" of the martial law regime,

since "the management or operation of mining
activities by foreign contractors, which is the primary management or operation of mining or similar
feature of service contracts, was precisely the evil ventures or words of similar import. A search for such
that the drafters of the 1987 Constitution sought to stringent wording yields negative results. Thus, we
eradicate." come to the inevitable conclusion that there was a
conscious and deliberate decision to avoid the
On the other hand, the intervenor and public 37  use of restrictive wording that bespeaks an intent
respondents argue that the FTAA allowed by not to use the expression "agreements x x x
paragraph 4 is not merely an agreement for supplying involving either technical or financial assistance"
limited and specific financial or technical services to in an exclusionary and limiting manner.
the State. Rather, such FTAA is a comprehensive
agreement for the foreign-owned Deletion of "Service Contracts" to
corporation's integrated exploration, development and Avoid Pitfalls of Previous Constitutions,
utilization of mineral, petroleum or other mineral oils Not to Ban Service Contracts Per Se
on a large-scale basis. The agreement, therefore,
authorizes the foreign contractor's rendition of a whole Third, we do not see how a verba legis approach
range of integrated and comprehensive services, leads to the conclusion that "the management or
ranging from the discovery to the development, operation of mining activities by foreign contractors,
utilization and production of minerals or petroleum which is the primary feature of service contracts, was
products. precisely the evil that the drafters of the 1987
Constitution sought to eradicate." Nowhere in the
We do not see how applying a strictly literal or verba above-quoted Section can be discerned the objective
legis interpretation of paragraph 4 could inexorably to keep out of foreign hands the management or
lead to the conclusions arrived at in operation of mining activities or the plan to eradicate
the ponencia. First, the drafters' choice of words -- service contracts as these were understood in the
their use of the phrase agreements x x 1973 Constitution. Still, petitioners maintain that the
x involving either technical or financial assistance -- deletion or omission from the 1987 Constitution of the
does not indicate the intent to exclude other modes of term "service contracts" found in the 1973
assistance. The drafters opted to use involving when Constitution sufficiently proves the drafters' intent to
they could have simply said agreements for financial exclude foreigners from the management of the
or technical assistance, if that was their intention to affected enterprises.
begin with. In this case, the limitation would be very
clear and no further debate would ensue. To our mind, however, such intent cannot be
definitively and conclusively established from the
In contrast, the use of the word "involving" signifies mere failure to carry the same expression or term
the possibility of the inclusion of other forms of over to the new Constitution, absent a more specific,
assistance or activities having to do with, otherwise explicit and unequivocal statement to that effect. What
related to or compatible with financial or technical petitioners seek (a complete ban on foreign
assistance. The word "involving" as used in this participation in the management of mining operations,
context has three connotations that can be as previously allowed by the earlier Constitutions)
differentiated thus: one, the sense of "concerning," is nothing short of bringing about a momentous sea
"having to do with," or "affecting"; two, "entailing," change in the economic and developmental policies;
"requiring," "implying" or "necessitating"; and three, and the fundamentally capitalist, free-enterprise
"including," "containing" or "comprising." 38
philosophy of our government. We cannot imagine
such a radical shift being undertaken by our
Plainly, none of the three connotations convey a government, to the great prejudice of the mining
sense of exclusivity. Moreover, the word "involving," sector in particular and our economy in general,
when understood in the sense of "including," as merely on the basis of the omission of the
in including technical or financial terms service contract from or the failure to carry them
assistance, necessarily implies that there over to the new Constitution. There has to be a much
are activities other than those that are being included. more definite and even unarguable basis for such a
In other words, if an agreement includes technical or drastic reversal of policies.
financial assistance, there is apart from such
assistance -- something else already in, and covered Fourth, a literal and restrictive interpretation of
or may be covered by, the said agreement. paragraph 4, such as that proposed by petitioners,
suffers from certain internal logical inconsistencies
In short, it allows for the possibility that matters, other that generate ambiguities in the understanding of the
than those explicitly mentioned, could be made part of provision. As the intervenor pointed out, there has
the agreement. Thus, we are now led to the never been any constitutional or statutory provision
conclusion that the use of the word "involving" implies that reserved to Filipino citizens or corporations, at
that these agreements with foreign corporations are least 60 percent of which is Filipino-owned, the
not limited to mere financial or technical assistance. rendition of financial or technical assistance to
The difference in sense becomes very apparent when companies engaged in mining or the development of
we juxtapose "agreements for technical or financial any other natural resource. The taking out of foreign-
assistance" against "agreements including technical currency or peso-denominated loans or any other kind
or financial assistance." This much is unalterably clear of financial assistance, as well as the rendition of
in a verba legis approach. technical assistance -- whether to the State or to any
other entity in the Philippines -- has never been
Second, if the real intention of the drafters was to restricted in favor of Filipino citizens or corporations
confine foreign corporations to financial or technical having a certain minimum percentage of Filipino
assistance and nothing more, their language would equity. Such a restriction would certainly be
have certainly been so unmistakably restrictive and preposterous and unnecessary. As a matter of fact,
financial, and even technical assistance, regardless of
30

stringent as to leave no doubt in anyone's mind

about their true intent. For example, they would have the nationality of its source, would be welcomed in the
mining industry anytime with open arms, on account
Page

used the sentence foreign corporations

are absolutely prohibited from involvement in the of the dearth of local capital and the need to
continually update technological know-how and from the foreign lender and/or of paying compensation
improve technical skills. to the foreign entity rendering technical assistance.

There was therefore no need for a constitutional However, it is of common knowledge, and of judicial
provision specifically allowing foreign-owned notice as well, that the government is and has for
corporations to render financial or technical many many years been financially strapped, to the
assistance, whether in respect of mining or some point that even the most essential services have
other resource development or commercial activity in suffered serious curtailments -- education and health
the Philippines. The last point needs to be care, for instance, not to mention judicial services --
emphasized: if merely financial or technical have had to make do with inadequate budgetary
assistance agreements are allowed, there would allocations. Thus, government has had to resort to
be no need to limit them to large-scale mining build-operate-transfer and similar arrangements with
operations, as there would be far greater need for the private sector, in order to get vital infrastructure
them in the smaller-scale mining activities (and projects built without any governmental outlay.
even in non-mining areas). Obviously, the
provision in question was intended to refer to The very recent brouhaha over the gargantuan "fiscal
agreements other than those for mere financial or crisis" or "budget deficit" merely confirms what the
technical assistance. ordinary citizen has suspected all along. After the
reality check, one will have to admit the implausibility
In like manner, there would be no need to require the of a direct undertaking -- by the State itself -- of large-
President of the Republic to report to Congress, if only scale exploration, development and utilization of
financial or technical assistance agreements are minerals, petroleum and other mineral oils. Such an
involved. Such agreements are in the nature of undertaking entails not only humongous capital
foreign loans that -- pursuant to Section 20 of Article requirements, but also the attendant risk of never
VII of the 1987 Constitution -- the President may
39 
finding and developing economically viable quantities
contract or guarantee, merely with the prior of minerals, petroleum and other mineral oils. 40

concurrence of the Monetary Board. In turn, the Board

is required to report to Congress within thirty days It is equally difficult to imagine that such a provision
from the end of every quarter of the calendar year, not restricting foreign companies to the rendition of only
thirty days after the agreement is entered into. financial or technical assistance to the government
was deliberately crafted by the drafters of the
And if paragraph 4 permits only agreements for loans Constitution, who were all well aware of the capital-
and other forms of financial, or technical assistance, intensive and technology-oriented nature of large-
what is the point of requiring that they be based on scale mineral or petroleum extraction and the
real contributions to the economic growth and general country's deficiency in precisely those areas. To say
41 

welfare of the country? For instance, how is one to so would be tantamount to asserting that the provision
measure and assess the "real contributions" to the was purposely designed to ladle the large-scale
"economic growth" and "general welfare" of the development and utilization of mineral, petroleum and
country that may ensue from a foreign-currency loan related resources with impossible conditions; and to
agreement or a technical-assistance agreement for, remain forever and permanently "reserved" for future
say, the refurbishing of an existing power generating generations of Filipinos.
plant for a mining operation somewhere in Mindanao?
Such a criterion would make more sense when A More Reasonable Look
applied to a major business investment in a principal at the Charter's Plain Language
sector of the industry.
Sixth, we shall now look closer at the plain language
The conclusion is clear and inescapable -- a verba of the Charter and examining the logical inferences.
legis construction shows that paragraph 4 is not to be The drafters chose to emphasize and
understood as one limited only to foreign loans (or highlight agreements x x x involving either technical
other forms of financial support) and to technical or financial assistance in relation to foreign
assistance. There is definitely more to it than corporations' participation in large-scale EDU. The
that. These are provisions permitting participation inclusion of this clause on "technical or financial
by foreign companies; requiring the President's assistance" recognizes the fact that foreign business
report to Congress; and using, as yardstick, entities and multinational corporations are the ones
contributions based on economic growth and with the resources and know-how to provide technical
general welfare. These were neither accidentally and/or financial assistance of the magnitude and type
inserted into the Constitution nor carelessly required for large-scale exploration, development and
cobbled together by the drafters in lip service to utilization of these resources.
shallow nationalism. The provisions patently have
significance and usefulness in a context that allows The drafters -- whose ranks included many
agreements with foreign companies to include more academicians, economists, businessmen, lawyers,
than mere financial or technical assistance. politicians and government officials -- were not
unfamiliar with the practices of foreign corporations
Fifth, it is argued that Section 2 of Article XII and multinationals.
authorizes nothing more than a rendition of specific
and limited financial service or technical assistance by Neither were they so naïve as to believe that these
a foreign company. This argument begs the question entities would provide "assistance" without
"To whom or for whom would it be rendered"? or Who conditionalities or some quid pro quo. Definitely, as
is being assisted? If the answer is "The State," then it business persons well know and as a matter of
necessarily implies that the State itself is the judicial notice, this matter is not just a question of
one directly and solely undertaking the large-scale signing a promissory note or executing a technology
exploration, development and utilization of a mineral
31

transfer agreement. Foreign corporations usually

resource, so it follows that the State must itself bear require that they be given a say in the management,
Page

the liability and cost of repaying the financing sourced for instance, of day-to-day operations of the joint
venture. They would demand the appointment of their
own men as, for example, operations managers, "Section 25. After the expiration in 1991 of the
technical experts, quality control heads, internal Agreement between the Republic of the
auditors or comptrollers. Furthermore, they would Philippines and the United States of America
probably require seats on the Board of Directors -- all concerning military bases, foreign military
these to ensure the success of the enterprise and the bases, troops, or facilities shall not be allowed
repayment of the loans and other financial assistance in the Philippines except under a treaty duly
and to make certain that the funding and the concurred in by the Senate and, when the
technology they supply would not go to waste. Congress so requires, ratified by a majority of
Ultimately, they would also want to protect their the votes cast by the people in a national
business reputation and bottom lines. 42
referendum held for that purpose, and
recognized as a treaty by the other
In short, the drafters will have to be credited with contracting State.
enough pragmatism and savvy to know that these
foreign entities will not enter into such "agreements "Section 26. The authority to issue
involving assistance" without requiring arrangements sequestration or freeze orders under
for the protection of their investments, gains and Proclamation No. 3 dated March 25, 1986 in
benefits. relation to the recovery of ill-gotten wealth
shall remain operative for not more than
Thus, by specifying such "agreements involving eighteen months after the ratification of this
assistance," the drafters necessarily gave implied Constitution. However, in the national interest,
assent to everything that these agreements as certified by the President, the Congress
necessarily entailed; or that could reasonably be may extend such period.
deemed necessary to make them tenable and
effective, including management authority with A sequestration or freeze order shall be
respect to the day-to-day operations of the enterprise issued only upon showing of a prima facie
and measures for the protection of the interests of the case. The order and the list of the
foreign corporation, PROVIDED THAT Philippine sequestered or frozen properties shall
sovereignty over natural resources and full control forthwith be registered with the proper court.
over the enterprise undertaking the EDU activities For orders issued before the ratification of this
remain firmly in the State. Constitution, the corresponding judicial action
or proceeding shall be filed within six months
Petitioners' Theory Deflated by the from its ratification. For those issued after
Absence of Closing-Out Rules or Guidelines such ratification, the judicial action or
proceeding shall be commenced within six
Seventh and final point regarding the plain-language months from the issuance thereof.
approach, one of the practical difficulties that results
from it is the fact that there is nothing by way of The sequestration or freeze order is deemed
transitory provisions that would serve to confirm the automatically lifted if no judicial action or
theory that the omission of the term "service contract" proceeding is commenced as herein
from the 1987 Constitution signaled the demise of provided."  43]
service contracts.
It is inconceivable that the drafters of the Constitution
The framers knew at the time they were deliberating would leave such an important matter -- an
that there were various service contracts extant and in expression of sovereignty as it were -- indefinitely
force and effect, including those in the petroleum hanging in the air in a formless and ineffective state.
industry. Many of these service contracts were long- Indeed, the complete absence of even a general
term (25 years) and had several more years to run. If framework only serves to further deflate petitioners'
they had meant to ban service contracts altogether, theory, like a child's balloon losing its air.
they would have had to provide for the termination or
pretermination of the existing contracts. Accordingly, Under the circumstances, the logical inconsistencies
they would have supplied the specifics and resulting from petitioners' literal and purely verba
the when and how of effecting the extinguishment of legis approach to paragraph 4 of Section 2 of Article
these existing contracts (or at least the mechanics for XII compel a resort to other aids to interpretation.
determining them); and of putting in place the means
to address the just claims of the contractors for Petitioners' Posture Also Negated
compensation for their investments, lost opportunities, by  Ratio Legis Et Anima
and so on, if not for the recovery thereof.
Thus, in order to resolve the inconsistencies,
If the framers had intended to put an end to service incongruities and ambiguities encountered and to
contracts, they would have at least left specific supply the deficiencies of the plain-language
instructions to Congress to deal with these closing-out approach, there is a need for recourse to the
issues, perhaps by way of general guidelines and a proceedings of the 1986 Constitutional
timeline within which to carry them out. The following Commission. There is a need for ratio legis et anima.
are some extant examples of such transitory
guidelines set forth in Article XVIII of our Constitution: Service Contracts Not
"Deconstitutionalized"
"Section 23. Advertising entities affected by
paragraph (2), Section 11 of Article XVI of this Pertinent portions of the deliberations of the members
Constitution shall have five years from its of the Constitutional Commission (ConCom)
ratification to comply on a graduated and conclusively show that they discussed agreements
proportionate basis with the minimum Filipino involving either technical or financial assistance in the
32

ownership requirement therein. same breadth as service contracts and used the

terms interchangeably. The following exchange
Page

xxxxxxxxx between Commissioner Jamir (sponsor of the

provision) and Commissioner Suarez irrefutably MR. JAMIR. Thank you very much. 44

proves that the "agreements involving technical or

financial assistance" were none other than service The following exchange leaves no doubt that the
contracts. commissioners knew exactly what they were dealing
with: service contracts.
THE PRESIDENT. Commissioner Jamir is
recognized. We are still on Section 3. THE PRESIDENT. Commissioner Gascon is
recognized.
MR. JAMIR. Yes, Madam President. With
respect to the second paragraph of Section 3, MR. GASCON. Commissioner Jamir had
my amendment by substitution reads: THE proposed an amendment with regard to
PRESIDENT MAY ENTER INTO special service contracts which was
AGREEMENTS WITH FOREIGN-OWNED accepted by the Committee. Since the
CORPORATIONS INVOLVING EITHER Committee has accepted it, I would like to ask
TECHNICAL OR FINANCIAL ASSISTANCE some questions.
FOR LARGE-SCALE EXPLORATION,
DEVELOPMENT AND UTILIZATION OF THE PRESIDENT. Commissioner Gascon
NATURAL RESOURCES ACCORDING TO may proceed.
THE TERMS AND CONDITIONS PROVIDED
BY LAW.
MR. GASCON. As it is proposed now,
such service contracts will be entered into by
MR. VILLEGAS. The Committee accepts the the President with the guidelines of a general
amendment. Commissioner Suarez will give law on service contract to be enacted by
the background. Congress. Is that correct?

MR. JAMIR. Thank you. MR. VILLEGAS. The Commissioner is right,

Madam President.
THE PRESIDENT. Commissioner Suarez is
recognized. MR. GASCON. According to the original
proposal, if the President were to enter into a
MR. SUAREZ. Thank you, Madam President. particular agreement, he would need the
concurrence of Congress. Now that it has
Will Commissioner Jamir answer a few been changed by the proposal of
clarificatory questions? Commissioner Jamir in that Congress will set
the general law to which the President shall
MR. JAMIR. Yes, Madam President. comply, the President will, therefore, not need
the concurrence of Congress every time he
MR. SUAREZ. This particular portion of the enters into service contracts. Is that correct?
section has reference to what was popularly
known before as service contracts, among MR. VILLEGAS. That is right.
other things, is that correct?
MR. GASCON. The proposed amendment of
MR. JAMIR. Yes, Madam President. Commissioner Jamir is in indirect contrast to
my proposed amendment, so I would like to
MR. SUAREZ. As it is formulated, the object and present my proposed amendment
President may enter into service to the body.
contracts but subject to the guidelines that
may be promulgated by Congress? xxxxxxxxx

MR. JAMIR. That is correct. MR. GASCON. Yes, it will be up to the body.

MR. SUAREZ. Therefore, that aspect of I feel that the general law to be set by
negotiation and consummation will fall on the Congress as regard service contract
President, not upon Congress? agreements which the President will enter
into might be too general or since we do not
MR. JAMIR. That is also correct, Madam know the content yet of such a law, it might be
President. that certain agreements will be detrimental to
the interest of the Filipinos. This is in direct
contrast to my proposal which provides that
MR. SUAREZ. Except that all of these
there be effective constraints in the
contracts, service or otherwise, must be
implementation of service contracts.
made strictly in accordance with guidelines
prescribed by Congress?
So instead of a general law to be passed by
Congress to serve as a guideline to the
MR. JAMIR. That is also correct.
President when entering into service
contract agreements, I propose that
MR. SUAREZ. And the Gentleman is thinking every service contract entered into by the
in terms of a law that uniformly covers President would need the concurrence of
situations of the same nature? Congress, so as to assure the Filipinos of their
interests with regard to the issue in Section 3
MR. JAMIR. That is 100 percent correct.
33

on all lands of the public domain. My

alternative amendment, which we will discuss
Page

MR. SUAREZ. I thank the Commissioner. later, reads: THAT THE PRESIDENT SHALL
ENTER INTO SUCH AGREEMENTS ONLY
WITH THE CONCURRENCE OF TWO- a notification requirement from the Office of
THIRDS VOTE OF ALL THE MEMBERS OF the President that such service
CONGRESS SITTING SEPARATELY. contracts had been entered into, subject then
to the scrutiny of the Members of Congress.
xxxxxxxxx This pertains to a situation where the service
contracts are already entered into, and all
MR. BENGZON. The reason we made that that this amendment seeks is the reporting
shift is that we realized the original proposal requirement from the Office of the President.
could breed corruption. By the way, this is not Will Commissioner Jamir entertain that?
just confined to service contracts but also
to financial assistance. If we are going to MR. JAMIR. I will gladly do so, if it is still
make every single contract subject to the within my power.
concurrence of Congress – which, according
to the Commissioner's amendment is the MR. VILLEGAS. Yes, the Committee accepts
concurrence of two-thirds of Congress voting the amendment.
separately – then (1) there is a very great
chance that each contract will be different xxxxxxxxx
from another; and (2) there is a great
temptation that it would breed corruption SR. TAN. Madam President, may I ask a
because of the great lobbying that is going to question?
happen. And we do not want to subject our
legislature to that.
THE PRESIDENT. Commissioner Tan is
recognized.
Now, to answer the Commissioner's
apprehension, by "general law," we do not
SR. TAN. Am I correct in thinking that the only
mean statements of motherhood. Congress
difference between these future service
can build all the restrictions that it wishes into
contracts and the past service
that general law so that every contract entered
contracts under Mr. Marcos is the general
into by the President under that specific area
law to be enacted by the legislature and the
will have to be uniform. The President has no
notification of Congress by the President?
choice but to follow all the guidelines that will
That is the only difference, is it not?
be provided by law.
MR. VILLEGAS. That is right.
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 constraints SR. TAN. So those are the safeguards.
there will be in it. And to my mind, although
the Committee's contention that the regular MR. VILLEGAS. Yes. There was no law at all
concurrence from Congress would subject governing service contracts before.
Congress to extensive lobbying, I think that is
a risk we will have to take since Congress is a SR. TAN. Thank you, Madam President. 45

body of representatives of the people whose

membership will be changing regularly as More Than Mere Financial
there will be changing circumstances every and Technical Assistance
time certain agreements are made. It would Entailed by the Agreements
be best then to keep in tab and attuned to the
interest of the Filipino people, whenever the The clear words of Commissioner Jose N. Nolledo
President enters into any agreement with quoted below explicitly and eloquently demonstrate
regard to such an important matter that the drafters knew that the agreements with
as technical or financial assistance for foreign corporations were going to entail not mere
large-scale exploration, development and technical or financial assistance but, rather, foreign
utilization of natural resources or service investment in and management of an enterprise
contracts, the people's elected involved in large-scale exploration, development and
representatives should be on top of it. utilization of minerals, petroleum, and other mineral
oils.
xxxxxxxxx
THE PRESIDENT. Commissioner Nolledo is
MR. OPLE. Madam President, we do not need recognized.
to suspend the session. If Commissioner
Gascon needs a few minutes, I can fill up the MR. NOLLEDO. Madam President, I have the
remaining time while he completes his permission of the Acting Floor Leader to
proposed amendment. I just wanted to ask speak for only two minutes in favor of the
Commissioner Jamir whether he would amendment of Commissioner Gascon.
entertain a minor amendment to his
amendment, and it reads as follows: THE THE PRESIDENT. Commissioner Nolledo
PRESIDENT SHALL SUBSEQUENTLY may proceed.
NOTIFY CONGRESS OF EVERY SERVICE
CONTRACT ENTERED INTO IN
ACCORDANCE WITH THE GENERAL LAW. I MR. NOLLEDO. With due respect to the
think the reason is, if I may state it briefly, as members of the Committee and
Commissioner Bengzon said, Congress can Commissioner Jamir, I am in favor of the
objection of Commissioner Gascon.
34

always change the general law later on to

conform to new perceptions of standards that
Madam President, I was one of those
Page

should be built into service contracts. But the

only way Congress can do this is if there were who refused to sign the 1973
 Constitution, and one of the reasons is THE PRESIDENT. What does the Committee
that there were many provisions in the say with respect to the first amendment in lieu
Transitory Provisions therein that of "NATURAL RESOURCES"?
favored aliens. I was shocked when I
read a provision authorizing service MR. VILLEGAS. Could Commissioner Davide
contracts while we, in this explain that?
Constitutional Commission, provided
for Filipino control of the economy. We MR. DAVIDE. Madam President, with the use
are, therefore, providing for of "NATURAL RESOURCES" here, it would
exceptional instances where aliens necessarily include all lands of the public
may circumvent Filipino control of our domain, our marine resources, forests, parks
economy. And one way of and so on. So we would like to limit the scope
circumventing the rule in favor of of these service contracts to those areas
Filipino control of the economy is to really where these may be needed, the
recognize service contracts. exploitation, development and exploration of
minerals, petroleum and other mineral oils.
As far as I am concerned, if I should And so, we believe that we should really, if we
have my own way, I am for the want to grant service contracts at all, limit
complete deletion of this the same to only those particular areas
provision. However, we are where Filipino capital may not be
presenting a compromise in the sufficient, and not to all natural resources.
sense that we are requiring a two-
thirds vote of all the Members of MR. SUAREZ. Just a point of clarification
Congress as a safeguard. I think we again, Madam President. When the
should not mistrust the future Commissioner made those enumerations and
Members of Congress by saying that specifications, I suppose he deliberately did
the purpose of this provision is to not include "agricultural land"?
avoid corruption. We cannot claim that
they are less patriotic than we are. I
MR. DAVIDE. That is precisely the reason we
think the Members of this Commission
have to enumerate what these resources are
should know that entering into service
into which service contracts may enter. So,
contracts is an exception to the rule
beyond the reach of any service contract will
on protection of natural resources for
be lands of the public domain, timberlands,
the interest of the nation, and
forests, marine resources, fauna and flora,
therefore, being an exception it should
wildlife and national parks.
47

be subject, whenever possible, to

stringent rules. It seems to me that we
are liberalizing the rules in favor of After the Jamir amendment was voted upon and
aliens. approved by a vote of 21 to 10 with 2 abstentions,
Commissioner Davide made the following statement,
which is very relevant to our quest:
I say these things with a heavy heart,
Madam President. I do not claim to be
a nationalist, but I love my THE PRESIDENT. Commissioner Davide is
country. Although we need recognized.
investments, we must adopt
safeguards that are truly reflective of MR. DAVIDE. I am very glad that
the sentiments of the people and not Commissioner Padilla emphasized minerals,
mere cosmetic safeguards as they petroleum and mineral oils. The Commission
now appear in the Jamir amendment. has just approved the possible foreign entry
(Applause) into the development, exploration and
utilization of these minerals, petroleum and
Thank you, Madam President. 46 other mineral oils by virtue of the Jamir
amendment. I voted in favor of the Jamir
amendment because it will eventually give
Another excerpt, featuring then Commissioner (now
way to vesting in exclusively Filipino citizens
Chief Justice) Hilario G. Davide Jr., indicates the
and corporations wholly owned by Filipino
limitations of the scope of such service contracts
citizens the right to utilize the other natural
-- they are valid only in regard to minerals, petroleum
resources. This means that as a matter of
and other mineral oils, not to all natural resources.
policy, natural resources should be utilized
and exploited only by Filipino citizens or
THE PRESIDENT. Commissioner Davide is corporations wholly owned by such citizens.
recognized. But by virtue of the Jamir amendment, since
we feel that Filipino capital may not be enough
MR. DAVIDE. Thank you, Madam President. for the development and utilization of
This is an amendment to the Jamir minerals, petroleum and other mineral oils, the
amendment and also to the Ople amendment. President can enter into service
I propose to delete "NATURAL RESOURCES" contracts with foreign corporations precisely
and substitute it with the following: for the development and utilization of such
MINERALS, PETROLEUM AND OTHER resources. And so, there is nothing to fear that
MINERAL OILS. On the Ople amendment, I we will stagnate in the development of
propose to add: THE NOTIFICATION TO minerals, petroleum and mineral oils because
CONGRESS SHALL BE WITHIN THIRTY we now allow service contracts. x x x." 48
35

DAYS FROM THE EXECUTION OF THE

SERVICE CONTRACT. The foregoing are mere fragments of the framers'
Page

lengthy discussions of the provision dealing

with agreements x x x involving either technical or
financial assistance, which ultimately became exploration, development and utilization of
paragraph 4 of Section 2 of Article XII of the natural resources.
Constitution. Beyond any doubt, the members of the
ConCom were actually debating about the martial- · This provision was prompted by the
law-era service contracts for which they were perceived insufficiency of Filipino capital and
crafting appropriate safeguards. the felt need for foreign investments in the
EDU of minerals and petroleum resources.
In the voting that led to the approval of Article XII by
the ConCom, the explanations given by · The framers for the most part debated about
Commissioners Gascon, Garcia and Tadeo indicated the sort of safeguards that would be
that they had voted to reject this provision on account considered adequate and reasonable. But
of their objections to the "constitutionalization" of the some of them, having more "radical" leanings,
"service contract" concept. wanted to ban service contracts altogether; for
them, the provision would permit aliens to
Mr. Gascon said, "I felt that if we would exploit and benefit from the nation's natural
constitutionalize any provision on service contracts, resources, which they felt should be reserved
this should always be with the concurrence of only for Filipinos.
Congress and not guided only by a general law to be
promulgated by Congress." Mr.
49 
Garcia · In the explanation of their votes, the
explained, "Service contracts are given individual commissioners were heard by the
constitutional legitimization in Sec. 3, even when they entire body. They sounded off their individual
have been proven to be inimical to the interests of the opinions, openly enunciated their
nation, providing, as they do, the legal loophole for philosophies, and supported or attacked the
the exploitation of our natural resources for the provisions with fervor. Everyone's viewpoint
benefit of foreign interests." Likewise, Mr. Tadeo
50 
was heard.
cited inter alia the fact that service contracts
continued to subsist, enabling foreign interests to · In the final voting, the Article on the National
benefit from our natural resources. It was hardly
51 
Economy and Patrimony -- including
likely that these gentlemen would have objected paragraph 4 allowing service contracts with
so strenuously, had the provision called for mere foreign corporations as an exception to the
technical or financial assistance and nothing general norm in paragraph 1 of Section 2 of
more. the same article -- was resoundingly approved
by a vote of 32 to 7, with 2 abstentions.
The deliberations of the ConCom and some
commissioners' explanation of their votes leave no Agreements Involving Technical
room for doubt that the service contract concept
precisely underpinned the commissioners'
or Financial Assistance Are
understanding of the "agreements involving either
technical or financial assistance."
Service Contracts With Safeguards
Summation of the
Concom Deliberations From the foregoing, we are impelled to conclude that
the phrase agreements involving either technical or
financial assistance, referred to in paragraph 4, are in
At this point, we sum up the matters established,
fact service contracts. But unlike those of the 1973
based on a careful reading of the ConCom
variety, the new ones are between foreign
deliberations, as follows:
corporations acting as contractors on the one hand;
and on the other, the government as principal or
· In their deliberations on what was to become "owner" of the works. In the new service contracts, the
paragraph 4, the framers used the foreign contractors provide capital, technology and
term service contracts in referring technical know-how, and managerial expertise in the
to agreements x x x involving either technical creation and operation of large-scale mining/extractive
or financial assistance. enterprises; and the government, through its agencies
(DENR, MGB), actively exercises control and
· They spoke of service contracts as the supervision over the entire operation.
concept was understood in the 1973
Constitution. Such service contracts may be entered into only with
respect to minerals, petroleum and other mineral oils.
· It was obvious from their discussions that The grant thereof is subject to several safeguards,
they were not about to ban or among which are these requirements:
eradicate service contracts.
(1) The service contract shall be crafted in
· Instead, they were plainly crafting provisions accordance with a general law that will set
to put in place safeguards that would standard or uniform terms, conditions and
eliminate or minimize the abuses prevalent requirements, presumably to attain a certain
during the marital law regime. In brief, they uniformity in provisions and avoid the possible
were going to permit service contracts with insertion of terms disadvantageous to the
foreign corporations as contractors, but with country.
safety measures to prevent abuses, as an
exception to the general norm established in (2) The President shall be the signatory for the
the first paragraph of Section 2 of Article XII. government because, supposedly before an
This provision reserves or limits to Filipino agreement is presented to the President for
36

citizens -- and corporations at least 60 percent signature, it will have been vetted several
of which is owned by such citizens -- the times over at different levels to ensure that it
Page
 conforms to law and can withstand public Likewise, it appears rather extravagant to assume that
scrutiny. every one of those who did in fact bother to read the
draft Charter actually understood the import of its
(3) Within thirty days of the executed provisions, much less analyzed it vis-à-vis the
agreement, the President shall report it to previous Constitutions. We believe that in reality, a
Congress to give that branch of government good percentage of those who voted in favor of it did
an opportunity to look over the agreement and so more out of faith and trust. For them, it was the
interpose timely objections, if any. product of the hard work and careful deliberation of a
group of intelligent, dedicated and trustworthy men
Use of the Record of the and women of integrity and conviction, whose love of
country and fidelity to duty could not be questioned.
ConCom to Ascertain Intent
In short, a large proportion of the voters voted "yes"
because the drafters, or a majority of them, endorsed
At this juncture, we shall address, rather than gloss
the proposed Constitution. What this fact translates to
over, the use of the "framers' intent" approach, and
is the inescapable conclusion that many of the voters
the criticism hurled by petitioners who quote a ruling
in the referendum did not form their own isolated
of this Court:
judgment about the draft Charter, much less about
particular provisions therein. They only relied or fell
"While it is permissible in this jurisdiction to back and acted upon the favorable endorsement or
consult the debates and proceedings of the recommendation of the framers as a group. In other
constitutional convention in order to arrive at words, by voting yes, they may be deemed to have
the reason and purpose of the resulting signified their voluntary adoption of the understanding
Constitution, resort thereto may be had only and interpretation of the delegates with respect to the
when other guides fail as said proceedings proposed Charter and its particular provisions. "If it's
are powerless to vary the terms of the good enough for them, it's good enough for me;" or, in
Constitution when the meaning is clear. many instances, "If it's good enough for President
Debates in the constitutional convention 'are Cory Aquino, it's good enough for me."
of value as showing the views of the individual
members, and as indicating the reason for
And even for those who voted based on their own
their votes, but they give us no light as to the
individual assessment of the proposed Charter, there
views of the large majority who did not talk,
is no evidence available to indicate that their
much less the mass of our fellow citizens
assessment or understanding of its provisions was in
whose votes at the polls gave that instrument
fact different from that of the drafters. This unwritten
the force of fundamental law. We think it safer
assumption seems to be petitioners' as well. For all
to construe the constitution from what appears
we know, this segment of voters must have read and
upon its face.' The proper interpretation
understood the provisions of the Constitution in the
therefore depends more on how it was
same way the framers had, an assumption that would
understood by the people adopting it than in
account for the favorable votes.
the framers' understanding thereof." 52

Fundamentally speaking, in the process of rewriting

The notion that the deliberations reflect only the views
the Charter, the members of the ConCom as a group
of those members who spoke out and not the views of
were supposed to represent the entire Filipino people.
the majority who remained silent should be clarified.
Thus, we cannot but regard their views as being very
We must never forget that those who spoke out were
much indicative of the thinking of the people with
heard by those who remained silent and did not react.
respect to the matters deliberated upon and to the
If the latter were silent because they happened not to
Charter as a whole.
be present at the time, they are presumed to have
read the minutes and kept abreast of the
deliberations. By remaining silent, they are deemed to It is therefore reasonable and unavoidable to
have signified their assent to and/or conformity with at make the following conclusion, based on the
least some of the views propounded or their lack of above arguments. As written by the framers and
objections thereto. It was incumbent upon them, as ratified and adopted by the people, the
representatives of the entire Filipino people, to follow Constitution allows the continued use of service
the deliberations closely and to speak their minds on contracts with foreign corporations -- as
the matter if they did not see eye to eye with the contractors who would invest in and operate and
proponents of the draft provisions. manage extractive enterprises, subject to the full
control and supervision of the State -- sans the
abuses of the past regime. The purpose is clear:
In any event, each and every one of the
to develop and utilize our mineral, petroleum and
commissioners had the opportunity to speak out and
other resources on a large scale for the immediate
to vote on the matter. Moreover, the individual
and tangible benefit of the Filipino people.
explanations of votes are on record, and they show
where each delegate stood on the issues. In sum, we
cannot completely denigrate the value or In view of the foregoing discussion, we should reverse
usefulness of the record of the ConCom, simply the Decision of January 27, 2004, and in fact now
because certain members chose not to speak out. hold a view different from that of the Decision, which
had these findings: (a) paragraph 4 of Section 2 of
Article XII limits foreign involvement in the local
It is contended that the deliberations therein did not
mining industry to agreements strictly for either
necessarily reflect the thinking of the voting population
financial or technical assistance only; (b) the same
that participated in the referendum and ratified the
paragraph precludes agreements that grant to foreign
Constitution. Verily, whether we like it or not, it is a bit
corporations the management of local mining
too much to assume that every one of those who
operations, as such agreements are purportedly in the
37

voted to ratify the proposed Charter did so only after

nature of service contracts as these were understood
carefully reading and mulling over it, provision by
Page

under the 1973 Constitution; (c) these service

provision.
contracts were supposedly "de-constitutionalized" and
proscribed by the omission of the term service encompassing control; but nevertheless sufficient to
contracts from the 1987 Constitution; (d) since the give the State the power to direct, restrain, regulate
WMCP FTAA contains provisions permitting the and govern the affairs of the extractive enterprises.
foreign contractor to manage the concern, the said Control by the State may be on a macro level, through
FTAA is invalid for being a prohibited service contract; the establishment of policies, guidelines, regulations,
and (e) provisions of RA 7942 and DAO 96-40, which industry standards and similar measures that would
likewise grant managerial authority to the foreign enable the government to control the conduct of
contractor, are also invalid and unconstitutional. affairs in various enterprises and restrain activities
deemed not desirable or beneficial.
Ultimate Test: State's "Control"
Determinative of Constitutionality The end in view is ensuring that these enterprises
contribute to the economic development and general
But we are not yet at the end of our quest. Far from it. welfare of the country, conserve the environment, and
It seems that we are confronted with a possible uplift the well-being of the affected local communities.
collision of constitutional provisions. On the one hand, Such a concept of control would be compatible with
paragraph 1 of Section 2 of Article XII explicitly permitting the foreign contractor sufficient and
mandates the State to exercise "full control and reasonable management authority over the enterprise
supervision" over the exploration, development and it invested in, in order to ensure that it is operating
utilization of natural resources. On the other hand, efficiently and profitably, to protect its investments and
paragraph 4 permits safeguarded service contracts to enable it to succeed.
with foreign contractors. Normally, pursuant thereto,
the contractors exercise management prerogatives The question to be answered, then, is whether RA
over the mining operations and the enterprise as a 7942 and its Implementing Rules enable the
whole. There is thus a legitimate ground to be government to exercise that degree of control
concerned that either the State's full control and sufficient to direct and regulate the conduct of
supervision may rule out any exercise of management affairs of individual enterprises and restrain
authority by the foreign contractor; or, the other way undesirable activities.
around, allowing the foreign contractor full
management prerogatives may ultimately negate the On the resolution of these questions will depend the
State's full control and supervision. validity and constitutionality of certain provisions of
the Philippine Mining Act of 1995 (RA 7942) and its
Ut Magis Valeat Implementing Rules and Regulations (DAO 96-40), as
Quam Pereat well as the WMCP FTAA.

Under the third principle of constitutional construction Indeed, petitioners charge that RA 7942, as well as
54 

laid down in Francisco -- ut magis valeat quam pereat its Implementing Rules and Regulations, makes it
-- every part of the Constitution is to be given effect, possible for FTAA contracts to cede full control and
and the Constitution is to be read and understood as management of mining enterprises over to fully
a harmonious whole. Thus, "full control and foreign-owned corporations, with the result that the
supervision" by the State must be understood as one State is allegedly reduced to a passive regulator
that does not preclude the legitimate exercise of dependent on submitted plans and reports, with weak
management prerogatives by the foreign review and audit powers. The State does not
contractor. Before any further discussion, we must supposedly act as the owner of the natural resources
stress the primacy and supremacy of the principle of for and on behalf of the Filipino people; it practically
sovereignty and State control and supervision over all has little effective say in the decisions made by the
aspects of exploration, development and utilization of enterprise. Petitioners then conclude that the law, the
the country's natural resources, as mandated in the implementing regulations, and the WMCP FTAA cede
first paragraph of Section 2 of Article XII. "beneficial ownership" of the mineral resources to the
foreign contractor.
But in the next breadth we have to point out that "full
control and supervision" cannot be taken literally to A careful scrutiny of the provisions of RA 7942 and its
mean that the State controls and Implementing Rules belies petitioners' claims.
supervises everything involved, down to the minutest Paraphrasing the Constitution, Section 4 of the statute
details, and makes all decisions required in the clearly affirms the State's control thus:
mining operations. This strained concept of control
and supervision over the mining enterprise would "Sec. 4. Ownership of Mineral Resources. –
render impossible the legitimate exercise by the Mineral resources are owned by the State and
contractors of a reasonable degree of management the exploration, development, utilization and
prerogative and authority necessary and processing thereof shall be under its full
indispensable to their proper functioning. control and supervision. The State may
directly undertake such activities or it may
For one thing, such an interpretation would enter into mineral agreements with
discourage foreign entry into large-scale exploration, contractors.
development and utilization activities; and result in the
unmitigated stagnation of this sector, to the detriment "The State shall recognize and protect the
of our nation's development. This scenario renders rights of the indigenous cultural communities
paragraph 4 inoperative and useless. And as to their ancestral lands as provided for by the
respondents have correctly pointed out, the Constitution."
government does not have to micro-manage the
mining operations and dip its hands into the day-to- The aforequoted provision is substantively reiterated
day affairs of the enterprise in order for it to be in Section 2 of DAO 96-40 as follows:
38

considered as having full control and supervision.

"Sec. 2. Declaration of Policy. All mineral
Page

The concept of control adopted in Section 2 of Article

53 
resources in public and private lands within
XII must be taken to mean less than dictatorial, all-
 the territory and exclusive economic zone of price and more advantageous terms
the Republic of the Philippines are owned by and conditions.
the State. It shall be the responsibility of the
State to promote their rational exploration, "(n) x x x x x x x x x
development, utilization and conservation
through the combined efforts of the "(o) Such other terms and conditions
Government and private sector in order to consistent with the Constitution and
enhance national growth in a way that with this Act as the Secretary may
effectively safeguards the environment and deem to be for the best interest of the
protects the rights of affected communities." State and the welfare of the Filipino
people."
Sufficient Control Over Mining
Operations Vested in the State The foregoing provisions of Section 35
by RA 7942 and DAO 96-40 of RA 7942 are also reflected and
implemented in Section 56 (g), (h), (l),
RA 7942 provides for the State's control and (m) and (n) of the Implementing Rules,
supervision over mining operations. The following DAO 96-40.
provisions thereof establish the mechanism of
inspection and visitorial rights over mining operations Moreover, RA 7942 and DAO 96-40 also provide
and institute reportorial requirements in this manner: various stipulations confirming the government's
control over mining enterprises:
1. Sec. 8 which provides for the DENR's
power of over-all supervision and periodic · The contractor is to relinquish to the
review for "the conservation, management, government those portions of the contract
development and proper use of the State's area not needed for mining operations and not
mineral resources"; covered by any declaration of mining
feasibility (Section 35-e, RA 7942; Section 60,
2. Sec. 9 which authorizes the Mines and DAO 96-40).
Geosciences Bureau (MGB) under the DENR
to exercise "direct charge in the administration · The contractor must comply with the
and disposition of mineral resources", and provisions pertaining to mine safety, health
empowers the MGB to "monitor the and environmental protection (Chapter XI, RA
compliance by the contractor of the terms and 7942; Chapters XV and XVI, DAO 96-40).
conditions of the mineral agreements",
"confiscate surety and performance bonds",
· For violation of any of its terms and
and deputize whenever necessary any
conditions, government may cancel an FTAA.
member or unit of the Phil. National Police,
(Chapter XVII, RA 7942; Chapter XXIV, DAO
barangay, duly registered non-governmental
96-40).
organization (NGO) or any qualified person to
police mining activities;
· An FTAA contractor is obliged to open its
books of accounts and records for inspection
3. Sec. 66 which vests in the Regional
by the government (Section 56-m, DAO 96-
Director "exclusive jurisdiction over safety
40).
inspections of all installations, whether surface
or underground", utilized in mining operations.
· An FTAA contractor has to dispose of the
minerals and by-products at the highest
4. Sec. 35, which incorporates into all FTAAs
market price and register with the MGB a copy
the following terms, conditions and warranties:
of the sales agreement (Section 56-n, DAO
96-40).
"(g) Mining operations shall be
conducted in accordance with the
· MGB is mandated to monitor the contractor's
provisions of the Act and its IRR.
compliance with the terms and conditions of
the FTAA; and to deputize, when necessary,
"(h) Work programs and minimum any member or unit of the Philippine National
expenditures commitments. Police, the barangay or a DENR-accredited
nongovernmental organization to police
xxxxxxxxx mining activities (Section 7-d and -f, DAO 96-
40).
"(k) Requiring proponent to effectively
use appropriate anti-pollution · An FTAA cannot be transferred or assigned
technology and facilities to protect the without prior approval by the President
environment and restore or (Section 40, RA 7942; Section 66, DAO 96-
rehabilitate mined-out areas. 40).

"(l) The contractors shall furnish the · A mining project under an FTAA cannot
Government records of geologic, proceed to the
accounting and other relevant data for construction/development/utilization stage,
its mining operation, and that books of unless its Declaration of Mining Project
accounts and records shall be open Feasibility has been approved by government
for inspection by the government. x x (Section 24, RA 7942).
x.
39

· The Declaration of Mining Project Feasibility

Page

"(m) Requiring the proponent to filed by the contractor cannot be approved

dispose of the minerals at the highest
without submission of the following · An FTAA contractor is required to post a
documents: financial guarantee bond in favor of the
government in an amount equivalent to its
1. Approved mining project feasibility expenditures obligations for any particular
study (Section 53-d, DAO 96-40) year. This requirement is apart from the
representations and warranties of the
2. Approved three-year work program contractor that it has access to all the
(Section 53-a-4, DAO 96-40) financing, managerial and technical expertise
and technology necessary to carry out the
objectives of the FTAA (Section 35-b, -e, and
3. Environmental compliance
-f, RA 7942).
certificate (Section 70, RA 7942)
· Other reports to be submitted by the
4. Approved environmental protection
contractor, as required under DAO 96-40, are
and enhancement program (Section
as follows: an environmental report on the
69, RA 7942)
rehabilitation of the mined-out area and/or
mine waste/tailing covered area, and anti-
5. Approval by the Sangguniang pollution measures undertaken (Section 35-a-
Panlalawigan/Bayan/Barangay 2); annual reports of the mining operations
(Section 70, RA 7942; Section 27, RA and records of geologic accounting (Section
7160) 56-m); annual progress reports and final
report of exploration activities (Section 56-2).
6. Free and prior informed consent by
the indigenous peoples concerned, · Other programs required to be submitted by
including payment of royalties through the contractor, pursuant to DAO 96-40, are
a Memorandum of Agreement the following: a safety and health program
(Section 16, RA 7942; Section 59, RA (Section 144); an environmental work program
8371) (Section 168); an annual environmental
protection and enhancement program
· The FTAA contractor is obliged to assist in (Section 171).
the development of its mining community,
promotion of the general welfare of its The foregoing gamut of requirements, regulations,
inhabitants, and development of science and restrictions and limitations imposed upon the FTAA
mining technology (Section 57, RA 7942). contractor by the statute and regulations easily
overturns petitioners' contention. The setup under RA
· The FTAA contractor is obliged to submit 7942 and DAO 96-40 hardly relegates the State to the
reports (on quarterly, semi-annual or annual role of a "passive regulator" dependent on submitted
basis as the case may be; per Section 270, plans and reports. On the contrary, the government
DAO 96-40), pertaining to the following: agencies concerned are empowered to approve or
disapprove -- hence, to influence, direct and change --
1. Exploration the various work programs and the corresponding
minimum expenditure commitments for each of the
2. Drilling exploration, development and utilization phases of the
mining enterprise.
3. Mineral resources and reserves
Once these plans and reports are approved, the
4. Energy consumption contractor is bound to comply with its commitments
therein. Figures for mineral production and sales are
5. Production regularly monitored and subjected to government
review, in order to ensure that the products and by-
products are disposed of at the best prices possible;
6. Sales and marketing even copies of sales agreements have to be
submitted to and registered with MGB. And the
7. Employment contractor is mandated to open its books of accounts
and records for scrutiny, so as to enable the State to
8. Payment of taxes, royalties, fees determine if the government share has been fully
and other Government Shares paid.

9. Mine safety, health and The State may likewise compel the contractor's
environment compliance with mandatory requirements on mine
safety, health and environmental protection, and the
10. Land use use of anti-pollution technology and facilities.
Moreover, the contractor is also obligated to assist in
11. Social development the development of the mining community and to pay
royalties to the indigenous peoples concerned.
12. Explosives consumption
Cancellation of the FTAA may be the penalty for
· An FTAA pertaining to areas within violation of any of its terms and conditions and/or
government reservations cannot be granted noncompliance with statutes or regulations. This
without a written clearance from the general, all-around, multipurpose sanction is no trifling
government agencies concerned (Section 19, matter, especially to a contractor who may have yet to
40

RA 7942; Section 54, DAO 96-40). recover the tens or hundreds of millions of dollars
sunk into a mining project.
Page
Overall, considering the provisions of the statute and Thus, the permit grantee may apply for an MPSA, a
the regulations just discussed, we believe that the joint venture agreement, a co-production agreement,
State definitely possesses the means by which it can or an FTAA over the permit area, and the application
have the ultimate word in the operation of the shall be approved if the permit grantee meets the
enterprise, set directions and objectives, and detect necessary qualifications and the terms and conditions
deviations and noncompliance by the contractor; of any such agreement. Therefore, the contractor will
likewise, it has the capability to enforce compliance be in a position to extract minerals and earn revenues
and to impose sanctions, should the occasion therefor only when the MPSA or another mineral agreement,
arise. or an FTAA, is granted. At that point, the contractor's
rights and obligations will be covered by an FTAA or a
In other words, the FTAA contractor is not free to mineral agreement.
do whatever it pleases and get away with it; on the
contrary, it will have to follow the government line But prior to the issuance of such FTAA or mineral
if it wants to stay in the enterprise. Ineluctably agreement, the exploration permit grantee (or
then, RA 7942 and DAO 96-40 vest in the prospective contractor) cannot yet be deemed to have
government more than a sufficient degree of entered into any contract or agreement with the State,
control and supervision over the conduct of and the grantee would definitely need to have some
mining operations. document or instrument as evidence of its right to
conduct exploration works within the specified area.
Section 3(aq) of RA 7942 This need is met by the exploration permit issued
Not Unconstitutional pursuant to Sections 3(aq), 20 and 23 of RA 7942.

An objection has been expressed that Section In brief, the exploration permit serves a practical
3(aq) of RA 7942 -- which allows a foreign contractor
55  and legitimate purpose in that it protects the
to apply for and hold an exploration permit -- is interests and preserves the rights of the
unconstitutional. The reasoning is that Section 2 of exploration permit grantee (the would-be
Article XII of the Constitution does not allow foreign- contractor) -- foreign or local -- during the period
owned corporations to undertake mining operations of time that it is spending heavily on exploration
directly. They may act only as contractors of the State works, without yet being able to earn revenues to
under an FTAA; and the State, as the party directly recoup any of its investments and
undertaking exploitation of its natural resources, must expenditures. Minus this permit and the protection it
hold through the government all exploration permits affords, the exploration works and expenditures may
and similar authorizations. Hence, Section 3(aq), in end up benefiting only claim-jumpers. Such a
permitting foreign-owned corporations to hold possibility tends to discourage investors and
exploration permits, is unconstitutional. contractors. Thus, Section 3(aq) of RA 7942 may not
be deemed unconstitutional.
The objection, however, is not well-founded. While the
Constitution mandates the State to exercise full The Terms of the WMCP FTAA
control and supervision over the exploitation of
mineral resources, nowhere does it require the A Deference to State Control
government to hold all exploration permits and similar
authorizations. In fact, there is no prohibition at all A perusal of the WMCP FTAA also reveals a slew of
against foreign or local corporations or contractors stipulations providing for State control and
holding exploration permits. The reason is not hard to supervision:
see.
1. The contractor is obligated to account for
Pursuant to Section 20 of RA 7942, an exploration the value of production and sale of minerals
permit merely grants to a qualified person the right (Clause 1.4).
to conduct exploration for all minerals in specified
areas. Such a permit does not amount to an 2. The contractor's work program, activities
authorization to extract and carry off the mineral and budgets must be approved by/on behalf
resources that may be discovered. This phase of the State (Clause 2.1).
involves nothing but expenditures for exploring the
contract area and locating the mineral bodies. As no
3. The DENR secretary has the power to
extraction is involved, there are no revenues or
extend the exploration period (Clause 3.2-a).
incomes to speak of. In short, the exploration permit is
an authorization for the grantee to spend its own
funds on exploration programs that are pre-approved 4. Approval by the State is necessary for
by the government, without any right to recover incorporating lands into the FTAA contract
anything should no minerals in commercial quantities area (Clause 4.3-c).
be discovered. The State risks nothing and loses
nothing by granting these permits to local or foreign 5. The Bureau of Forest Development is
firms; in fact, it stands to gain in the form of data vested with discretion in regard to approving
generated by the exploration activities. the inclusion of forest reserves as part of the
FTAA contract area (Clause 4.5).
Pursuant to Section 24 of RA 7942, an exploration
permit grantee who determines the commercial 6. The contractor is obliged to relinquish
viability of a mining area may, within the term of the periodically parts of the contract area not
permit, file with the MGB a declaration of mining needed for exploration and development
project feasibility accompanied by a work program for (Clause 4.6).
development. The approval of the mining project
7. A Declaration of Mining Feasibility must be
41

feasibility and compliance with other requirements of

RA 7942 vests in the grantee the exclusive right to an submitted for approval by the State (Clause
Page

MPSA or any other mineral agreement, or to an 4.6-b).

FTAA.
8. The contractor is obligated to report to the 22. The State's approval is needed for any
State its exploration activities (Clause 4.9). assignment of the FTAA by the contractor to
an entity other than an affiliate (Clause 14.1).
9. The contractor is required to obtain State
approval of its work programs for the We should elaborate a little on the work programs and
succeeding two-year periods, containing the budgets, and what they mean with respect to the
proposed work activities and expenditures State's ability to exercise full control and effective
budget related to exploration (Clause 5.1). supervision over the enterprise. For instance,
throughout the initial five-year exploration and
10. The contractor is required to obtain State feasibility phase of the project, the contractor is
approval for its proposed expenditures for mandated by Clause 5.1 of the WMCP FTAA to
exploration activities (Clause 5.2). submit a series of work programs (copy furnished the
director of MGB) to the DENR secretary
11. The contractor is required to submit an for approval. The programs will detail the contractor's
annual report on geological, geophysical, proposed exploration activities and budget covering
geochemical and other information relating to each subsequent period of two fiscal years.
its explorations within the FTAA area (Clause
5.3-a). In other words, the concerned government officials
will be informed beforehand of the proposed
12. The contractor is to submit within six exploration activities and expenditures of the
months after expiration of exploration period a contractor for each succeeding two-year period, with
final report on all its findings in the contract the right to approve/disapprove them or require
area (Clause 5.3-b). changes or adjustments therein if deemed necessary.

13. The contractor, after conducting feasibility Likewise, under Clause 5.2(a), the amount that the
studies, shall submit a declaration of mining contractor was supposed to spend for exploration
feasibility, along with a description of the area activities during the first contract year of the
to be developed and mined, a description of exploration period was fixed at not less than P24
the proposed mining operations and the million; and then for the succeeding years, the amount
technology to be employed, and a proposed shall be as agreed between the DENR secretary and
work program for the development phase, for the contractor prior to the commencement of each
approval by the DENR secretary (Clause 5.4). subsequent fiscal year. If no such agreement is
arrived upon, the previous year's expenditure
commitment shall apply.
14. The contractor is obliged to complete the
development of the mine, including
construction of the production facilities, within This provision alone grants the government through
the period stated in the approved work the DENR secretary a very big say in the exploration
program (Clause 6.1). phase of the project. This fact is not something to be
taken lightly, considering that the government has
absolutely no contribution to the exploration
15. The contractor is obligated to submit for
expenditures or work activities and yet is given veto
approval of the DENR secretary a work
power over such a critical aspect of the project. We
program covering each period of three fiscal
cannot but construe as very significant such a degree
years (Clause 6.2).
of control over the project and, resultantly, over the
mining enterprise itself.
16. The contractor is to submit reports to the
DENR secretary on the production, ore
Following its exploration activities or feasibility
reserves, work accomplished and work in
studies, if the contractor believes that any part of the
progress, profile of its work force and
contract area is likely to contain an economic mineral
management staff, and other technical
resource, it shall submit to the DENR secretary a
information (Clause 6.3).
declaration of mining feasibility (per Clause 5.4 of the
FTAA), together with a technical description of the
17. Any expansions, modifications, area delineated for development and production,
improvements and replacements of mining a description of the proposed mining operations
facilities shall be subject to the approval of the including the technology to be used, a work program
secretary (Clause 6.4). for development, an environmental impact statement,
and a description of the contributions to the economic
18. The State has control with respect to the and general welfare of the country to be generated by
amount of funds that the contractor may the mining operations (pursuant to Clause 5.5).
borrow within the Philippines (Clause 7.2).
The work program for development is subject to
19. The State has supervisory power with the approval of the DENR secretary. Upon its
respect to technical, financial and marketing approval, the contractor must comply with it and
issues (Clause 10.1-a). complete the development of the mine, including the
construction of production facilities and installation of
20. The contractor is required to ensure 60 machinery and equipment, within the period provided
percent Filipino equity in the contractor, within in the approved work program for development (per
ten years of recovering specified Clause 6.1).
expenditures, unless not so required by
subsequent legislation (Clause 10.1). Thus, notably, the development phase of the project is
likewise subject to the control and supervision of the
42

21. The State has the right to terminate the government. It cannot be emphasized enough that the
FTAA for the contractor's unremedied proper and timely construction and deployment of the
Page

substantial breach thereof (Clause 13.2); production facilities and the development of the mine
are of pivotal significance to the success of the mining
venture. Any missteps here will potentially be very 8.5. So far as is practicable, the Contractor
costly to remedy. Hence, the submission of the work shall comply with any approved Work
program for development to the DENR secretary for Programme and Budget. It is recognized by
approval is particularly noteworthy, considering that the Secretary and the Contractor that the
so many millions of dollars worth of investments -- details of any Work Programmes or Budgets
courtesy of the contractor -- are made to depend on may require changes in the light of changing
the State's consideration and action. circumstances. The Contractor may make
such changes without approval of the
Throughout the operating period, the contractor is Secretary provided they do not change the
required to submit to the DENR secretary for general objective of any Work Programme,
approval, copy furnished the director of MGB, work nor entail a downward variance of more than
programs covering each period of three fiscal years twenty per centum (20percent) of the relevant
(per Clause 6.2). During the same period (per Clause Budget. All other variations to an approved
6.3), the contractor is mandated to submit various Work Programme or Budget shall be
quarterly and annual reports to the DENR secretary, submitted for approval of the Secretary."
copy furnished the director of MGB, on the tonnages
of production in terms of ores and concentrates, with From the provisions quoted above, petitioners
corresponding grades, values and destinations; generalize by asserting that the government does not
reports of sales; total ore reserves, total tonnage of participate in making critical decisions regarding the
ores, work accomplished and work in progress operations of the mining firm. Furthermore, while the
(installations and facilities related to mining State can require the submission of work programs
operations), investments made or committed, and so and budgets, the decision of the contractor will still
on and so forth. prevail, if the parties have a difference of opinion with
regard to matters affecting operations and
Under Section VIII, during the period of mining management.
operations, the contractor is also required to submit to
the DENR secretary (copy furnished the director of We hold, however, that the foregoing provisions do
MGB) the work program and corresponding budget for not manifest a relinquishment of control. For instance,
the contract area, describing the mining operations Clause 8.2 merely provides a mechanism for
that are proposed to be carried out during the period preventing the business or mining operations from
covered. The secretary is, of course, entitled to grant grinding to a complete halt as a result of possibly
or deny approval of any work program or budget over-long and unjustified delays in the government's
and/or propose revisions thereto. Once the handling, processing and approval of submitted work
program/budget has been approved, the contractor programs and budgets. Anyway, the provision does
shall comply therewith. give the DENR secretary more than sufficient time (60
days) to react to submitted work programs and
In sum, the above provisions of the WMCP FTAA budgets. It cannot be supposed that proper grounds
taken together, far from constituting a surrender of for objecting thereto, if any exist, cannot be
control and a grant of beneficial ownership of mineral discovered within a period of two months.
resources to the contractor in question, bestow upon
the State more than adequate control and On the other hand, Clause 8.3 seeks to provide a
supervision over the activities of the contractor temporary, stop-gap solution in the event a
and the enterprise. disagreement over the submitted work program or
budget arises between the State and the contractor
No Surrender of Control and results in a stalemate or impasse, in order that
Under the WMCP FTAA there will be no unreasonably long delays in the
performance of the works.
Petitioners, however, take aim at Clause 8.2, 8.3, and
8.5 of the WMCP FTAA which, they say, amount to a These temporary or stop-gap solutions are not
relinquishment of control by the State, since it "cannot necessarily evil or wrong. Neither does it follow that
truly impose its own discretion" in respect of the the government will inexorably be aggrieved if and
submitted work programs. when these temporary remedies come into play. First,
avoidance of long delays in these situations will
"8.2. The Secretary shall be deemed to have undoubtedly redound to the benefit of the State as
approved any Work Programme or Budget or well as the contractor. Second, who is to say that the
variation thereof submitted by the Contractor work program or budget proposed by the contractor
unless within sixty (60) days after submission and deemed approved under Clause 8.3 would not be
by the Contractor the Secretary gives notice the better or more reasonable or more effective
declining such approval or proposing a alternative? The contractor, being the "insider," as it
revision of certain features and specifying its were, may be said to be in a better position than the
reasons therefor ('the Rejection Notice'). State -- an outsider looking in -- to determine what
work program or budget would be appropriate, more
effective, or more suitable under the circumstances.
8.3. If the Secretary gives a Rejection Notice,
the Parties shall promptly meet and endeavor
to agree on amendments to the Work All things considered, we take exception to the
Programme or Budget. If the Secretary and characterization of the DENR secretary as a
the Contractor fail to agree on the proposed subservient nonentity whom the contractor can
revision within 30 days from delivery of the overrule at will, on account of Clause 8.3. And neither
Rejection Notice then the Work Programme is it true that under the same clause, the DENR
or Budget or variation thereof proposed by the secretary has no authority whatsoever to disapprove
Contractor shall be deemed approved, so as the work program. As Respondent WMCP reasoned
in its Reply-Memorandum, the State -- despite Clause
43

not to unnecessarily delay the performance of

the Agreement. 8.3 -- still has control over the contract area and it
Page

may, as sovereign authority, prohibit work thereon

until the dispute is resolved. And ultimately, the State
8.4. x x x x x x x x x
may terminate the agreement, pursuant to Clause agrees that the contractor shall "(e) have the right to
13.2 of the same FTAA, citing substantial breach require the Government at the Contractor's own cost,
thereof. Hence, it clearly retains full and effective to purchase or acquire surface areas for and on
control of the exploitation of the mineral resources. behalf of the Contractor at such price and terms as
may be acceptable to the contractor. At the
On the other hand, Clause 8.5 is merely an termination of this Agreement such areas shall be
acknowledgment of the parties' need for flexibility, sold by public auction or tender and the Contractor
given that no one can accurately forecast under all shall be entitled to reimbursement of the costs of
circumstances, or predict how situations may change. acquisition and maintenance, adjusted for inflation,
Hence, while approved work programs and budgets from the proceeds of sale."
are to be followed and complied with as far as
practicable, there may be instances in which changes According to petitioners, "government becomes a
will have to be effected, and effected rapidly, since subcontractor to the contractor" and may, on account
events may take shape and unfold with suddenness of this provision, be compelled "to make use of its
and urgency. Thus, Clause 8.5 allows the contractor power of eminent domain, not for public purposes but
to move ahead and make changes without the on behalf of a private party, i.e., the contractor."
express or implicit approval of the DENR secretary. Moreover, the power of the courts to determine the
Such changes are, however, subject to certain amount corresponding to the constitutional
conditions that will serve to limit or restrict the requirement of just compensation has allegedly also
variance and prevent the contractor from straying very been contracted away by the government, on account
far from what has been approved. of the latter's commitment that the acquisition shall be
at such terms as may be acceptable to the contractor.
Clause 8.5 provides the contractor a certain amount
of flexibility to meet unexpected situations, while still However, private respondent has proffered a logical
guaranteeing that the approved work programs and explanation for the provision. Section 10.2(e)
58 

budgets are not abandoned altogether. Clause 8.5 contemplates a situation applicable to foreign-owned
does not constitute proof that the State has corporations. WMCP, at the time of the execution of
relinquished control. And ultimately, should there be the FTAA, was a foreign-owned corporation and
disagreement with the actions taken by the contractor therefore not qualified to own land. As contractor, it
in this instance as well as under Clause 8.3 discussed has at some future date to construct the infrastructure
above, the DENR secretary may resort to -- the mine processing plant, the camp site, the
cancellation/termination of the FTAA as the ultimate tailings dam, and other infrastructure -- needed for the
sanction. large-scale mining operations. It will then have to
identify and pinpoint, within the FTAA contract area,
Discretion to Select Contract the particular surface areas with favorable topography
Area Not an Abdication of Control deemed ideal for such infrastructure and will need to
acquire the surface rights. The State owns the mineral
Next, petitioners complain that the contractor has full deposits in the earth, and is also qualified to own land.
discretion to select -- and the government has no say
whatsoever as to -- the parts of the contract area to Section 10.2(e) sets forth the mechanism whereby the
be relinquished pursuant to Clause 4.6 of the WMCP foreign-owned contractor, disqualified to own land,
FTAA. This clause, however, does not constitute
56  identifies to the government the specific surface areas
abdication of control. Rather, it is a mere within the FTAA contract area to be acquired for the
acknowledgment of the fact that the contractor will mine infrastructure. The government then acquires
have determined, after appropriate exploration works, ownership of the surface land areas on behalf of the
which portions of the contract area do not contain contractor, in order to enable the latter to proceed to
minerals in commercial quantities sufficient to justify fully implement the FTAA.
developing the same and ought therefore to be
relinquished. The State cannot just substitute its The contractor, of course, shoulders the purchase
judgment for that of the contractor and dictate upon price of the land. Hence, the provision allows it, after
the latter which areas to give up. termination of the FTAA, to be reimbursed from
proceeds of the sale of the surface areas, which the
Moreover, we can be certain that the contractor's self- government will dispose of through public bidding. It
interest will propel proper and efficient relinquishment. should be noted that this provision will not be
According to private respondent, a mining company
57  applicable to Sagittarius as the present FTAA
tries to relinquish as much non-mineral areas as soon contractor, since it is a Filipino corporation qualified to
as possible, because the annual occupation fees paid own and hold land. As such, it may therefore freely
to the government are based on the total hectarage of negotiate with the surface rights owners and acquire
the contract area, net of the areas relinquished. Thus, the surface property in its own right.
the larger the remaining area, the heftier the amount
of occupation fees to be paid by the contractor. Clearly, petitioners have needlessly jumped to
Accordingly, relinquishment is not an issue, given that unwarranted conclusions, without being aware of the
the contractor will not want to pay the annual rationale for the said provision. That provision does
occupation fees on the non-mineral parts of its not call for the exercise of the power of eminent
contract area. Neither will it want to relinquish domain -- and determination of just compensation is
promising sites, which other contractors may not an issue -- as much as it calls for a qualified party
subsequently pick up. to acquire the surface rights on behalf of a foreign-
owned contractor.
Government Not a Subcontractor
Rather than having the foreign contractor act through
Petitioners further maintain that the contractor can a dummy corporation, having the State do the
44

compel the government to exercise its power of purchasing is a better alternative. This will at least
eminent domain to acquire surface areas within the cause the government to be aware of such
Page

contract area for the contractor's use. Clause 10.2 (e) transaction/s and foster transparency in the
of the WMCP FTAA provides that the government contractor's dealings with the local property owners.
The government, then, will not act as a subcontractor in the net mining revenue, which is the essential thing
of the contractor; rather, it will facilitate the transaction to consider.
and enable the parties to avoid a technical violation of
the Anti-Dummy Law. In brief, the alarum raised over the contractor's right to
mortgage the minerals is simply unwarranted. Just the
Absence of Provision same, the contractor must account for the value of
Requiring Sale at Posted mineral production and the sales proceeds therefrom.
Prices Not Problematic Likewise, under the WMCP FTAA, the government
remains entitled to its sixty percent share in the net
The supposed absence of any provision in the WMCP mining revenues of the contractor. The latter's right to
FTAA directly and explicitly requiring the contractor mortgage the minerals does not negate the State's
to sell the mineral products at posted or market right to receive its share of net mining revenues.
prices is not a problem. Apart from Clause 1.4 of the
FTAA obligating the contractor to account for the total Shareholders Free to Sell Their Stocks
value of mineral production and the sale of minerals,
we can also look to Section 35 of RA 7942, which Petitioners likewise criticize Clause 10.2(k), which
incorporates into all FTAAs certain terms, conditions gives the contractor authority "to change its equity
and warranties, including the following: structure at any time." This provision may seem
somewhat unusual, but considering that WMCP then
"(l) The contractors shall furnish the was 100 percent foreign-owned, any change would
Government records of geologic, accounting mean that such percentage would either stay
and other relevant data for its mining unaltered or be decreased in favor of Filipino
operation, and that books of accounts and ownership. Moreover, the foreign-held shares may
records shall be open for inspection by the change hands freely. Such eventuality is as it should
government. x x x be.

(m) Requiring the proponent to dispose of the We believe it is not necessary for government to
minerals at the highest price and more attempt to limit or restrict the freedom of the
advantageous terms and conditions." shareholders in the contractor to freely transfer,
dispose of or encumber their shareholdings,
For that matter, Section 56(n) of DAO 99-56 consonant with the unfettered exercise of their
specifically obligates an FTAA contractor to dispose of business judgment and discretion. Rather, what is
the minerals and by-products at the highest market critical is that, regardless of the identity, nationality
price and to register with the MGB a copy of the sales and percentage ownership of the various
agreement. After all, the provisions of prevailing shareholders of the contractor -- and regardless of
statutes as well as rules and regulations are deemed whether these shareholders decide to take the
written into contracts. company public, float bonds and other fixed-income
instruments, or allow the creditor-banks to take an
Contractor's Right to Mortgage equity position in the company -- the foreign-owned
Not Objectionable Per Se contractor is always in a position to render the
services required under the FTAA, under the direction
and control of the government.
Petitioners also question the absolute right of the
contractor under Clause 10.2 (l) to mortgage and
encumber not only its rights and interests in the FTAA Contractor's Right to Ask
and the infrastructure and improvements introduced, For Amendment Not Absolute
but also the mineral products extracted. Private
respondents do not touch on this matter, but we With respect to Clauses 10.4(e) and (i), petitioners
believe that this provision may have to do with the complain that these provisions bind government to
conditions imposed by the creditor-banks of the then allow amendments to the FTAA if required by banks
foreign contractor WMCP to secure the lendings and other financial institutions as part of the
made or to be made to the latter. Ordinarily, banks conditions for new lendings. However, we do not find
lend not only on the security of mortgages on fixed anything wrong with Clause 10.4(e), which only states
assets, but also on encumbrances of goods that "if the Contractor seeks to obtain financing
produced that can easily be sold and converted into contemplated herein from banks or other financial
cash that can be applied to the repayment of loans. institutions, (the Government shall) cooperate with the
Banks even lend on the security of accounts Contractor in such efforts provided that such
receivable that are collectible within 90 days. 59 financing arrangements will in no event reduce the
Contractor's obligations or the Government's rights
It is not uncommon to find that a debtor corporation hereunder." The colatilla obviously safeguards the
has executed deeds of assignment "by way of State's interests; if breached, it will give the
security" over the production for the next twelve government cause to object to the proposed
months and/or the proceeds of the sale thereof -- or amendments.
the corresponding accounts receivable, if sold on
terms -- in favor of its creditor-banks. Such deeds may On the other hand, Clause 10.4(i) provides that "the
include authorizing the creditors to sell the products Government shall favourably consider any request
themselves and to collect the sales proceeds and/or from [the] Contractor for amendments of this
the accounts receivable. Agreement which are necessary in order for the
Contractor to successfully obtain the
Seen in this context, Clause 10.2(l) is not something financing." Petitioners see in this provision a complete
out of the ordinary or objectionable. In any case, as renunciation of control. We disagree.
will be explained below, even if it is allowed
45

to mortgage or encumber the mineral end-products The proviso does not say that the government
themselves, the contractor is not freed of its obligation shall grant any request for amendment. Clause 10.4(i)
Page

to pay the government its basic and additional shares only obliges the State to favorably consider any such
request, which is not at all unreasonable, as it is not
equivalent to saying that the government must As public respondents correctly point out, any interest
automatically consent to it. This provision should be the contractor may have in the proceeds of the mining
read together with the rest of the FTAA provisions operation is merely the equivalent of the consideration
instituting government control and supervision over the government has undertaken to pay for its
the mining enterprise. The clause should not be given services. All lawful contracts require such mutual
an interpretation that enables the contractor to wiggle prestations, and the WMCP FTAA is no different. The
out of the restrictions imposed upon it by merely contractor commits to perform certain services for the
suggesting that certain amendments are requested by government in respect of the mining operation, and in
the lenders. turn it is to be compensated out of the net mining
revenues generated from the sale of mineral products.
Rather, it is up to the contractor to prove to the What would be objectionable is a contractual
government that the requested changes to the FTAA provision that unduly benefits the contractor far in
are indispensable, as they enable the contractor to excess of the service rendered or value delivered, if
obtain the needed financing; that without such any, in exchange therefor.
contract changes, the funders would absolutely refuse
to extend the loan; that there are no other sources of A careful perusal of the statute itself and its
financing available to the contractor (a very unlikely implementing rules reveals that neither RA 7942 nor
scenario); and that without the needed financing, the DAO 99-56 can be said to convey beneficial
execution of the work programs will not proceed. But ownership of any mineral resource or product to any
the bottom line is, in the exercise of its power of foreign FTAA contractor.
control, the government has the final say on whether
to approve or disapprove such requested Equitable Sharing
amendments to the FTAA. In short, approval thereof of Financial Benefits
is not mandatory on the part of the government.
On the contrary, DAO 99-56, entitled "Guidelines
In fine, the foregoing evaluation and analysis of Establishing the Fiscal Regime of Financial or
the aforementioned FTAA provisions sufficiently Technical Assistance Agreements" aims to ensure an
overturns petitioners' litany of objections to and equitable sharing of the benefits derived from mineral
criticisms of the State's alleged lack of control. resources. These benefits are to be equitably shared
among the government (national and local), the FTAA
Financial Benefits Not contractor, and the affected communities. The
Surrendered to the Contractor purpose is to ensure sustainable mineral resources
development; and a fair, equitable, competitive and
One of the main reasons certain provisions of RA stable investment regime for the large-scale
7942 were struck down was the finding mentioned in exploration, development and commercial utilization
the Decision that beneficial ownership of the mineral of minerals. The general framework or concept
resources had been conveyed to the contractor. This followed in crafting the fiscal regime of the FTAA is
finding was based on the underlying assumption, based on the principle that the government expects
common to the said provisions, that the foreign real contributions to the economic growth and general
contractor manages the mineral resources in the welfare of the country, while the contractor expects a
same way that foreign contractors in service contracts reasonable return on its investments in the project. 63

used to. "By allowing foreign contractors to manage

or operate all the aspects of the mining operation, the Specifically, under the fiscal regime, the government's
above-cited provisions of R.A. No. 7942 have in expectation is, inter alia, the receipt of its share from
effect conveyed beneficial ownership over the the taxes and fees normally paid by a mining
nation's mineral resources to these contractors, enterprise. On the other hand, the FTAA contractor is
leaving the State with nothing but bare title granted by the government certain fiscal and non-
thereto." As the WMCP FTAA contained similar
60 
fiscal incentives to help support the former's cash
64 

provisions deemed by the ponente to be abhorrent to flow during the most critical phase (cost recovery) and
the Constitution, the Decision struck down the to make the Philippines competitive with other
Contract as well. mineral-producing countries. After the contractor has
recovered its initial investment, it will pay all the
Beneficial ownership has been defined as ownership normal taxes and fees comprising the basic share of
recognized by law and capable of being enforced in the government, plus an additional share for the
the courts at the suit of the beneficial government based on the options and formulae set
owner. Black's Law Dictionary indicates that the term
61  forth in DAO 99-56.
is used in two senses: first, to indicate the interest of a
beneficiary in trust property (also called "equitable The said DAO spells out the financial benefits the
ownership"); and second, to refer to the power of a government will receive from an FTAA, referred to as
corporate shareholder to buy or sell the shares, "the Government Share," composed of a basic
though the shareholder is not registered in the government share and an additional government
corporation's books as the owner. Usually, beneficial
62 
share.
ownership is distinguished from naked ownership,
which is the enjoyment of all the benefits and The basic government share is comprised of all
privileges of ownership, as against possession of the direct taxes, fees and royalties, as well as other
bare title to property. payments made by the contractor during the term of
the FTAA. These are amounts paid directly to (i) the
An assiduous examination of the WMCP FTAA national government (through the Bureau of Internal
uncovers no indication that it confers upon WMCP Revenue, Bureau of Customs, Mines & Geosciences
ownership, beneficial or otherwise, of the mining Bureau and other national government agencies
property it is to develop, the minerals to be produced, imposing taxes or fees), (ii) the local government units
46

or the proceeds of their sale, which can be legally where the mining activity is conducted, and (iii)
asserted and enforced as against the State. persons and communities directly affected by the
Page

mining project. The major taxes and other payments

constituting the basic government share are · Community tax - maximum of
enumerated below:
65
PhP10,500 per year

Payments to the National Government: · All other local government taxes,

fees and imposts as of the effective
· Excise tax on minerals - 2 percent of date of the FTAA - the rate and the
the gross output of mining operations type depend on the local government

· Contractor' income tax - maximum of Other Payments:

32 percent of taxable income for
corporations · Royalty to indigenous cultural
communities, if any – 1 percent of
· Customs duties and fees on gross output from mining operations
imported capital equipment -the rate is
set by the Tariff and Customs Code · Special allowance - payment to claim
(3-7 percent for chemicals; 3-10 owners and surface rights holders
percent for explosives; 3-15 percent
for mechanical and electrical Apart from the basic share, an additional
equipment; and 3-10 percent for government share is also collected from the FTAA
vehicles, aircraft and vessels contractor in accordance with the second paragraph
of Section 81 of RA 7942, which provides that the
· VAT on imported equipment, goods government share shall be comprised of, among
and services – 10 percent of value other things, certain taxes, duties and fees. The
subject proviso reads:
· Royalties due the government on
minerals extracted from mineral "The Government share in a financial or technical
reservations, if applicable – 5 percent assistance agreement shall consist of, among other
of the actual market value of the things, the contractor's corporate income tax, excise
minerals produced tax, special allowance, withholding tax due from the
contractor's foreign stockholders arising from dividend
· Documentary stamp tax - the rate or interest payments to the said foreign stockholder in
depends on the type of transaction case of a foreign national, and all such other taxes,
duties and fees as provided for under existing
· Capital gains tax on traded stocks - 5 laws." (Bold types supplied.)
to 10 percent of the value of the
shares The government, through the DENR and the MGB,
has interpreted the insertion of the phrase among
· Withholding tax on interest payments other things as signifying that the government is
on foreign loans -15 percent of the entitled to an "additional government share" to be paid
amount of interest by the contractor apart from the "basic share," in order
to attain a fifty-fifty sharing of net benefits from mining.
· Withholding tax on dividend
payments to foreign stockholders – 15 The additional government share is computed by
percent of the dividend using one of three options or schemes presented in
DAO 99-56: (1) a fifty-fifty sharing in the cumulative
present value of cash flows; (2) the share based on
· Wharfage and port fees
excess profits; and (3) the sharing based on the
cumulative net mining revenue. The particular formula
· Licensing fees (for example, radio to be applied will be selected by the contractor, with a
permit, firearms permit, professional written notice to the government prior to the
fees) commencement of the development and construction
phase of the mining project. 66

· Other national taxes and fees.

Proceeds from the government shares arising from an
Payments to Local Governments: FTAA contract are distributed to and received by the
different levels of government in the following
· Local business tax - a maximum of 2 proportions:
percent of gross sales or receipts (the
rate varies among local government
units) National Government 50 percent

Provincial 10 percent
· Real property tax - 2 percent of the Government
fair market value of the property,
based on an assessment level set by Municipal 20 percent
the local government Government

· Special education levy - 1 percent of Affected Barangays 20 percent

the basis used for the real property tax
The portion of revenues remaining after the deduction
· Occupation fees - PhP50 per hectare of the basic and additional government shares is what
per year; PhP100 per hectare per year
47

goes to the contractor.

if located in a mineral reservation
Page
Government's Share in an In any event, what is quite evident is the fact that
FTAA Not Consisting Solely the additional government share, as formulated,
of Taxes, Duties and Fees has nothing to do with taxes -- direct or indirect -- or
with duties, fees or charges. To repeat, it is over and
In connection with the foregoing discussion on above the basic government share composed of taxes
the basic and additional government shares, it is and duties. Simply put, the additional share may be
pertinent at this juncture to mention the criticism (a) an amount that will result in a 50-50 sharing of the
leveled at the second paragraph of Section 81 of RA cumulative present value of the cash flows of the 69 

7942, quoted earlier. The said proviso has been enterprise; (b) an amount equivalent to 25 percent of
denounced, because, allegedly, the State's share in the additional or excess profits of the enterprise,
FTAAs with foreign contractors has been limited to reckoned against a benchmark return on investments;
taxes, fees and duties only; in effect, the State has or (c) an amount that will result in a fifty-fifty sharing of
been deprived of a share in the after-tax income of the the cumulative net mining revenue from the end of the
enterprise. In the face of this allegation, one has to recovery period up to the taxable year in question.
consider that the law does not define the term among The contractor is required to select one of the three
other things; and the Office of the Solicitor General, in options or formulae for computing the additional
its Motion for Reconsideration, appears to have share, an option it will apply to all of its mining
erroneously claimed that the phrase refers to indirect operations.
taxes.
As used above, "net mining revenue" is defined as the
The law provides no definition of the term among gross output from mining operations for a calendar
other things, for the reason that Congress deliberately year, less deductible expenses (inclusive of taxes,
avoided setting unnecessary limitations as to what duties and fees). Such revenue would roughly be
may constitute compensation to the State for the equivalent to "taxable income" or income before
exploitation and use of mineral resources. But the income tax. Definitely, as compared with, say,
inclusion of that phrase clearly and unmistakably calculating the additional government share on the
reveals the legislative intent to have the State collect basis of net income (after income tax), the net mining
more than just the usual taxes, duties and fees. revenue is a better and much more reasonable basis
Certainly, there is nothing in that phrase -- or in the for such computation, as it gives a truer picture of the
second paragraph of Section 81 -- that would suggest profitability of the company.
that such phrase should be interpreted as referring
only to taxes, duties, fees and the like. To demonstrate that the three options or formulations
will operate as intended, Messrs. Ramos and de Vera
Precisely for that reason, to fulfill the legislative intent also performed some quantifications of the
behind the inclusion of the phrase among other government share via a financial modeling of each of
things in the second paragraph of Section 81, the 67  the three options discussed above. They found that
DENR structured and formulated in DAO 99-56 the the government would get the highest share from the
said additional government share. Such a share option that is based on the net mining revenue, as
was to consist not of taxes, but of a share in the compared with the other two options, considering only
earnings or cash flows of the mining the basic and the additional shares; and that, even
enterprise. The additional government share was to though production rate decreases, the government
be paid by the contractor on top of the basic share, so share will actually increase when the net mining
as to achieve a fifty-fifty sharing -- between the revenue and the additional profit-based options are
government and the contractor -- of net benefits from used.
mining. In the Ramos-DeVera paper, the explanation
of the three options or formulas -- presented in
68 
Furthermore, it should be noted that the three options
DAO 99-56 for the computation of the additional or formulae do not yet take into account the indirect
government share -- serves to debunk the claim that taxes and other financial contributions of mining
70  71 

the government's take from an FTAA consists solely projects. These indirect taxes and other contributions
of taxes, fees and duties. are real and actual benefits enjoyed by the Filipino
people and/or government. Now, if some of the
Unfortunately, the Office of the Solicitor General -- quantifiable items are taken into account in the
although in possession of the relevant data -- failed to computations, the financial modeling would show that
fully replicate or echo the pertinent elucidation in the the total government share increases to 60 percent or
Ramos-DeVera paper regarding the three schemes or higher -- in one instance, as much as 77 percent and
options for computing the additional government even 89 percent -- of the net present value of total
share presented in DAO 99-56. Had due care been benefits from the project. As noted in the Ramos-
taken by the OSG, the Court would have been duly DeVera paper, these results are not at all shabby,
apprised of the real nature and particulars of the considering that the contractor puts in all the capital
additional share. requirements and assumes all the risks, without the
government having to contribute or risk anything.
But, perhaps, on account of the esoteric discussion in
the Ramos-DeVera paper, and the even more Despite the foregoing explanation, Justice Carpio still
abstruse mathematical jargon employed in DAO 99- insisted during the Court's deliberations that the
56, the OSG omitted any mention of the three options. phrase among other things refers only to taxes, duties
Instead, the OSG skipped to a side discussion of the and fees. We are bewildered by his position. On the
effect of indirect taxes, which had nothing at all to do one hand, he condemns the Mining Law for allegedly
with the additional government share, to begin limiting the government's benefits only to taxes, duties
with. Unfortunately, this move created the wrong and fees; and on the other, he refuses to allow the
impression, pointed out in Justice Antonio T. Carpio's State to benefit from the correct and proper
Opinion, that the OSG had taken the position that the interpretation of the DENR/MGB. To remove all
additional government share consisted of indirect doubts then, we hold that the State's share is not
48

taxes. limited to taxes, duties and fees only and that the
DENR/MGB interpretation of the phrase among other
Page

things is correct. Definitely, this DENR/MGB

interpretation is not only legally sound, but also Supposedly, nothing prevents the contractors from
greatly advantageous to the government. recording such expenses in amounts equal to the
mining revenues anticipated for the first 10 or 15
One last point on the subject. The legislature acted years of commercial production, with the result that
judiciously in not defining the terms among other the share of the State will be zero for the first 10 or 15
things and, instead, leaving it to the agencies years. Moreover, under the circumstances, the
concerned to devise and develop the various modes government would be unable to say when it would
of arriving at a reasonable and fair amount for start to receive its share under the FTAA.
the additional government share. As can be seen
from DAO 99-56, the agencies concerned did an We believe that the argument is based on incorrect
admirable job of conceiving and developing not just information as well as speculation. Obviously, certain
one formula, but three different formulae for arriving at crucial provisions in the Mining Law were overlooked.
the additional government share. Each of these Section 23, dealing with the rights and obligations of
options is quite fair and reasonable; and, as Messrs. the exploration permit grantee, states: "The permittee
Ramos and De Vera stated, other alternatives or shall undertake exploration work on the area as
schemes for a possible improvement of the fiscal specified by its permit based on an approved work
regime for FTAAs are also being studied by the program." The next proviso reads: "Any expenditure
government. in excess of the yearly budget of the approved work
program may be carried forward and credited to the
Besides, not locking into a fixed definition of the succeeding years covering the duration of the permit.
term among other things will ultimately be more x x x." (underscoring supplied)
beneficial to the government, as it will have that innate
flexibility to adjust to and cope with rapidly changing Clearly, even at the stage of application for an
circumstances, particularly those in the international exploration permit, the applicant is required to submit
markets. Such flexibility is especially significant for the -- for approval by the government -- a proposed work
government in terms of helping our mining enterprises program for exploration, containing a yearly budget of
remain competitive in world markets despite proposed expenditures. The State has the opportunity
challenging and shifting economic scenarios. to pass upon (and approve or reject) such proposed
expenditures, with the foreknowledge that -- if
In conclusion, we stress that we do not share the approved -- these will subsequently be recorded as
view that in FTAAs with foreign contractors under pre-operating expenses that the contractor will have
RA 7942, the government's share is limited to to recoup over the grace period. That is not all.
taxes, fees and duties. Consequently, we find the
attacks on the second paragraph of Section 81 of Under Section 24, an exploration permit holder who
RA 7942 totally unwarranted. determines the commercial viability of a project
covering a mining area may, within the term of the
Collections Not Made Uncertain permit, file with the Mines and Geosciences Bureau a
by the Third Paragraph of Section 81 declaration of mining project feasibility. This
declaration is to be accompanied by a work program
The third or last paragraph of Section 81 provides
72  for development for the Bureau's approval, the
that the government share in FTAAs shall be collected necessary prelude for entering into an FTAA, a
when the contractor shall have recovered its pre- mineral production sharing agreement (MPSA), or
operating expenses and exploration and development some other mineral agreement. At this stage, too, the
expenditures. The objection has been advanced that, government obviously has the opportunity to approve
on account of the proviso, the collection of the State's or reject the proposed work program and budgeted
share is not even certain, as there is no time limit in expenditures for development works on the project.
RA 7942 for this grace period or recovery period. Such expenditures will ultimately become the pre-
operating and development costs that will have to be
recovered by the contractor.
We believe that Congress did not set any time limit for
the grace period, preferring to leave it to the
concerned agencies, which are, on account of their Naturally, with the submission of approved work
technical expertise and training, in a better position to programs and budgets for the exploration and the
determine the appropriate durations for such recovery development/construction phases, the government
periods. After all, these recovery periods are will be able to scrutinize and approve or reject such
determined, to a great extent, by technical and expenditures. It will be well-informed as to the
technological factors peculiar to the mining industry. amounts of pre-operating and other expenses that the
Besides, with developments and advances in contractor may legitimately recover and the
technology and in the geosciences, we cannot approximate period of time needed to effect such a
discount the possibility of shorter recovery periods. At recovery. There is therefore no way the contractor can
any rate, the concerned agencies have not been just randomly post any amount of pre-operating
remiss in this area. The 1995 and 1996 Implementing expenses and expect to recover the same.
Rules and Regulations of RA 7942 specify that the
period of recovery, reckoned from the date of The aforecited provisions on approved work programs
commercial operation, shall be for a period not and budgets have counterparts in Section 35, which
exceeding five years, or until the date deals with the terms and conditions exclusively
of actual recovery, whichever comes earlier. applicable to FTAAs. The said provision requires
certain terms and conditions to be incorporated into
Approval of Pre-Operating FTAAs; among them, "a firm commitment x x x of an
Expenses Required by RA 7942 amount corresponding to the expenditure obligation
that will be invested in the contract
area" and "representations and warranties x x x to
Still, RA 7942 is criticized for allegedly not requiring
timely deploy these [financing, managerial and
49

government approval of pre-operating, exploration

technical expertise and technological] resources
and development expenses of the foreign contractors,
Page

under its supervision pursuant to the periodic work

who are in effect given unfettered discretion to
programs and related budgets x x x," as well as "work
determine the amounts of such expenses.
programs and minimum expenditures the parties in their pleadings, it must also be noted
commitments." (underscoring supplied) that the criticism hurled against this Section is rooted
in unwarranted conclusions made without considering
Unarguably, given the provisions of Section 35, the other relevant provisions in the statute. Whether
State has every opportunity to pass upon the Section 112 may properly apply to co-production or
proposed expenditures under an FTAA and approve joint venture agreements, the fact of the matter is
or reject them. It has access to all the information it that it cannot be made to apply to FTAAs.
may need in order to determine in advance the
amounts of pre-operating and developmental First, Section 112 does not specifically mention or
expenses that will have to be recovered by the refer to FTAAs; the only reason it is being applied to
contractor and the amount of time needed for such them at all is the fact that it happens to use the word
recovery. "contractor." Hence, it is a bit of a stretch to insist that
it covers FTAAs as well. Second, mineral agreements,
In summary, we cannot agree that the third or last of which there are three types -- MPSAs, co-
paragraph of Section 81 of RA 7942 is in any production agreements, and joint venture agreements
manner unconstitutional. -- are covered by Chapter V of RA 7942. On the other
hand, FTAAs are covered by and in fact are the
No Deprivation of Beneficial Rights subject of Chapter VI, an entirely different chapter
altogether. The law obviously intends to treat them as
a breed apart from mineral agreements, since Section
It is also claimed that aside from the second and the
35 (found in Chapter VI) creates a long list of specific
third paragraphs of Section 81 (discussed above),
terms, conditions, commitments, representations and
Sections 80, 84 and 112 of RA 7942 also operate to
warranties -- which have not been made applicable to
deprive the State of beneficial rights of ownership
mineral agreements -- to be incorporated into FTAAs.
over mineral resources; and give them away for free
to private business enterprises (including foreign
owned corporations). Likewise, the said provisions Third, under Section 39, the FTAA contractor is given
have been construed as constituting, together with the option to "downgrade" -- to convert the FTAA into
Section 81, an ingenious attempt to resurrect the old a mineral agreement at any time during the term if the
and discredited system of "license, concession or economic viability of the contract area is inadequate
lease." to sustain large-scale mining operations. Thus, there
is no reason to think that the law through Section 112
intends to exact from FTAA contractors merely the
Specifically, Section 80 is condemned for limiting the
same government share (a 2 percent excise tax) that
State's share in a mineral production-sharing
it apparently demands from contractors under the
agreement (MPSA) to just the excise tax on the
three forms of mineral agreements. In brief, Section
mineral product. Under Section 151(A) of the Tax
112 does not apply to FTAAs.
Code, such tax is only 2 percent of the market value
of the gross output of the minerals. The colatilla in
Section 84, the portion considered offensive to the Notwithstanding the foregoing explanation, Justices
Constitution, reiterates the same limitation made in Carpio and Morales maintain that the Court must
Section 80.73 rule now on the constitutionality of Sections 80, 84
and 112, allegedly because the WMCP FTAA
contains a provision which grants the contractor
It should be pointed out that Section 80 and
unbridled and "automatic" authority to convert the
the colatilla in Section 84 pertain only to MPSAs and
FTAA into an MPSA; and should such conversion
have no application to FTAAs. These particular
happen, the State would be prejudiced since its share
statutory provisions do not come within the issues that
would be limited to the 2 percent excise tax. Justice
were defined and delineated by this Court during the
Carpio adds that there are five MPSAs already signed
Oral Argument -- particularly the third issue, which
just awaiting the judgment of this Court on
pertained exclusively to FTAAs. Neither did the
respondents' and intervenor's Motions for
parties argue upon them in their pleadings. Hence,
Reconsideration. We hold however that, at this point,
this Court cannot make any pronouncement in this
this argument is based on pure speculation. The
case regarding the constitutionality of Sections 80 and
Court cannot rule on mere surmises and hypothetical
84 without violating the fundamental rules of due
assumptions, without firm factual anchor. We repeat:
process. Indeed, the two provisos will have to await
basic due process requires that we hear the parties
another case specifically placing them in issue.
who have a real legal interest in the MPSAs (i.e. the
parties who executed them) before these MPSAs can
On the other hand, Section 112 is disparaged for
74 
be reviewed, or worse, struck down by the Court.
allegedly reverting FTAAs and all mineral agreements Anything less than that requirement would be arbitrary
to the old and discredited "license, concession or and capricious.
lease" system. This Section states in relevant part
that "the provisions of Chapter XIV [which includes
In any event, the conversion of the present FTAA into
Sections 80 to 82] on government share in mineral
an MPSA is problematic. First, the contractor must
production-sharing agreement x x x shall immediately
comply with the law, particularly Section 39 of RA
govern and apply to a mining lessee or
7942; inter alia, it must convincingly show that the
contractor." (underscoring supplied) This provision is
"economic viability of the contract is found to be
construed as signifying that the 2 percent excise tax
inadequate to justify large-scale mining
which, pursuant to Section 80, comprises the
operations;" second, it must contend with the
government share in MPSAs shall now also constitute
President's exercise of the power of State control over
the government share in FTAAs -- as well as in co-
the EDU of natural resources; and third, it will have to
production agreements and joint venture agreements
risk a possible declaration of the unconstitutionality (in
-- to the exclusion of revenues of any other nature or
a proper case) of Sections 80, 84 and 112.
from any other source.
50

The first requirement is not as simple as it looks.

Apart from the fact that Section 112 likewise does not
Page

Section 39 contemplates a situation in which an FTAA

come within the issues delineated by this Court during
has already been executed and entered into, and is
the Oral Argument, and was never touched upon by
presumably being implemented, when the contractor that money translates into a lot of "pump-priming" for
"discovers" that the mineral ore reserves in the the local economy.
contract area are not sufficient to justify large-scale
mining, and thus the contractor requests the Granted that the contractors are allowed subsequently
conversion of the FTAA into an MPSA. The contractor to recover their pre-operating expenses, still, that
in effect needs to explain why, despite its exploration eventuality will happen only after they shall have first
activities, including the conduct of various geologic put out the cash and fueled the economy. Moreover,
and other scientific tests and procedures in the in the process of recouping their investments and
contract area, it was unable to determine correctly the costs, the foreign contractors do not actually pull out
mineral ore reserves and the economic viability of the the money from the economy. Rather, they recover or
area. The contractor must explain why, after recoup their investments out of actual commercial
conducting such exploration activities, it decided to file production by not paying a portion of the basic
a declaration of mining feasibility, and to apply for an government share corresponding to national taxes,
FTAA, thereby leading the State to believe that the along with the additional government share, for a
area could sustain large-scale mining. The contractor period of not more than five years counted from the
77 

must justify fully why its earlier findings, based on commencement of commercial production.
scientific procedures, tests and data, turned out to be
wrong, or were way off. It must likewise prove that It must be noted that there can be no recovery without
its new findings, also based on scientific tests and commencing actual commercial production. In the
procedures, are correct. Right away, this puts the meantime that the contractors are recouping costs,
contractor's technical capabilities and expertise into they need to continue operating; in order to do so,
serious doubt. We wonder if anyone would relish they have to disburse money to meet their various
being in this situation. The State could even question needs. In short, money is continually infused into the
and challenge the contractor's qualification and economy.
competence to continue the activity under an MPSA.
The foregoing discussion should serve to rid us of the
All in all, while there may be cogent grounds to mistaken belief that, since the foreign contractors are
assail the aforecited Sections, this Court -- on allowed to recover their investments and costs, the
considerations of due process -- cannot rule upon end result is that they practically get the minerals for
them here. Anyway, if later on these Sections are free, which leaves the Filipino people none the better
declared unconstitutional, such declaration will for it.
not affect the other portions since they are clearly
separable from the rest.
All Businesses Entitled
to Cost Recovery
Our Mineral Resources Not
Given Away for Free by RA 7942
Let it be put on record that not only foreign
contractors, but all businessmen and all business
Nevertheless, if only to disabuse our minds, we entities in general, have to recoup their investments
should address the contention that our mineral and costs. That is one of the first things a student
resources are effectively given away for free by the learns in business school. Regardless of its
law (RA 7942) in general and by Sections 80, 81, 84 nationality, and whether or not a business entity has a
and 112 in particular. five-year cost recovery period, it will -- must -- have to
recoup its investments, one way or another. This is
Foreign contractors do not just waltz into town one just common business sense. Recovery of
day and leave the next, taking away mineral investments is absolutely indispensable for business
resources without paying anything. In order to get at survival; and business survival ensures soundness of
the minerals, they have to invest huge sums of money the economy, which is critical and contributory to the
(tens or hundreds of millions of dollars) in exploration general welfare of the people. Even government
works first. If the exploration proves unsuccessful, all corporations must recoup their investments in order to
the cash spent thereon will not be returned to the survive and continue in operation. And, as the
foreign investors; rather, those funds will have been preceding discussion has shown, there is no business
infused into the local economy, to remain there that gets ahead or earns profits without any cost to it.
permanently. The benefits therefrom cannot be simply
ignored. And assuming that the foreign contractors It must also be stressed that, though the State owns
are successful in finding ore bodies that are viable for vast mineral wealth, such wealth is not readily
commercial exploitation, they do not just pluck out the accessible or transformable into usable and
minerals and cart them off. They have first to build negotiable currency without the intervention of the
camp sites and roadways; dig mine shafts and credible mining companies. Those untapped mineral
connecting tunnels; prepare tailing ponds, storage resources, hidden beneath tons of earth and rock,
areas and vehicle depots; install their machinery and may as well not be there for all the good they do us
equipment, generator sets, pumps, water tanks and right now. They have first to be extracted and
sewer systems, and so on. converted into marketable form, and the country
needs the foreign contractor's funds, technology and
In short, they need to expend a great deal more of know-how for that.
their funds for facilities, equipment and supplies, fuel,
salaries of local labor and technical staff, and other After about eleven years of pre-operation and another
operating expenses. In the meantime, they also have five years for cost recovery, the foreign contractors
to pay taxes, duties, fees, and royalties. All told, the
75 
will have just broken even. Is it likely that they would
exploration, pre-feasibility, feasibility, development at that point stop their operations and leave? Certainly
and construction phases together add up to as many not. They have yet to make profits. Thus, for the
as eleven years. The contractors have to continually
76 
remainder of the contract term, they must strive to
shell out funds for the duration of over a decade,
51

maintain profitability. During this period, they pay the

before they can commence commercial production whole of the basic government share and the
Page

from which they would eventually derive revenues. All additional government share which, taken together
with indirect taxes and other contributions, amount to
approximately 60 percent or more of the entire The State's Receipt of Sixty
financial benefits generated by the mining venture. Percent of an FTAA Contractor's
After-Tax Income Not Mandatory
In sum, we can hardly talk about foreign contractors
taking our mineral resources for free. It takes a lot of We now come to the next objection which runs this
hard cash to even begin to do what they do. And what way: In FTAAs with a foreign contractor, the State
they do in this country ultimately benefits the local must receive at least 60 percent of the after-tax
economy, grows businesses, generates employment, income from the exploitation of its mineral resources.
and creates infrastructure, as discussed above. This share is the equivalent of the constitutional
Hence, we definitely disagree with the sweeping claim requirement that at least 60 percent of the capital, and
that no FTAA under Section 81 will ever make any hence 60 percent of the income, of mining companies
real contribution to the growth of the economy or to should remain in Filipino hands.
the general welfare of the country. This is not a plea
for foreign contractors. Rather, this is a question of First, we fail to see how we can properly conclude that
focusing the judicial spotlight squarely on all the the Constitution mandates the State to extract at least
pertinent facts as they bear upon the issue at hand, in 60 percent of the after-tax income from a mining
order to avoid leaping precipitately to ill-conceived company run by a foreign contractor. The argument is
conclusions not solidly grounded upon fact. that the Charter requires the State's partner in a co-
production agreement, joint venture agreement or
Repatriation of After-Tax Income MPSA to be a Filipino corporation (at least 60 percent
owned by Filipino citizens).
Another objection points to the alleged failure of the
Mining Law to ensure real contributions to the We question the logic of this reasoning, premised on
economic growth and general welfare of the country, a supposedly parallel or analogous situation. We are,
as mandated by Section 2 of Article XII of the after all, dealing with an essentially different equation,
Constitution. Pursuant to Section 81 of the law, the one that involves different elements. The Charter did
entire after-tax income arising from the exploitation of not intend to fix an iron-clad rule on the 60
mineral resources owned by the State supposedly percent share, applicable to all situations at all
belongs to the foreign contractors, which will naturally times and in all circumstances. If ever such was the
repatriate the said after-tax income to their home intention of the framers, they would have spelt it out in
countries, thereby resulting in no real contribution to black and white. Verba legis will serve to dispel
the economic growth of this country. Clearly, this unwarranted and untenable conclusions.
contention is premised on erroneous assumptions.
Second, if we would bother to do the math, we might
First, as already discussed in detail hereinabove, the better appreciate the impact (and reasonableness) of
concerned agencies have correctly interpreted the what we are demanding of the foreign contractor. Let
second paragraph of Section 81 of RA 7942 to mean us use a simplified illustration. Let us base it on gross
that the government is entitled to an additional share, revenues of, say, P500. After deducting operating
to be computed based on any one of the following expenses, but prior to income tax, suppose a mining
factors: net mining revenues, the present value of the firm makes a taxable income of P100. A corporate
cash flows, or excess profits reckoned against a income tax of 32 percent results in P32 of taxable
benchmark rate of return on investments. So it is not income going to the government, leaving the mining
correct to say that all of the after-tax income will firm with P68. Government then takes 60 percent
accrue to the foreign FTAA contractor, as the thereof, equivalent to P40.80, leaving only P27.20 for
government effectively receives a significant portion the mining firm.
thereof.
At this point the government has pocketed P32.00
Second, the foreign contractors can hardly "repatriate plus P40.80, or a total of P72.80 for every P100 of
the entire after-tax income to their home taxable income, leaving the mining firm with
countries." Even a bit of knowledge of corporate only P27.20. But that is not all. The government has
finance will show that it will be impossible to maintain also taken 2 percent excise tax "off the top,"
a business as a "going concern" if the entire "net equivalent to another P10. Under the minimum 60
profit" earned in any particular year will be taken out percent proposal, the government nets around P82.80
and repatriated. The "net income" figure reflected in (not counting other taxes, duties, fees and charges)
the bottom line is a mere accounting figure not from a taxable income of P100 (assuming gross
necessarily corresponding to cash in the bank, or revenues of P500, for purposes of illustration). On the
other quick assets. In order to produce and set aside other hand, the foreign contractor, which provided all
cash in an amount equivalent to the bottom line figure, the capital, equipment and labor, and took all the
one may need to sell off assets or immediately collect entrepreneurial risks -- receives P27.20. One cannot
receivables or liquidate short-term investments; but but wonder whether such a distribution is even
doing so may very likely disrupt normal business remotely equitable and reasonable, considering
operations. the nature of the mining business. The amount
of P82.80 out of P100.00 is really a lot – it does not
In terms of cash flows, the funds corresponding to the matter that we call part of it excise tax or income tax,
net income as of a particular point in time are actually and another portion thereof income from exploitation
in use in the normal course of business operations. of mineral resources. Some might think it wonderful to
Pulling out such net income disrupts the cash flows be able to take the lion's share of the benefits. But we
and cash position of the enterprise and, depending on have to ask ourselves if we are really serious in
the amount being taken out, could seriously cripple or attracting the investments that are the indispensable
endanger the normal operations and financial health and key element in generating the monetary benefits
of the business enterprise. In short, no sane of which we wish to take the lion's share. Fairness is
a credo not only in law, but also in business.
52

business person, concerned with maintaining the

mining enterprise as a going concern and keeping
Page

a foothold in its market, can afford to repatriate Third, the 60 percent rule in the petroleum industry
the entire after-tax income to the home country. cannot be insisted upon at all times in the mining
business. The reason happens to be the fact that in To repeat, the mere fact that gas and oil exploration
petroleum operations, the bulk of expenditures is in contracts grant the State 60 percent of the net
exploration, but once the contractor has found and revenues does not necessarily imply that mining
tapped into the deposit, subsequent investments and contracts should likewise yield a minimum of 60
expenditures are relatively minimal. The crude (or percent for the State. Jumping to that erroneous
gas) keeps gushing out, and the work entailed is just conclusion is like comparing apples with oranges. The
a matter of piping, transporting and storing. Not so in exploration, development and utilization of gas and oil
mineral mining. The ore body does not pop out on its are simply different from those of mineral resources.
own. Even after it has been located, the contractor
must continually invest in machineries and expend To stress again, the main risk in gas and oil is in the
funds to dig and build tunnels in order to access and exploration. But once oil in commercial quantities is
extract the minerals from underneath hundreds of struck and the wells are put in place, the risk is
tons of earth and rock. relatively over and black gold simply flows out
continuously with comparatively less need for fresh
As already stated, the numerous intrinsic differences investments and technology.
involved in their respective operations and
requirements, cost structures and investment needs On the other hand, even if minerals are found in
render it highly inappropriate to use petroleum viable quantities, there is still need for continuous
operations FTAAs as benchmarks for mining FTAAs. fresh capital and expertise to dig the mineral ores
Verily, we cannot just ignore the realities of from the mines. Just because deposits of mineral ores
the distinctly different situations and stubbornly insist are found in one area is no guarantee that an equal
on the "minimum 60 percent." amount can be found in the adjacent areas. There are
simply continuing risks and need for more capital,
The Mining and the Oil Industries expertise and industry all the time.
Different From Each Other
Note, however, that the indirect benefits -- apart from
To stress, there is no independent showing that the the cash revenues -- are much more in the mineral
taking of at least a 60 percent share in the after-tax industry. As mines are explored and extracted, vast
income of a mining company operated by a foreign employment is created, roads and other infrastructure
contractor is fair and reasonable under most if not all are built, and other multiplier effects arise. On the
circumstances. The fact that some petroleum other hand, once oil wells start producing, there is
companies like Shell acceded to such percentage of less need for employment. Roads and other public
sharing does not ipso facto mean that it is per se works need not be constructed continuously. In fine,
reasonable and applicable to non-petroleum there is no basis for saying that government revenues
situations (that is, mining companies) as well. We can from the oil industry and from the mineral industries
take judicial notice of the fact that there are, after are to be identical all the time.
all, numerous intrinsic differences involved in their
respective operations and equipment or technological Fourth, to our mind, the proffered "minimum 60
requirements, costs structures and capital investment percent" suggestion tends to limit the flexibility and tie
needs, and product pricing and markets. the hands of government, ultimately hampering the
country's competitiveness in the international market,
There is no showing, for instance, that mining to the detriment of the Filipino people. This "you-have-
companies can readily cope with a 60 percent to-give-us-60-percent-of-after-tax-income-or-we-don't-
government share in the same way petroleum do- business-with-you" approach is quite perilous.
companies apparently can. What we have is a True, this situation may not seem too unpalatable to
suggestion to enforce the 60 percent quota on the the foreign contractor during good years, when
basis of a disjointed analogy. The only factor common international market prices are up and the mining firm
to the two disparate situations is the extraction of manages to keep its costs in check. However, under
natural resources. unfavorable economic and business conditions, with
costs spiraling skywards and minerals prices
Indeed, we should take note of the fact that Congress plummeting, a mining firm may consider itself lucky to
made a distinction between mining firms and make just minimal profits.
petroleum companies. In Republic Act No. 7729
-- "An Act Reducing the Excise Tax Rates on Metallic The inflexible, carved-in-granite demand for a 60
and Non-Metallic Minerals and Quarry Resources, percent government share may spell the end of the
Amending for the Purpose Section 151(a) of the mining venture, scare away potential investors, and
National Internal Revenue Code, as amended" -- the thereby further worsen the already dismal economic
lawmakers fixed the excise tax rate on metallic and scenario. Moreover, such an unbending or unyielding
non-metallic minerals at two percent of the actual policy prevents the government from responding
market value of the annual gross output at the time of appropriately to changing economic conditions and
removal. However, in the case of petroleum, the shifting market forces. This inflexibility further renders
lawmakers set the excise tax rate for the first taxable our country less attractive as an investment option
sale at fifteen percent of the fair international market compared with other countries.
price thereof.
And fifth, for this Court to decree imperiously that the
There must have been a very sound reason that government's share should be not less than 60
impelled Congress to impose two very dissimilar percent of the after-tax income of FTAA contractors at
excise tax rate. We cannot assume, without proof, all times is nothing short of dictating upon the
that our honorable legislators acted arbitrarily, government. The result, ironically, is that the State
capriciously and whimsically in this instance. We ends up losing control. To avoid compromising the
cannot just ignore the reality of two distinctly different State's full control and supervision over the
53

situations and stubbornly insist on going "minimum 60 exploitation of mineral resources, this Court must
percent." back off from insisting upon a "minimum 60 percent"
Page

rule. It is sufficient that the State has the power and

means, should it so decide, to get a 60 percent share
(or more) in the contractor's net mining revenues or estimated to be about 1:1,000 only. On that slim
after-tax income, or whatever other basis the chance rides the contractor's hope of recouping
government may decide to use in reckoning its investments and generating profits. And when the
share. It is not necessary for it to do so in every case, contractor has recouped its initial investments in the
regardless of circumstances. project, the government share increases to sixty
percent of net benefits -- without the State ever being
In fact, the government must be trusted, must be in peril of incurring costs, expenses and losses.
accorded the liberty and the utmost flexibility to deal,
negotiate and transact with contractors and third And even in the worst possible scenario -- an absence
parties as it sees fit; and upon terms that it ascertains of commercial quantities of minerals to justify
to be most favorable or most acceptable under the development -- the contractor would already have
circumstances, even if it means agreeing to less than spent several million pesos for exploration works,
60 percent. Nothing must prevent the State from before arriving at the point in which it can make that
agreeing to a share less than that, should it be determination and decide to cut its losses. In fact,
deemed fit; otherwise the State will be deprived of full during the first year alone of the exploration period,
control over mineral exploitation that the Charter has the contractor was already committed to spend not
vested in it. less than P24 million. The FTAA therefore clearly
ensures benefits for the local economy, courtesy of
To stress again, there is simply no constitutional or the contractor.
legal provision fixing the minimum share of the
government in an FTAA at 60 percent of the net All in all, this setup cannot be regarded as
profit. For this Court to decree such minimum is to disadvantageous to the State or the Filipino
wade into judicial legislation, and thereby inordinately people; it certainly cannot be said to convey
impinge on the control power of the State. Let it be beneficial ownership of our mineral resources to
clear: the Court is not against the grant of more foreign contractors.
benefits to the State; in fact, the more the better. If
during the FTAA negotiations, the President can Deductions Allowed by the
secure 60 percent, or even 90 percent, then all the
78 
WMCP FTAA Reasonable
better for our people. But, if under the peculiar
circumstances of a specific contract, the President Petitioners question whether the State's weak control
could secure only 50 percent or 55 percent, so be it. might render the sharing arrangements ineffective.
Needless to say, the President will have to report (and They cite the so-called
be responsible for) the specific FTAA to Congress, "suspicious" deductions allowed by the WMCP FTAA
and eventually to the people. in arriving at the net mining revenue, which is the
basis for computing the government share. The
Finally, if it should later be found that the share WMCP FTAA, for instance, allows expenditures for
agreed to is grossly disadvantageous to the "development within and outside the Contract
government, the officials responsible for entering into Area relating to the Mining Operations," "consulting
80 

such a contract on its behalf will have to answer to the fees incurred both inside and outside the
courts for their malfeasance. And the contract Philippines for work related directly to the Mining
provision voided. But this Court would abuse its own Operations," and
81 
"the establishment and
authority should it force the government's hand to administration of field offices including administrative
adopt the 60 percent demand of some of our overheads incurred within and outside the
esteemed colleagues. Philippines which are properly allocatable to the
Mining Operations and reasonably related to the
Capital and Expertise Provided, performance of the Contractor's obligations and
Yet All Risks Assumed by Contractor exercise of its rights under this Agreement." 82

Here, we will repeat what has not been emphasized It is quite well known, however, that mining
and appreciated enough: the fact that the contractor companies do perform some marketing activities
in an FTAA provides all the needed capital, technical abroad in respect of selling their mineral products and
and managerial expertise, and technology required to by-products. Hence, it would not be improper to allow
undertake the project. the deduction of reasonable consulting fees incurred
abroad, as well as administrative expenses and
In regard to the WMCP FTAA, the then foreign-owned overheads related to marketing offices also located
WMCP as contractor committed, at the very outset, to abroad -- provided that these deductions are directly
make capital investments of up to US$50 million in related or properly allocatable to the mining
that single mining project. WMCP claims to have operations and reasonably related to the performance
already poured in well over P800 million into the of the contractor's obligations and exercise of its
country as of February 1998, with more in the rights. In any event, more facts are needed. Until we
pipeline. These resources, valued in the tens or see how these provisions actually operate, mere
hundreds of millions of dollars, are invested in a "suspicions" will not suffice to propel this Court into
mining project that provides no assurance whatsoever taking action.
that any part of the investment will be ultimately
recouped. Section 7.9 of the WMCP FTAA
Invalid and Disadvantageous
At the same time, the contractor must comply with
legally imposed environmental standards and the Having defended the WMCP FTAA, we shall now turn
social obligations, for which it also commits to make to two defective provisos. Let us start with Section 7.9
significant expenditures of funds. Throughout, the of the WMCP FTAA. While Section 7.7 gives the
contractor assumes all the risks of the business, as
79 
government a 60 percent share in the net mining
54

mentioned earlier. These risks are indeed very high, revenues of WMCP from the commencement of
considering that the rate of success in exploration is commercial production, Section 7.9 deprives the
Page

extremely low. The probability of finding any mineral government of part or all of the said 60 percent. Under
or petroleum in commercially viable quantities is the latter provision, should WMCP's foreign
shareholders -- who originally owned 100 percent of mind when negotiating the terms and conditions of
the equity -- sell 60 percent or more of its outstanding FTAAs.
capital stock to a Filipino citizen or corporation, the
State loses its right to receive its 60 percent share in Earlier, we held (1) that the State must be accorded
net mining revenues under Section 7.7. the liberty and the utmost flexibility to deal, negotiate
and transact with contractors and third parties as it
Section 7.9 provides: sees fit, and upon terms that it ascertains to be most
favorable or most acceptable under the
The percentage of Net Mining Revenues circumstances, even if that should mean agreeing to
payable to the Government pursuant to less than 60 percent; (2) that it is not necessary for
Clause 7.7 shall be reduced by 1percent of the State to extract a 60 percent share in every case
Net Mining Revenues for every 1percent and regardless of circumstances; and (3) that should
ownership interest in the Contractor (i.e., the State be prevented from agreeing to a share less
WMCP) held by a Qualified Entity. 83 than 60 percent as it deems fit, it will be deprived of
the full control over mineral exploitation that the
Evidently, what Section 7.7 grants to the State is Charter has vested in it.
taken away in the next breath by Section 7.9 without
any offsetting compensation to the State. Thus, in That full control is obviously not an end in itself; it
reality, the State has no vested right to receive any exists and subsists precisely because of the need to
income from the FTAA for the exploitation of its serve and protect the national interest. In this
mineral resources. Worse, it would seem that what is instance, national interest finds particular application
given to the State in Section 7.7 is by mere tolerance in the protection of the national patrimony and the
of WMCP's foreign stockholders, who can at any time development and exploitation of the country's mineral
cut off the government's entire 60 percent share. They resources for the benefit of the Filipino people and the
can do so by simply selling 60 percent of WMCP's enhancement of economic growth and the general
outstanding capital stock to a Philippine citizen or welfare of the country. Undoubtedly, such full
corporation. Moreover, the proceeds of such sale will control can be misused and abused, as we now
of course accrue to the foreign stockholders of witness.
WMCP, not to the State.
Section 7.9 of the WMCP FTAA effectively gives
The sale of 60 percent of WMCP's outstanding equity away the State's share of net mining revenues
to a corporation that is 60 percent Filipino-owned and (provided for in Section 7.7) without anything in
40 percent foreign-owned will still trigger the exchange. Moreover, this outcome constitutes unjust
operation of Section 7.9. Effectively, the State will lose enrichment on the part of the local and foreign
its right to receive all 60 percent of the net mining stockholders of WMCP. By their mere divestment of
revenues of WMCP; and foreign stockholders will own up to 60 percent equity in WMCP in favor of Filipino
beneficially up to 64 percent of WMCP, consisting of citizens and/or corporations, the local and foreign
the remaining 40 percent foreign equity therein, plus stockholders get a windfall. Their share in the net
the 24 percent pro-rata share in the buyer- mining revenues of WMCP is automatically increased,
corporation. 84 without their having to pay the government anything
for it. In short, the provision in question is without a
In fact, the January 23, 2001 sale by WMCP's foreign doubt grossly disadvantageous to the government,
stockholder of the entire outstanding equity in WMCP detrimental to the interests of the Filipino people, and
to Sagittarius Mines, Inc. -- a domestic corporation at violative of public policy.
least 60 percent Filipino owned -- may be deemed to
have automatically triggered the operation of Section Moreover, it has been reiterated in numerous
7.9, without need of further action by any party, and decisions that the parties to a contract may establish
86 

removed the State's right to receive the 60 percent any agreements, terms and conditions that they deem
share in net mining revenues. convenient; but these should not be contrary to law,
morals, good customs, public order or public
At bottom, Section 7.9 has the effect of depriving the policy. Being precisely violative of anti-graft
87 

State of its 60 percent share in the net mining provisions and contrary to public policy, Section 7.9
revenues of WMCP without any offset or must therefore be stricken off as invalid.
compensation whatsoever. It is possible that the
inclusion of the offending provision was initially Whether the government officials concerned acceded
prompted by the desire to provide some form of to that provision by sheer mistake or with full
incentive for the principal foreign stockholder in awareness of the ill consequences, is of no moment.
WMCP to eventually reduce its equity position and It is hornbook doctrine that the principle of estoppel
ultimately divest in favor of Filipino citizens and does not operate against the government for the act
corporations. However, as finally structured, Section of its agents, and that it is never estopped by any
88 

7.9 has the deleterious effect of depriving government mistake or error on their part. It is therefore possible
89 

of the entire 60 percent share in WMCP's net mining and proper to rectify the situation at this time.
revenues, without any form of compensation Moreover, we may also say that the FTAA in question
whatsoever. Such an outcome is completely does not involve mere contractual rights; being
unacceptable. impressed as it is with public interest, the contractual
provisions and stipulations must yield to the common
The whole point of developing the nation's natural good and the national interest.
resources is to benefit the Filipino people, future
generations included. And the State as sovereign and Since the offending provision is very much
custodian of the nation's natural wealth is mandated separable from Section 7.7 and the rest of the FTAA,
90 

to protect, conserve, preserve and develop that part of the deletion of Section 7.9 can be done without
55

the national patrimony for their benefit. Hence, the affecting or requiring the invalidation of the WMCP
Charter lays great emphasis on "real contributions to FTAA itself. Such a deletion will preserve for the
Page

the economic growth and general welfare of the government its due share of the benefits. This way,
country" as essential guiding principles to be kept in
85  the mandates of the Constitution are complied with
and the interests of the government fully protected, provision can also easily be stricken off without
while the business operations of the contractor are not affecting the rest of the FTAA.
needlessly disrupted.
Nothing Left Over
Section 7.8(e) of the WMCP FTAA After Deductions?
Also Invalid and Disadvantageous
In connection with Section 7.8, an objection has been
Section 7.8(e) of the WMCP FTAA is likewise invalid. raised: Specified in Section 7.8 are numerous items of
It provides thus: deduction from the State's 60 percent share. After
taking these into account, will the State ever receive
"7.8 The Government Share shall be deemed anything for its ownership of the mineral resources?
to include all of the following sums:
We are confident that under normal circumstances,
"(a) all Government taxes, fees, the answer will be yes. If we examine the various
levies, costs, imposts, duties and items of "deduction" listed in Section 7.8 of the WMCP
royalties including excise tax, FTAA, we will find that they correspond closely to the
corporate income tax, customs duty, components or elements of the basic government
sales tax, value added tax, occupation share established in DAO 99-56, as discussed in the
and regulatory fees, Government earlier part of this Opinion.
controlled price stabilization schemes,
any other form of Government backed Likewise, the balance of the government's 60 percent
schemes, any tax on dividend share -- after netting out the items of deduction listed
payments by the Contractor or its in Section 7.8 --corresponds closely to the additional
Affiliates in respect of revenues from government share provided for in DAO 99-56 which,
the Mining Operations and any tax on we once again stress, has nothing at all to do with
interest on domestic and foreign loans indirect taxes. The Ramos-DeVera paper concisely
92 

or other financial arrangements or presents the fiscal contribution of an FTAA under

accommodations, including loans DAO 99-56 in this equation:
extended to the Contractor by its
stockholders; Receipts from an FTAA = basic gov't share + add'l
gov't share
"(b) any payments to local and
regional government, including taxes, Transposed into a similar equation, the fiscal
fees, levies, costs, imposts, duties, payments system from the WMCP FTAA assumes the
royalties, occupation and regulatory following formulation:
fees and infrastructure contributions;
Government's 60 percent share in net mining
"(c) any payments to landowners, revenues of WMCP = items listed in Sec. 7.8
surface rights holders, occupiers, of the FTAA + balance of Gov't share, payable
indigenous people or Claimowners; 4 months from the end of the fiscal year

"(d) costs and expenses of fulfilling It should become apparent that the fiscal arrangement
the Contractor's obligations to under the WMCP FTAA is very similar to that under
contribute to national development in DAO 99-56, with the "balance of government share
accordance with Clause 10.1(i) (1) payable 4 months from end of fiscal year" being the
and 10.1(i) (2); equivalent of the additional government
share computed in accordance with the "net-mining-
"(e) an amount equivalent to whatever revenue-based option" under DAO 99-56, as
benefits that may be extended in the discussed above. As we have emphasized earlier, we
future by the Government to the find each of the three options for computing
Contractor or to financial or technical the additional government share -- as presented in
assistance agreement contractors in DAO 99-56 -- to be sound and reasonable.
general;
We therefore conclude that there is nothing
"(f) all of the foregoing items which inherently wrong in the fiscal regime of the WMCP
have not previously been offset FTAA, and certainly nothing to warrant the
against the Government Share in an invalidation of the FTAA in its entirety.
earlier Fiscal Year, adjusted for
inflation." (underscoring supplied) Section 3.3 of the WMCP
FTAA Constitutional
Section 7.8(e) is out of place in the FTAA. It makes no
sense why, for instance, money spent by the Section 3.3 of the WMCP FTAA is assailed for
government for the benefit of the contractor in building violating supposed constitutional restrictions on the
roads leading to the mine site should still be term of FTAAs. The provision in question reads:
deductible from the State's share in net mining
revenues. Allowing this deduction results in benefiting "3.3 This Agreement shall be renewed by the
the contractor twice over. It constitutes unjust Government for a further period of twenty-five
enrichment on the part of the contractor at the (25) years under the same terms and
expense of the government, since the latter is conditions provided that the Contractor lodges
effectively being made to pay twice for the same a request for renewal with the Government
item. For being grossly disadvantageous and
91 
not less than sixty (60) days prior to the expiry
56

prejudicial to the government and contrary to public of the initial term of this Agreement and
policy, Section 7.8(e) is undoubtedly invalid and must
Page

provided that the Contractor is not in breach

be declared to be without effect. Fortunately, this of any of the requirements of this Agreement."
Allegedly, the above provision runs afoul of Section 2 be noted that there are no term limitations provided
of Article XII of the 1987 Constitution, which states: for in the said paragraphs dealing with FTAAs. This
shows that FTAAs are sui generis, in a class of their
"Sec. 2. All lands of the public domain, own. This omission was obviously a deliberate move
waters, minerals, coal, petroleum, and other on the part of the framers. They probably realized that
mineral oils, all forces of potential energy, FTAAs would be different in many ways from MPSAs,
fisheries, forests or timber, wildlife, flora and JVAs and CPAs. The reason the framers did not fix
fauna, and other natural resources are owned term limitations applicable to FTAAs is that they
by the State. With the exception of agricultural preferred to leave the matter to the discretion of the
lands, all other natural resources shall not be legislature and/or the agencies involved in
alienated. The exploration, development and implementing the laws pertaining to FTAAs, in order
utilization of natural resources shall be under to give the latter enough flexibility and elbow room to
the full control and supervision of the State. meet changing circumstances.
The State may directly undertake such
activities, or it may enter into co-production, Note also that, as previously stated, the exploratory
joint venture or production-sharing phrases of an FTAA lasts up to eleven years.
agreements with Filipino citizens or Thereafter, a few more years would be gobbled up in
corporations or associations at least sixty per start-up operations. It may take fifteen years before an
centum of whose capital is owned by such FTAA contractor can start earning profits. And thus,
citizens. Such agreements may be for a the period of 25 years may really be short for an
period not exceeding twenty-five years, FTAA. Consider too that in this kind of agreement, the
renewable for not more than twenty-five contractor assumes all entrepreneurial risks. If no
years, and under such terms and commercial quantities of minerals are found, the
conditions as may be provided by law. In contractor bears all financial losses. To compensate
cases of water rights for irrigation, water for this long gestation period and extra business risks,
supply, fisheries, or industrial uses other than it would not be totally unreasonable to allow it to
the development of water power, beneficial continue EDU activities for another twenty five years.
use may be the measure and limit of the
grant. In any event, the complaint is that, in essence,
Section 3.3 gives the contractor the power to compel
"The State shall protect the nation's marine the government to renew the WMCP FTAA for
wealth in its archipelagic waters, territorial another 25 years and deprives the State of any say on
sea, and exclusive economic zone, and whether to renew the contract.
reserve its use and enjoyment exclusively to
Filipino citizens. While we agree that Section 3.3 could have been
worded so as to prevent it from favoring the
"The Congress may, by law, allow small-scale contractor, this provision does not violate any
utilization of natural resources by Filipino constitutional limits, since the said term limitation does
citizens, as well as cooperative fish farming, not apply at all to FTAAs. Neither can the provision be
with priority to subsistence fishermen and deemed in any manner to be illegal, as no law is
fish-workers in rivers, lakes, bays and being violated thereby. It is certainly not illegal for the
lagoons. government to waive its option to refuse the renewal
of a commercial contract.
"The President may enter into agreements
with foreign-owned corporations involving Verily, the government did not have to agree to
either technical or financial assistance for Section 3.3. It could have said "No" to the stipulation,
large-scale exploration, development, and but it did not. It appears that, in the process of
utilization of minerals, petroleum, and other negotiations, the other contracting party was able to
mineral oils according to the general terms convince the government to agree to the renewal
and conditions provided by law, based on real terms. Under the circumstances, it does not seem
contributions to the economic growth and proper for this Court to intervene and step in to undo
general welfare of the country. In such what might have perhaps been a possible
agreements, the State shall promote the miscalculation on the part of the State. If government
development and use of local scientific and believes that it is or will be aggrieved by the effects of
technical resources. Section 3.3, the remedy is the renegotiation of the
provision in order to provide the State the option to
"The President shall notify the Congress of not renew the FTAA.
every contract entered into in accordance with
this provision, within thirty days from its Financial Benefits for Foreigners
execution." 93
Not Forbidden by the Constitution

We hold that the term limitation of twenty-five years Before leaving this subject matter, we find it
does not apply to FTAAs. The reason is that the necessary for us to rid ourselves of the false belief
above provision is found within paragraph 1 of Section that the Constitution somehow forbids foreign-owned
2 of Article XII, which refers to mineral agreements -- corporations from deriving financial benefits from the
co-production agreements, joint venture agreements development of our natural or mineral resources.
and mineral production-sharing agreements -- which
the government may enter into with Filipino citizens The Constitution has never prohibited foreign
and corporations, at least 60 percent owned by corporations from acquiring and enjoying "beneficial
Filipino citizens. The word "such" clearly refers to interest" in the development of Philippine natural
these three mineral agreements -- CPAs, JVAs and resources. The State itself need not directly undertake
57

MPSAs -- not to FTAAs. exploration, development, and utilization activities.

Alternatively, the Constitution authorizes the
Page

Specifically, FTAAs are covered by paragraphs 4 and government to enter into joint venture agreements
5 of Section 2 of Article XII of the Constitution. It will (JVAs), co-production agreements (CPAs) and
mineral production sharing agreements (MPSAs) with FTAA is limited to large-scale projects and only for
contractors who are Filipino citizens or corporations minerals, petroleum and other mineral oils. Here, the
that are at least 60 percent Filipino-owned. They may Constitution removes the 40 percent cap on foreign
do the actual "dirty work" -- the mining operations. ownership and allows the foreign corporation to own
up to 100 percent of the equity. Filipino capital may
In the case of a 60 percent Filipino-owned not be sufficient on account of the size of the project,
corporation, the 40 percent individual and/or so the foreign entity may have to ante up all the risk
corporate non-Filipino stakeholders obviously capital.
participate in the beneficial interest derived from the
development and utilization of our natural resources. Correlatively, the foreign stakeholder bears up to 100
They may receive by way of dividends, up to 40 percent of the risk of loss if the project fails. In respect
percent of the contractor's earnings from the mining of the particular FTAA granted to it, WMCP (then 100
project. Likewise, they may have a say in the percent foreign owned) was responsible, as
decisions of the board of directors, since they are contractor, for providing the entire equity, including all
entitled to representation therein to the extent of their the inputs for the project. It was to bear 100 percent of
equity participation, which the Constitution permits to the risk of loss if the project failed, but its maximum
be up to 40 percent of the contractor's equity. Hence, potential "beneficial interest" consisted only of 40
the non-Filipino stakeholders may in that manner also percent of the net beneficial interest, because the
participate in the management of the contractor's other 60 percent is the share of the government,
natural resource development work. All of this is which will never be exposed to any risk of loss
permitted by our Constitution, for any natural whatsoever.
resource, and without limitation even in regard to the
magnitude of the mining project or operations (see In consonance with the degree of risk assumed, the
paragraph 1 of Section 2 of Article XII). FTAA vested in WMCP the day-to-day management
of the mining operations. Still such management is
It is clear, then, that there is nothing inherently wrong subject to the overall control and supervision of the
with or constitutionally objectionable about the idea of State in terms of regular reporting, approvals of work
foreign individuals and entities having or enjoying programs and budgets, and so on.
"beneficial interest" in -- and participating in the
management of operations relative to -- the So, one needs to consider in relative terms, the costs
exploration, development and utilization of our natural of inputs for, degree of risk attendant to, and benefits
resources. derived or to be derived from a CPA, a JVA or an
MPSA vis-à-vis those pertaining to an FTAA. It may
FTAA More Advantageous not be realistically asserted that the foreign grantee of
Than Other Schemes an FTAA is being unduly favored or benefited as
Like CPA, JVA and MPSA compared with a foreign stakeholder in a corporation
holding a CPA, a JVA or an MPSA. Seen the other
A final point on the subject of beneficial interest. We way around, the government is definitely better off
believe the FTAA is a more advantageous proposition with an FTAA than a CPA, a JVA or an MPSA.
for the government as compared with other
agreements permitted by the Constitution. In a CPA Developmental Policy on the Mining Industry
that the government enters into with one or more
contractors, the government shall provide inputs to During the Oral Argument and in their Final
the mining operations other than the mineral resource Memorandum, petitioners repeatedly urged the Court
itself.
94
to consider whether mining as an industry and
economic activity deserved to be accorded priority,
In a JVA, a JV company is organized by the preference and government support as against, say,
government and the contractor, with both parties agriculture and other activities in which Filipinos and
having equity shares (investments); and the the Philippines may have an "economic advantage."
contractor is granted the exclusive right to conduct For instance, a recent US study reportedly examined
96 

mining operations and to extract minerals found in the the economic performance of all local US counties
area. On the other hand, in an MPSA, the
95 
that were dependent on mining and 20 percent of
government grants the contractor the exclusive right whose labor earnings between 1970 and 2000 came
to conduct mining operations within the contract area from mining enterprises.
and shares in the gross output; and the contractor
provides the necessary financing, technology, The study -- covering 100 US counties in 25 states
management and manpower. dependent on mining -- showed that per capita
income grew about 30 percent less in mining-
The point being made here is that, in two of the three dependent communities in the 1980s and 25 percent
types of agreements under consideration, less for the entire period 1980 to 2000; the level of per
the government has to ante up some risk capital for capita income was also lower. Therefore, given the
the enterprise. In other words, government funds slower rate of growth, the gap between these and
(public moneys) are withdrawn from other possible other local counties increased.
uses, put to work in the venture and placed at risk in
case the venture fails. This notwithstanding, Petitioners invite attention to the OXFAM America
management and control of the operations of the Report's warning to developing nations that mining
enterprise are -- in all three arrangements -- in the brings with it serious economic problems, including
hands of the contractor, with the government being increased regional inequality, unemployment and
mainly a silent partner. The three types of agreement poverty. They also cite the final report of the 97 

mentioned above apply to any natural resource, Extractive Industries Review project commissioned by
without limitation and regardless of the size or the World Bank (the WB-EIR Report), which warns of
58

magnitude of the project or operations. environmental degradation, social disruption, conflict,

and uneven sharing of benefits with local communities
Page

In contrast to the foregoing arrangements, and that bear the negative social and environmental
pursuant to paragraph 4 of Section 2 of Article XII, the impact. The Report suggests that countries need to
decide on the best way to exploit their natural president of the Australian Mining Industry Council,
resources, in order to maximize the value added from who spearheaded the vociferous opposition to the
the development of their resources and ensure that filing by aboriginal peoples of native title claims
they are on the path to sustainable development once against mining companies in Australia in the aftermath
the resources run out. of the landmark Mabo decision by the Australian High
Court. According to sources quoted by our esteemed
Whatever priority or preference may be given to colleague, Morgan was also a racist and a bigot. In
mining vis-à-vis other economic or non-economic the course of protesting Mabo, Morgan allegedly
activities is a question of policy that the President and uttered derogatory remarks belittling the aboriginal
Congress will have to address; it is not for this Court culture and race.
to decide. This Court declares what the Constitution
and the laws say, interprets only when necessary, An unwritten caveat of this introduction is that this
and refrains from delving into matters of policy. Court should be careful not to permit the entry of the
likes of Hugh Morgan and his hordes of alleged racist-
Suffice it to say that the State control accorded by the bigots at WMC. With all due respect, such scare
Constitution over mining activities assures a proper tactics should have no place in the discussion of this
balancing of interests. More pointedly, such control case. We are deliberating on the constitutionality of
will enable the President to demand the best mining RA 7942, DAO 96-40 and the FTAA originally granted
practices and the use of the best available to WMCP, which had been transferred to Sagittarius
technologies to protect the environment and to Mining, a Filipino corporation. We are not discussing
rehabilitate mined-out areas. Indeed, under the Mining the apparition of white Anglo-Saxon racists/bigots
Law, the government can ensure the protection of the massing at our gates.
environment during and after mining. It can likewise
provide for the mechanisms to protect the rights of 2. On the proper interpretation of the
indigenous communities, and thereby mold a more phrase agreements involving either technical or
socially-responsive, culturally-sensitive and financial assistance, Justice Morales points out that at
sustainable mining industry. times we "conveniently omitted" the use of the
disjunctive either…or, which according to her denotes
Early on during the launching of the Presidential restriction; hence the phrase must be deemed to
Mineral Industry Environmental Awards on February connote restriction and limitation.
6, 1997, then President Fidel V. Ramos captured the
essence of balanced and sustainable mining in these But, as Justice Carpio himself pointed out during the
words: Oral Argument, the disjunctive phrase either technical
or financial assistance would, strictly speaking,
"Long term, high profit mining translates into literally mean that a foreign contractor may provide
higher revenues for government, more decent only one or the other, but not both. And if both
jobs for the population, more raw materials to technical and financial assistance were required for a
feed the engines of downstream and allied project, the State would have to deal with at least two
industries, and improved chances of human different foreign contractors -- one for financial and
resource and countryside development by the other for technical assistance. And following on
creating self-reliant communities away from that, a foreign contractor, though very much qualified
urban centers. to provide both kinds of assistance, would
nevertheless be prohibited from providing one kind as
xxxxxxxxx soon as it shall have agreed to provide the other.

"Against a fragile and finite environment, it is But if the Court should follow this restrictive and literal
sustainability that holds the key. In construction, can we really find two (or more)
sustainable mining, we take a middle ground contractors who are willing to participate in one single
where both production and protection goals project -- one to provide the "financial assistance" only
are balanced, and where parties-in-interest and the other the "technical assistance" exclusively; it
come to terms." would be excellent if these two or more contractors
happen to be willing and are able to cooperate and
work closely together on the same project (even if
Neither has the present leadership been remiss in
they are otherwise competitors). And it would be
addressing the concerns of sustainable mining
superb if no conflicts would arise between or among
operations. Recently, on January 16, 2004 and April
them in the entire course of the contract. But what are
20, 2004, President Gloria Macapagal Arroyo issued
the chances things will turn out this way in the real
Executive Orders Nos. 270 and 270-A, respectively,
world? To think that the framers deliberately imposed
"to promote responsible mineral resources
this kind of restriction is to say that they were either
exploration, development and utilization, in order to
exceedingly optimistic, or incredibly naïve. This begs
enhance economic growth, in a manner that adheres
the question -- What laudable objective or purpose
to the principles of sustainable development and with
could possibly be served by such strict and restrictive
due regard for justice and equity, sensitivity to the
literal interpretation?
culture of the Filipino people and respect for
Philippine sovereignty."98

3. Citing Oposa v. Factoran Jr., Justice Morales

claims that a service contract is not a contract or
REFUTATION OF DISSENTS
property right which merits protection by the due
process clause of the Constitution, but merely a
The Court will now take up a number of other specific license or privilege which may be validly revoked,
points raised in the dissents of Justices Carpio and rescinded or withdrawn by executive action whenever
Morales. dictated by public interest or public welfare.
59

1. Justice Morales introduced us to Hugh Morgan, Oposa cites Tan v. Director of Forestry and Ysmael v.

former president and chief executive officer of
Page

Deputy Executive Secretary as authority. The latter

Western Mining Corporation (WMC) and former cases dealt specifically with timber licenses
only. Oposa allegedly reiterated that a license is Constitution did not care much about alleviating the
merely a permit or privilege to do what otherwise retardation or delay in the development and
would be unlawful, and is not a contract between the utilization of our natural resources, why did they
authority, federal, state or municipal, granting it and bother to write paragraph 4 at all? Were they merely
the person to whom it is granted; neither is it property paying lip service to large-scale exploration,
or a property right, nor does it create a vested right; development and utilization? They could have just
nor is it taxation. Thus this Court held that the completely ignored the subject matter and left it to be
granting of license does not create irrevocable rights, dealt with through a future constitutional amendment.
neither is it property or property rights. But we have to harmonize every part of the
Constitution and to interpret each provision in a
Should Oposa be deemed applicable to the case at manner that would give life and meaning to it and to
bar, on the argument that natural resources are also the rest of the provisions. It is obvious that a literal
involved in this situation? We do not think so. A interpretation of paragraph 4 will render it utterly
grantee of a timber license, permit or license inutile and inoperative.
agreement gets to cut the timber already growing on
the surface; it need not dig up tons of earth to get at 6. According to Justice Morales, the deliberations of
the logs. In a logging concession, the investment of the Constitutional Commission do not support our
the licensee is not as substantial as the investment of contention that the framers, by specifying such
a large-scale mining contractor. If a timber license agreements involving financial or technical
were revoked, the licensee packs up its gear and assistance, necessarily gave implied assent to
moves to a new area applied for, and starts over; everything that these agreements implicitly entailed,
what it leaves behind are mainly the trails leading to or that could reasonably be deemed necessary to
the logging site. make them tenable and effective, including
management authority in the day-to-day operations.
In contrast, the mining contractor will have sunk a As proof thereof, she quotes one single passage from
great deal of money (tens of millions of dollars) into the ConCom deliberations, consisting of an exchange
the ground, so to speak, for exploration activities, for among Commissioners Tingson, Garcia and Monsod.
development of the mine site and infrastructure, and
for the actual excavation and extraction of minerals, However, the quoted exchange does not serve to
including the extensive tunneling work to reach the contradict our argument; it even bolsters it. Comm.
ore body. The cancellation of the mining contract will Christian Monsod was quoted as saying: "xxx I think
utterly deprive the contractor of its investments (i.e., we have to make a distinction that it is not really
prevent recovery of investments), most of which realistic to say that we will borrow on our own terms.
cannot be pulled out. Maybe we can say that we inherited unjust loans, and
we would like to repay these on terms that are not
To say that an FTAA is just like a mere timber license prejudicial to our own growth. But the general
or permit and does not involve contract or property statement that we should only borrow on our own
rights which merit protection by the due process terms is a bit unrealistic." Comm. Monsod is one who
clause of the Constitution, and may therefore be knew whereof he spoke.
revoked or cancelled in the blink of an eye, is to adopt
a well-nigh confiscatory stance; at the very least, it is 7. Justice Morales also declares that the optimal time
downright dismissive of the property rights of for the conversion of an FTAA into an MPSA is after
businesspersons and corporate entities that have completion of the exploration phase and just before
investments in the mining industry, whose undertaking the development and construction phase,
investments, operations and expenditures do on account of the fact that the requirement for a
contribute to the general welfare of the people, the minimum investment of $50 million is applicable only
coffers of government, and the strength of the during the development, construction and utilization
economy. Such a pronouncement will surely phase, but not during the exploration phase, when the
discourage investments (local and foreign) which are foreign contractor need merely comply with minimum
critically needed to fuel the engine of economic ground expenditures. Thus by converting, the foreign
growth and move this country out of the rut of poverty. contractor maximizes its profits by avoiding its
In sum, Oposa is not applicable. obligation to make the minimum investment of $50
million.
4. Justice Morales adverts to the supposedly "clear
intention" of the framers of the Constitution to reserve This argument forgets that the foreign contractor is in
our natural resources exclusively for the Filipino the game precisely to make money. In order to come
people. She then quoted from the records of the anywhere near profitability, the contractor must first
ConCom deliberations a passage in which then extract and sell the mineral ore. In order to do that, it
Commissioner Davide explained his vote, arguing in must also develop and construct the mining facilities,
the process that aliens ought not be allowed to set up its machineries and equipment and dig the
participate in the enjoyment of our natural resources. tunnels to get to the deposit. The contractor is thus
One passage does not suffice to capture the tenor or compelled to expend funds in order to make profits. If
substance of the entire extensive deliberations of the it decides to cut back on investments and
commissioners, or to reveal the clear intention of the expenditures, it will necessarily sacrifice the pace of
framers as a group. A re-reading of the entire development and utilization; it will necessarily
deliberations (quoted here earlier) is necessary if we sacrifice the amount of profits it can make from the
are to understand the true intent of the framers. mining operations. In fact, at certain less-than-optimal
levels of operation, the stream of revenues generated
5. Since 1935, the Filipino people, through their may not even be enough to cover variable expenses,
Constitution, have decided that the retardation or let alone overhead expenses; this is a dismal situation
delay in the exploration, development or utilization of anyone would want to avoid. In order to make money,
the nation's natural resources is merely secondary to one has to spend money. This truism applies to the
60

the protection and preservation of their ownership of mining industry as well.

Page

the natural resources, so says Justice Morales, citing

Aruego. If it is true that the framers of the 1987
8. Mortgaging the minerals to secure a foreign FTAA such delegation would be void, for lack of any
contractor's obligations is anomalous, according to standards by which the delegated power shall be
Justice Morales since the contractor was from the exercised.
beginning obliged to provide all financing needed for
the mining operations. However, the mortgaging of While there is nothing in the second paragraph of
minerals by the contractor does not necessarily signify Section 81 which can directly be construed as a
that the contractor is unable to provide all financing delegation of legislative power to the DENR secretary,
required for the project, or that it does not have the it does not mean that DAO 99-56 is invalid per se, or
financial capability to undertake large-scale that the secretary acted without any authority or
operations. Mortgaging of mineral products, just like jurisdiction in issuing DAO 99-56. As we stated earlier
the assignment (by way of security) of manufactured in our Prologue, "Who or what organ of
goods and goods in inventory, and the assignment of government actually exercises this power of control
receivables, is an ordinary requirement of banks, even on behalf of the State? The Constitution is crystal
in the case of clients with more than sufficient clear: the President. Indeed, the Chief Executive is
financial resources. And nowadays, even the richest the official constitutionally mandated to 'enter into
and best managed corporations make use of bank agreements with foreign owned corporations.' On the
credit facilities -- it does not necessarily signify that other hand, Congress may review the action of the
they do not have the financial resources or are unable President once it is notified of 'every contract entered
to provide the financing on their own; it is just a into in accordance with this [constitutional] provision
manner of maximizing the use of their funds. within thirty days from its execution.'" It is the
President who is constitutionally mandated to enter
9. Does the contractor in reality acquire the surface into FTAAs with foreign corporations, and in doing
rights "for free," by virtue of the fact that it is entitled to so, it is within the President's prerogative to specify
reimbursement for the costs of acquisition and certain terms and conditions of the FTAAs, for
maintenance, adjusted for inflation? We think not. The example, the fiscal regime of FTAAs -- i.e., the
"reimbursement" is possible only at the end of the sharing of the net mining revenues between the
term of the contract, when the surface rights will no contractor and the State.
longer be needed, and the land previously acquired
will have to be disposed of, in which case the Being the President's alter ego with respect to the
contractor gets reimbursement from the sales control and supervision of the mining industry, the
proceeds. The contractor has to pay out the DENR secretary, acting for the President, is
acquisition price for the land. That money will belong necessarily clothed with the requisite authority and
to the seller of the land. Only if and when the land is power to draw up guidelines delineating certain terms
finally sold off will the contractor get any and conditions, and specifying therein the terms of
reimbursement. In other words, the contractor will sharing of benefits from mining, to be applicable to
have been cash-out for the entire duration of the term FTAAs in general. It is important to remember that
of the contract -- 25 or 50 years, depending. If we DAO 99-56 has been in existence for almost six
calculate the cost of money at say 12 percent per years, and has not been amended or revoked by the
annum, that is the cost or opportunity loss to the President.
contractor, in addition to the amount of the acquisition
price. 12 percent per annum for 50 years is 600 The issuance of DAO 99-56 did not involve the
percent; this, without any compounding yet. The cost exercise of delegated legislative power. The
of money is therefore at least 600 percent of the legislature did not delegate the power to determine
original acquisition cost; it is in addition to the the nature, extent and composition of the items that
acquisition cost. "For free"? Not by a long shot. would come under the phrase among other
things. The legislature's power pertains to the
10. The contractor will acquire and hold up to 5,000 imposition of taxes, duties and fees. This power was
hectares? We doubt it. The acquisition by the State of not delegated to the DENR secretary. But the power
land for the contractor is just to enable the contractor to negotiate and enter into FTAAs was withheld from
to establish its mine site, build its facilities, establish a Congress, and reserved for the President. In
tailings pond, set up its machinery and equipment, determining the sharing of mining benefits, i.e., in
and dig mine shafts and tunnels, etc. It is impossible specifying what the phrase among other
that the surface requirement will aggregate 5,000 things include, the President (through the secretary
hectares. Much of the operations will consist of the acting in his/her behalf) was not determining the
tunneling and digging underground, which will not amount or rate of taxes, duties and fees, but rather
require possessing or using any land surface. 5,000 the amount of INCOME to be derived from minerals to
hectares is way too much for the needs of a mining be extracted and sold, income which belongs to the
operator. It simply will not spend its cash to acquire State as owner of the mineral resources. We may say
property that it will not need; the cash may be better that, in the second paragraph of Section 81, the
employed for the actual mining operations, to yield a legislature in a sense intruded partially into the
profit. President's sphere of authority when the former
provided that
11. Justice Carpio claims that the phrase among
other things (found in the second paragraph of "The Government share in financial or
Section 81 of the Mining Act) is being incorrectly technical assistance agreement shall consist
treated as a delegation of legislative power to the of, among other things, the contractor's
DENR secretary to issue DAO 99-56 and prescribe corporate income tax, excise tax, special
the formulae therein on the State's share from mining allowance, withholding tax due from the
operations. He adds that the phrase among other contractor's foreign stockholders arising from
things was not intended as a delegation of legislative dividend or interest payments to the said
power to the DENR secretary, much less could it be foreign stockholder in case of a foreign
deemed a valid delegation of legislative power, since national and all such other taxes, duties and
61

there is nothing in the second paragraph of Section 81 fees as provided for under existing
which can be said to grant any delegated legislative laws." (Italics supplied)
Page

power to the DENR secretary. And even if there were,

But it did not usurp the President's authority since the amend the same by adopting the fiscal regime
provision merely included the enumerated items as prescribed in DAO 99-56 -- i.e., solely in that
part of the government share, without foreclosing or in manner, and in no other. Obviously, since DAO 99-
any way preventing (as in fact Congress could not 56 was issued by the secretary under the
validly prevent) the President from determining what authority and with the presumed approval of the
constitutes the State's compensation derived from President, the amendment of an FTAA by merely
FTAAs. In this case, the President in effect directed adopting the fiscal regime prescribed in said DAO
the inclusion or addition of "other 99-56 (and nothing more) need not have the
things," viz., INCOME for the owner of the resources, express clearance of the President anymore. It is
in the government's share, while adopting the items as if the same had been pre-approved. We cannot
enumerated by Congress as part of the government fathom the complaint that that makes the secretary
share also. more powerful than the President, or that the former is
trying to hide things from the President or Congress.
12. Justice Carpio's insistence on applying
the ejusdem generis rule of statutory construction to 14. Based on the first sentence of Section 5 of DAO
the phrase among other things is therefore useless, 99-56, which states "[A]ll FTAAs approved prior to the
and must fall by the wayside. There is no point trying effectivity of this Administrative Order shall remain
to construe that phrase in relation to the enumeration valid and be recognized by the Government", Justice
of taxes, duties and fees found in paragraph 2 of Carpio concludes that said Administrative Order
Section 81, precisely because "the constitutional allegedly exempts FTAAs approved prior to its
power to prescribe the sharing of mining income effectivity -- like the WMCP FTAA -- from having to
between the State and mining companies," to pay the State any share from their mining income,
quote Justice Carpio pursuant to an FTAA apart from taxes, duties and fees.
is constitutionally lodged with the President, not
with Congress. It thus makes no sense to persist in We disagree. What we see in black and white is the
giving the phrase among other things a restricted statement that the FTAAs approved before the DAO
meaning referring only to taxes, duties and fees. came into effect are to continue to be valid and will be
recognized by the State. Nothing is said about their
13. Strangely, Justice Carpio claims that the DENR fiscal regimes. Certainly, there is no basis to claim
secretary can change the formulae in DAO 99-56 any that the contractors under said FTAAs were being
time even without the approval of the President, and exempted from paying the government a share in their
the secretary is the sole authority to determine the mining incomes.
amount of consideration that the State shall receive in
an FTAA, because Section 5 of the DAO states For the record, the WMCP FTAA is NOT and has
that "xxx any amendment of an FTAA other than the never been exempt from paying the government
provision on fiscal regime shall require the share. The WMCP FTAA has its own fiscal regime
negotiation with the Negotiation Panel and the -- Section 7.7 -- which gives the government a 60
recommendation of the Secretary for approval of the percent share in the net mining revenues of
President xxx". Allegedly, because of that provision, if WMCP from the commencement of commercial
an amendment in the FTAA involves non-fiscal production.
matters, the amendment requires approval of the
President, but if the amendment involves a change in For that very reason, we have never said that DAO
the fiscal regime, the DENR secretary has the final 99-56 is the basis for claiming that the WMCP FTAA
authority, and approval of the President may be has a consideration. Hence, we find quite out of place
dispensed with; hence the secretary is more powerful Justice Carpio's statement that ironically, DAO 99-56,
than the President. the very authority cited to support the claim that the
WMCP FTAA has a consideration, does not apply to
We believe there is some distortion resulting from the the WMCP FTAA. By its own express terms, DAO 99-
quoted provision being taken out of context. Section 5 56 does not apply to FTAAs executed before the
of DAO 99-56 reads as follows: issuance of DAO 99-56, like the WMCP FTAA. The
majority's position has allegedly no leg to stand on
"Section 5. Status of Existing FTAAs. All since even DAO 99-56, assuming it is valid, cannot
FTAAs approved prior to the effectivity of this save the WMCP FTAA from want of
Administrative Order shall remain valid and be consideration. Even assuming arguendo that DAO
recognized by the Government: Provided, 99-56 does not apply to the WMCP FTAA,
That should a Contractor desire to amend its nevertheless, the WMCP FTAA has its own fiscal
FTAA, it shall do so by filing a Letter of Intent regime, found in Section 7.7 thereof. Hence, there is
(LOI) to the Secretary thru the Director. no such thing as "want of consideration" here.
Provided, further, That if the Contractor
desires to amend the fiscal regime of its Still more startling is this claim: The majority
FTAA, it may do so by seeking for the supposedly agrees that the provisions of the WMCP
amendment of its FTAA's whole fiscal regime FTAA, which grant a sham consideration to the State,
by adopting the fiscal regime provided hereof: are void. Since the majority agrees that the WMCP
Provided, finally, That any amendment of an FTAA has a sham consideration, the WMCP FTAA
FTAA other than the provision on fiscal regime thus lacks the third element of a valid contract. The
shall require the negotiation with the Decision should declare the WMCP FTAA void for
Negotiating Panel and the recommendation of want of consideration unless it treats the contract as
the Secretary for approval of the President of an MPSA under Section 80. Indeed the only recourse
the Republic of the Philippines." (underscoring of WMCP to save the validity of its contract is to
supplied) convert it into an MPSA.

It looks like another case of misapprehension. The

62

To clarify, we said that Sections 7.9 and 7.8(e) of the

proviso being objected to by Justice Carpio is actually WMCP FTAA are provisions grossly disadvantageous
Page

preceded by a phrase that requires a contractor to government and detrimental to the interests of the
desiring to amend the fiscal regime of its FTAA, to Filipino people, as well as violative of public policy,
and must therefore be stricken off as invalid. Since The framers spoke about service contracts as the
the offending provisions are very much separable concept was understood in the 1973 Constitution. It is
from Section 7.7 and the rest of the FTAA, the obvious from their discussions that they did not intend
deletion of Sections 7.9 and 7.8(e) can be done to ban or eradicate service contracts. Instead, they
without affecting or requiring the invalidation of the were intent on crafting provisions to put in place
WMCP FTAA itself, and such deletion will preserve for safeguards that would eliminate or minimize the
government its due share of the 60 percent benefits. abuses prevalent during the martial law regime. In
Therefore, the WMCP FTAA is NOT bereft of a valid brief, they were going to permit service contracts
consideration (assuming for the nonce that indeed this with foreign corporations as contractors, but with
is the "consideration" of the FTAA). safety measures to prevent abuses, as an
exception to the general norm established in the
SUMMATION first paragraph of Section 2 of Article XII, which
reserves or limits to Filipino citizens and
To conclude, a summary of the key points discussed corporations at least 60 percent owned by such
above is now in order. citizens the exploration, development and
utilization of mineral or petroleum resources. This
was prompted by the perceived insufficiency of
The Meaning of "Agreements Involving
Filipino capital and the felt need for foreign expertise
Either Technical or Financial Assistance"
in the EDU of mineral resources.
Applying familiar principles of constitutional
Despite strong opposition from some ConCom
construction to the phrase agreements involving
members during the final voting, the Article on the
either technical or financial assistance, the framers'
National Economy and Patrimony -- including
choice of words does not indicate the intent to exclude
paragraph 4 allowing service contracts with foreign
other modes of assistance, but rather implies that
corporations as an exception to the general norm in
there are other things being included or possibly being
paragraph 1 of Section 2 of the same Article -- was
made part of the agreement, apart from financial or
resoundingly and overwhelmingly approved.
technical assistance. The drafters avoided the use of
restrictive and stringent phraseology; a verba
legis scrutiny of Section 2 of Article XII of the The drafters, many of whom were economists,
Constitution discloses not even a hint of a desire academicians, lawyers, businesspersons and
to prohibit foreign involvement in the management or politicians knew that foreign entities will not enter into
operation of mining activities, or to eradicate service agreements involving assistance without requiring
contracts. Such moves would necessarily imply an measures of protection to ensure the success of the
underlying drastic shift in fundamental economic and venture and repayment of their investments, loans
developmental policies of the State. That change and other financial assistance, and ultimately to
requires a much more definite and irrefutable basis protect the business reputation of the foreign
than mere omission of the words "service contract" corporations. The drafters, by specifying such
from the new Constitution. agreements involving assistance, necessarily gave
implied assent to everything that these agreements
entailed or that could reasonably be deemed
Furthermore, a literal and restrictive interpretation of
necessary to make them tenable and effective --
this paragraph leads to logical inconsistencies. A
including management authority with respect to the
constitutional provision specifically allowing foreign-
day-to-day operations of the enterprise, and
owned corporations to render financial or
measures for the protection of the interests of the
technical assistance in respect of mining or any other
foreign corporation, at least to the extent that they are
commercial activity was clearly unnecessary; the
consistent with Philippine sovereignty over natural
provision was meant to refer to more than mere
resources, the constitutional requirement of State
financial or technical assistance.
control, and beneficial ownership of natural resources
remaining vested in the State.
Also, if paragraph 4 permits only agreements for
financial or technical assistance, there would be no
From the foregoing, it is clear that agreements
point in requiring that they be "based on real
involving either technical or financial
contributions to the economic growth and general
assistance referred to in paragraph 4 are in
welfare of the country." And considering that there
fact service contracts, but such new service contracts
were various long-term service contracts still in force
are between foreign corporations acting as
and effect at the time the new Charter was being
contractors on the one hand, and on the other hand
drafted, the absence of any transitory provisions to
government as principal or "owner" (of the works),
govern the termination and closing-out of the then
whereby the foreign contractor provides the capital,
existing service contracts strongly militates against
technology and technical know-how, and managerial
the theory that the mere omission of "service
expertise in the creation and operation of the large-
contracts" signaled their prohibition by the new
scale mining/extractive enterprise, and government
Constitution.
through its agencies (DENR, MGB) actively exercises
full control and supervision over the entire enterprise.
Resort to the deliberations of the Constitutional
Commission is therefore unavoidable, and a careful
Such service contracts may be entered into only with
scrutiny thereof conclusively shows that the ConCom
respect to minerals, petroleum and other mineral oils.
members discussed agreements involving either
The grant of such service contracts is subject to
technical or financial assistance in the same sense
several safeguards, among them: (1) that the service
as service contracts and used the terms
contract be crafted in accordance with a general law
interchangeably. The drafters in fact knew that the
setting standard or uniform terms, conditions and
agreements with foreign corporations were going to
requirements; (2) the President be the signatory for
entail not mere technical or financial assistance but,
the government; and (3) the President report the
63

rather, foreign investment in and management of an

executed agreement to Congress within thirty days.
enterprise for large-scale exploration, development
Page

and utilization of minerals.

Ultimate Test: Full State Control
To repeat, the primacy of the principle of the State's best prices; copies of sales agreements have to be
sovereign ownership of all mineral resources, and its submitted to and registered with MGB.
full control and supervision over all aspects of
exploration, development and utilization of natural The contractor is mandated to open its books of
resources must be upheld. But "full control and accounts and records for scrutiny, to enable the State
supervision" cannot be taken literally to mean that the to determine that the government share has been fully
State controls and supervises everything down to the paid. The State may likewise compel compliance by
minutest details and makes all required actions, as the contractor with mandatory requirements on mine
this would render impossible the legitimate exercise safety, health and environmental protection, and the
by the contractor of a reasonable degree of use of anti-pollution technology and facilities. The
management prerogative and authority, indispensable contractor is also obligated to assist the development
to the proper functioning of the mining enterprise. of the mining community, and pay royalties to the
Also, government need not micro-manage mining indigenous peoples concerned. And violation of any of
operations and day-to-day affairs of the enterprise in the FTAA's terms and conditions, and/or non-
order to be considered as exercising full control and compliance with statutes or regulations, may be
supervision. penalized by cancellation of the FTAA. Such sanction
is significant to a contractor who may have yet to
Control, as utilized in Section 2 of Article XII, must be recover the tens or hundreds of millions of dollars
taken to mean a degree of control sufficient to enable sunk into a mining project.
the State to direct, restrain, regulate and govern the
affairs of the extractive enterprises. Control by the Overall, the State definitely has a pivotal say in the
State may be on a macro level, through the operation of the individual enterprises, and can set
establishment of policies, guidelines, regulations, directions and objectives, detect deviations and non-
industry standards and similar measures that would compliances by the contractor, and enforce
enable government to regulate the conduct of compliance and impose sanctions should the
affairs in various enterprises, and restrain activities occasion arise. Hence, RA 7942 and DAO 96-40 vest
deemed not desirable or beneficial, with the end in in government more than a sufficient degree of control
view of ensuring that these enterprises contribute to and supervision over the conduct of mining
the economic development and general welfare of the operations.
country, conserve the environment, and uplift the well-
being of the local affected communities. Such a Section 3(aq) of RA 7942 was objected to as being
degree of control would be compatible with permitting unconstitutional for allowing a foreign contractor to
the foreign contractor sufficient and reasonable apply for and hold an exploration permit. During the
management authority over the enterprise it has exploration phase, the permit grantee (and
invested in, to ensure efficient and profitable prospective contractor) is spending and investing
operation. heavily in exploration activities without yet being able
to extract minerals and generate revenues. The
Government Granted Full Control exploration permit issued under Sections 3(aq), 20
by RA 7942 and DAO 96-40 and 23 of RA 7942, which allows exploration but not
extraction, serves to protect the interests and rights of
Baseless are petitioners' sweeping claims that RA the exploration permit grantee (and would-be
7942 and its Implementing Rules and Regulations contractor), foreign or local. Otherwise, the
make it possible for FTAA contracts to cede full exploration works already conducted, and
control and management of mining enterprises over to expenditures already made, may end up only
fully foreign owned corporations. Equally wobbly is the benefiting claim-jumpers. Thus, Section 3(aq) of RA
assertion that the State is reduced to a passive 7942 is not unconstitutional.
regulator dependent on submitted plans and reports,
with weak review and audit powers and little say in the WMCP FTAA Likewise Gives the
decision-making of the enterprise, for which reasons State Full Control and Supervision
"beneficial ownership" of the mineral resources is
allegedly ceded to the foreign contractor. The WMCP FTAA obligates the contractor to account
for the value of production and sale of minerals
As discussed hereinabove, the State's full control and (Clause 1.4); requires that the contractor's work
supervision over mining operations are ensured program, activities and budgets be approved by the
through the following provisions in RA 7942: Sections State (Clause 2.1); gives the DENR secretary power
8, 9, 16, 19, 24, 35[(b), (e), (f), (g), (h), (k), (l), (m) and to extend the exploration period (Clause 3.2-a);
(o)], 40, 57, 66, 69, 70, and Chapters XI and XVII; as requires approval by the State for incorporation of
well as the following provisions of DAO 96-40: lands into the contract area (Clause 4.3-c); requires
Sections7[(d) and (f)], 35(a-2), 53[(a-4) and (d)], 54, Bureau of Forest Development approval for inclusion
56[(g), (h), (l), (m) and (n)], 56(2), 60, 66, 144, 168, of forest reserves as part of the FTAA contract area
171 and 270, and also Chapters XV, XVI and XXIV. (Clause 4.5); obligates the contractor to periodically
relinquish parts of the contract area not needed for
Through the foregoing provisions, the government exploration and development (Clause 4.6); requires
agencies concerned are empowered to approve or submission of a declaration of mining feasibility for
disapprove -- hence, in a position to influence, direct, approval by the State (Clause 4.6-b); obligates the
and change -- the various work programs and the contractor to report to the State the results of its
corresponding minimum expenditure commitments for exploration activities (Clause 4.9); requires the
each of the exploration, development and utilization contractor to obtain State approval for its work
phases of the enterprise. Once they have been programs for the succeeding two year periods,
approved, the contractor's compliance with its containing the proposed work activities and
commitments therein will be monitored. Figures for expenditures budget related to exploration (Clause
mineral production and sales are regularly monitored 5.1); requires the contractor to obtain State approval
64

and subjected to government review, to ensure that for its proposed expenditures for exploration activities
Page

the products and by-products are disposed of at the (Clause 5.2); requires the contractor to submit an
annual report on geological, geophysical,
geochemical and other information relating to its while still guaranteeing that the approved work
explorations within the FTAA area (Clause 5.3-a); programs and budgets are not abandoned altogether.
requires the contractor to submit within six months And if the secretary disagrees with the actions taken
after expiration of exploration period a final report on by the contractor in this instance, he may also resort
all its findings in the contract area (Clause 5.3-b); to cancellation/termination of the FTAA as the ultimate
requires the contractor after conducting feasibility sanction.
studies to submit a declaration of mining feasibility,
along with a description of the area to be developed Clause 4.6 of the WMCP FTAA gives the contractor
and mined, a description of the proposed mining discretion to select parts of the contract area to be
operations and the technology to be employed, and relinquished. The State is not in a position to
the proposed work program for the development substitute its judgment for that of the contractor, who
phase, for approval by the DENR secretary (Clause knows exactly which portions of the contract area do
5.4); obligates the contractor to complete the not contain minerals in commercial quantities and
development of the mine, including construction of the should be relinquished. Also, since the annual
production facilities, within the period stated in the occupation fees paid to government are based on the
approved work program (Clause 6.1); requires the total hectarage of the contract area, net of the areas
contractor to submit for approval a work program relinquished, the contractor's self-interest will assure
covering each period of three fiscal years (Clause proper and efficient relinquishment.
6.2); requires the contractor to submit reports to the
secretary on the production, ore reserves, work Clause 10.2(e) of the WMCP FTAA does not mean
accomplished and work in progress, profile of its work that the contractor can compel government to use its
force and management staff, and other technical power of eminent domain. It contemplates a situation
information (Clause 6.3); subjects any expansions, in which the contractor is a foreign-owned corporation,
modifications, improvements and replacements of hence, not qualified to own land. The contractor
mining facilities to the approval of the secretary identifies the surface areas needed for it to construct
(Clause 6.4); subjects to State control the amount of the infrastructure for mining operations, and the State
funds that the contractor may borrow within the then acquires the surface rights on behalf of the
Philippines (Clause 7.2); subjects to State supervisory former. The provision does not call for the exercise of
power any technical, financial and marketing issues the power of eminent domain (or determination of just
(Clause 10.1-a); obligates the contractor to ensure 60 compensation); it seeks to avoid a violation of the
percent Filipino equity in the contractor within ten anti-dummy law.
years of recovering specified expenditures unless not
so required by subsequent legislation (Clause 10.1);
Clause 10.2(l) of the WMCP FTAA giving the
gives the State the right to terminate the FTAA for
contractor the right to mortgage and encumber the
unremedied substantial breach thereof by the
mineral products extracted may have been a result of
contractor (Clause 13.2); requires State approval for
conditions imposed by creditor-banks to secure the
any assignment of the FTAA by the contractor to an
loan obligations of WMCP. Banks lend also upon the
entity other than an affiliate (Clause 14.1).
security of encumbrances on goods produced, which
can be easily sold and converted into cash and
In short, the aforementioned provisions of the WMCP applied to the repayment of loans. Thus, Clause
FTAA, far from constituting a surrender of control and 10.2(l) is not something out of the ordinary. Neither is
a grant of beneficial ownership of mineral resources to it objectionable, because even though the contractor
the contractor in question, vest the State with control is allowed to mortgage or encumber the mineral end-
and supervision over practically all aspects of the products themselves, the contractor is not thereby
operations of the FTAA contractor, including the relieved of its obligation to pay the government its
charging of pre-operating and operating expenses, basic and additional shares in the net mining revenue.
and the disposition of mineral products. The contractor's ability to mortgage the minerals does
not negate the State's right to receive its share of net
There is likewise no relinquishment of control on mining revenues.
account of specific provisions of the WMCP FTAA.
Clause 8.2 provides a mechanism to prevent the Clause 10.2(k) which gives the contractor authority "to
mining operations from grinding to a complete halt as change its equity structure at any time," means that
a result of possible delays of more than 60 days in the WMCP, which was then 100 percent foreign owned,
government's processing and approval of submitted could permit Filipino equity ownership. Moreover,
work programs and budgets. Clause 8.3 seeks to what is important is that the contractor, regardless of
provide a temporary, stop-gap solution in case a its ownership, is always in a position to render the
disagreement between the State and the contractor services required under the FTAA, under the direction
(over the proposed work program or budget submitted and control of the government.
by the contractor) should result in a deadlock or
impasse, to avoid unreasonably long delays in the
Clauses 10.4(e) and (i) bind government to allow
performance of the works.
amendments to the FTAA if required by banks and
other financial institutions as part of the conditions of
The State, despite Clause 8.3, still has control over new lendings. There is nothing objectionable here,
the contract area, and it may, as sovereign authority, since Clause 10.4(e) also provides that such financing
prohibit work thereon until the dispute is resolved, or it arrangements should in no event reduce the
may terminate the FTAA, citing substantial breach contractor's obligations or the government's rights
thereof. Hence, the State clearly retains full and under the FTAA. Clause 10.4(i) provides that
effective control. government shall "favourably consider" any request
for amendments of this agreement necessary for the
Clause 8.5, which allows the contractor to make contractor to successfully obtain financing. There is
changes to approved work programs and budgets no renunciation of control, as the proviso does not say
without the prior approval of the DENR secretary, that government shall automatically grant any such
65

subject to certain limitations with respect to the request. Also, it is up to the contractor to prove the
variance/s, merely provides the contractor a certain
Page

need for the requested changes. The government

amount of flexibility to meet unexpected situations,
always has the final say on whether to approve or bloated to wipe out mining revenues anticipated for 10
disapprove such requests. years, with the result that the State's share is zero for
the first 10 years. However, the argument is based on
In fine, the FTAA provisions do not reduce or incorrect information.
abdicate State control.
Under Section 23 of RA 7942, the applicant for
No Surrender of Financial Benefits exploration permit is required to submit a proposed
work program for exploration, containing a yearly
The second paragraph of Section 81 of RA 7942 has budget of proposed expenditures, which the State
been denounced for allegedly limiting the State's passes upon and either approves or rejects; if
share in FTAAs with foreign contractors to just taxes, approved, the same will subsequently be recorded as
fees and duties, and depriving the State of a share in pre-operating expenses that the contractor will have
the after-tax income of the enterprise. However, the to recoup over the grace period.
inclusion of the phrase "among other things" in the
second paragraph of Section 81 clearly and Under Section 24, when an exploration permittee files
unmistakably reveals the legislative intent to have the with the MGB a declaration of mining project
State collect more than just the usual taxes, duties feasibility, it must submit a work program for
and fees. development, with corresponding budget, for approval
by the Bureau, before government may grant an
Thus, DAO 99-56, the "Guidelines Establishing the FTAA or MPSA or other mineral agreements; again,
Fiscal Regime of Financial or Technical Assistance government has the opportunity to approve or reject
Agreements," spells out the financial benefits the proposed work program and budgeted
government will receive from an FTAA, as consisting expenditures for development works, which will
of not only a basic government share, comprised of become the pre-operating and development costs that
all direct taxes, fees and royalties, as well as other will have to be recovered. Government is able to know
payments made by the contractor during the term of ahead of time the amounts of pre-operating and other
the FTAA, but also an additional government share, expenses to be recovered, and the approximate
being a share in the earnings or cash flows of the period of time needed therefor. The aforecited
mining enterprise, so as to achieve a fifty-fifty provisions have counterparts in Section 35, which
sharing of net benefits from mining between the deals with the terms and conditions exclusively
government and the contractor. applicable to FTAAs. In sum, the third or last
paragraph of Section 81 of RA 7942 cannot be
deemed defective.
The additional government share is computed using
one of three (3) options or schemes detailed in DAO
99-56, viz., (1) the fifty-fifty sharing of cumulative Section 80 of RA 7942 allegedly limits the State's
present value of cash flows; (2) the excess profit- share in a mineral production-sharing agreement
related additional government share; and (3) the (MPSA) to just the excise tax on the mineral product,
additional sharing based on the cumulative net mining i.e., only 2 percent of market value of the minerals.
revenue. Whichever option or computation is used, The colatilla in Section 84 reiterates the same
the additional government share has nothing to do limitation in Section 80. However, these two
with taxes, duties, fees or charges. The portion of provisions pertain only to MPSAs, and have no
revenues remaining after the deduction of the basic application to FTAAs. These particular provisions
and additional government shares is what goes to the do not come within the issues defined by this
contractor. Court. Hence, on due process grounds, no
pronouncement can be made in this case in
respect of the constitutionality of Sections 80 and
The basic government share and the additional
84.
government share do not yet take into account the
indirect taxes and other financial contributions of
mining projects, which are real and actual benefits Section 112 is disparaged for reverting FTAAs and all
enjoyed by the Filipino people; if these are taken into mineral agreements to the old "license, concession or
account, total government share increases to 60 lease" system, because it allegedly effectively
percent or higher (as much as 77 percent, and 89 reduces the government share in FTAAs to just the 2
percent in one instance) of the net present value of percent excise tax which pursuant to Section 80
total benefits from the project. comprises the government share in MPSAs. However,
Section 112 likewise does not come within the issues
delineated by this Court, and was never touched upon
The third or last paragraph of Section 81 of RA 7942
by the parties in their pleadings. Moreover, Section
is slammed for deferring the payment of the
112 may not properly apply to FTAAs. The mining law
government share in FTAAs until after the contractor
obviously meant to treat FTAAs as a breed apart from
shall have recovered its pre-operating expenses,
mineral agreements. There is absolutely no basis to
exploration and development expenditures. Allegedly,
believe that the law intends to exact from FTAA
the collection of the State's share is rendered
contractors merely the same government share (i.e.,
uncertain, as there is no time limit in RA 7942 for this
the 2 percent excise tax) that it apparently demands
grace period or recovery period. But although RA
from contractors under the three forms of mineral
7942 did not limit the grace period, the concerned
agreements.
agencies (DENR and MGB) in formulating the 1995
and 1996 Implementing Rules and Regulations
provided that the period of recovery, reckoned from While there is ground to believe that Sections 80, 84
the date of commercial operation, shall be for a period and 112 are indeed unconstitutional, they cannot be
not exceeding five years, or until the date of actual ruled upon here. In any event, they are separable;
recovery, whichever comes earlier. thus, a later finding of nullity will not affect the rest of
RA 7942.
66

And since RA 7942 allegedly does not require

government approval for the pre-operating, In fine, the challenged provisions of RA 7942
Page

exploration and development expenses of the foreign cannot be said to surrender financial benefits
contractors, it is feared that such expenses could be from an FTAA to the foreign contractors.
Moreover, there is no concrete basis for the view that, of public policy, Section 7.9 must therefore be stricken
in FTAAs with a foreign contractor, the State must off as invalid. The FTAA in question does not involve
receive at least 60 percent of the after-tax income mere contractual rights but, being impressed as it is
from the exploitation of its mineral resources, and that with public interest, the contractual provisions and
such share is the equivalent of the constitutional stipulations must yield to the common good and the
requirement that at least 60 percent of the capital, and national interest. Since the offending provision is very
hence 60 percent of the income, of mining companies much separable from the rest of the FTAA, the
should remain in Filipino hands. Even if the State is deletion of Section 7.9 can be done without affecting
entitled to a 60 percent share from other mineral or requiring the invalidation of the entire WMCP FTAA
agreements (CPA, JVA and MPSA), that would not itself.
create a parallel or analogous situation for FTAAs. We
are dealing with an essentially different equation. Section 7.8(e) of the WMCP FTAA likewise is invalid,
Here we have the old apples and oranges syndrome. since by allowing the sums spent by government for
the benefit of the contractor to be deductible from the
The Charter did not intend to fix an iron-clad rule of 60 State's share in net mining revenues, it results in
percent share, applicable to all situations, regardless benefiting the contractor twice over. This
of circumstances. There is no indication of such an constitutes unjust enrichment on the part of the
intention on the part of the framers. Moreover, the contractor, at the expense of government. For being
terms and conditions of petroleum FTAAs cannot grossly disadvantageous and prejudicial to
serve as standards for mineral mining FTAAs, government and contrary to public policy, Section
because the technical and operational 7.8(e) must also be declared without effect. It may
requirements, cost structures and investment likewise be stricken off without affecting the rest of the
needs of off-shore petroleum exploration and FTAA.
drilling companies do not have the remotest
resemblance to those of on-shore mining EPILOGUE
companies.
AFTER ALL IS SAID AND DONE, it is clear that there
To take the position that government's share must be is unanimous agreement in the Court upon the key
not less than 60 percent of after-tax income of FTAA principle that the State must exercise full control and
contractors is nothing short of this Court dictating supervision over the exploration, development and
upon the government. The State resultantly ends up utilization of mineral resources.
losing control. To avoid compromising the State's full
control and supervision over the exploitation of The crux of the controversy is the amount of
mineral resources, there must be no attempt to discretion to be accorded the Executive Department,
impose a "minimum 60 percent" rule. It is sufficient particularly the President of the Republic, in respect
that the State has the power and means, should it so of negotiations over the terms of FTAAs, particularly
decide, to get a 60 percent share (or greater); and it is when it comes to the government share of financial
not necessary that the State does so in every case. benefits from FTAAs. The Court believes that it is not
unconstitutional to allow a wide degree of discretion to
Invalid Provisions of the WMCP FTAA the Chief Executive, given the nature and complexity
of such agreements, the humongous amounts of
Section 7.9 of the WMCP FTAA clearly renders capital and financing required for large-scale mining
illusory the State's 60 percent share of WMCP's operations, the complicated technology needed, and
revenues. Under Section 7.9, should WMCP's foreign the intricacies of international trade, coupled with the
stockholders (who originally owned 100 percent of the State's need to maintain flexibility in its dealings, in
equity) sell 60 percent or more of their equity to a order to preserve and enhance our country's
Filipino citizen or corporation, the State loses its right competitiveness in world markets.
to receive its share in net mining revenues under
Section 7.7, without any offsetting compensation to We are all, in one way or another, sorely affected by
the State. And what is given to the State in Section the recently reported scandals involving corruption in
7.7 is by mere tolerance of WMCP's foreign high places, duplicity in the negotiation of multi-billion
stockholders, who can at any time cut off the peso government contracts, huge payoffs to
government's entire share by simply selling 60 government officials, and other malfeasances; and
percent of WMCP's equity to a Philippine citizen or perhaps, there is the desire to see some measures
corporation. put in place to prevent further abuse. However,
dictating upon the President what minimum share
In fact, the sale by WMCP's foreign stockholder on to get from an FTAA is not the solution. It sets a
January 23, 2001 of the entire outstanding equity in bad precedent since such a move institutionalizes the
WMCP to Sagittarius Mines, Inc., a domestic very reduction if not deprivation of the State's control.
corporation at least 60 percent Filipino owned, can be The remedy may be worse than the problem it was
deemed to have automatically triggered the operation meant to address. In any event, provisions in such
of Section 7.9 and removed the State's right to future agreements which may be suspected to be
receive its 60 percent share. Section 7.9 of the grossly disadvantageous or detrimental to
WMCP FTAA has effectively given away the State's government may be challenged in court, and the
share without anything in exchange. culprits haled before the bar of justice.

Moreover, it constitutes unjust enrichment on the part Verily, under the doctrine of separation of powers and
of the local and foreign stockholders in WMCP, due respect for co-equal and coordinate branches of
because by the mere act of divestment, the local and government, this Court must restrain itself from
foreign stockholders get a windfall, as their share in intruding into policy matters and must allow the
the net mining revenues of WMCP is automatically President and Congress maximum discretion in using
67

increased, without having to pay anything for it. the resources of our country and in securing the
assistance of foreign groups to eradicate the grinding
Page

Being grossly disadvantageous to government and poverty of our people and answer their cry for viable
detrimental to the Filipino people, as well as violative employment opportunities in the country.
"The judiciary is loath to interfere with the due mining activities, but the entire Filipino nation, present
exercise by coequal branches of government of their and future, to whom the mineral wealth really belong.
official functions." As aptly spelled out seven decades
99 
This Court has therefore weighed carefully the rights
ago by Justice George Malcolm, "Just as the and interests of all concerned, and decided for the
Supreme Court, as the guardian of constitutional greater good of the greatest number. JUSTICE FOR
rights, should not sanction usurpations by any other ALL, not just for some; JUSTICE FOR THE
department of government, so should it as strictly PRESENT AND THE FUTURE, not just for the here
confine its own sphere of influence to the powers and now.
expressly or by implication conferred on it by the
Organic Act." Let the development of the mining
100 
WHEREFORE, the Court RESOLVES to GRANT the
industry be the responsibility of the political branches respondents' and the intervenors' Motions for
of government. And let not this Court interfere Reconsideration; to REVERSE and SET ASIDE this
inordinately and unnecessarily. Court's January 27, 2004 Decision; to DISMISS the
Petition; and to issue this new judgment
The Constitution of the Philippines is the supreme law declaring CONSTITUTIONAL (1) Republic Act No.
of the land. It is the repository of all the aspirations 7942 (the Philippine Mining Law), (2) its Implementing
and hopes of all the people. We fully sympathize with Rules and Regulations contained in DENR
the plight of Petitioner La Bugal B'laan and other tribal Administrative Order (DAO) No. 9640 -- insofar as
groups, and commend their efforts to uplift their they relate to financial and technical assistance
communities. However, we cannot justify the agreements referred to in paragraph 4 of Section 2 of
invalidation of an otherwise constitutional statute Article XII of the Constitution; and (3) the Financial
along with its implementing rules, or the nullification of and Technical Assistance Agreement (FTAA) dated
an otherwise legal and binding FTAA contract. March 30, 1995 executed by the government and
Western Mining Corporation Philippines Inc. (WMCP),
We must never forget that it is not only our less except Sections 7.8 and 7.9 of the subject FTAA
privileged brethren in tribal and cultural communities which are hereby INVALIDATED for being contrary to
who deserve the attention of this Court; rather, all public policy and for being grossly disadvantageous to
parties concerned -- including the State itself, the the government.
contractor (whether Filipino or foreign), and the vast
majority of our citizens -- equally deserve the SO ORDERED.
protection of the law and of this Court. To stress, the
benefits to be derived by the State from mining Davide Jr., C.J., Sandoval-Gutierrez, Austria-
activities must ultimately serve the great majority of Martinez, and Garcia, JJ., concur.
our fellow citizens. They have as much right and Puno, J., in the result and votes to invalidate sections
interest in the proper and well-ordered development 3.3; 7.8 and 7.9 of the WMC FTAA.
and utilization of the country's mineral resources as Quisumbing, J., in the result.
the petitioners. Ynares-Santiago, J., joins dissenting opinion of J.
Antonio Carpio & J. Conchita C. Morales.
Whether we consider the near term or take the longer Carpio, and Carpio-Morales, JJ., see dissenting
view, we cannot overemphasize the need for opinion.
an appropriate balancing of interests and needs -- Corona, J., certifies he voted affirmatively with the
the need to develop our stagnating mining industry majority and he was allowed to do so although he is
and extract what NEDA Secretary Romulo Neri on leave.
estimates is some US$840 billion (approx. PhP47.04 Callejo, Sr., J., concurs to the dissenting opinion of J.
trillion) worth of mineral wealth lying hidden in the Carpio.
ground, in order to jumpstart our floundering economy Azcuna, J., took no part-same reason.
on the one hand, and on the other, the need to Tinga, and Chico-Nazario, JJ., concur with a separate
enhance our nationalistic aspirations, protect our opinion.
indigenous communities, and prevent irreversible
ecological damage.
CONCURRING OPINION
This Court cannot but be mindful that any decision
rendered in this case will ultimately impact not only CHICO-NAZARIO, J.:
the cultural communities which lodged the instant
Petition, and not only the larger community of the I concur in the well-reasoned ponencia of my
Filipino people now struggling to survive amidst a esteemed colleague Mr. Justice Artemio V.
fiscal/budgetary deficit, ever increasing prices of fuel, Panganiban. I feel obligated, however, to add the
food, and essential commodities and services, the following observations:
shrinking value of the local currency, and a
government hamstrung in its delivery of basic services
I. RE "FULL CONTROL AND SUPERVISION"
by a severe lack of resources, but also countless
future generations of Filipinos.
With all due respect, I believe that the issue of
unconstitutionality of Republic Act No. 7942, its
For this latter group of Filipinos yet to be born, their
implementing rules, and the Financial Assistance
eventual access to education, health care and basic
Agreement between the Philippine Government and
services, their overall level of well-being, the very
WMPC (Philippines) Inc. (WMPC FTAA) executed
shape of their lives are even now being determined
pursuant to Rep. Act No. 7942 hinges, to a large
and affected partly by the policies and directions
extent, on the interpretation of the phrase in Section
being adopted and implemented by government
2, Article XII of the 1987 Constitution, which states:
today. And in part by the this Resolution rendered by
this Court today.
(T)he exploration, development, and utilization
68

of natural resources shall be under the full

Verily, the mineral wealth and natural resources of
control and supervision of the State. x x x.
Page

this country are meant to benefit not merely a select

(Emphasis supplied)
group of people living in the areas locally affected by
Construing said phrase vis-à-vis the entire provision, it Accordingly, to the extent that the corporate board
appears from the deliberations in the Constitutional governs and manages the operations for the
Commission that the term "control" does not have the exploration and use of natural resources, to that
meaning it ordinarily has in political law which is the extent the "full control and supervision" thereof by the
power of a superior to substitute his judgment for that State is diminished.
of an inferior.1 Thus –
In effect, therefore, when the State enters into such
MR. NOLLEDO: Suppose a judicial entity is agreements as provided in the Constitution, it allows
given the power to exploit natural resources itself to surrender part of its sovereign right to full
and, of course, there are decisions made by control and supervision of said activities, the State
the governing board of that judicial entity, can having the right to partly surrender the exercise of
the state change the decisions of the sovereign powers under the doctrine of auto-
governing board of that entity based on the limitation.6
words "full control".
If foreigners (under joint ventures etc.) have a say in
MR. VILLEGAS: If it is within the context of the management of the business of utilizing natural
the contract, I think the State cannot violate resources as corporate directors of domestic
the laws of the land.2 corporations, there is no justification for holding that
foreign corporations who put in considerably large
Moreover, "full control and supervision" does not amounts of money under agreements involving either
mean that foreign stockholders cannot be legally technical or financial assistance for large scale
elected as members of the board of a corporation exploration, development and utilization of minerals,
doing business under, say, a co-production, joint petroleum and other mineral oils are prohibited from
venture or profit-sharing agreement, 40% of whose managing such business.
capital is foreign owned. Otherwise, and as
Commissioner Romulo declared, it would be unfair to Indeed, to say that the Constitution requires the State
the foreign stockholder3 and, per Commissioner to have full and total control and supervision of the
Padilla, "refusing them a voice in management would exploration, development and utilization of minerals
make a co-production, joint venture and production when undertaken in a large scale under agreements
sharing illusory."4 with foreign corporations involving huge amounts of
money is to divorce oneself from reality. As Mr.
It is apparently for the foregoing reasons that there Justice Panganiban said, no firm would invest funds in
was a disapproval of the amendment proposed by such enterprise unless it has a say in the
Commissioner, now Mr. Chief Justice Davide, that the management of the business.
governing and managing bodies of such corporations
shall be vested exclusively in citizens of the To paraphrase this Court in one of its landmark cases,
Philippines5 so that control of all corporations involved the fundamental law does not intend an impossible
in the business of utilizing our natural resources would undertaking.7 It must therefore be presumed that the
always be in Filipino hands. Constitution did not at all intend an interpretation of
Section 2, Article XII which deprives the foreign
The disapproval must be juxtaposed with the fact that corporation engaged in large scale mining activities a
a provision substantially similar to the proposed measure of control in the management and operation
Davide amendment was approved with regard to of such activities, and in said manner, remove from
educational institutions, viz: the realm of the possible the enterprise the
Constitution envisions thereunder.
Section 4 (2). Educational institutions, other
than those established by religious groups This brings me to the final point raised by my
and mission boards, shall be owned solely by esteemed colleague, Mme. Justice Conchita Carpio
citizens of the Philippines or corporations or Morales, that it is of no moment that the declaration of
associations at least sixty per centum of the Rep. Act No. 7942 may discourage foreign assistance
capital of which is owned by such citizens. and/or retard or delay the exploration, development or
The Congress may, however, require utilization of the nation's natural resources as the
increased Filipino equity participation in all Filipino people, as early as the 1935 Constitution,
educational institutions. have determined such matters as secondary to the
protection and preservation of their ownership of
The control and administration of these natural resources. With due respect, I find such
educational institutions shall be vested in proposition not legally justifiable as it looks backward
citizens of the Philippines. (Emphasis to the justification in the 1935 Constitution instead of
supplied) forward under the 1987 Constitution which expressly
allows foreign participation in the exploration,
development or utilization of the nation's marine
From the foregoing, it can be clearly inferred that it
wealth to allow the State to take advantage of foreign
was NOT the intention of the framers of the
funding or technical assistance. As long as the means
Constitution to deprive governing boards of domestic
employed by such foreign assistance result in real
corporations with non-Filipino members, the right to
contributions to the economic growth of our country
control and administer the corporation that explores,
and enhance the general welfare of our people, the
develops and utilizes natural resources insofar as
development of our mineral resources by and through
agreements with the State for co-production, joint
foreign corporations, such FTAAs are not
venture and production-sharing are concerned,
unconstitutional.
otherwise the Davide amendment would have been
approved and, like the prohibition in above-quoted
Section 4(2), Article XIV, control and supervision of all II. RE: REQUIREMENT THAT FTAAs MUST BE
69

business involved in the exploration and development "BASED

of mineral resources would have been left solely in ON REAL CONTRIBUTIONS TO THE ECONOMIC
Page

Filipino hands. GROWTH

AND GENERAL WELFARE OF THE COUNTRY"
The policy behind Rep. Act No. 7942 is to promote the cannot be considered as contributing to the economic
"rational exploration, development, utilization and growth and general welfare of the country. I am
conservation" of the State-owned mineral resources bothered, however, by the interpretation that the
"through the combined efforts of government and the phrase "among other things" refers to "and all such
private sector in order to enhance national growth in a other taxes, duties and fees as provided for under
way that effectively safe-guards the environment and existing laws" since it would render the former phrase
protect the rights of affected communities".8 This superfluous. In other words, there would have been
policy, with reference specifically to FTAAs, is in no need to include the phrase "among other things" if
keeping with the constitutional precept that FTAAs all it means is "all other taxes" since the latter is
must be based on real contributions to the economic already expressly stated in the provision. As it is a
growth and general welfare of the country. As has truism that all terms/phrases used in a statute has
been said, "a statute derives its vitality from the relevance to the object of the law, then I find the view
purpose for which it is enacted and to construe it in a of Mr. Justice Panganiban – that "all other things"
manner that disregards or defeats such purpose is to means "additional government share" in the form of
nullify or destroy the law."9 In this regard, much has "earnings or cash flow of the mining enterprise" as
been said about the alleged unconstitutionality of interpreted by the DENR -- more compelling. Besides,
Section 81 of Rep. Act No. 7942 as it allegedly allows such an interpretation would affirm the
for the waiver of the State's right to receive income constitutionality of the provision which would then be
from the exploitation of its mineral resources as it in keeping with the rudimentary principle that a law
limits the State's share in FTAAs with foreign shall not be declared invalid unless the conflict with
contractors to taxes, duties and fees. For clarity, the the Constitution is clear beyond reasonable
provision states – doubt.10 To justify nullification of a law, there must be
a clear and unequivocal breach of the Constitution,
SEC. 81. Government Share in Other Mineral not a doubtful and argumentative implication.11
Agreements. -- The share of the Government
in co-production and joint-venture agreements Finally, I wish to stress that it would appear that the
shall be negotiated by the Government and constitutional mandate that large-scale mining
the contractor taking into consideration the: activities under FTAAs must be based on real
(a) capital investment of the project, (b) risks contributions to the economic growth and general
involved, (c) contribution of the project to the welfare of the country is both a standard for the
economy, and (d) other factors that will statute required to implement subject provision as well
provide for a fair and equitable sharing as the vehicle for the exercise of the State's resultant
between the Government and the contractor. residual control and supervision of the mining
The Government shall also be entitled to activities.
compensations for its other contributions
which shall be agreed upon by the parties, In all FTAAs, the State is deemed to reserve its right
and shall consist, among other things, the to control the end to be achieved so that real
contractor's income tax, excise tax, special contributions to the economy can be realized and, in
allowance, withholding tax due from the the final analysis, the business will redound to the
contractor's foreign stockholders, arising from general welfare of the country.
dividend or interest payments to the said
foreign stockholders, in case of a foreign However, the question of whether or not the FTAA
national, and all such other taxes, duties and will, in fact, redound to the general welfare of the
fees as provided for under existing laws. public involves a "judgment call" by our policy makers
who are answerable to our people during the
The Government share in financial or appropriate electoral exercises and are not subject to
technical assistance agreement shall consist judicial pronouncements based on grave abuse of
of, among other things, the contractor's discretion.12
corporate income tax, excise tax, special
allowance, withholding tax due from the For the foregoing reasons, I vote to grant the motion
contractor's foreign stockholders arising from for reconsideration.
dividend or interest payments to the said
foreign stockholder in case of foreign
national and all such other taxes, duties
and fees as provided for under existing
laws.
DISSENTING OPINION
The collection of Government share in
financial or technical assistance agreement CARPIO, J.:
shall commence after the financial or technical
assistance agreement contractor has fully I dissent and vote to deny respondents' motions for
recovered its pre-operating expenses, reconsideration. I find that Section 3(aq), Section 39,
exploration, and development expenditures, Section 80, the second paragraph of Section 81, the
inclusive. (Emphasis supplied) proviso in Section 84, and the first proviso in Section
112 of Republic Act No. 79421 ("RA 7942") violate
The controversy revolves around the proper Section 2, Article XII of the 1987 Constitution and are
interpretation of "among other things" stated in the therefore unconstitutional.
second paragraph of Section 81. Mr. Justice Carpio is
of the opinion that "among other things" could only In essence, these provisions of RA 7942 waive the
mean "among other taxes", referring to the unnamed State's ownership rights under the Constitution
"other taxes, duties, and fees as provided for under over mineral resources. These provisions
existing laws" contained in the last clause of Section also abdicate the State's constitutional duty to
70

81, paragraph 2. If such were the correct control and supervise fully the exploitation of
interpretation, then truly, the provision is mineral resources.
Page

unconstitutional as a sharing based only on taxes

A. The Threshold Issue for Resolution any commercial exploitation of the natural
resources.7
Petitioners claim that respondent Department of
Environment and Natural Resources Secretary Victor The second principle insures that the benefits of State
O. Ramos, in issuing the rules to implement RA 7942, ownership of natural resources accrue to the Filipino
gravely abused his discretion amounting to lack or people. The framers of the 1987 Constitution
excess of jurisdiction. Petitioners assert that RA 7942 introduced the second principle to avoid the adverse
is unconstitutional for the following reasons: effects of the "license, concession or lease"8 system
of exploitation under the 1935 and 1973
1. RA 7942 "allows fully foreign owned Constitutions.9 The "license, concession or lease"
corporations to explore, develop, utilize and system enriched the private concessionaires who
exploit mineral resources in a manner contrary controlled the exploitation of natural resources.
to Section 2, paragraph 4, Article XII of the However, the "license, concession or lease" system
Constitution"; left the Filipino people impoverished, starkly
exemplified by the nation's denuded forests whose
2. RA 7942 "allows enjoyment by foreign exploitation did not benefit the Filipino people.
citizens as well as fully foreign owned
corporations of the nation's marine wealth The framers of the 1987 Constitution clearly intended
contrary to Section 2, paragraph 2 of Article to abandon the "license, concession or lease" system
XII of the Constitution"; prevailing under the 1935 and 1973 Constitutions.
This exchange in the deliberations of the
3. RA 7942 "violates Section 1, Article III of Constitutional Commission reveals this clear intent:
the Constitution";
MR. DAVIDE: Thank you, Mr. Vice-President.
4. RA 7942 "allows priority to foreign and fully I would like to seek some clarifications.
foreign owned corporations in the exploration,
development and utilization of mineral MR. VILLEGAS: Yes.
resources contrary to Article XII of the
Constitution"; MR. DAVIDE: Under the proposal, I notice
that except for the lands of the public domain,
5. RA 7942 "allows the inequitable sharing all the other natural resources cannot be
of wealth contrary to Section 1, paragraph alienated and in respect to lands of the public
1, and Section 2, paragraph 4, Article XII of domain, private corporations with the required
the Constitution."2 (Emphasis supplied) ownership by Filipino citizens can only lease
the same. Necessarily, insofar as other
Petitioners also assail the validity of the Financial and natural resources are concerned, it would
Technical Assistance Agreement between the only be the State which can exploit,
Philippine Government and WMCP (Philippines), Inc. develop, explore and utilize the same.
dated 2 March 19953 ("WMCP FTAA") for violation of However, the State may enter into a joint
Section 2, Article XII of the 1987 Constitution. venture, co-production or production-
sharing. Is that not correct?
The issues that petitioners raise boil down to
whether RA 7942 and the WMCP FTAA violate MR. VILLEGAS: Yes.
Section 2, Article XII of the 1987 Constitution.
MR. DAVIDE: Consequently, henceforth
B. The Constitutional Declaration and Mandate upon the approval of this Constitution, no
timber or forest concessions, permits or
authorization can be exclusively granted to
Section 2, Article XII of the 1987
any citizen of the Philippines nor to any
Constitution4 provides as follows:
corporation qualified to acquire lands of
the public domain?
All x x x minerals, x x x petroleum, and other
mineral oils, x x x and other natural resources
MR. VILLEGAS: Would Commissioner
are owned by the State. x x x The
Monsod like to comment on that? I think his
exploration, development, and utilization of
answer is "yes."
natural resources shall be under the full
control and supervision of the State. x x x.
(Emphasis supplied) MR. DAVIDE: So, what will happen now to
licenses or concessions earlier granted by the
Philippine government to private corporations
Two basic principles flow from this constitutional
or to Filipino citizens? Would they be deemed
provision. First, the Constitution vests in the State
repealed?
ownership of all mineral resources. Second, the
Constitution mandates the State to exercise full
control and supervision over the exploitation of MR. VILLEGAS: This is not applied
mineral resources. retroactively. They will be
respected.10 (Emphasis supplied)
The first principle reiterates the Regalian doctrine,
which established State ownership of natural To carry out this intent, the 1987 Constitution uses a
resources since the arrival of the Spaniards in the different phraseology from that used in the 1935 and
Philippines in the 16th century. The 1935, 1973 and 1973 Constitutions. The previous Constitutions used
1987 Constitutions incorporate the Regalian the phrase "license, concession or lease" in referring
to exploitation of natural resources. The 1987
71

doctrine.5 The State, as owner of the nation's natural

resources, exercises the attributes of ownership over Constitution uses the phrase "co-production, joint
venture or production-sharing agreements," with "full
Page

its natural resources.6 An important attribute of

ownership is the right to receive the income from control and supervision" by the State. The change in
language was a clear rejection of the old system of The old system of "license, concession or lease"
"license, concession or lease." which merely gave the State a pittance in the form of
taxes, fees and charges is now buried in history. Any
The 1935 and 1973 Constitutions also used the words attempt to resurrect it is unconstitutional and deserves
"belong to" in stating the Regalian doctrine, thus outright rejection by this Court.
declaring that natural resources "belong to the State."
The 1987 Constitution uses the word "owned," thus The Constitution prohibits the alienation of all natural
prescribing that natural resources are "owned" by the resources except agricultural lands.14 The
State. In using the word "owned," the 1987 Constitution, however, allows the State to exploit
Constitution emphasizes the attributes of ownership, commercially its natural resources and sell the
among which is the right to the income of the property marketable products from such exploitation. This the
owned.11 State may do through a co-production, joint venture or
production-sharing arrangement with companies at
The State as owner of the natural resources must least 60% Filipino owned. The necessary implication
receive income from the exploitation of its natural is that the State, as owner of the natural resources,
resources. The payment of taxes, fees and must receive a fair share of the income from such
charges, derived from the taxing or police power commercial operation. The State may receive its
of the State, is not a substitute. The State is duty share of the net income in cash or in kind.
bound to secure for the Filipino people a fair share of
the income from any exploitation of the nation's The State may also directly exploit its natural
precious and exhaustible natural resources. As resources in either of two ways. The State may set up
explained succinctly by a textbook writer: its own company to engage in the exploitation of
natural resources. Alternatively, the State may enter
Under the former licensing, concession, or into a financial or technical assistance agreement
lease schemes, the government benefited ("FTAA") with private companies who act as
from such activities only through fees, contractors of the State. The State may seek from
charges and taxes. Such benefits were very such contractors either financial or technical
minimal compared with the enormous profits assistance, or both, depending on the State's own
reaped by the licensees, concessionaires or needs. Under an FTAA, the contractor, foreign or
lessees who had control over the particular local, manages the contracted work or operations to
resources over which they had been given the extent of its financial or technical contribution,
exclusive right to exploit. Moreover, some of subject to the State's control and supervision.
them disregarded the conservation of natural
resources. With the new role, the State will be Except in large-scale exploitation of certain minerals,
able to obtain a greater share in the profits. It the State's contractors must be 60% Filipino owned
can also actively husband our natural companies. The State pays such contractors, for their
resources and engage in development technical services or financial assistance, a share of
programs that will be beneficial to the the income from the exploitation of the natural
nation.12 (Emphasis supplied) resources. The State retains the remainder of the
income after paying the Filipino owned contractor.
Thus, the 1987 Constitution commands the State to
exercise full control and supervision over the In large-scale exploitation of minerals, petroleum and
exploitation of natural resources to insure that the other mineral oils, the Constitution allows the State to
State receives its fair share of the income. In Miners contract with "foreign-owned corporations" under
Association of the Philippines v. Hon. Factoran, an FTAA. This is still a direct exploitation by the
Jr., et al.,13 the Court ruled that "the old system of State but using a foreign instead of a local contractor.
exploration, development and utilization of natural However, the Constitution requires that the
resources through 'license, concession or lease' x participation of foreign contractors must make a real
x x has been disallowed by Article XII, Section 2 of contribution to the national economy and the general
the 1987 Constitution." The Court explained: welfare. The State pays the foreign contractor, for its
technical services or financial assistance, a share of
Upon the effectivity of the 1987 the income from the exploitation of the minerals,
Constitution on February 2, 1987, the State petroleum or other mineral oils. The State retains the
assumed a more dynamic role in the rest of the income after paying the foreign contractor.
exploration, development and utilization of
the natural resources of the country. Article Whether the FTAA contractor is local or foreign, the
XII, Section 2 of the said Charter explicitly State must retain its fair share of the income from the
ordains that the exploration, development and exploitation of the natural resources that it owns. To
utilization of natural resources shall be insure it retains its fair share of the income, the State
under the full control and supervision of must exercise full control and supervision over the
the State. Consonant therewith, the exploitation of its natural resources. And whether the
exploration, development and utilization of FTAA contractor is local or foreign, the State
natural resources may be undertaken by is directly undertaking the exploitation of its natural
means of direct act of the State, or it may opt resources, with the FTAA contractor providing
to enter into co-production, joint venture, or technical services or financing to the State. Since the
production-sharing agreements, or it may State is directly undertaking the exploitation, all
enter into agreements with foreign-owned exploration permits and similar authorizations are
corporations involving either technical or in the name of the Philippine Government, which
financial assistance for large-scale then authorizes the contractor to act on its behalf.
exploration, development, and utilization of
minerals, petroleum, and other mineral oils The State exercises full control and supervision over
according to the general terms and conditions
72

the mining operations in the Philippines of the foreign

provided by law, based on real contributions contractor. However, the State does not exercise
Page

to the economic growth and general control and supervision over the foreign contractor
welfare of the country. (Emphasis supplied) itself or its board of directors. The State does not also
exercise any control or supervision over the foreign Government in co-production and joint-
contractor's mining operations in other countries, or venture agreements shall be negotiated by the
even its non-mining operations in the Philippines. Government and the contractor taking into
There is no conflict of power between the State and consideration the: (a) capital investment of the
the foreign contractor's board of directors. By entering project, (b) risks involved, (c) contribution of
into an FTAA, the foreign contractor, through its board the project to the economy, and (d) other
of directors, agrees to manage the contracted work or factors that will provide for a fair and equitable
operations to the extent of its financial or technical sharing between the Government and the
contribution subject to the State's control and contractor. The Government shall also be
supervision. entitled to compensation for its other
contributions which shall be agreed upon by
No government should contract with a corporation, the parties, and shall consist, among other
local or foreign, to exploit commercially the nation's things, the contractor's income tax, excise tax,
natural resources without the State receiving any special allowance, withholding tax due from
income as owner of the natural resources. Natural the contractor's foreign stockholders arising
resources are non-renewable and exhaustible assets from dividend or interest payments to the said
of the State. Certainly, no government in its right mind foreign stockholders, in case of a foreign
should give away for free its natural resources to national, and all such other taxes, duties and
private business enterprises, local or foreign, amidst fees as provided for under existing laws.
widespread poverty among its people.
The Government share in financial or
In sum, two basic constitutional principles govern the technical assistance agreement shall
exploitation of natural resources in the country. First, consist of, among other things, the
the State owns the country's natural resources and contractor's corporate income tax, excise
must benefit as owner from any exploitation of its tax, special allowance, withholding tax due
natural resources. Second, to insure that it receives from the contractor's foreign stockholders
its fair share as owner of the natural resources, the arising from dividend or interest payments
State must exercise full control and supervision over to the said foreign stockholder in case of a
the exploitation of its natural resources. foreign national and all such other taxes,
duties and fees as provided for under
We shall subject RA 7942 to constitutional scrutiny existing laws.
based on these two basic principles.
The collection of Government share in
C. Waiver of Beneficial Rights from Ownership of financial or technical assistance
Mineral Resources agreement shall commence after the
financial or technical assistance
agreement contractor has fully recovered
RA 7942 contains five provisions which waive the
its pre-operating expenses, exploration,
State's right to receive income from the exploitation of
and development expenditures, inclusive.
its mineral resources. These provisions are Sections
39, 80, 81, 84 and 112:
Section 84. Excise Tax on Mineral Products.
— The contractor shall be liable to pay the
Section 39. Option to Convert into a Mineral
excise tax on mineral products as provided for
Agreement. — The contractor has the
under Section 151 of the National Internal
option to convert the financial or technical
Revenue Code: Provided, however, That
assistance agreement to a mineral
with respect to a mineral production
agreement at any time during the term of
sharing agreement, the excise tax on
the agreement, if the economic viability of
mineral products shall be the government
the contract area is found to be inadequate
share under said agreement.
to justify large-scale mining operations,
after proper notice to the Secretary as
provided for under the implementing rules and Section 112. Non-impairment of Existing
regulations: Provided, That the mineral Mining/Quarrying Rights. - All valid and
agreement shall only be for the remaining existing mining lease contracts,
period of the original agreement. permits/licenses, leases pending renewal,
mineral production–sharing agreements
granted under Executive Order No. 279, at the
In the case of a foreign contractor, it shall
date of effectivity of this Act, shall remain valid
reduce its equity to forty percent (40%) in the
x x x Provided, That the provisions of
corporation, partnership, association, or
Chapter XIV15 on government share in
cooperative. Upon compliance with this
mineral production-sharing agreement x x
requirement by the contractor, the
x shall immediately govern and apply to a
Secretary shall approve the conversion
mining lessee or contractor unless the
and execute the mineral production-
mining lessee or contractor indicates his
sharing agreement.
intention to the Secretary, in writing, not to
avail of said provisions: x x x.
Section 80. Government Share in Mineral
Production Sharing Agreement. — The total
(Emphasis supplied)
government share in a mineral production
sharing agreement shall be the excise tax
on mineral products as provided in Republic Section 80 of RA 7942 limits to the excise tax the
Act No. 7729, amending Section 151(a) of the State's share in a mineral production-sharing
National Internal Revenue Code, as amended. agreement ("MPSA"). Section 80 expressly states that
73

the excise tax on mineral products shall constitute

the "total government share in a mineral
Section 81. Government Share in Other
Page

production sharing agreement." Under Section

Mineral Agreements. — The share of the
151(A) of the Tax Code, this excise tax on metallic
and non-metallic minerals is only 2% of the market RA 7942 provides that the State's share in FTAAs
value, as follows: with foreign contractors –

Section 151. Mineral Products. — shall consist of, among other things, the

contractor's corporate income tax, excise tax,
(A) Rates of Tax. — There shall be levied, special allowance, withholding tax due from
assessed and collected on minerals, mineral the contractor's foreign stockholders arising
products and quarry resources, excise tax as from dividend or interest payments to the said
follows: foreign stockholder in case of a foreign
national and all such other taxes, duties and
(1) On coal and coke, a tax of Ten pesos fees as provided for under existing laws.
(P10.00) per metric ton; (Emphasis supplied)

(2) On all nonmetallic minerals and quarry RA 7942 does not explain the phrase "among other
resources, a tax of two percent (2%) based on things." The Solicitor General states correctly that the
the actual market value of the gross output phrase refers to taxes.19 The phrase is an ejusdem
thereof at the time of removal, in the case of generis phrase, and means "among other taxes,
those locally extracted or produced; or the duties and fees" since the items specifically
value used by the Bureau of Customs in enumerated are all taxes, duties and fees. The last
determining tariff and customs duties, net of phrase "all such other taxes, duties and fees as
excise tax and value-added tax, in the case of provided for under existing laws" at the end of the
importation. sentence clarifies further that the phrase "among
other things" refers to taxes, duties and fees.
xxx
The second paragraph of Section 81 does not require
the Government and the foreign FTAA contractor to
(3) On all metallic minerals, a tax based on
negotiate the State's share. In contrast, the first
the actual market value of the gross output
paragraph of Section 81 expressly provides that the
thereof at the time of removal, in the case of
"share of the Government in co-production and joint-
those locally extracted or produced; or the
venture agreements shall be negotiated by the
value used by the Bureau of Customs in
Government and the contractor" which is 60% Filipino
determining tariff and customs duties, net of
owned.
excise tax and value-added tax, in the case of
importation, in accordance with the following
schedule: In a co-production or joint venture agreement, the
Government contributes other inputs or equity in
addition to its mineral resources.20 Thus, the first
(a) Copper and other metallic minerals:
paragraph of Section 81 requires the Government and
the 60% Filipino owned company to negotiate the
(i) On the first three (3) years upon the State's share. However, in an FTAA with a foreign
effectivity of Republic Act No. 7729, contractor under the second paragraph of Section 81,
one percent (1%); the Government's contribution is only the mineral
resources. Section 81 does not require the
(ii) On the fourth and the fifth years, Government and the foreign contractor to negotiate
one and a half percent (1½%); and the State's share from the net proceeds because
there is no share for the State. Section 81 does not
(iii) On the sixth year and thereafter, recognize the State's contribution of mineral
two percent (2%). resources as worthy of any share of the net
proceeds from the mining operations.
(b) Gold and chromite, two percent (2%).
Thus, in FTAAs with foreign contractors under RA
x x x. (Emphasis supplied) 7942, the State's share is limited to taxes, fees
and duties. The taxes include "withholding tax due
Section 80 of RA 7942 does not allow the State to from the contractor's foreign stockholders arising from
receive any income as owner of the mineral dividend or interest payments." All these taxes, fees
resources. The proviso in Section 84 of RA 7942 and duties are imposed pursuant to the State's taxing
reiterates this when it states that "the excise tax on power. The tax on income, including dividend and
mineral products shall be the government share interest income, is imposed on all taxpayers whether
under said agreement."16 The State receives only an or not they are stockholders of mining companies.
excise tax flowing from its taxing power, not from its These taxes, fees and duties are not contractual
ownership of the mineral resources. The excise tax is payments to the State as owner of the mineral
imposed not only on mineral products, but also on resources but are mandatory exactions based on the
alcohol, tobacco and automobiles17 produced by taxing power of the State.
companies that do not exploit natural resources
owned by the State. The excise tax is not payment for Section 112 of RA 7942 is another provision that
the exploitation of the State's natural resources, but violates Section 2, Article XII of the 1987 Constitution.
payment for the "privilege of engaging in Section 112 "immediately" reverts all mineral
business."18 Clearly, under Section 80 of RA 7942, the agreements to the old and discredited "license,
State does not receive as owner of the mineral concession or lease" system outlawed by the 1987
resources any income from the exploitation of its Constitution. Section 112 states that "the provisions
mineral resources. of Chapter XIV21 on government share in mineral
production-sharing agreement x x x shall
74

The second paragraph of Section 81 of RA 7942 also immediately govern and apply to a mining lessee
limits the State's share in FTAAs with foreign or contractor." The contractor, local or foreign, will
Page

contractors to taxes, duties and fees. Section 81 of now pay only the "government share in a mineral
production-sharing agreement" under RA
7942. Section 80 of RA 7942, which specifically However, the legislature has no power to waive for
governs MPSAs, limits the "government share" free the benefits accruing to the State from its
solely to the excise tax on mineral products - 2% ownership of mineral resources. Absent
on metallic and non-metallic minerals and 3% on considerations of social justice, the legislature has no
indigenous petroleum. power to give away for free what forms part of the
national patrimony of the State. Any surrender by the
In allowing the payment of the excise tax as the only legislature of the nation's mineral resources,
share of the government in any mineral agreement, especially to foreign private enterprises, is repugnant
whether co-production, joint venture or production- to the concept of national patrimony. Mineral
sharing, Section 112 of RA 7942 reinstates the old resources form part of the national patrimony under
"license, concession or lease" system where the State Article XII (National Economy and Patrimony) of the
receives only minimal taxes, duties and fees. This 1987 Constitution.
clearly violates Section 2, Article XII of the
Constitution and is therefore unconstitutional. Section Under the last paragraph of Section 81, the collection
112 of RA 7942 is a sweeping negation of the clear of the State's so-called "share" (consisting of taxes) in
letter and intent of the 1987 Constitution that the FTAAs with foreign contractors is not even certain.
exploitation of the State's natural resources must This paragraph provides that the State's "share x x x
benefit primarily the Filipino people. shall commence after the financial or technical
assistance agreement contractor has fully recovered
Of course, Section 112 gives contractors its pre-operating expenses, exploration, and
the option not to avail of the benefit of Section 112. development expenditures." There is no time limit in
This is in the guise that the enactment of RA 7942 RA 7942 for this grace period when the collection of
shall not impair pre-existing mining rights, as the the State's "share" does not run.23
heading of Section 112 states. It is doubtful, however,
if any contractor of sound mind would refuse to RA 7942 itself does not require government approval
receive 100% rather than only 40% of the net for the pre-operating, exploration and development
proceeds from the exploitation of minerals under the expenses of the foreign contractor. The determination
FTAA. of the amount of pre-operating, exploration and
development expenses is left solely to the discretion
Another provision that violates Section 2, Article XII of of the foreign contractor. Nothing prevents the foreign
the Constitution is Section 39 of RA 7942. Section 39 contractor from recording pre-operating, exploration
grants the foreign contractor the option to convert the and development expenses equal to the mining
FTAA into a "mineral production-sharing agreement" if revenues it anticipates for the first 10 years. If that
the foreign contractor finds that the mineral deposits happens, the State's share is ZERO for the first 10
do not justify large-scale mining operations. Section years.
39 of RA 7942 operates to deprive the State of
income from the mining operations and limits the The Government cannot tell the Filipino people when
State to the excise tax on mineral products. the State will start to receive its "share" (consisting of
taxes) in mining revenues under the FTAA. The
Section 39 grants the foreign contractor the option to Executive Department cannot correct these
revert to the "license, concession or lease" system deficiencies in RA 7942 through remedial
which the 1987 Constitution has banned. The only implementing rules. The correction involves
requirement for the exercise of the option is for the substantive legislation, not merely filling in the
foreign contractor to divest 60% of its equity to a implementing details of the law.
Philippine citizen or to a corporation 60% Filipino
owned. Section 39 states, "Upon compliance Taxes, fees and duties cannot constitute payment for
with this requirement by the contractor, the the State's share as owner of the mineral resources.
Secretary shall approve the conversion and This was the mode of payment used under the old
execute the mineral production-sharing system of "license, concession or lease" which the
agreement." The foreign contractor only needs to 1987 Constitution abrogated. Obviously, Sections
give "proper notice to the Secretary as provided for 80, 81, 84 and 112 of RA 7942 constitute an
under the implementing rules and regulations" if the ingenious attempt to resurrect the old and
contractor finds the contract area not viable for large- discredited system, which the 1987 Constitution
scale mining. Thus, Section 39 of RA 7942 is has now outlawed. Under the 1987 Constitution, the
unconstitutional. State must receive its fair share as owner of the
mineral resources, separate from taxes, fees and
Sections 39, 80, 81, 84 and 112 of RA 7942 operate duties paid by taxpayers. The legislature may waive
to deprive the State of the beneficial rights arising taxes, fees and duties, but it cannot waive the State's
from its ownership of mineral resources. What Section share in mining operations.
2, Article XII of the 1987 Constitution vests in absolute
ownership to the State, Sections 80, 81, 84 and 112 Any law waiving for free the State's right to the
of RA 7942 take away and give for free to private benefits arising from its ownership of mineral
business enterprises, including foreign-owned resources is unconstitutional. Such law negates
companies. Section 2, Article XII of the 1987 Constitution vesting
ownership of mineral resources in the State. Such law
The legislature has discretion whether to tax a will not contribute to "economic growth and the
business or product. If the legislature chooses to tax a general welfare of the country" as required in the
business or product, it is free to determine the rate or fourth paragraph of Section 2. Thus, in waiving the
amount of the tax, provided it is not confiscatory. 22 The State's income from the exploitation of mineral
legislature has the discretion to impose merely a 2% resources, Section 80, the second paragraph of
excise tax on mineral products. Courts cannot inquire Section 81, the proviso in Section 84, and Section 112
of RA 7942 violate the Constitution and are therefore
75

into the wisdom of the amount of such tax, no matter

how meager it may be. This discretion of the void.
Page

legislature emanates from the State's taxing power, a

power vested solely in the legislature.
D. Abdication of the State's Duty to Control and right to repatriate its after-tax net proceeds, as well as
Supervise its entire capital investment, after the termination of its
Fully the Exploitation of Mineral Resources mining operations in the country.24

The 1987 Constitution commands the State to Clearly, no FTAA under Section 81 will ever make any
exercise "full control and supervision" over the real contribution to the growth of the economy or to
exploitation of natural resources. The purpose of this the general welfare of the country. The foreign
mandatory directive is to insure that the State contractor, after it ceases to operate in the country,
receives its fair share in the exploitation of natural can even remit to its home country the scrap value of
resources. The framers of the Constitution were its capital equipment. Thus, the second paragraph of
determined to avoid the disastrous mistakes of the Section 81 of RA 7942 is unconstitutional for failure to
past. Under the old system of "license, concession or meet the constitutional requirement that the FTAA
lease," the State gave full control to the with a foreign contractor should make a real
concessionaires who enriched themselves while contribution to the national economy and general
paying the State minimal taxes, fees and charges. welfare.

Under the 1987 Constitution, for a co-production, joint F. Example of FTAA that Complies with Section 2,
venture or production-sharing agreement to be valid Article XII of the 1987 Constitution
the State must exercise full control and supervision
over the mining operations. This means that the State The Solicitor General warns that declaring
should approve all capital and operating expenses in unconstitutional RA 7942 or its provisions will
the exploitation of the natural resources. Approval of endanger the Philippine Government's contract with
capital expenses determines how much capital is the foreign contractor extracting petroleum in
recoverable by the mining contractor. Approval of Malampaya, Palawan.25 On the contrary, the FTAA
operating expenses determines the reasonable with the foreign petroleum contractor meets the
amounts deductible from the annual income from essential constitutional requirements since the State
mining operations. Such approvals are essential receives a fair share of the income from the petroleum
because the net income from mining operations, operations. The State also exercises control and
which is the basis of the State's share, depends on supervision over the exploitation of the petroleum.
the allowable amount of capital and operating The petroleum FTAA provides enough safeguards to
expenses. There is approval of capital and operating insure that the petroleum operations will make a real
expenses when the State approves them, or if the contribution to the national economy and general
State disapproves them and a dispute arises, when welfare.
their final allowance is subject to arbitration.
The Service Contract dated 11 December 1990
The provisions of RA 7942 on MPSAs and FTAAs do between the Philippine Government as the first party,
not give the State any control and supervision over and Occidental Philippines, Inc. and Shell Exploration
mining operations. The reason is obvious. The State's B.V. as the second party26 ("Occidental-Shell FTAA"),
so-called "share" in a mineral production-sharing covering offshore exploitation of petroleum in
agreement under Section 80 is limited solely to the Northwest Palawan, contains the following provisions:
excise tax on mineral products. This excise tax is
based on the market value of the mineral product a. There is express recognition that the
determined without reference to the capital or "conduct of Petroleum Operations shall be
operating expenses of the mining contractor. under the full control and supervision of
the Office of Energy Affairs," 27 now
Likewise, the State's "share" in an FTAA under Department of Energy ("DOE"), and that
Section 81 has no relation to the capital or operating the "CONTRACTOR shall undertake and
expenses of the foreign contractor. The State's execute the Petroleum Operations
"share" constitutes the same excise tax on mineral contemplated hereunder under the full
products, in addition to other direct and indirect taxes. control and supervision of the OFFICE OF
The basis of the excise tax is the selling price of the ENERGY AFFAIRS;"28
mineral product. Hence, there is no reason for the
State to approve or disapprove the capital or b. The State receives 60% of the net
operating expenses of the mining contractor. proceeds from the petroleum operations,
Consequently, RA 7942 does not give the State any while the foreign contractor receives the
control and supervision over mining operations remaining 40%;29
contrary to the express command of the Constitution.
This makes Section 80, the second paragraph of
c. The DOE has a right to inspect and audit
Section 81, the proviso in Section 84, and Section 112
every year the foreign contractor's books and
of RA 7942 unconstitutional.
accounts relating to the petroleum
operations, and object in writing to any
E. RA 7942 Will Not Contribute to Economic expense (operating and capital
Growth or General Welfare of the Country expenses)30 within 60 days from
completion of the audit, and if there is no
The fourth paragraph of Section 2, Article XII of the amicable settlement, the dispute goes to
1987 Constitution requires that FTAAs with foreign arbitration;31
contractors must make "real contributions to the
economic growth and general welfare of the d. The operating expenses in any year cannot
country." Under Section 81 of RA 7942, all the net exceed 70% of the gross proceeds from the
proceeds arising from the exploitation of mineral sale of petroleum in the same year, and any
resources accrue to the foreign contractor even if the excess may be carried over in succeeding
76

State owns the mineral resources. The foreign years;32

contractor will naturally repatriate the entire after-tax
Page

net proceeds to its home country. Sections 94(a) and

94(b) of RA 7942 guarantee the foreign contractor the
 e. The Bureau of Internal Revenue ("BIR") can receive the income that corresponds to the party
inspect and examine all the accounts, books exercising full control, and this logically means a
and records of the foreign contractor relating majority of the income.
to the petroleum operations upon 24 hours
written notice;33 The Occidental-Shell FTAA satisfies these
constitutional requirements because the State
f. The petroleum output is sold at posted or receives 60% of the net proceeds and exercises full
market prices;34 control and supervision of the petroleum operations.
The State's right to receive 60% of the net proceeds
g. The foreign contractor pays the 32% and its exercise of full control and supervision are the
Philippine corporate income tax on its 40% essential constitutional requirements for the validity of
share of the net proceeds, including any FTAA. The name given to the contract is
withholding tax on dividends or remittances of immaterial – whether a "Service Contract" or any
profits.35 (Emphasis supplied) other name - provided these two essential
constitutional requirements are present. Thus, the
The Occidental-Shell FTAA gives the State its fair designation of the Occidental-Shell FTAA as a
share of the income from the petroleum operations of "Service Contract" is inconsequential since the two
the foreign contractor. There is no question that the essential constitutional requirements for the validity of
State receives its rightful share, amounting to 60% the contract as an FTAA are present.
of the net proceeds, in recognition of its ownership
of the petroleum resources. In addition, Occidental- With the State's right to receive 60% of the net
Shell's 40% share in the net proceeds is subject to the proceeds, coupled with its control and supervision, the
32% Philippine income tax. The Occidental-Shell petroleum operations in the Occidental-Shell FTAA
FTAA also gives the State, through the DOE and BIR, are legally and in fact 60% owned and controlled by
full control and supervision over the petroleum Filipinos. Indeed, the State is directly
operations of the foreign contractor. The foreign undertaking the petroleum exploitation with
contractor can recover only the capital and Occidental-Shell as the foreign contractor. The
operating expenses approved by the DOE or by Occidental-Shell FTAA does not provide for the
the arbitral panel.36 The Occidental-Shell FTAA also issuance of exploration permits to Occidental-Shell
contains other safeguards to protect the interest of the precisely because the State itself is directly
State as owner of the petroleum resources. While the undertaking the petroleum exploitation.
foreign contractor manages the contracted work or
operations to the extent of its financial or technical Section 3(aq) of RA 7942 allows the foreign contractor
contribution, there are sufficient safeguards in the to hold the exploration permit under the FTAA.
FTAA to insure compliance with the constitutional However, Section 2, Article XII of the 1987
requirements. The terms of the Occidental-Shell Constitution does not allow foreign owned
FTAA are fair to the State and to Occidental-Shell. corporations to undertake directly mining operations.
Foreign owned corporations can only act as
In FTAAs with a foreign contractor, the State must contractors of the State under the FTAA, which is one
receive at least 60% percent of the net proceeds from method for the State to undertake directly the
the exploitation of its mineral resources. This share is exploitation of its natural resources. The State, as the
the equivalent of the constitutional requirement that at party directly undertaking the exploitation of its natural
least 60% of the capital, and hence 60% of the resources, must hold through the Government all
income, of mining companies should remain in Filipino exploration permits and similar authorizations. Section
hands. Intervenor CMP and even respondent 3(aq) of RA 7942, in allowing foreign owned
WMCP agree that the State has a 60% interest in corporations to hold exploration permits, is
the mining operations under an FTAA with a unconstitutional.
foreign contractor. Intervenor CMP asserts that the
Philippine Government "stands in the place of the The Occidental-Shell FTAA, involving a far riskier
60% Filipino-owned company."37 Intervenor CMP offshore venture than land-based mining operations,
also states that "the contractor will get 40% of the is a model for emulation if foreign contractors want to
financial benefits,"38 admitting that the State, which comply with the constitutional requirements. Section
is the owner of the mineral resources, will retain the 112 of RA 7942, however, negates the benefits of the
remaining 60% of the net proceeds. State from the Occidental-Shell FTAA.

Respondent WMCP likewise admits that the 60%- Occidental-Shell can invoke Section 112 of RA 7942
40% "sharing ratio between the Philippine and deny the State its 60% share of the net proceeds
Government and the Contractor is also in from the exploitation of petroleum. Section 112 allows
accordance with the 60%-40% equity requirement the foreign contractor to pay only the "government
for Filipino-owned corporations."39 Respondent share in a mineral production-sharing
WMCP even adds that the 60%-40% sharing ratio agreement" under RA 7942. Section 80 of RA 7942
is "in line with the intent behind Section 2 of on MPSAs limits the "government share" solely to the
Article XII that the Filipino people, as represented excise tax – 2% on metallic and non-metallic mineral
by the State, benefit primarily from the products and 3% on petroleum. Section 112 of RA
exploration, development, and utilization of the 7942 is unconstitutional since it is contrary to Section
Philippines' natural resources."40 If the State has a 2, Article XII of the 1987 Constitution.
60% interest in the mining operations under an FTAA,
then it must retain at least 60% of the net proceeds. G. The WMCP FTAA Violates Section 2, Article XII
of the 1987 Constitution
Otherwise, there is no sense exploiting the State's
natural resources if all or a major part of the profits The WMCP FTAA41 ostensibly gives the State 60%
77

are remitted abroad, precluding any real contribution share of the net mining revenue. In reality, this 60%
to the national economy or the general welfare. The share is illusory. Section 7.7 of the WMCP FTAA
Page

constitutional requirement of full control and provides that:

supervision necessarily means that the State must
 From the Commencement of Commercial 60% Filipino-owned company, and the
Production, the Contractor shall pay a 100% foreign-owned contractor company
government share of sixty per centum takes all the risks of failure to find a
(60%) of Net Mining Revenues, calculated in commercially viable large-scale ore body or oil
accordance with the following provisions (the deposit, for which the contractor will get
Government Share). The Contractor shall be 40% of the financial benefits. 44 (Emphasis
entitled to retain the balance of all revenues supplied)
from the Mining Operations. (Emphasis
supplied) For this reason, intervenor CMP asserts that
the "contractor's stipulated share under the
However, under Section 7.9 of the WMCP FTAA, if WMCP FTAA is limited to a maximum of 40% of
WMCP's foreign stockholders sell 60% of their equity the net production."45 Intervenor CMP further insists
to a Philippine citizen or corporation, the State loses that "60% of its (contractor's) net returns from
its right to receive its 60% share of the net mining mining, if any, will go to the Government under
revenues under Section 7.7. Thus, Section 7.9 the WMCP FTAA."46 Intervenor CMP, however, fails
provides: to consider that the Government's 60% share
is illusory because under Section 7.9 of the WMCP
The percentage of Net Mining Revenues FTAA the foreign stockholders of WMCP can reduce
payable to the Government pursuant to at any time to ZERO percent the Government's share.
Clause 7.7 shall be reduced by 1% of Net
Mining Revenues for every 1% ownership If WMCP's foreign stockholders do not immediately
interest in the Contractor held by a sell 60% of WMCP's equity to a Philippine citizen or
Qualified Entity. (Emphasis supplied) corporation, the State in the meantime receives its
60% share. However, under Section 7.10 of the
What Section 7.7 gives to the State, Section 7.9 takes WMCP FTAA, the State shall receive its share "after
away without any offsetting compensation to the the offsetting of the items referred to in Clauses
State. In reality, the State has no vested right to 7.8 and 7.9," namely:
receive any income from the exploitation of its mineral
resources. What the WMCP FTAA gives to the 7.8. The Government Share shall be deemed
State in Section 7.7 is merely by tolerance of to include all of the following sums:
WMCP's foreign stockholders, who can at anytime
cut off the State's entire 60% share by selling 60% (a) all Government taxes, fees, levies,
of WMCP's equity to a Philippine citizen or costs, imposts, duties and royalties
corporation.42 The proceeds of such sale do not including excise tax, corporate income
accrue to the State but belong entirely to the foreign tax, customs duty, sales tax, value
stockholders of WMCP. added tax, occupation and regulatory
fees, Government controlled price
Section 2.1 of the WMCP FTAA defines a "Qualified stabilization schemes, any other form
Entity" to include a corporation 60% Filipino owned of Government backed schemes, any
and 40% foreign owned.43 WMCP's foreign tax on dividend payments by the
stockholders can sell 60% of WMCP's equity to such Contractor or its Affiliates in respect of
corporation and the sale will still trigger the operation revenues from the Mining Operations
of Section 7.9 of the WMCP FTAA. Thus, the State and any tax on interest on domestic
will receive ZERO percent of the income but the and foreign loans or other financial
foreign stockholders will own beneficially 64% of arrangements or accommodation,
WMCP, consisting of their remaining 40% equity and including loans extended to the
24% pro-rata share in the buyer-corporation. WMCP Contractor by its stockholders;
will then invoke Section 39 of RA 7942 allowing it to
convert the FTAA into an MPSA, thus subjecting (b) any payments to local and regional
WMCP to pay only 2% excise tax on mineral products government, including taxes, fees,
in lieu of sharing its mining income with the State. levies, costs, imposts, duties,
This violates Section 2, Article XII of the 1987 royalties, occupation and regulatory
Constitution requiring that only corporations "at least fees and infrastructure contributions;
sixty per centum of whose capital is owned by such
citizens" can enter into co-production, joint venture or (c) any payments to landowners,
production-sharing agreements with the State. surface rights holders, occupiers,
indigenous people or Claim-owners;
The State, as owner of the mineral resources, must
receive a fair share of the income from any (d) costs and expenses of fulfilling the
commercial exploitation of its mineral resources. Contractor's obligations to contribute
Mineral resources form part of the national patrimony, to national development in accordance
and so are the net proceeds from such resources. with Clause 10.1(i)(1) and 10.1(i)(2);
The Legislature or Executive Department cannot
waive the State's right to receive a fair share of the
(e) an amount equivalent to whatever
income from such mineral resources.
benefits that may be extended in the
future by the Government to the
The intervenor Chamber of Mines of the Philippines Contractor or to financial or technical
("CMP") admits that under an FTAA with a foreign assistance agreement contractors in
contractor, the Philippine Government "stands in the general;
place of the 60% Filipino owned company" and
hence must retain 60% of the net proceeds. Thus,
(f) all of the foregoing items which
78

intervenor CMP concedes that:

have not previously been offset
against the Government Share in an
Page

x x x In other words, in the FTAA situation,

the Government stands in the place of the
 earlier Fiscal year, adjusted for owned corporations in Paragraph 1 of
inflation. Section 2 of Article XII.49 (Italics and
underscoring in the original)
7.9. The percentage of Net Mining Revenues
payable to the Government pursuant to This so-called "guarantee" is a sham. Respondent
Clause 7.7 shall be reduced by 1% of Net WMCP gravely misleads this Court. Section 7.9 of the
Mining Revenues for every 1% ownership WMCP FTAA provides that the State's share "shall
interest in the Contractor held by a Qualified be reduced by 1% of Net Mining Revenues for
Entity. every 1% ownership interest in the Contractor
held by a Qualified Entity." This reduction is without
It makes no sense why under Section 7.8(e) money any offsetting compensation to the State and
spent by the Government for the benefit of the constitutes a waiver of the State's share to WMCP's
contractor, like building roads leading to the mine site, foreign stockholders. The Executive Department
is deductible from the State's 60% share of the Net cannot give away for free, especially to foreigners,
Mining Revenues. Unless of course the purpose is what forms part of the national patrimony. This
solely to reduce further the State's share regardless of negates the constitutionally mandated State
any reason. In any event, the numerous deductions ownership of mineral resources for the benefit of the
from the State's 60% share make one wonder if the Filipino people.
State will ever receive anything for its ownership of
the mineral resources. Even assuming the State will WMCP's stockholders may also invoke Section 112 of
receive something, the foreign stockholders of WMCP RA 7942 allowing a mining contractor to pay the
can at anytime take it away by selling 60% of State's share in accordance with Section 80 of RA
WMCP's equity to a Philippine citizen or corporation. 7942. WMCP will end up paying only the 2% excise
tax to the Philippine Government for the exploitation
In short, the State does not have any right to any of the mineral resources the State owns. In short, the
share in the net income from the mining operations old and discredited system of "license,
under the WMCP FTAA. The stipulated 60% share of concession or lease" will govern the WMCP FTAA.
the Government is illusory. The State is left to collect
only the 2% excise tax as its sole share from the The WMCP FTAA is also emphatic in stating that
mining operations. WMCP shall have exclusive right to exploit, utilize,
process and dispose of all mineral
Indeed, on 23 January 2001, WMCP's foreign products produced under the WMCP FTAA. Section
stockholders sold 100% of WMCP's equity to 1.3 of the WMCP FTAA provides:
Sagittarius Mines, Inc., a domestic corporation 60%
Filipino owned and 40% foreign owned.47 This sale The Contractor shall have the exclusive right
automatically triggered the operation of Section to explore, exploit, utilise, process and
7.9 of the WMCP FTAA reducing the State's share dispose of all Mineral products and by-
in the Net Mining Revenues to ZERO percent products thereof that may be derived or
without any offsetting compensation to the produced from the Contract Area but shall not,
State. Thus, as of now, the State has no right under by virtue only of this Agreement, acquire any
the WMCP FTAA to receive any share in the mining title to lands encompassed within the Contract
revenues of the contractor, even though the State Area.
owns the mineral resources being exploited under the
WMCP FTAA. Under the WMCP FTAA, the contractor has exclusive
right to exploit, utilize and process the mineral
Intervenor CMP anchors its arguments on the resources to the exclusion of third parties and even
erroneous interpretation that the WMCP FTAA gives the Philippine Government. Since WMCP's right is
the State 60% of the net income of the foreign exclusive, the Government has no participation in
contractor. Thus, intervenor CMP states that "60% of approving the operating expenses of the foreign
its (WMCP's) net returns from mining, if any, will go to contractor relating to the exploitation, utilization, and
the Government under the WMCP FTAA."48 This basic processing of mineral resources. The Government will
error in interpretation leads intervenor CMP to have to accept whatever operating expenses the
erroneous conclusions of law and fact. contractor decides to incur in exploiting, utilizing and
processing mineral resources.
Like intervenor CMP, respondent WMCP also
maintains that under the WMCP FTAA, the State Under the WMCP FTAA, the contractor has exclusive
is "guaranteed" a 60% share of the foreign right to dispose of the minerals recovered in the
contractor's Net Mining Revenues. Respondent mining operations. This means that the contractor can
WMCP contends, after quoting Section 7.7 of the sell the minerals to any buyer, local or foreign, at the
WMCP FTAA, that: price and terms the contractor chooses without any
intervention from the State. There is no requirement in
In other words, the State is guaranteed a the WMCP FTAA that the contractor must sell the
sixty per centum (60%) share of the Mining minerals at posted or market prices. The contractor
Revenues, or 60% of the actual fruits of has the sole right to "mortgage, charge or encumber"
the endeavor. This is in line with the intent the "Minerals produced from the Mining Operations."50
behind Section 2 of Article XII that the
Filipino people, as represented by the Section 8.3 of the WMCP FTAA also makes a sham
State, benefit primarily from the of the DENR Secretary's authority to approve the
exploration, development, and utilization foreign contractor's Work Program. Section 8.3
of the Philippines' natural resources. provides:
79

Incidentally, this sharing ratio between the If the Secretary gives a Rejection Notice the
Philippine Government and the Parties shall promptly meet and endeavour to
Page

Contractor is also in accordance with the agree on amendments to the Work Program
60%-40% equity requirement for Filipino- or budget. If the Secretary and the
 Contractor fail to agree on the proposed essential is that either party has the option to renew
revision within 30 days from delivery of the or not to renew the mineral agreement at the end of
Rejection Notice then the Work the original term.
Programme or Budget or variation thereof
proposed by the Contractor shall be However, Section 3.3 of the WMCP FTAA binds the
deemed approved, so as not to Philippine Government to an ironclad 50-year
unnecessarily delay the performance of the term. Section 3.3 compels the Government to
Agreement. (Emphasis supplied) renew the FTAA for another 25 years after the
original 25-year term expires. Thus, Section 3.3
The DENR Secretary is the representative of the states:
State which owns the mineral resources. The DENR
Secretary implements the mining laws, including RA This Agreement shall be renewed by the
7942. Section 8.3, however, treats the DENR Government for a further period of twenty-
Secretary like a subservient non-entity whom the five (25) years under the same terms and
contractor can overrule at will. Under Section 8.3 of conditions provided that the Contractor
the WMCP FTAA, the DENR Secretary has no lodges a request for a renewal with the
authority whatsoever to disapprove the Work Government not less than sixty (60) days prior
Program. This is not what the Constitution means by to the expiry of the initial term of this
full control and supervision by the State of mining Agreement and provided that the Contractor is
operations. not in breach of any of the requirements of
this Agreement. (Emphasis supplied)
Section 10.4(i) of the WMCP FTAA compels the
Philippine Government to agree to any request by Under Section 3.3, the contractor has the option to
the foreign contractor to amend the WMCP renew or not to renew the agreement. The
FTAA to satisfy the conditions of creditors of the Government has no such option and must renew the
contractor. Thus, Section 10.4(i) states: agreement once the contractor makes a request for
renewal. Section 3.3 violates the constitutional limits
(i) the Government because it binds the Government to a 50-year FTAA
shall favourably consider any request, at the sole option of the contractor.
from Contractor for amendments of this
Agreement which are necessary in order H. Arguments of the Solicitor General and the
for the Contractor to successfully obtain NEDA Secretary
the financing;
The Solicitor General states that the "basic share" of
x x x. (Emphasis supplied) the State in FTAAs involving large-scale exploitation
of minerals, petroleum and other mineral oils –
This provision requires the Government to favorably
consider any request from the contractor - which x x x consists of all direct taxes, fees and
means that the Government must render a royalties, as well as other payments made by
response favorable to the contractor. In effect, the the Contractor during the term of the FTAA.
contractor has the right to amend the WMCP FTAA The amounts are paid to the (i) national
even against the will of the Philippine Government just government, (ii) local governments, and (iii)
so the contractor can borrow money from banks. persons directly affected by the mining
project. Some of the major taxes paid are as
True, the preceding Section 10.4(e) of the WMCP follows Section 3(g) of DAO-99-56:
FTAA provides that "such financing arrangements will
in no event reduce the Contractor's obligations or the A. Payments to National Government
Government's rights." However, Section
10.4(i) binds the Government to agree to any future · Excise tax on minerals – 2% of gross
amendment requested by the foreign contractor even output of mining operations
if the Government does not agree with the wisdom of
the amendment. This provision is contrary to the
· Contractor's income tax – 32% of
State's full control and supervision in the exploitation
taxable income for corporation
of mineral resources.
· Customs duties and fees - rate is set
Clearly, under the WMCP FTAA the State has no full
by Tariff and Customs Code
control and supervision over the mining operations of
the contractor. Provisions in the WMCP FTAA that
grant the State full control and supervision are · VAT on imported equipment, goods
negated by other provisions that take away such and services - 10% of value
control and supervision.
· Royalty on minerals extracted from
The WMCP FTAA also violates the constitutional mineral reservations, if applicable –
limits on the term of an FTAA. Section 2, Article XII of 5% of the actual market value of the
the 1987 Constitution limits the term of a mineral minerals produced
agreement to "a period not exceeding twenty-five
years, renewable for not more than twenty-five · Documentary stamp tax – rate
years, and under such terms and conditions as depends on the type of transaction
may be provided by law." The original term cannot
exceed 25 years, and at the end of such term, either · Capital gains tax on traded stocks –
the Government or the contracting party may decide 5 to 10% of the value
80

not to renew the mineral agreement. However, both

the Government and the contracting party may also · Tax on interest payments on foreign
Page

decide to renew the agreement, in which case the loans – 15% of the interest
renewal cannot exceed another 25 years. What is
 · Tax on foreign stockholders the fifty-fifty sharing of net benefits from
dividends - 15% of the dividend mining.

· Wharfage and port fees By including indirect taxes and other

financial contributions in the form of fuel
· Licensing fees (e.g., radio permit, tax; employees' payroll and fringe benefits;
firearms permit, professional fees) various withholding taxes on royalties to
land owners and claim owners, and
B. Payments to Local Governments employees' income; value added tax on
local goods, equipment, supplies and
services; and expenditures for social
· Local business tax - maximum of 2%
infrastructures in the mine site (hospitals,
of gross sale or receipt
schools, etc.) and development of host and
neighboring communities, geosciences
· Real property tax - 2% of the fair and mining technology, the government
market value of property based on an share will be in the range of 60% or more
assessment level set by the local of the total financial benefits. (Bold and
government underscoring in the original)

· Local business tax - maximum of 2% The Solicitor General enumerates this "additional
of gross sale or receipt government share" as "indirect taxes and other
financial contributions in the form of fuel tax;
· Special education levy - 1% of the employees' payroll and fringe benefits; various
basis used in real property tax withholding taxes on royalties to land owners and
claim owners, and employees' income; value
· Occupation tax - 50 pesos per added tax on local goods, equipment, supplies
hectare per year; 100 pesos per and services; x x x." The Solicitor General's
hectare per year if located in a mineral argument merely confirms that under Section 81 of
concession RA 7942 the State only receives taxes, duties and
fees under the FTAA. The State does not receive, as
· Community tax - 10,500 pesos owner of the mineral resources, any income from the
maximum per year mining operations of the contractor.

· Other local taxes and fees - rate and In short, the "basic share" of the State consists
type depends on the local government of direct taxes by the national and local
governments. The "additional share" of the State
C. Other Payments consists of indirect taxes including even fringe
benefits to employees and compensation to
· Royalty to indigenous cultural private surface right owners. Direct and indirect
communities, if any - not less than 1% taxes, however, are impositions by the taxing
of the gross output from mining authority, a burden borne by all taxpayers whether or
operations not they exploit the State's mineral resources. Fringe
benefits of employees are compensation for services
rendered under an employer-employee relationship.
· Special allowance – payment to Compensation to surface right owners is payment for
claim owners or surface right owners the damage suffered by private landowners arising
from the mining operations. All these direct and
The Solicitor General argues that the phrase "among indirect taxes, as well as other expenses of the
other things" in the second paragraph of Section 81 contractor, do not constitute payment for the
of RA 7942 means that the State "is entitled to share of the State as owner of the mineral
an additional government share to be paid by the resources.
Contractor." The Solicitor General explains:
Clearly, the so-called "share" of the State consists
An additional government share is collected only of direct and indirect taxes, as well as other
from an FTAA contractor to fulfill the intent of operating expenses not even payable to the State.
Section 81 of RA No. 7942, to wit: The Solicitor General in effect concedes that under
the second paragraph of Section 81, the State does
Sec. 81. The Government share in an not receive any share of the net proceeds from the
FTAA shall consist of, among other mining operations of the FTAA contractor. Despite
things, the Contractor's corporate this, the Solicitor General insists that the State
income tax, excise tax, special remains the owner of the mineral resources and
allowance, withholding tax due from exercises full control over the mining operations of the
the Contractor's foreign stockholders FTAA contractor. The Solicitor General has redefined
arising from dividends or interest the civil law concept of ownership,51 by giving the
payments to the said foreign owner full control in the exploitation of the property he
stockholders in case of a foreign- owns but denying him the fruits or income from such
owned corporation and all such other exploitation. The only satisfaction of the owner is that
taxes, duties and fees as provided for the FTAA contractor pays taxes to the Government.
in existing laws. (Underscoring
supplied) However, even this psychological satisfaction is
dubious. Under the third paragraph of Section 81 of
The phrase "among other things" indicates RA 7942, the "collection of Government share in
81

that the Government is entitled to an financial and technical assistance agreement shall

additional share to be paid by the Contractor,
Page

commence after the financial and technical

aside from the basic share in order to achieve assistance agreement contractor has fully recovered
its pre-operating expenses, exploration, and foreign investors knew the constitutional requirements
development expenditures, inclusive." This provision of holding quarry permits.
does not defer the collection of the State's "share,"
but prevents the accrual of the State's "share" until Besides, the quarrying requirement of cement
the contractor has fully recovered all its pre-operating, companies is just a simple surface mining of
exploration and development expenditures. This limestone. Such activity does not constitute large-
provision exempts for an undefined period the scale exploitation of mineral resources. It definitely
contractor from all existing taxes that are part of cannot qualify for FTAAs with foreign contractors
the Government's so-called "share" under Section under the fourth paragraph of Section 2, Article XII of
81.52 The Solicitor General has interpreted these taxes the Constitution. Obviously, only a company at least
to include "other national taxes and fees" as well as 60% Filipino owned can engage in such mining
"other local taxes and fees." activity.

Secretary Romulo L. Neri of the National Economic The offshore Occidental-Shell FTAA shows that even
and Development Authority ("NEDA") has warned this in riskier ventures involving far more capital
Court of the supposed dire repercussions to the investments, the State can negotiate and secure at
nation's long-term economic growth if this Court least 60% of the net proceeds from the exploitation of
declares the assailed provisions of RA 7942 mineral resources. Foreign contractors like
unconstitutional.53 Under the Constitution, the NEDA is Occidental-Shell are willing to pay the State 60% of
the "independent (economic) planning agency of the the net proceeds from petroleum operations, in
government."54 However, in this case the NEDA addition to paying the Government the 32% corporate
Secretary has joined the chorus of the foreign income tax on its 40% share of the net
chambers of commerce to uphold the validity of RA proceeds. Even intervenor CMP and respondent
7942 as essential to entice foreign investors to exploit WMCP agree that the State has a 60% interest in
the nation's mineral resources. mining operations under an FTAA. I simply cannot
fathom why the NEDA Secretary is willing to accept a
We cannot fault the foreign chambers of commerce ZERO percent share in the income from the
for driving a hard bargain to maximize the profits of exploitation of inland mineral resources.
foreign investors. We are, however, saddened that the
NEDA Secretary is willing to give away for free to FTAAs like the WMCP FTAA, which gives the State
foreign investors the State's share of the income from an illusory 60% share of the net proceeds from
its ownership of mineral resources. If the NEDA mining revenues, will only impoverish further the
Secretary owns the mineral resources instead of the Filipino people. The nation's potential mineral wealth
State, will he allow the foreign contractor to exploit his of P47 trillion will contribute to economic development
mineral resources for free, the only obligation of the only if the bulk of the wealth remains in the country,
foreign contractor being to pay taxes to the not if remitted abroad by foreign contractors.
Government?
I. Refutation of Arguments of Majority Opinion
Secretary Neri claims that the potential tax collection
from the mining industry alone is P57 billion as The majority opinion advances the following
against the present collection of P2 billion. Secretary arguments:
Neri adds that the potential tax collection from
incremental activities linked to mining is another P100
1. DENR Department Administrative Order
billion, thus putting the total potential tax collection
No. 56-99 ("DAO 56-99") is the basis for
from mining and related industries at P157
determining the State's share in the mining
billion.55 Secretary Neri also estimates the "potential
income of the foreign FTAA contractor. The
mining wealth in the Philippines" at P47 trillion or
DENR Secretary issued DAO 56-99 pursuant
US$840 billion, 15 times our total foreign debt of
to the phrase "among other things" in
US$56 billion.56
Section 81 of RA 7942. The majority opinion
claims that the phrase "among other
If all that the State will receive from its P47 trillion things" "clearly and unmistakably reveals
potential mineral wealth is the P157 billion in direct the legislative intent to have the State
and indirect taxes, then the State will truly receive collect more than just the usual taxes,
only a pittance. The P157 billion in taxes constitute a duties and fees." The majority
mere .33% or a third of 1% of the total mineral opinion anchors on the phrase "among other
wealth of P47 trillion. Even if the P157 billion is things" its argument that RA 7942 allows the
collected annually over 25 years, the original term of State to collect a share in the mining income
an FTAA, the total tax collection will amount to of the foreign FTAA contractor, in addition to
only P3.92 trillion, or a mere 8.35% of the total taxes, duties and fees. Thus, on the phrase
mineral wealth. The rest of the country's mineral "among other things" depends whether the
wealth will flow out of the country if foreign contractors State and the Filipino people are entitled
exploit our mineral resources under FTAAs pursuant under RA 7942 to share in the vast mineral
to RA 7942. wealth of the nation, estimated by NEDA
at P47 trillion or US$840 billion.
Secretary Neri also warns that foreign investors who
have acquired local cement factories in the last ten 2. FTAAs, like the WMCP FTAA, are not
years will find their investments illegal if the Court subject to the term limit in Section 2,
declares unconstitutional the assailed provisions of Article XII of the 1987 Constitution. In short,
RA 7942.57 Such specious arguments deserve scant while co-production, joint venture and
consideration. Cement manufacturing is not a production-sharing agreements cannot
nationalized activity. Hence, foreigners can own 100% exceed 25 years, renewable for another 25
of cement companies in this country. When the
82

years, as provided in Section 2, Article XII of

foreign investors acquired the local cement factories, the 1987 Constitution, the WMCP FTAA is not
Page

they spun off the quarry operations into separate governed by the constitutional limitation. The
companies 60% owned by Filipino citizens. The majority opinion states that
 the "constitutional term limitations do not in issue here, is intertwined with Sections 39, 80, 84
apply to FTAAs." Thus, the majority opinion and 112. Resolving the constitutionality of Section 81
upholds the validity of Section 3.3 of the necessarily involves a determination of the
WMCP FTAA providing for a 50-year term at constitutionality of Sections 39, 80, 84 and 112.
the sole option of WMCP.
The WMCP FTAA, the constitutionality of which is
3. Section 112 of RA 7942, placing "all valid certainly in issue, is governed not only by Section 81
and existing" mining agreements under the but also by Sections 39, 80 and 112. The reason is
fiscal regime prescribed in Section 80 of RA that the WMCP FTAA is a reversible contract that
7942, does not apply to FTAAs. Thus, the gives WMCP the absolute option at anytime to
majority opinion states, "[W]hether Section convert the FTAA into an MPSA. In short, the WMCP
112 may properly apply to co-production FTAA is like a single coin with two sides - one an
or joint venture agreements, the fact of the FTAA and the other an MPSA.
matter is that it cannot be made to apply to
FTAAs." a. The Integrated Intent, Plan and Structure of RA
7942
4. Foreign FTAA contractors and even
foreign corporations can hold exploration The clear intent of RA 7942 is to limit the State's
permits, despite Section 2, Article XII of the share from mining operations to taxes, duties and
1987 Constitution reserving to Philippine fees, unless the State contributes equity in addition to
citizens and to corporations 60% Filipino the mineral resources. RA 7942 does not recognize
owned the "exploration, development and the mere contribution of mineral resources as entitling
utilization of natural resources." Thus, the the State to receive a share in the net mining
majority opinion states that "there is no revenues separate from taxes, duties and fees. Thus,
prohibition at all against foreign or Section 80 expressly states that the "total
local corporations or contractors holding government share in a mineral production sharing
exploration permits." agreement shall be the excise tax on mineral
products." Section 84 reiterates this by stating
5. The Constitution does not require that the that "with respect to mineral production sharing
State's share in FTAAs or other mineral agreement, the excise tax on mineral products
agreements should be at least 60% of the net shall be the government share under said
mining revenues. Thus, the majority opinion agreement." The only share of the State in an MPSA
states that "the Charter did not intend to fix is the excise tax. Ironically, Sections 80 and 84
an iron-clad rule on the 60 percent share, disallow the State from sharing in the production or
applicable to all situations at all times and income, even as the contract itself is called a mineral
in all circumstances." production sharing agreement.

I respond to the arguments of the majority opinion. In co-production and joint venture agreements, where
the State contributes equity in addition to the mineral
1. DAO 99-56 as Basis for Government's Share in resources, the first paragraph of Section 81 expressly
FTAAs requires that "the share of the government x x x
shall be negotiated by the Government and the
The main thrust of my separate opinion is that mineral contractor." However, in FTAAs where the State
agreements under RA 7942, whether FTAAs under contributes only its mineral resources, the second
Section 81 or MPSAs under Section 80, do not allow paragraph of Section 81 states –
the State to receive any share from the income of
mining companies. The State can collect only taxes, The Government share in financial or
duties and fees from mining companies. technical assistance agreement shall consist
of, among other things, the contractor's
The majority opinion, however, points to the corporate income tax, excise tax, special
phrase "among other things" in the second allowance, withholding tax due from the
paragraph of Section 81 as the authority of the State contractor's foreign stockholders arising from
to collect in FTAAs a share in the mining income dividend or interest payments to the said
separate from taxes, duties and fees. The majority foreign stockholder in case of a foreign
opinion can point to no other provision in RA 7942 national and all such other taxes, duties and
allowing the State to collect any share. The majority fees as provided for under existing laws.
opinion admits that limiting the State's share in any
mineral agreement to taxes, duties and fees is All the items enumerated in the second paragraph of
unconstitutional. Thus, the majority opinion's case Section 81 as comprising the "Government share"
rises or falls on whether the phrase "among other refer to taxes, duties and fees. The phrase "all such
things" allows the State to collect from FTAA other taxes, duties and fees as provided for under
contractors any income in addition to taxes, existing laws" makes this clear.
duties and fees.
Section 112 places "all valid and existing
In the case of MPSAs, the majority opinion cannot mining" agreements "at the date of effectivity" of
point to any provision in RA 7942 allowing the State to RA 7942 under the fiscal regime prescribed in Section
collect any share in MPSAs separate from taxes, 80. Section 112 expressly states that
duties and fees. The language of Section 80 is so the "government share in mineral production
crystal clear – "the total government share in a sharing agreement x x x shall immediately govern
mineral production sharing agreement shall be and apply to a mining lessee or
the excise tax on mineral products" - that there is contractor." Section 112 provides:
83

no dispute whatsoever about it. The majority opinion

merely states that the constitutionality of Section 80 is Section 112. Non-impairment of Existing
Page

not in issue in the present case. Section 81, the Mining/Quarrying Rights. — All valid and
constitutionality of which the majority opinion admits is existing mining lease contracts,
 permits/licenses, leases pending renewal, In the case of a foreign contractor, it shall reduce its
mineral production-sharing agreements equity to forty percent (40%) in the corporation,
granted under Executive Order No. 279, at partnership, association, or cooperative. Upon
the date of effectivity of this Act, shall compliance with this requirement by the
remain valid, shall not be impaired, and shall contractor, the Secretary shall approve the
be recognized by the Government: Provided, conversion and execute the mineral production-
That the provisions of Chapter XIV sharing agreement. (Emphasis supplied)
on government share in mineral
production-sharing agreement and of The only requirement in the second paragraph of
Chapter XVI on incentives of this Act shall Section 39 is that the FTAA contractor shall reduce its
immediately govern and apply to a mining foreign equity to 40%. The second paragraph
lessee or contractor unless the mining states, "Upon compliance with this requirement,
lessee or contractor indicates his intention to the Secretary shall approve the conversion and
the secretary, in writing, not to avail of said execute the mineral production sharing
provisions: Provided, further, That no renewal agreement." The determination of the economic
of mining lease contracts shall be made after viability of the contract area for large-scale mining,
the expiration of its term: Provided, finally, which is left to the foreign contractor with "proper
That such leases, production-sharing notice" only to the DENR Secretary, is not even made
agreements, financial or technical assistance a condition for the conversion.
agreements shall comply with the applicable
provisions of this Act and its implementing Under Section 3(aq) of RA 7942, the foreign
rules and regulations. (Emphasis supplied) contractor holds the exploration permit and conducts
the physical exploration. The foreign contractor
Thus, Section 112 requires "all" FTAAs and MPSAs, controls the release of the technical data on the
as of the date of effectivity of RA 7942, to pay only the mineral resources. The foreign contractor can easily
excise tax - 2% on metallic and non-metallic minerals justify the non-viability of the contract area for large-
and 3% on petroleum58 - instead of the stipulated scale mining. The Philippine Government will have
mining income sharing, if any, in their respective to depend on the foreign contractor for technical
FTAAs or MPSAs. data on whether the contract area is viable for
large-scale mining. Obviously, such a situation gives
This means that Section 112 applies even to the the foreign contractor actual control in determining
Occidental-Shell FTAA, which was executed whether the contract area is viable for large-scale
before the enactment of RA 7942. This reduces mining.
the State's share in the Malampaya gas extraction
from 60% of net proceeds to 3% of the market The conversion from an FTAA into an MPSA is solely
price of the gas as provided in Section 80 of RA at the will of the foreign contractor because the
7942 in relation to Section 151 of the National contractor can choose at any time to sell 60% of its
Internal Revenue Code. This is disastrous to the equity to a Philippine citizen. The price or
national economy because Malampaya under the consideration for the sale of the contractor's 60%
original Occidental-Shell FTAA generates annually equity does not go to the State but to the foreign
some US$0.5 billion to the National Treasury. stockholders of the contractor. Under Section 80 of
RA 7942, once the FTAA is converted into an MPSA
Section 112 applies to all agreements executed the only share of the State is the 2% excise tax on
"under Executive Order No. 279." The WMCP mineral products. Thus, under RA 7942 the FTAA
FTAA expressly states in its Section 1.1, "This contractor has the absolute option to pay the
Agreement is a Financial & Technical Assistance State only the 2% excise tax, despite any other
Agreement entered into pursuant to Executive stipulated consideration in the FTAA.
Order No. 279." Thus, Section 112 applies to the
WMCP FTAA. Clearly, Sections 3(aq), 39, 80, 81, 84 and 112 are
tightly integrated under a single intent, plan and
Section 39 of RA 7942 grants the FTAA contractor structure: unless the State contributes equity in
the "option to convert" the FTAA into an MPSA "at addition to the mineral resources, the State shall
any time during the term" of the FTAA if the receive only taxes, duties and fees. The State's
contract areas are not economically viable for large- contribution of mineral resources is not sufficient to
scale mining. Once the contractor reduces its foreign entitle the State to receive any income from the
equity to not more than 40%, the Secretary "shall mining operations separate from taxes, duties and
approve the conversion and execute the mineral fees.
production sharing agreement. Thus, Section 39
provides: b. The Meaning of the Phrase "Among Other
Things"
Section 39. Option to Convert into a Mineral
Agreement. — The contractor has the As far as the State and the Filipino people are
option to convert the financial or technical concerned, the most important part of an FTAA is the
assistance agreement to a mineral consideration: how much will the State receive
agreement at any time during the term of from the exploitation of its non-renewable and
the agreement, if the economic viability of the exhaustible mineral resources?
contract area is found to be inadequate to
justify large-scale mining operations, after Section 81 of RA 7942 does not require the foreign
proper notice to the Secretary as provided for FTAA contractor to pay the State any share from the
under the implementing rules and regulations: mining income apart from taxes, duties and fees. The
Provided, That the mineral agreement shall second paragraph of Section 81, just like Section 80,
only be for the remaining period of the original
84

only allows the State to collect taxes, duties and fees

agreement. as the State's share from the mining operations. The
Page

intent of RA 7942 is that the State cannot share in the

income from mining operations, separate from taxes,
duties and fees, based only on the mineral resources agreements, expressly specifies the standards in
that the State contributes to the mining operations. determining the State's share as follows: "(a) capital
investment of the project, (b) risks involved, (c)
This is also the position of the Solicitor General – that contribution of the project to the economy, and (d)
the State's share under Section 81 refers only other factors that will provide for a fair and equitable
to direct and indirect taxes. Thus, the Solicitor sharing between the Government and the contractor."
General agrees that Section 81 does not allow the The reason for the absence of similar standards in the
State to collect any share from the mining income succeeding paragraph of Section 81 in determining
separate from taxes, duties and fees. The majority the State's share in FTAAs is obvious - the State's
opinion agrees that Section 81 is unconstitutional if it share in FTAAs is limited solely to taxes, duties and
does not require the foreign FTAA contractor to pay fees. Thus, such standards are inapplicable and
the State any share of the net mining income apart irrelevant.
from taxes, duties and fees.
The majority opinion now makes the formulae in DAO
However, the majority opinion says that the 56-99 the heart and soul of RA 7942 because the
phrase "among other things" in Section 81 is the formulae supposedly determine the consideration of
authority to require the FTAA contractor to pay a the FTAA. The consideration is the most important
consideration separate from taxes, duties and fees. part of the FTAA as far as the State and Filipino
The majority opinion cites the phrase "among other people are concerned. The formulae in DAO 56-99
things" as the source of power of the DENR derive life solely from the phrase "among other
Secretary to adopt DAO 56-9959 prescribing the things." DAO 56-99 itself states that it is issued
formulae on the State's share from mining "[P]ursuant to Section 81 and other pertinent
operations separate from taxes, duties and fees. provisions of Republic Act No. 7942." Without the
phrase "among other things," the majority opinion
In short, the majority opinion says that the could not point to any other provision in RA 7942 to
phrase "among other things" is a delegation of support the existence of the formulae in DAO 56-99.
legislative power to the DENR Secretary to adopt the
formulae on the share of the State from mining Thus, the phrase "among other things" determines
operations. The issue now is whether the phrase whether the FTAA has the third element of a valid
"among other things" in the second paragraph of contract – the commercial value or consideration that
Section 81 is intended as a delegation of the State will receive. The majority opinion in effect
legislative power to the DENR Secretary. If so, the says that Congress made the wealth and even the
issue turns on whether it is a valid delegation of future prosperity of the nation to depend on the
legislative power. I reproduce again the second phrase "among other things."
paragraph of Section 81 for easy reference:
The DENR Secretary can change the formulae in
The Government share in financial or DAO 56-99 any time even without the approval of the
technical assistance agreement shall consist President or Congress. The DENR Secretary is the
of, among other things, the contractor's sole authority to determine the amount of
corporate income tax, excise tax, special consideration that the State shall receive in an FTAA.
allowance, withholding tax due from the Section 5 of DAO 56-99 states:
contractor's foreign stockholders arising from
dividend or interest payments to the said x x x any amendment of an FTAA other than
foreign stockholder in case of a foreign the provision on fiscal regime shall require
national and all such other taxes, duties the negotiation with the Negotiation Panel and
and fees as provided for under existing laws. the recommendation of the Secretary for
(Emphasis supplied) approval of the President of the Republic of
the Philippines. (Emphasis supplied)
Section 81 of RA 7942 does not delegate any
legislative power to the DENR Secretary to adopt the Under Section 5, if the amendment in the FTAA
formulae in determining the share of the State. There involves non-fiscal matters, the amendment requires
is absolutely no language in the second the approval of the President. However, if the
paragraph of Section 81 granting the DENR amendment involves a change in the fiscal regime –
Secretary any delegated legislative power. Thus, referring to the consideration of the FTAA - the DENR
the DENR Secretary acted without authority or Secretary has the final authority and approval of the
jurisdiction in issuing DAO 56-99 based on a President is not required. This makes the DENR
supposed delegated power in the second paragraph Secretary more powerful than the President.
of Section 81. This makes DAO 56-99 void.
Section 5 of DAO 56-99 violates paragraphs 4 and 5
Even assuming, for the sake of argument, that there is of Section 2, Article XII of the 1987 Constitution
language in Section 81 delegating legislative power to mandating that the President shall approve all FTAAs
the DENR Secretary to adopt the formulae in DAO 56- and send copies of all approved FTAAs to Congress.
99, such delegation is void. Section 81 has no The consideration of the FTAA is the most important
standards by which the delegated power shall be part of the FTAA as far as the State and the Filipino
exercised. There is no specification on the minimum people are concerned. The DENR Secretary, in
or maximum share that the State must receive from issuing DAO 56-99, has arrogated to himself the
mining operations under FTAAs. No parameters on power to approve FTAAs, a power vested by the
the extent of the delegated power to the DENR Constitution solely in the President. By not even
Secretary are found in Section 81. Neither were such informing the President of changes in the fiscal
parameters ever discussed even remotely by regime and thus preventing such changes from
Congress when it enacted RA 7942. reaching Congress, DAO 56-99 even seeks to hide
85

changes in the fiscal regime from Congress. By its

In sharp contrast, the first paragraph of the same provisions alone, DAO 56-99 is clearly
Page

Section 81, in prescribing the State's share in co- unconstitutional and void.
production and joint venture
Section 5 of DAO 56-99 also states that "[A]ll FTAAs kind is 'accompanied by words of a generic
approved prior to the effectivity of this Administrative character, the generic words will usually be
Order shall remain valid and be recognized by the limited to things of a kindred nature with those
Government." This means that the fiscal regime of an particularly enumerated x x x.'
FTAA executed prior to the effectivity of DAO 56-99
"shall remain valid and be recognized." If the earlier In Grapilon v. Municipal Council of Cigara,62 the
FTAA provides for a fiscal regime different from DAO Court construed the general word "absence" in the
56-99, then the fiscal regime in the earlier FTAA shall phrase "absence, suspension or other temporary
prevail. In effect, DAO 56-99 exempts an FTAA disability of the mayor" in Section 2195 of the Revised
approved prior to its effectivity from paying the State Administrative Code as "on the same level as
the share prescribed in the formulae under DAO 56- 'suspension' and 'other forms of temporary disability'."
99 if the earlier FTAA provides for a different fiscal The Court quoted with approval the following Opinion
regime. Such is the case of the WMCP FTAA. of the Secretary of Interior:

Based on the majority opinion's position that the 1987 The phrase 'other temporary disability' found
Constitution requires payment in addition to taxes, in section 2195 of the Code, follows the words
duties and fees, this makes DAO 56-99 'absence' and 'suspension' and is used as a
unconstitutional and void. DAO 56-99 does not modifier of the two preceding words, under the
require prior FTAAs to pay the State the share principle of statutory construction known
prescribed in the formulae under DAO 56-99 even if as ejusdem generis.
the consideration in the prior FTAAs is limited only to
taxes, duties and fees. DAO 56-99 recognizes such In City of Manila v. Entote,63 the Court ruled that
payment of taxes, duties and fees as broad expressions such as "and all others" or "any
a "valid" consideration. Certainly, the DENR others" or "other matters," when accompanied by
Secretary has no authority to exempt foreign FTAA an enumeration of items of the same kind or class,
contractors from a constitutional requirement. Not "are usually to be restricted to persons or things of the
even Congress or the President can do so. same kind or class with those specifically named" in
the enumeration. Thus, the Court held:
Ironically, DAO 56-99, the very authority the majority
opinion cites to support its claim that the WMCP In our jurisdiction, this Court in Ollada vs.
FTAA has a consideration, does not apply to the Court of Tax Appeals, et al. applied the rule of
WMCP FTAA. By its own express terms, DAO 56- "ejusdem generis" to construe the purview of
99 does not apply to FTAAs executed before the a general phrase "other matters" appearing
issuance of DAO 56-99, like the WMCP FTAA. The after an enumeration of specific cases
majority opinion's position has no leg to stand on decided by the Collector of Internal Revenue
since even DAO 56-99, assuming it is valid, cannot and appealable to the Court of Tax Appeals
save the WMCP FTAA from want of consideration. found in section 7, paragraph 1, of Republic
Act No. 1125, and it held that in order that a
The formulae prescribed in DAO 56-99 are totally matter may come under said general clause, it
alien to the phrase "among other things." There is no is necessary that it belongs to the same kind
relationship whatsoever between the phrase "among or class of cases therein specifically
other things" and the highly esoteric formulae enumerated. (Emphasis supplied)
prescribed in DAO 56-99. No one in this Court can
assure the Filipino people that the formulae in DAO The four requisites of the ejusdem generis rule64 are
56-99 will guarantee the State 60%, or 30% or even present in the phrase "among other things" as
10% of the net proceeds from the mining operations. appearing in Section 81 of RA 7942. First, the general
And yet the majority opinion trumpets DAO 56-99 as phrase "among other things" is accompanied by an
the savior of Section 81 from certain constitutional enumeration of specific items, namely, "the
infirmity. contractor's corporate income tax, excise tax,
special allowance, withholding tax due from the
The majority opinion gives the stamp of approval and contractor's foreign stockholders arising from dividend
legitimacy on DAO 56-99. This assumes that the or interest payments to the said foreign stockholder in
majority understand fully the formulae in DAO 56-99. case of a foreign national and all such other taxes,
Can the majority tell the Court and the Filipino people duties and fees as provided for under existing
the minimum share that the State will receive under laws." Second, all the items enumerated are of the
the formulae in DAO 56-99? The formulae in DAO 56- same kind or class - they are all taxes, duties and
99 are fuzzy since they do not guarantee the fees. Third, the enumeration of the specific items is
minimum share of the State, unlike the clear and not exhaustive because "all such other taxes, duties
specific income sharing provisions in the Occidental- and fees" are included. Thus, the enumeration of
Shell FTAA or in the case of Consolidated Mines, specific items is merely illustrative. Fourth, there is no
Inc. v. Court of Tax Appeals.60 indication of legislative intent to give the general
phrase "among other things" a broader meaning.
The Solicitor General asserts that the phrase "among On the contrary, the legislative intent of RA 7942 is to
other things" refers to indirect taxes, an limit the State's share from mining operations to
interpretation that contradicts the DENR Secretary's taxes, duties and fees.
interpretation under DAO 56-99. The Solicitor General
is correct. The ejusdem generis rule of statutory In short, the phrase "among other things" refers to
interpretation applies squarely to the phrase "among taxes, duties and fees. The phrase "among other
other things." things" is even followed at the end of the sentence
by the phrase "and all such other taxes, duties,
In Philippine Bank of Communications v. Court of and fees," reinforcing even more the restriction of the
86

Appeals,61 the Court held: phrase "among other things" to taxes, duties and

fees. The function of the phrase "and such other
Page

Under the rule of ejusdem generis, where a taxes, duties and fees" is to clarify that the taxes
description of things of a particular class or enumerated are not exhaustive but merely illustrative.
c. Formulae in DAO 56-99 a Mere Creation of The majority opinion is re-writing the 1987
DENR Constitution and even RA 7942. Paragraph 4, Section
2, Article XII of the 1987 Constitution expressly
The majority opinion praises the DENR provides:
for "conceiving and developing" the formulae in
DAO 56-99. Thus, the majority opinion states: The President may enter into agreements with
foreign-owned corporations involving either
As can be seen from DAO 56-99, the technical or financial assistance for large-
agencies concerned did an admirable job scale exploration, development, and utilization
of conceiving and developing not just one of minerals, petroleum, and other mineral
formula, but three different formulas for oils according to the general terms and
arriving at the additional government share. conditions provided by law, x x x.
(Emphasis supplied) (Emphasis supplied)

Indeed, we credit the DENR for conceiving and Clearly, the 1987 Constitution mandates that the
developing on their own the formulae in DAO 56- President may enter into FTAAs only "according to
99. The formulae are the creation of DENR, not of the general terms and conditions provided by
Congress. law." There is no doubt whatsoever that it is Congress
that prescribes the terms and conditions of FTAAs,
The DENR conceived and developed the formulae to not the President as the majority opinion claims. The
save Section 81 not only from constitutional infirmity, 1987 Constitution mandates the President to comply
but also from blatantly depriving the State and Filipino with the terms and conditions prescribed by Congress
people from any share in the income of mining for FTAAs.
companies. However, the DENR's admittedly
"admirable job" cannot amend Section 81 of RA 7942. Indeed, RA 7942 stipulates the terms and conditions
The DENR has no legislative power to correct for FTAAs. Section 35 of RA 7942 provides that
constitutional infirmities in RA 7942. The DENR does the "following terms, conditions, and warranties
not also possess the constitutional power to prescribe shall be incorporated in the financial or technical
the sharing of mining income between the State and assistance agreement to wit: x x x." Section 38 of
mining companies, the act the DENR attempts to do RA 7942 expressly limits an FTAA to a "term not
in adopting DAO 56-99. exceeding twenty-five (25) years," which is one of
the issues in the present case.
d. DAO 56-99 is an Exercise in Futility
The majority opinion claims that the President has the
Even assuming arguendo the majority opinion is power to prescribe "the fiscal regime of FTAAs –
correct that the phrase "among other things" i.e., the sharing of the net mining revenues
constitutes sufficient legal basis to issue DAO 56-99, between the contractor and the State." This claim
the FTAA contractor can still prevent the State from of the majority opinion renders the entire Chapter XIV
collecting any share of the mining income. By invoking of RA 7942 an act of usurpation by Congress of
Section 39 of RA 7942 giving the foreign FTAA Presidential power. Chapter XIV – entitled
contractor the option to convert the FTAA into an "Government Share" - prescribes the fiscal
MPSA, the FTAA contractor can easily place itself regimes of MPSAs and FTAAs. The constitutionality
outside the scope of DAO 56-99 which expressly of Sections 80 and 81 of Chapter XIV - whether the
applies only to FTAAs. fiscal regimes prescribed in these sections of RA
7942 comply with the 1987 Constitution - is the
threshold issue in this case.
Also, by invoking Section 112, the foreign contractor
need not even convert its FTAA into a mineral
production agreement to place its contract under The majority opinion seeks to uphold the
Section 80 and outside of Section 81. Section 112 constitutionality of Section 81 of RA 7942, an act of
automatically and immediately places all FTAAs under Congress prescribing the fiscal regime of FTAAs. If it
the fiscal regime applicable to MPSAs, forcing the is the President who has the constitutional authority to
State to collect only the 2% excise tax. Thus, DAO 56- prescribe the fiscal regime of FTAAs, then Section 81
99 is an exercise in futility. This now compels the is unconstitutional for being a usurpation by Congress
Court to resolve the constitutionality of Sections 39 of a Presidential power. The majority opinion not only
and 112 of RA 7942 in the present case. re-writes the 1987 Constitution, it also contradicts
itself.
e. Congress Prescribes the Terms and Conditions
of FTAAs. That is not all. By claiming that the President has the
prerogative to prescribe the fiscal regime of FTAAs,
the majority opinion contradicts its basic theory that
In a last-ditch attempt to justify the constitutionality of
DAO 56-99 draws life from the phrase "among other
DAO 56-99, the majority opinion now claims that the
things" in Section 81 of RA 7942. Apparently, the
President has the prerogative to prescribe the
majority opinion is no longer confident of its position
terms and conditions of FTAAs, including the
that DAO 56-99 draws life from the phrase "among
fiscal regime of FTAAs. The majority opinion states:
other things." The majority opinion now invokes a
non-existent Presidential power that directly collides
x x x It is the President who is constitutionally with the express constitutional power of Congress to
mandated to enter into FTAAs with foreign prescribe the "general terms and conditions" of
corporations, and in doing so, it is within the FTAAs.
President's prerogative to specify certain
terms and conditions of the FTAAs, for
f. Sections 80 and 84 of RA 7942 are Void on their
example, the fiscal regime of FTAAs - i.e., the
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Face
sharing of the net revenues between the
contractor and the State. (Emphasis in the
Page

original; underscoring supplied) Definitely, Section 80 of RA 7942 is constitutionally

infirm even based on the reasoning of the majority
opinion. The majority opinion agrees that the 1987 condition is already fulfilled since all the equity of
Constitution requires the mining contractor to pay the WMCP is now owned by a corporation 60% Filipino
State "more than just the usual taxes, duties and owned. The notice to the DENR Secretary is solely at
fees." Under Section 80, the excise tax – 2% for the will of WMCP.
metallic and non-metallic minerals and 3% for
petroleum - is the only and total share of the State What this Court is staring at right now is a dual
from mining operations. Section 80 provides: contract - an FTAA which, by mere notice to the
DENR Secretary, immediately becomes an MPSA.
Section 80. Government Share in Mineral The majority opinion agrees that the provisions of the
Production Sharing Agreement. — The total WMCP FTAA, which grant a sham consideration to
government share in a mineral production the State, are void. Since the majority opinion
sharing agreement shall be the excise tax agrees that the WMCP FTAA has a sham
on mineral products as provided in Republic consideration, the WMCP FTAA thus lacks the
Act No. 7729, amending Section 151(a) of the third element of a valid contract. The majority
National Internal Revenue Code, as amended. opinion should declare the WMCP FTAA void for
(Emphasis supplied) want of consideration unless the majority opinion
treats the contract as an MPSA under Section
Section 80 has no ifs or buts. Section 84 even 80. Indeed, the only recourse of WMCP to save the
reiterates Section 80 that "with respect to a mineral validity of its contract is to convert it into an MPSA.
production sharing agreement, the excise tax on
mineral products shall be the government share Thus, with the absence of consideration in the WMCP
under said agreement." There is no ejusdem FTAA, what is actually before this Court is an MPSA.
generis phrase like "among other things" in Section 80 This squarely puts in issue whether an MPSA is
that the majority opinion can cling on to save it from constitutional if the only consideration or payment to
constitutional infirmity. DAO 56-99, the magic wand of the State is the 2% excise tax as provided in Section
the majority opinion, expressly applies only to FTAAs 80 of RA 7942.
and not to MPSAs. By any legal yardstick, even by the
arguments of the majority opinion, Sections 80 and 84 The basic constitutional infirmity of the WMCP FTAA
are void and unconstitutional. is the absence of a fair consideration to the State as
owner of the mineral resources. Petitioners call this
g. Necessity of Resolving Constitutionality of the "inequitable sharing of wealth." The
Sections 39, 80 and 84 constitutionality of the consideration for the WMCP
FTAA cannot be resolved without determining the
The majority opinion states that the constitutionality of validity of both Sections 80 and 81 of RA 7942
Sections 80 and 84 of RA 7942 is not in issue in the because the consideration for the WMCP FTAA is
present case. The majority opinion forgets that anchored on both Sections 80 and 81.
petitioners have assailed the constitutionality of RA
7942 and the WMCP FTAA for violation of Section 2, The majority opinion refuses to face the issue of
Article XII of the 1987 Constitution. Petitioner whether the WMCP contract can validly rely on
specifically assails the "inequitable sharing of Section 80 for its consideration. If this issue is not
wealth" in the WMCP FTAA, which petitioners resolved now, then the WMCP FTAA has no
assert is "contrary to Section 1, paragraph 1, and consideration. The majority opinion admits that the
Section 2, paragraph 4, Article XII of the consideration in the WMCP FTAA granting the State
Constitution." 60% share in the mining revenues is a sham and thus
void ab initio.
Section 9.1 of the WMCP FTAA grants WMCP the
absolute option, by mere notice to the DENR Strangely, the majority opinion claims that the share
Secretary, to convert the FTAA into an MPSA under of the State in the mining revenues is not the
Section 80. The "sharing of wealth" in Section 80 is principal consideration of the FTAA. The majority
"inequitable" and "contrary to x x x Section 2, opinion claims that the principal consideration of the
paragraph 4, Article XII of the Constitution" because FTAA is the "development" of the minerals by the
the State will only collect the 2% excise tax in an foreign contractor. The foreign contractor can bring
MPSA. Such a pittance of a sharing will not make any equipment to the mine site, tunnel the mines, and
"real contributions to the economic growth and construct underground rails to bring the minerals to
general welfare of the country" as required in the surface - in short develop the mines. What will the
paragraph 4, Section 2, Article XII of the 1987 State and the Filipino people benefit from such
Constitution. activities unless they receive a share of the mining
proceeds? After the minerals are exhausted, those
Section 39 of RA 7942 also grants foreign FTAA equipment, tunnels and rails would be dilapidated and
contractors the option, by mere notice to the DENR even obsolete. Besides, those equipment belong to
Secretary, to convert their FTAAs into MPSAs under the foreign contractor even after the expiration of the
Section 80. Necessarily, the constitutionality of the FTAA.
WMCP FTAA must be resolved in conjunction with
Section 80 of RA 7942. Plainly, even a businessman with limited experience
will not agree that the principal consideration in an
The WMCP FTAA is like a coin with two sides, one FTAA, as far as the State and Filipino people are
side is an FTAA, and the other an MPSA. By mere concerned, is the development of the mines. It is
notice to the DENR Secretary, WMCP can convert the obvious why the majority opinion will not accept that
contract from an FTAA to an MPSA, a copy of which, the principal consideration is the share of the State in
complete with all terms and conditions, is the mining proceeds. Otherwise, the majority opinion
annexed to the WMCP FTAA.65 The DENR Secretary will have to admit that the WMCP FTAA lacks the third
88

has no option but to sign the annexed MPSA. There element of a valid contract - the consideration. This
are only two conditions to WMCP's exercise of this will compel the majority opinion to admit that the
Page

option: the reduction of foreign equity in WMCP to WMCP FTAA is void ab initio.
40%, and notice to the DENR Secretary. The first
The only way for the majority opinion to save the This provision grants WMCP the absolute right to
WMCP FTAA from nullity is to treat it as an MPSA extend the first 25-year term of the FTAA to
and thus apply Section 80 of RA 7942. This puts in another 25-year term upon mere lodging of a
issue the constitutionality of Section 80. The majority request or notice to the Philippine
opinion, however, refuses to treat the WMCP FTAA Government. WMCP has the absolute right to extend
as an MPSA. Thus, the WMCP FTAA still lacks a valid the term of the FTAA to 50 years and all that the
consideration. However, the majority opinion insists Government can do is to acquiesce to the wish of
that the WMCP FTAA is valid. WMCP.

If the majority opinion puts the constitutionality of Section 3.3 of the WMCP FTAA is void because it
Section 80 in issue, the majority opinion will have to violates Section 2, Article XII of the 1987 Constitution,
declare Section 80 unconstitutional. The majority the first paragraph of which provides:
opinion agrees that the 1987 Constitution requires the
State to collect "more than the usual taxes, duties and All lands of the public domain, waters,
fees." Section 80 indisputably limits the State to minerals, coal, petroleum, and other mineral
collect only the excise tax and nothing more. oils, all forces of potential energy, fisheries,
forests or timber, wildlife, flora and fauna, and
The equivocal stance of the majority opinion will not other natural resources are owned by the
put an end to this litigation. Once WMCP converts its State. With the exception of agricultural lands,
FTAA into an MPSA to avoid paying "more than the all other natural resources shall not be
usual taxes, duties and fees," petitioners will alienated. The exploration, development, and
immediately question the validity of WMCP's MPSA utilization of natural resources shall be under
as well as the constitutionality of Section 80. The case the full control and supervision of the State.
will end up again in this Court on the same issue of The State may directly undertake such
whether there is a valid consideration for such MPSA, activities, or it may enter into co-production,
which necessarily involves a determination of the joint venture, or production-sharing
constitutionality of Section 80. Clearly, this Court has agreements with Filipino citizens, or
no recourse but to decide now the constitutionality of corporations or associations at least sixty per
Section 80. centum of whose capital is owned by such
citizens. Such agreements may be for a
As the Solicitor General reported in his Compliance period not exceeding twenty-five years,
dated 20 October 2004, the DENR has signed five renewable for not more than twenty-five
MPSAs with different parties.66 These five MPSAs years, and under such terms and
uniformly contain the following provision: conditions as may be provided by law. In
cases of water rights for irrigation, water
Share of the Government - The supply, fisheries, or industrial uses other than
Government Share shall be the excise tax the development of water power, beneficial
on mineral products at the time of removal use may be the measure and limit of the
and at the rate provided for in Republic Act grant. (Emphasis supplied)
No. 7729 amending Section 151(a) of the
National Internal Revenue Code, as The majority opinion, however, makes the startling
amended, as well as other taxes, duties, assertion that FTAAs are not covered by the term
and fees levied by existing laws. (Emphasis limit under Section 2, Article XII of the 1987
supplied) Constitution. The majority opinion states:

If the constitutionality of Section 80 is not resolved I believe that the constitutional term limits
now, these five MPSAs, including the WMCP FTAA do not apply to FTAAs. The reason is that
once converted into an MPSA, will remain in limbo. the above provision is found within
There will be no implementation of these MPSAs until paragraph 1 of Section 2 of Article XII,
the Court finally resolves this constitutional issue. which refers to mineral agreements – co-
production agreements, joint venture
Even if evaded now, the constitutionality of Section 80 agreements and mineral production sharing
will certainly resurface, resulting in a repeat of this agreements - which the government may
litigation, most probably even between the same enter into with Filipino citizens and
parties. To avoid unnecessary delay, this Court must corporations, at least 60 percent owned by
rule now on the constitutionality of Section 80 of RA Filipino citizens. (Emphasis supplied)
7942.
If the term limit does not apply to FTAAs because the
2. The Constitutional Term Limit Applies to FTAAs term limit is found in the first paragraph of Section 2,
then the other limitations in the same first paragraph
of Section 2 do not also apply to FTAAs. These
Section 3.3 of the WMCP FTAA provides a fixed
limitations are three: first, that the State owns the
contract term of 50 years at the option of WMCP.
natural resources; second, except for agricultural
Thus, Section 3.3 provides:
lands, natural resources shall not be alienated; third,
the State shall exercise full control and supervision in
This Agreement shall be renewed by the the exploitation of natural resources. Under the
Government for a further period of twenty- majority opinion's interpretation, these three
five (25) years under the same terms and limitations will no longer apply to FTAAs, leading
conditions provided that the Contractor to patently absurd results. The majority opinion will
lodges a request for a renewal with the also contradict its own admission that even in FTAAs
Government not less than sixty (60) days prior the State must exercise full control and
to the expiry of the initial term of this supervision in the exploitation of natural resources.
89

Agreement and provided that the Contractor is

not in breach of any of the requirements of
Page

this Agreement. (Emphasis supplied)

Section 2, Article XII of the 1987 Constitution is 4. Other limitations
a consolidation of Sections 8 and 9, Article XIV of
the 1973 Constitution, which state: Agreements for the exploitation of the
natural resources can have a life of only
Section 8. All lands of public domain, waters, twenty-five years. This twenty-five year limit
minerals, coal, petroleum and other mineral dates back to the 1935 Constitution and is
oils, all forces of potential energy, fisheries, considered to be a "reasonable time to attract
wildlife, and other natural resources of the capital, local and foreign, and to enable them
Philippines belong to the State. With the to recover their investment and make a profit.
exception of agricultural, industrial or The twenty-five year limit on the exploitation of
commercial, residential, or resettlement lands natural resources is not applicable to "water
of the public domain, natural resources shall rights for irrigation, water supply, fisheries, or
not be alienated, and no license, concession, industrial uses other than the development of
or lease for the exploration, or utilization of water power." In these cases, "beneficial use
any of the natural resources shall be granted may be the measure and the limit of the
for a period exceeding twenty-five years, grant." But in the case of water rights for water
except as to water rights for irrigation, water power, the twenty-five year limit is
supply, fisheries, or industrial uses other than applicable."67 (Emphasis supplied)
development of water power, in which cases,
beneficial use may be the measure and the The 1935, 1973 and 1987 Constitutions all limit the
limit of the grant. exploitation of natural resources to 25-year terms.
They also limit franchises for public utilities, leases of
Section 9. The disposition, exploration, alienable lands of public domain, and water rights for
development, exploitation, or utilization of any power development to 25-year terms. If a different
of the natural resources of the Philippines term is intended, the Constitution expressly says so
shall be limited to citizens of the Philippines, as in water rights for uses other than power
or to corporations or associations at least sixty development. Under the 1973 and 1987 Constitutions,
per centum of the capital which is owned by there is no separate term for FTAAs other than the
such citizens. The Batasang Pambansa, in the 25-year term for the exploitation of natural resources.
national interest, may allow such citizens,
corporations or associations to enter into The WMCP FTAA draws life from Executive Order
service contracts for financial, technical, No. 279 issued on 25 July 1987 by then President
management, or other forms of assistance Corazon C. Aquino when she still exercised legislative
with any foreign person or entity for the powers. Section 1.1 of the WMCP FTAA expressly
exploration, or utilization of any of the natural states, "This Agreement is a Financial & Technical
resources. Existing valid and binding service Assistance Agreement entered into pursuant to
contracts for financial, technical, Executive Order No. 279." Section 7 of Executive
management, or other forms of assistance are Order No. 279 provides:
hereby recognized as such.
Section 7. All provisions of Presidential
Section 9, Article XIV of the 1973 Constitution, a one- Decree No. 463, as amended, other existing
paragraph section, contained the provision mining laws, and their implementing rules and
reserving the exploration, development and regulations, or parts thereof, which are not
utilization of natural resources to Philippine inconsistent with the provisions of this
citizens or corporations 60% Filipino owned as Executive Order, shall continue in force and
well as the provision on FTAAs. The provision on effect. (Emphasis supplied)
the 25-year term limit was found in the preceding
Section 8 of Article XIV. If the 25-year term limit under Section 40 of Presidential Decree No. 463 ("PD 463"),
the 1973 Constitution did not apply to FTAAs, then it as amended by Presidential Decree No. 1385,
should not also have applied to non-FTAA mining provides:
contracts, an interpretation that is obviously wrong.
Thus, the term limit in Section 8, Article XIV of the
Section 40. Issuance of Mining Lease
1973 Constitution necessarily applied to both non-
Contracts - x x x After the mining claim has
FTAA mining contracts and FTAAs in Section 9.
been verified as to its mineral contents and its
actual location on the ground as determined
What the framers of the 1987 Constitution did was to through reports submitted to the Director, the
consolidate Sections 8 and 9, Article XIV of the 1973 Secretary shall approve and issue the
Constitution into one section, the present Section 2, corresponding mining lease contract,
Article XII of the 1987 Constitution. The consolidation which shall be for a period not exceeding
necessitated re-arranging the sentences and twenty-five (25) years, renewable upon the
paragraphs without any intention of destroying their expiration thereof for another period not
unity and coherence. Certainly, the consolidation did exceeding twenty-five (25) years under
not mean that the FTAAs are no longer subject to the such terms and conditions as provided by
25-year term limit. If anything, the consolidation law. (Emphasis supplied)
merely strengthened the need, following the rules of
statutory construction, to read and interpret together
Thus, at the time of execution of the WMCP FTAA,
all the paragraphs, and even the sentences, of
statutory law limited the term of all mining contracts to
Section 2, Article XII of the 1987 Constitution.
25-year terms. PD 463 merely implemented the
mandate of the 1973 Constitution on the 25-year term
In his book The 1987 Constitution of the Republic limit, which is the same 25-year term limit in the 1987
of the Philippines: A Commentary, Father Joaquin Constitution. Under Section 7 of Executive Order
G. Bernas, S.J., who was a leading member of the
90

No. 279, Section 40 of PD 463 limiting mining

1986 Constitutional Commission, discussed contracts to a 25-year term applies to the WMCP
Page

the limitations on the exploitation of natural FTAA. Therefore, Section 3.3 of the WMCP FTAA
resources. Father Bernas states: providing for a 50-year term is void.
Then President Aquino also issued Executive Order agreements granted under Executive Order
No. 211 on 10 July 1987, a bare 17 days before No. 279, at the date of effectivity of this
issuing Executive Order No. 279. Section 3 of Act, shall remain valid, shall not be impaired,
Executive Order No. 211 states: and shall be recognized by the
Government: Provided, That the provisions
Section 3. The processing, evaluation and of Chapter XIV on government share in
approval of all mining applications, mineral production-sharing agreement and
declarations of locations, operating of Chapter XVI on incentives of this
agreements and service contracts as provided Act shall immediately govern and apply to
for in Section 2 above, shall be governed by a mining lessee or contractor unless the
Presidential Decree No. 463, as amended, mining lessee or contractor indicates his
other existing mining laws, and their intention to the secretary, in writing, not to
implementing rules and avail of said provisions: Provided, further, That
regulations: Provided, However, that the no renewal of mining lease contracts shall be
privileges granted as well as the terms and made after the expiration of its term: Provided,
conditions thereof shall be subject to any finally, That such leases, production-sharing
and all modifications or alterations which agreements, financial or technical assistance
Congress may adopt pursuant to Section agreements shall comply with the applicable
2, Article XII of the 1987 provisions of this Act and its implementing
Constitution. (Emphasis supplied) rules and regulations. (Emphasis supplied)

Section 3 of Executive Order No. 211 applies to the Section 112 "immediately" applies the fiscal regime
WMCP FTAA which was executed on 22 March 1995, under Section 80 on "mineral production sharing
more than seven years after the issuance of agreement" to "all valid and existing mining" contracts,
Executive Order No. 211. Subsequently, Congress including those "granted under Executive Order No.
enacted RA 7942 to prescribe new terms and 279." If Section 112 applies to the WMCP FTAA,
conditions for all mineral agreements. RA 7942 took then the WMCP FTAA is subject only to the 2%
effect on 9 April 1995. excise tax under Section 80 as the "total share" of
the Philippine Government.
RA 7942 governs the WMCP FTAA because
Executive Order No. 211 expressly makes mining The majority opinion states, "Whether Section 112
agreements like the WMCP FTAA subject to "any may properly apply to co-production or joint
and all modifications or alterations which venture agreements, the fact of the matter is
Congress may adopt pursuant to Section 2, that it cannot be made to apply to FTAAs." This
Article XII of the 1987 Constitution." Section 38 of position of the majority opinion is understandable. If
RA 7942 provides for a 25-year term limit specifically Section 112 applies to FTAAs, the majority opinion
for FTAAs, thus: would have to rule on the constitutionality of Section
80 of RA 7942. The majority opinion already agrees
Section 38. Term of Financial or Technical that the 1987 Constitution requires the FTAA
Assistance Agreement. — A financial or contractor to pay the State "more than the usual
technical assistance agreement shall have taxes, duties and fees." If Section 112 applies to
a term not exceeding twenty-five (25) years FTAAs, the majority opinion would have no choice but
to start from the execution thereof, declare unconstitutional Section 80.
renewable for not more than twenty-five
(25) years under such terms and Thus, the majority opinion insists that Section 112
conditions as may be provided by "cannot be made to apply to FTAAs." This insistence
law. (Emphasis supplied) of the majority opinion collides with the very clear
and plain language of Section 112 of RA 7942 and
Thus, the 25-year term limit specifically for FTAAs in Section 1.1 of the WMCP FTAA. This insistence of
Section 38 of RA 7942 applies to the WMCP FTAA. the majority opinion will lead to absurd results.
Again, Section 3.3 of the WMCP FTAA providing for a
50-year term is void. First, Section 112 of RA 7942 speaks of "all valid
and existing mining" contracts. The phrase "all
What is clear from the foregoing is that the 25-year valid and existing mining" contracts means
statutory term limit on mining contracts is merely an the entire or total mining contracts in existence "at
implementation of the 25-year constitutional term limit, the date of effectivity" of RA 7942 without
whether under the 1935, 1973 or 1987 Constitutions. exception. The word "all" negates any exception.
The majority opinion's assertion that the 25-year term This certainly includes the WMCP FTAA, unless the
in the first paragraph of Section 2, Article XII of the majority opinion concedes that the WMCP FTAA is
1987 Constitutions does not apply to FTAAs is not a mining contract, or if it is, that it is not a valid
obviously wrong. contract.

3. Section 112 of RA 7942 Applies to the WMCP Second, the last proviso of Section 112 itself
FTAA expressly states that "financial or technical
assistance agreements shall comply with the
applicable provisions of this Act and its
The majority opinion insists that Section 112 of RA
implementing rules and regulations." There is no
7942 does not apply to the WMCP FTAA. Section 112
shadow of doubt whatsoever that Section 112, by its
provides:
own plain, clear and indisputable language,
commands that FTAAs shall comply with RA 7942. I
Section 112. Non-impairment of Existing truly cannot fathom how the majority opinion can
Mining/Quarrying Rights. — All valid and assert that Section 112 cannot apply to FTAAs.
91

existing mining lease contracts,

permits/licenses, leases pending renewal,
Page

Third, Section 112 expressly refers to Chapters XIV

mineral production-sharing
and XVI of RA 7942. Chapter XIV refers to the
"Government Share" and covers Sections 80, 81 and There are no ifs or buts in Section 112. The plain,
82 of RA 7942. Section 81, as the majority opinion simple and clear language of Section 112 makes
concedes, applies to FTAAs. Chapter XVI refers to FTAAs, like the WMCP FTAA, subject to Section 112.
"Incentives" and covers Section 90 to 94 of RA 7942. We repeat the express words of Section 112 -
Section 90 states that the "contractors in mineral
agreements, and financial technical and assistance (1) "All valid and existing mining lease
agreements shall be entitled to the fiscal and non- contracts x x x mineral production-sharing
fiscal incentives as provided under Executive Order agreements granted under Executive Order
No. 226 x x x." Clearly, Section 112 applies to FTAAs. No. 279, at the date of effectivity of this Act
x x x."
Fourth, Section 1.1 of the WMCP FTAA expressly
states, "This Agreement is a Financial & Technical (2) the "x x x government share in mineral
Assistance Agreement entered into pursuant to production- sharing agreement x x x
Executive Order No. 279." Section 112 states in shall immediately govern and apply to a
unequivocal language that "all valid and existing" mining lessee or contractor x x x."
agreements "granted under Executive Order No.
279" are immediately placed under the fiscal regime (3) "financial or technical assistance
of MPSAs. In short, mining agreements granted under agreements shall comply with the
Executive Order No. 279 are expressly among the applicable provisions of this Act and its
agreements included in Section 112 and placed implementing rules and regulations."
under the fiscal regime prescribed in Section 80.
There is no doubt whatsoever that Section 112
With such clear and unequivocal language, how can
applies to the WMCP FTAA which was "entered into
the majority opinion blithely state that Section
pursuant to Executive Order No. 279."
112 "cannot be made to apply to FTAAs"? It defies
common sense, simple logic and plain English to
Fifth, Section 3 of Executive Order No. 211 expressly assert that Section 112 does not apply to FTAAs. It
subjects all mining contracts executed by the defies the fundamental rule of statutory construction
Executive Department to the terms and conditions of as repeated again and again in jurisprudence:
new mining laws that Congress might enact in the
future. Thus, Section 3 of Executive Order No. 211
Time and time again, it has been repeatedly
states:
declared by this Court that where the law
speaks in clear and categorical language,
Section 3. The processing, evaluation and there is no room for interpretation. There is
approval of all mining applications, only room for application.68
declarations of locations, operating
agreements and service contracts as provided
For nothing is better settled than that the first
for in Section 2 above, shall be governed by
and fundamental duty of courts is to apply the
Presidential Decree No. 463, as amended,
law as they find it, not as they like it to be.
other existing mining laws, and their
Fidelity to such a task precludes construction
implementing rules and
or interpretation, unless application is
regulations: Provided, However, that the
impossible or inadequate without it.69
privileges granted as well as the terms and
conditions thereof shall be subject to any
and all modifications or alterations which Where the law is clear and unambiguous, it
Congress may adopt pursuant to Section must be taken to mean exactly what it says
2, Article XII of the 1987 and the court has no choice but to see to it
Constitution. (Emphasis supplied) that its mandate is obeyed.70

There is no dispute that Executive Order No. 211, If Section 112 of RA 7942 does not apply to FTAAs
issued prior to the execution of the WMCP FTAA, as the majority opinion asserts, what will govern
applies to the WMCP FTAA. There is also no dispute FTAAs executed before the enactment of RA 7942,
that RA 7942 took effect after the issuance of like the WMCP FTAA? Section 112 expressly
Executive Order No. 211 and after the execution of addresses FTAAs executed before the enactment of
the WMCP FTAA. Therefore, Section 112 of RA 7942 RA 7942, requiring these earlier FTAAs to comply
applies specifically to the WMCP FTAA. with the provisions of RA 7942 and its implementing
rules. Executive Order No. 211, issued seven years
before the execution of the WMCP FTAA, requires all
Indeed, it is plain to see why Section 112 of RA 7942
FTAAs subsequently executed to comply with the
applies to FTAAs, like the WMCP FTAA, that were
terms and conditions of any future mining law that
executed prior to the enactment of RA 7942. Section
Congress may enact. That law is RA 7942 which took
112 is found in Chapter XX of RA 7942 on "Transitory
effect after the execution of the WMCP FTAA.
and Miscellaneous Provisions." The title of Section
112 refers to the "[N]on-impairment of Existing Mining
Quarrying Rights." RA 7942 is the general law The majority opinion allows the WMCP FTAA to
governing all kinds of mineral agreements, including become sui generis, an FTAA outside the scope of
FTAAs. In fact, Chapter VI of RA 7942, covering RA 7942 which expressly governs "all" mining
nine sections, deals exclusively on FTAAs. The agreements, whether MPSAs or FTAAs. This means
fiscal regime in FTAAs executed prior to the that the WMCP FTAA is not even governed by
enactment of RA 7942 may differ from the fiscal Section 81 of RA 7942 and its phrase "among other
regime prescribed in RA 7942. Hence, Section 112 things," which the majority opinion claims is the
provides the transitory provisions to resolve authority to subject the WMCP FTAA to the payment
differences in the fiscal regimes, ostensibly to avoid of consideration that is "more than the usual taxes,
impairment of contract obligations. Clearly, Section duties and fees."
92

112 applies to FTAAs.

This makes the majority opinion's position self-
Page

contradictory and inutile. The majority opinion claims

that the WMCP FTAA is subject to the phrase "among x of natural resources." This violates Section 2,
other things" in Section 81. At the same time, the Article XII of the 1987 Constitution.
majority opinion asserts that Section 112, which
requires earlier FTAAs to comply with Section 81 and Consequently, Section 3(aq) of RA 7942, which
other provisions of RA 7942, does not apply to the provides that "a legally organized foreign-owned
WMCP FTAA. The majority opinion is caught in a web corporation shall be deemed a qualified person for
of self-contradictions. purposes of granting an exploration permit," is void
and unconstitutional.
This exemption by the majority opinion of the
WMCP FTAA from Section 112 is judicial class However, the State may directly undertake to
legislation. Why is the WMCP FTAA so special that explore, develop and utilize the natural resources. To
the majority opinion wants it exempted from Section do this the State may contract a foreign corporation to
112 of RA 7942? Why are only "all" other FTAAs conduct the physical act of exploration in the
subject to the terms and conditions of RA 7942 and State's behalf, as in an FTAA. In such a case, the
not the WMCP FTAA? foreign FTAA contractor is merely an agent of the
State which holds the right to explore. No exploration
4. Foreign Corporations and Contractors Cannot permit is given to the foreign contractor because it is
Hold Exploration Permits the State that is directly undertaking the exploration,
development and utilization of the natural resources.
The majority opinion states that "there is no
prohibition at all against foreign or local The requirement reserving "exploration x x x of
corporations or contractors holding exploration natural resources" to Philippine citizens or to
permits." This is another assertion of the majority corporations 60% Filipino owned is not a matter of
opinion that directly collides with the plain language of constitutional whim. The State cannot allow foreign
the 1987 Constitution. corporations, except as contractual agents under the
full control and supervision of the State, to explore our
Section 2, Article XII of the 1987 Constitution natural resources because information derived from
expressly reserves to Philippine citizens and such exploration may have national security
corporations 60% Filipino owned the "exploration, implications.
development and utilization of natural
resources." The majority opinion rationalizes its If a Chinese company from the People's Republic of
assertion in this manner: China is allowed to explore for oil and gas in the
Spratlys, the technical information obtained by the
Pursuant to Section 20 of RA 7942, an Chinese company may only bolster the resolve of the
exploration permit merely grants to a Chinese Government to hold on to their occupied
qualified person the right to conduct reefs in the Spratlys despite these reefs being within
exploration for minerals in specified the Exclusive Economic Zone of the Philippines.
areas. Such a permit does not amount to Certainly, we cannot expect the Chinese company to
an authorization to extract and carry off disclose to the Philippine Government the important
the mineral resources that may be technical data obtained from such exploration.
discovered. x x x. (Italics in original)
In Africa, foreign mining companies who have
The issue is not whether an exploration permit allows explored the mineral resources of certain countries
a foreign contractor or corporation to extract mineral shift their support back and forth between government
resources, for apparently by its language alone a and rebel forces depending on who can give them
mere exploration permit does not. There is no dispute better terms in exploiting the mineral resources.
that an exploration permit merely means authority to Technical data obtained from mineral exploration
explore, not to extract. The issue is whether the have triggered or fueled wars and rebellions in many
issuance of an exploration permit to a foreign countries. The right to explore mineral resources is
contractor violates the constitutional limitation that not a trivial matter as the majority opinion would want
only Philippine citizens or corporations 60% Filipino us to believe.
owned can engage in the "exploration x x x of
natural resources." Even if the foreign companies come from countries
with no territorial dispute with the Philippines, can we
The plain language of Section 2, Article XII of the expect them to disclose fully to the Philippine
1987 Constitution clearly limits to Philippine citizens or Government all the technical data they obtain on our
to corporations 60% Filipino owned the right to mineral resources? These foreign companies know
engage in the "exploration x x x of natural that the Philippine Government will use the very same
resources." To engage in "exploration" is simply data in negotiating from them a higher share of the
to explore, not to develop, utilize or extract. To mining revenues. Why will the foreign companies give
engage in exploration one must secure to the Philippine Government technical data justifying
an exploration permit. The mere issuance of the a higher share for the Philippine Government and a
exploration permit is the authority to engage in the lower share for the foreign companies? The framers
exploration of natural resources. of the 1935, 1973 and 1986 Constitutions were
acutely aware of this problem. That is why the 1987
This activity of exploration, which requires Constitution not only reserves the "exploration x x x
an exploration permit, is a reserved activity not of natural resources" to Philippine citizens and to
allowed to foreign contractors or foreign corporations. corporations 60% Filipino owned, it also now requires
Foreign contractors and foreign corporations cannot the State to exercise "full control and
secure exploration permits because they cannot supervision" over the "exploration x xx of natural
engage in the exploration of natural resources. If, as resources."
93

the majority opinion asserts, foreign contractors or

foreign corporations can secure and hold exploration 5. The State is Entitled to 60% Share in the Net
Page

permits, then they can engage in the "exploration x x Mining Revenues

The majority opinion claims that the Constitution does majority opinion insists that such sharing is not fair
not require that the State's share in FTAAs or other and reasonable to the mining industry "under most if
mineral agreements should be at least 60% of the net not all circumstances." What is the basis of the
mining revenues. Thus, the majority opinion states majority opinion in saying this when the entire mining
that "the Charter did not intend to fix an iron-clad industry already admits, concedes and accepts that
rule on the 60 percent share, applicable to all the State is entitled, without exception, to 60% of the
situations at all times and in all circumstances." net mining revenues?

The majority opinion makes this claim despite Oddly, the majority opinion cites only the personal
the express admission by intervenor CMP and experience of the ponente, who had previously "been
respondent WMCP that the State, as owner of the engaged in private business for many years." The
natural resources, is entitled to 60% of the net mining majority opinion even states, in insisting that the State
revenues. The intervenor CMP admits that under an should receive less than 60% share, that "[F]airness
FTAA, the Philippine Government "stands in the is a credo not only in law, but also in business."
place of the 60% Filipino owned company" and The majority opinion cannot be more popish than
hence must retain 60% of the net income. Thus, the Pope. The majority opinion ponente's business
intervenor CMP concedes that: judgment cannot supplant the unanimous business
judgment of the entire mining industry, as manifested
x x x In other words, in the FTAA situation, by intervenor CMP before this Court. What is obvious
the Government stands in the place of the is that it is not fair to deprive the Filipino people, many
60% Filipino-owned company, and the of whom live in hand to mouth existence, of what is
100% foreign-owned contractor company legally their share of the national patrimony, in light of
takes all the risks of failure to find a the willingness of the entire mining industry to pay the
commercially viable large-scale ore body or oil Filipino people their rightful share.
deposit, for which the contractor will get
40% of the financial benefits. 71 (Emphasis The majority opinion gives a "simplified illustration" to
supplied) show that the State does not deserve a 60% share of
the net proceeds from mining revenues. The majority
As applied to the WMCP FTAA, intervenor CMP opinion states:
asserts that the "contractor's stipulated share
under the WMCP FTAA is limited to a maximum of x x x Let us base it on gross revenues of,
40% of the net production."72 Intervenor CMP further say, P500. After deducting operating
insists that "60% of its (contractor's) net returns expenses, but prior to income tax, suppose a
from mining, if any, will go to the Government mining makes a taxable income of P100. A
under the WMCP FTAA."73 corporate income tax of 32 percent results
in P32 of taxable income going to the
Like intervenor CMP, respondent WMCP also government, leaving the mining firm with P68.
maintains that under an FTAA, the State Government then takes 60 percent thereof,
is "guaranteed" a 60% share of the foreign equivalent to P40.80, leaving only P27.20 for
contractor's Net Mining Revenues. Respondent the mining firm.
WMCP admits that:
The majority opinion's "simplified illustration" is indeed
In other words, the State is guaranteed a too simplified because it does not even consider the
sixty per centum (60%) share of the Mining exploration, development and capital expenses. The
Revenues, or 60% of the actual  fruits of majority opinion's "simplified illustration" deducts from
the endeavor. This is in line with the intent gross revenues only "operating expenses." This is an
behind Section 2 of Article XII that the egregious error that makes this "simplified illustration"
Filipino people, as represented by the misleading. Exploration, development and other
State, benefit primarily from the capital expenses constitute a huge part of the
exploration, development, and utilization deductions from gross revenues. In the early years of
of the Philippines' natural resources. commercial production, the exploration, development
and capital expenses, if not subject to a cap or
Incidentally, this sharing ratio between the limitation, can wipe out the gross revenues.
Philippine Government and the Contractor
is also in accordance with the 60%-40% The majority opinion's operating expenses are not
equity requirement for Filipino-owned even taken from mining industry rates. One can even
corporations in Paragraph 1 of Section 2 of zero out the taxable income by simply jacking up the
Article XII.74 (Emphasis supplied) operating expenses. A "simplified illustration" of an
income statement of an operating mining company,
In short, the entire mining industry, as represented omitting the deduction of amortized capital expenses,
by intervenor CMP, is willing to pay the State a share serves no purpose whatsoever. What is important is
equivalent to 60% of the net mining revenues. Even the return on the investment of the foreign contractor.
the foreign contractor WMCP agrees to pay the State The absolute amount that goes to the contractor may
60% of its net mining revenues, albeit dishonestly. be smaller than what goes to the State. However, the
amount that goes to the contractor may be a hundred
times its investment. This can only be determined if
However, the majority opinion refuses to accept that
the capital expenditures of the contractor are taken
the State is entitled to what the entire mining industry
into account.
is willing to pay the State. Incredibly, the majority
opinion claims that "there is no independent
showing that the taking of at least 60 percent Under an FTAA, the State is directly undertaking the
share in the after-tax income of a mining company exploitation of mineral resources. The net proceeds
94

operated by a foreign contractor is fair and are not subject to income tax since there is no
reasonable under most if not all circumstances." separate taxable entity. The State is an entity but not
Page

Despite the willingness of the entire mining industry to a taxable corporate entity. The State does not pay
pay the State a 60% share without exception, the 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 equity of mining companies, "full control" cannot
time. Only the 40% share of the FTAA contractor is exceed the control corresponding to the State's 60%
subject to the 32% corporate income tax. On this equity. Thus, the State's share in the net proceeds of
score alone, the majority opinion's "simplified mining companies should correspond to its 60%
illustration" is wrong. interest and control in mining companies.

Intervenor CMP and respondent WMCP are correct in Third, Section 2, Article XII of the 1987 Constitution
anchoring on Section 2, Article XII of the 1987 requires that the FTAA must make "real
Constitution their admission that the State is entitled contributions to the economic growth and general
to 60% of the net mining revenues. Their common welfare of the country." As respondent WMCP aptly
position is based on the Constitution, existing laws admits, "the intent behind Section 2 of Article XII
and industry practice. (is) that the Filipino people, as represented by the
State, (shall) benefit primarily from the
First, the State owns the mineral resources. To the exploration, development, and utilization of the
owner of the mineral resources belongs the income Philippines' natural resources." For the Filipino
from any exploitation of the mineral resources. The people to benefit primarily from the exploitation of
owner may share its income with the contractor as natural resources, and for FTAAs to make real
compensation to the contractor, which is an agent of contributions to the national economy, the majority
the owner. The industry practice is the owner receives of the net proceeds from mining operations must
an equal or larger share of the income as against the accrue to the State.
share of the contractor or agent.
Fourth, the 1987 Constitution ordains the State
In the Occidental-Shell FTAA covering Malampaya, to "conserve and develop our patrimony." The
where the contractor contributed all the capital and nation's mineral resources are part of our national
technology, the State receives 60% of the net patrimony. The State can "conserve" our mineral
proceeds. In addition, Occidental-Shell's 40% share is resources only if the majority of the net proceeds from
subject to the 32% Philippine income tax. Occidental- the exploitation of mineral resources accrue to the
Shell's US$2 billion investment75 in Malampaya is by State.
far the single biggest foreign investment in the
Philippines. The offshore Malampaya gas extraction is In sum, only the majority opinion refuses to accept
also by far more capital intensive and riskier than that the State has a right to receive at least 60% of
land-based mineral extraction. Over the 20-year life of the net proceeds from mining operations. The
the natural gas reserves, the State will receive US$8- principal parties involved in this case do not object
10 billion76 from its share in the Occidental-Shell that the State shall receive such share. The entire
FTAA. mining industry and respondent WMCP admit that the
State is entitled to a 60% share of the net proceeds.
In Consolidated Mines, Inc. v. Court of Tax The State, represented by the Government, will
Appeals,77 a case decided under the 1973 certainly not object to such share.
Constitution, Consolidated Mines, the concessionaire
of the mines, shared equally the net mining income More than anything else, the intent and language of
with Benguet Consolidated Mines, the mining the 1987 Constitution require that the State receive
operator or contractor. Thus, as quoted the bulk of the income from mining operations. Only
in Consolidated Mines, the agreement between the Congress, through a law, may allow a share lesser
concessionaire and operator stated: than 60% if certain compelling conditions are
present. Congress may authorize the President to
X. After Benguet has been fully reimbursed for make such determination subject to standards and
its expenditures, advances and disbursements limitations that Congress shall prescribe.
as aforesaid the net profits from the operation
shall be divided between Benguet and The majority opinion wants to give the President the
Consolidated share and share alike, it being absolute discretion to determine the State's share
understood however, that the net profits as from mining revenues. The President will be hard put
the term is used in this agreement shall be accepting anything less than 60% of the net proceeds.
computed by deducting from gross income all If the President accepts less than 60%, the President
operating expenses and all disbursements of is open to a charge of entering into a manifestly and
any nature whatsoever as may be made in grossly disadvantageous contract to the Government
order to carry out the terms of this agreement. because the entire mining industry, including WMCP,
(Emphasis supplied) has already agreed to pay 60% of the net proceeds to
the State. The only way to avoid this is for Congress
Incidentally, in Consolidated Mines the State did not to enact a law providing for the conditions when the
receive any share in the net mining income because State may receive less than 60% of the net proceeds.
of the "license, concession or lease" system under the
1935 and 1973 Constitutions. The State and the Conclusion
Filipino people received only taxes, duties and fees.
Let us assume that one of the Justices of this Court is
Second, the State exercises "full control and the owner of mineral resources – say gold reserves. A
supervision" over the exploitation of mineral foreigner offers to extract the gold and pay for all
resources. "Full control" as used in the Constitution development, capital and operating expenses. How
means more than ordinary majority control. In much will the good Justice demand as his or her
corporate practice, ordinary control of a corporation share of the gold extracted by the foreigner? If the
means a simple majority control, or at least 50% plus Justice follows the Malampaya precedent, he or she
one of the total voting stock. In contrast, full or total will demand a 60% share of the net proceeds. If the
95

control means two-thirds of the voting stock, which Justice follows the manifestation of intervenor CMP
enables the owner of the two-thirds equity to amend and respondent WMCP before this Court, he or she
Page

any provision in the charter of the corporation. will also demand a 60% share in the net proceeds. If
However, since foreigners can own up to 40% of the the Justice follows the Consolidated
Mines precedent, he or she will demand no less than this Court has protected the national interest as
50% of the net proceeds. In either case, the 2% mandated by the 1987 Constitution.
excise tax on the gold extracted is part of the
operating expenses to be paid by the foreigner but I therefore vote to deny the motions for
deducted from the gross proceeds. reconsideration. I vote to declare unconstitutional
Section 3(aq), Section 39, Section 80, the second
Now, under the Regalian doctrine the State, not the paragraph of Section 81, the proviso in Section 84,
Justice, owns the gold reserves. How much should and the first proviso in Section 112 of RA 7942 for
the State demand from the foreigner as the State's violation of Section 2, Article XII of the 1987
share of the gold that is extracted? If we follow Constitution. In issuing the rules to implement these
Sections 39, 80, 81, 84 and 112 of RA 7942, the void provisions of RA 7942, DENR Secretary Victor O.
State will receive only 2% excise tax as its "total Ramos gravely abused his discretion amounting to
share" from the gold that is extracted. lack or excess of jurisdiction.

Is this fair to the State and the Filipino people, many I also vote to declare unconstitutional the present
of whom live below the poverty line? Is this what the WMCP FTAA for violation of the same Section 2,
1987 Constitution mandates when it says that (a) the Article XII of the 1987 Constitution. However, WMCP
State must conserve and develop the nation's may negotiate with the Philippine Government for a
patrimony, (b) the State owns all the natural new mineral agreement covering the same area
resources, (c) the State must exercise full control and consistent with this Decision.
supervision over the exploitation of its natural
resources, and (d) FTAAs must make real
contributions to the national economy and the general
welfare?
DISSENTING OPINION
How this Court decides the present case will
determine largely whether our country will remain CARPIO MORALES, J.:
poor, or whether we can progress as a nation. Based
on NEDA's estimates, the total mineral wealth of the
nation is P47 trillion, or US$840 billion. This is 15 Regrettably, a majority of the members of this Court
times more than our US$56 billion foreign debt. Can has voted to reverse its January 27, 2004 Decision
this Court in conscience agree that the State will in La Bugal-B'Laan Tribal Association, Inc. v.
receive only 2% of the P47 trillion mineral wealth Ramos1 by which it declared certain provisions2 of the
of the nation? Mining Act of 19953 on Financial or Technical
Assistance Agreements (FTAAs), the related
provisions of Department of Environment and Natural
In Miners Association, this Court ruled that the 1987 Resources Administrative Order 96-40 (DAO No. 96-
Constitution has abandoned the old system of 40), and the March 22, 1995 Financial and Technical
"license, concession or lease" and instead installed Assistance Agreement (FTAA) executed between the
full State control and supervision over the exploitation Government of the Republic of the Philippines and
of natural resources. No amount of dire warnings or WMC Philippines, Inc. (WMCP) in violation of Section
media publicity should intimidate this Court into 2, Article XII of the Constitution.
resurrecting the old and discredited system that has
caused the denudation of almost all of the nation's
virgin forests without any visible benefit to the Filipino Because I find that: (1) the "agreements … involving
people. either technical or financial assistance" contemplated
by the fourth paragraph of Section 2, Article XII of the
1987 Constitution are distinct and dissimilar from the
The framers of the 1987 Constitution have wisely "service contracts" under the 1973 Constitution; and
instituted the new system to prevent a repeat of the (2) these certain provisions of the Mining Act, its
denudation of our forestlands that did not even make implementing rules, and the WMCP FTAA
any real contribution to the economic growth of the unconstitutionally convey beneficial ownership and
nation. This Court must do its solemn duty to uphold control over Philippine mineral and petroleum
the intent and letter of the Constitution and, in the resources to foreign contractors, I most respectfully
words of the Preamble of the 1987 Constitution, dissent.
"conserve and develop our patrimony" for the benefit
of the Filipino people.
Antecedents
This Court cannot trivialize the Filipino people's right
to be the primary beneficiary of the nation's mineral By motion, private respondent WMCP seeks a
resources by ruling that the phrase "among other reconsideration of this Court's Decision, it arguing
things" is sufficient to insure that FTAAs will "make essentially that FTAAs are the same as service
real contributions to the economic growth and contracts which were sanctioned under the 1973
general welfare of the country." This Court cannot Constitution.
tell the Filipino people that the phrase "among other
things" is sufficient to "preserve and develop the By Resolution of June 22, 2004, this Court, upon
national patrimony." This Court cannot tell the motion,4 impleaded Philippine Chamber of Mines
Filipino people that the phrase "among other things" (PCM), as respondent-in-intervention. Intervenor PCM
means that they will receive the bulk of mining argues that the "agreements" referred to in paragraph
revenues. 4 of Section 2, Article XII of the Constitution were
intended to involve or include the "service contracts"
This Court cannot tell the Filipino people that provided for in the 1973 Constitution.
Congress deliberately used the phrase "among other
The parties were, on June 29, 2004, heard on oral
96

things" to guarantee that the Filipino people will

receive their equitable share from mining revenues of arguments during which two major issues were
Page

foreign contractors. This Court cannot tell the Filipino tackled: first, the proper interpretation of the phrase
people that with the phrase "among other things," "agreements… involving either technical or financial
assistance" in Section 2, Article XII of the Republic Act No. 7942, the latter being
Constitution, and second, mootness. unconstitutional in that it allows fully foreign
owned corporations to explore, develop, utilize
Thereafter, the parties submitted their respective and exploit mineral resources in a manner
memoranda, as required by Resolution of this Court. contrary to Section 2, paragraph 4, Article XII
However, despite the verbal request of Associate of the Constitution;
Justice Artemio V. Panganiban during the oral
arguments,5 intervenor PCM failed to submit along II
with its memorandum any documents to establish
international mining practices, particularly in x x x in signing and promulgating DENR
developing countries. Administrative Order No. 96-40 implementing
Republic Act No. 7942, the latter being
Issues for Resolution unconstitutional in that it allows the taking of
private property without the determination of
The majority opinion holds that the resolution of the public use and for just compensation;
Motions for Reconsideration in this case should be
confined to the issues taken up during the oral III
arguments on June 29, 2004. These were: (1) the
proper interpretation of the phrase "agreements… x x x in signing and promulgating DENR
involving either technical or financial assistance" in Administrative Order No. 96-40 implementing
Section 2, Article XII of the Constitution, and (2) Republic Act No. 7942, the latter being
mootness. unconstitutional in that it violates Sec. 1, Art.
III of the Constitution;
It further holds that the issue of whether the Mining
Act and the WMCP FTAA are manifestly IV
disadvantageous to the government could not be
passed upon because the same was supposedly not x x x in signing and promulgating DENR
raised in the original petition. Administrative Order No. 96-40 implementing
Republic Act No. 7942, the latter being
These rulings, while well intentioned, cannot be unconstitutional in that it allows enjoyment by
accepted. foreign citizens as well as fully foreign owned
corporations of the nation's marine wealth
First, there is no rule of procedure, whether in Rule 52 contrary to Section 2, paragraph 2 of Article
or elsewhere, which restricts the resolution of a case XII of the Constitution;
to the issues taken up in the oral arguments. The
reason is obvious. The issues for resolution in any V
given case are determined by the conflicting
arguments of the parties as set forth in their x x x in signing and promulgating DENR
pleadings. On the other hand, the matters to be taken Administrative Order No. 96-40 implementing
up in an oral argument may be limited, by order of the Republic Act No. 7942, the latter being
court, to only such points as the court may deem unconstitutional in that it allows priority to
necessary. Thus, Section 1 of Rule 49 provides: foreign and fully foreign owned corporations in
the exploration, development and utilization of
Section 1. When allowed. – At its own mineral resources contrary to Article XII of the
instance or upon motion of a party, the court Constitution;
may hear the parties in oral argument on the
merits of a case, or on any material VI
incident in connection therewith.
x x x in signing and promulgating DENR
The oral argument shall be limited to such Administrative Order No. 96-40
matters as the court may specify in its implementing Republic Act No. 7942, the
order or resolution (Emphasis supplied) latter being unconstitutional in that it
allows the inequitable sharing of
A narrow delimitation of matters to be taken up during wealth contrary to Sections [sic] 1,
oral argument is a matter of practical necessity since paragraph 1, and Section 2, paragraph 4[,]
often not all the relevant issues can be thoroughly [Article XII] of the Constitution;
discussed without unduly imposing on the time of the
Court. However, unlike a pre-trial order,6 the VII
delimitation does not control or limit the issues to be
resolved. These issues may be subject matter of the
x x x in recommending approval of and
parties' memoranda, as in this case.
implementing the Financial and Technical
Assistance Agreement between the President
Second, as noted in the Decision,7 the issue of of the Republic of the Philippines and Western
whether the Mining Act and the WMCP FTAA afford Mining Corporation Philippines Inc. because
the State a just share in the proceeds of its natural the same is illegal and
resources was in fact raised by the petitioners, viz: unconstitutional.  (Emphasis and underscoring
8

supplied)
Petitioners claim that the DENR Secretary acted
without or in excess of jurisdiction: Indeed, this Court expressly passed upon this issue in
the Decision when it held that:
I
97

With the foregoing discussion in mind, this

Page

x x x in signing and promulgating DENR Court finds that R.A. No. 7942 is invalid
Administrative Order No. 96-40 implementing insofar as said Act authorizes service
 contracts. Although the statute employs the In fine, the majority opinion skirts an issue raised in
phrase "financial and technical agreements" in the original Petition for Prohibition and Mandamus,
accordance with the 1987 Constitution, it passed upon in its Decision of January 27, 2004 and
actually treats these agreements as argued by the parties in the present Motion for
service contracts that grant beneficial Reconsideration.
ownership to foreign contractors contrary
to the fundamental law.9 (Emphasis and Instead, I find that the myriad arguments raised by the
underscoring supplied) parties may be grouped according to two broad
categories: first, the arguments pertaining to the
Moreover, the issue of whether the State is deprived constitutionality of FTAA provisions of the Mining Act;
of its just share in the proceeds from mining was and second, those pertaining to the validity of the
touched upon by the parties in their memoranda. WMCP FTAA. Within these categories, the following
Thus, respondent WMCP argues that: issues are submitted for resolution: (1) whether in
invalidating certain provisions of the Mining Act a non-
Section 10.2 (a) of the COLUMBIO FTAA does not justiciable political question is passed upon; (2)
prohibit the State from partaking of the fruits of whether the FTAAs contemplated in Section 2, Article
the exploration. In fact, Section 7.7 of the XII of the 1987 Constitution are identical to, or
COLUMBIO FTAA provides: inclusive of, the "service contracts" provided for in the
1973 Constitution; (3) whether the declaration of the
"7.7 Government Share unconstitutionality of certain provisions of the Mining
Act should be reconsidered; (4) whether the question
of validity of the WMCP FTAA was rendered moot
From the Commencement of
before the promulgation of the Decision; and (5)
Commercial Production, the
whether the decision to declare the WMCP FTAA
Contractor shall pay a government
unconstitutional and void should be reconsidered.
share of sixty per centum (60%) of Net
Mining Revenues, calculated in
accordance with the following Following the foregoing framework of analysis, I now
provisions (the "Government Share"). proceed to resolve the issues raised in the motion for
The Contractor shall be entitled to reconsideration.
retain the balance of all revenues from
the Mining Operations." I

In other words, the State is guaranteed a sixty Constitutionality of the Philippine Mining Act of
per centum (60%) share of the Net Mining 1995
Revenues, or 60% of the actual fruits of the
endeavor. This is in line with the intent The issues presented constitute
behind Section 2 of Article XII that the justiciable questions.
Filipino people, as represented by the
State, benefit primarily from the Contrary to the posture of respondent WMCP, this
exploration, development, and utilization Court did not tread on a political question in rendering
of the Philippines' natural its Decision of January 27, 2004.
resources. 10 (Emphasis and underscoring
supplied) The Constitution delineates the parameters of the
powers of the legislative, the executive and the
while the petitioners, for their part, claim: judiciary.12 Whether the first and second great
departments of government exceeded those
For instance, government share is computed parameters is the function of the third.13 Thus, the
on the basis of net mining revenue. Net Constitution defines judicial power to include "the
mining revenue is gross mining revenue less, duty… to determine whether or not there has been a
among others, deductible expenses. Some of grave abuse of discretion amounting to lack or excess
the allowable deductions from the base of jurisdiction on the part of any branch or
amount to be used to compute government instrumentality of the Government."14
share are suspicious. The WMCP FTAA
contract, for instance, allows expenditures for Judicial power does not extend to political questions,
development "outside the Contract Area," which are concerned with issues dependent upon the
consulting fees for work done "outside the wisdom, not the legality, of a particular measure.15 The
Philippines," and the "establishment and reason is that, under our system of government,
administration of field offices including policy issues are within the domain of the political
administrative overheads incurred within and branches of government and of the people
outside the Philippines." themselves as the repository of all state power. 16 In
short, the judiciary does not settle policy issues.17
xxx
The distinction between a truly political question and
One mischief inherent in past service an ostensible one lies in the answer to the question of
contracts was the practice of transfer pricing. whether there are constitutionally imposed limits on
UNCTAD defines this as the "pricing of powers or functions conferred upon political
transfers of goods, services and other assets bodies.18 If there are constitutionally imposed limits,
within a TNC network." If government does then the issue is justiciable, and a court is duty-bound
not control the exploration, development to examine whether the branch or instrumentality of
and utilization of natural resources, then the government properly acted within those limits.19
the intra-transnational corporation pricing
98

of expenditures may not become Respondent WMCP argues that the "exploration,
transparent. 11 (Emphasis supplied; footnotes development, and utilization of natural resources are
Page

omitted)
matters of policy, in other words, political matters or with priority to subsistence fishermen and fish
questions," over which this Court has no jurisdiction. workers in rivers, lakes, bays, and lagoons.

Respondent is mistaken. The questions involved in The President may enter into agreements

this case are not political. The provisions of paragraph with foreign-owned
4, Section 2 of Article XII of the Constitution, including corporations involving either technical or
the phrase "agreements… involving either technical or financial assistance for large-scale
financial assistance," incorporate limitations20 on the exploration, development, and utilization
scope of such agreements or FTAAs. Consequently, of minerals, petroleum, and other mineral
they constitute limitations on the powers of the oils according to the general terms and
legislative to determine their terms, as well as the conditions provided by law, based on real
powers of the Executive to enter into them. In its contributions to the economic growth and
Decision, this Court found that, by enacting the general welfare of the country. In such
objectionable portions of the Mining Act and in agreements, the State shall promote the
entering into the subject FTAA, the Congress and the development and use of local scientific
President went beyond the constitutionally delimited and technical resources.
scope of such agreements and thereby transgressed
the boundaries of their constitutional powers. The President shall notify the Congress of
every contract entered into in accordance
The "agreements" contemplated in paragraph 4, with this provision, within thirty days from
Section 2, its execution. (Emphasis and underscoring
Article XII of the Constitution are distinct and supplied)
dissimilar from the old "service contracts."
Its counterpart provision in Article XIV of the 1973
The majority and respondents share a common Constitution authorized "service contracts" as follows:
thesis: that the fourth paragraph of Sec. 2, Article XII
contemplates not only financial or technical Sec. 9. The disposition, exploration,
assistance but, just like the service contracts which development, exploitation, or utilization of any
were allowed under the 1973 Constitution, of the natural resources of the Philippines
management assistance as well. shall be limited to citizens, or to corporations
or associations at least sixty per centum of
The constitutional provision in dispute reads: which is owned by such citizens. The
Batasang Pambansa, in the national
Art. XII interest, may allow such citizens,
corporations or associations to enter
National Economy and Patrimony into service contracts for financial,
technical, management, or other forms of
assistance with any person or entity for
xxx
the exploration, development, exploration,
or utilization of any of the natural
Sec. 2. All lands of the public domain, waters, resources. Existing valid and binding service
minerals, coal, petroleum, and other mineral contracts for financial, technical,
oils, all forces of potential energy, fisheries, management, or other forms of assistance are
forests or timber, wildlife, flora and fauna, and hereby recognized as such. (Emphasis and
other natural resources are owned by the underscoring supplied)
State. With the exception of agricultural lands,
all other natural resources shall not be
Respondent WMCP contends that the fourth
alienated. The exploration, development, and
paragraph of Section 2 is an exception to the rule that
utilization of natural resources shall be under
participation in the country's natural resources is
the full control and supervision of the
reserved to Filipinos.21 It hastens to add, however, that
State. The State may directly undertake such
the word "may" therein is permissive not
activities or it may enter into co-production,
restrictive;22 and that consistent with the provision's
joint venture, or production-sharing
permissive nature, the word "involving" therein should
agreements with Filipino citizens, or
be construed to mean "to include," such that the
corporations or associations at least sixty per
assistance by foreign corporations should not be
centum of whose capital is owned by such
confined to technical or financial, but also to
citizens. Such agreements may be for a
management forms.23 And it notes that the
period not exceeding twenty-five years,
Constitution used "involving" instead of such
renewable for not more than twenty-five years,
restrictive terms as "solely," "only," or "limited to."24
and under such terms and conditions as may
be provided by law. In cases of water rights
for irrigation, water supply, fisheries, or To the Office of the Solicitor General (OSG), the intent
industrial uses other than the development of behind the fourth paragraph is to prevent the practice
water power, beneficial use may be the under the 1973 Constitution of allowing foreigners to
measure and limit of the grant. circumvent the capitalization requirement,25 as well as
to address the absence of a governing law that led to
the abuse of service contracts.26 The phrase
The State shall protect the nation's marine
"technical or financial" is merely for emphasis, the
wealth in its archipelagic waters, territorial
OSG adds, that it is descriptive, not definitive, of the
sea, and exclusive economic zone, and
forms of assistance that the State needs and which
reserve its use and enjoyment exclusively to
foreign corporations may provide in the large-scale
Filipino citizens.
exploration, development and utilization of the
99

specified resources.27 Furthermore, the OSG contends

The Congress may, by law, allow small-scale that the denomination of the subject FTAA as a
utilization of natural resources by Filipino
Page

"financial and technical assistance agreement" is a

citizens, as well as cooperative fish farming, misnomer and should more properly be called
"agreements for large-scale exploration, development, The words "owned" and "State" should both be
and utilization of minerals, petroleum, and other understood on two levels. "Owned" or "ownership"
mineral oils."28 It argues that the President has broad refers to both the legal title to and the beneficial
discretion to enter into any agreement, regardless of ownership of the natural resources. Similarly, "State"
the scope of assistance, with foreign should be understood as denoting both the body
corporations.29 Driving its point, the OSG poses: If the politic making up the Republic of the Philippines, i.e.,
framers of the Constitution intended to limit the the Filipino people, as well as the Government which
service of foreign corporations to "passive represents them and acts on their behalf.
assistance," such as simple loan agreements, why
confine them to large-scale ventures?30 Why does the Thus, the phrase "natural resources are owned by the
Constitution require that such agreements be based State" simultaneously vests the legal title to the
on real contributions to economic growth and general nation's natural resources in the Government, and the
welfare of the country?31 Why the condition in the last beneficial ownership of these resources in the
paragraph of Section 2 that the President report to sovereign Filipino people, from whom all
Congress?32 Finally, the OSG asserts that these governmental authority emanates.40
requirements would be superfluous if the assistance
to be rendered were merely technical or On this point, petitioners and respondent WMCP
financial.33 And that it would make more sense if the appear to be in rare agreement. Thus, petitioners, in
phrase "agreements… involving technical or financial their Memorandum state:
assistance" were construed to mean the same
concept as the service contracts under the 1973
xxx With respect to exploration, development
Constitution.
and utilization of mineral resources, the State
should not merely be concerned about
The OSG's contentions are complemented by passing laws. It is expected that it holds
intervenor PCM which maintains that the FTAA "is an these natural resources covered in Article
agreement for [the] rendition of a whole range of XII, Section 2 in dominium and in trust for
services of an integrated and comprehensive [the] Filipino people.41 (Emphasis and
character, ranging from discovery through underscoring supplied; italics in the original)
development and utilization and production of
minerals or petroleum by the foreign-owned
Respondent WMCP is even more emphatic:
corporation."34 In fine, intervenor posits that the
change in phraseology in the 1987 Constitution does
not relate to the substance of the The Regalian Doctrine, as embodied under
agreement,35 otherwise, the State itself would be the Constitution, is a recognition that
compelled to conduct the exploration, development sovereignty resides in the Filipino people, and
and utilization of natural resources, ventures that it is the prime duty of government or the State is to
ill-equipped to undertake.36 serve and protect the people. Thus, the
ownership of natural resources by the
State under Section 2, Article XII of the
Primary Concepts in Article XII of the Constitution
Constitution is actually a beneficial trust in
favor of the Filipino people.
Before passing upon the foregoing arguments and for
better clarity, it may be helpful to first examine the
Stated differently, it is the Filipino people
concepts of (a) "beneficial ownership," (b) "full control
who own the nation's natural resources,
and supervision," and (c) "real contributions to the
and the State is merely the guardian-in-
economic growth and general welfare of the country"
trust therof.42 (Emphasis and underscoring
which are at the heart of Section 2, Article XII of the
supplied; italics in the original; citations
Constitution.
omitted)
Beneficial Ownership
Clearly, in the exploration, development and utilization
of the nation's natural resources, the Government is in
Beneficial ownership, as the plain meaning of the a position analogous to a trustee, holding title to and
words implies, refers to the right to the gains, rewards managing these resources for the benefit of the
and advantages generated by the property.37 Filipino people, including future generations.43 As the
trustee of the sovereign, the Government has a
The concept is not new, but in fact is well entrenched fiduciary duty to ensure that the gains, rewards and
in the law of trusts.38 Thus, while the trustee holds the advantages generated by the Philippines' natural
legal title to or ownership of the property entrusted to resources accrue to the benefit of the Filipino people.
him, he is nevertheless not the beneficial owner. Corollary to this, the Government cannot, without
Rather, he holds and administers the property for the violating its sacred trust, enter into any agreement or
benefit of another, called the beneficiary or the cestui arrangement which effectively deprives the Filipino
que trust. Hence, the profits realized from the people of their beneficial ownership of these
administration and management of the property by the resources – e.g., when it enters into an agreement
trustee, who is the "naked owner," less any lawful whereby the vast majority of the resources, or the
fees due to the latter, accrue to the cestui que trust, profit generated from the resources, is bargained
who is the "beneficial" or "equitable" owner.39 away in favor of a foreign entity.

The foregoing concepts are directly applicable to the Full Control and Supervision
statement in Section 2, Article XII of the Constitution
that "[a]ll lands of the public domain, waters, minerals, In the context of its role as trustee, the Government's
coal, petroleum, and other mineral oils, all forces of "full control and supervision" over the exploration,
100

potential energy, fisheries, forests or timber, wildlife, development and utilization of the nation's natural
flora and fauna, and other natural resources are resources, in its most basic and fundamental sense, is
owned by the State." accomplished by maintaining a position whereby it
Page
can carry out its fiduciary duty to protect the beneficial pursuing large scale exploration, development and
interest of its cestui que trust in these resources. utilization of these resources, the State would be
allowing the consumption or exhaustion of these
Significantly, Section 2, Article XII of the Constitution resources, and thus deprive future Filipino
provides that the Government may undertake the generations the enjoyment thereof. Mining –
exploration, development and utilization of these especially large-scale mining – often results in the
resources by itself or together with a third party.44 In displacement of local residents. Its negative effects on
the first case, where no third party is involved, the the environment are well-documented.47
Government's "full control and supervision" over the
resources is easily achieved. In the second case, Thus, for benefits from the exploration, development
where the third party may naturally be expected to and utilization of these resources to be real, they
seek participation in the operation of the venture and must yield profits over and above 1) the capital and
ask for compensation in proportion to its operating costs incurred, 2) the resulting damage to
contribution(s), the Government must still maintain a the environment, and 3) the social costs to the people
position vis-à-vis its third party partner whereby it can who are immediately and adversely affected thereby.
adequately protect the interest of the Filipino people,
who are the beneficial owners of the resources. Moreover, the State must ensure that the real benefits
from the utilization of these resources are sufficient to
By way of concrete example, the Government may offset the corresponding loss of these resources to
enter into a joint venture agreement45 with a third party future generations. Real benefits are
to explore, develop or utilize certain natural resources intergenerational benefits because the motherland's
through a jointly owned corporation, wherein the natural resources are the birthright not only of the
government has the controlling interest. Under this present generation of Filipinos but of future
arrangement, the Government would clearly be in a generations as well.48
position to protect the interest of the beneficial owners
of the natural resources. The requirement of real benefit is applicable even
when the exploration, development and utilization are
In the alternative, as suggested by the OSG,46 the being undertaken directly by the Government or with
Government may be allowed one or more directors the aid of Filipinos or Filipino corporations. But it takes
(holding nominal shares) on the governing board and on greater significance when a foreign entity is
executive committee(s) of the private corporation involved. In the latter instance, the foreign entity
contracted to undertake mining activities in behalf of would naturally expect to be compensated for its
the government. Depending on the by-laws of the assistance. In that event, it is inescapable that a
private corporation, strategic representation of the foreigner would be benefiting from an activity
Government in its governing board and executive (i.e. mining) which also results in numerous, serious
committee(s) may afford sufficient protection to the and long term harmful consequences to the
interest of the people. environment and to Philippine society.

However, Section 2, Article XII of the Constitution Moreover, as recognized by the 1935 Constitutional
does not limit the options available to the Convention, foreign involvement in the exploitation of
Government, when dealing with prospective mining Philippine natural resources has serious implications
partners, to joint ventures or representation in the on national security. As recounted by delegate Jose
contractor's board of directors. To be sure, the Aruego:
provision states that the Government may enter into
"co-production, joint venture, or production-sharing The nationalization of the natural resources
agreements with Filipino citizens, or corporations or was also intended as an instrument of national
associations," or, for large scale exploration, defense. The Convention felt that to permit
development and utilization, "agreements with foreigners to own or control the natural
foreign-owned corporations involving either technical resources would be to weaken the national
or financial assistance." But whatever form the defense. It would be making possible the
agreement entered into by the Government and its gradual extension of foreign influence into
third party partner(s) may take, the same must our politics, thereby increasing the
contain, as an absolute minimum, provisions that possibility of foreign control. xxx
ensure that the Government can effectively perform
its fiduciary duty to safeguard the beneficial interest of Not only these. The nationalization of the
the Filipino people in their natural resources, as natural resources, it was believed, would
mandated by the Constitution. prevent making the Philippines a source of
international conflicts with the consequent
Real Contributions to the Economy danger to its internal security and
and the General Welfare of the Country independence. For unless the natural
resources were nationalized, with the
Section 2, Article XII likewise requires that nationals of foreign countries having the
"agreements … involving financial or technical opportunity to own or control them, conflicts of
assistance" be "based on real contributions to interest among them might arise inviting
the economic growth and general welfare of the danger to the safety and independence of the
country." This provision articulates the value which nation.49 (Emphasis supplied)
the Constitution places on natural resources, and
recognizes their potential benefits. It likewise Significantly, and contrary to the posture of the OSG,
acknowledges the fact that the impact of mining it is immaterial whether the foreign involvement takes
operations is not confined to the economy but, the form of "active" participation in the mining concern
perhaps to a greater extent, affects Philippine society
101

or "passive" assistance such as a foreign mining loan

as a whole as well. or the licensing of mining technology. Whether the
foreign involvement is passive or active, the fact
Page

"Minerals, petroleum and other mineral oils," are part remains that the foreigner will expect to be
of the non-renewable wealth of the Filipino people. By compensated and, as a necessary consequence, a
fraction of the gains, rewards and advantages provision, being an exception, should be strictly
generated by Philippine natural resources will be construed against foreign participation.
diverted to foreign hands even as the long term
pernicious "side effects" of the mining activity will be In any case, the constitutional provision
borne solely by the Filipino people. allowing the President to enter into FTAAs
with foreign-owned corporations is an
Under such circumstances, the Executive, in exception to the rule that participation in the
determining whether or not to avail of the assistance nation's natural resources is reserved
of a foreign corporation in the large scale exploration, exclusively to Filipinos. Accordingly, such
development and utilization of Philippine natural provision must be construed strictly against
resources, must carefully weigh the costs and benefits their enjoyment by non-Filipinos. As
if it is to faithfully discharge its fiduciary duty to protect Commissioner Villegas emphasized, the
the beneficial interest of the Filipino people in these provision is "very restrictive."
resources. Commissioner Nolledo also remarked that
"entering into service contracts is an
These same considerations likewise explain why the exception to the rule on protection of
last paragraph of Section 2 mandates that the natural resources for the interest of the
President "notify the Congress of every contract nation and, therefore, being an exception,
entered into in accordance with this provision, within it should be subject, whenever possible, to
thirty days from its execution." The Constitution stringent rules." Indeed, exceptions should
requires that the Legislative branch, which is be strictly but reasonably construed; they
perceived to be more broadly representative of the extend only so far as their language fairly
people and therefore more immediately sensitive to warrants and all doubts should be resolved in
their concerns, be given a timely opportunity to favor of the general provision rather than the
scrutinize and evaluate the Executive's decision. exception.52 (Emphasis and underscoring
supplied; citations omitted).
With these concepts in mind, I now turn to what I
believe to be the proper interpretation of That the fourth paragraph employs the word "may"
"agreements… involving either technical or financial does not make it non-restrictive. Indeed, "may" does
assistance" in paragraph 4 of Section 2, Article XII of make the provision permissive, but only as opposed
the Constitution. to mandatory,53 and operates to confer discretion upon
a party.54 Thus, as used in the fourth paragraph, "may"
Construction of paragraph 4, Section 2, provides the President with the option to enter into
Article XII of the Constitution FTAAs. It is, however, not incumbent upon the
President to do so for, as owner of the natural
resources, the "State [itself] may directly undertake
The suggestion that the avoidance of the term
such activities."55 If the President opts to exercise the
"service contracts" in the fourth paragraph is to
prerogative to enter into FTAAs, the agreement must
prevent the circumvention, prevalent under the 1973
conform to the restrictions laid down by Section 2,
Constitution, of the 60-40 capital requirement does
including the scope of the assistance, which must be
not persuade, it being too narrow an interpretation of
limited to financial or technical forms.
that provision. If that were the only purpose in the
change of phraseology, this Court reiterates, there
would have been no need to replace the term "service "May" in the fourth paragraph, therefore, should be
contracts" with "agreements… involving either understood in the same sense as it is used in the first
technical or financial assistance." paragraph, that is, that the State "may enter into…
agreements with Filipino citizens, or corporations or
association at least sixty per centum of whose capital
The loophole in the 1973 Constitution that sanctioned
is owned by such citizens."
dummyism is easily plugged by the provision in the
present Constitution that the President, not Congress
or the Batasan Pambansa (under the 1973 The majority, however, opines that the "agreements
Constitution), may enter into either technical or involving either technical or financial assistance"
financial agreements with foreign corporations. The referred to in paragraph 4 of Section 2 of Article XII of
framers then could have easily employed the more the 1987 Constitution are indeed service contracts. In
traditional term "service contracts" in designating the support of this conclusion, the majority maintains that
agreements contemplated, and thus obviated the use of the phrase "agreements… involving either
confusion, especially since the term was employed by technical or financial assistance" does not indicate the
the legal system then prevailing50 and had a settled intent to exclude other modes of assistance because
acceptation. the use of the word "involving" signifies the possibility
of the inclusion of other forms of assistance or
activities. And it proffers that the word "involving" has
The other proffered raison d'être of the fourth
three connotations that can be differentiated as
paragraph, i.e. to address the absence of a governing
follows: (1) the sense of concerning, having to do
law that led to the abuse of service contracts, is
with, or affecting; (2) entailing, requiring, implying or
equally unpersuasive. In truth, there were a host of
necessitating; (3) including, containing or comprising.
laws governing service contracts pertaining to various
None of these three connotations, it is contended,
natural resources, as this Court noted when it traced
convey a sense of exclusivity. Thus, it concludes that
the history of Section 2, Article XII in its Decision.51
had the framers intended to exclude other forms of
assistance, they would have simply said "agreements
Respondent WMCP nevertheless correctly states that for technical or financial assistance" as opposed to
the fourth paragraph establishes an exception to the "agreements including technical or financial
rule limiting the exploration, development and assistance."
102

utilization of the nation's natural resources to

Filipinos. As an exception, however, it is illogical to
To interpret the term "involving" in the fourth
deduce that the provision should be interpreted
Page

paragraph to mean "including," as the majority

liberally, not restrictively. It bears repeating that the
contends, would run counter to the restrictive spirit of
the provision. Notably, the 1987 Constitution uses premise that the State itself may undertake the
"involving" not "including." As admitted in the majority exploration, development and utilization of natural
opinion, the word "involve" may also mean resources, a foreign-owned corporation may engage
concerning, having to do with or affecting. Following in such activities in behalf of the State:
the majority opinion's own methodology of
substitution, "agreements… involving either technical The Constitution has not prohibited the State
or financial assistance" means "agreements… from itself exploring, developing, or utilizing
concerning either technical or financial assistance." the country's natural resources, and, for this
And the word "concerning" according to Webster's purpose, it may, I submit, enter into the
Third New International Dictionary means "regarding", necessary agreements with individuals or
"respecting" or "about." To reiterate, these terms entities in the pursuit of a feasible operation.
indicate exclusivity. More tellingly, the 1987
Constitution not only deleted the term "management" The fundamental law is deemed written in
in the 1973 Constitution, but also the catch-all every contract. The FTAA entered into by the
phrase "or other forms of assistance," 56 thus government and WMCP recognizes this vital
reinforcing the exclusivity of "either technical or principle. Thus, two of the agreement's
financial assistance." clauses provide:

That the fourth paragraph does not employ the terms "WHEREAS, the 1987 Constitution of
"solely," "only," or "limited to" to qualify "either the Republic of the Philippines
technical or financial assistance" does not detract provides in Article XII, Section 2 that
from the provision's restrictive nature. Moreover, the all lands of the public domain, waters,
majority opinion's illustration conveniently omits minerals, coal, petroleum, and other
"either… or." As Senior Associate Justice Reynato S. natural resources are owned by the
Puno pointed out during the oral arguments, the use State, and that the exploration,
of the disjunctive "either… or" denotes restriction.57 development and utilization of natural
resources shall be under the full
According to the Penguin Dictionary, the word "either" control and supervision of the State;
may be used as (1) an adjective or (2) a pronoun or and
(3) a conjunction or (4) an adverb. As an adjective,
the word "either" means (1) any one of two; one or the "WHEREAS, the Constitution further
other; or (2) one and the other; each. As a pronoun, provides that the Government may
the word "either" means the one or the other. As enter into agreements with foreign-
a conjunction, the word "either" is used before owned corporations involving either
two or more sentence elements of the same class technical or financial assistance for
or function joined usually by "or" to indicate what large scale exploration, development
immediately follows is the first of two or more and utilization of minerals."
alternatives. Lastly, as an adverb, "either" is used for
emphasis after a negative or implied negation (i.e. for
The assailed contract or its provisions must
that matter or likewise). The traditional rule holds that
then be read in conformity with
"either" should be used only to refer to one of two
abovementioned constitutional mandate.
items and that "any" is required when more than two
Hence, Section 10.2(a) of the FTAA, for
items are involved.58 However, modern English usage
instance, which states that "the Contractor
has relaxed this rule when "either" is used as a
shall have the exclusive right to explore for,
conjunction.59 Thus, the word "either" may indicate the
exploit, utilize, process, market, export and
choice between two or more possibilities.
dispose of all minerals and products and by-
products thereof that may be derived or
"Either" in paragraph 4, section 2, Article XII, is clearly produced from the Contract Area and to
used as a conjunction, joining two (and only two) otherwise conduct Mining Operations in the
concepts – financial and technical. The use of the Contract Area in accordance with the terms
word "either" clearly limits the President to only two and conditions hereof," must be taken to
possibilities, financial and technical assistance. Other mean that the foregoing rights are to be
forms of assistance are plainly not allowed, since only exercised by WMCP for and in behalf of the
the words "financial and technical" follow the word State and that WMCP, as the Contractor,
"either." would be bound to carry out the terms and
conditions of the agreement acting for and in
In accordance with the intent of the provision, behalf of the State. In exchange for the
"agreements… involving either technical or financial" financial and technical assistance, inclusive of
is deemed restrictive and not just descriptive. It is a its services, the Contractor enjoys an
condition, a limitation, not a mere description. exclusivity of the contract and a corresponding
compensation therefor.60 (Underscoring
The OSG's suggestion that the President may enter supplied).
into "any" agreement, the scope of which may go
beyond technical or financial assistance, with a This proposition must be rejected since it sanctions
foreign-owned corporation, does not impress. The first the circumvention, if not outright violation, of the fourth
paragraph of Section 2 limits contracts with Filipino paragraph by allowing foreign corporations to render
citizens or corporations to co-production, joint venture more than technical or financial assistance on the
or production-sharing agreements. To subscribe to pretext that it is an agent of the State. Quando aliquid
the OSG's theory would allow foreign-owned prohibitur ex directo, prohibitur et per obliquum. What
corporations participation in the country's natural is prohibited directly is prohibited indirectly. 61 Further,
resources equal to, perhaps even greater than, that of the proposition lends itself
103

Filipino citizens or corporations. to mischievous consequences. If followed to its logical

conclusion, nothing would stop the State from
Page

The OSG cites the Separate Opinion of Justice Jose engaging the services of a foreign corporation to
C. Vitug, now retired, who proposed that, on the undertake in its behalf the exploration, development
and utilization of all other natural resources, not just The Commission had just approved the
"minerals, petroleum and mineral oils," even on Preamble. In the Preamble we clearly sated
a small scale, not just "large-scale." there that the Filipino people are sovereign
and that one of the objectives for the creation
The present Constitution restricts foreign involvement or establishment of a government is to
to large-scale activities because the idea is to limit the conserve and develop the national
participation of foreign corporations only to areas patrimony. The implication is that the
where they are needed. national patrimony or our natural
resources are exclusively reserved for the
MS. QUESADA. Going back to Section 3, the Filipino people. No alien must be allowed
section suggests that: to enjoy, exploit and develop our natural
resources. As a matter of fact, that
principle proceeds from the fact that our
The exploration, development, and utilization
natural resources are gifts from God to the
of natural resources … may be directly
Filipino people and it would be a breach of
undertaken by the State, or it may enter into
that special blessing from God if we will
co-production, joint venture or production-
allow aliens to exploit our natural
sharing agreement with … corporations or
resources.
associations at least sixty percent of whose
voting stock or controlling interest is owned by
such citizens. I voted in favor of the Jamir proposal beca
use it is not really exploitation that we gran
ted to the alien corporations but only for th
Lines 25 to 30 on the other hand, suggest that
em to render financial or technical assistan
in the large-scale exploration, development
ce. It is not for them to enjoy our natural re
and utilization of natural resources, the
sources. Madam President, our natural
President with the concurrence of Congress
resources are depleting; our population is
may enter into agreements with foreign-owned
increasing by leaps and bounds. Fifty years
corporations even for technical or financial
from now, if we will allow these aliens to
assistance.
exploit our natural resources, there will be no
more natural resources for the next
I wonder if this first part of Section 3 generations of Filipinos. It may last long if we
contradicts the second part. I am raising will begin now. Since 1935 the aliens have
this point for fear that foreign investors been allowed to enjoy to a certain extent the
will use their enormous capital resources exploitation of our natural resources, and we
to facilitate the actual exploitation or became victims of foreign dominance and
exploration, development and effective control. The aliens are interested in coming to
disposition of our natural resources to the the Philippines because they would like to
detriment of Filipino investors. I am not enjoy the bounty of nature exclusively
saying that we should not consider intended for the Filipinos by God.
borrowing money from foreign
sources. What I refer to is that foreign
And so I appeal to all, for the sake of the
interest should be allowed to participate
future generations, that if we have to pray in
only to the extent that they lend us money
the Preamble "to preserve and develop the
and give us technical assistance with the
national patrimony for the sovereign Filipino
appropriate government permit. In this
people and for the generations to come," we
way, we can insure the enjoyment of our
must at this time decide once and for all that
natural resources by out people.
our natural resources must be reserved only
to Filipino citizens.
MR. VILLEGAS. Actually, the second
provision about the President does not
Thank you.63 (Emphasis and underscoring
permit foreign investors to participate. It is
supplied)
only technical or financial assistance –
they do not own anything – but on
conditions that have to be determined by law The intent loses all significance if foreign-owned
with the concurrence of Congress. So, it is corporations are likewise allowed to participate even
very restrictive. in small or medium-scale ventures.

If the Commissioner will remember, this Thus, in keeping with the clear intent and rationale of
removes the possibility for service the Constitution, financial or technical assistance by
contracts which we said yesterday were foreign corporations are allowable only where there is
avenues used in the previous regime to go no Filipino or Filipino-owned corporation (including
around the 60-40 requirement.62 (Emphasis corporations at least 60% of the capital of which are
and underscoring supplied) owned by Filipinos) which can provide the same or
similar assistance.
The intent is to allow Filipinos to benefit from
Filipino resources. To reiterate, the over-arching letter and intent of the
Constitution is to reserve the exploration,
development and utilization of natural resources to
MR. DAVIDE. May I be allowed to explain the
Filipinos.
proposal?
The justification for foreign involvement in the
MR. MAAMBONG. Subject to the three-
104

exploration, development and utilization of natural

minute rule, Madam President.
resources was that Filipino nationals or corporations
may not possess the necessary capital, technical
MR. DAVIDE. It will not take me three
Page

knowledge or technology to mount a large scale

minutes. undertaking. In the words of the "Draft of the 1986
U.P. Law Constitution Project" (U.P. Law Draft) which 5. The last paragraph is a modification of the
was taken into consideration during the deliberation of service contract provision found in Section 9,
the CONCOM:64 Article XIV of the 1973 Constitution as
amended. This 1973 provision shattered the
Under the proposed provision, only technical framework of nationalism in our fundamental
assistance or financial assistance law (see Magallona, "Nationalism and its
agreements may be entered into, and only Subversion in the Constitution"). Through the
for large-scale activities. These are service contract, the 1973 Constitution had
contract forms which recognize and assert legitimized that which was prohibited
our sovereignty and ownership over under the 1935 constitution—the
natural resources since the foreign entity exploitation of the country's natural
is just a pure contractor and not a resources by foreign nationals. Through the
beneficial owner of our economic service contract, acts prohibited by the Anti-
resources. The proposal recognizes the Dummy Law were recognized as legitimate
need for capital and technology to develop arrangements. Service contracts lodge
our natural resources without sacrificing exclusive management and control of the
our sovereignty and control over such enterprise to the service contractor, not
resources65 x x x (Emphasis and unlike the old concession regime where
underscoring supplied) the concessionaire had complete control
over the country's natural resources,
Thus, the contention that Section 2, Article XII allows having been given exclusive and plenary
for any agreement for assistance by a foreign rights to exploit a particular resource and,
corporation "so long as such assistance requires in effect, having been assured of
specialized knowledge or skills, and are related to the ownership of that resource at the point of
exploration, development and utilization of mineral extraction (see Agabin, "Service Contracts:
resources" is erroneous.66 Old Wine in New Bottles"). Service contracts,
hence, are antithetical to the principle of
sovereignty over our natural resources, as
Where a foreign corporation does not offer financial or
well as the constitutional provision on
technological assistance beyond the capabilities of its
nationalization or Filipinization of the
Philippine counterparts, an FTAA with such a
exploitation of our natural
corporation would be highly questionable. Similarly,
resources.69 (Emphasis supplied)
where the scope of the undertaking does not qualify
as "large scale," an FTAA with a foreign corporation is
equally suspect. Furthermore, Professor Pacifico A. Agabin, a member
of the working group of the U.P. Law Constitution
Project and now counsel for intervenor PCM, stated in
"Agreements" in Section 2, Article XII
his position paper:
do not include "service contracts."
Recognizing the service contract for what it
This Court's ruling in the Decision under
is, we have to expunge it from the Constitution 
reconsideration that the agreements involving either
and reaffirm ownership over our natural
technical or financial assistance contemplated by the
resources. That is the only way we can exerci
1987 Constitution are different and dissimilar from the
se effective control over our natural resource
service contracts under the 1973 Constitution must
s.
thus be affirmed. That there is this difference, as
noted in the Decision, is gathered from the change in
phraseology.67 There was no need to employ strongly This should not mean complete isolation of
prohibitory language, like that found in the Bill of the country's natural resources from foreign
Rights.68 For the framers to expressly prohibit investment. Other contract forms which
"management and other forms of assistance" would are less derogatory to our sovereignty and co
be redundant inasmuch as the elimination of such ntrol over natural resources – like technical
phrase serves the same purpose. The deletion is assistance agreements, financial
simply too significant to ignore and speaks just as assistance [agreements], co-production
profoundly – it is an outright rejection. agreements, joint ventures, production-
sharing [agreements] – could still be utilized
and adopted without violating constitutional
It bears noting that the fourth paragraph does not
provisions. In other words, we can adopt
employ the same language adopted in the first
contract forms which recognize and assert our
paragraph, which specifically denominates the
sovereignty and ownership over natural
agreements that the State may enter into with
resources, and where the entity is just a pure
Filipinos or Filipino-owned corporations. The fourth
contractor instead of the beneficial owner of
paragraph does not state "The President may also
our economic resources.70 (Emphasis &
enter into co-production, joint venture, or
underscoring supplied),
production-sharing agreements with foreign-owned
corporations for large-scale exploration, development,
and utilization of minerals, petroleum, and other indicating that the proposed financial or technical
mineral oils…." On the other hand, the fourth assistance agreements are contract
paragraph cannot be construed as a grant of forms different from the 1973 Constitution service
boundless discretion to the President to enter into any contracts.
agreement regardless of the scope of assistance
because it would result in a bias against Filipino Thus the phrase "agreements with foreign-owned
citizens and corporations. corporations involving either technical or financial
assistance" in Section 2, Article XII of the Constitution
105

On this point, the following observations from the U.P. must be interpreted as restricting foreign involvement
Law Draft on the odious and objectionable features of in the exploration, development and utilization of
Page

service contracts bear restating: natural resources to large scale undertakings

requiring foreign financial or technical assistance
and not, as alleged by respondents, inclusive of any The majority counters, however, that service contracts
possible agreement under the sun. were not de-constitutionalized since the deliberations
of the members of the Constitutional Commission
The majority however argues that the deletion or conclusively show that they discussed agreements
omission from the 1987 Constitution of the term involving either technical or financial assistance in the
"service contracts" found in the 1973 Constitution same breath as service contracts and used the terms
does not sufficiently prove the drafters' intent to interchangeably. This argument merely echoes that of
exclude foreigners from management since such private respondent WMCP which had already been
intent cannot be definitively and conclusively addressed in this Court's Decision of January 27,
established. This argument overlooks three basic 2004, (the Decision) viz:
principles of statutory construction.
While certain commissioners may have
First, casus omisus pro omisso habendus est.71 As mentioned the term "service contracts" during
recently as 2001 in Commission on Audit of the the CONCOM deliberations, they may not
Province of Cebu v. Province of Cebu,72 this Court have been necessarily referring to the concept
held that a person, object or thing omitted from an of service contracts under the 1973
enumeration must be held to have been Constitution. As noted earlier "service
omitted intentionally.73 That there is a difference contracts" is a term that assumes different
between technical or financial assistance meanings to different people. The
contemplated by the 1987 Constitution and the commissioners may have been using the
service contracts under the 1973 Constitution is term loosely, and not in its technical and
gathered from the omission of the phrase legal sense, to refer, in general, to
"management or other forms of assistance." agreements concerning natural
resources entered into by the Government
As earlier noted, the phrase "service with foreign corporations. These loose
contracts" has been deleted in the 1987 statements do not necessarily translate to the
Constitution's Article on National Economy adoption of the 1973 Constitution provision
and Patrimony. If the CONCOM intended to allowing service contracts.
retain the concept of service contracts under
the 1973 Constitution, it would have simply It is true that, as shown in the earlier quoted
adopted the old terminology ("service portions of the proceedings in [the] CONCOM,
contracts") instead of employing new and in response to Sr. Tan's question,
unfamiliar terms ("agreements…involving Commissioner Villegas commented that, other
either technical or financial assistance.") Such than congressional notification, the only
a difference between the language of a difference between "future" and "past"
provision in a revised constitution and that "service contracts" is the requirement of a
of a similar provision in the preceding general law as there were no laws previously
constitution is viewed as indicative of a authorizing the same.79 However, such
difference in purpose. If, as respondents remark is far outweighed by his more
suggest, the concept of "technical or financial categorical statement in his exchange with
assistance" agreements is identical to that of Commissioner Quesada that the draft
"service contracts," the CONCOM would not article "does not permit foreign investors
have bothered to fit the same dog with a new to participate" in the nation's natural
collar. To uphold respondents' theory would resources – which was exactly what
reduce the first to a mere euphemism for the service contracts did – except to provide
second render the change in phraseology "technical or financial assistance."
meaningless.74 (Emphasis and underscoring
supplied; citation omitted) In the case of the other commissioners,
Commissioner Nolledo himself clarified in his
Second, expressio unius est exclusion alterius.75 The work that the present charter prohibits service
express mention of one person, thing, act, or contracts. Commissioner Gascon was not
consequence excludes all others.76 totally averse to foreign participation, but
favored stricter restrictions in the form of
Third and lastly, expressium facit cessare majority congressional concurrence. On the
tacitum.77 What is expressed puts an end to that which other hand, Commissioners Garcia and Tadeo
is implied.78 Since the constitutional provision, by its may have veered to the extreme side of the
terms, is expressly limited to financial or technical spectrum and their objections may be
agreements, it may not, by interpretation or interpreted as votes against any foreign
construction, be extended to other forms of participation in our natural resources
assistance. whatsoever.80 (Emphasis and underscoring
supplied; citations omitted)
These three principles of statutory construction,
derived from the well-settled principle of verba legis, In fact, the opinion of Commissioner Nolledo in his
proceed from the premise that the Constitutional textbook which is cited in this Court's January 27,
Commission would not have made specific 2004 Decision should leave no doubt as to the
enumerations in the provision if it had the intention not intention of the framers to eliminate service contracts
to restrict its meaning and confine its terms to those altogether.
expressly mentioned. And this Court may not, in the
guise of interpretation, enlarge the scope of a Are service contracts allowed under the new
constitutional provision and include therein situations Constitution? No. Under the new Constitution,
not provided nor intended by the framers. To do so foreign investors (fully alien-owned) can NOT
106

would be to do violence to the very language of the participate in Filipino enterprises except to
Constitution, the same Constitution which this Court provide: (1) Technical Assistance for highly
Page

has sworn to uphold. technical enterprises; and (2) Financial

Assistance for large-scale enterprises.
 The intention of this provision, as well as other "x x x A timber license is an instrument by
provisions on foreign investments, is to which the State regulates the utilization and
prevent the practice (prevalent in the Marcos disposition of forest resources to the end that
government) of skirting the 60/40 equation public welfare is promoted. A timber license is
using the cover of service contracts.81 not a contract within the purview of the due
process clause; it is only a license or
Next, the majority opinion asserts that if the framers privilege, which can be validly
had meant to ban service contracts altogether, they withdrawn whenever dictated by public
would have provided for the termination or pre- interest or public welfare as in this case.
termination of the existing service contracts.
'A license is merely a permit or
There was no need for a constitutional provision to privilege to do what otherwise would
govern the termination or pre-termination of existing be unlawful, and is not a contract
service contracts since the intention of the framers between the authority, federal, state,
was to apply the rule banning service contracts or municipal, granting it and the
prospectively. person to whom it is granted; neither
is it property or a property right, nor
MR. DAVIDE. Under the proposal, I notice does it create a vested right; nor is
that except for the lands of the public domain, it taxation' Thus, this Court held
all other natural resources cannot be alienated that the granting of license does
and in respect to lands of the public domain, not create irrevocable rights,
private corporations with the required neither is it property or property
ownership by Filipino citizens can only lease rights."
the same. Necessarily, insofar as other
natural resources are concerned, it would only We reiterated this pronouncement in Felipe Ysmael,
be the State which can exploit, develop, Jr. & Co, Inc. vs. Deputy Executive Secretary:
explore and utilize the same. However, the
State may enter into a joint venture, "x x x Timber licenses, permits and license
coproduction (sic) or production-sharing. Is agreements are the principal instruments by
that not correct? which the State regulates the utilization and
disposition of forest resources to the end that
MR. VILLEGAS. Yes. public welfare is promoted. And it can hardly
be gainsaid that they merely evidence a
MR. DAVIDE. Consequently, henceforth upon privilege granted by the State to qualified
the approval of this Constitution, no timber or entities, and do not vest in the latter a
forest concessions, permits or authorization permanent or irrevocable right to the particular
can be exclusively granted to any citizen of concession area and the forest products
the Philippines nor to any corporation qualified therein. They may be validly amended,
to acquire lands of the public domain? modified, replaced or rescinded by the
Chief Executive when national interests so
require. Thus, they are not deemed
MR. VILLEGAS. Would Commissioner
contracts within the purview of the due
Monsod like to comment on that? I think his
process clause."
answer is "yes."
Since timber licenses are not contracts, the non-
MR. DAVIDE. So, what will happen now to
impairment clause which reads:
licenses or concessions earlier granted by the
Philippine government to private corporations
or to Filipino citizens? Would they be deemed "SEC 10. No law impairing, the obligation of
repealed? contracts shall be passed."

MR. VILLEGAS. This is not applied cannot be invoked.

retroactively. They will be respected.
In the second place, even if it is to be assumed that
MR. DAVIDE. In effect, they will be deemed the same are contracts, the instant case does not
repealed? involve a law or even an executive issuance declaring
the cancellation or modification of existing timber
licenses. Hence, the non-impairment clause cannot as
MR. VILLEGAS. No.82 (Emphasis and
yet be invoked. Nevertheless, granting further that a
underscoring supplied)
law has actually been passed mandating
cancellations or modifications, the same cannot still
Besides, a service contract is only a license or be stigmatized as a violation of the non-impairment
privilege, not a contract or property right which merits clause. This is because by its very nature and
protection by the due process clause of the purpose, such a law could have only been passed in
Constitution. Thus in the landmark case of Oposa v. the exercise of the police power of the state for the
Factoran, Jr,83 this Court held: purpose of advancing the right of the people to a
balanced and healthful ecology, promoting their health
x x and enhancing the general welfare. In Abe vs. Foster
x Needless to say, all licenses may thus be  Wheeler Corp., this Court stated:
revoked or rescinded by executive action. I
t is not a contract, property or a property ri "The freedom of contract, under our system of
ght protected by the due process clause of 
107

government, is not meant to be absolute. The

the Constitution. In Tan vs. Director of same is understood to be subject to
Forestry, this Court held: reasonable legislative regulation aimed at the
Page

promotion of public health, moral, safety and

welfare. In other words, the constitutional
 guaranty of non-impairment of obligations In other words, we welcome them but on
of contract is limited by the exercise of the our own terms. This is very similar to our
police power of the State, in the interest of position on loans. We welcome loans as
public health, safety, moral and general long as they are paid on our own terms, on
welfare." our ability to pay, not on their terms. For
example, the case of Peru is instructive. They
The reason for this is emphatically set forth in Nebia decided first to develop and grow, and were
vs. New York quoted in Philippine American Life willing to pay only 10 percent of their foreign
Insurance Co. vs. Auditor General, to wit: exchange earnings. That, I think, is a very
commendable position given the economic
"Under our form of government the use of situation of a country such as Peru. The
property and the making of contracts are Philippines is a similar case, especially when
normally matters of private and not of public we realize that the foreign debt was made by
concern. The general rule is that both shall be a government that was bankrupt in its desire
free of governmental interference. But neither to serve the people.
property rights nor contract rights are
absolute; for government cannot exist if the MR. MONSOD. Mr. Vice-President, I think we
citizen may at will use his property to the have to make a distinction that it is not really
detriment of his fellows, or exercise his realistic to say that we will borrow on our own
freedom of contract to work them harm. terms. Maybe we can say that we inherited
Equally fundamental with the private right is unjust loans, and we would like to repay these
that of the public to regulate it in the common on terms that are not prejudicial to our own
interest." growth. But the general statement that we
should only borrow on our own terms is a bit
In short, the non-impairment clause must y unrealistic.
ield to the police power of the state.84 (Emp
hasis and underscoring supplied; citations MR. GARCIA. Excuse me. The point I am
omitted) trying to make is that we do not have to
borrow. If we have to borrow, it must be on
The majority however argues that Oposa is not our terms. In other words, banks do not
applicable since the investment in a logging lend out of the goodness of their hearts.
concession is not as substantial an investment as that Banks lend to make a profit.
of a large scale mining contractor. Such a contention
is patently absurd. Taken to its logical conclusion, the MR. TINGSON. Mr. Vice-President, I think the
majority would have this Court exempt firms in highly trouble in our country is that we have
capital intensive industries from the exercise of police forgotten the scriptural injunction that the
power simply to protect their investment. That would borrower becomes a slave to the lender.
mean that the legislature would, for example, be That is the trouble with our country; we
powerless to revoke or amend legislative franchises of have borrowed and borrowed but we forget
public utilities, such as power and telecommunications that we become slaves to those who lend
firms, which no doubt require huge sums of capital. us.85 (Emphasis and underscoring supplied)

The majority opinion then proffers that the framers of By public respondent's information, "[t]he potential
the Constitution were pragmatic enough to know that mining wealth in the Philippines is estimated at $840
foreign entities would not enter into such agreements billion or P47 trillion or 10 times our annual GDP, and
without requiring arrangements for the protection of 15 times our total foreign debt of $56 billion. Globally,
their investments, gains, and benefits or other forms the Philippines ranks third in gold, fourth in copper,
of conditionalities. It goes on to argue that "by fifth in nickel and sixth in chromite." 86 With such high
specifying such 'agreements involving assistance,' the concentration of valuable minerals coupled with the
framers of the Constitution necessarily gave implied Filipino people's willingness to protect and preserve
assent to everything that these agreements ownership of their natural resources at the expense of
necessarily entailed; or that could reasonably be retarding or postponing the exploration, development,
deemed necessary to make them tenable and and utilization of these resources, the Philippines
effective, including management authority with clearly has the superior bargaining position and
respect to the day-to-day operations of the enterprise should be able to dictate its terms. No foreign entity
and measures for the protection of the interests of the should be able to bully the Philippines and intimidate
foreign corporation." the Government into conceding to certain conditions
incompatible with the Constitution.
The deliberations of the Constitutional Commission,
however, do not support the immediately foregoing Extent of foreign corporation's
contentions. participation in the management of an FTAA

MR. TINGSON. Within the purview of what the Foreign-owned corporations, however, are not
Gentleman is saying, would he welcome precluded from a limited participation in the
friendly foreigners to lend us their technical management of the exploration, development and
expertise in helping develop our country? utilization of natural resources.

MR. GARCIA. Part 2 of this proposal, Filipino Some degree of participation by the contractor in
control of the economy, in fact, says that the management, to assure the proper application of its
entry of foreign capital, technology and investment and/or to facilitate the technical assistance
108

business enterprises into the national and transfer of technology may be unavoidable and
economy shall be effectively regulated to not necessarily undesirable. Thus, there is merit in
ensure the protection of the interest of our respondent WMCP's contention, to which even
Page

people. petitioners conceded during the oral arguments, that a

foreign-owned corporation is not prevented from
having limited participation in the management No.
assistance or participation so long as it
is incidental to the financial or technical ATTY. LEONEN:
assistance being rendered:
Yes your Honor, but if it's
JUSTICE PANGANIBAN: management of sub-contracted
activity like a symposium then that
Alright. Going back to verba legis, you would be all right your Honor. Mining
say that the FTAA's are limited to companies do symposiums also.
financial or technical assistance only.
JUSTICE PANGANIBAN:
ATTY. LEONEN:
Management to protect their own
Either financial or technical investments, whether it be
assistance, yes your Honor. technical or financial.

ATTY. LEONEN: ATTY. LEONEN:

Full management, your Honor. Their investment, your

Honor, which cannot be the entire
JUSTICE PANGANIBAN: mining operation from my
perspective, your Honor.
Full management is excluded.
JUSTICE PANGANIBAN:
ATTY. LEONEN:
Yes I agree because there is the
Yes your Honor. Constitutional provision of control
and supervision, full control and
supervision to the State.
JUSTICE PANGANIBAN:
ATTY. LEONEN:
But incidental management to
protect the financial or technical
assistance should be allowed. And Filipino corporations your Honor.

ATTY. LEONEN: JUSTICE PANGANIBAN:

If a mining company would get the Or even Filipino corporation, the full
technical expertise to bring in control and supervision is still with the
drilling rig your Honor, and that is State.
the sole contract, then we cannot
imagine a situation were it is not ATTY. LEONEN:
the technicians that we will do the
actual drilling your Honor, but for Yes your Honor.
the entire contract area your Honor
as it is now in the FTAA then I think JUSTICE PANGANIBAN:
that would be different.
Even with Filipino citizens being the
JUSTICE PANGANIBAN: contractors, full control and
supervision is still with the State.
Yes I agree. In other words, the
words financial or technical may ATTY. LEONEN:
include parts of management, isn't
it? Its reasonable in other words if I Yes, your Honor.
may re state it, it's reasonable to
expect that entities, foreign
JUSTICE PANGANIBAN:
entities who don't know anything
about this country, well that is an
exaggeration, who know not too much In all these contract full control and
about this country, would not just supervision is with the State.
extend money, period. They would
want to have a say a little bit of say ATTY. LEONEN:
management and sometimes even
in auditing of the company, isn't it Yes your Honor and we can only hope
reasonable to expect. that the State is responsive to the
people we represent.
ATTY. LEONEN:
xxx
I would qualify my answer your Honor
with management of what your Honor. JUSTICE PANGANIBAN:
109

It means if it's for development and

utilization of the minerals. Yes, yes. Can it also not be said
Page

reading that the Constitution that the

JUSTICE PANGANIBAN: safeguards on contracts with
 foreigners was left by the The phrase "service contracts" contained in
Constitutional Commission or by the 1973 Constitution was deleted in the 1987
Constitution itself to Congress to craft Constitution because there was the general
out. perception among the Concom members that
it was used during the Marcos regime as an
ATTY. LEONEN: instrument to circumvent the 60-40 limit in
favor of Filipino ownership. There was also
I can accept your Honor that there the impression that the inclusion of the word
was a province of power that was "management" in the description of the
given to Congress, but it was service contract concept in the 1973
delimited by the fact, that they Constitution was tantamount to ownership by
removed the word management and the foreign partner.
other arrangement and put the
words either financial and The majority of the Concom members,
technical. however, recognized the vital need of the
Philippine economy for foreign capital and
JUSTICE PANGANIBAN: technology in the exploitation of natural
resources to benefit Filipinos, especially the
poor in the countryside where the mining sites
Yes but you just admitted earlier
are located. For this reason, the majority
that these two words would also
voted for "agreements involving financial or
include some form of management
technical assistance" or FTAA.
or other things to protect the
investment or the technology being
put by the foreign company. I maintain that the majority who voted Yes to
this FTAA provision realized that an FTAA
involved more than borrowing money and/or
ATTY. LEONEN:
buying technology from foreigners. If an FTAA
involved only a loan and/or purchase of
Yes your Honor for so long as it's technology, there would not have been a need
not the entire. for a constitutional provision because existing
laws in the Philippines more than adequately
JUSTICE PANGANIBAN: regulate these transactions.

Yes, yes provided the State does It can be deducted from the various comments
not lose control and supervision, of both those who voted Yes and No to the
isn't it? FTAA provision that an FTAA also involves
the participation in management of the foreign
ATTY. LEONEN: partner. What was then assumed in 1986 is
now even clearer in the way business
Yes your Honor.87 (Emphasis and organizations have evolved in the last decade
underscoring supplied) or so under the modern concept of good
governance. There are numerous
Thus, the degree of the foreign corporation's stakeholders in a business other than the
participation in the management of the mining stockholders or equity owners who participate
concern is co-extensive with and strictly limited to the actively in the management of a business
degree of financial or technical assistance extended. enterprise. Not only do creditors and suppliers
The scope of the assistance defines the limits of the demand representation in boards of directors.
participation in management. There are also other so-called independent
directors who actively participate in
However, to whatever extent the foreign corporation's management.
incidental participation in the management of the
mining concern may be, full control and In summary, the word "management" was
supervision, sufficient to protect the interest of deleted from the description of the FTAA
the Filipino people, over all aspects of mining because some CONCOM delegates
operations must be retained by the identified management with beneficial
Government. While this does not necessarily mean ownership. In order not to prolong the
that the Government must assume the role of a back debate, those in favor of the FTAA provision
seat driver, actively second guessing every decision agreed not to include the word management.
made by the foreign corporation, it does mean that But from what has been discussed above, it
sufficient safeguards must be incorporated into the was clear in the minds of those who voted
FTAA to insure that the people's beneficial interest in YES that the FTAA included more than just
their natural resources are protected at all times. a loan and/or purchase of technology from
foreigners but necessarily allowed the
Moreover, the foreign contractor's limited participation active participation of the foreign partners
in management, as the Court held in its in the management of the enterprise
Decision, should not effectively grant foreign- engaged in the exploitation of natural
owned corporations beneficial ownership over the resources.88 (Emphasis supplied).
natural resources.
Under no circumstances should the execution of an
The opinion, submitted by the OSG, of Bernardo M. FTAA be tantamount to the grant of a roving
commission whereby a foreign contractor is given
110

Villegas, who was a Member of the Constitutional

Commission and Chair of its Committee on National blanket and unfettered discretion to do whatever it
Economy and Patrimony, is not inconsistent with the deems necessary – denude watersheds, divert
Page

foregoing conclusion. Commissioner Villegas opined: sources of water, drive communities from their homes
– in pursuit of its pecuniary goals.
Nor should the scope of an FTAA be broadened to well as the control of production and other matters,
include "managerial assistance." As discussed such as expansion and development. 93 Also, while
extensively in the Decision,89 "managerial assistance" title to the resource discovered was nominally in the
– a euphemism by which full control and beneficial name of the government, the contractor had almost
ownership of natural resources were vested in unfettered control over its disposition and sale.94
foreigners – is part and parcel of the martial law era
"service contracts" and the old "concession regime" The salutary intent of the 1987 Constitution
which the 1987 Constitution has consigned to the dust notwithstanding, these stubborn features of the
bin of history. concession system persist in the Mining Act of
1995. The statute allows a foreign-owned corporation
The elimination of the phrase "service contracts" to carry out mining operations,95 which includes the
effectuates another purpose. Intervenor PCM agrees conduct of exploration,96 development97 and
that the Constitution tries to veer away from the old utilization  of the resources.99 The same law grants
98

concession system,90 which vested foreign-owned foreign contractors auxiliary mining rights, i.e., timber
corporations control and beneficial ownership over rights,100 water rights,101 the right to possess
Philippine natural resources. Hence, the 1987 explosives,  easement rights,103 and entry into private
102

Constitution also deleted the provision in the 1935 lands and concession areas.104 These are the very
and 1973 Constitutions authorizing the State to grant same rights granted under the old concession and
licenses, concessions, or leases for the exploration, service contract systems.
exploitation, development, or utilization of natural
resources.91 The majority opinion proposes two alternative
standards of Government control over FTAA
Prof. Agabin had no flattering words for the operations. Thus, in the opening paragraphs it states:
concession system, which he described in his position
paper as follows: Full control is not anathema to day-to-day
management by the contractor, provided that
Under the concession system, the the State retains the power to direct overall
concessionaire makes a direct equity strategy; and to set aside, reverse, or
investment for the purpose of exploiting a modify plans and actions of the contractor.
particular natural resource within a given area. The idea of full control is similar to that
Thus, the concession amounts to a which is exercised by the board of
complete control by the concessionaire directors of a private corporation x x x
over the country's natural resource, for it (Emphasis and underscoring supplied)
is given exclusive and plenary rights to
exploit a particular resource and is in However, the majority opinion subsequently
effect assured ownership of that resource substantially reduces the scope of its definition of
at the point of extraction. In consideration "control" in this wise:
for the right to exploit a natural resource, the
concessionaire either pays rent or royalty The concept of control adopted in Section 2
which is a fixed percentage of the gross of Article XII must be taken to mean less than
proceeds. But looking beyond the legal dictatorial, all-encompassing control; but
significance of the concession regime, we can nevertheless sufficient to give the State
see that there are functional implications the power to direct, restrain, regulate and
which give the concessionaire great govern the affairs of the extractive
economic power arising from its exclusive enterprises. Control by the State may be on a
equity holding. This includes, first, macro level, through the establishment of
appropriation of the returns of the policies, guidelines, regulations, industry
undertaking, subject to a modest royalty; standards and similar measures that would
second, exclusive management of the enable the government to control the
project; third, control of production of the conduct of affairs in various enterprises
natural resource, such as volume of and restrain activities deemed not
production, expansion, research and desirable or beneficial. (Emphasis and
development; and fourth, exclusive underscoring supplied; citations omitted;
responsibility for downstream operations, italics in the original)
like processing, marketing, and
distribution. In short, even if nominally, the
This second definition is apparently analogous to
state is the sovereign and owner of the
regulatory control which the Government is
natural resource being exploited, it has
automatically presumed to exercise over all business
been shorn of all elements of control over
activities by virtue of the Police Power. This definition
such natural resource because of the
of the "full control and supervision" mandated by
exclusive nature of the contractual regime
Section 2, Article XII of the Constitution strikes a
of the concession. The concession system,
discordant and unconvincing chord as it gives no
investing as it does ownership of natural
effect to the mandated "full" character of the State's
resources, constitutes a consistent
control but merely places it at par with any other
inconsistency with the principle embodied in
business activity or industry regulated by the
our Constitution that natural resources belong
Government.
to the State and shall not be alienated, not to
mention the fact that the concession was the
bedrock of the colonial system in the But even under this second and more limited concept
exploitation of natural of regulatory control, the provisions of the Mining Act
resources.92 (Underscoring in the original) pertaining to FTAAs do not pass the test of
111

constitutionality.
Vestiges of the concession system endured in the
service contract regime, including the vesting on the To be sure, the majority opinion cites a litany of
Page

contractor of the management of the enterprise, as documents, plans, reports and records which the
foreign FTAA contractor is obliged to submit or make
available under the Mining Act and DAO 96-40. exploration permit, mining agreement and
However, the mere fact that the Act requires the financial or technical assistance agreement.
submission of work programs and minimum
expenditure commitments105 does not provide An examination of the foregoing fails to impress. For
adequate protection. These were also required under instance, how does cancellation of the FTAA under
the old concession106 and service contract107 systems, Section 97 for nonpayment of taxes and fees
but did not serve to place full control and supervision (comprising the "basic share" of the government) for
of the country's natural resources in the hands of the two consecutive years facilitate the collection of the
Government. unpaid taxes and fees? How does it preserve and
protect the beneficial interest of the Filipino people?
Conspicuously absent from the Mining Act are For that matter, how does the DENR administratively
effective means by which the Government can protect compel compliance with the anti-pollution and other
the beneficial interest of the Filipino people in the requirements?109 If minerals are found to have been
exploration, development and utilization of their sold overseas at less than the most advantageous
resources. It appears from the provisions of the market prices, how does the DENR obtain satisfaction
Mining Act that the Government, once it has from the offending foreign FTAA contractor for the
determined that a foreign corporation is eligible for an difference?
FTAA and enters into such an agreement, has very
little say in the corporation's actual operations. In sum, the enforcement provisions of the Mining Act
and its Implementing Rules are scarcely effective,
Thus, when pressed to identify the mechanism by and, worse, perceptibly less than the analogous
which the Government can administratively compel provisions of other Government Regulatory Agencies.
compliance with the foregoing requirements as well as
the other terms and conditions of the Mining Act, DAO For instance, the Bangko Sentral Ng Pilipinas, the
96-40 and DAO 99-56, the majority can only point to Central Monetary Authority mandated by the
the cancellation of the agreement(s) and/or the Constitution to exercise supervision (but
incentives concerned under Section 95 to 99 of the not full control and supervision) over banks,110 is
Mining Act:108 empowered to (1) appoint a conservator with such
powers as shall be deemed necessary to take charge
CHAPTER XVII of the assets, liabilities and management of a bank or
quasi-bank;111 (2) under certain well defined
Ground for Cancellation, Revocation, and conditions, summarily and without need for prior
Termination hearing forbid a bank from doing business in the
Philippines and appoint the Philippine Deposit
SECTION 95. Late or Non-filing of Insurance Corporation as receiver;112 and (3) impose a
Requirements. — Failure of the permittee or number of administrative sanctions such as (a) fines
contractor to comply with any of the not to exceed P30,000 per day for each violation, (b)
requirements provided in this Act or in its suspension of a bank's rediscounting privileges, (c)
implementing rules and regulations, without a suspension of lending or foreign exchange operations
valid reason, shall be sufficient ground for the or authority to accept new deposits or make new
suspension of any permit or agreement investments, (d) suspension of interbank clearing
provided under this Act. privileges, and (e) revocation of quasi-banking
license.113
SECTION 96. Violation of the Terms and
Conditions of Permit or Agreements. — Similarly, to give effect to the Constitutional mandate
Violation of the terms and conditions of the to afford full protection to labor, 114 the Labor
permits or agreements shall be a sufficient Code115 grants the Secretary of Labor the power to (1)
ground for cancellation of the same. issue compliance orders to give effect to the labor
standards provisions of the Code;116 and (2) enjoin an
intended or impending strike or lockout by assuming
SECTION 97. Non-payment of Taxes and
jurisdiction over a labor dispute in an industry
Fees. — Failure to pay taxes and fees due the
determined to be indispensable to the national
Government for two (2) consecutive years
interest.117
shall cause the cancellation of the exploration
permit, mineral agreement, financial or
technical assistance agreement and other Under the Tax Code, the Commissioner of Internal
agreements and the re-opening of the area Revenue has the power to (1) temporarily suspend
subject thereof to new applicants. the business operations of a taxpayer found to have
committed certain specified violations;118 (2) order the
constructive distraint of the property of a
SECTION 98. Suspension or Cancellation of
taxpayer;119 and (3) impose the summary remedies of
Tax Incentives and Credits. — Failure to abide
distraint of personal property and or levy on real
by the terms and conditions of tax incentives
property for nonpayment of taxes.120
and credits shall cause the suspension or
cancellation of said incentives and credits.
In comparison, the Mining Act and its Implementing
Rules conspicuously fail to provide the DENR with
SECTION 99. Falsehood or Omission of Facts
anything remotely analogous to the foregoing
in the Statement — All statements made in
regulatory and enforcement powers of other
the exploration permit, mining agreement and
government agencies.
financial or technical assistance agreement
shall be considered as conditions and
essential parts thereof and any falsehood in In fine, the provisions of the Mining Act and its
112

said statements or omission of facts therein Implementing Rules give scarcely more than lip
which may alter, change or affect substantially service to the constitutional mandate for the State
the facts set forth in said statements may to exercise full control and supervision over the
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cause the revocation and termination of the exploration, development and utilization of
Philippine Natural Resources. Evaluated as a
whole and in comparison with other government (composed only of taxes and fees) shall not be
agencies, the provisions of the Mining Act and its collected until after the foreign corporation has "fully
Implementing Rules fail to meet even the reduced recovered its pre-operating expenses, exploration,
standard of effective regulatory control over and development expenditures, inclusive." In one
mining operations. In effect, they abdicate control breath this provision virtually guarantees the foreigner
over mining operations in favor of the foreign a return on his investment while simultaneously
FTAA contractor. For this reason, the provisions leaving the Government's (and People's) share to
of the Mining Act, insofar as they pertain to FTAA chance.
contracts, must be declared unconstitutional and
void. It is, therefore, clearly evident that the foregoing
provisions of the Mining Act effectively transfer the
The majority opinion vigorously asserts that it is the beneficial ownership over the resources covered by
Chief Executive who exercises the power of control on the agreement to a foreigner, in contravention of the
behalf of the State. letter and spirit of the Constitution.

This only begs the question. How does President Consequently, the assailed Decision inescapably
effectively enforce the terms and conditions of an concluded that:
FTAA? What specific powers are subsumed within the
constitutionally mandated "power of control?" On The underlying assumption in all these
these particular matters the majority opinion, like the provisions is that the foreign contractor
Mining Act, is silent. manages the mineral resources, just like the
foreign contractor in a service contract.125
Provisions of the Mining Act pertaining to FTAAs
void for conveying beneficial ownership of The Mining Act gives the foreign-owned
Philippine mineral resources to foreign corporation virtually complete control, not mere
contractors "incidental" participation in management, over the
entire operations.
An examination of the Mining Act reveals that the law
grants the lion's share of the proceeds of the mining The law is thus at its core a retention of the
operation to the foreign corporation. Thus the second concession system. It still grants beneficial
and third paragraphs of Section 81 of the law provide: ownership of the natural resources to the foreign
contractor and does little to affirm the State's
SECTION 81. Government Share in Other ownership over them, and its supervision and
Mineral Agreements. — x x x control over their exploration, development and
utilization.
The Government share in financial or
technical assistance agreement shall consist While agreeing that the Constitution vests the
of, among other things, the contractor's beneficial ownership of Philippine minerals with the
corporate income tax, excise tax, special Filipino people, entitling them to gains, rewards and
allowance, withholding tax due from the advantages generated by these minerals, the majority
contractor's foreign stockholders arising from opinion nevertheless maintains that the Mining Act, as
dividend or interest payments to the said implemented by DENR Administrative Order 99-
foreign stockholder in case of a foreign 56126 (DAO 99-56), is constitutional as, so it claims, it
national and all such other taxes, duties does not "convey beneficial ownership of any mineral
and fees as provided for under existing resource or product to any foreign FTAA contractor."
laws. The majority opinion adds that the State's share, as
expounded by DAO 99-56, amounts to "real
The collection of Government share in contributions to the economic growth and general
financial or technical assistance welfare of the country," at the same time allowing the
agreement shall commence after the contractor to recover "a reasonable return on its
financial or technical assistance investments in the project."
agreement contractor has fully recovered
its pre-operating expenses, exploration, Under DAO 99-56, the "government's share" in an
and development expenditures, FTAA is divided into (1) a "basic government share"
inclusive. (Emphasis supplied) composed of a number of taxes and fees127 and (2) an
"additional government share"128 computed according
Under the foregoing provisions, the Government to one of three possible methods – (a) a 50-50
does not receive a share in the proceeds of the sharing in the cumulative present value of cash
mining operation. All it receives are taxes and fees flows,129 (b) a profit related additional government
from the foreign corporation, just as in the old share130 or (c) an additional share based on the
concession121 and service contract122 regimes. The cumulative net mining revenue131 – at the option of the
collection of taxes and fees cannot be considered a contractor.
return on the resources mined corresponding to
beneficial ownership of the Filipino people. Taxes are Thus, the majority opinion claims that the total
collected under the State's power to generate funds to government share, equal to the sum of the "basic
finance the needs of the citizenry and to advance the government share" and the "additional government
common weal.123 They are not a return on investment share," will achieve "a fifty-fifty sharing – between the
or property. Similarly, fees are imposed under the government and the contractor – of net benefits from
police power primarily for purposes of mining."
regulation.124 Again, they do not correspond to a return
113

on investment or property. This claim is misleading and meaningless for two

reasons:
Even more galling is the stipulation in the above-
Page

quoted third paragraph that the Government's share

First, as priorly discussed, the taxes and fees which output thereof at the time of removal, in the
make up the government's "basic share" cannot case of those locally extracted or produced; or
be considered a return on the resources mined the value used by the Bureau of Customs in
corresponding to the beneficial ownership of the determining tariff and customs duties, net of
Filipino people. Again, they do not correspond to a excise tax and value-added tax, in the case of
return on investment or property. importation.

Second, and more importantly, the provisions of the (3) On all metallic minerals, a tax based on
Mining Act effectively allow the foreign contractor the actual market value of the gross output
to circumvent all the provisions of DAO 99-56, thereof at the time of removal, in the case of
including its intended "50-50 sharing" of the net those locally extracted or produced; or the
benefits from mining, and reduce government's value used by the Bureau of Customs in
total share to as low as TWO percent (2%) of the determining tariff and customs duties, net of
value of the minerals mined. excise tax and value-added tax, in the case of
importation, in accordance with the following
The foreign contractor can do this because Section 39 schedule:
of the Mining Act allows it to convert its FTAA into a
Mineral Production-Sharing Agreement (MPSA) by (a) Copper and other metallic
the simple expedient of reducing its equity in the minerals:
corporation undertaking the FTAA to 40%:
(i) On the first three (3) years
SECTION 39. Option to Convert into a Mineral upon the effectivity of this Act,
Agreement. — The contractor has the one percent (1%);
option to convert the financial or technical
assistance agreement to a mineral (ii) On the fourth and fifth year,
agreement at any time during the term of one and a half percent (1
the agreement, if the economic viability of the 1/2%); and
contract area is found to be inadequate to
justify large-scale mining operations, after (iii) On the sixth year and
proper notice to the Secretary as provided for thereafter, two percent (2%)
under the implementing rules and regulations:
Provided, That the mineral agreement shall
(b) Gold and chromite, two percent
only be for the remaining period of the original
(2%)
agreement.
(4) On indigenous petroleum, a tax of fifteen
In the case of a foreign contractor, it shall
percent (15%) of the fair international market
reduce its equity to forty percent (40%) in
price thereof, on the first taxable sale, such
the corporation, partnership, association,
tax to be paid by the buyer or purchaser within
or cooperative. Upon compliance with this
15 days from the date of actual or constructive
requirement by the contractor, the Secretary
delivery to the said buyer or purchaser. The
shall approve the conversion and execute
phrase 'first taxable sale, barter, exchange or
the mineral production-sharing
similar transaction' means the transfer of
agreement. (Emphasis and underscoring
indigenous petroleum in its original state to a
supplied)
first taxable transferee. The fair international
market price shall be determined in
And under Section 80 of the Mining Act, in connection consultation with an appropriate government
with Section 151(a) of the National Internal Revenue agency.
Code132 (Tax Code), the TOTAL GOVERNMENT
SHARE in an MPSA is ONLY TWO PERCENT (2%)
For the purpose of this subsection,
of the value of the minerals. Section 80 of the Mining
'indigenous petroleum' shall include locally
Act provides:
extracted mineral oil, hydrocarbon gas,
bitumen, crude asphalt, mineral gas and all
SECTION 80. Government Share in Mineral other similar or naturally associated
Production Sharing Agreement. — The total substances with the exception of coal, peat,
government share in a mineral production bituminous shale and/or stratified mineral
sharing agreement shall be the excise tax deposits. (Emphasis supplied)
on mineral products as provided
in Republic Act No. 7729, amending Section
By taking advantage of the foregoing provisions and
151(a) of the National Internal Revenue
selling 60% of its equity to a Filipino corporation (such
Code, as amended. (Emphasis supplied)
as any of the members of respondent-in-intervention
Philippine Chamber of Mines) a foreign contractor can
While Section 151(a) of the Tax Code reads: easily reduce the total government's share (held in
trust for the benefit of the Filipino People) in the
Sec. 151. Mineral Products. — (a) Rates of minerals mined to a paltry 2% while maintaining a
Tax. — There shall be levied, assessed and 40% beneficial interest in the same.
collected on mineral, mineral products and
quarry resources, excise tax as follows: What is more, if the Filipino corporation acquiring the
foreign contractor's stake is itself 60% Filipino-owned
(1) On coal and coke, a tax of ten pesos and 40% foreign-owned (a "60-40" Filipino corporation
(P10.00) per metric ton. such as Sagittarius Mines, the putative purchaser of
114

WMC's 100% equity in WMCP), then the total

(2) On non-metallic minerals and quarry beneficial interest of foreigners in the mineral output
resources, a tax of two percent (2%) based of the mining concern would constitute a majority of
Page

on the actual market value of the annual gross 64%133 while the beneficial ownership of Filipinos
would, at most,134 amount to 36% – 34% for the desire to provide some form of incentive
Filipino stockholders of the 60-40 Filipino corporation for the principal foreign stockholder in
and 2% for the Government (in trust for the Filipino WMCP to eventually reduce its equity
People). position and ultimately divest itself thereof
in favor of Filipino citizens and
The foregoing scheme, provided for in the Mining Act corporations. However, as finally
itself, is no different and indeed is virtually identical structured, Section 7.9 has the deleterious
to that embodied in Section 7.9 of the WMCP effect of depriving government of the
FTAA which the majority opinion itself found to be entire 60 percent share in WMCP's net
"without a doubt grossly disadvantageous to the mining revenues, without any form of
government, detrimental to the interests of the compensation whatsoever. Such an
Filipino people, and violative of public policy:" outcome is completely unacceptable.

x x x While Section 7.7 gives the government The whole point of developing the nation's
a 60 percent share in the net mining revenues natural resources is to benefit the Filipino
of WMCP from the commencement of people, future generations included. And the
commercial production; Section 7.9 deprives State as sovereign and custodian of the
the government of part or all of the said 60 nation's natural wealth is mandated to protect,
percent. Under the latter provision, should conserve, preserve and develop that part of
WMCP's foreign shareholders – who originally the national patrimony for their benefit. Hence,
owned 100 percent of the equity – sell 60 the Charter lays great emphasis on "real
percent or more of its outstanding capital contributions to the economic growth and
stock to a Filipino citizen or corporation, the general welfare of the country" [Footnote 75 of
State loses its right to receive its 60 percent the Dissent omitted] as essential guiding
share in net mining revenues under Section principles to be kept in mind when negotiating
7.7. the terms and conditions of FTAAs.

Section 7.9 provides xxx

The percentage of Net Mining Revenues Section 7.9 of the WMCP FTAA effectively
payable to the Government pursuant to gives away the State's share of net
Clause 7.7 shall be reduced by 1percent of mining revenues (provided for in Section 7.7)
Net Mining Revenues for every 1percent without anything in exchange. Moreover, this
ownership interest in the Contractor (i.e., outcome constitutes unjust enrichment on
WMCP) held by a Qualified Entity. the part of local and foreign stockholders
of WMCP. By their mere divestment of up to
Evidently, what Section 7.7 grants to the State 60 percent equity in WMCP in favor of Filipino
is taken away in the next breath by Section citizens and/or corporations, the local and
7.9 without any offsetting compensation to the foreign stockholders get a windfall. Their
State. Thus, in reality, the State has no share in the net mining revenues of WMCP is
vested right to receive any income from automatically increased, without their having
the FTAA for the exploration of its mineral to pay the government anything for it. In
resources. Worse, it would seem that what short, the provision in question is without
is given to the State in Section 7.7 is by a doubt grossly disadvantageous to the
mere tolerance of WMCP's foreign government, detrimental to the interests of
stockholders, who can at any time cut off the Filipino people, and violative of public
the government's entire 60 percent share. policy. (Emphasis supplied; italics and
They can do so by simply selling 60 underscoring in the original; footnotes omitted)
percent of WMCP's outstanding stock to a
Philippine citizen or corporation. The foregoing disquisition is directly applicable to the
Moreover, the proceeds of such sale will of provisions of the Mining Act. By selling 60% of its
course accrue to the foreign stockholders outstanding equity to a 60% Filipino-owned and 40%
of WMCP, not to the State. foreign-owned corporation, the foreign contractor can
readily convert its FTAA into an MPSA. Effectively,
The sale of 60 percent of WMCP's the State's share in the net benefits from mining
outstanding equity to a corporation that is 60 will be automatically and drastically reduced from
percent Filipino-owned and 40 percent the theoretical 50% anticipated under DAO 99-56
foreign-owned will still trigger the operation of to merely 2%. What is given to the State by
Section 7.9. Effectively, the State will lose Section 81 and DAO 99-56 is all but eliminated by
its right to receive all 60 percent of the net Sections 39 and 80. At the same time, foreign
mining revenues of WMCP; and foreign stockholders will beneficially own up to 64% of
stockholders will own beneficially up to 64 the mining concern, consisting of the remaining
percent of WMCP, consisting of the 40% foreign equity therein plus the 24% pro-rata
remaining 40percent foreign equity therein, share in the buyer-corporation.
plus the 24 percent pro-rata share in the
buyer-corporation. It is possible that, like Section 7.9 of the WMCP
FTAA, Section 39 of the Mining Act was intended to
xxx provide some form of incentive for the foreign FTAA
contractor to eventually reduce its equity position and
ultimately divest itself thereof in favor of Filipino
At bottom, Section 7.9 has the effect of
citizens and corporations. However, the net effect is
115

depriving the State of its 60 percent share in

to allow the Filipino people to be robbed of their
the net mining revenues of WMCP without
just share in Philippine mineral resources. Such
any offset or compensation whatsoever. It is
Page

an outcome is completely unacceptable and

possible that the inclusion of the offending
cannot be sanctioned by this Court.
provision was initially prompted by the
By this simple conversion, which may be availed of at In the event that the Contractor exceeds the
any time, the local and foreign stockholders will obtain minimum expenditure requirement in any one
a windfall at the expense of the Government, which is (1) year, the amount in excess may be carried
the trustee of the Filipino people. The share of these forward and deducted from the minimum
stockholders in the net mining revenues from expenditure required in the subsequent year.
Philippine resources will be automatically increased In case the minimum ground expenditure
without their having to pay the government anything in commitment for a given year is not met for
exchange. justifiable reasons as determined by the
Bureau/concerned Regional Office, the
On this basis alone, and despite whatever other unexpended amount may be spent on the
differences of opinion might exist, the majority must subsequent year(s) of the exploration period.
concede that the provisions of the Mining Act are (Emphasis supplied)
grossly disadvantageous to the government,
detrimental to the interests of the Filipino people, By converting its FTAA to an MPSA just before
and violative of Section 2, Article XII of the undertaking development, construction and utilization
Constitution. activities, a foreign contractor further maximizes its
profits by avoiding its obligation to make a minimum
En passant, it is significant to note that Section 39 of investment of US$ 50,000,000.00. Assuming an
the Mining Act allows an FTAA holder to covert its exploration term of 6 years, it will have paid out only a
agreement to an MPSA "at any time during the term little over US$ 2.4 million136 in minimum ground
of the agreement." expenditures.

As any reasonable person with a modicum of Clearly, under the terms and provisions of the
business experience can readily determine, Mining Act, even the promised influx of tens of
the optimal time for the foreign contractor to convert millions of dollars in direct foreign investments is
its FTAA into an MPSA is after the completion of the merely hypothetical and ultimately illusory.
exploration phase and just before undertaking the
development, construction and utilization phase. This Grant of Exploration Permits to Foreign
is because under Section 56 (a) of DAO 40-96, the Corporations is Unconstitutional
requirement for a minimum investment of Fifty Million
U.S. Dollars (US$ 50,000,000.00)135 is only applicable The majority is also convinced that Section 3(aq) of
during the development, construction and utilization the Mining Act, defining foreign corporations as a
phase and NOT during the exploration phase where qualified entity for the purposes of granting
the foreign contractor need only comply with the exploration permits, is "not unconstitutional."
stipulated minimum ground expenditures:
The questioned provision reads:
SECTION 56. Terms and Conditions of an
FTAA. — The following terms, conditions and SECTION 3. Definition of Terms. — As used
warranties shall be incorporated in the FTAA, in and for purposes of this Act, the following
namely: terms, whether in singular or plural, shall
mean:
a. A firm commitment, in the form of a sworn
statement during the existence of the xxx
Agreement, that the Contractor shall comply
with minimum ground expenditures during
(aq) "Qualified person" means any citizen of
the exploration and pre-feasibility periods
the Philippines with capacity to contract, or a
as follows:
corporation, partnership, association, or
cooperative organized or authorized for the
Year US $/Hectare purpose of engaging in mining, with technical
and financial capability to undertake mineral
12 resources development and duly registered in
accordance with law at least sixty per centum
22 (60%) of the capital of which is owned by
citizens of the Philippines: Provided, That a
38 legally organized foreign-owned
corporation shall be deemed a qualified
48 person for purposes of granting an
exploration permit, financial or technical
assistance agreement or mineral processing
5 18
permit. (Emphasis supplied)
6 23
In support of its contention that the above-quoted
provision does not offend against the Constitution, the
and a minimum investment of Fifty Million majority opinion states that: (1) "there is no prohibition
US Dollars ($50,000,000.00) or its at all against foreign or local corporations or
Philippine Peso equivalent in the case of contractors holding exploration permits;" and (2) an
Filipino Contractor for infrastructure and "exploration permit serves a practical and legitimate
development in the contract area. If a purpose in that it protects the interests and preserves
Temporary/Special Exploration Permit has the rights of the exploration permit grantee x x x
been issued prior to the approval of an FTAA, during the period of time that it is spending heavily on
116

the exploration expenditures incurred shall exploration works, without yet being able to earn
form part of the expenditures during the first revenues x x x."
year of the exploration period of the FTAA.
Page
The majority opinion also characterizes an exploration Thus, all that a foreign mining company need do to
permit as "an authorization for the grantee to spend further maximize its profits and further reduce the
its funds on exploration programs that are pre- Government's revenue from mining operations is to
approved by the government." And it comments that apply for an exploration permit and content itself with
"[t]he State risks nothing and loses nothing by the "smaller" permit area of 400 meridional blocks
granting these permits" to foreign firms. onshore (which itself is not small considering that it is
equivalent to 32,400 hectares or 324,000,000 square
These contentions fail for two obvious reasons. meters).140 It is not obligated to pay any minimum
ground expenditures during the exploration period.
First, setting aside for the moment all disagreements
pertaining to the construction of Section 2, Article XII Should it discover minerals in commercial quantities, it
of the Constitution, the following, at the very least, can circumvent the Fiscal Regime in DAO 99-56 by
may be said to have been conclusively determined by divesting 60% of its equity in favor of a Philippine
this Court: (1) the only constitutionally sanctioned corporation and opting to enter into an MPSA. By
method by which a foreign entity may participate in doing so it automatically reduces the Government's
the natural resources of the Philippines is by virtue TOTAL SHARE to merely 2% of value of the minerals
of paragraph 4 of Section 2, Article XII of the mined by operation of Section 81.
Constitution; (2) said provision requires that
an agreement be entered into (3) between And if the Philippine corporation to which it divested
the President and the foreign corporation (4) for its 60% foreign equity is itself a 60-40 Philippine
the large-scale exploration, development, and Corporation, then the beneficial interest of foreigners
utilization of minerals, petroleum, and other mineral in the minerals mined would be a minimum of 64%.
oils (5) according to the general terms and
conditions provided by law, (6) based on real In light of the foregoing, Section 3 (aq), in so far as it
contributions to the economic growth and general allows the granting of exploration permits to foreign
welfare of the country; (7) such agreements corporations, is patently unconstitutional, hence, null
will promote the development and use of local and void.
scientific and technical resources; and (8) the
President shall notify the Congress of every II
contract entered into in accordance with this
provision, within thirty days from its execution.
Invalidity of the WMCP FTAA Sale of foreign
interest in WMCP to a Filipino corporation
However, by the majority opinion's express did not render the case moot and academic.
admission, the grant of an exploration permit does not
even contemplate the entry into an
Respondent WMCP, now renamed Tampakan Mineral
agreement between the State and the applicant
Resources Corporation, submits that the case has
foreign corporation since "prior to the issuance of
been rendered moot since "[e]xcept for the nominal
such FTAA or mineral agreement, the exploration
shares of directors, 100% of TMRC's share are now
permit grantee (or prospective contractor) cannot yet
owned by Sagittarius Mines, which is a Filipino-owned
be deemed to have entered into any contract or
corporation. More than 60% of the equity of
agreement with the State."
Sagittarius is owned by Filipinos or Filipino-owned
corporations."141 This Court initially reserved judgment
Consequently, the grant of an exploration permit – on this issue.142
which is not an agreement – cannot possibly be
construed as being favorably sanctioned by
Petitioner invokes by analogy the rule that where land
paragraph 4 of Section 2, Article XII of the
is invalidly transferred to an alien who subsequently
Constitution which refers to "agreements … involving
becomes a Filipino citizen or transfers it to one, the
either financial or technical assistance." Not falling
infirmity in the original transaction is considered cured
within the exception embodied in paragraph 4 of
and the title of the transferee is rendered valid,
Section 2, Article XII of the Constitution, the grant of
citing Halili v. Court of Appeals.143 The rationale for
such a permit to a foreign corporation is prohibited
this rule is that if the ban on aliens from acquiring
and the proviso providing for such grant in Section 3
lands is to preserve the nation's lands for future
(aq) of the Mining Act is void for being
generations of Filipinos, that aim or purpose would not
unconstitutional.
be thwarted but achieved by making lawful the
acquisition of real estate by Filipino citizens.144
Second, given the foregoing discussion on the
circumvention of the State's share in an FTAA, it is
Respondent WMCP's analogy is fallacious. Whether
clearly evident that to allow the grant of exploration
the legal title to the corporate vehicle holding the
permits to foreign corporations is to allow the whole-
FTAA has been transferred from a foreigner to a
sale circumvention of the entire system of FTAAs
Filipino is irrelevant. What is relevant is whether a
mandated by the Constitution.
foreigner has improperly and illegally obtained an
FTAA and has therefore benefited from the
For Chapter IV of the Mining Act on Exploration exploration, development or utilization of Philippine
Permits grants to the permit holder, including foreign natural resources in a manner contrary to the
corporations, the principal rights conferred on an provisions of the Constitution.
FTAA contractor during the exploration phase,
including (1) the right to enter, occupy and explore the
As above-stated the doctrine enunciated in Halili is
permit area under Section 23,137 and (2) the exclusive
based on the premise that the purpose of the
right to an MPSA or other mineral agreements or
Constitution in prohibiting alien ownership of
FTAAs upon the filing of a Declaration of Mining
agricultural land is to retain the ownership or legal
Project Feasibility under Sections 23 and 24;138 but
117

title of the land in the hands of Filipinos. This purpose

requires none of the obligations of an FTAA – not
is not identical or even analogous to that in Section 2,
even the obligation under Section 56 of DAO 40-96 to
Article XII of the Constitution. As priorly discussed, the
Page

pay the minimum ground expenditures during the

primary purpose of the provisions on National
exploration and feasibility period.139
Patrimony is to preserve to the Filipino people billion peso152 interest in Philippine mineral
the beneficial ownership of their natural resources resources located in a contract area
– i.e. the right to the gains, rewards and advantages of 99,387 (alleged to have later been reduced to
generated by their natural resources. Except under 30,000)153 hectares of land spread across the four
the terms of Section 2, Article XII, foreigners are provinces of South Cotabato, Sultan Kudarat, Davao
prohibited from involving themselves in the del Sur and North Cotabato?
exploration, development or utilization of these
resources, much less from profiting from them. Clearly then, the issues of this case have not been
rendered moot by the sale of WMC's 100% interest in
Divestment by a foreigner of an illegally acquired right WMCP to a Filipino corporation, whether the latter be
to mine Philippine resources does not alter the illegal Sagittarius or Lepanto. If the FTAA is held to be valid
character of the right being divested or sold. Indeed, under the Constitution, then the sale is valid and,
such divestment or sale is obviously a method by more importantly, WMC's US$10,000,000.00 interest
which the foreigner may derive pecuniary benefit from in Philippine mineral deposit, arising as it did from the
his unlawful act since he receives payment for his sale and its prior 100% ownership of WMCP, is
illegally acquired interest in the country's natural likewise valid. However, if the FTAA is held to be
resources. invalid, then neither WMC's interest nor the sale
which gave rise to said interest is valid for no
To rule otherwise would be to condone, even to invite, foreigner may profit from the natural resources of
foreign entities to obtain Philippine mining interests in the Republic of the Philippines in a manner
violation of the Constitution with the assurance that contrary to the terms of the Philippine
they can escape liability and at the same time make a Constitution. If held unconstitutional, the WMCP
tidy sum by later selling these interests to Filipinos. FTAA is void ab initio for being contrary to the
This is nothing less than allowing foreign speculation fundamental law and no rights may arise from it,
in Philippine natural resources. Worse, there is the either in favor of WMC or its Filipino transferee.
very real possibility that these foreign entities may
intentionally inflate the value of their illegally–acquired Evidently, the transfer of the shares in WMCP from
mineral rights to the detriment of their Filipino WMC Resources International Pty. Ltd. (WMC), a
purchasers as the past Bre-X scandal145 and recent foreign-owned corporation, to a Filipino-owned one,
Shell oil reserve controversy146 vividly illustrate. whether Sagittarius or Lepanto, now presently
engaged in a dispute over said shares,154 did not
To allow a foreigner to profit from illegally obtained "cure" the FTAA nor moot the petition at bar. On the
mining rights or FTAAs subverts and circumvents the contrary, it is the Decision in this case that rendered
letter and intent of Article XII of the Constitution. It those pending cases moot for the invalidation of the
facilitates rather than prevents the rape and plunder of FTAA leaves Sagittarius and Lepanto with nothing to
the nation's natural resources by unscrupulous neo- dispute.
colonial entities. It thwarts, rather than achieves, the
purpose of the fundamental law. Terms of the WMCP FTAA are
contrary to the Constitution and
As applied to the facts of this case, respondent render said FTAA null and void.
WMCP, in essence, claims that now that the operation
and management of the WMCP FTAA is in the hands The WMCP FTAA is clearly contrary to the
of a Filipino company, no serious question as to the agreements provided for in Section 2, Article XII of the
FTAA's validity need arise. Constitution. In the Decision under reconsideration,
this Court observed:
On the contrary, this very fact – that WMC has sold its
100% interest in WMCP to a Filipino company for Section 1.3 of the WMCP FTAA grants WMCP
US$10,000,000.00 – directly leads to some very "the exclusive right to explore, exploit, utilise[,]
serious questions concerning the WMCP FTAA and process and dispose of all Minerals products
its validity. First, if a Filipino corporation is capable of and by-products thereof that may be produced
undertaking the terms of the FTAA, why was an from the Contract Area." The FTAA also
agreement with a foreign owned corporation entered imbues WMCP with the following rights:
into in the first place? Second, does not the fact that,
as alleged by petitioners147 and admitted by (b) to extract and carry away any Mineral
respondent WMCP,148 Sagittarius, WMCP's putative samples from the Contract area for the
new owner, is capitalized at less than half the purpose of conducting tests and studies in
purchase price149 of WMC's shares in WMCP, a strong respect thereof;
indication that Sagittarius is merely acting as the
dummy of WMC? Third, if indeed WMCP has, to date, (c) to determine the mining and treatment
spent US$40,000,000.00 in the implementation of the processes to be utilized during the
FTAA, as it claims,150 why did WMC sell 100% of its Development/Operating Period and the
shares in WMCP for only US$10,000,000.00? Finally, project facilities to be constructed during the
considering that, as emphasized by Development and Construction Period;
WMCP,151 "payment of the purchase price by
Sagittarius to WMC will come only after the
(d) have the right of possession of the
commencement of commercial production," hasn't
Contract Area, with full right of ingress and
WMC effectively acquired a beneficial interest in any
egress and the right to occupy the same,
minerals mined in the FTAA area to the extent of
subject to the provisions of Presidential
US$10,000,000.00? If so, is the acquisition of such a
Decree No. 512 (if applicable) and not be
beneficial interest by a foreign corporation permitted
prevented from entry into private lands by
under our Constitution?
118

surface owners and/or occupants thereof

when prospecting, exploring and exploiting for
Succinctly put, the question remains: What is the minerals therein;
Page

validity of the FTAA by which WMC, a fully foreign

owned corporation, has acquired a more than half
 xxx That the subject FTAA is void for having an unlawful
cause bears reaffirmation. In onerous contracts the
(f) to construct roadways, mining, drainage, cause is understood to be, for each contracting party,
power generation and transmission facilities the prestation or promise of a thing or service by the
and all other types of works on the Contract other.157 On the part of WMCP, a foreign-owned
Area; corporation, the cause was to extend not only
technical or financial assistance but management
(g) to erect, install or place any type of assistance as well. The management prerogatives
improvements, supplies, machinery and other contemplated by the FTAA are not merely incidental
equipment relating to the Mining Operations to the two other forms of assistance, but virtually grant
and to use, sell or otherwise dispose of, WMCP full control over its mining operations. Thus, in
modify, remove or diminish any and all parts Section 8.3158 of the FTAA, in case of a dispute
thereof; between the DENR and WMCP, it is WMCP's
decision which will prevail.
(h) enjoy, subject to pertinent laws, rules and
regulations and the rights of third Parties, The questioned FTAA also grants beneficial
easement rights and the use of timber, sand, ownership over Philippine natural resources to
clay, stone, water and other natural resources WMCP, which is prohibited from entering into such
in the Contract Area without cost for the contracts not only by the fourth paragraph of Section
purposes of the Mining Operations; 2, Article XII of the Constitution, but also by the first
paragraph, the FTAA practically being a production-
sharing agreement reserved to Filipinos.
xxx
Contracts whose cause is contrary to law or public
(l) have the right to mortgage, charge or
policy are inexistent and void from the
encumber all or part of its interest and
beginning.159 They produce no effect
obligations under this Agreement, the plant,
whatsoever.160 They cannot be ratified,161 and so
equipment and infrastructure and the Minerals
cannot the WMCP FTAA.
produced from the Mining Operations;
The terms of the WMCP FTAA effectively give
x x x.
away
the Beneficial Ownership of Philippine minerals
All materials, equipment, plant and other
installations erected or placed on the Contract
As previously observed, the majority opinion finds
Area remain the property of WMCP, which
Section 7.9. of the WMCP FTAA to be "grossly
has the right to deal with and remove such
disadvantageous to the government, detrimental to
items within twelve months from the
the interests of the Filipino people, and violative of
termination of the FTAA.
public policy" since it "effectively gives away the
State's share of net mining revenues (provided for in
Pursuant to Section 1.2 of the FTAA, WMCP Section 7.7) without anything in exchange."
shall provide "[all] financing, technology,
management and personnel necessary for the
It likewise finds Section 7.8(e) of the WMCP FTAA to
Mining Operations." The mining company
be invalid. Said provision states:
binds itself to "perform all Mining
Operations . . . providing all necessary
services, technology and financing in 7.8 The Government Share shall be
connection therewith," and to "furnish all deemed to include all of the following sums:
materials, labour, equipment and other
installations that may be required for carrying xxx
on all Mining Operations." WMCP may make
expansions, improvements and replacements (e) an amount equivalent to
of the mining facilities and may add such new whatever benefits that may be
facilities as it considers necessary for the extended in the future by the
mining operations. Government to the Contractor or to
financial or technical assistance
These contractual stipulations, taken together, agreement contractors in
grant WMCP beneficial ownership over general. (Emphasis supplied)
natural resources that properly belong to the
State and are intended for the benefit of its And in its own estimation:
citizens. These stipulations are abhorrent to
the 1987 Constitution. They are precisely the Section 7.8(e) is out of place in the FTAA.
vices that the fundamental law seeks to avoid, This provision does not make any sense why,
the evils that it aims to suppress. for instance, money spent by the government
Consequently, the contract from which they for the benefit of the contractor in building
spring must be struck down.155 (Citations roads leading to the mine site should still be
omitted) deductible from the State's share in net mining
revenues. Allowing this deduction results
Indeed, save for the fact that the contract covers a in benefiting the contractor twice over. To
larger area, the subject FTAA is actually a mineral do so would constitute unjust
production sharing agreement. Respondent WMCP enrichment on the part of the contractor at
admitted as much in its Memorandum. 156 The first the expense of the government, since the
119

paragraph of Section 2, Article XII of the Constitution, latter is effectively being made to pay twice
however, allows this type of agreement only with for the same item. For being grossly
Filipino citizens or corporations. disadvantageous and prejudicial to the
Page

government and contrary to public policy,

 Section 7.8(e) is undoubtedly invalid and (1) That they be constituted to secure the
must be declared to be without effect. xxx fulfillment of a principal obligation;
(Emphasis supplied; citations omitted;
underscore in the original) (2) That the pledgor or mortgagor be
the absolute owner of the thing pledged or
The foregoing estimation notwithstanding, the majority mortgaged;
opinion declines to invalidate the WMCP FTAA on the
theory that Section 7.9 and 7.8 are separable from the (3) That the persons constituting the pledge or
rest of the agreement, which may supposedly be mortgage have the free disposal of their
given effect without the offending provisions. property, and in the absence thereof, that they
be legally authorized for the purpose.
As previously discussed, the same deleterious results
are easily achieved by the foreign contractor's Third persons who are not parties to the
conversion of its FTAA into an MPSA under the principal obligation may secure the latter by
provisions of the Mining Act. Hence, merely striking pledging or mortgaging their own property.
out Sections 7.9 and 7.8(e) of the WMCP FTAA will (Emphasis and underscoring supplied)
not suffice; the provisions pertaining to FTAAs in the
Mining Act must be stricken out for being From the foregoing provision of law, it is abundantly
unconstitutional as well. clear
that only the absolute owner of the minerals has th
Moreover, Section 7.8 (e) and 7.9 are not the only e right to mortgage the same, and under Section 2
provisions of the WMCP FTAA which convey , Article XII of the Constitution the absolute owner 
beneficial ownership of mineral resources to a foreign of the minerals is none other than the State. While
corporation. the foreign FTAA contractor may have an interest in
the proceeds of the minerals, it does not acquire
Under Section 10.2 (l) of the WMCP FTAA, the ownership over the minerals themselves.
foreign FTAA contractor shall have the right to
mortgage and encumber, not only its rights and Put differently, the act of mortgaging the minerals is
interests in the FTAA, but the very minerals an act of ownership, which, under the Constitution,
themselves: is reserved solely to the State. In purporting to grant
such power to a foreign FTAA contractor, Section
10.2 Rights of Contractor 10.2 (l) of the WMCP FTAA clearly runs afoul of the
Constitution.
The Government agrees that the Contractor
shall:- Moreover, it bears noting that to encumber natural
resources of the State to secure a foreign FTAA
xxx contractor's obligations is anomalous since Section
1.2 of the WMCP FTAA provides that "[a]ll financing,
(l) have the right to mortgage, charge or technology, management and personnel necessary
encumber all or part of its interest and for the Mining Operations shall be provided by the
obligations under this Agreement, the plant, Contractor."
equipment and infrastructure and the
Minerals produced from the Mining Indeed, even the provisions of the Mining Act,
Operations; (Emphasis supplied) irredeemably flawed though they may be, require that
the FTAA contractor have the financial capability to
Although respondents did not proffer their own undertake the large-scale exploration, development
explanation, the majority opinion theorizes that the and utilization of mineral resources in the
foregoing provision is necessitated by the conditions Philippines;162 and, specifically, that the contractor
that may be imposed by creditor-banks on the FTAA warrant that it has or has access to all the financing
contractor: required to promptly and effectively carry out the
objectives of the FTAA.163
xxx I believe that this provision may have to
do with the conditions imposed by the Under Section 10.2 (e) of the WMCP FTAA, the
creditor-banks of the then foreign contractor foreign FTAA Contractor has the power to require the
WMCP to secure the lendings made to the Government to acquire surface rights in its behalf at
latter. Ordinarily, banks lend not only on the such price and terms acceptable to it:
security of mortgages on fixed assets, but also
on encumbrances of goods produced that can 10.2 Rights of Contractor
easily be sold and converted into cash that
can be applied to the repayment of loans. The Government agrees that the Contractor
Banks even lend on the security shall:-
of accounts receivable that are collectible
within 90 days. (Citations omitted; underscore xxx
in the original)
(e) have the right to require the
It, however, overlooks the provision of Art. 2085 of the Government at the Contractor's own cost,
Civil Code which enumerates the essential requisites to purchase or acquire surface areas for
of a contract of mortgage: and on behalf of the Contractor at such
price and terms as may be acceptable to
Art. 2085. The following requisites are the Contractor. At the termination of this
120

essential to the contracts of pledge Agreement such areas shall be sold by public
and mortgage: auction or tender and the Contractor shall
Page

be entitled to reimbursement of the costs

of acquisition and maintenance, adjusted
 for inflation, from the proceeds of sale; foregoing were not enough, when read together with
(Emphasis supplied) Section 3.3,164 the foreign FTAA contractor would have
the right to hold the "surface area" for a maximum
Petitioners, in their Memorandum, point out that of 50 years, at its option.
pursuant to the foregoing, the foreign FTAA contractor
may compel the Government to exercise its power of In sum, by virtue of Sections 10.2 (e) and 3.3. of the
eminent domain to acquire the title to the land under WMCP
which the minerals are located for and in its behalf. FTAA, the foreign FTAA contractor is given the po
wer to hold inalienable mineral land of up to 5,000 
The majority opinion, however, readily accepts the hectares, with the assistance of the State's power 
explanation proffered by respondent WMCP, thus: of eminent domain, free of charge, for a period of 
up to 50 years in contravention of Section 3, Articl
Section 10.2 (e) sets forth the mechanism e XII of the Constitution:
whereby the foreign-owned contractor,
disqualified to own land, identifies to the Section 3. Lands of the public domain are
government the specific surface areas within classified into agricultural, forest or timber,
the FTAA contract area to be acquired for the mineral lands, and national parks. Agricultural
mine infrastructure. The government then lands of the public domain may be further
acquires ownership of the surface land areas classified by law according to the uses which
on behalf of the contractor, in order to enable they may be devoted. Alienable lands of the
the latter to proceed to fully implement the public domain shall be limited to
FTAA. agricultural lands. Private corporations or
associations may not hold such alienable
The contractor, of course, shoulders the lands of the public domain except by
purchase price of the land. Hence, the lease, for a period not exceeding twenty-
provision allows it, after the termination of the five years, renewable for not more than
FTAA to be reimbursed from proceeds of the twenty-five years, and not to exceed one
sale of the surface areas, which the thousand hectares in area. Citizens of the
government will dispose of through public Philippines may lease not more than five
bidding. hundred hectares, or acquire not more than
twelve hectares thereof by purchase,
homestead, or grant.
And it concludes that "the provision does not call for
the exercise of the power of eminent domain" and the
determination of just compensation. Taking into account the requirements of
conservation, ecology, and development, and
subject to the requirements of agrarian reform,
The foregoing arguments are specious.
the Congress shall determine, by law, the size
of lands of the public domain which may be
First, the provision in question clearly contemplates a acquired, developed, held, or leased and the
situation where the surface area is not already owned conditions therefor. (Emphasis supplied)
by the Government – i.e. when the land over which
the minerals are located is owned by some private
Taken together, the foregoing provisions of the
person.
WMCP FTAA amount to a conveyance to a foreign
corporation of the beneficial ownership of both the
Second, the logical solution in that situation is not, as minerals and the surface rights to the same in
asserted by respondent WMCP, to have the contravention of the clear provisions of the
Government purchase or acquire the land, but for the Constitution.
foreign FTAA contractor to negotiate a lease over the
property with the private owner.
The majority opinion posits that "[t]he acquisition by
the State of land for the contractor is just to enable the
Third, it is plain that the foreign FTAA contractor contractor to establish its mine site, build its facilities,
would only avail of Section 10.2 (e) if, for some establish a tailings pond, set up its machinery and
reason or another, it is unable to lease the land in equipment, and dig mine shafts and tunnels, etc." It
question at the price it is willing to pay. In that thus concludes that "5,000 hectares is way too much
situation, it would have the power under Section 10.2 for the needs of a mining operator."
(e) to compel the State, as the only entity which can
legally compel the landowner to involuntarily part with
Evidently, the majority opinion does not take into
his property, to acquire the land at a price dictated by
account open pit mining. Open pit or opencut mining,
the foreign FTAA contractor.
as differentiated from methods that require tunneling
into the earth, is a method of extracting minerals by
Clearly, the State's power of eminent domain is very their removal from an open pit or borrow; 165 it is a mine
much related to the practical workings of Section 10.2 working in which excavation is performed from the
(e) of the WMCP FTAA. It is the very instrument by surface.166 It entails a surface mining operation in
which the contractor assures itself that it can obtain which blocks of earth are dug from the surface to
the "surface right" to the property at a price of its own extract the ore contained in them. During the mining
choosing. Moreover, under Section 60 of DAO 40-96, process, the surface of the land is excavated forming
the contractor may, after final relinquishment, hold up a deeper and deeper pit until the end of mining
to 5,000 hectares of land in this manner. operations.167 It is used extensively in mining metal
ores, copper, gold, iron, aluminum168 – the very
More. While the foreign FTAA contractor advances minerals which the Philippines is believed to possess
the purchase price for the property, in reality it in vast quantities; and is considered the most cost-
121

acquires the "surface right" for free since under the effective mining method.169
same provision of the WMCP FTAA it is entitled to
reimbursement of the costs of acquisition and
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Furthermore, considering that FTAAs deal with large

maintenance, adjusted for inflation. And as if the scale exploration, development and utilization of
mineral resources and that the original contract area 8.2 If the Secretary gives a Rejection Notice
of the WMCP FTAA was 99,387 hectares, an open pit the Parties shall promptly meet and
mining operation covering a total of 5,000 hectares is endeavour to agree on amendments to the
not outside the realm of possibility. Work Programme or budget. If the Secretary
and the Contractor fail to agree on the
In any event, regardless of what the majority opinion proposed revision within 30 days from
considers "way too much" (or too little), it is delivery of the Rejection Notice then the
undisputed that under Section 60 of DAO 40- Work Programme or Budget or variation
96, which is among the enactments under review, the thereof proposed by the Contractor shall
contractor may, after final relinquishment, hold up to be deemed approved so as not to
5,000 hectares of land. And, under Section 3.3. of the unnecessarily delay the performance of this
WMCP FTAA, it may do so for a term of 25 years Agreement.
automatically renewable for another 25 years, at the
option of the contractor. Even measured against the majority opinion's
standards of control – i.e. either (1) the power to set
The majority opinion also argues that, although aside, reverse, or modify plans and actions of the
entitled to reimbursement of its acquisition cost at the contractor; or (2) regulatory control – the foregoing
end of the contract term, the FTAA contractor does provisions cannot pass muster. This is because, by
not acquire its surface rights for free since "the virtue of the foregoing provisions, the foreign FTAA
contractor will have been cash-out for the entire contractor has unfettered discretion to countermand
duration of the term of the contract – 25 to 50 years, the orders of its putative regulator, the DENR.
depending," thereby foregoing any interest income he
might have earned. This is the "opportunity cost" of Contrary to the majority's assertions, the foregoing
the contractor's decision to use its money to acquire provisions do not provide merely temporary or stop-
the surface rights instead of leaving it in the bank. gap solutions. The determination of the FTAA
contractor permanently reverses the "Rejection
The majority opinion does not consider the fact that Notice" of the DENR since, by the majority opinion's
"opportunity cost" is more theoretical rather than own admission, there is no available remedy for the
actual and, for that reason, is not an allowable DENR under the agreement except to seek the
deduction from gross income in an income statement. cancellation of the same.
In layman's terms it is equivalent to "the value of the
chickens that might have been hatched if only the Indeed, the justification for the foregoing provisions is
cook had not scrambled the eggs." Neither does it revealing:
consider the fact that the contractor's foregone
interest income does not find its way to the pockets of xxx First, avoidance of long delays in these
either the previous land owner (in this case, the Bugal situations will undoubtedly redound to the
B'Laans) or the State. benefit of the State as well as to the
contractor. Second, who is to say that the
But even if the contractor does incur some opportunity work program or budget proposed by the
cost in holding the surface rights for 35 to 50 years. contractor and deemed approved under
The fact remains that, under the terms of the WMCP Clause 8.3 would not be the better or more
FTAA, the contractor is given the power to hold reasonable or more effective
inalienable mineral land of up to 5,000 hectares, alternative? The contractor, being the
with the assistance of the State's power of "insider," as it were, may be said to be in a
eminent domain for a period of up to 50 years in better position than the State – an outsider
contravention of Section 3, Article XII of the looking in – to determine what work
Constitution. program or budget would be appropriate,
more effective, or more suitable under the
Clearly, Section 3 and 10.2 (e) of the WMCP FTAA in circumstances. (Emphasis and underscoring
conjunction with Section 60 of DAO 40-96, amount to supplied)
a conveyance to a foreign corporation of the beneficial
ownership of both the minerals and the surface rights Both reasons tacitly rely on the unstated assumption
over the same, in contravention of the clear provisions that the interest of the foreign FTAA contractor and
of the Constitution. that of the Government are identical. They are not.

The terms of the WMCP FTAA abdicate all control Private businesses, including large foreign-owned
over the corporations brimming with capital and technical
mining operation in favor of the foreign FTAA expertise, are primarily concerned with maximizing
contractor the pecuniary returns to their owners or shareholders.
To this extent, they can be relied upon to pursue the
The majority opinion's defense of the constitutionality most efficient courses of action which maximize their
of Section 8.1, 8.2, 8.3 of the WMCP FTAA is similarly profits at the lowest possible cost.
unpersuasive. These Sections provide:
The Government, on the other hand, is mandated to
8.1 The Secretary shall be deemed to have concern itself with more than just narrow self-interest.
approved any Work Programme or Budget With respect to the nation's natural wealth, as the
or variation thereof submitted by the majority opinion points out, the Government is
Contractor unless within sixty (60) days mandated to preserve, protect and even maximize the
after submission by the Contractor the beneficial interest of the Filipino people in their natural
Secretary gives notice declining such resources. Moreover, it is directed to ensure that the
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approval or proposing a revision of certain large-scale exploration, development and utilization of

features and specifying its reasons therefore these resources results in real contributions to the
("the Rejection Notice"). economic growth and general welfare of the nation.
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To achieve these broader goals, the Constitution

mandates that the State exercise full control and
supervision over the exploration, development and Court. The same Constitution to which the members
utilization of the country's natural resources. of this Court have sworn their unshakable loyalty and
their unwavering fidelity.
However, taking the majority opinion's reasoning to its
logical conclusion, the business "insider's opinion" Now, the unmistakable letter and intent of the 1987
would always be superior to the Government's Constitution notwithstanding, the majority of this Court
administrative or regulatory determination with respect has chosen to reverse its earlier Decision which, to
to mining operations. Consequently, it is the foreign me, would once again open the doors to foreign
contractor's opinion that should always prevail. control and ownership of Philippine natural resources.
Ultimately, this means that, at least for the majority, The task of reclaiming Filipino control over Philippine
foreign private business interests outweigh those of natural resources now belongs to another generation.
the State – at least with respect to the conduct of
mining operations. ACCORDINGLY, I vote to deny respondents' Motions
for Reconsideration.
Indeed, in what other industry can the person
regulated permanently overrule the administrative
determinations of the regulatory agency?

To any reasonable mind, the absence of an effective SEPARATE OPINION

means to enforce even administrative determinations
over an FTAA contractor, except to terminate the TINGA, J.:
contract itself, falls far too short of the concept of "full
control and supervision" as to cause the offending
FTAA to fall outside the ambit of Section 2, Article XII The Constitution was crafted by men and women of
of the Constitution. divergent backgrounds and varying ideologies.
Understandably, the resultant document is
accommodative of these distinct, at times competing
Verily, viewed in its entirety, the WMCP FTAA philosophies. Untidy as any mélange would seem, our
cannot withstand a rigid constitutional scrutiny fundamental law nevertheless hearkens to the core
since, by its provisions, it conveys both the democratic ethos over and above the obvious
beneficial ownership of Philippine minerals and inconveniences it spawns.
control over their exploration, development and
utilization to a foreign corporation. Being contrary
to both the letter and intent of Section 2, Article However, when the task of judicial construction of the
XII of the Constitution, the WMCP FTAA must be Constitution comes to fore, clarity is demanded from
declared void and of no effect whatsoever. this Court. In turn, there is a need to balance and
reconcile the diverse views that animate the
provisions of the Constitution, so as to effectuate its
A Final Note true worth as an instrument of national unity and
progress.
For over 350 years, the natural resources of this
nation have been under the control and domination of The variances and consequent challenges are vividly
foreign powers – whether political or corporate. reflected in Article XII of the Constitution on National
Philippine mineral wealth, viciously wrenched from the Patrimony, in a manner akin to Article II on
bosom of the motherland, has enriched foreign shores Declaration of Principles and State Policies. Some of
while the Filipino people, to whom such wealth justly the provisions impress as protectionist, yet there is
belongs, have remained impoverished and also an undisguised accommodation of liberal
unrecompensed. economic policies. Section 2, Article XII,1 the provision
key to this case, is one such Janus-faced creature. It
Time and time again the Filipino people have sought seems to close the door on foreign handling of our
an end to this intolerable situation. From 1935 they natural resources, but at the same time it leaves open
have struggled to assert their legal control and a window for alien participation in some aspects. The
ownership over their patrimony only to have their central question before us is how wide is the entry of
efforts repeatedly subverted – first, by the parity opportunity created by the provision.
amendment to the 1935 Constitution and
subsequently by the service contract provision in the My vote on the motions for reconsideration is hinged
1973 Constitution. on a renewed exegesis of Section 22 of Article XII in
conjunction with the proper understanding of the
It is not surprising that an industry, overly dependent nature of the power vested on the President under
on foreign support and now in decline, should implore Section 2. It has to be appreciated in relation to the
this Court to reverse itself if only to perpetuate its inherent functions of the executive branch of
otherwise economically unsustainable conduct. It is government.
even understandable, however regrettable, that a
government, strapped for cash and in the midst of a The Contract-Making Power of the President
self-proclaimed fiscal crisis, would be inclined to turn
a blind eye to the consequences of unconstitutional
legislation in the hope, however false or empty, of While all government authority emanates from the
obtaining fabulous amounts of hard currency. people, the breadth and depth of such authority are
not brought to bear by direct popular action, but
through representative government in accord with the
But these considerations should not outweigh the principles of republicanism.3 By investiture of the
Constitution. Constitution, the function of executive power is
parceled solely to the duly elected President. 4 The
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As always, the one overriding consideration of this Constitution contains several express manifestations
Court should be the will of the sovereign Filipino of executive power, such as the provision on control
people as embodied in their Constitution. The
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over all executive departments, bureaus and

Constitution which gives life to and empowers this
offices,5 as well as the so-called "Commander-in- carry out the distinction between
Chief" clause.6 legislative and executive action with
mathematical precision and divide the
Yet it has likewise been recognized in this jurisdiction branches into watertight
that "executive power" is not limited to such powers compartments, were it ever so
as are expressly granted by the Constitution. Marcos desirable to do so, which I am far from
v. Manglapus7 concedes that the President has believing that it is, or that the
powers other than those expressly stated under the Constitution requires.[At 210-211.]11
Constitution,8 and thus implies that these powers may
be exercised without being derivative from Such general power has not been diminished
constitutional authority.9 The precedental value notwithstanding the avowed intent of some of the
of Marcos v. Manglapus may be controvertible,10 but framers of the 1987 Constitution to limit the powers of
the cogency of its analysis of the scope of executive the President as a reaction to abuses under President
power is indisputable. Neither is the concept of Marcos, for as the Court noted, "the result was a
plenary executive power novel, as discussed by limitation of the specific powers of the President,
Justice Irene Cortes in her ponencia: particularly those relating to the commander-in-chief
clause, but not a diminution of the general grant of
It has been advanced that whatever power executive power."12 The critical perspective of this
inherent in the government that is neither case should spring from a recognition of this
legislative nor judicial has to be executive. elemental fact.
Thus, in the landmark decision of Springer v.
Government of the Philippine Islands, 277 Undeniably, the particular power now in question is
U.S. 189 (1928), on the issue of who between expressly provided for by Section 2, Article XII of the
the Governor-General of the Philippines and Constitution. Still, it originates from the concept of
the Legislature may vote the shares of stock executive power that is not explicitly provided for by
held by the Government to elect directors in the Constitution. As a necessary incident of the
the National Coal Company and the Philippine functions of the executive office, it can be concluded
National Bank, the U.S. Supreme Court, in that the President has the authority to enter into
upholding the power of the Governor-General contracts in behalf of the State in matters which are
to do so, said: not denied him or her or not otherwise assigned to the
other great branches of government, even if such
. . . Here the members of the general power is not categorically recognized in the
legislature who constitute a majority of Constitution. Among these traditional functions of the
the "board" and "committee" executive branch is the power to determine economic
respectively, are not charged with the policy.
performance of any legislative
functions or with the doing of anything As once noted by Justice Feliciano, the Republic of
which is in aid of performance of any the Philippines is itself a body corporate and juridical
such functions by the legislature. person vested with the full panoply of powers and
Putting aside for the moment the attributes which are compendiously described as
question whether the duties devolved "legal personality."13 As "Chief of State" the President
upon these members are vested by is also regarded as the head of this body
the Organic Act in the Governor- corporate,14 and thus is capacitated to represent the
General, it is clear that they are not State when engaging with other entities. Such
legislative in character, and still more executive function, in theory, does not require a
clear that they are not judicial. The constitutional provision, or even a Constitution, in
fact that they do not fall within the order to be operative. It is a power possessed by
authority of either of these two every duly constituted presidency starting with
constitutes logical ground for Aguinaldo's. This faculty is complementary to the
concluding that they do fall within that traditional regard of a Head of State as emblematic of
of the remaining one among which the the State he/she represents.
powers of government are divided . . .
[At 202-203; emphasis supplied.] The power to contract in behalf of the State is clearly
an executive function, as opposed to legislative or
We are not unmindful of Justice Holmes' judicial. This is easily discernible through the process
strong dissent. But in his enduring words of of exclusion. The other branches of government —
dissent we find reinforcement for the view that the legislative and the judiciary — are not similarly
it would indeed be a folly to construe the capacitated since their core functions pertain to
powers of a branch of government to embrace legislating and adjudicating respectively.
only what are specifically mentioned in the
Constitution: However, I am not making any pretense that such
executive power to contract is unimpeachable or
The great ordinances of the limitless. The Constitution frowns on unchecked
Constitution do not establish and executive power, mandating in broad strokes, the
divide fields of black and white. Even power of judicial review15 and legislative
the more specific of them are found to oversight.  The Constitution itself may expressly
16

terminate in a penumbra shading restrict the exercise of any sort of executive function.
gradually from one extreme to the Section 2 undeniably constrains the exercise of the
other. . . . executive power to contract in several regards.

xxx xxx xxx Constitutional Limitations under Section 2, Article XII

124

It does not seem to need argument to What are the express limitations under Section 2 on
Page

show that however we may disguise it the power of the executive to contract with foreign
by veiling words we do not and cannot
corporations regarding the exploration, development economic ideologies may find enactment through
and utilization of our natural resources? legislation when approved by the necessary majorities
in Congress. Legislative work includes consultative
There are two fundamental restrictions, both of which processes with persons of diverse interests, assuring
are asserted in the second paragraph of Section 2. that economic decisions need not be made solely
These are that the State retains legal ownership of all from an ivory tower. There is also the possible
natural resources,17 and that the State shall have full sanction of repudiation by the voters of legislators
control and supervision over the exploration, who prove insensate to the economic concerns of
development and utilization of natural their constituents.
resources.18 These key postulates are facially broad
and warrant clarification. They also predicate several Fifth, the President is mandated to base the decision
specific restrictions laid down in the fourth paragraph of entering into these agreements on "real
of Section 2 on the power of the President to enter contributions to the economic growth and general
into agreements with foreign corporations. These welfare of the country." In terms of real limitations, this
specific limitations are as follows: condition has admittedly little effect. The discretion as
to whether or not to enter into these agreements is
First, the natural resources that may be subject of the vested solely by the Constitution in the President, and
agreement are a limited class, particularly minerals, such exercise of discretion, pertaining as it does to
petroleum, and other mineral oils. Among the natural the political wisdom of a co-equal branch, generally
resources which are excluded from these agreements deserves respect from the courts.
are lands of the public domain, waters, coal, fisheries,
forests or timbers, wildlife, flora and fauna. Most The above conditionalities, particularly the first three,
notable of the exclusions are forests and timbers effect the desire of the framers of the 1987
which are in all respects expressly limited to Filipinos. Constitution to limit foreign participation in natural
resource-oriented enterprises. They provide a vivid
It is noteworthy that a previous version of the fourth contrast to the 1973 Constitution, which permitted
paragraph of Section 2 deliberated upon during the private persons to enter into service contracts for
1987 Constitutional Commission allowed agreements financial, technical, management, or other forms of
with foreign-owned corporations with respect to all assistance with any person or entity, including
classes of natural resources.19 However, on the foreigners, and for the exploration or utilization of any
initiative of Commissioner (now Chief Justice) Davide, of the natural resources.23 These requisites imposed
the provision was amended to limit the scope of such by the 1987 Constitution, which are significantly more
agreements to minerals, petroleum and other mineral onerous than those laid down in the 1973
oils, which Commissioner Davide recognized as Constitution, warrant obeisance by the executive
"those particular areas where Filipino capital may not branch and recognition by this Court.
be sufficient."20
Not Strictly Technical or Financial Assistance
The exclusion of timber resources from the scope
of financial/technical assistance agreements The Court's previous Decision, now for
marks a significant distinction from the service reconsideration, insisted on another restriction
contracts of old. This does not come as a purportedly imposed by the fourth paragraph of
surprise, considering well-reported abuses under Section 2. It is argued that foreign–owned
the old regime of issuing timber licensing corporations are allowed to render only technical or
agreements, which numbered in the thousands financial assistance in the large-scale exploration,
prior to the 1987 Constitution. On the other hand, development and utilization of minerals, petroleum
no similar extensive collateral damage has been and mineral oils. This conservative view is premised
reported for the petroleum and mining industry, on the sentiment that the Constitution limits foreign
capital-intensive industries whose potential for involvement only to areas where they are needed, the
government revenues in billions of pesos has overpowering intent being to allow Filipinos to benefit
long been sought after by the State.21 Hence, the from Filipino resources.24 Towards that end, the
variance in treatment from the timber industry and perception arises that the power of the executive to
the rest of the natural resources. enter into agreements with foreign-owned
corporations is an executive privilege, hampered by
Second, these agreements with foreign-owned the limitations that generally attach to the grant of
corporations can only be entered into for only large- privileges.
scale exploration, development and utilization of
minerals, petroleum, and other mineral oils. On the fundamental nature of this power, I harbor an
entirely different view. The actual art of governing
Third, it is only the President who may enter into under our Constitution does not and cannot conform
these agreements. This is another pronounced to judicial definitions of the power of any of its
change from the 1973 Constitution, which allowed branches based on isolated clauses or even single
private persons to enter into service contracts with articles torn from context.25 The previously adopted
foreign corporations. approach is rigidly formalist, and impervious to the
traditional prerogatives of executive power.
Fourth, these agreements must be in accord with the
general terms and conditions provided by law. This As I stated earlier, the executive authority to contract
proviso by itself, and more so when taken together, as is a right emanating from traditional executive
it should, with another provision, 22 entails legislative functions, and is connected with the power of the
intervention and affirmance in the exercise of this executive branch to determine economic
executive power. While it is the President who enters policy. Hence, the proper approach in interpreting
Section 2, Article XII is to tilt in favor of asserting
125

into these contracts, he/she must act within such

terms and conditions as may be prescribed by the right rather than view the provision as a
Congress through legislation. The value of legislative limitation on a privilege. To subscribe to the
Page

input as a means of influencing policy should not be Court's previous view will necessitate adopting as
discounted. Policy initiatives grounded on particular a fundamental premise that absent an express
grant of power, the executive branch has no resources does not arise from a philanthropic impulse.
capacity to contract since such capacity arises It is a pure and simple investment, and one that is not
from a privilege. engaged in unless there is the expectation or hope of
a reasonable return. I hasten to add that the
Had the provision been worded to state that the deliberate incorporation of the fourth paragraph of
President may enter into agreements for technical or Section 2 has created a window of opportunity for
financial assistance only, then this unambiguous foreign investments in the extractive enterprises
limitation should be affirmed. Yet the Constitution involving petroleum and other mineral oils, subject of
does not express such an intent. The controversial course to limitations under the law. The term may
provision is crafted in such a way that allows any type prove discomfiting to the ideologically committed, the
of agreement, so long as they involve either technical sentimental nationalist or the visceral oppositionist.
or financial assistance. In fact, the provision does not Still, the notion is not inconsistent with the general
restrict the scope of the agreement so as to pertain power of the executive to enter into agreements for
exclusively either to technical or financial assistance. the purpose of enticing foreign investments.

The Constitution, in allowing foreign participation Why then the term "assistance?" Apart from its
specifically in the large scale exploration, apparent political palatability in comparison with
development and utilization of natural resources, is "investment," as intimated before, the term is
cognizant of the sad truth that such activities entail useful in underscoring the essential facets of the
significant outlay of capital and advanced foreign investment which is assistance in the
technological know-how that domestic corporations financial or technical areas, as well as the
may not yet have.26 The provision expressly adverts fundamental limitations and conditionalities of the
to "technical" and "financial" assistance in investment. What is allowed is participation, though
recognition of the reality that these two facets are limited, by foreign corporations which in turn are
the indispensable requisites to qualify foreign entitled to expect a return on their investments.
participants in the exploration, development, and
utilization of mineral and petroleum resources. The Court had earlier premised the invalidity of
several provisions of the Mining Act on the argument
Had the framers chosen to restrict all aspects of all that those provisions authorized service
mining activities to domestic persons, the real fear contracts. But while the 1987 Constitution does not
would have materialized that our mineral reserves utilize the term "service contracts," it actually
could remain untapped for a significant period of time, contemplates a broader expanse of agreements
owing to the paucity of venture capital. There was a beyond mere contracts for services rendered. Still,
real option to heed dogmatic guns who insisted that although the provision sanctions a more numerous
the mineral resources remain unutilized until the day class of agreements, these are subjected to more
when the domestic mining industry becomes stringent restrictions than what had been allowed
capacitated to undertake the extraction without need under the 1973 Constitution. Thus, the test should
of foreign aid. Obviously, the more pragmatic view be whether the law and the contract take away the
won the day. State's full control and supervision over the
exploration, development and utilization of the
If indeed the foreign entity is limited only to country's mineral resources and negate or defeat
technical or financial participation, the implication the State's ownership thereof.
is that it is up to the State to do all the rest.
Considering the lack of know-how and financial In line with the test, Section 2 should be accorded a
capital, matters which were appreciated by the liberal interpretation so as to recognize this
framers of the Constitution, this intended effect is fundamental prerogative of the presidency. Such
preposterous. Even the State itself would hesitate "liberal interpretation" does not equate to a wholesale
to undertake such extractive activities owing to concession of mining resources to foreigners, much
the intensive capital and extensive training such less to an atmosphere of complaisance, whether from
enterprise would entail. By allowing this their perception or the Filipinos.' The fourth paragraph
expansive set-up under Section 2, the sets specific limitations on the exercise by the
Constitution enables the minimization of risk on President of this contract-making power. On the other
the part of the State should it desire to undertake hand, the second paragraph of Section 2 lays down
large-scale mineral extractive activities. The pay- the fundamental limitations which likewise may not be
off though, understandably, is an atypical cession countermanded.
of several State prerogatives in the development
of its mineral and petroleum resources. On the basis of the foregoing discussion, and as a
necessary consequence of my view that the
Perhaps there is need to be explicit and incisive about agreements under Section 2 are not strictly limited to
the implications of Section 2. The word "assistance," financial or technical assistance, I would consider the
shorn of context, implies a charitable grant offered following questioned provisions of Republic Act No.
without any quid pro quo attached. Unconditional 7942 as valid —Sections 3 (g), 34 to 38, 40 to 41, 56
foreign aid may be more prevalent this day and age and 90. These provisions were struck down on the
with the acceptance of the notion that there are base premise that they allowed the constitution of "service
minimum standards of decent living which all persons contracts," an agreement which to my mind is still
are entitled to. However, such concept is alien to the within the contemplation of Section 2, Article XII.
mining industry. There is no such entity as
an International Benevolent Association for Extraction State Ownership over Mineral and Petroleum
of Minerals. If "assistance" is to be restrictively Resources
interpreted according to ordinary parlance, no entity
would be interested in undertaking this regulated There is need to clarify the specific meaning of these
126

industry. general limitations arising from the State's assertion of

ownership, full control and supervision.
Page

Any decision by any enterprise to assist in the

exploration, development or utilization of mineral
In respect to the petition, the question of ownership for the application of Sections 39, 80 and 84. I do not
has become material to the proper share the State subscribe to judicial pre-emptive strikes, as they
should receive from the exploration, development and preclude the application of still undisclosed
utilization of mineral resources. I perceive that all the considerations which may prove illuminating and even
members of the Court agree that such profit may not crucial to the proper disposition of the case. By
be limited to only such revenue derived from the seeking invalidation of these "MPSA provisions," the
taxation of the mining activities. Since the right of the Court is also asked to strike down an enactment of a
State to obtain a share in the net proceeds and not co-equal branch which has not given rise to an actual
merely through taxes arises as an attribute of case or controversy. After all, such enactment
ownership unequivocally reserved by the Constitution deserves due respect from this branch of government.
for the State, such right may not be proscribed either Assuming that the provisions are indeed invalid, the
by legislative provision or contractual stipulation. Court will not hesitate, at the proper time, to strike
them down or at least impose a proper interpretation
Yet it should be conceded that the State has the right that does not run afoul of the Constitution.27 However,
to enter into an agreement concerning such profits. in the absence of any actual attempt to convert an
There are, as probably should be, political FTAA to an MPSA, the time is not now.
consequences if the President opts to surrender all of
the State's profits to a foreign corporation, yet in bare I likewise agree with the ponencia that Section 7.9
theory, the right to bargain profits pertains to the deprives the State of its rightful share as an incident
wisdom of a political act not ordinarily justiciable of ownership without offsetting compensation. The
before this Court. Still, the overriding adherence of the provisions of the FTAA are fair game for judicial
Constitution to the regalian doctrine should be given review considering their present applicability. In fact,
due respect, and an interpretation allowing "beneficial the invalidation of Section 7.9 becomes even more
ownership" by the foreign corporation should not be proper now under the circumstances since the
favored. provision has become effectual considering the sale
of the foreign equity in WMCP to a domestic
For purposes of the present judicial review, I would corporation. It is within the competence of this Court
consider it prudent to limit myself to conceding that to invalidate Section 7.9 here and now. For that
the Court had previously erred in invalidating certain matter, Section 7.8(e) of the FTAA may be similarly
provisions of Rep. Act No. 7942 and the WMC FTAA invalidated as it can already serve to unduly deprive
on the mistaken notion that the law and the the Government of its proper share by allowing double
agreement cede beneficial ownership of mineral recovery by WMC.
resources to a foreign corporation.
"Full Control and Supervision" of the State
Section 4 of Rep. Act No. 7942 expressly recognizes
State ownership over mineral resources, though it is The matter of "full control and supervision" emerges
silent on the operational terms of such ownership. Of just as controversial. Does this grant of power
course, such general submission would not be in itself mandate that the State exercise management over
curative of whatever contraventions to State the activity, or exclude the exercise of managerial
ownership are contained in the same law; hence, the control by the foreign corporation?
need for deeper inquiry.
I don't think it proper to construe the word "full" as
The dissenters wish to strike down the second implying that such control or supervision may not be
paragraph of Section 81 of Rep. Act No. 7942 at all yielded or delegated, for reasons I shall
because it purportedly precludes the Government elaborate upon. Instead, "full" should be read as
from obtaining profits under the agreement from pertaining to the encompassing scope of the concerns
sources other than its share in taxation. However, as of the State relating to the extractive enterprises on
the ponencia points out, the phrase "among other which it may interfere or impose its will.
things" sufficiently allows the government from
demanding a share in the cash flow or earnings of the It must be conceded that whichever party obtains
mining enterprise. A contrary view is anchored on a managerial control must be allowed considerable
rule of statutory construction that concludes that elbow room in the exercise of management
"among other things" refers only to taxes. Yet, there is prerogatives. Management is in the most informed
also a rule of construction that laws should be position to make resources productive in the pursuit of
interpreted with a view of upholding rather than the enterprise's objectives.28 In this age of
destroying it. Thus, the ponencia's formulation, which specialization, corporations have benefited with the
achieves the result of the minority without need of devolution of operational control to specialists, rather
statutory invalidation, is highly preferable. than generalists. The era of the buccaneer
entrepreneur chartering his industry solely on gut feel
The provisions of Rep. Act No. 7942 which authorize is over. The vagaries of international finance have
the conversion of a financial or technical assistance dictated that prudent capitalists cede to the opinion of
into a mineral production sharing agreement (MPSA) their experts who are hired because they trained
turned out to be just as controversial. In this regard, within their particular fields to know better than the
the minority wishes to strike down Section 39, which persons who employ them. The Constitution does not
in conjunction with Sections 80 and 84 of the law prescribe a particular manner of management; thus,
would purportedly allow such conversion, in that it we can conclude that the State is not compelled to
would effectively limit the government share in the adopt outmoded methods that could tend to minimize
profits to only the excise tax on mineral products profits.
under internal revenue law.
Still, the question as to who should exercise
These concerns are valid and raise troubling management is best left to the parties of the
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questions. Yet equally troubling is that the Court is agreement, namely the President and the foreign
being called upon to rule on a premature question. corporations. They would be in the best position to
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There is no such creature yet as an FTAA converted determine who is best qualified to exert managerial
into an MPSA, and so there is no occasion that calls control. This prerogative of management can be
exercised by the State if it so insists and the co- the private entity's exercise of managerial control, and
parties agree, and the wisdom of such arrogation is the State's full control and supervision?
ultimately a policy question this Court has little control
over. And even if the State cedes management to a The President may insist on conditions into the
different entity such as the foreign corporation, it agreement pertaining to the State's degree of control
has the duty to safeguard that the actual exercise and supervision in the mining activity. This was
of managerial power does not contravene our certainly done with the WMC FTAA, which is replete
laws and public policy. with stipulations delineating the State's control which
are judicially enforceable, imposed presumably at the
There is barely any support of the view that only the President's call. But the FTAA itself is not the only
State may exert managerial control. Even the minority vehicle by which State control and supervision is
concede that these foreign corporations are not exercised. These can similarly be enforced through
precluded from participating in the management of the statutes, as well as executive or administrative
project. I think it unwise to construe "full supervision issuances. The Mining Act itself is an expression of
and control" to the effect that the State's assent or State control and supervision, implemented in
opinion is necessary before any day-to-day coordination with the executive and legislative
operational questions may be resolved. There is branches.
neither an express rule to that effect, nor any law of
construction that necessitates such interpretation. As a general point, I believe that State control and
Ideally of course, the most qualified party should be supervision is unconstitutionally yielded if either of the
allowed to manage the enterprise, and we should not Mining Act or the FTAA precludes the application of
allow an interpretation that compels a possibly the laws and regulations of the Philippines,
unsuited entity, such as the State, to operationalize enunciatory as they are of State policy. Neither the
the business.29 Such a limited construction would be Mining Act nor the WMC FTAA are flawed in that
inconvenient and absurd,30 not to mention potentially regard. The agreements under contemplation are not
wasteful. beyond the ambit of our regular laws, or regulatory
enactments pertaining to such areas as environmental
The Constitution itself concedes that the State may concerns. Violations of these laws uttered in the name
not have the best sense as to how to undertake large- of the FTAA are punishable in this jurisdiction.
scale exploration, development and utilization of
mineral and petroleum resources. This is evinced by Still, the fact that the Constitution requires "full control
the allowance of foreign technical assistance and and supervision" indicates an expectation of a more
foreign participation in the extractive enterprise. Had activist role on the part of the State in the operations
the Constitution recognized that the State was of the mining enterprise, perhaps to the prejudice of
supremely qualified to undertake the operational the laissez-faire capitalist. Most importantly, the State
aspects of the activity, then it could have phrased the cannot abdicate its traditional functions by contractual
provision in such a way that would strictly limit the limitations. It could compel the mining operations to
foreign participation to monetary investment or a comply with existing environmental regulations, as
financial grant of assistance. well as with future issuances. It may compel the
foreign corporation payment of all assessable levies.
The absence of an express provision on management It may evict officers of the foreign corporation for
permits consideration of the following sensible critique violation of immigration laws. It may preclude mining
on yielding too many management prerogatives to a operations that affect prerogatives granted by law to
remote overseer such as the State. An early United indigenous peoples. It could restrict particular mining
Nations report once noted that while it is theoretically operations which are established to be disasters or
possible to endow a government department with a nuisances to the affected communities. The power of
high degree of operating flexibility, it is in practice the State to enforce its police powers needs no
difficult to do so.31 It has been proposed that the statutory grant and are certainly not limited either by
further away a decision-maker is to the market, the the Mining Act or the WMC FTAA.
higher the information cost, or the opportunity cost to
the gaining of information.32 Remoteness can be As to "business decisions," I think that the State may
achieved through the layering of bureaucratic exercise control for the purpose of ensuring profit of
structure, and because of the information loss that the enterprise as a whole. This may involve visitorial
accompanies the transmission of information and activity, the conduct of periodic audits, and such
judgments from lower levels of the hierarchy to higher powers normally attributed to an overseer of a
levels, the ultimate basis of a decision may be business. Just as the foreign corporation is expected
misleading at best and erroneous at worst.33 to guard against waste of financial capital, the State is
expected likewise to guard against the waste of
The same conclusion arises from the view that what resource capital.
the provision authorizes is foreign investment. The
foreign player necessarily at least has a reasonable I might as well add that, in my view, the constitutional
say in how the mining venture is run. The interest of objective of maintaining full control and supervision
the investor in seeing that the investment is not over the exploration, development and utilization of
wasted should be recognized not only as a right the country's mineral resources in the State would be
available to the investor, but from the broader view best served by the creation of a public corporation for
that such say would lead to a more prudent the development and utilization of these resources,
management of the project. It must be noted that accountable to the State for all actions in its behalf.
mineral and petroleum resources are non-renewable, The device of a corporation properly utilized provides
thus a paramount interest arises to ensure against sufficient protection to the State's interests while
wasteful exploitation. affording flexibility and efficiency in the conduct of
mining operations.34
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Next for consideration is the situation, as in this case,

if management is ceded to the foreign corporation, or The creation of a public corporation could remedy a
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even to a private domestic corporation for that matter. number of potential problems regarding full State
What should be the proper dichotomy, if any, between control and supervision of extractive activities
concerning our mineral resources by entities which the government as a result of the large-scale mining
have the funds and/or technical know-how but which venture. Political capital is more fickle than financial
cannot have a great degree of control and supervision capital.
over such activities. Persons knowledgeable and
competent in mining operations may sit in the Still, the right to vote I exercise today is that as of a
corporation's board of directors and craft policies member of the Court, and not that of the general
which implement and further concretize the broad electorate. The limits of judicial power would
aims of R.A. No. 7942, taking into consideration the exasperate any well-meaning judge who feels duty-
nature of the mining industry. The Board would also bound to affirm a constitutionally valid law or principle
be in charge of studying existing contracts for mining he or she may otherwise disagree with. My views on
activities, and approving proposed contracts. The how the government should act are segregate from
Board may also employ corporate officers and my view on whether the government has the power to
employees to take charge of the day-to-day act at all.
operations of the mining activities pursuant to the
corporation's contracts with other entities. My conclusions are borne out of a close textual
analysis of Section 2 in light of my fundamental
Under such a scheme, the perceived abdication by understanding of the constitutional powers of the
the State of control and supervision over mining executive branch. This is in line with my perception of
activities in favor of the foreign entities rendering the judicial duty as being limited to charting the scope
financial and/or technical assistance would be greatly and boundaries of the law. The philosophy of
diminished. It would be the public corporation which inclusiveness that drives my interpretation of Section
would principally undertake mining activities and 2 is bolstered not because it might lead to benefits to
contract with foreign entities for financial and/or the economy, but because it gives due regard to the
technical assistance if necessary. The foreign discretion of the Executive to determine what is good
contractor in such cases would not have the power to for the economy. This judicial attitude may not always
determine the course of the project or the major ensure the economic good. But before we carve that
policies involved therein because these functions judicial path out of what we believe are good
would belong to the public corporation as the agent of intentions, restraint is imperative out of due deference
the State. to our co-equal branches, since the duty of
formulating and implementing economic policies falls
A public corporation would also have the additional exclusively within their purview.
benefit of compelling the input of not only the
executive branch, but also that of the legislative. Such In view of the foregoing, I concur with the opinion of
executive-legislative coordination is necessary since Justice Panganiban.
public corporations may only be created through
statute.

Section 3.3 of WMC FTAA Constitutional

Finally, it is argued that Section 3.3 of the WMC FTAA

violates paragraph 1, Section 2, Article XII of the
Constitution, which imposes a limitation on the term of
mineral agreements. I agree with the ponencia that
the constitutional provision does not pertain to FTAAs.
It is clear from reading Section 1 that the agreements
limited in term therein are co-production agreements,
joint venture agreements, and mineral production-
sharing agreements, which are all referred to in
Section 1, and not the FTAAs mentioned only in
Section 4. Accordingly, Section 3.3 of the WMC FTAA
is not infirm.

Epilogue

Behind the legal issues presented by the petition are

fundamental policy questions from which highly
opinionated views can develop, even from the
members of this Court. The promise brought about by
the large-scale exploitation of our mineral and
petroleum resources may bring in much needed
revenue, but Filipinos should properly inquire at what
cost. As a Filipino, I am distressed whenever the
government crosses the line from cooperation to
subservience to foreign partners in development.
Popular Western wisdom aside, what is good for
General Motors is not necessarily good for the
country. The propagation of a foreign-influenced
mining industry may lead to a whole slew of social
problems35 which shall be exacerbated if the
government is complicit, either through active
participation or benign neglect, to abuses committed
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by the mining industry against the Filipino people.

Unlike the foreign corporation, the bottom line which
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the State should consider is not found below a ledger,

but in the socio-economic dynamic that will confront