LOLITA G. DEMONTEVERDE; BENJIE L.

EN BANC NEQUINTO;[1]ROSE LILIA S. ROMANO; ROBERTO S.

VERZOLA; EDUARDO AURELIO C. REYES; LEAN LOUEL
A. PERIA, Represented by His Father ELPIDIO V.
[G.R. No. 127882. December 1, 2004] PERIA;[2] GREEN FORUM PHILIPPINES; GREEN FORUM
WESTERN VISAYAS (GF-WV); ENVIRONMENTAL LEGAL
ASSISTANCE CENTER (ELAC); KAISAHAN TUNGO SA
KAUNLARAN NG KANAYUNAN AT REPORMANG
LA BUGAL-BLAAN TRIBAL ASSOCIATION, INC., Represented by PANSAKAHAN (KAISAHAN);[3] PARTNERSHIP FOR
its Chairman FLONG MIGUEL M. LUMAYONG; WIGBERTO AGRARIAN REFORM and RURAL DEVELOPMENT
E. TAADA; PONCIANO BENNAGEN; JAIME TADEO; SERVICES, INC. (PARRDS); PHILIPPINE PARTNERSHIP
RENATO R. CONSTANTINO JR.; FLONG AGUSTIN M. FOR THE DEVELOPMENT OF HUMAN RESOURCES IN THE
DABIE; ROBERTO P. AMLOY; RAQIM L. DABIE; SIMEON H. RURAL AREAS, INC. (PHILDHRRA); WOMENS LEGAL
DOLOJO; IMELDA M. GANDON; LENY B. GUSANAN; BUREAU (WLB); CENTER FOR ALTERNATIVE
MARCELO L. GUSANAN; QUINTOL A. LABUAYAN; DEVELOPMENT INITIATIVES, INC. (CADI); UPLAND
LOMINGGES D. LAWAY; BENITA P. TACUAYAN; Minors DEVELOPMENT INSTITUTE (UDI); KINAIYAHAN
JOLY L. BUGOY, Represented by His Father UNDERO D. FOUNDATION, INC.; SENTRO NG ALTERNATIBONG
BUGOY and ROGER M. DADING; Represented by His LINGAP PANLIGAL (SALIGAN); and LEGAL RIGHTS AND
Father ANTONIO L. DADING; ROMY M. LAGARO, NATURAL RESOURCES CENTER, INC. (LRC), petitioners,
Represented by His Father TOTING A. LAGARO; MIKENY vs. VICTOR O. RAMOS, Secretary, Department of
JONG B. LUMAYONG, Represented by His Father MIGUEL Environment and Natural Resources (DENR); HORACIO
M. LUMAYONG; RENE T. MIGUEL, Represented by His RAMOS, Director, Mines and Geosciences Bureau (MGB-
Mother EDITHA T. MIGUEL; ALDEMAR L. SAL, DENR); RUBEN TORRES, Executive Secretary; and WMC
Represented by His Father DANNY M. SAL; DAISY (PHILIPPINES), INC.,[4] respondents.
RECARSE, Represented by Her Mother LYDIA S. SANTOS;
EDWARD M. EMUY; ALAN P. MAMPARAIR; MARIO L. RESOLUTION
MANGCAL; ALDEN S. TUSAN; AMPARO S. YAP; VIRGILIO
PANGANIBAN, J.:
CULAR; MARVIC M.V.F. LEONEN; JULIA REGINA CULAR,
GIAN CARLO CULAR, VIRGILIO CULAR JR., Represented
by Their Father VIRGILIO CULAR; PAUL ANTONIO P. All mineral resources are owned by the State. Their exploration,
VILLAMOR, Represented by His Parents JOSE VILLAMOR development and utilization (EDU) must always be subject to the full
and ELIZABETH PUA-VILLAMOR; ANA GININA R. TALJA, control and supervision of the State. More specifically, given the
Represented by Her Father MARIO JOSE B. TALJA; inadequacy of Filipino capital and technology in large-scale EDU
SHARMAINE R. CUNANAN, Represented by Her Father activities, the State may secure the help of foreign companies in all
ALFREDO M. CUNANAN; ANTONIO JOSE A. VITUG III, relevant matters -- especially financial and technical assistance --
Represented by His Mother ANNALIZA A. VITUG, LEAN D. provided that, at all times, the State maintains its right of full control.
NARVADEZ, Represented by His Father MANUEL E. The foreign assistor or contractor assumes all financial, technical and
NARVADEZ JR.; ROSERIO MARALAG LINGATING, entrepreneurial risks in the EDU activities; hence, it may be given
Represented by Her Father RIO OLIMPIO A. LINGATING; reasonable management, operational, marketing, audit and other
MARIO JOSE B. TALJA; DAVID E. DE VERA; MARIA prerogatives to protect its investments and to enable the business to
MILAGROS L. SAN JOSE; Sr. SUSAN O. BOLANIO, OND; succeed.

1
 Full control is not anathematic to day-to-day management by the The Petition for Prohibition and Mandamus before the Court
contractor, provided that the State retains the power to direct overall challenges the constitutionality of (1) Republic Act No. [RA] 7942 (The
strategy; and to set aside, reverse or modify plans and actions of the Philippine Mining Act of 1995); (2) its Implementing Rules and
contractor. The idea of full control is similar to that which is exercised Regulations (DENR Administrative Order No. [DAO] 96-40); and (3) the
by the board of directors of a private corporation: the performance of FTAA dated March 30, 1995,[6] executed by the government with
managerial, operational, financial, marketing and other functions may Western Mining Corporation (Philippines), Inc. (WMCP).[7]
be delegated to subordinate officers or given to contractual entities, but
On January 27, 2004, the Court en banc promulgated its
the board retains full residual control of the business.
Decision[8] granting the Petition and declaring the unconstitutionality of
Who or what organ of government actually exercises this power of certain provisions of RA 7942, DAO 96-40, as well as of the entire FTAA
control on behalf of the State? The Constitution is crystal clear: executed between the government and WMCP, mainly on the finding that
the President. Indeed, the Chief Executive is the official constitutionally FTAAs are service contracts prohibited by the 1987 Constitution.
mandated to enter into agreements with foreign owned corporations.
On the other hand, Congress may review the action of the President The Decision struck down the subject FTAA for being similar to service
once it is notified of every contract entered into in accordance with this contracts,[9] which, though permitted under the 1973 Constitution,[10] were
subsequently denounced for being antithetical to the principle of sovereignty
[constitutional] provision within thirty days from its execution. In contrast
to this express mandate of the President and Congress in the EDU of over our natural resources, because they allowed foreign control over the
natural resources, Article XII of the Constitution is silent on the role of exploitation of our natural resources, to the prejudice of the Filipino nation.
the judiciary. However, should the President and/or Congress gravely The Decision quoted several legal scholars and authors who had
abuse their discretion in this regard, the courts may -- in a proper case criticized service contracts for, inter alia, vesting in the foreign
-- exercise their residual duty under Article VIII. Clearly then, the contractor exclusive management and control of the enterprise,
judiciary should not inordinately interfere in the exercise of this including operation of the field in the event petroleum was discovered;
presidential power of control over the EDU of our natural resources. control of production, expansion and development; nearly unfettered
The Constitution should be read in broad, life-giving strokes. It control over the disposition and sale of the products
should not be used to strangulate economic growth or to serve narrow, discovered/extracted; effective ownership of the natural resource at the
parochial interests. Rather, it should be construed to grant the point of extraction; and beneficial ownership of our economic
President and Congress sufficient discretion and reasonable leeway to resources. According to the Decision, the 1987 Constitution (Section 2
of Article XII) effectively banned such service contracts.
enable them to attract foreign investments and expertise, as well as to
secure for our people and our posterity the blessings of prosperity and Subsequently, respondents filed separate Motions for
peace. Reconsideration. In a Resolution dated March 9, 2004, the Court
required petitioners to comment thereon. In the Resolution of June 8,
On the basis of this control standard, this Court upholds the
constitutionality of the Philippine Mining Law, its Implementing Rules and 2004, it set the case for Oral Argument on June 29, 2004.
Regulations -- insofar as they relate to financial and technical After hearing the opposing sides, the Court required the parties to
agreements -- as well as the subject Financial and Technical Assistance submit their respective Memoranda in amplification of their arguments.
Agreement (FTAA).[5] In a Resolution issued later the same day, June 29, 2004, the Court
noted, inter alia, the Manifestation and Motion (in lieu of comment) filed
by the Office of the Solicitor General (OSG) on behalf of public
Background respondents. The OSG said that it was not interposing any objection to
the Motion for Intervention filed by the Chamber of Mines of the

2
Philippines, Inc. (CMP) and was in fact joining and adopting the latters violation of Section 2 of Article XII of the 1987 Constitution. According
Motion for Reconsideration. to petitioners, the FTAAs entered into by the government with foreign-
owned corporations are limited by the fourth paragraph of the said
Memoranda were accordingly filed by the intervenor as well as by provision to agreements involving only technical or financial
petitioners, public respondents, and private respondent, dwelling at assistance for large-scale exploration, development and utilization of
length on the three issues discussed below. Later, WMCP submitted its minerals, petroleum and other mineral oils. Furthermore, the foreign
Reply Memorandum, while the OSG -- in obedience to an Order of this contractor is allegedly permitted by the FTAA in question to fully
Court -- filed a Compliance submitting copies of more FTAAs entered
manage and control the mining operations and, therefore, to acquire
into by the government. beneficial ownership of our mineral resources.
The Decision merely shrugged off the Manifestation by WMPC
Three Issues Identified by the Court informing the Court (1) that on January 23, 2001, WMC had sold all its
shares in WMCP to Sagittarius Mines, Inc., 60 percent of whose equity
was held by Filipinos; and (2) that the assailed FTAA had likewise been
During the Oral Argument, the Court identified the three issues to transferred from WMCP to Sagittarius.[11]The ponencia declared that
be resolved in the present controversy, as follows: the instant case had not been rendered moot by the transfer and
registration of the FTAA to a Filipino-owned corporation, and that the
1. Has the case been rendered moot by the sale of WMC shares
validity of the said transfer remained in dispute and awaited final judicial
in WMCP to Sagittarius (60 percent of Sagittarius equity is owned by
determination.[12] Patently therefore, the Decision is anchored on the
Filipinos and/or Filipino-owned corporations while 40 percent is owned
assumption that WMCP had remained a foreign corporation.
by Indophil Resources NL, an Australian company) and by the
subsequent transfer and registration of the FTAA from WMCP to The crux of this issue of mootness is the fact that WMCP, at the
Sagittarius? time it entered into the FTAA, happened to be wholly owned by WMC
Resources International Pty., Ltd. (WMC), which in turn was a wholly
2. Assuming that the case has been rendered moot, would it still
owned subsidiary of Western Mining Corporation Holdings Ltd., a
be proper to resolve the constitutionality of the assailed provisions of
publicly listed major Australian mining and exploration company.
the Mining Law, DAO 96-40 and the WMCP FTAA?
The nullity of the FTAA was obviously premised upon the
3. What is the proper interpretation of the phrase Agreements contractor being a foreign corporation. Had the FTAA been originally
Involving Either Technical or Financial Assistance contained in
issued to a Filipino-owned corporation, there would have been no
paragraph 4 of Section 2 of Article XII of the Constitution?
constitutionality issue to speak of. Upon the other hand, the
Should the Motion for Reconsideration conveyance of the WMCP FTAA to a Filipino corporation can be likened
Be Granted? to the sale of land to a foreigner who subsequently acquires Filipino
citizenship, or who later resells the same land to a Filipino citizen. The
Respondents and intervenors Motions for Reconsideration should conveyance would be validated, as the property in question would no
be granted, for the reasons discussed below. The foregoing three longer be owned by a disqualified vendee.
issues identified by the Court shall now be taken up seriatim.
And, inasmuch as the FTAA is to be implemented now by a Filipino
First Issue: corporation, it is no longer possible for the Court to declare it
Mootness unconstitutional. The case pending in the Court of Appeals is a dispute
In declaring unconstitutional certain provisions of RA 7942, DAO between two Filipino companies (Sagittarius and Lepanto), both
96-40, and the WMCP FTAA, the majority Decision agreed with claiming the right to purchase the foreign shares in WMCP. So,
petitioners contention that the subject FTAA had been executed in regardless of which side eventually wins, the FTAA would still be in the
3
hands of a qualified Filipino company. Considering that there is no the said provision states: Sec. 2. x x x The exploration, development
longer any justiciable controversy, the plea to nullify the Mining Law has and utilization of natural resources shall be under the full control and
become a virtual petition for declaratory relief, over which this Court has supervision of the State. The State may directly undertake such
no original jurisdiction. activities, or it may enter into co-production, joint venture, or production-
sharing agreements with Filipino citizens, or corporations or
In their Final Memorandum, however, petitioners argue that the associations at least sixty per centum of whose capital is owned by
case has not become moot, considering the invalidity of the alleged sale such citizens. x x x. Nowhere in the provision is there any express
of the shares in WMCP from WMC to Sagittarius, and of the transfer of
limitation or restriction insofar as arrangements other than the three
the FTAA from WMCP to Sagittarius, resulting in the change of aforementioned contractual schemes are concerned.
contractor in the FTAA in question. And even assuming that the said
transfers were valid, there still exists an actual case predicated on the Neither can one reasonably discern any implied stricture to that
invalidity of RA 7942 and its Implementing Rules and Regulations (DAO effect. Besides, there is no basis to believe that the framers of the
96-40). Presently, we shall discuss petitioners objections to the transfer Constitution, a majority of whom were obviously concerned with
of both the shares and the FTAA. We shall take up the alleged invalidity furthering the development and utilization of the countrys natural
of RA 7942 and DAO 96-40 later on in the discussion of the third issue. resources, could have wanted to restrict Filipino participation in that
area. This point is clear, especially in the light of the overarching
constitutional principle of giving preference and priority to Filipinos and
No Transgression of the Constitution Filipino corporations in the development of our natural resources.
by the Transfer of the WMCP Shares Besides, even assuming (purely for arguments sake) that a
constitutional limitation barring Filipino corporations from holding and
Petitioners claim, first, that the alleged invalidity of the transfer of implementing an FTAA actually exists, nevertheless, such provision
the WMCP shares to Sagittarius violates the fourth paragraph of would apply only to the transfer of the FTAA to Sagittarius, but definitely
Section 2 of Article XII of the Constitution; second, that it is contrary to not to the sale of WMCs equity stake in WMCP to Sagittarius.
the provisions of the WMCP FTAA itself; and third, that the sale of the Otherwise, an unreasonable curtailment of property rights without due
shares is suspect and should therefore be the subject of a case in which process of law would ensue. Petitioners argument must therefore fail.
its validity may properly be litigated.
On the first ground, petitioners assert that paragraph 4 of Section FTAA Not Intended
2 of Article XII permits the government to enter into FTAAs only with Solely for Foreign Corporation
foreign-owned corporations. Petitioners insist that the first paragraph of
this constitutional provision limits the participation of Filipino
corporations in the exploration, development and utilization of natural Equally barren of merit is the second ground cited by petitioners --
resources to only three species of contracts -- production sharing, co- that the FTAA was intended to apply solely to a foreign corporation, as
production and joint venture -- to the exclusion of all other can allegedly be seen from the provisions therein. They manage to cite
arrangements or variations thereof, and the WMCP FTAA may only one WMCP FTAA provision that can be regarded as clearly
therefore not be validly assumed and implemented by Sagittarius. In intended to apply only to a foreign contractor: Section 12, which
short, petitioners claim that a Filipino corporation is not allowed by the provides for international commercial arbitration under the auspices of
Constitution to enter into an FTAA with the government. the International Chamber of Commerce, after local remedies are
exhausted. This provision, however, does not necessarily imply that the
However, a textual analysis of the first paragraph of Section 2 of
WMCP FTAA cannot be transferred to and assumed by a Filipino
Article XII does not support petitioners argument. The pertinent part of

4
corporation like Sagittarius, in which event the said provision should Decision of the Office of the President dated July 23, 2002,
simply be disregarded as a superfluity. both approving the assignment of the WMCP FTAA to Sagittarius.
Petitioners also question the sale price and the financial capacity
of the transferee. According to the Deed of Absolute Sale dated
No Need for a Separate January 23, 2001, executed between WMC and Sagittarius, the price
Litigation of the Sale of Shares of the WMCP shares was fixed at US$9,875,000, equivalent to P553
million at an exchange rate of 56:1. Sagittarius had an authorized
Petitioners claim as third ground the suspicious sale of shares from capital stock of P250 million and a paid up capital of P60 million.
WMC to Sagittarius; hence, the need to litigate it in a separate case. Therefore, at the time of approval of the sale by the DENR, the debt-to-
Section 40 of RA 7942 (the Mining Law) allegedly requires the equity ratio of the transferee was over 9:1 -- hardly ideal for an FTAA
Presidents prior approval of a transfer. contractor, according to petitioners.

A re-reading of the said provision, however, leads to a different However, private respondents counter that the Deed of Sale
conclusion. Sec. 40. Assignment/Transfer -- A financial or technical specifically provides that the payment of the purchase price would take
assistance agreement may be assigned or transferred, in whole or in place only after Sagittarius commencement of commercial production
part, to a qualified person subject to the prior approval of the President: from mining operations, if at all. Consequently, under the
Provided, That the President shall notify Congress of every financial or circumstances, we believe it would not be reasonable to conclude, as
technical assistance agreement assigned or converted in accordance petitioners did, that the transferees high debt-to-equity ratio per se
with this provision within thirty (30) days from the date of the approval necessarily carried negative implications for the enterprise; and it would
thereof. certainly be improper to invalidate the sale on that basis, as petitioners
propose.
Section 40 expressly applies to the assignment or transfer of the
FTAA, not to the sale and transfer of shares of stock in WMCP.
Moreover, when the transferee of an FTAA is FTAA Not Void,
another foreign corporation, there is a logical application of the Thus Transferrable
requirement of prior approval by the President of the Republic and
notification to Congress in the event of assignment or transfer of an
FTAA. In this situation, such approval and notification are appropriate To bolster further their claim that the case is not moot, petitioners
safeguards, considering that the new contractor is the subject of a insist that the FTAA is void and, hence cannot be transferred; and that
foreign government. its transfer does not operate to cure the constitutional infirmity that is
inherent in it; neither will a change in the circumstances of one of the
On the other hand, when the transferee of the FTAA happens to parties serve to ratify the void contract.
be a Filipino corporation, the need for such safeguard is not critical;
hence, the lack of prior approval and notification may not be deemed While the discussion in their Final Memorandum was skimpy,
fatal as to render the transfer invalid. Besides, it is not as if approval by petitioners in their Comment (on the MR) did ratiocinate that this Court
the President is entirely absent in this instance. As pointed out by had declared the FTAA to be void because, at the time it was executed
private respondent in its Memorandum,[13] the issue of approval is the with WMCP, the latter was a fully foreign-owned corporation, in which
subject of one of the cases brought by Lepanto against Sagittarius in the former vested full control and management with respect to the
GR No. 162331. That case involved the review of the Decision of the exploration, development and utilization of mineral resources, contrary
Court of Appeals dated November 21, 2003 in CA-GR SP No. 74161, to the provisions of paragraph 4 of Section 2 of Article XII of the
which affirmed the DENR Order dated December 31, 2001 and the

5
Constitution. And since the FTAA was per se void, no valid right could transaction that was assailed; hence subsequent compliance with
be transferred; neither could it be ratified, so petitioners conclude. constitutional provisions would cure its infirmity. In contrast, in the
instant case it is the FTAA itself, the object of the transfer, that is being
Petitioners have assumed as fact that which has yet to be assailed as invalid and unconstitutional. So, petitioners claim that the
established. First and foremost, the Decision of this Court declaring the subsequent transfer of a void FTAA to a Filipino corporation would not
FTAA void has not yet become final. That was precisely the reason the cure the defect.
Court still heard Oral Argument in this case. Second, the FTAA does
not vest in the foreign corporation full control and supervision over the Petitioners are confusing themselves. The present Petition has
exploration, development and utilization of mineral resources, to the been filed, precisely because the grantee of the FTAA was a wholly
exclusion of the government. This point will be dealt with in greater owned subsidiary of a foreign corporation. It cannot be gainsaid that
detail below; but for now, suffice it to say that a perusal of the FTAA anyone would have asserted that the same FTAA was void if it had at
provisions will prove that the government has effective overall direction the outset been issued to a Filipino corporation. The FTAA, therefore,
and control of the mining operations, including marketing and product is not per se defective or unconstitutional. It was questioned only
pricing, and that the contractors work programs and budgets are because it had been issued to an allegedly non-qualified, foreign-
subject to its review and approval or disapproval. owned corporation.
As will be detailed later on, the government does not have to micro- We believe that this case is clearly analogous to Halili, in which the
manage the mining operations and dip its hands into the day-to-day land acquired by a non-Filipino was re-conveyed to a qualified vendee
management of the enterprise in order to be considered as having and the original transaction was thereby cured. Paraphrasing Halili, the
overall control and direction. Besides, for practical and pragmatic same rationale applies to the instant case: assuming arguendo the
reasons, there is a need for government agencies to delegate certain invalidity of its prior grant to a foreign corporation, the disputed FTAA -
aspects of the management work to the contractor. Thus the basis for - being now held by a Filipino corporation -- can no longer be assailed;
declaring the FTAA void still has to be revisited, reexamined and the objective of the constitutional provision -- to keep the exploration,
reconsidered. development and utilization of our natural resources in Filipino hands -
- has been served.
Petitioners sniff at the citation of Chavez v. Public Estates
Authority,[14] and Halili v. CA,[15] claiming that the doctrines in these More accurately speaking, the present situation is one degree
cases are wholly inapplicable to the instant case. better than that obtaining in Halili, in which the original sale to a non-
Filipino was clearly and indisputably violative of the constitutional
Chavez clearly teaches: Thus, the Court has ruled consistently that
prohibition and thus void ab initio. In the present case, the
where a Filipino citizen sells land to an alien who later sells the land to issuance/grant of the subject FTAA to the then foreign-owned WMCP
a Filipino, the invalidity of the first transfer is corrected by the was not illegal, void or unconstitutional at the time. The matter had to
subsequent sale to a citizen. Similarly, where the alien who buys the
be brought to court, precisely for adjudication as to whether the FTAA
land subsequently acquires Philippine citizenship, the sale is validated and the Mining Law had indeed violated the Constitution. Since, up to
since the purpose of the constitutional ban to limit land ownership to
this point, the decision of this Court declaring the FTAA void has yet to
Filipinos has been achieved. In short, the law disregards the become final, to all intents and purposes, the FTAA must be deemed
constitutional disqualification of the buyer to hold land if the land is valid and constitutional.[17]
subsequently transferred to a qualified party, or the buyer himself
becomes a qualified party.[16] At bottom, we find completely outlandish petitioners contention that
an FTAA could be entered into by the government only with a foreign
In their Comment, petitioners contend that corporation, never with a Filipino enterprise. Indeed, the nationalistic
in Chavez and Halili, the object of the transfer (the land) was not what provisions of the Constitution are all anchored on the protection of
was assailed for alleged unconstitutionality. Rather, it was the Filipino interests. How petitioners can now argue that foreigners have
6
the exclusive right to FTAAs totally overturns the entire basis of the possibility that one or more of the future FTAAs will be the subject of
Petition -- preference for the Filipino in the exploration, development yet another suit grounded on constitutional issues.
and utilization of our natural resources. It does not take deep
knowledge of law and logic to understand that what the Constitution But of equal if not greater significance is the cloud of uncertainty
grants to foreigners should be equally available to Filipinos. hanging over the mining industry, which is even now scaring away
foreign investments. Attesting to this climate of anxiety is the fact that
the Chamber of Mines of the Philippines saw the urgent need to
intervene in the case and to present its position during the Oral
Second Issue: Argument; and that Secretary General Romulo Neri of the National
Whether the Court Can Still Decide the Case, Economic Development Authority (NEDA) requested this Court to allow
Even Assuming It Is Moot him to speak, during that Oral Argument, on the economic
consequences of the Decision of January 27, 2004.[20]
All the protagonists are in agreement that the Court has jurisdiction We are convinced. We now agree that the Court must recognize
to decide this controversy, even assuming it to be moot. the exceptional character of the situation and the paramount public
Petitioners stress the following points. First, while a case becomes interest involved, as well as the necessity for a ruling to put an end to
moot and academic when there is no more actual controversy between the uncertainties plaguing the mining industry and the affected
the parties or no useful purpose can be served in passing upon the communities as a result of doubts cast upon the constitutionality and
merits,[18] what is at issue in the instant case is not only the validity of validity of the Mining Act, the subject FTAA and future FTAAs, and the
the WMCP FTAA, but also the constitutionality of RA 7942 and its need to avert a multiplicity of suits. Paraphrasing Gonzales v.
Implementing Rules and Regulations. Second, the acts of private Commission on Elections,[21] it is evident that strong reasons of public
respondent cannot operate to cure the law of its alleged policy demand that the constitutionality issue be resolved now.[22]
unconstitutionality or to divest this Court of its jurisdiction to In further support of the immediate resolution of the
decide. Third, the Constitution imposes upon the Supreme Court the constitutionality issue, public respondents cite Acop v. Guingona,[23] to
duty to declare invalid any law that offends the Constitution. the effect that the courts will decide a question -- otherwise moot and
Petitioners also argue that no amendatory laws have been passed academic -- if it is capable of repetition, yet evading review.[24] Public
to make the Mining Act of 1995 conform to constitutional strictures respondents ask the Court to avoid a situation in which the
(assuming that, at present, it does not); that public respondents will constitutionality issue may again arise with respect to another FTAA,
continue to implement and enforce the statute until this Court rules the resolution of which may not be achieved until after it has become
otherwise; and that the said law continues to be the source of legal too late for our mining industry to grow out of its infancy. They also
authority in accepting, processing and approving numerous recall Salonga v. Cruz Pao,[25] in which this Court declared that (t)he
applications for mining rights. Court also has the duty to formulate guiding and controlling
constitutional principles, precepts, doctrines or rules. It has the
Indeed, it appears that as of June 30, 2002, some 43 FTAA symbolic function of educating the bench and bar on the extent of
applications had been filed with the Mines and Geosciences Bureau protection given by constitutional guarantees. x x x.
(MGB), with an aggregate area of 2,064,908.65 hectares -- spread over
Luzon, the Visayas and Mindanao[19] -- applied for. It may be a bit far- The mootness of the case in relation to the WMCP FTAA led the
fetched to assert, as petitioners do, that each and every FTAA that was undersigned ponente to state in his dissent to the Decision that there
entered into under the provisions of the Mining Act invites potential was no more justiciable controversy and the plea to nullify the Mining
litigation for as long as the constitutional issues are not resolved with Law has become a virtual petition for declaratory relief.[26] The entry of
finality. Nevertheless, we must concede that there exists the distinct the Chamber of Mines of the Philippines, Inc., however, has put into
focus the seriousness of the allegations of unconstitutionality of RA
7
7942 and DAO 96-40 which converts the case to one for The constitutional provision at the nucleus of the controversy is
prohibition[27] in the enforcement of the said law and regulations. paragraph 4 of Section 2 of Article XII of the 1987 Constitution. In order
to appreciate its context, Section 2 is reproduced in full:
Indeed, this CMP entry brings to fore that the real issue in this case
is whether paragraph 4 of Section 2 of Article XII of the Constitution is
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and
contravened by RA 7942 and DAO 96-40, not whether it was violated
other mineral oils, all forces of potential energy, fisheries, forests or timber,
by specific acts implementing RA 7942 and DAO 96-40. [W]hen an act
wildlife, flora and fauna, and other natural resources are owned by the State.
of the legislative department is seriously alleged to have infringed the
With the exception of agricultural lands, all other natural resources shall not
Constitution, settling the controversy becomes the duty of this Court.
be alienated. The exploration, development and utilization of natural
By the mere enactment of the questioned law or the approval of the
resources shall be under the full control and supervision of the State. The
challenged action, the dispute is said to have ripened into a judicial
State may directly undertake such activities, or it may enter into co-
controversy even without any other overt act.[28] This ruling can be
production, joint venture or production-sharing agreements with Filipino
traced from Taada v. Angara,[29] in which the Court said:
citizens or corporations or associations at least sixty per centum of whose
capital is owned by such citizens. Such agreements may be for a period not
In seeking to nullify an act of the Philippine Senate on the ground that it exceeding twenty-five years, renewable for not more than twenty-five years,
contravenes the Constitution, the petition no doubt raises a justiciable and under such terms and conditions as may be provided by law. In cases of
controversy. Where an action of the legislative branch is seriously alleged to
water rights for irrigation, water supply, fisheries, or industrial uses other
have infringed the Constitution, it becomes not only the right but in fact the than the development of water power, beneficial use may be the measure and
duty of the judiciary to settle the dispute. limit of the grant.
xxxxxxxxx The State shall protect the nations marine wealth in its archipelagic waters,
territorial sea, and exclusive economic zone, and reserve its use and
As this Court has repeatedly and firmly emphasized in many cases, it will not enjoyment exclusively to Filipino citizens.
shirk, digress from or abandon its sacred duty and authority to uphold the
Constitution in matters that involve grave abuse of discretion brought before
The Congress may, by law, allow small-scale utilization of natural resources
it in appropriate cases, committed by any officer, agency, instrumentality or by Filipino citizens, as well as cooperative fish farming, with priority to
department of the government.[30] subsistence fishermen and fish-workers in rivers, lakes, bays and lagoons.
Additionally, the entry of CMP into this case has also effectively The President may enter into agreements with foreign-owned
forestalled any possible objections arising from the standing or legal corporations involving either technical or financial assistance for large-
interest of the original parties. scale exploration, development, and utilization of minerals, petroleum, and
For all the foregoing reasons, we believe that the Court should other mineral oils according to the general terms and conditions provided by
proceed to a resolution of the constitutional issues in this case. law, based on real contributions to the economic growth and general welfare
of the country. In such agreements, the State shall promote the development
and use of local scientific and technical resources.
Third Issue:
The Proper Interpretation of the Constitutional Phrase The President shall notify the Congress of every contract entered into in
Agreements Involving Either Technical or Financial Assistance accordance with this provision, within thirty days from its execution.[31]

8
No Restriction of Meaning by 1. All natural resources are owned by the State. Except for agricultural lands,
a Verba Legis Interpretation natural resources cannot be alienated by the State.

2. The exploration, development and utilization (EDU) of natural resources

To interpret the foregoing provision, petitioners adamantly assert shall be under the full control and supervision of the State.
that the language of the Constitution should prevail; that the primary
method of interpreting it is to seek the ordinary meaning of the words
3. The State may undertake these EDU activities through either of the
used in its provisions. They rely on rulings of this Court, such as the
following:
following:
(a) By itself directly and solely
The fundamental principle in constitutional construction however is that the
primary source from which to ascertain constitutional intent or purpose is
the language of the provision itself. The presumption is that the words in (b) By (i) co-production; (ii) joint venture; or (iii) production sharing
which the constitutional provisions are couched express the objective sought agreements with Filipino citizens or corporations, at least 60 percent of the
to be attained. In other words, verba legis prevails. Only when the meaning capital of which is owned by such citizens
of the words used is unclear and equivocal should resort be made to
extraneous aids of construction and interpretation, such as the proceedings 4. Small-scale utilization of natural resources may be allowed by law in favor
of the Constitutional Commission or Convention to shed light on and of Filipino citizens.
ascertain the true intent or purpose of the provision being construed.[32]
5. For large-scale EDU of minerals, petroleum and other mineral oils, the
Very recently, in Francisco v. The House of President may enter into agreements with foreign-owned corporations
Representatives,[33] this Court indeed had the occasion to reiterate the involving either technical or financial assistance according to the general
well-settled principles of constitutional construction: terms and conditions provided by law x x x.

First, verba legis, that is, wherever possible, the words used in the Note that in all the three foregoing mining activities -- exploration,
Constitution must be given their ordinary meaning except where technical development and utilization -- the State may undertake such EDU
terms are employed. x x x. activities by itself or in tandem with Filipinos or Filipino corporations,
except in two instances: first, in small-scale utilization of natural
xxxxxxxxx resources, which Filipinos may be allowed by law to undertake;
and second, in large-scale EDU of minerals, petroleum and mineral
oils, which may be undertaken by the State via agreements with
Second, where there is ambiguity, ratio legis est anima. The words of the
foreign-owned corporations involving either technical or financial
Constitution should be interpreted in accordance with the intent of its
assistance as provided by law.
framers. x x x.
Petitioners claim that the phrase agreements x x x involving either
xxxxxxxxx technical or financial assistance simply means technical assistance or
financial assistance agreements, nothing more and nothing else. They
Finally, ut magis valeat quam pereat. The Constitution is to be interpreted as insist that there is no ambiguity in the phrase, and that a plain reading
a whole.[34] of paragraph 4 quoted above leads to the inescapable conclusion that
what a foreign-owned corporation may enter into with the government
For ease of reference and in consonance with verba legis, we is merely an agreement for either financial or technical assistance only,
reconstruct and stratify the aforequoted Section 2 as follows: for the large-scale exploration, development and utilization of minerals,
9
petroleum and other mineral oils; such a limitation, they argue, excludes intention to begin with. In this case, the limitation would be very clear
foreign management and operation of a mining enterprise.[35] and no further debate would ensue.
This restrictive interpretation, petitioners believe, is in line with the In contrast, the use of the word involving signifies the possibility
general policy enunciated by the Constitution reserving to Filipino of the inclusion of other forms of assistance or activities having to
citizens and corporations the use and enjoyment of the countrys natural do with, otherwise related to or compatible with financial or technical
resources. They maintain that this Courts Decision[36] of January 27, assistance. The word involving as used in this context has three
2004 correctly declared the WMCP FTAA, along with pertinent connotations that can be differentiated thus: one, the sense of
provisions of RA 7942, void for allowing a foreign contractor to have concerning, having to do with, or affecting; two, entailing, requiring,
direct and exclusive management of a mining enterprise. Allowing such implying or necessitating; and three, including, containing or
a privilege not only runs counter to the full control and supervision that comprising.[38]
the State is constitutionally mandated to exercise over the exploration,
development and utilization of the countrys natural resources; doing so Plainly, none of the three connotations convey a sense of
also vests in the foreign company beneficial ownership of our mineral exclusivity. Moreover, the word involving, when understood in the
resources. It will be recalled that the Decision of January 27, 2004 sense of including, as in including technical or financial
assistance, necessarily implies that there are activities other
zeroed in on management or other forms of assistance or other
activities associated with the service contracts of the martial law than those that are being included. In other words, if an
regime, since the management or operation of mining activities by agreement includes technical or financial assistance, there is apart
foreign contractors, which is the primary feature of service contracts, from such assistance -- something else already in, and covered or may
was precisely the evil that the drafters of the 1987 Constitution sought be covered by, the said agreement.
to eradicate. In short, it allows for the possibility that matters, other than those
On the other hand, the intervenor[37] and public respondents argue explicitly mentioned, could be made part of the agreement. Thus, we
that the FTAA allowed by paragraph 4 is not merely an agreement for are now led to the conclusion that the use of the word involving implies
supplying limited and specific financial or technical services to the that these agreements with foreign corporations are not limited to mere
State. Rather, such FTAA is a comprehensive agreement for the financial or technical assistance. The difference in sense becomes very
foreign-owned corporations integrated exploration, development and apparent when we juxtapose agreements for technical or financial
utilization of mineral, petroleum or other mineral oils on a large-scale assistance against agreements including technical or financial
assistance. This much is unalterably clear in a verba legis approach.
basis. The agreement, therefore, authorizes the foreign contractors
rendition of a whole range of integrated and comprehensive services, Second, if the real intention of the drafters was to confine foreign
ranging from the discovery to the development, utilization and corporations to financial or technical assistance and nothing more, their
production of minerals or petroleum products. language would have certainly been so unmistakably restrictive and
We do not see how applying a strictly literal or verba stringent as to leave no doubt in anyones mind about their true intent.
For example, they would have used the sentence foreign corporations
legis interpretation of paragraph 4 could inexorably lead to the
conclusions arrived at in the ponencia. First, the drafters choice of are absolutely prohibited from involvement in the management or
words -- their use of the phrase agreements x x x involving either operation of mining or similar ventures or words of similar import. A
search for such stringent wording yields negative results. Thus, we
technical or financial assistance -- does not indicate the intent
to exclude other modes of assistance. The drafters opted to come to the inevitable conclusion that there was a conscious and
deliberate decision to avoid the use of restrictive wording that
use involving when they could have simply
said agreements for financial or technical assistance, if that was their bespeaks an intent not to use the expression agreements x x x
involving either technical or financial assistance in an
exclusionary and limiting manner.
10
Deletion of Service Contracts to out of foreign-currency or peso-denominated loans or any other kind of
Avoid Pitfalls of Previous Constitutions, financial assistance, as well as the rendition of technical assistance --
Not to Ban Service Contracts Per Se whether to the State or to any other entity in the Philippines -- has never
been restricted in favor of Filipino citizens or corporations having a
certain minimum percentage of Filipino equity. Such a restriction would
Third, we do not see how a verba legis approach leads to the certainly be preposterous and unnecessary. As a matter of fact,
conclusion that the management or operation of mining activities by financial, and even technical assistance, regardless of the nationality of
foreign contractors, which is the primary feature of service contracts, its source, would be welcomed in the mining industry anytime with open
was precisely the evil that the drafters of the 1987 Constitution sought arms, on account of the dearth of local capital and the need to
to eradicate. Nowhere in the above-quoted Section can be discerned continually update technological know-how and improve technical
the objective to keep out of foreign hands the management or operation skills.
of mining activities or the plan to eradicate service contracts as these
were understood in the 1973 Constitution. Still, petitioners maintain that There was therefore no need for a constitutional provision
the deletion or omission from the 1987 Constitution of the term service specifically allowing foreign-owned corporations to render financial or
contracts found in the 1973 Constitution sufficiently proves the drafters technical assistance, whether in respect of mining or some other
intent to exclude foreigners from the management of the affected resource development or commercial activity in the Philippines. The
enterprises. last point needs to be emphasized: if merely financial or technical
assistance agreements are allowed, there would be no need to
To our mind, however, such intent cannot be definitively and limit them to large-scale mining operations, as there would be far
conclusively established from the mere failure to carry the same greater need for them in the smaller-scale mining activities (and
expression or term over to the new Constitution, absent a more specific, even in non-mining areas). Obviously, the provision in question
explicit and unequivocal statement to that effect. What petitioners seek was intended to refer to agreements other than those for mere
(a complete ban on foreign participation in the management of mining financial or technical assistance.
operations, as previously allowed by the earlier Constitutions)
is nothing short of bringing about a momentous sea change in the In like manner, there would be no need to require the President of
economic and developmental policies; and the fundamentally capitalist, the Republic to report to Congress, if only financial or technical
free-enterprise philosophy of our government. We cannot imagine such assistance agreements are involved. Such agreements are in the
a radical shift being undertaken by our government, to the great nature of foreign loans that -- pursuant to Section 20 of Article VII[39] of
prejudice of the mining sector in particular and our economy in general, the 1987 Constitution -- the President may contract or guarantee,
merely on the basis of the omission of the terms service contract from merely with the prior concurrence of the Monetary Board. In turn, the
or the failure to carry them over to the new Constitution. There has to Board is required to report to Congress within thirty days from the end
be a much more definite and even unarguable basis for such a drastic of every quarter of the calendar year, not thirty days after the
reversal of policies. agreement is entered into.
Fourth, a literal and restrictive interpretation of paragraph 4, such And if paragraph 4 permits only agreements for loans and other
as that proposed by petitioners, suffers from certain internal logical forms of financial, or technical assistance, what is the point of requiring
inconsistencies that generate ambiguities in the understanding of the that they be based on real contributions to the economic growth and
provision. As the intervenor pointed out, there has never been any general welfare of the country? For instance, how is one to measure
constitutional or statutory provision that reserved to Filipino citizens or and assess the real contributions to the economic growth and general
corporations, at least 60 percent of which is Filipino-owned, the welfare of the country that may ensue from a foreign-currency loan
rendition of financial or technical assistance to companies engaged in agreement or a technical-assistance agreement for, say, the
mining or the development of any other natural resource. The taking refurbishing of an existing power generating plant for a mining operation

11
somewhere in Mindanao? Such a criterion would make more sense development and utilization of minerals, petroleum and other mineral
when applied to a major business investment in a principal sector of the oils. Such an undertaking entails not only humongous capital
industry. requirements, but also the attendant risk of never finding and
developing economically viable quantities of minerals, petroleum and
The conclusion is clear and inescapable -- a verba other mineral oils.[40]
legis construction shows that paragraph 4 is not to be understood as
one limited only to foreign loans (or other forms of financial support) It is equally difficult to imagine that such a provision restricting
and to technical assistance. There is definitely more to it than foreign companies to the rendition of only financial or technical
that. These are provisions permitting participation by foreign assistance to the government was deliberately crafted by the drafters
companies; requiring the Presidents report to Congress; and of the Constitution, who were all well aware of the capital-intensive and
using, as yardstick, contributions based on economic growth and technology-oriented nature of large-scale mineral or petroleum
general welfare. These were neither accidentally inserted into the extraction and the countrys deficiency in precisely those areas.[41] To
Constitution nor carelessly cobbled together by the drafters in lip say so would be tantamount to asserting that the provision was
service to shallow nationalism. The provisions patently have purposely designed to ladle the large-scale development and utilization
significance and usefulness in a context that allows agreements with of mineral, petroleum and related resources with impossible conditions;
foreign companies to include more than mere financial or technical and to remain forever and permanently reserved for future generations
assistance. of Filipinos.
Fifth, it is argued that Section 2 of Article XII authorizes nothing
more than a rendition of specific and limited financial service or
technical assistance by a foreign company. This argument begs the A More Reasonable Look
question To whom or for whom would it be rendered? or Who is being at the Charters Plain Language
assisted? If the answer is The State, then it necessarily implies that the
State itself is the one directly and solely undertaking the large-scale Sixth, we shall now look closer at the plain language of the Charter
exploration, development and utilization of a mineral resource, so it and examining the logical inferences. The drafters chose to emphasize
follows that the State must itself bear the liability and cost of repaying and highlight agreements x x x involving either technical or financial
the financing sourced from the foreign lender and/or of paying assistance in relation to foreign corporations participation in large-scale
compensation to the foreign entity rendering technical assistance. EDU. The inclusion of this clause on technical or financial assistance
However, it is of common knowledge, and of judicial notice as well, recognizes the fact that foreign business entities and multinational
that the government is and has for many many years been financially corporations are the ones with the resources and know-how to provide
strapped, to the point that even the most essential services have technical and/or financial assistance of the magnitude and type
suffered serious curtailments -- education and health care, for instance, required for large-scale exploration, development and utilization of
not to mention judicial services -- have had to make do with inadequate these resources.
budgetary allocations. Thus, government has had to resort to build- The drafters -- whose ranks included many academicians,
operate-transfer and similar arrangements with the private sector, in economists, businessmen, lawyers, politicians and government officials
order to get vital infrastructure projects built without any governmental -- were not unfamiliar with the practices of foreign corporations and
outlay. multinationals.
The very recent brouhaha over the gargantuan fiscal crisis or Neither were they so nave as to believe that these entities would
budget deficit merely confirms what the ordinary citizen has suspected provide assistance without conditionalities or some quid pro quo.
all along. After the reality check, one will have to admit the implausibility Definitely, as business persons well know and as a matter of judicial
of a direct undertaking -- by the State itself -- of large-scale exploration,
12
notice, this matter is not just a question of signing a promissory note or those in the petroleum industry. Many of these service contracts were
executing a technology transfer agreement. Foreign corporations long-term (25 years) and had several more years to run. If they had
usually require that they be given a say in the management, for meant to ban service contracts altogether, they would have had to
instance, of day-to-day operations of the joint venture. They would provide for the termination or pretermination of the existing contracts.
demand the appointment of their own men as, for example, operations Accordingly, they would have supplied the specifics and
managers, technical experts, quality control heads, internal auditors or the when and how of effecting the extinguishment of these existing
comptrollers. Furthermore, they would probably require seats on the contracts (or at least the mechanics for determining them); and of
Board of Directors -- all these to ensure the success of the enterprise putting in place the means to address the just claims of the contractors
and the repayment of the loans and other financial assistance and to for compensation for their investments, lost opportunities, and so on, if
make certain that the funding and the technology they supply would not not for the recovery thereof.
go to waste. Ultimately, they would also want to protect their business
reputation and bottom lines.[42] If the framers had intended to put an end to service contracts, they
would have at least left specific instructions to Congress to deal with
In short, the drafters will have to be credited with enough these closing-out issues, perhaps by way of general guidelines and a
pragmatism and savvy to know that these foreign entities will not enter timeline within which to carry them out. The following are some extant
into such agreements involving assistance without requiring examples of such transitory guidelines set forth in Article XVIII of our
arrangements for the protection of their investments, gains and Constitution:
benefits.
Section 23. Advertising entities affected by paragraph (2), Section 11 of
Thus, by specifying such agreements involving assistance, the
Article XVI of this Constitution shall have five years from its ratification to
drafters necessarily gave implied assent to everything that these
comply on a graduated and proportionate basis with the minimum Filipino
agreements necessarily entailed; or that could reasonably be deemed
ownership requirement therein.
necessary to make them tenable and effective, including management
authority with respect to the day-to-day operations of the enterprise and
measures for the protection of the interests of the foreign corporation, xxxxxxxxx
PROVIDED THAT Philippine sovereignty over natural resources and
full control over the enterprise undertaking the EDU activities remain Section 25. After the expiration in 1991 of the Agreement between the
firmly in the State. Republic of the Philippines and the United States of America concerning
military bases, foreign military bases, troops, or facilities shall not be
allowed in the Philippines except under a treaty duly concurred in by the
Senate and, when the Congress so requires, ratified by a majority of the votes
Petitioners Theory Deflated by the
cast by the people in a national referendum held for that purpose, and
Absence of Closing-Out Rules or Guidelines
recognized as a treaty by the other contracting State.

Seventh and final point regarding the plain-language approach, Section 26. The authority to issue sequestration or freeze orders under
one of the practical difficulties that results from it is the fact that there is Proclamation No. 3 dated March 25, 1986 in relation to the recovery of ill-
nothing by way of transitory provisions that would serve to confirm the gotten wealth shall remain operative for not more than eighteen months after
theory that the omission of the term service contract from the 1987 the ratification of this Constitution. However, in the national interest, as
Constitution signaled the demise of service contracts. certified by the President, the Congress may extend such period.
The framers knew at the time they were deliberating that there A sequestration or freeze order shall be issued only upon showing of a prima
were various service contracts extant and in force and effect, including facie case. The order and the list of the sequestered or frozen properties shall
13
forthwith be registered with the proper court. For orders issued before the Suarez irrefutably proves that the agreements involving technical or
ratification of this Constitution, the corresponding judicial action or financial assistance were none other than service contracts.
proceeding shall be filed within six months from its ratification. For those
issued after such ratification, the judicial action or proceeding shall be THE PRESIDENT. Commissioner Jamir is recognized. We
commenced within six months from the issuance thereof. are still on Section 3.
MR. JAMIR. Yes, Madam President. With respect to the
The sequestration or freeze order is deemed automatically lifted if no judicial second paragraph of Section 3, my amendment by
action or proceeding is commenced as herein provided. [43] substitution reads: THE PRESIDENT MAY ENTER INTO
AGREEMENTS WITH FOREIGN-OWNED
It is inconceivable that the drafters of the Constitution would leave CORPORATIONS INVOLVING EITHER TECHNICAL
such an important matter -- an expression of sovereignty as it were -- OR FINANCIAL ASSISTANCE FOR LARGE-SCALE
indefinitely hanging in the air in a formless and ineffective state. Indeed, EXPLORATION, DEVELOPMENT AND UTILIZATION
the complete absence of even a general framework only serves to OF NATURAL RESOURCES ACCORDING TO THE
further deflate petitioners theory, like a childs balloon losing its air. TERMS AND CONDITIONS PROVIDED BY LAW.
Under the circumstances, the logical inconsistencies resulting from MR. VILLEGAS. The Committee accepts the amendment.
petitioners literal and purely verba legis approach to paragraph 4 of Commissioner Suarez will give the background.
Section 2 of Article XII compel a resort to other aids to interpretation.
MR. JAMIR. Thank you.
THE PRESIDENT. Commissioner Suarez is recognized.
Petitioners Posture Also Negated MR. SUAREZ. Thank you, Madam President.
by Ratio Legis Et Anima
Will Commissioner Jamir answer a few clarificatory
questions?
Thus, in order to resolve the inconsistencies, incongruities and
ambiguities encountered and to supply the deficiencies of the plain- MR. JAMIR. Yes, Madam President.
language approach, there is a need for recourse to the proceedings of MR. SUAREZ. This particular portion of the section has
the 1986 Constitutional Commission. There is a need for ratio legis et reference to what was popularly known before as
anima. service contracts, among other things, is that correct?
MR. JAMIR. Yes, Madam President.
Service Contracts Not MR. SUAREZ. As it is formulated, the President may enter
Deconstitutionalized into service contracts but subject to the guidelines that
may be promulgated by Congress?
Pertinent portions of the deliberations of the members of the MR. JAMIR. That is correct.
Constitutional Commission (ConCom) conclusively show that they
discussed agreements involving either technical or financial MR. SUAREZ. Therefore, that aspect of negotiation and
assistance in the same breadth as service contracts and used the consummation will fall on the President, not upon
terms interchangeably. The following exchange between Congress?
Commissioner Jamir (sponsor of the provision) and Commissioner MR. JAMIR. That is also correct, Madam President.
14
 MR. SUAREZ. Except that all of these contracts, service or MR. GASCON. The proposed amendment of Commissioner
otherwise, must be made strictly in accordance with Jamir is in indirect contrast to my proposed amendment,
guidelines prescribed by Congress? so I would like to object and present my proposed
amendment to the body.
MR. JAMIR. That is also correct.
MR. SUAREZ. And the Gentleman is thinking in terms of a xxxxxxxxx
law that uniformly covers situations of the same nature?
MR. GASCON. Yes, it will be up to the body.
MR. JAMIR. That is 100 percent correct.
I feel that the general law to be set by Congress as
MR. SUAREZ. I thank the Commissioner.
regard service contract agreements which the
MR. JAMIR. Thank you very much.[44] President will enter into might be too general or since we
do not know the content yet of such a law, it might be
The following exchange leaves no doubt that the commissioners that certain agreements will be detrimental to the interest
knew exactly what they were dealing with: service contracts. of the Filipinos. This is in direct contrast to my proposal
THE PRESIDENT. Commissioner Gascon is recognized. which provides that there be effective constraints in the
implementation of service contracts.
MR. GASCON. Commissioner Jamir had proposed an
amendment with regard to special service So instead of a general law to be passed by Congress to
contracts which was accepted by the Committee. Since serve as a guideline to the President when entering
the Committee has accepted it, I would like to ask some into service contract agreements, I propose that
questions. every service contract entered into by the President
would need the concurrence of Congress, so as to
THE PRESIDENT. Commissioner Gascon may proceed. assure the Filipinos of their interests with regard to the
MR. GASCON. As it is proposed now, such service issue in Section 3 on all lands of the public domain. My
contracts will be entered into by the President with the alternative amendment, which we will discuss later,
guidelines of a general law on service contract to be reads: THAT THE PRESIDENT SHALL ENTER INTO
enacted by Congress. Is that correct? SUCH AGREEMENTS ONLY WITH THE
CONCURRENCE OF TWO-THIRDS VOTE OF ALL THE
MR. VILLEGAS. The Commissioner is right, Madam MEMBERS OF CONGRESS SITTING SEPARATELY.
President.
MR. GASCON. According to the original proposal, if the xxxxxxxxx
President were to enter into a particular agreement, he
would need the concurrence of Congress. Now that it MR. BENGZON. The reason we made that shift is that we
has been changed by the proposal of Commissioner realized the original proposal could breed corruption. By
Jamir in that Congress will set the general law to which the way, this is not just confined to service
the President shall comply, the President will, therefore, contracts but also to financial assistance. If we are
not need the concurrence of Congress every time he going to make every single contract subject to the
enters into service contracts. Is that correct? concurrence of Congress which, according to the
Commissioners amendment is the concurrence of two-
MR. VILLEGAS. That is right. thirds of Congress voting separately then (1) there is a
very great chance that each contract will be different
15
 from another; and (2) there is a great temptation that it it briefly, as Commissioner Bengzon said, Congress can
would breed corruption because of the great lobbying always change the general law later on to conform to
that is going to happen. And we do not want to subject new perceptions of standards that should be built
our legislature to that. into service contracts. But the only way Congress can
do this is if there were a notification requirement from the
Now, to answer the Commissioners apprehension, by general law, we do not Office of the President that such service contracts had
mean statements of motherhood. Congress can build all the restrictions that it been entered into, subject then to the scrutiny of the
wishes into that general law so that every contract entered into by the Members of Congress. This pertains to a situation where
President under that specific area will have to be uniform. The President has the service contractsare already entered into, and all
no choice but to follow all the guidelines that will be provided by law. that this amendment seeks is the reporting requirement
from the Office of the President. Will Commissioner
MR. GASCON. But my basic problem is that we do not know Jamir entertain that?
as of yet the contents of such a general law as to how MR. JAMIR. I will gladly do so, if it is still within my power.
much constraints there will be in it. And to my mind,
although the Committees contention that the regular MR. VILLEGAS. Yes, the Committee accepts the
concurrence from Congress would subject Congress to amendment.
extensive lobbying, I think that is a risk we will have to
take since Congress is a body of representatives of the xxxxxxxxx
people whose membership will be changing regularly as
there will be changing circumstances every time certain SR. TAN. Madam President, may I ask a question?
agreements are made. It would be best then to keep in
tab and attuned to the interest of the Filipino people, THE PRESIDENT. Commissioner Tan is recognized.
whenever the President enters into any agreement with SR. TAN. Am I correct in thinking that the only difference
regard to such an important matter as technical or between these future service contracts and the
financial assistance for large-scale exploration, past service contracts under Mr. Marcos is the general
development and utilization of natural resources or law to be enacted by the legislature and the notification
service contracts, the peoples elected representatives of Congress by the President? That is the only
should be on top of it. difference, is it not?

xxxxxxxxx MR. VILLEGAS. That is right.

SR. TAN. So those are the safeguards.
MR. OPLE. Madam President, we do not need to suspend
the session. If Commissioner Gascon needs a few MR. VILLEGAS. Yes. There was no law at all
minutes, I can fill up the remaining time while he governing service contracts before.
completes his proposed amendment. I just wanted to SR. TAN. Thank you, Madam President.[45]
ask Commissioner Jamir whether he would entertain a
minor amendment to his amendment, and it reads as
follows: THE PRESIDENT SHALL SUBSEQUENTLY
NOTIFY CONGRESS OF EVERY SERVICE More Than Mere Financial
CONTRACT ENTERED INTO IN ACCORDANCE WITH and Technical Assistance
THE GENERAL LAW. I think the reason is, if I may state Entailed by the Agreements
16
 The clear words of Commissioner Jose N. Nolledo quoted below I say these things with a heavy heart, Madam President. I do not claim to be a
explicitly and eloquently demonstrate that the drafters knew that the nationalist, but I love my country. Although we need investments, we must
agreements with foreign corporations were going to entail not mere adopt safeguards that are truly reflective of the sentiments of the people and
technical or financial assistance but, rather, foreign investment in and not mere cosmetic safeguards as they now appear in the Jamir amendment.
management of an enterprise involved in large-scale (Applause)
exploration, development and utilization of minerals, petroleum, and
other mineral oils. Thank you, Madam President.[46]
THE PRESIDENT. Commissioner Nolledo is recognized.
Another excerpt, featuring then Commissioner (now Chief Justice)
MR. NOLLEDO. Madam President, I have the permission of Hilario G. Davide Jr., indicates the limitations of the scope of such
the Acting Floor Leader to speak for only two minutes in service contracts -- they are valid only in regard to minerals, petroleum
favor of the amendment of Commissioner Gascon. and other mineral oils, not to all natural resources.
THE PRESIDENT. Commissioner Nolledo may proceed. THE PRESIDENT. Commissioner Davide is recognized.
MR. NOLLEDO. With due respect to the members of the MR. DAVIDE. Thank you, Madam President. This is an
Committee and Commissioner Jamir, I am in favor of the amendment to the Jamir amendment and also to the
objection of Commissioner Gascon. Ople amendment. I propose to delete NATURAL
RESOURCES and substitute it with the following:
Madam President, I was one of those who refused to sign the 1973 MINERALS, PETROLEUM AND OTHER MINERAL
Constitution, and one of the reasons is that there were many provisions in the OILS. On the Ople amendment, I propose to add: THE
Transitory Provisions therein that favored aliens. I was shocked when I read NOTIFICATION TO CONGRESS SHALL BE WITHIN
a provision authorizing service contracts while we, in this Constitutional THIRTY DAYS FROM THE EXECUTION OF THE
Commission, provided for Filipino control of the economy. We are, SERVICE CONTRACT.
therefore, providing for exceptional instances where aliens may circumvent
Filipino control of our economy. And one way of circumventing the rule in THE PRESIDENT. What does the Committee say with
respect to the first amendment in lieu of NATURAL
favor of Filipino control of the economy is to recognize service contracts.
RESOURCES?
As far as I am concerned, if I should have my own way, I am for the MR. VILLEGAS. Could Commissioner Davide explain that?
complete deletion of this provision. However, we are presenting a
compromise in the sense that we are requiring a two-thirds vote of all the MR. DAVIDE. Madam President, with the use of NATURAL
Members of Congress as a safeguard. I think we should not mistrust the RESOURCES here, it would necessarily include all
future Members of Congress by saying that the purpose of this provision is to lands of the public domain, our marine resources,
avoid corruption. We cannot claim that they are less patriotic than we are. I forests, parks and so on. So we would like to limit the
think the Members of this Commission should know that entering scope of these service contracts to those areas really
into service contracts is an exception to the rule on protection of natural where these may be needed, the exploitation,
resources for the interest of the nation, and therefore, being an exception it development and exploration of minerals, petroleum and
should be subject, whenever possible, to stringent rules. It seems to me that other mineral oils. And so, we believe that we should
we are liberalizing the rules in favor of aliens. really, if we want to grant service contracts at all, limit
the same to only those particular areas where
Filipino capital may not be sufficient, and not to all
natural resources.
17
 MR. SUAREZ. Just a point of clarification again, Madam either technical or financial assistance, which ultimately became
President. When the Commissioner made those paragraph 4 of Section 2 of Article XII of the Constitution. Beyond any
enumerations and specifications, I suppose he doubt, the members of the ConCom were actually debating about the
deliberately did not include agricultural land? martial-law-era service contracts for which they were
crafting appropriate safeguards.
MR. DAVIDE. That is precisely the reason we have to
enumerate what these resources are into which service In the voting that led to the approval of Article XII by the ConCom,
contracts may enter. So, beyond the reach of the explanations given by Commissioners Gascon, Garcia and Tadeo
any service contract will be lands of the public domain, indicated that they had voted to reject this provision on account of their
timberlands, forests, marine resources, fauna and flora, objections to the constitutionalization of the service contract concept.
wildlife and national parks.[47]
Mr. Gascon said, I felt that if we would constitutionalize any
After the Jamir amendment was voted upon and approved by a provision on service contracts, this should always be with the
vote of 21 to 10 with 2 abstentions, Commissioner Davide made the concurrence of Congress and not guided only by a general law to be
following statement, which is very relevant to our quest: promulgated by Congress.[49] Mr. Garcia explained, Service
contracts are given constitutional legitimization in Sec. 3, even when
THE PRESIDENT. Commissioner Davide is recognized.
they have been proven to be inimical to the interests of the nation,
MR. DAVIDE. I am very glad that Commissioner Padilla providing, as they do, the legal loophole for the exploitation of our
emphasized minerals, petroleum and mineral oils. The natural resources for the benefit of foreign interests.[50] Likewise, Mr.
Commission has just approved the possible foreign entry Tadeo cited inter alia the fact that service contracts continued to
into the development, exploration and utilization of these subsist, enabling foreign interests to benefit from our natural
minerals, petroleum and other mineral oils by virtue of resources.[51] It was hardly likely that these gentlemen would have
the Jamir amendment. I voted in favor of the Jamir objected so strenuously, had the provision called for mere
amendment because it will eventually give way to technical or financial assistance and nothing more.
vesting in exclusively Filipino citizens and corporations The deliberations of the ConCom and some commissioners
wholly owned by Filipino citizens the right to utilize the explanation of their votes leave no room for doubt that the service
other natural resources. This means that as a matter of
contract concept precisely underpinned the commissioners
policy, natural resources should be utilized and exploited understanding of the agreements involving either technical or financial
only by Filipino citizens or corporations wholly owned by
assistance.
such citizens. But by virtue of the Jamir amendment,
since we feel that Filipino capital may not be enough for
the development and utilization of minerals, petroleum
and other mineral oils, the President can enter Summation of the
into service contracts with foreign corporations Concom Deliberations
precisely for the development and utilization of such
resources. And so, there is nothing to fear that we will At this point, we sum up the matters established, based on a
stagnate in the development of minerals, petroleum and careful reading of the ConCom deliberations, as follows:
mineral oils because we now allow service
contracts. x x x. [48] In their deliberations on what was to become
paragraph 4, the framers used the term service
The foregoing are mere fragments of the framers lengthy contracts in referring to agreements x x x involving
discussions of the provision dealing with agreements x x x involving either technical or financial assistance.
18
 They spoke of service contracts as the concept was Section 2 of the same article -- was resoundingly
understood in the 1973 Constitution. approved by a vote of 32 to 7, with 2 abstentions.
It was obvious from their discussions that they were
not about to ban or eradicate service contracts.
Agreements Involving Technical
Instead, they were plainly crafting provisions to put in or Financial Assistance Are
place safeguards that would eliminate or minimize the Service Contracts With Safeguards
abuses prevalent during the marital law regime. In
brief, they were going to permit service contracts with
foreign corporations as contractors, but with safety From the foregoing, we are impelled to conclude that the
measures to prevent abuses, as an exception to the phrase agreements involving either technical or financial
general norm established in the first paragraph of assistance, referred to in paragraph 4, are in fact service contracts. But
Section 2 of Article XII. This provision reserves or unlike those of the 1973 variety, the new ones are between foreign
limits to Filipino citizens -- and corporations at least 60 corporations acting as contractors on the one hand; and on the other,
percent of which is owned by such citizens -- the the government as principal or owner of the works. In the new service
exploration, development and utilization of natural contracts, the foreign contractors provide capital, technology and
resources. technical know-how, and managerial expertise in the creation and
operation of large-scale mining/extractive enterprises; and the
This provision was prompted by the perceived government, through its agencies (DENR, MGB), actively exercises
insufficiency of Filipino capital and the felt need for control and supervision over the entire operation.
foreign investments in the EDU of minerals and
petroleum resources. Such service contracts may be entered into only with respect to
minerals, petroleum and other mineral oils. The grant thereof is subject
The framers for the most part debated about the sort to several safeguards, among which are these requirements:
of safeguards that would be considered adequate and
reasonable. But some of them, having more radical (1) The service contract shall be crafted in accordance with a general law that
leanings, wanted to ban service contracts altogether; will set standard or uniform terms, conditions and requirements, presumably
for them, the provision would permit aliens to exploit to attain a certain uniformity in provisions and avoid the possible insertion of
and benefit from the nations natural resources, which terms disadvantageous to the country.
they felt should be reserved only for Filipinos.
In the explanation of their votes, the individual (2) The President shall be the signatory for the government because,
commissioners were heard by the entire body. They supposedly before an agreement is presented to the President for signature, it
sounded off their individual opinions, openly will have been vetted several times over at different levels to ensure that it
enunciated their philosophies, and supported or conforms to law and can withstand public scrutiny.
attacked the provisions with fervor. Everyones
viewpoint was heard. (3) Within thirty days of the executed agreement, the President shall report it
to Congress to give that branch of government an opportunity to look over
In the final voting, the Article on the National Economy the agreement and interpose timely objections, if any.
and Patrimony -- including paragraph 4 allowing
service contracts with foreign corporations as an
exception to the general norm in paragraph 1 of
Use of the Record of the
19
ConCom to Ascertain Intent It is contended that the deliberations therein did not necessarily
reflect the thinking of the voting population that participated in the
referendum and ratified the Constitution. Verily, whether we like it or
At this juncture, we shall address, rather than gloss over, the use not, it is a bit too much to assume that every one of those who voted to
of the framers intent approach, and the criticism hurled by petitioners ratify the proposed Charter did so only after carefully reading and
who quote a ruling of this Court: mulling over it, provision by provision.

While it is permissible in this jurisdiction to consult the debates and Likewise, it appears rather extravagant to assume that every one
proceedings of the constitutional convention in order to arrive at the reason of those who did in fact bother to read the draft Charter actually
and purpose of the resulting Constitution, resort thereto may be had only understood the import of its provisions, much less analyzed it vis--vis
when other guides fail as said proceedings are powerless to vary the terms of the previous Constitutions. We believe that in reality, a good
the Constitution when the meaning is clear. Debates in the constitutional percentage of those who voted in favor of it did so more out of faith and
convention are of value as showing the views of the individual members, and trust. For them, it was the product of the hard work and careful
as indicating the reason for their votes, but they give us no light as to the deliberation of a group of intelligent, dedicated and trustworthy men and
views of the large majority who did not talk, much less the mass of our women of integrity and conviction, whose love of country and fidelity to
fellow citizens whose votes at the polls gave that instrument the force of duty could not be questioned.
fundamental law. We think it safer to construe the constitution from what In short, a large proportion of the voters voted yes because the
appears upon its face. The proper interpretation therefore depends more on drafters, or a majority of them, endorsed the proposed Constitution.
how it was understood by the people adopting it than in the framers What this fact translates to is the inescapable conclusion that many of
understanding thereof.[52] the voters in the referendum did not form their own isolated judgment
about the draft Charter, much less about particular provisions therein.
The notion that the deliberations reflect only the views of those They only relied or fell back and acted upon the favorable endorsement
members who spoke out and not the views of the majority who or recommendation of the framers as a group. In other words, by
remained silent should be clarified. We must never forget that those voting yes, they may be deemed to have signified their voluntary
who spoke out were heard by those who remained silent and did not adoption of the understanding and interpretation of the delegates with
react. If the latter were silent because they happened not to be present respect to the proposed Charter and its particular provisions. If its good
at the time, they are presumed to have read the minutes and kept enough for them, its good enough for me; or, in many instances, If its
abreast of the deliberations. By remaining silent, they are deemed to good enough for President Cory Aquino, its good enough for me.
have signified their assent to and/or conformity with at least some of
the views propounded or their lack of objections thereto. It was And even for those who voted based on their own individual
incumbent upon them, as representatives of the entire Filipino people, assessment of the proposed Charter, there is no evidence available to
to follow the deliberations closely and to speak their minds on the indicate that their assessment or understanding of its provisions was in
matter if they did not see eye to eye with the proponents of the draft fact different from that of the drafters. This unwritten assumption seems
provisions. to be petitioners as well. For all we know, this segment of voters must
have read and understood the provisions of the Constitution in the
In any event, each and every one of the commissioners had the same way the framers had, an assumption that would account for the
opportunity to speak out and to vote on the matter. Moreover, the favorable votes.
individual explanations of votes are on record, and they show where
each delegate stood on the issues. In sum, we cannot completely Fundamentally speaking, in the process of rewriting the Charter,
denigrate the value or usefulness of the record of the ConCom, the members of the ConCom as a group were supposed to represent
simply because certain members chose not to speak out. the entire Filipino people. Thus, we cannot but regard their views as

20
being very much indicative of the thinking of the people with respect to foreign contractors. Normally, pursuant thereto, the contractors
the matters deliberated upon and to the Charter as a whole. exercise management prerogatives over the mining operations and the
enterprise as a whole. There is thus a legitimate ground to be
It is therefore reasonable and unavoidable to make the
concerned that either the States full control and supervision may rule
following conclusion, based on the above arguments. As written
out any exercise of management authority by the foreign contractor; or,
by the framers and ratified and adopted by the people, the the other way around, allowing the foreign contractor full management
Constitution allows the continued use of service contracts with prerogatives may ultimately negate the States full control and
foreign corporations -- as contractors who would invest in and
supervision.
operate and manage extractive enterprises, subject to the full
control and supervision of the State -- sans the abuses of the past
regime. The purpose is clear: to develop and utilize our mineral,
petroleum and other resources on a large scale for the immediate Ut Magis Valeat
and tangible benefit of the Filipino people. Quam Pereat

In view of the foregoing discussion, we should reverse the Decision

of January 27, 2004, and in fact now hold a view different from that of Under the third principle of constitutional construction laid down
the Decision, which had these findings: (a) paragraph 4 of Section 2 of in Francisco -- ut magis valeat quam pereat -- every part of the
Article XII limits foreign involvement in the local mining industry to Constitution is to be given effect, and the Constitution is to be read and
agreements strictly for either financial or technical assistance only; (b) understood as a harmonious whole. Thus, full control and supervision
the same paragraph precludes agreements that grant to foreign by the State must be understood as one that does not preclude the
corporations the management of local mining operations, as such legitimate exercise of management prerogatives by the foreign
agreements are purportedly in the nature of service contracts as these contractor. Before any further discussion, we must stress the primacy
were understood under the 1973 Constitution; (c) these service and supremacy of the principle of sovereignty and State control and
contracts were supposedly de-constitutionalized and proscribed by the supervision over all aspects of exploration, development and utilization
omission of the term service contracts from the 1987 Constitution; (d) of the countrys natural resources, as mandated in the first paragraph of
since the WMCP FTAA contains provisions permitting the foreign Section 2 of Article XII.
contractor to manage the concern, the said FTAA is invalid for being a But in the next breadth we have to point out that full control and
prohibited service contract; and (e) provisions of RA 7942 and DAO 96- supervision cannot be taken literally to mean that the State controls and
40, which likewise grant managerial authority to the foreign contractor, supervises everything involved, down to the minutest details, and
are also invalid and unconstitutional. makes all decisions required in the mining operations. This strained
concept of control and supervision over the mining enterprise would
render impossible the legitimate exercise by the contractors of a
Ultimate Test: States Control reasonable degree of management prerogative and authority
Determinative of Constitutionality necessary and indispensable to their proper functioning.
For one thing, such an interpretation would discourage foreign
But we are not yet at the end of our quest. Far from it. It seems that entry into large-scale exploration, development and utilization activities;
we are confronted with a possible collision of constitutional provisions. and result in the unmitigated stagnation of this sector, to the detriment
On the one hand, paragraph 1 of Section 2 of Article XII explicitly of our nations development. This scenario renders paragraph 4
mandates the State to exercise full control and supervision over the inoperative and useless. And as respondents have correctly pointed
exploration, development and utilization of natural resources. On the out, the government does not have to micro-manage the mining
other hand, paragraph 4 permits safeguarded service contracts with
21
operations and dip its hands into the day-to-day affairs of the enterprise A careful scrutiny of the provisions of RA 7942 and its
in order for it to be considered as having full control and supervision. Implementing Rules belies petitioners claims. Paraphrasing the
Constitution, Section 4 of the statute clearly affirms the States control
The concept of control[53] adopted in Section 2 of Article XII must thus:
be taken to mean less than dictatorial, all-encompassing control; but
nevertheless sufficient to give the State the power to direct, restrain,
Sec. 4. Ownership of Mineral Resources. Mineral resources are owned by the
regulate and govern the affairs of the extractive enterprises. Control by
State and the exploration, development, utilization and processing thereof
the State may be on a macro level, through the establishment of
shall be under its full control and supervision. The State may directly
policies, guidelines, regulations, industry standards and similar
undertake such activities or it may enter into mineral agreements with
measures that would enable the government to control the conduct of
contractors.
affairs in various enterprises and restrain activities deemed not
desirable or beneficial.
The State shall recognize and protect the rights of the indigenous cultural
The end in view is ensuring that these enterprises contribute to the communities to their ancestral lands as provided for by the Constitution.
economic development and general welfare of the country, conserve
the environment, and uplift the well-being of the affected local The aforequoted provision is substantively reiterated in Section 2
communities. Such a concept of control would be compatible with of DAO 96-40 as follows:
permitting the foreign contractor sufficient and reasonable
management authority over the enterprise it invested in, in order to Sec. 2. Declaration of Policy. All mineral resources in public and private
ensure that it is operating efficiently and profitably, to protect its lands within the territory and exclusive economic zone of the Republic of the
investments and to enable it to succeed. Philippines are owned by the State. It shall be the responsibility of the State
The question to be answered, then, is whether RA 7942 and to promote their rational exploration, development, utilization and
its Implementing Rules enable the government to exercise that conservation through the combined efforts of the Government and private
degree of control sufficient to direct and regulate the conduct of sector in order to enhance national growth in a way that effectively
affairs of individual enterprises and restrain undesirable activities. safeguards the environment and protects the rights of affected communities.

On the resolution of these questions will depend the validity and

constitutionality of certain provisions of the Philippine Mining Act of Sufficient Control Over Mining
1995 (RA 7942) and its Implementing Rules and Regulations (DAO 96- Operations Vested in the State
40), as well as the WMCP FTAA. by RA 7942 and DAO 96-40
Indeed, petitioners charge[54] that RA 7942, as well as its
Implementing Rules and Regulations, makes it possible for FTAA
contracts to cede full control and management of mining enterprises RA 7942 provides for the States control and supervision over
over to fully foreign-owned corporations, with the result that the State is mining operations. The following provisions thereof establish the
mechanism of inspection and visitorial rights over mining operations
allegedly reduced to a passive regulator dependent on submitted plans
and institute reportorial requirements in this manner:
and reports, with weak review and audit powers. The State does not
supposedly act as the owner of the natural resources for and on behalf
of the Filipino people; it practically has little effective say in the 1. Sec. 8 which provides for the DENRs power of over-all
decisions made by the enterprise. Petitioners then conclude that the supervision and periodic review for the conservation,
law, the implementing regulations, and the WMCP FTAA cede management, development and proper use of the States
beneficial ownership of the mineral resources to the foreign contractor. mineral resources;

22
2. Sec. 9 which authorizes the Mines and Geosciences Bureau (m) Requiring the proponent to dispose of the
(MGB) under the DENR to exercise direct charge in the minerals at the highest price and more
administration and disposition of mineral resources, and advantageous terms and conditions.
empowers the MGB to monitor the compliance by the
contractor of the terms and conditions of the mineral (n) x x x x x x x x x
agreements, confiscate surety and performance bonds, and
deputize whenever necessary any member or unit of the Phil. (o) Such other terms and conditions consistent with
National Police, barangay, duly registered non-governmental the Constitution and with this Act as the
organization (NGO) or any qualified person to police mining Secretary may deem to be for the best interest
activities; of the State and the welfare of the Filipino
people.
3. Sec. 66 which vests in the Regional Director exclusive
jurisdiction over safety inspections of all installations, The foregoing provisions of Section 35 of RA 7942 are also
whether surface or underground, utilized in mining reflected and implemented in Section 56 (g), (h), (l), (m) and (n) of the
operations. Implementing Rules, DAO 96-40.

4. Sec. 35, which incorporates into all FTAAs the following terms, Moreover, RA 7942 and DAO 96-40 also provide various
conditions and warranties: stipulations confirming the governments control over mining
enterprises:
(g) Mining operations shall be conducted in The contractor is to relinquish to the government those
accordance with the provisions of the Act and portions of the contract area not needed for mining
its IRR. operations and not covered by any declaration of mining
feasibility (Section 35-e, RA 7942; Section 60, DAO 96-40).
(h) Work programs and minimum expenditures
commitments. The contractor must comply with the provisions pertaining
to mine safety, health and environmental protection
(Chapter XI, RA 7942; Chapters XV and XVI, DAO 96-40).
xxxxxxxxx
For violation of any of its terms and conditions,
(k) Requiring proponent to effectively use appropriate government may cancel an FTAA. (Chapter XVII, RA 7942;
anti-pollution technology and facilities to Chapter XXIV, DAO 96-40).
protect the environment and restore or
An FTAA contractor is obliged to open its books of
rehabilitate mined-out areas.
accounts and records for inspection by the government
(Section 56-m, DAO 96-40).
(l) The contractors shall furnish the Government
records of geologic, accounting and other An FTAA contractor has to dispose of the minerals and by-
relevant data for its mining operation, and that products at the highest market price and register with the
books of accounts and records shall be open MGB a copy of the sales agreement (Section 56-n, DAO
for inspection by the government. x x x. 96-40).
MGB is mandated to monitor the contractors compliance
with the terms and conditions of the FTAA; and to deputize,
23
when necessary, any member or unit of the Philippine annual basis as the case may be; per Section 270, DAO
National Police, the barangay or a DENR-accredited 96-40), pertaining to the following:
nongovernmental organization to police mining activities
1. Exploration
(Section 7-d and -f, DAO 96-40).
2. Drilling
An FTAA cannot be transferred or assigned without prior 3. Mineral resources and reserves
approval by the President (Section 40, RA 7942; Section 4. Energy consumption
66, DAO 96-40). 5. Production
6. Sales and marketing
A mining project under an FTAA cannot proceed to the 7. Employment
construction/development/utilization stage, unless its 8. Payment of taxes, royalties, fees and other
Declaration of Mining Project Feasibility has been approved Government Shares
by government (Section 24, RA 7942). 9. Mine safety, health and environment
The Declaration of Mining Project Feasibility filed by the 10. Land use
contractor cannot be approved without submission of the 11. Social development
following documents: 12. Explosives consumption
1. Approved mining project feasibility study An FTAA pertaining to areas
(Section 53-d, DAO 96-40) within government reservations cannot be granted without
2. Approved three-year work program (Section a written clearance from the government agencies
53-a-4, DAO 96-40) concerned (Section 19, RA 7942; Section 54, DAO 96-40).
3. Environmental compliance certificate An FTAA contractor is
(Section 70, RA 7942)
required to post a financial guarantee bond in favor of the
4. Approved environmental protection and
government in an amount equivalent to its expenditures
enhancement program (Section 69, RA
obligations for any particular year. This requirement is
7942)
apart from the representations and warranties of the
5. Approval by the Sangguniang
contractor that it has access to all the financing,
Panlalawigan/Bayan/Barangay (Section
managerial and technical expertise and technology
70, RA 7942; Section 27, RA 7160)
necessary to carry out the objectives of the FTAA (Section
6. Free and prior informed consent by the
35-b, -e, and -f, RA 7942).
indigenous peoples concerned, including
payment of royalties through a Other reports to be submitted
Memorandum of Agreement (Section 16, by the contractor, as required under DAO 96-40, are as
RA 7942; Section 59, RA 8371) follows: an environmental report on the rehabilitation of
the mined-out area and/or mine waste/tailing covered
The FTAA contractor is
area, and anti-pollution measures undertaken (Section 35-
obliged to assist in the development of its mining a-2); annual reports of the mining operations and records
community, promotion of the general welfare of its of geologic accounting (Section 56-m); annual progress
inhabitants, and development of science and mining reports and final report of exploration activities (Section
technology (Section 57, RA 7942). 56-2).
The FTAA contractor is
obliged to submit reports (on quarterly, semi-annual or
24
 Other programs required to possesses the means by which it can have the ultimate word in the
be submitted by the contractor, pursuant to DAO 96-40, operation of the enterprise, set directions and objectives, and detect
are the following: a safety and health program (Section deviations and noncompliance by the contractor; likewise, it has the
144); an environmental work program (Section 168); an capability to enforce compliance and to impose sanctions, should the
annual environmental protection and enhancement occasion therefor arise.
program (Section 171).
In other words, the FTAA contractor is not free to do whatever
The foregoing gamut of requirements, regulations, restrictions and it pleases and get away with it; on the contrary, it will have to
limitations imposed upon the FTAA contractor by the statute and follow the government line if it wants to stay in the enterprise.
regulations easily overturns petitioners contention. The setup under RA Ineluctably then, RA 7942 and DAO 96-40 vest in the government
7942 and DAO 96-40 hardly relegates the State to the role of a passive more than a sufficient degree of control and supervision over the
regulator dependent on submitted plans and reports. On the contrary, conduct of mining operations.
the government agencies concerned are empowered to approve or
disapprove -- hence, to influence, direct and change -- the various work
programs and the corresponding minimum expenditure commitments Section 3(aq) of RA 7942
for each of the exploration, development and utilization phases of the Not Unconstitutional
mining enterprise.
Once these plans and reports are approved, the contractor is An objection has been expressed that Section 3(aq)[55] of RA 7942
bound to comply with its commitments therein. Figures for mineral -- which allows a foreign contractor to apply for and hold an exploration
production and sales are regularly monitored and subjected to permit -- is unconstitutional. The reasoning is that Section 2 of Article
government review, in order to ensure that the products and by- XII of the Constitution does not allow foreign-owned corporations to
products are disposed of at the best prices possible; even copies of undertake mining operations directly. They may act only as contractors
sales agreements have to be submitted to and registered with MGB. of the State under an FTAA; and the State, as the party directly
And the contractor is mandated to open its books of accounts and undertaking exploitation of its natural resources, must hold through the
records for scrutiny, so as to enable the State to determine if the government all exploration permits and similar authorizations. Hence,
government share has been fully paid. Section 3(aq), in permitting foreign-owned corporations to hold
The State may likewise compel the contractors compliance with exploration permits, is unconstitutional.
mandatory requirements on mine safety, health and environmental The objection, however, is not well-founded. While the Constitution
protection, and the use of anti-pollution technology and facilities. mandates the State to exercise full control and supervision over the
Moreover, the contractor is also obligated to assist in the development exploitation of mineral resources, nowhere does it require the
of the mining community and to pay royalties to the indigenous peoples government to hold all exploration permits and similar authorizations. In
concerned. fact, there is no prohibition at all against foreign or local corporations or
Cancellation of the FTAA may be the penalty for violation of any of contractors holding exploration permits. The reason is not hard to see.
its terms and conditions and/or noncompliance with statutes or Pursuant to Section 20 of RA 7942, an exploration permit merely
regulations. This general, all-around, multipurpose sanction is no trifling grants to a qualified person the right to conduct exploration for all
matter, especially to a contractor who may have yet to recover the tens minerals in specified areas. Such a permit does not amount to an
or hundreds of millions of dollars sunk into a mining project. authorization to extract and carry off the mineral resources that may be
Overall, considering the provisions of the statute and the discovered. This phase involves nothing but expenditures for exploring
regulations just discussed, we believe that the State definitely the contract area and locating the mineral bodies. As no extraction is

25
involved, there are no revenues or incomes to speak of. In short, the contractors. Thus, Section 3(aq) of RA 7942 may not be deemed
exploration permit is an authorization for the grantee to spend its own unconstitutional.
funds on exploration programs that are pre-approved by the
government, without any right to recover anything should no minerals
in commercial quantities be discovered. The State risks nothing and The Terms of the WMCP FTAA
loses nothing by granting these permits to local or foreign firms; in fact, A Deference to State Control
it stands to gain in the form of data generated by the exploration
activities.
A perusal of the WMCP FTAA also reveals a slew of stipulations
Pursuant to Section 24 of RA 7942, an exploration permit grantee providing for State control and supervision:
who determines the commercial viability of a mining area may, within
the term of the permit, file with the MGB a declaration of mining project 1. The contractor is obligated to account for the value of
feasibility accompanied by a work program for development. The production and sale of minerals (Clause 1.4).
approval of the mining project feasibility and compliance with other
2. The contractors work program, activities and budgets must
requirements of RA 7942 vests in the grantee the exclusive right to an
be approved by/on behalf of the State (Clause 2.1).
MPSA or any other mineral agreement, or to an FTAA.
3. The DENR secretary has the power to extend the
Thus, the permit grantee may apply for an MPSA, a joint venture
exploration period (Clause 3.2-a).
agreement, a co-production agreement, or an FTAA over the permit
area, and the application shall be approved if the permit grantee meets 4. Approval by the State is necessary for incorporating lands
the necessary qualifications and the terms and conditions of any such into the FTAA contract area (Clause 4.3-c).
agreement. Therefore, the contractor will be in a position to extract
minerals and earn revenues only when the MPSA or another mineral 5. The Bureau of Forest Development is vested with discretion
agreement, or an FTAA, is granted. At that point, the contractors rights in regard to approving the inclusion of forest reserves as
and obligations will be covered by an FTAA or a mineral agreement. part of the FTAA contract area (Clause 4.5).

But prior to the issuance of such FTAA or mineral agreement, the 6. The contractor is obliged to relinquish periodically parts of
exploration permit grantee (or prospective contractor) cannot yet be the contract area not needed for exploration and
deemed to have entered into any contract or agreement with the State, development (Clause 4.6).
and the grantee would definitely need to have some document or 7. A Declaration of Mining Feasibility must be submitted for
instrument as evidence of its right to conduct exploration works within approval by the State (Clause 4.6-b).
the specified area. This need is met by the exploration permit issued
pursuant to Sections 3(aq), 20 and 23 of RA 7942. 8. The contractor is obligated to report to the State its
exploration activities (Clause 4.9).
In brief, the exploration permit serves a practical and
legitimate purpose in that it protects the interests and preserves 9. The contractor is required to obtain State approval of its
the rights of the exploration permit grantee (the would-be work programs for the succeeding two-year periods,
contractor) -- foreign or local -- during the period of time that it is containing the proposed work activities and expenditures
spending heavily on exploration works, without yet being able to budget related to exploration (Clause 5.1).
earn revenues to recoup any of its investments and 10. The contractor is required to obtain State approval for its
expenditures. Minus this permit and the protection it affords, the proposed expenditures for exploration activities (Clause
exploration works and expenditures may end up benefiting only claim- 5.2).
jumpers. Such a possibility tends to discourage investors and
26
11. The contractor is required to submit an annual report on specified expenditures, unless not so required by
geological, geophysical, geochemical and other subsequent legislation (Clause 10.1).
information relating to its explorations within the FTAA
area (Clause 5.3-a). 21. The State has the right to terminate the FTAA for the
contractors unremedied substantial breach thereof
12. The contractor is to submit within six months after (Clause 13.2);
expiration of exploration period a final report on all its
findings in the contract area (Clause 5.3-b). 22. The States approval is needed for any assignment of the
FTAA by the contractor to an entity other than an affiliate
13. The contractor, after conducting feasibility studies, shall (Clause 14.1).
submit a declaration of mining feasibility, along with a
description of the area to be developed and mined, a We should elaborate a little on the work programs and budgets,
description of the proposed mining operations and the and what they mean with respect to the States ability to exercise full
technology to be employed, and a proposed work control and effective supervision over the enterprise. For instance,
program for the development phase, for approval by the throughout the initial five-year exploration and feasibility phase of the
DENR secretary (Clause 5.4). project, the contractor is mandated by Clause 5.1 of the WMCP FTAA
to submit a series of work programs (copy furnished the director of
14. The contractor is obliged to complete the development of MGB) to the DENR secretary for approval. The programs will detail the
the mine, including construction of the production contractors proposed exploration activities and budget covering each
facilities, within the period stated in the approved work subsequent period of two fiscal years.
program (Clause 6.1).
In other words, the concerned government officials will be informed
15. The contractor is obligated to submit for approval of the beforehand of the proposed exploration activities and expenditures of
DENR secretary a work program covering each period of the contractor for each succeeding two-year period, with the right to
three fiscal years (Clause 6.2). approve/disapprove them or require changes or adjustments therein if
deemed necessary.
16. The contractor is to submit reports to the DENR secretary
on the production, ore reserves, work accomplished and Likewise, under Clause 5.2(a), the amount that the contractor was
work in progress, profile of its work force and supposed to spend for exploration activities during the first contract
management staff, and other technical information year of the exploration period was fixed at not less than P24 million;
(Clause 6.3). and then for the succeeding years, the amount shall be as agreed
between the DENR secretary and the contractor prior to the
17. Any expansions, modifications, improvements and commencement of each subsequent fiscal year. If no such agreement
replacements of mining facilities shall be subject to the is arrived upon, the previous years expenditure commitment shall
approval of the secretary (Clause 6.4). apply.
18. The State has control with respect to the amount of funds This provision alone grants the government through the DENR
that the contractor may borrow within the Philippines secretary a very big say in the exploration phase of the project. This
(Clause 7.2). fact is not something to be taken lightly, considering that
19. The State has supervisory power with respect to technical, the government has absolutely no contribution to the exploration
financial and marketing issues (Clause 10.1-a). expenditures or work activities and yet is given veto power over such a
critical aspect of the project. We cannot but construe as very significant
20. The contractor is required to ensure 60 percent Filipino such a degree of control over the project and, resultantly, over the
equity in the contractor, within ten years of recovering mining enterprise itself.
27
 Following its exploration activities or feasibility studies, if the Under Section VIII, during the period of mining operations, the
contractor believes that any part of the contract area is likely to contain contractor is also required to submit to the DENR secretary (copy
an economic mineral resource, it shall submit to the DENR secretary a furnished the director of MGB) the work program and corresponding
declaration of mining feasibility (per Clause 5.4 of the FTAA), together budget for the contract area, describing the mining operations that are
with a technical description of the area delineated for development and proposed to be carried out during the period covered. The secretary is,
production, a description of the proposed mining operations including of course, entitled to grant or deny approval of any work program or
the technology to be used, a work program for development, an budget and/or propose revisions thereto. Once the program/budget has
environmental impact statement, and a description of the contributions been approved, the contractor shall comply therewith.
to the economic and general welfare of the country to be generated by
the mining operations (pursuant to Clause 5.5). In sum, the above provisions of the WMCP FTAA taken together,
far from constituting a surrender of control and a grant of beneficial
The work program for development is subject to the approval of the ownership of mineral resources to the contractor in question, bestow
DENR secretary. Upon its approval, the contractor must comply with it upon the State more than adequate control and supervision over
and complete the development of the mine, including the construction the activities of the contractor and the enterprise.
of production facilities and installation of machinery and equipment,
within the period provided in the approved work program for
development (per Clause 6.1). No Surrender of Control
Thus, notably, the development phase of the project is likewise Under the WMCP FTAA
subject to the control and supervision of the government. It cannot be
emphasized enough that the proper and timely construction and Petitioners, however, take aim at Clause 8.2, 8.3, and 8.5 of the
deployment of the production facilities and the development of the mine WMCP FTAA which, they say, amount to a relinquishment of control by
are of pivotal significance to the success of the mining venture. Any the State, since it cannot truly impose its own discretion in respect of
missteps here will potentially be very costly to remedy. Hence, the the submitted work programs.
submission of the work program for development to the DENR
secretary for approval is particularly noteworthy, considering that so 8.2. The Secretary shall be deemed to have approved any
many millions of dollars worth of investments -- courtesy of the Work Programme or Budget or variation
contractor -- are made to depend on the States consideration and thereof submitted by the Contractor unless within sixty
action. (60) days after submission by the Contractor the
Secretary gives notice declining such approval or
Throughout the operating period, the contractor is required to proposing a revision of certain features and specifying
submit to the DENR secretary for approval, copy furnished the director its reasons therefor (the Rejection Notice).
of MGB, work programs covering each period of three fiscal years (per
Clause 6.2). During the same period (per Clause 6.3), the contractor is 8.3. If the Secretary gives a Rejection Notice, the Parties shall
mandated to submit various quarterly and annual reports to the DENR promptly meet and endeavor to agree on amendments
secretary, copy furnished the director of MGB, on the tonnages of to the Work Programme or Budget. If the Secretary and
production in terms of ores and concentrates, with corresponding the Contractor fail to agree on the proposed revision
grades, values and destinations; reports of sales; total ore reserves, within 30 days from delivery of the Rejection Notice
total tonnage of ores, work accomplished and work in progress then the Work Programme or Budget or variation
(installations and facilities related to mining operations), investments thereof proposed by the Contractor shall be deemed
made or committed, and so on and so forth. approved, so as not to unnecessarily delay the
performance of the Agreement.

28
 8.4. x x x x x x x x x avoidance of long delays in these situations will undoubtedly redound
to the benefit of the State as well as the contractor. Second, who is to
8.5. So far as is practicable, the Contractor shall comply with
say that the work program or budget proposed by the contractor and
any approved Work Programme and Budget. It is deemed approved under Clause 8.3 would not be the better or more
recognized by the Secretary and the Contractor that the reasonable or more effective alternative? The contractor, being the
details of any Work Programmes or Budgets may insider, as it were, may be said to be in a better position than the State
require changes in the light of changing circumstances. -- an outsider looking in -- to determine what work program or budget
The Contractor may make such changes without
would be appropriate, more effective, or more suitable under the
approval of the Secretary provided they do not change circumstances.
the general objective of any Work Programme, nor
entail a downward variance of more than twenty per All things considered, we take exception to the characterization of
centum (20percent) of the relevant Budget. All other the DENR secretary as a subservient nonentity whom the contractor
variations to an approved Work Programme or Budget can overrule at will, on account of Clause 8.3. And neither is it true that
shall be submitted for approval of the Secretary. under the same clause, the DENR secretary has no authority
whatsoever to disapprove the work program. As Respondent WMCP
From the provisions quoted above, petitioners generalize by
reasoned in its Reply-Memorandum, the State -- despite Clause 8.3 --
asserting that the government does not participate in making critical still has control over the contract area and it may, as sovereign
decisions regarding the operations of the mining firm. Furthermore, authority, prohibit work thereon until the dispute is resolved. And
while the State can require the submission of work programs and ultimately, the State may terminate the agreement, pursuant to Clause
budgets, the decision of the contractor will still prevail, if the parties 13.2 of the same FTAA, citing substantial breach thereof. Hence, it
have a difference of opinion with regard to matters affecting operations clearly retains full and effective control of the exploitation of the mineral
and management. resources.
We hold, however, that the foregoing provisions do not manifest a On the other hand, Clause 8.5 is merely an acknowledgment of the
relinquishment of control. For instance, Clause 8.2 merely provides a parties need for flexibility, given that no one can accurately forecast
mechanism for preventing the business or mining operations from under all circumstances, or predict how situations may change. Hence,
grinding to a complete halt as a result of possibly over-long and while approved work programs and budgets are to be followed and
unjustified delays in the governments handling, processing and complied with as far as practicable, there may be instances in which
approval of submitted work programs and budgets. Anyway, the
changes will have to be effected, and effected rapidly, since events may
provision does give the DENR secretary more than sufficient time (60 take shape and unfold with suddenness and urgency. Thus, Clause 8.5
days) to react to submitted work programs and budgets. It cannot be allows the contractor to move ahead and make changes without the
supposed that proper grounds for objecting thereto, if any exist, cannot express or implicit approval of the DENR secretary. Such changes are,
be discovered within a period of two months. however, subject to certain conditions that will serve to limit or restrict
On the other hand, Clause 8.3 seeks to provide a temporary, stop- the variance and prevent the contractor from straying very far from what
gap solution in the event a disagreement over the submitted work has been approved.
program or budget arises between the State and the contractor and Clause 8.5 provides the contractor a certain amount of flexibility to
results in a stalemate or impasse, in order that there will be no
meet unexpected situations, while still guaranteeing that the approved
unreasonably long delays in the performance of the works. work programs and budgets are not abandoned altogether. Clause 8.5
These temporary or stop-gap solutions are not necessarily evil or does not constitute proof that the State has relinquished control. And
wrong. Neither does it follow that the government will inexorably be ultimately, should there be disagreement with the actions taken by the
aggrieved if and when these temporary remedies come into play. First, contractor in this instance as well as under Clause 8.3 discussed

29
above, the DENR secretary may resort to cancellation/termination of Contractors own cost, to purchase or acquire surface areas for and on
the FTAA as the ultimate sanction. behalf of the Contractor at such price and terms as may be acceptable
to the contractor. At the termination of this Agreement such areas shall
be sold by public auction or tender and the Contractor shall be entitled
Discretion to Select Contract to reimbursement of the costs of acquisition and maintenance, adjusted
Area Not an Abdication of Control for inflation, from the proceeds of sale.
According to petitioners, government becomes a subcontractor to
Next, petitioners complain that the contractor has full discretion to the contractor and may, on account of this provision, be compelled to
select -- and the government has no say whatsoever as to -- the parts make use of its power of eminent domain, not for public purposes but
of the contract area to be relinquished pursuant to Clause 4.6 of the on behalf of a private party, i.e., the contractor. Moreover, the power of
WMCP FTAA.[56] This clause, however, does not constitute abdication the courts to determine the amount corresponding to the constitutional
of control. Rather, it is a mere acknowledgment of the fact that the requirement of just compensation has allegedly also been contracted
contractor will have determined, after appropriate exploration works, away by the government, on account of the latters commitment that the
which portions of the contract area do not contain minerals in acquisition shall be at such terms as may be acceptable to the
commercial quantities sufficient to justify developing the same and contractor.
ought therefore to be relinquished. The State cannot just substitute its However, private respondent has proffered a logical explanation
judgment for that of the contractor and dictate upon the latter which for the provision.[58] Section 10.2(e) contemplates a situation applicable
areas to give up. to foreign-owned corporations. WMCP, at the time of the execution of
Moreover, we can be certain that the contractors self-interest will the FTAA, was a foreign-owned corporation and therefore not qualified
propel proper and efficient relinquishment. According to private to own land. As contractor, it has at some future date to construct the
respondent,[57] a mining company tries to relinquish as much non-mineral infrastructure -- the mine processing plant, the camp site, the tailings
areas as soon as possible, because the annual occupation fees paid to dam, and other infrastructure -- needed for the large-scale mining
the government are based on the total hectarage of the contract area, net operations. It will then have to identify and pinpoint, within the FTAA
of the areas relinquished. Thus, the larger the remaining area, the heftier contract area, the particular surface areas with favorable topography
the amount of occupation fees to be paid by the contractor. Accordingly, deemed ideal for such infrastructure and will need to acquire the
relinquishment is not an issue, given that the contractor will not want to surface rights. The State owns the mineral deposits in the earth, and is
pay the annual occupation fees on the non-mineral parts of its contract also qualified to own land.
area. Neither will it want to relinquish promising sites, which other Section 10.2(e) sets forth the mechanism whereby the foreign-
contractors may subsequently pick up. owned contractor, disqualified to own land, identifies to the government
the specific surface areas within the FTAA contract area to be acquired
for the mine infrastructure. The government then acquires ownership of
Government Not the surface land areas on behalf of the contractor, in order to enable
a Subcontractor the latter to proceed to fully implement the FTAA.
The contractor, of course, shoulders the purchase price of the land.
Petitioners further maintain that the contractor can compel the Hence, the provision allows it, after termination of the FTAA, to be
government to exercise its power of eminent domain to acquire surface reimbursed from proceeds of the sale of the surface areas, which the
areas within the contract area for the contractors use. Clause 10.2 (e) government will dispose of through public bidding. It should be noted
of the WMCP FTAA provides that the government agrees that the that this provision will not be applicable to Sagittarius as the present
contractor shall (e) have the right to require the Government at the FTAA contractor, since it is a Filipino corporation qualified to own and
30
hold land. As such, it may therefore freely negotiate with the surface For that matter, Section 56(n) of DAO 99-56 specifically obligates
rights owners and acquire the surface property in its own right. an FTAA contractor to dispose of the minerals and by-products at the
highest market price and to register with the MGB a copy of the sales
Clearly, petitioners have needlessly jumped to unwarranted agreement. After all, the provisions of prevailing statutes as well as
conclusions, without being aware of the rationale for the said provision. rules and regulations are deemed written into contracts.
That provision does not call for the exercise of the power of eminent
domain -- and determination of just compensation is not an issue -- as
much as it calls for a qualified party to acquire the surface rights on
behalf of a foreign-owned contractor. Contractors Right to Mortgage
Not Objectionable Per Se
Rather than having the foreign contractor act through a dummy
corporation, having the State do the purchasing is a better alternative.
This will at least cause the government to be aware of such Petitioners also question the absolute right of the contractor under
transaction/s and foster transparency in the contractors dealings with Clause 10.2 (l) to mortgage and encumber not only its rights and
the local property owners. The government, then, will not act as a interests in the FTAA and the infrastructure and improvements
subcontractor of the contractor; rather, it will facilitate the transaction introduced, but also the mineral products extracted. Private
and enable the parties to avoid a technical violation of the Anti-Dummy respondents do not touch on this matter, but we believe that this
Law. provision may have to do with the conditions imposed by the creditor-
banks of the then foreign contractor WMCP to secure the lendings
made or to be made to the latter. Ordinarily, banks lend not only on the
Absence of Provision security of mortgages on fixed assets, but also on encumbrances
Requiring Sale at Posted of goods produced that can easily be sold and converted into cash that
Prices Not Problematic can be applied to the repayment of loans. Banks even lend on the
security of accounts receivable that are collectible within 90 days.[59]
It is not uncommon to find that a debtor corporation has executed
The supposed absence of any provision in the WMCP FTAA deeds of assignment by way of security over the production for the next
directly and explicitly requiring the contractor to sell the mineral twelve months and/or the proceeds of the sale thereof -- or the
products at posted or market prices is not a problem. Apart from Clause corresponding accounts receivable, if sold on terms -- in favor of its
1.4 of the FTAA obligating the contractor to account for the total value creditor-banks. Such deeds may include authorizing the creditors to sell
of mineral production and the sale of minerals, we can also look to
the products themselves and to collect the sales proceeds and/or the
Section 35 of RA 7942, which incorporates into all FTAAs certain terms, accounts receivable.
conditions and warranties, including the following:
Seen in this context, Clause 10.2(l) is not something out of the
(l) The contractors shall furnish the Government records of ordinary or objectionable. In any case, as will be explained below, even
geologic, accounting and other relevant data for its if it is allowed to mortgage or encumber the mineral end-products
mining operation, and that books of accounts and records
themselves, the contractor is not freed of its obligation to pay the
shall be open for inspection by the government. x x x government its basic and additional shares in the net mining revenue,
(m) Requiring the proponent to dispose of the minerals at the which is the essential thing to consider.
highest price and more advantageous terms and In brief, the alarum raised over the contractors right to mortgage
conditions. the minerals is simply unwarranted. Just the same, the contractor must
account for the value of mineral production and the sales proceeds

31
therefrom. Likewise, under the WMCP FTAA, the government remains institutions, (the Government shall) cooperate with the Contractor in
entitled to its sixty percent share in the net mining revenues of the such efforts provided that such financing arrangements will in no event
contractor. The latters right to mortgage the minerals does not negate reduce the Contractors obligations or the Governments rights
the States right to receive its share of net mining revenues. hereunder. The colatilla obviously safeguards the States interests; if
breached, it will give the government cause to object to the proposed
amendments.
Shareholders Free On the other hand, Clause 10.4(i) provides that the Government
to Sell Their Stocks shall favourably consider any request from [the] Contractor for
amendments of this Agreement which are necessary in order for the
Petitioners likewise criticize Clause 10.2(k), which gives the Contractor to successfully obtain the financing. Petitioners see in this
contractor authority to change its equity structure at any time. This provision a complete renunciation of control. We disagree.
provision may seem somewhat unusual, but considering that WMCP The proviso does not say that the government shall grant any
then was 100 percent foreign-owned, any change would mean that request for amendment. Clause 10.4(i) only obliges the State to
such percentage would either stay unaltered or be decreased in favor favorably consider any such request, which is not at all unreasonable,
of Filipino ownership. Moreover, the foreign-held shares may change as it is not equivalent to saying that the government must automatically
hands freely. Such eventuality is as it should be. consent to it. This provision should be read together with the rest of the
We believe it is not necessary for government to attempt to limit or FTAA provisions instituting government control and supervision over
restrict the freedom of the shareholders in the contractor to freely the mining enterprise. The clause should not be given an interpretation
transfer, dispose of or encumber their shareholdings, consonant with that enables the contractor to wiggle out of the restrictions imposed
the unfettered exercise of their business judgment and discretion. upon it by merely suggesting that certain amendments are requested
Rather, what is critical is that, regardless of the identity, nationality and by the lenders.
percentage ownership of the various shareholders of the contractor -- Rather, it is up to the contractor to prove to the government that
and regardless of whether these shareholders decide to take the the requested changes to the FTAA are indispensable, as they enable
company public, float bonds and other fixed-income instruments, or the contractor to obtain the needed financing; that without such contract
allow the creditor-banks to take an equity position in the company -- the changes, the funders would absolutely refuse to extend the loan; that
foreign-owned contractor is always in a position to render the services there are no other sources of financing available to the contractor (a
required under the FTAA, under the direction and control of the very unlikely scenario); and that without the needed financing, the
government. execution of the work programs will not proceed. But the bottom line is,
in the exercise of its power of control, the government has the final
say on whether to approve or disapprove such requested amendments
Contractors Right to Ask to the FTAA. In short, approval thereof is not mandatory on the part of
For Amendment Not Absolute the government.
In fine, the foregoing evaluation and analysis of the
With respect to Clauses 10.4(e) and (i), petitioners complain that aforementioned FTAA provisions sufficiently overturns
these provisions bind government to allow amendments to the FTAA if petitioners litany of objections to and criticisms of the States
required by banks and other financial institutions as part of the alleged lack of control.
conditions for new lendings. However, we do not find anything wrong
with Clause 10.4(e), which only states that if the Contractor seeks to
obtain financing contemplated herein from banks or other financial Financial Benefits Not
32
Surrendered to the Contractor contractor far in excess of the service rendered or value delivered, if
any, in exchange therefor.
One of the main reasons certain provisions of RA 7942 were struck A careful perusal of the statute itself and its implementing rules
down was the finding mentioned in the Decision that beneficial reveals that neither RA 7942 nor DAO 99-56 can be said to convey
ownership of the mineral resources had been conveyed to the beneficial ownership of any mineral resource or product to any foreign
contractor. This finding was based on the underlying assumption, FTAA contractor.
common to the said provisions, that the foreign contractor manages the
mineral resources in the same way that foreign contractors in service
contracts used to. By allowing foreign contractors to manage or operate Equitable Sharing
all the aspects of the mining operation, the above-cited provisions of of Financial Benefits
R.A. No. 7942 have in effect conveyed beneficial ownership over the
nations mineral resources to these contractors, leaving the State with
nothing but bare title thereto.[60] As the WMCP FTAA contained similar On the contrary, DAO 99-56, entitled Guidelines Establishing the
provisions deemed by the ponente to be abhorrent to the Constitution, Fiscal Regime of Financial or Technical Assistance Agreements aims
the Decision struck down the Contract as well. to ensure an equitable sharing of the benefits derived from mineral
resources. These benefits are to be equitably shared among the
Beneficial ownership has been defined as ownership recognized government (national and local), the FTAA contractor, and the affected
by law and capable of being enforced in the courts at the suit of the communities. The purpose is to ensure sustainable mineral resources
beneficial owner.[61] Blacks Law Dictionary indicates that the term is development; and a fair, equitable, competitive and stable investment
used in two senses: first, to indicate the interest of a beneficiary in trust regime for the large-scale exploration, development and commercial
property (also called equitable ownership); and second, to refer to the utilization of minerals. The general framework or concept followed in
power of a corporate shareholder to buy or sell the shares, though the crafting the fiscal regime of the FTAA is based on the principle that the
shareholder is not registered in the corporations books as the government expects real contributions to the economic growth and
owner.[62]Usually, beneficial ownership is distinguished from naked general welfare of the country, while the contractor expects a
ownership, which is the enjoyment of all the benefits and privileges of reasonable return on its investments in the project.[63]
ownership, as against possession of the bare title to property.
Specifically, under the fiscal regime, the governments expectation
An assiduous examination of the WMCP FTAA uncovers no is, inter alia, the receipt of its share from the taxes and fees normally
indication that it confers upon WMCP ownership, beneficial or paid by a mining enterprise. On the other hand, the FTAA contractor is
otherwise, of the mining property it is to develop, the minerals to be granted by the government certain fiscal and non-fiscal incentives[64] to
produced, or the proceeds of their sale, which can be legally asserted help support the formers cash flow during the most critical phase (cost
and enforced as against the State. recovery) and to make the Philippines competitive with other mineral-
As public respondents correctly point out, any interest the producing countries. After the contractor has recovered its initial
contractor may have in the proceeds of the mining operation is merely investment, it will pay all the normal taxes and fees comprising the basic
the equivalent of the consideration the government has undertaken to share of the government, plus an additional share for the government
pay for its services. All lawful contracts require such mutual prestations, based on the options and formulae set forth in DAO 99-56.
and the WMCP FTAA is no different. The contractor commits to perform The said DAO spells out the financial benefits the government will
certain services for the government in respect of the mining operation, receive from an FTAA, referred to as the Government Share, composed
and in turn it is to be compensated out of the net mining revenues of a basic government share and an additional government share.
generated from the sale of mineral products. What would be
objectionable is a contractual provision that unduly benefits the
33
 The basic government share is comprised of all direct taxes, fees Licensing fees (for example, radio permit, firearms
and royalties, as well as other payments made by the contractor during permit, professional fees)
the term of the FTAA. These are amounts paid directly to (i) the national
Other national taxes and fees.
government (through the Bureau of Internal Revenue, Bureau of
Customs, Mines & Geosciences Bureau and other national government Payments to Local Governments:
agencies imposing taxes or fees), (ii) the local government units where
the mining activity is conducted, and (iii) persons and communities Local business tax - a maximum of 2 percent of gross
directly affected by the mining project. The major taxes and other sales or receipts (the rate varies among local
payments constituting the basic government share are enumerated government units)
below:[65] Real property tax - 2 percent of the fair market value
Payments to the National Government: of the property, based on an assessment level set by
the local government
Excise tax on minerals - 2 percent of the gross output
of mining operations Special education levy - 1 percent of the basis used
for the real property tax
Contractor income tax - maximum of 32 percent of
taxable income for corporations Occupation fees - PhP50 per hectare per year;
PhP100 per hectare per year if located in a mineral
Customs duties and fees on imported capital reservation
equipment -the rate is set by the Tariff and Customs
Code (3-7 percent for chemicals; 3-10 percent for Community tax - maximum of PhP10,500 per year
explosives; 3-15 percent for mechanical and electrical All other local government taxes, fees and imposts as
equipment; and 3-10 percent for vehicles, aircraft and of the effective date of the FTAA - the rate and the type
vessels depend on the local government
VAT on imported equipment, goods and services 10 Other Payments:
percent of value
Royalty to indigenous cultural communities, if any 1
Royalties due the government on minerals extracted percent of gross output from mining operations
from mineral reservations, if applicable 5 percent of the
actual market value of the minerals produced Special allowance - payment to claim owners and
surface rights holders
Documentary stamp tax - the rate depends on the
type of transaction Apart from the basic share, an additional government share is
also collected from the FTAA contractor in accordance with the second
Capital gains tax on traded stocks - 5 to 10 percent of paragraph of Section 81 of RA 7942, which provides that the
the value of the shares government share shall be comprised of, among other things, certain
Withholding tax on interest payments on foreign taxes, duties and fees. The subject proviso reads:
loans -15 percent of the amount of interest
The Government share in a financial or technical assistance agreement shall
Withholding tax on dividend payments to foreign consist of, among other things, the contractors corporate income tax, excise
stockholders 15 percent of the dividend tax, special allowance, withholding tax due from the contractors foreign
Wharfage and port fees stockholders arising from dividend or interest payments to the said foreign
34
stockholder in case of a foreign national, and all such other taxes, duties and the face of this allegation, one has to consider that the law does not
fees as provided for under existing laws. (Bold types supplied.) define the term among other things; and the Office of the Solicitor
General, in its Motion for Reconsideration, appears to have erroneously
The government, through the DENR and the MGB, has interpreted claimed that the phrase refers to indirect taxes.
the insertion of the phrase among other things as signifying that the
The law provides no definition of the term among other things, for
government is entitled to an additional government share to be paid by
the reason that Congress deliberately avoided setting unnecessary
the contractor apart from the basic share, in order to attain a fifty-fifty
limitations as to what may constitute compensation to the State for the
sharing of net benefits from mining.
exploitation and use of mineral resources. But the inclusion of that
The additional government share is computed by using one of phrase clearly and unmistakably reveals the legislative intent to have
three options or schemes presented in DAO 99-56: (1) a fifty-fifty the State collect more than just the usual taxes, duties and fees.
sharing in the cumulative present value of cash flows; (2) the share Certainly, there is nothing in that phrase -- or in the second paragraph
based on excess profits; and (3) the sharing based on the cumulative of Section 81 -- that would suggest that such phrase should be
net mining revenue. The particular formula to be applied will be selected interpreted as referring only to taxes, duties, fees and the like.
by the contractor, with a written notice to the government prior to the
Precisely for that reason, to fulfill the legislative intent behind the
commencement of the development and construction phase of the
inclusion of the phrase among other things in the second paragraph of
mining project.[66]
Section 81,[67] the DENR structured and formulated in DAO 99-56 the
Proceeds from the government shares arising from an FTAA said additional government share. Such a share was to consist not
contract are distributed to and received by the different levels of of taxes, but of a share in the earnings or cash flows of the mining
government in the following proportions: enterprise. The additional government share was to be paid by the
contractor on top of the basic share, so as to achieve a fifty-fifty sharing
National Government 50 percent -- between the government and the contractor -- of net benefits from
Provincial Government 10 percent mining. In the Ramos-DeVera paper, the explanation of the three
Municipal Government 20 percent options or formulas[68] -- presented in DAO 99-56 for the computation
Affected Barangays 20 percent of the additional government share -- serves to debunk the claim that
The portion of revenues remaining after the deduction of the basic the governments take from an FTAA consists solely of taxes, fees and
and additional government shares is what goes to the contractor. duties.
Unfortunately, the Office of the Solicitor General -- although in
possession of the relevant data -- failed to fully replicate or echo the
Governments Share in an pertinent elucidation in the Ramos-DeVera paper regarding the three
FTAA Not Consisting Solely schemes or options for computing the additional government share
of Taxes, Duties and Fees presented in DAO 99-56. Had due care been taken by the OSG, the
Court would have been duly apprised of the real nature and particulars
of the additional share.
In connection with the foregoing discussion on the basic and
additional government shares, it is pertinent at this juncture to But, perhaps, on account of the esoteric discussion in the Ramos-
mention the criticism leveled at the second paragraph of Section 81 of DeVera paper, and the even more abstruse mathematical jargon
RA 7942, quoted earlier. The said proviso has been denounced, employed in DAO 99-56, the OSG omitted any mention of the three
because, allegedly, the States share in FTAAs with foreign contractors options. Instead, the OSG skipped to a side discussion of the effect
has been limited to taxes, fees and duties only; in effect, the State has of indirect taxes, which had nothing at all to do with the additional
been deprived of a share in the after-tax income of the enterprise. In government share, to begin with. Unfortunately, this move created the
35
wrong impression, pointed out in Justice Antonio T. Carpios Opinion, people and/or government. Now, if some of the quantifiable items are
that the OSG had taken the position that the additional government taken into account in the computations, the financial modeling would
share consisted of indirect taxes. show that the total government share increases to 60 percent or
higher -- in one instance, as much as 77 percent and even 89 percent
In any event, what is quite evident is the fact that the additional
-- of the net present value of total benefits from the project. As noted in
government share, as formulated, has nothing to do with taxes -- the Ramos-DeVera paper, these results are not at all shabby,
direct or indirect -- or with duties, fees or charges. To repeat, it is over considering that the contractor puts in all the capital requirements and
and above the basic government share composed of taxes and duties.
assumes all the risks, without the government having to contribute or
Simply put, the additional share may be (a) an amount that will result in risk anything.
a 50-50 sharing of the cumulative present value of the cash flows[69] of
the enterprise; (b) an amount equivalent to 25 percent of the additional Despite the foregoing explanation, Justice Carpio still insisted
or excess profits of the enterprise, reckoned against a benchmark during the Courts deliberations that the phrase among other
return on investments; or (c) an amount that will result in a fifty-fifty things refers only to taxes, duties and fees. We are bewildered by his
sharing of the cumulative net mining revenue from the end of the position. On the one hand, he condemns the Mining Law for allegedly
recovery period up to the taxable year in question. The contractor is limiting the governments benefits only to taxes, duties and fees; and on
required to select one of the three options or formulae for computing the other, he refuses to allow the State to benefit from the correct and
the additional share, an option it will apply to all of its mining operations. proper interpretation of the DENR/MGB. To remove all doubts then, we
hold that the States share is not limited to taxes, duties and fees only
As used above, net mining revenue is defined as the gross output and that the DENR/MGB interpretation of the phrase among other
from mining operations for a calendar year, less deductible expenses things is correct. Definitely, this DENR/MGB interpretation is not only
(inclusive of taxes, duties and fees). Such revenue would roughly be legally sound, but also greatly advantageous to the government.
equivalent to taxable income or income before income tax. Definitely,
as compared with, say, calculating the additional government One last point on the subject. The legislature acted judiciously in
share on the basis of net income (after income tax), the net mining not defining the terms among other things and, instead, leaving it to the
revenue is a better and much more reasonable basis for such agencies concerned to devise and develop the various modes of
computation, as it gives a truer picture of the profitability of the arriving at a reasonable and fair amount for the additional
company. government share. As can be seen from DAO 99-56, the agencies
concerned did an admirable job of conceiving and developing not just
To demonstrate that the three options or formulations will operate
one formula, but three different formulae for arriving at the additional
as intended, Messrs. Ramos and de Vera also performed some government share. Each of these options is quite fair and reasonable;
quantifications of the government share via a financial modeling of each and, as Messrs. Ramos and De Vera stated, other alternatives or
of the three options discussed above. They found that the government schemes for a possible improvement of the fiscal regime for FTAAs are
would get the highest share from the option that is based on the net also being studied by the government.
mining revenue, as compared with the other two options, considering
only the basic and the additional shares; and that, even though Besides, not locking into a fixed definition of the term among other
production rate decreases, the government share will actually increase things will ultimately be more beneficial to the government, as it will
when the net mining revenue and the additional profit-based options have that innate flexibility to adjust to and cope with rapidly changing
are used. circumstances, particularly those in the international markets. Such
flexibility is especially significant for the government in terms of helping
Furthermore, it should be noted that the three options or
our mining enterprises remain competitive in world markets despite
formulae do not yet take into account the indirect taxes[70] and other challenging and shifting economic scenarios.
financial contributions[71] of mining projects. These indirect taxes and
other contributions are real and actual benefits enjoyed by the Filipino
36
 In conclusion, we stress that we do not share the view that in prevents the contractors from recording such expenses in amounts
FTAAs with foreign contractors under RA 7942, the governments equal to the mining revenues anticipated for the first 10 or 15 years of
share is limited to taxes, fees and duties. Consequently, we find commercial production, with the result that the share of the State will
the attacks on the second paragraph of Section 81 of RA 7942 be zero for the first 10 or 15 years. Moreover, under the circumstances,
totally unwarranted. the government would be unable to say when it would start to receive
its share under the FTAA.
We believe that the argument is based on incorrect information as
Collections Not Made Uncertain well as speculation. Obviously, certain crucial provisions in the Mining
by the Third Paragraph of Section 81 Law were overlooked. Section 23, dealing with the rights and
obligations of the exploration permit grantee, states: The permittee
The third or last paragraph of Section 81[72] provides that the shall undertake exploration work on the area as specified by its permit
government share in FTAAs shall be collected when the contractor shall based on an approved work program. The next proviso reads: Any
have recovered its pre-operating expenses and exploration and expenditure in excess of the yearly budget of the approved work
development expenditures. The objection has been advanced that, on program may be carried forward and credited to the succeeding years
account of the proviso, the collection of the States share is not even covering the duration of the permit. x x x. (underscoring supplied)
certain, as there is no time limit in RA 7942 for this grace period or Clearly, even at the stage of application for an exploration permit,
recovery period. the applicant is required to submit -- for approval by the government --
We believe that Congress did not set any time limit for the grace a proposed work program for exploration, containing a yearly budget of
period, preferring to leave it to the concerned agencies, which are, on proposed expenditures. The State has the opportunity to pass upon
account of their technical expertise and training, in a better position to (and approve or reject) such proposed expenditures, with the
determine the appropriate durations for such recovery periods. After all, foreknowledge that -- if approved -- these will subsequently be recorded
these recovery periods are determined, to a great extent, by technical as pre-operating expenses that the contractor will have to recoup over
and technological factors peculiar to the mining industry. Besides, with the grace period. That is not all.
developments and advances in technology and in the geosciences, we Under Section 24, an exploration permit holder who determines the
cannot discount the possibility of shorter recovery periods. At any rate, commercial viability of a project covering a mining area may, within the
the concerned agencies have not been remiss in this area. The 1995 term of the permit, file with the Mines and Geosciences Bureau a
and 1996 Implementing Rules and Regulations of RA 7942 specify that declaration of mining project feasibility. This declaration is to be
the period of recovery, reckoned from the date of commercial operation, accompanied by a work program for development for the Bureaus
shall be for a period not exceeding five years, or until the date approval, the necessary prelude for entering into an FTAA, a mineral
of actual recovery, whichever comes earlier. production sharing agreement (MPSA), or some other mineral
agreement. At this stage, too, the government obviously has the
opportunity to approve or reject the proposed work program and
Approval of Pre-Operating budgeted expenditures for development works on the project. Such
Expenses Required by RA 7942 expenditures will ultimately become the pre-operating and development
costs that will have to be recovered by the contractor.

Still, RA 7942 is criticized for allegedly not requiring government Naturally, with the submission of approved work programs and
approval of pre-operating, exploration and development expenses of budgets for the exploration and the development/construction phases,
the foreign contractors, who are in effect given unfettered discretion to the government will be able to scrutinize and approve or reject such
determine the amounts of such expenses. Supposedly, nothing expenditures. It will be well-informed as to the amounts of pre-operating
37
and other expenses that the contractor may legitimately recover and Specifically, Section 80 is condemned for limiting the States share
the approximate period of time needed to effect such a recovery. There in a mineral production-sharing agreement (MPSA) to just the excise
is therefore no way the contractor can just randomly post any amount tax on the mineral product. Under Section 151(A) of the Tax Code, such
of pre-operating expenses and expect to recover the same. 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
The aforecited provisions on approved work programs and budgets to the Constitution, reiterates the same limitation made in Section 80.[73]
have counterparts in Section 35, which deals with the terms and
conditions exclusively applicable to FTAAs. The said provision requires It should be pointed out that Section 80 and the colatilla in Section
certain terms and conditions to be incorporated into FTAAs; among 84 pertain only to MPSAs and have no application to FTAAs. These
them, a firm commitment x x x of an amount corresponding to particular statutory provisions do not come within the issues that were
the expenditure obligation that will be invested in the contract defined and delineated by this Court during the Oral Argument --
area and representations and warranties x x x to timely deploy particularly the third issue, which pertained exclusively to FTAAs.
these [financing, managerial and technical expertise and Neither did the parties argue upon them in their pleadings. Hence, this
technological] resources under its supervision pursuant to the periodic Court cannot make any pronouncement in this case regarding the
work programs and related budgets x x x, as well as work constitutionality of Sections 80 and 84 without violating the fundamental
programs and minimum expenditures commitments. (underscoring rules of due process. Indeed, the two provisos will have to await another
supplied) case specifically placing them in issue.
Unarguably, given the provisions of Section 35, the State has every On the other hand, Section 112[74] is disparaged for allegedly
opportunity to pass upon the proposed expenditures under an FTAA reverting FTAAs and all mineral agreements to the old and discredited
and approve or reject them. It has access to all the information it may license, concession or lease system. This Section states in relevant
need in order to determine in advance the amounts of pre-operating part that the provisions of Chapter XIV [which includes Sections 80 to
and developmental expenses that will have to be recovered by the 82] on government share in mineral production-sharing agreement x x
contractor and the amount of time needed for such recovery. x shall immediately govern and apply to a mining lessee or
contractor. (underscoring supplied) This provision is construed as
In summary, we cannot agree that the third or last paragraph signifying that the 2 percent excise tax which, pursuant to Section 80,
of Section 81 of RA 7942 is in any manner unconstitutional.
comprises the government share in MPSAs shall now also constitute
the government share in FTAAs -- as well as in co-production
agreements and joint venture agreements -- to the exclusion of
No Deprivation of revenues of any other nature or from any other source.
Beneficial Rights
Apart from the fact that Section 112 likewise does not come within
the issues delineated by this Court during the Oral Argument, and was
It is also claimed that aside from the second and the third never touched upon by the parties in their pleadings, it must also be
paragraphs of Section 81 (discussed above), Sections 80, 84 and 112 noted that the criticism hurled against this Section is rooted in
of RA 7942 also operate to deprive the State of beneficial rights of unwarranted conclusions made without considering other relevant
ownership over mineral resources; and give them away for free to provisions in the statute. Whether Section 112 may properly apply to
private business enterprises (including foreign owned corporations). co-production or joint venture agreements, the fact of the matter is
Likewise, the said provisions have been construed as constituting, that it cannot be made to apply to FTAAs.
together with Section 81, an ingenious attempt to resurrect the old and
discredited system of license, concession or lease. First, Section 112 does not specifically mention or refer to FTAAs;
the only reason it is being applied to them at all is the fact that it
happens to use the word contractor. Hence, it is a bit of a stretch to
38
insist that it covers FTAAs as well. Second, mineral agreements, of large-scale mining operations; second, it must contend with the
which there are three types -- MPSAs, co-production agreements, and Presidents exercise of the power of State control over the EDU of
joint venture agreements -- are covered by Chapter V of RA 7942. On natural resources; and third, it will have to risk a possible declaration of
the other hand, FTAAs are covered by and in fact are the subject of the unconstitutionality (in a proper case) of Sections 80, 84 and 112.
Chapter VI, an entirely different chapter altogether. The law obviously
intends to treat them as a breed apart from mineral agreements, since The first requirement is not as simple as it looks. Section 39
Section 35 (found in Chapter VI) creates a long list of specific terms, contemplates a situation in which an FTAA has already been executed
and entered into, and is presumably being implemented, when the
conditions, commitments, representations and warranties -- which have
not been made applicable to mineral agreements -- to be incorporated contractor discovers that the mineral ore reserves in the contract area are
into FTAAs. not sufficient to justify large-scale mining, and thus the contractor
requests the conversion of the FTAA into an MPSA. The contractor in
Third, under Section 39, the FTAA contractor is given the option to effect needs to explain why, despite its exploration activities, including
downgrade -- to convert the FTAA into a mineral agreement at any time the conduct of various geologic and other scientific tests and
during the term if the economic viability of the contract area is procedures in the contract area, it was unable to determine correctly
inadequate to sustain large-scale mining operations. Thus, there is no the mineral ore reserves and the economic viability of the area. The
reason to think that the law through Section 112 intends to exact from contractor must explain why, after conducting such exploration
FTAA contractors merely the same government share (a 2 percent activities, it decided to file a declaration of mining feasibility, and to
excise tax) that it apparently demands from contractors under the three apply for an FTAA, thereby leading the State to believe that the area
forms of mineral agreements. In brief, Section 112 does not apply to could sustain large-scale mining. The contractor must justify fully why
FTAAs. its earlier findings, based on scientific procedures, tests and
data, turned out to be wrong, or were way off. It must likewise prove
Notwithstanding the foregoing explanation, Justices Carpio and that its new findings, also based on scientific tests and procedures, are
Morales maintain that the Court must rule now on the constitutionality correct. Right away, this puts the contractors technical capabilities and
of Sections 80, 84 and 112, allegedly because the WMCP FTAA expertise into serious doubt. We wonder if anyone would relish being
contains a provision which grants the contractor unbridled and in this situation. The State could even question and challenge the
automatic authority to convert the FTAA into an MPSA; and should such contractors qualification and competence to continue the activity under
conversion happen, the State would be prejudiced since its share would an MPSA.
be limited to the 2 percent excise tax. Justice Carpio adds that there
are five MPSAs already signed just awaiting the judgment of this Court All in all, while there may be cogent grounds to assail the
on respondents and intervenors Motions for Reconsideration. We hold aforecited Sections, this Court -- on considerations of due process
however that, at this point, this argument is based on pure speculation. -- cannot rule upon them here. Anyway, if later on these Sections
The Court cannot rule on mere surmises and hypothetical assumptions, are declared unconstitutional, such declaration will not affect the
without firm factual anchor. We repeat: basic due process requires that other portions since they are clearly separable from the rest.
we hear the parties who have a real legal interest in the MPSAs (i.e.
the parties who executed them) before these MPSAs can be reviewed,
or worse, struck down by the Court. Anything less than that requirement Our Mineral Resources Not
would be arbitrary and capricious. Given Away for Free by RA 7942
In any event, the conversion of the present FTAA into an MPSA is
problematic. First, the contractor must comply with the law, particularly Nevertheless, if only to disabuse our minds, we should address the
Section 39 of RA 7942; inter alia, it must convincingly show that the contention that our mineral resources are effectively given away for free
economic viability of the contract is found to be inadequate to justify

39
by the law (RA 7942) in general and by Sections 80, 81, 84 and 112 in order to do so, they have to disburse money to meet their various
particular. needs. In short, money is continually infused into the economy.
Foreign contractors do not just waltz into town one day and leave The foregoing discussion should serve to rid us of the mistaken
the next, taking away mineral resources without paying anything. In belief that, since the foreign contractors are allowed to recover their
order to get at the minerals, they have to invest huge sums of money investments and costs, the end result is that they practically get the
(tens or hundreds of millions of dollars) in exploration works first. If the minerals for free, which leaves the Filipino people none the better for it.
exploration proves unsuccessful, all the cash spent thereon will not be
returned to the foreign investors; rather, those funds will have been
infused into the local economy, to remain there permanently. The All Businesses Entitled
benefits therefrom cannot be simply ignored. And assuming that the to Cost Recovery
foreign contractors are successful in finding ore bodies that are viable
for commercial exploitation, they do not just pluck out the minerals and
cart them off. They have first to build camp sites and roadways; dig Let it be put on record that not only foreign contractors, but all
mine shafts and connecting tunnels; prepare tailing ponds, storage businessmen and all business entities in general, have to recoup their
areas and vehicle depots; install their machinery and equipment, investments and costs. That is one of the first things a student learns in
generator sets, pumps, water tanks and sewer systems, and so on. business school. Regardless of its nationality, and whether or not a
business entity has a five-year cost recovery period, it will -- must --
In short, they need to expend a great deal more of their funds for have to recoup its investments, one way or another. This is just
facilities, equipment and supplies, fuel, salaries of local labor and common business sense. Recovery of investments is absolutely
technical staff, and other operating expenses. In the meantime, they indispensable for business survival; and business survival ensures
also have to pay taxes,[75] duties, fees, and royalties. All told, the soundness of the economy, which is critical and contributory to the
exploration, pre-feasibility, feasibility, development and construction general welfare of the people. Even government corporations must
phases together add up to as many as eleven years.[76] The contractors recoup their investments in order to survive and continue in
have to continually shell out funds for the duration of over a decade, operation. And, as the preceding discussion has shown, there is no
before they can commence commercial production from which they business that gets ahead or earns profits without any cost to it.
would eventually derive revenues. All that money translates into a lot of
pump-priming for the local economy. It must also be stressed that, though the State owns vast mineral
wealth, such wealth is not readily accessible or transformable into
Granted that the contractors are allowed subsequently to recover usable and negotiable currency without the intervention of the credible
their pre-operating expenses, still, that eventuality will happen only after mining companies. Those untapped mineral resources, hidden beneath
they shall have first put out the cash and fueled the economy. tons of earth and rock, may as well not be there for all the good they do
Moreover, in the process of recouping their investments and costs, the us right now. They have first to be extracted and converted into
foreign contractors do not actually pull out the money from the marketable form, and the country needs the foreign contractors funds,
economy. Rather, they recover or recoup their investments out of actual technology and know-how for that.
commercial production by not paying a portion of the basic government
share corresponding to national taxes, along with the additional After about eleven years of pre-operation and another five years
government share, for a period of not more than five years[77] counted for cost recovery, the foreign contractors will have just broken even. Is
from the commencement of commercial production. it likely that they would at that point stop their operations and leave?
Certainly not. They have yet to make profits. Thus, for the remainder of
It must be noted that there can be no recovery without the contract term, they must strive to maintain profitability. During this
commencing actual commercial production. In the meantime that the period, they pay the whole of the basic government share and the
contractors are recouping costs, they need to continue operating; in
40
additional government share which, taken together with indirect taxes Second, the foreign contractors can hardly repatriate the entire
and other contributions, amount to approximately 60 percent or more after-tax income to their home countries. Even a bit of knowledge of
of the entire financial benefits generated by the mining venture. corporate finance will show that it will be impossible to maintain a
business as a going concern if the entire net profit earned in any
In sum, we can hardly talk about foreign contractors taking our particular year will be taken out and repatriated. The net income figure
mineral resources for free. It takes a lot of hard cash to even begin to reflected in the bottom line is a mere accounting figure not necessarily
do what they do. And what they do in this country ultimately benefits corresponding to cash in the bank, or other quick assets. In order to
the local economy, grows businesses, generates employment, and
produce and set aside cash in an amount equivalent to the bottom line
creates infrastructure, as discussed above. Hence, we definitely figure, one may need to sell off assets or immediately collect
disagree with the sweeping claim that no FTAA under Section 81 will receivables or liquidate short-term investments; but doing so may very
ever make any real contribution to the growth of the economy or to the likely disrupt normal business operations.
general welfare of the country. This is not a plea for foreign
contractors. Rather, this is a question of focusing the judicial spotlight In terms of cash flows, the funds corresponding to the net income
squarely on all the pertinent facts as they bear upon the issue at hand, as of a particular point in time are actually in use in the normal course
in order to avoid leaping precipitately to ill-conceived conclusions not of business operations. Pulling out such net income disrupts the cash
solidly grounded upon fact. flows and cash position of the enterprise and, depending on the amount
being taken out, could seriously cripple or endanger the normal
operations and financial health of the business enterprise. In short, no
Repatriation of sane business person, concerned with maintaining the mining
After-Tax Income enterprise as a going concern and keeping a foothold in its
market, can afford to repatriate the entire after-tax income to the
home country.
Another objection points to the alleged failure of the Mining Law to
ensure real contributions to the economic growth and general welfare
of the country, as mandated by Section 2 of Article XII of the The States Receipt of Sixty
Constitution. Pursuant to Section 81 of the law, the entire after-tax Percent of an FTAA Contractors
income arising from the exploitation of mineral resources owned by the After-Tax Income Not Mandatory
State supposedly belongs to the foreign contractors, which will naturally
repatriate the said after-tax income to their home countries, thereby
resulting in no real contribution to the economic growth of this country. We now come to the next objection which runs this way: In FTAAs
Clearly, this contention is premised on erroneous assumptions. with a foreign contractor, the State must receive at least 60 percent of
the after-tax income from the exploitation of its mineral resources. This
First, as already discussed in detail hereinabove, the concerned share is the equivalent of the constitutional requirement that at least 60
agencies have correctly interpreted the second paragraph of Section percent of the capital, and hence 60 percent of the income, of mining
81 of RA 7942 to mean that the government is entitled to an additional companies should remain in Filipino hands.
share, to be computed based on any one of the following factors: net
mining revenues, the present value of the cash flows, or excess profits First, we fail to see how we can properly conclude that the
reckoned against a benchmark rate of return on investments. So it is Constitution mandates the State to extract at least 60 percent of the
not correct to say that all of the after-tax income will accrue to the after-tax income from a mining company run by a foreign contractor.
foreign FTAA contractor, as the government effectively receives a The argument is that the Charter requires the States partner in a co-
significant portion thereof. production agreement, joint venture agreement or MPSA to be a
Filipino corporation (at least 60 percent owned by Filipino citizens).
41
 We question the logic of this reasoning, premised on a supposedly to be the fact that in petroleum operations, the bulk of expenditures is
parallel or analogous situation. We are, after all, dealing with an in exploration, but once the contractor has found and tapped into the
essentially different equation, one that involves different elements. The deposit, subsequent investments and expenditures are relatively
Charter did not intend to fix an iron-clad rule on the 60 percent minimal. The crude (or gas) keeps gushing out, and the work entailed
share, applicable to all situations at all times and in all is just a matter of piping, transporting and storing. Not so in mineral
circumstances. If ever such was the intention of the framers, they mining. The ore body does not pop out on its own. Even after it has
would have spelt it out in black and white. Verba legis will serve to been located, the contractor must continually invest in machineries and
dispel unwarranted and untenable conclusions. expend funds to dig and build tunnels in order to access and extract the
minerals from underneath hundreds of tons of earth and rock.
Second, if we would bother to do the math, we might better
appreciate the impact (and reasonableness) of what we are demanding As already stated, the numerous intrinsic differences involved in
of the foreign contractor. Let us use a simplified illustration. Let us base their respective operations and requirements, cost structures and
it on gross revenues of, say, P500. After deducting operating expenses, investment needs render it highly inappropriate to use petroleum
but prior to income tax, suppose a mining firm makes a taxable operations FTAAs as benchmarks for mining FTAAs. Verily, we cannot
income of P100. A corporate income tax of 32 percent results in P32 of just ignore the realities of the distinctly different situations and
taxable income going to the government, leaving the mining firm stubbornly insist on the minimum 60 percent.
with P68. Government then takes 60 percent thereof, equivalent
to P40.80, leaving only P27.20 for the mining firm.
At this point the government has pocketed P32.00 plus P40.80, or The Mining and the Oil Industries
a total of P72.80 for every P100 of taxable income, leaving the mining Different From Each Other
firm with only P27.20. But that is not all. The government has also taken
2 percent excise tax off the top, equivalent to another P10. Under the To stress, there is no independent showing that the taking of at
minimum 60 percent proposal, the government nets around P82.80 least a 60 percent share in the after-tax income of a mining company
(not counting other taxes, duties, fees and charges) from a taxable operated by a foreign contractor is fair and reasonable under most if
income of P100 (assuming gross revenues of P500, for purposes of not all circumstances. The fact that some petroleum companies like
illustration). On the other hand, the foreign contractor, which provided Shell acceded to such percentage of sharing does not ipso facto mean
all the capital, equipment and labor, and took all the entrepreneurial that it is per se reasonable and applicable to non-petroleum situations
risks -- receives P27.20. One cannot but wonder whether such a (that is, mining companies) as well. We can take judicial notice of the
distribution is even remotely equitable and reasonable, considering fact that there are, after all, numerous intrinsic differences involved in
the nature of the mining business. The amount of P82.80 out their respective operations and equipment or technological
of P100.00 is really a lot it does not matter that we call part of it excise requirements, costs structures and capital investment needs, and
tax or income tax, and another portion thereof income from exploitation product pricing and markets.
of mineral resources. Some might think it wonderful to be able to take
the lions share of the benefits. But we have to ask ourselves if we are There is no showing, for instance, that mining companies can
really serious in attracting the investments that are the indispensable readily cope with a 60 percent government share in the same way
and key element in generating the monetary benefits of which we wish petroleum companies apparently can. What we have is a suggestion to
to take the lions share. Fairness is a credo not only in law, but also enforce the 60 percent quota on the basis of a disjointed analogy. The
in business. only factor common to the two disparate situations is the extraction of
natural resources.
Third, the 60 percent rule in the petroleum industry cannot be
insisted upon at all times in the mining business. The reason happens

42
 Indeed, we should take note of the fact that Congress made a Roads and other public works need not be constructed continuously. In
distinction between mining firms and petroleum companies. In Republic fine, there is no basis for saying that government revenues from the oil
Act No. 7729 -- An Act Reducing the Excise Tax Rates on Metallic and industry and from the mineral industries are to be identical all the time.
Non-Metallic Minerals and Quarry Resources, Amending for the
Purpose Section 151(a) of the National Internal Revenue Code, as Fourth, to our mind, the proffered minimum 60 percent suggestion
amended -- the lawmakers fixed the excise tax rate on metallic and tends to limit the flexibility and tie the hands of government, ultimately
non-metallic minerals at two percent of the actual market value of the hampering the countrys competitiveness in the international market, to
the detriment of the Filipino people. This you-have-to-give-us-60-
annual gross output at the time of removal. However, in the case of
petroleum, the lawmakers set the excise tax rate for the first taxable percent-of-after-tax-income-or-we-dont-do- business-with-you approach
sale at fifteen percent of the fair international market price thereof. is quite perilous. True, this situation may not seem too unpalatable to
the foreign contractor during good years, when international market
There must have been a very sound reason that impelled prices are up and the mining firm manages to keep its costs in check.
Congress to impose two very dissimilar excise tax rate. We cannot However, under unfavorable economic and business conditions, with
assume, without proof, that our honorable legislators acted arbitrarily, costs spiraling skywards and minerals prices plummeting, a mining firm
capriciously and whimsically in this instance. We cannot just ignore the may consider itself lucky to make just minimal profits.
reality of two distinctly different situations and stubbornly insist on going
minimum 60 percent. The inflexible, carved-in-granite demand for a 60 percent
government share may spell the end of the mining venture, scare away
To repeat, the mere fact that gas and oil exploration contracts grant potential investors, and thereby further worsen the already dismal
the State 60 percent of the net revenues does not necessarily imply that economic scenario. Moreover, such an unbending or unyielding policy
mining contracts should likewise yield a minimum of 60 percent for the prevents the government from responding appropriately to changing
State. Jumping to that erroneous conclusion is like comparing apples economic conditions and shifting market forces. This inflexibility further
with oranges. The exploration, development and utilization of gas and renders our country less attractive as an investment option compared
oil are simply different from those of mineral resources. with other countries.
To stress again, the main risk in gas and oil is in the exploration. And fifth, for this Court to decree imperiously that the governments
But once oil in commercial quantities is struck and the wells are put in share should be not less than 60 percent of the after-tax income of
place, the risk is relatively over and black gold simply flows out FTAA contractors at all times is nothing short of dictating upon the
continuously with comparatively less need for fresh investments and government. The result, ironically, is that the State ends up losing
technology. control. To avoid compromising the States full control and supervision
over the exploitation of mineral resources, this Court must back off from
On the other hand, even if minerals are found in viable quantities, insisting upon a minimum 60 percent rule. It is sufficient that the State
there is still need for continuous fresh capital and expertise to dig the
has the power and means, should it so decide, to get a 60 percent share
mineral ores from the mines. Just because deposits of mineral ores are (or more) in the contractors net mining revenues or after-tax income, or
found in one area is no guarantee that an equal amount can be found
whatever other basis the government may decide to use in reckoning
in the adjacent areas. There are simply continuing risks and need for its share. It is not necessary for it to do so in every case, regardless of
more capital, expertise and industry all the time. circumstances.
Note, however, that the indirect benefits -- apart from the cash
In fact, the government must be trusted, must be accorded the
revenues -- are much more in the mineral industry. As mines are liberty and the utmost flexibility to deal, negotiate and transact with
explored and extracted, vast employment is created, roads and other contractors and third parties as it sees fit; and upon terms that it
infrastructure are built, and other multiplier effects arise. On the other ascertains to be most favorable or most acceptable under the
hand, once oil wells start producing, there is less need for employment. circumstances, even if it means agreeing to less than 60 percent.
43
Nothing must prevent the State from agreeing to a share less than that, project that provides no assurance whatsoever that any part of the
should it be deemed fit; otherwise the State will be deprived of full investment will be ultimately recouped.
control over mineral exploitation that the Charter has vested in it.
At the same time, the contractor must comply with legally imposed
To stress again, there is simply no constitutional or legal provision environmental standards and the social obligations, for which it also
fixing the minimum share of the government in an FTAA at 60 percent commits to make significant expenditures of funds. Throughout, the
of the net profit. For this Court to decree such minimum is to wade into contractor assumes all the risks[79] of the business, as mentioned
judicial legislation, and thereby inordinately impinge on the control earlier. These risks are indeed very high, considering that the rate of
power of the State. Let it be clear: the Court is not against the grant of success in exploration is extremely low. The probability of finding any
more benefits to the State; in fact, the more the better. If during the mineral or petroleum in commercially viable quantities is estimated to
FTAA negotiations, the President can secure 60 percent,[78] or even 90 be about 1:1,000 only. On that slim chance rides the contractors hope
percent, then all the better for our people. But, if under the peculiar of recouping investments and generating profits. And when the
circumstances of a specific contract, the President could secure only contractor has recouped its initial investments in the project, the
50 percent or 55 percent, so be it. Needless to say, the President will government share increases to sixty percent of net benefits -- without
have to report (and be responsible for) the specific FTAA to Congress, the State ever being in peril of incurring costs, expenses and losses.
and eventually to the people.
And even in the worst possible scenario -- an absence of
Finally, if it should later be found that the share agreed to is grossly commercial quantities of minerals to justify development -- the
disadvantageous to the government, the officials responsible for contractor would already have spent several million pesos for
entering into such a contract on its behalf will have to answer to the exploration works, before arriving at the point in which it can make that
courts for their malfeasance. And the contract provision voided. But this determination and decide to cut its losses. In fact, during the first year
Court would abuse its own authority should it force the governments alone of the exploration period, the contractor was already committed
hand to adopt the 60 percent demand of some of our esteemed to spend not less than P24 million. The FTAA therefore clearly ensures
colleagues. benefits for the local economy, courtesy of the contractor.
All in all, this setup cannot be regarded as disadvantageous
to the State or the Filipino people; it certainly cannot be said to
Capital and Expertise Provided, convey beneficial ownership of our mineral resources to foreign
Yet All Risks Assumed by Contractor contractors.

Here, we will repeat what has not been emphasized and

appreciated enough: the fact that the contractor in an FTAA provides Deductions Allowed by the
all the needed capital, technical and managerial expertise, and WMCP FTAA Reasonable
technology required to undertake the project.
In regard to the WMCP FTAA, the then foreign-owned WMCP as Petitioners question whether the States weak control might render
contractor committed, at the very outset, to make capital investments the sharing arrangements ineffective. They cite the so-called
of up to US$50 million in that single mining project. WMCP claims to suspicious deductions allowed by the WMCP FTAA in arriving at the
have already poured in well over P800 million into the country as of net mining revenue, which is the basis for computing the government
February 1998, with more in the pipeline. These resources, valued in share. The WMCP FTAA, for instance, allows expenditures for
the tens or hundreds of millions of dollars, are invested in a mining development within and outside the Contract Area relating to the
Mining Operations,[80] consulting fees incurred both inside and outside

44
the Philippines for work related directly to the Mining Operations,[81] and Evidently, what Section 7.7 grants to the State is taken away in the
the establishment and administration of field offices including next breath by Section 7.9 without any offsetting compensation to the
administrative overheads incurred within and outside the State. Thus, in reality, the State has no vested right to receive any
Philippines which are properly allocatable to the Mining Operations and income from the FTAA for the exploitation of its mineral resources.
reasonably related to the performance of the Contractors obligations Worse, it would seem that what is given to the State in Section 7.7 is by
and exercise of its rights under this Agreement.[82] mere tolerance of WMCPs foreign stockholders, who can at any time
cut off the governments entire 60 percent share. They can do so by
It is quite well known, however, that mining companies do perform
simply selling 60 percent of WMCPs outstanding capital stock to a
some marketing activities abroad in respect of selling their mineral Philippine citizen or corporation. Moreover, the proceeds of such sale
products and by-products. Hence, it would not be improper to allow the will of course accrue to the foreign stockholders of WMCP, not to the
deduction of reasonable consulting fees incurred abroad, as well as State.
administrative expenses and overheads related to marketing offices
also located abroad -- provided that these deductions are directly The sale of 60 percent of WMCPs outstanding equity to a
related or properly allocatable to the mining operations and reasonably corporation that is 60 percent Filipino-owned and 40 percent foreign-
related to the performance of the contractors obligations and exercise owned will still trigger the operation of Section 7.9. Effectively, the State
of its rights. In any event, more facts are needed. Until we see how will lose its right to receive all 60 percent of the net mining revenues of
these provisions actually operate, mere suspicions will not suffice to WMCP; and foreign stockholders will own beneficially up to 64 percent
propel this Court into taking action. of WMCP, consisting of the remaining 40 percent foreign equity therein,
plus the 24 percent pro-rata share in the buyer-corporation.[84]
In fact, the January 23, 2001 sale by WMCPs foreign stockholder
Section 7.9 of the WMCP FTAA of the entire outstanding equity in WMCP to Sagittarius Mines, Inc. -- a
Invalid and Disadvantageous domestic corporation at least 60 percent Filipino owned -- may be
deemed to have automatically triggered the operation of Section 7.9,
Having defended the WMCP FTAA, we shall now turn to two without need of further action by any party, and removed the States
defective provisos. Let us start with Section 7.9 of the WMCP FTAA. right to receive the 60 percent share in net mining revenues.
While Section 7.7 gives the government a 60 percent share in the net At bottom, Section 7.9 has the effect of depriving the State of its 60
mining revenues of WMCP from the commencement of commercial percent share in the net mining revenues of WMCP without any offset
production, Section 7.9 deprives the government of part or all of the or compensation whatsoever. It is possible that the inclusion of the
said 60 percent. Under the latter provision, should WMCPs foreign offending provision was initially prompted by the desire to provide some
shareholders -- who originally owned 100 percent of the equity -- sell form of incentive for the principal foreign stockholder in WMCP to
60 percent or more of its outstanding capital stock to a Filipino citizen eventually reduce its equity position and ultimately divest in favor of
or corporation, the State loses its right to receive its 60 percent share Filipino citizens and corporations. However, as finally structured,
in net mining revenues under Section 7.7. Section 7.9 has the deleterious effect of depriving government of the
Section 7.9 provides: entire 60 percent share in WMCPs net mining revenues, without any
form of compensation whatsoever. Such an outcome is completely
unacceptable.
The percentage of Net Mining Revenues payable to the Government pursuant
to Clause 7.7 shall be reduced by 1percent of Net Mining Revenues for every The whole point of developing the nations natural resources is to
1percent ownership interest in the Contractor (i.e., WMCP) held by a benefit the Filipino people, future generations included. And the State
Qualified Entity.[83] as sovereign and custodian of the nations natural wealth is mandated
to protect, conserve, preserve and develop that part of the national
45
patrimony for their benefit. Hence, the Charter lays great emphasis on Whether the government officials concerned acceded to that
real contributions to the economic growth and general welfare of the provision by sheer mistake or with full awareness of the ill
country[85] as essential guiding principles to be kept in mind when consequences, is of no moment. It is hornbook doctrine that the
negotiating the terms and conditions of FTAAs. principle of estoppel does not operate against the government for the
act of its agents,[88] and that it is never estopped by any mistake or error
Earlier, we held (1) that the State must be accorded the liberty and on their part.[89] It is therefore possible and proper to rectify the situation
the utmost flexibility to deal, negotiate and transact with contractors and at this time. Moreover, we may also say that the FTAA in question does
third parties as it sees fit, and upon terms that it ascertains to be most
not involve mere contractual rights; being impressed as it is with public
favorable or most acceptable under the circumstances, even if that interest, the contractual provisions and stipulations must yield to the
should mean agreeing to less than 60 percent; (2) that it is not common good and the national interest.
necessary for the State to extract a 60 percent share in every case and
regardless of circumstances; and (3) that should the State be prevented Since the offending provision is very much separable[90] from
from agreeing to a share less than 60 percent as it deems fit, it will be Section 7.7 and the rest of the FTAA, the deletion of Section 7.9 can be
deprived of the full control over mineral exploitation that the Charter has done without affecting or requiring the invalidation of the WMCP FTAA
vested in it. itself. Such a deletion will preserve for the government its due share of
the benefits. This way, the mandates of the Constitution are complied
That full control is obviously not an end in itself; it exists and with and the interests of the government fully protected, while the
subsists precisely because of the need to serve and protect the national business operations of the contractor are not needlessly disrupted.
interest. In this instance, national interest finds particular application in
the protection of the national patrimony and the development and
exploitation of the countrys mineral resources for the benefit of the
Filipino people and the enhancement of economic growth and the Section 7.8(e) of the WMCP FTAA
general welfare of the country. Undoubtedly, such full control can be Also Invalid and Disadvantageous
misused and abused, as we now witness.
Section 7.9 of the WMCP FTAA effectively gives away the States Section 7.8(e) of the WMCP FTAA is likewise invalid. It provides
share of net mining revenues (provided for in Section 7.7) without thus:
anything in exchange. Moreover, this outcome constitutes unjust
enrichment on the part of the local and foreign stockholders of WMCP. 7.8 The Government Share shall be deemed to include all of the following
By their mere divestment of up to 60 percent equity in WMCP in favor sums:
of Filipino citizens and/or corporations, the local and foreign
stockholders get a windfall. Their share in the net mining revenues of (a) all Government taxes, fees, levies, costs, imposts,
WMCP is automatically increased, without their having to pay the duties and royalties including excise tax,
government anything for it. In short, the provision in question is without corporate income tax, customs duty, sales
a doubt grossly disadvantageous to the government, detrimental to the tax, value added tax, occupation and
interests of the Filipino people, and violative of public policy. regulatory fees, Government controlled
price stabilization schemes, any other form
Moreover, it has been reiterated in numerous decisions[86] that the
of Government backed schemes, any tax on
parties to a contract may establish any agreements, terms and
dividend payments by the Contractor or its
conditions that they deem convenient; but these should not be contrary
Affiliates in respect of revenues from the
to law, morals, good customs, public order or public policy.[87] Being
Mining Operations and any tax on interest
precisely violative of anti-graft provisions and contrary to public policy,
on domestic and foreign loans or other
Section 7.9 must therefore be stricken off as invalid.
46
 financial arrangements or After Deductions?
accommodations, including loans extended
to the Contractor by its stockholders;
(b) any payments to local and regional government, In connection with Section 7.8, an objection has been raised:
including taxes, fees, levies, costs, imposts, Specified in Section 7.8 are numerous items of deduction from the
duties, royalties, occupation and States 60 percent share. After taking these into account, will the State
regulatory fees and infrastructure ever receive anything for its ownership of the mineral resources?
contributions; We are confident that under normal circumstances, the answer will
(c) any payments to landowners, surface rights be yes. If we examine the various items of deduction listed in Section
holders, occupiers, indigenous people or 7.8 of the WMCP FTAA, we will find that they correspond closely to the
Claimowners; components or elements of the basic government share established
(d) costs and expenses of fulfilling the Contractors in DAO 99-56, as discussed in the earlier part of this Opinion.
obligations to contribute to national
development in accordance with Clause Likewise, the balance of the governments 60 percent share -- after
10.1(i) (1) and 10.1(i) (2); netting out the items of deduction listed in Section 7.8 --corresponds
(e) an amount equivalent to whatever benefits that closely to the additional government share provided for in DAO 99-
may be extended in the future by the 56 which, we once again stress, has nothing at all to do with indirect
Government to the Contractor or to taxes. The Ramos-DeVera paper[92] concisely presents the fiscal
financial or technical assistance contribution of an FTAA under DAO 99-56 in this equation:
agreement contractors in general; Receipts from an FTAA = basic govt share + addl govt share
(f) all of the foregoing items which have not
previously been offset against the Transposed into a similar equation, the fiscal payments system
Government Share in an earlier Fiscal from the WMCP FTAA assumes the following formulation:
Year, adjusted for inflation. (underscoring
supplied) Governments 60 percent share in net mining revenues of WMCP = items
listed in Sec. 7.8 of the FTAA + balance of Govt share, payable 4 months
Section 7.8(e) is out of place in the FTAA. It makes no sense why,
from the end of the fiscal year
for instance, money spent by the government for the benefit of the
contractor in building roads leading to the mine site should still be
deductible from the States share in net mining revenues. Allowing this It should become apparent that the fiscal arrangement under the
deduction results in benefiting the contractor twice over. It WMCP FTAA is very similar to that under DAO 99-56, with the balance
constitutes unjust enrichment on the part of the contractor at the of government share payable 4 months from end of fiscal year being
expense of the government, since the latter is effectively being made the equivalent of the additional government share computed in
to pay twice for the same item.[91] For being grossly disadvantageous accordance with the net-mining-revenue-based option under DAO 99-
and prejudicial to the government and contrary to public policy, Section 56, as discussed above. As we have emphasized earlier, we find each
7.8(e) is undoubtedly invalid and must be declared to be without effect. of the three options for computing the additional government share -
Fortunately, this provision can also easily be stricken off without - as presented in DAO 99-56 -- to be sound and reasonable.
affecting the rest of the FTAA. We therefore conclude that there is nothing inherently wrong
in the fiscal regime of the WMCP FTAA, and certainly nothing to
warrant the invalidation of the FTAA in its entirety.
Nothing Left Over

47
Section 3.3 of the WMCP The Congress may, by law, allow small-scale utilization of natural resources
FTAA Constitutional by Filipino citizens, as well as cooperative fish farming, with priority to
subsistence fishermen and fish-workers in rivers, lakes, bays and lagoons.
Section 3.3 of the WMCP FTAA is assailed for violating supposed The President may enter into agreements with foreign-owned corporations
constitutional restrictions on the term of FTAAs. The provision in involving either technical or financial assistance for large-scale exploration,
question reads: development, and utilization of minerals, petroleum, and other mineral oils
according to the general terms and conditions provided by law, based on
3.3 This Agreement shall be renewed by the Government for a real contributions to the economic growth and general welfare of the
further period of twenty-five (25) years under the same terms country. In such agreements, the State shall promote the development and
and conditions provided that the Contractor lodges a request use of local scientific and technical resources.
for renewal with the Government not less than sixty (60)
days prior to the expiry of the initial term of this Agreement The President shall notify the Congress of every contract entered into in
and provided that the Contractor is not in breach of any of accordance with this provision, within thirty days from its execution.[93]
the requirements of this Agreement.
We hold that the term limitation of twenty-five years does not apply
Allegedly, the above provision runs afoul of Section 2 of Article XII to FTAAs. The reason is that the above provision is found within
of the 1987 Constitution, which states: paragraph 1 of Section 2 of Article XII, which refers to mineral
agreements -- co-production agreements, joint venture agreements
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and and mineral production-sharing agreements -- which the government
other mineral oils, all forces of potential energy, fisheries, forests or timber, may enter into with Filipino citizens and corporations, at least 60
wildlife, flora and fauna, and other natural resources are owned by the State. percent owned by Filipino citizens. The word such clearly refers to
With the exception of agricultural lands, all other natural resources shall not these three mineral agreements -- CPAs, JVAs and MPSAs -- not to
be alienated. The exploration, development and utilization of natural FTAAs.
resources shall be under the full control and supervision of the State. The
State may directly undertake such activities, or it may enter into co- Specifically, FTAAs are covered by paragraphs 4 and 5 of Section
production, joint venture or production-sharing agreements with Filipino 2 of Article XII of the Constitution. It will be noted that there are no term
citizens or corporations or associations at least sixty per centum of whose limitations provided for in the said paragraphs dealing with FTAAs. This
capital is owned by such citizens. Such agreements may be for a period not shows that FTAAs are sui generis, in a class of their own. This omission
exceeding twenty-five years, renewable for not more than twenty-five years, was obviously a deliberate move on the part of the framers. They
and under such terms and conditions as may be provided by law. In cases of probably realized that FTAAs would be different in many ways from
water rights for irrigation, water supply, fisheries, or industrial uses other MPSAs, JVAs and CPAs. The reason the framers did not fix term
than the development of water power, beneficial use may be the measure and limitations applicable to FTAAs is that they preferred to leave the matter
limit of the grant. to the discretion of the legislature and/or the agencies involved in
implementing the laws pertaining to FTAAs, in order to give the latter
The State shall protect the nations marine wealth in its archipelagic waters, enough flexibility and elbow room to meet changing circumstances.
territorial sea, and exclusive economic zone, and reserve its use and Note also that, as previously stated, the exploratory phrases of an
enjoyment exclusively to Filipino citizens. FTAA lasts up to eleven years. Thereafter, a few more years would be
gobbled up in start-up operations. It may take fifteen years before an
FTAA contractor can start earning profits. And thus, the period of 25
years may really be short for an FTAA. Consider too that in this kind of
48
agreement, the contractor assumes all entrepreneurial risks. If no undertake exploration, development, and utilization activities.
commercial quantities of minerals are found, the contractor bears all Alternatively, the Constitution authorizes the government to enter into
financial losses. To compensate for this long gestation period and extra joint venture agreements (JVAs), co-production agreements (CPAs)
business risks, it would not be totally unreasonable to allow it to and mineral production sharing agreements (MPSAs) with contractors
continue EDU activities for another twenty five years. who are Filipino citizens or corporations that are at least 60 percent
Filipino-owned. They may do the actual dirty work -- the mining
In any event, the complaint is that, in essence, Section 3.3 gives operations.
the contractor the power to compel the government to renew the WMCP
FTAA for another 25 years and deprives the State of any say on In the case of a 60 percent Filipino-owned corporation, the 40
whether to renew the contract. percent individual and/or corporate non-Filipino stakeholders obviously
participate in the beneficial interest derived from the development and
While we agree that Section 3.3 could have been worded so as to utilization of our natural resources. They may receive by way of
prevent it from favoring the contractor, this provision does not violate dividends, up to 40 percent of the contractors earnings from the mining
any constitutional limits, since the said term limitation does not apply at project. Likewise, they may have a say in the decisions of the board of
all to FTAAs. Neither can the provision be deemed in any manner to be directors, since they are entitled to representation therein to the extent
illegal, as no law is being violated thereby. It is certainly not illegal for
of their equity participation, which the Constitution permits to be up to
the government to waive its option to refuse the renewal of a 40 percent of the contractors equity. Hence, the non-Filipino
commercial contract. stakeholders may in that manner also participate in the management of
Verily, the government did not have to agree to Section 3.3. It could the contractors natural resource development work. All of this is
have said No to the stipulation, but it did not. It appears that, in the permitted by our Constitution, for any natural resource, and without
process of negotiations, the other contracting party was able to limitation even in regard to the magnitude of the mining project or
convince the government to agree to the renewal terms. Under the operations (see paragraph 1 of Section 2 of Article XII).
circumstances, it does not seem proper for this Court to intervene and It is clear, then, that there is nothing inherently wrong with or
step in to undo what might have perhaps been a possible miscalculation constitutionally objectionable about the idea of foreign individuals and
on the part of the State. If government believes that it is or will be entities having or enjoying beneficial interest in -- and participating in
aggrieved by the effects of Section 3.3, the remedy is the renegotiation the management of operations relative to -- the exploration,
of the provision in order to provide the State the option to not renew the development and utilization of our natural resources.
FTAA.

FTAA More Advantageous

Financial Benefits for Foreigners Than Other Schemes
Not Forbidden by the Constitution Like CPA, JVA and MPSA

Before leaving this subject matter, we find it necessary for us to rid

A final point on the subject of beneficial interest. We believe the
ourselves of the false belief that the Constitution somehow forbids FTAA is a more advantageous proposition for the government as
foreign-owned corporations from deriving financial benefits from the compared with other agreements permitted by the Constitution. In a
development of our natural or mineral resources. CPA that the government enters into with one or more contractors, the
The Constitution has never prohibited foreign corporations from government shall provide inputs to the mining operations other than the
acquiring and enjoying beneficial interest in the development of mineral resource itself.[94]
Philippine natural resources. The State itself need not directly
49
 In a JVA, a JV company is organized by the government and the the State in terms of regular reporting, approvals of work programs and
contractor, with both parties having equity shares (investments); and budgets, and so on.
the contractor is granted the exclusive right to conduct mining
operations and to extract minerals found in the area.[95] On the other So, one needs to consider in relative terms, the costs of inputs for,
hand, in an MPSA, the government grants the contractor the exclusive degree of risk attendant to, and benefits derived or to be derived from
right to conduct mining operations within the contract area and shares a CPA, a JVA or an MPSA vis--vis those pertaining to an FTAA. It may
in the gross output; and the contractor provides the necessary not be realistically asserted that the foreign grantee of an FTAA is being
unduly favored or benefited as compared with a foreign stakeholder in
financing, technology, management and manpower.
a corporation holding a CPA, a JVA or an MPSA. Seen the other way
The point being made here is that, in two of the three types of around, the government is definitely better off with an FTAA than a
agreements under consideration, the government has to ante up some CPA, a JVA or an MPSA.
risk capital for the enterprise. In other words, government funds (public
moneys) are withdrawn from other possible uses, put to work in the
venture and placed at risk in case the venture fails. This Developmental Policy
notwithstanding, management and control of the operations of the on the Mining Industry
enterprise are -- in all three arrangements -- in the hands of the
contractor, with the government being mainly a silent partner. The three
types of agreement mentioned above apply to any natural resource, During the Oral Argument and in their Final
without limitation and regardless of the size or magnitude of the project Memorandum, petitioners repeatedly urged the Court to consider
or operations. whether mining as an industry and economic activity deserved to be
accorded priority, preference and government support as against, say,
In contrast to the foregoing arrangements, and pursuant to agriculture and other activities in which Filipinos and the Philippines
paragraph 4 of Section 2 of Article XII, the FTAA is limited to large-scale may have an economic advantage. For instance, a recent US
projects and only for minerals, petroleum and other mineral oils. Here, study[96] reportedly examined the economic performance of all local US
the Constitution removes the 40 percent cap on foreign ownership and counties that were dependent on mining and 20 percent of whose labor
allows the foreign corporation to own up to 100 percent of the equity. earnings between 1970 and 2000 came from mining enterprises.
Filipino capital may not be sufficient on account of the size of the
project, so the foreign entity may have to ante up all the risk capital. The study -- covering 100 US counties in 25 states dependent on
mining -- showed that per capita income grew about 30 percent less in
Correlatively, the foreign stakeholder bears up to 100 percent of mining-dependent communities in the 1980s and 25 percent less for
the risk of loss if the project fails. In respect of the particular FTAA the entire period 1980 to 2000; the level of per capita income was also
granted to it, WMCP (then 100 percent foreign owned) was responsible, lower. Therefore, given the slower rate of growth, the gap between
as contractor, for providing the entire equity, including all the inputs for these and other local counties increased.
the project. It was to bear 100 percent of the risk of loss if the project
failed, but its maximum potential beneficial interest consisted only of 40 Petitioners invite attention to the OXFAM America Reports warning
percent of the net beneficial interest, because the other 60 percent is to developing nations that mining brings with it serious economic
the share of the government, which will never be exposed to any risk of problems, including increased regional inequality, unemployment and
loss whatsoever. poverty. They also cite the final report[97] of the Extractive Industries
Review project commissioned by the World Bank (the WB-EIR Report),
In consonance with the degree of risk assumed, the FTAA vested which warns of environmental degradation, social disruption, conflict,
in WMCP the day-to-day management of the mining operations. Still and uneven sharing of benefits with local communities that bear the
such management is subject to the overall control and supervision of negative social and environmental impact. The Report suggests that

50
countries need to decide on the best way to exploit their natural Neither has the present leadership been remiss in addressing the
resources, in order to maximize the value added from the development concerns of sustainable mining operations. Recently, on January 16,
of their resources and ensure that they are on the path to sustainable 2004 and April 20, 2004, President Gloria Macapagal Arroyo issued
development once the resources run out. Executive Orders Nos. 270 and 270-A, respectively, to
promote responsible mineral resources exploration, development and
Whatever priority or preference may be given to mining vis--vis utilization, in order to enhance economic growth, in a manner that
other economic or non-economic activities is a question of policy that adheres to the principles of sustainable development and with due
the President and Congress will have to address; it is not for this Court
regard for justice and equity, sensitivity to the culture of the Filipino
to decide. This Court declares what the Constitution and the laws say, people and respect for Philippine sovereignty.[98]
interprets only when necessary, and refrains from delving into matters
of policy.
Suffice it to say that the State control accorded by the Constitution REFUTATION OF DISSENTS
over mining activities assures a proper balancing of interests. More
pointedly, such control will enable the President to demand the best
mining practices and the use of the best available technologies to The Court will now take up a number of other specific points raised
protect the environment and to rehabilitate mined-out areas. Indeed, in the dissents of Justices Carpio and Morales.
under the Mining Law, the government can ensure the protection of the 1. Justice Morales introduced us to Hugh Morgan, former president
environment during and after mining. It can likewise provide for the and chief executive officer of Western Mining Corporation (WMC) and
mechanisms to protect the rights of indigenous communities, and former president of the Australian Mining Industry Council, who
thereby mold a more socially-responsive, culturally-sensitive and spearheaded the vociferous opposition to the filing by aboriginal
sustainable mining industry. peoples of native title claims against mining companies in Australia in
Early on during the launching of the Presidential Mineral Industry the aftermath of the landmark Mabo decision by the Australian High
Environmental Awards on February 6, 1997, then President Fidel V. Court. According to sources quoted by our esteemed colleague,
Ramos captured the essence of balanced and sustainable mining in Morgan was also a racist and a bigot. In the course of
these words: protesting Mabo, Morgan allegedly uttered derogatory remarks
belittling the aboriginal culture and race.
Long term, high profit mining translates into higher revenues for An unwritten caveat of this introduction is that this Court should be
government, more decent jobs for the population, more raw materials to feed careful not to permit the entry of the likes of Hugh Morgan and his
the engines of downstream and allied industries, and improved chances of hordes of alleged racist-bigots at WMC. With all due respect, such
human resource and countryside development by creating self-reliant scare tactics should have no place in the discussion of this case. We
communities away from urban centers. are deliberating on the constitutionality of RA 7942, DAO 96-40 and the
FTAA originally granted to WMCP, which had been transferred to
xxxxxxxxx Sagittarius Mining, a Filipino corporation. We are not discussing the
apparition of white Anglo-Saxon racists/bigots massing at our gates.
Against a fragile and finite environment, it is sustainability that holds the
key. In sustainable mining, we take a middle ground where both production 2. On the proper interpretation of the phrase agreements involving
and protection goals are balanced, and where parties-in-interest come to either technical or financial assistance, Justice Morales points out that
terms. at times we conveniently omitted the use of the
disjunctive eitheror, which according to her denotes restriction; hence
the phrase must be deemed to connote restriction and limitation.

51
 But, as Justice Carpio himself pointed out during the Oral Should Oposa be deemed applicable to the case at bar, on the
Argument, the disjunctive phrase either technical or financial argument that natural resources are also involved in this situation? We
assistance would, strictly speaking, literally mean that a foreign do not think so. A grantee of a timber license, permit or license
contractor may provide only one or the other, but not both. And if both agreement gets to cut the timber already growing on the surface; it need
technical and financial assistance were required for a project, the State not dig up tons of earth to get at the logs. In a logging concession, the
would have to deal with at least two different foreign contractors -- one investment of the licensee is not as substantial as the investment of a
for financial and the other for technical assistance. And following on large-scale mining contractor. If a timber license were revoked, the
that, a foreign contractor, though very much qualified to provide both licensee packs up its gear and moves to a new area applied for, and
kinds of assistance, would nevertheless be prohibited from providing starts over; what it leaves behind are mainly the trails leading to the
one kind as soon as it shall have agreed to provide the other. logging site.
But if the Court should follow this restrictive and literal construction, In contrast, the mining contractor will have sunk a great deal of
can we really find two (or more) contractors who are willing to money (tens of millions of dollars) into the ground, so to speak, for
participate in one single project -- one to provide the financial exploration activities, for development of the mine site and
assistance only and the other the technical assistance exclusively; it infrastructure, and for the actual excavation and extraction of minerals,
would be excellent if these two or more contractors happen to be willing including the extensive tunneling work to reach the ore body. The
and are able to cooperate and work closely together on the same cancellation of the mining contract will utterly deprive the contractor of
project (even if they are otherwise competitors). And it would be superb its investments (i.e., prevent recovery of investments), most of which
if no conflicts would arise between or among them in the entire course cannot be pulled out.
of the contract. But what are the chances things will turn out this way in
the real world? To think that the framers deliberately imposed this kind To say that an FTAA is just like a mere timber license or permit and
of restriction is to say that they were either exceedingly optimistic, or does not involve contract or property rights which merit protection by
incredibly nave. This begs the question -- What laudable objective or the due process clause of the Constitution, and may therefore be
purpose could possibly be served by such strict and restrictive literal revoked or cancelled in the blink of an eye, is to adopt a well-nigh
interpretation? confiscatory stance; at the very least, it is downright dismissive of the
property rights of businesspersons and corporate entities that have
3. Citing Oposa v. Factoran Jr., Justice Morales claims that a investments in the mining industry, whose investments, operations and
service contract is not a contract or property right which merits expenditures do contribute to the general welfare of the people, the
protection by the due process clause of the Constitution, but merely a coffers of government, and the strength of the economy. Such a
license or privilege which may be validly revoked, rescinded or pronouncement will surely discourage investments (local and foreign)
withdrawn by executive action whenever dictated by public interest or which are critically needed to fuel the engine of economic growth and
public welfare. move this country out of the rut of poverty. In sum, Oposa is not
applicable.
Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy
Executive Secretary as authority. The latter cases dealt specifically 4. Justice Morales adverts to the supposedly clear intention of the
with timber licenses only. Oposa allegedly reiterated that a license is framers of the Constitution to reserve our natural resources exclusively
merely a permit or privilege to do what otherwise would be unlawful, for the Filipino people. She then quoted from the records of the
and is not a contract between the authority, federal, state or municipal, ConCom deliberations a passage in which then Commissioner Davide
granting it and the person to whom it is granted; neither is it property or explained his vote, arguing in the process that aliens ought not be
a property right, nor does it create a vested right; nor is it taxation. Thus allowed to participate in the enjoyment of our natural resources. One
this Court held that the granting of license does not create irrevocable passage does not suffice to capture the tenor or substance of the entire
rights, neither is it property or property rights. extensive deliberations of the commissioners, or to reveal the clear

52
intention of the framers as a group. A re-reading of the entire minimum investment of $50 million is applicable only during the
deliberations (quoted here earlier) is necessary if we are to understand development, construction and utilization phase, but not during the
the true intent of the framers. exploration phase, when the foreign contractor need merely comply
with minimum ground expenditures. Thus by converting, the foreign
5. Since 1935, the Filipino people, through their Constitution, have contractor maximizes its profits by avoiding its obligation to make the
decided that the retardation or delay in the exploration, development or minimum investment of $50 million.
utilization of the nations natural resources is merely secondary to the
protection and preservation of their ownership of the natural resources, This argument forgets that the foreign contractor is in the game
so says Justice Morales, citing Aruego. If it is true that the framers of precisely to make money. In order to come anywhere near profitability,
the 1987 Constitution did not care much about alleviating the the contractor must first extract and sell the mineral ore. In order to do
retardation or delay in the development and utilization of our natural that, it must also develop and construct the mining facilities, set up its
resources, why did they bother to write paragraph 4 at all? Were they machineries and equipment and dig the tunnels to get to the deposit.
merely paying lip service to large-scale exploration, development and The contractor is thus compelled to expend funds in order to make
utilization? They could have just completely ignored the subject matter profits. If it decides to cut back on investments and expenditures, it will
and left it to be dealt with through a future constitutional amendment. necessarily sacrifice the pace of development and utilization; it will
But we have to harmonize every part of the Constitution and to interpret necessarily sacrifice the amount of profits it can make from the mining
each provision in a manner that would give life and meaning to it and operations. In fact, at certain less-than-optimal levels of operation, the
to the rest of the provisions. It is obvious that a literal interpretation of stream of revenues generated may not even be enough to cover
paragraph 4 will render it utterly inutile and inoperative. variable expenses, let alone overhead expenses; this is a dismal
situation anyone would want to avoid. In order to make money, one has
6. According to Justice Morales, the deliberations of the to spend money. This truism applies to the mining industry as well.
Constitutional Commission do not support our contention that the
framers, by specifying such agreements involving financial or technical 8. Mortgaging the minerals to secure a foreign FTAA contractors
assistance, necessarily gave implied assent to everything that these obligations is anomalous, according to Justice Morales since the
agreements implicitly entailed, or that could reasonably be deemed contractor was from the beginning obliged to provide all financing
necessary to make them tenable and effective, including management needed for the mining operations. However, the mortgaging of minerals
authority in the day-to-day operations. As proof thereof, she quotes one by the contractor does not necessarily signify that the contractor is
single passage from the ConCom deliberations, consisting of an unable to provide all financing required for the project, or that it does
exchange among Commissioners Tingson, Garcia and Monsod. not have the financial capability to undertake large-scale operations.
Mortgaging of mineral products, just like the assignment (by way of
However, the quoted exchange does not serve to contradict our security) of manufactured goods and goods in inventory, and the
argument; it even bolsters it. Comm. Christian Monsod was quoted as assignment of receivables, is an ordinary requirement of banks, even
saying: xxx I think we have to make a distinction that it is not really in the case of clients with more than sufficient financial resources. And
realistic to say that we will borrow on our own terms. Maybe we can say
nowadays, even the richest and best managed corporations make use
that we inherited unjust loans, and we would like to repay these on of bank credit facilities -- it does not necessarily signify that they do not
terms that are not prejudicial to our own growth. But the general have the financial resources or are unable to provide the financing on
statement that we should only borrow on our own terms is a bit their own; it is just a manner of maximizing the use of their funds.
unrealistic. Comm. Monsod is one who knew whereof he spoke.
9. Does the contractor in reality acquire the surface rights for free,
7. Justice Morales also declares that the optimal time for the
by virtue of the fact that it is entitled to reimbursement for the costs of
conversion of an FTAA into an MPSA is after completion of the acquisition and maintenance, adjusted for inflation? We think not. The
exploration phase and just before undertaking the development and reimbursement is possible only at the end of the term of the contract,
construction phase, on account of the fact that the requirement for a
53
when the surface rights will no longer be needed, and the land DENR secretary, it does not mean that DAO 99-56 is invalid per se, or
previously acquired will have to be disposed of, in which case the that the secretary acted without any authority or jurisdiction in issuing
contractor gets reimbursement from the sales proceeds. The contractor DAO 99-56. As we stated earlier in our Prologue, Who or what organ
has to pay out the acquisition price for the land. That money will belong of government actually exercises this power of control on behalf of the
to the seller of the land. Only if and when the land is finally sold off will State? The Constitution is crystal clear: the President. Indeed, the
the contractor get any reimbursement. In other words, the contractor Chief Executive is the official constitutionally mandated to enter into
will have been cash-out for the entire duration of the term of the contract agreements with foreign owned corporations. On the other hand,
-- 25 or 50 years, depending. If we calculate the cost of money at say Congress may review the action of the President once it is notified of
12 percent per annum, that is the cost or opportunity loss to the every contract entered into in accordance with this [constitutional]
contractor, in addition to the amount of the acquisition price. 12 percent provision within thirty days from its execution. It is the President who is
per annum for 50 years is 600 percent; this, without any compounding constitutionally mandated to enter into FTAAs with foreign
yet. The cost of money is therefore at least 600 percent of the original corporations, and in doing so, it is within the Presidents prerogative to
acquisition cost; it is in addition to the acquisition cost. For free? Not by specify certain terms and conditions of the FTAAs, for example, the
a long shot. fiscal regime of FTAAs -- i.e., the sharing of the net mining revenues
between the contractor and the State.
10. The contractor will acquire and hold up to 5,000 hectares? We
doubt it. The acquisition by the State of land for the contractor is just to Being the Presidents alter ego with respect to the control and
enable the contractor to establish its mine site, build its facilities, supervision of the mining industry, the DENR secretary, acting for the
establish a tailings pond, set up its machinery and equipment, and dig President, is necessarily clothed with the requisite authority and power
mine shafts and tunnels, etc. It is impossible that the surface to draw up guidelines delineating certain terms and conditions, and
requirement will aggregate 5,000 hectares. Much of the operations will specifying therein the terms of sharing of benefits from mining, to be
consist of the tunneling and digging underground, which will not require applicable to FTAAs in general. It is important to remember that DAO
possessing or using any land surface. 5,000 hectares is way too much 99-56 has been in existence for almost six years, and has not been
for the needs of a mining operator. It simply will not spend its cash to amended or revoked by the President.
acquire property that it will not need; the cash may be better employed
for the actual mining operations, to yield a profit. The issuance of DAO 99-56 did not involve the exercise of
delegated legislative power. The legislature did not delegate the power
11. Justice Carpio claims that the phrase among other to determine the nature, extent and composition of the items that would
things (found in the second paragraph of Section 81 of the Mining Act) come under the phrase among other things. The legislatures power
is being incorrectly treated as a delegation of legislative power to the pertains to the imposition of taxes, duties and fees. This power was not
DENR secretary to issue DAO 99-56 and prescribe the formulae therein delegated to the DENR secretary. But the power to negotiate and enter
on the States share from mining operations. He adds that the into FTAAs was withheld from Congress, and reserved for the
phrase among other things was not intended as a delegation of President. In determining the sharing of mining benefits, i.e., in
legislative power to the DENR secretary, much less could it be deemed specifying what the phrase among other things include, the President
a valid delegation of legislative power, since there is nothing in the (through the secretary acting in his/her behalf) was not determining the
second paragraph of Section 81 which can be said to grant any amount or rate of taxes, duties and fees, but rather the amount of
delegated legislative power to the DENR secretary. And even if there INCOME to be derived from minerals to be extracted and sold, income
were, such delegation would be void, for lack of any standards by which which belongs to the State as owner of the mineral resources. We may
the delegated power shall be exercised. say that, in the second paragraph of Section 81, the legislature in a
sense intruded partially into the Presidents sphere of authority when
While there is nothing in the second paragraph of Section 81 which the former provided that
can directly be construed as a delegation of legislative power to the

54
The Government share in financial or technical assistance agreement shall We believe there is some distortion resulting from the quoted
consist of, among other things, the contractors corporate income tax, excise provision being taken out of context. Section 5 of DAO 99-56 reads as
tax, special allowance, withholding tax due from the contractors foreign follows:
stockholders arising from dividend or interest payments to the said foreign
stockholder in case of a foreign national and all such other taxes, duties and Section 5. Status of Existing FTAAs. All FTAAs approved prior to the
fees as provided for under existing laws. (Italics supplied) effectivity of this Administrative Order shall remain valid and be recognized
by the Government: Provided, That should a Contractor desire to amend its
But it did not usurp the Presidents authority since the provision FTAA, it shall do so by filing a Letter of Intent (LOI) to the Secretary thru
merely included the enumerated items as part of the government share, the Director. Provided, further, That if the Contractor desires to amend the
without foreclosing or in any way preventing (as in fact Congress could fiscal regime of its FTAA, it may do so by seeking for the amendment of its
not validly prevent) the President from determining what constitutes the FTAAs whole fiscal regime by adopting the fiscal regime provided hereof:
States compensation derived from FTAAs. In this case, the President Provided, finally, That any amendment of an FTAA other than the provision
in effect directed the inclusion or addition of other things, viz., INCOME on fiscal regime shall require the negotiation with the Negotiating Panel and
for the owner of the resources, in the governments share, while the recommendation of the Secretary for approval of the President of the
adopting the items enumerated by Congress as part of the government Republic of the Philippines. (underscoring supplied)
share also.
It looks like another case of misapprehension. The proviso being
12. Justice Carpios insistence on applying the ejusdem
objected to by Justice Carpio is actually preceded by a phrase that
generis rule of statutory construction to the phrase among other
requires a contractor desiring to amend the fiscal regime of its FTAA,
things is therefore useless, and must fall by the wayside. There is no
to amend the same by adopting the fiscal regime prescribed in DAO
point trying to construe that phrase in relation to the enumeration of
99-56 -- i.e., solely in that manner, and in no other.Obviously, since
taxes, duties and fees found in paragraph 2 of Section 81, precisely
DAO 99-56 was issued by the secretary under the authority and
because the constitutional power to prescribe the sharing of
with the presumed approval of the President, the amendment of
mining income between the State and mining companies, to quote
an FTAA by merely adopting the fiscal regime prescribed in said
Justice Carpio pursuant to an FTAA is constitutionally lodged with
DAO 99-56 (and nothing more) need not have the express clearance
the President, not with Congress. It thus makes no sense to persist
of the President anymore. It is as if the same had been pre-approved.
in giving the phrase among other things a restricted meaning referring
We cannot fathom the complaint that that makes the secretary more
only to taxes, duties and fees.
powerful than the President, or that the former is trying to hide things
13. Strangely, Justice Carpio claims that the DENR secretary can from the President or Congress.
change the formulae in DAO 99-56 any time even without the approval
14. Based on the first sentence of Section 5 of DAO 99-56, which
of the President, and the secretary is the sole authority to determine the
states [A]ll FTAAs approved prior to the effectivity of this Administrative
amount of consideration that the State shall receive in an FTAA,
Order shall remain valid and be recognized by the Government, Justice
because Section 5 of the DAO states that xxx any amendment of an
Carpio concludes that said Administrative Order
FTAA other than the provision on fiscal regime shall require the
allegedly exempts FTAAs approved prior to its effectivity -- like the
negotiation with the Negotiation Panel and the recommendation of the
WMCP FTAA -- from having to pay the State any share from their
Secretary for approval of the President xxx. Allegedly, because of that
mining income, apart from taxes, duties and fees.
provision, if an amendment in the FTAA involves non-fiscal matters, the
amendment requires approval of the President, but if the amendment We disagree. What we see in black and white is the statement
involves a change in the fiscal regime, the DENR secretary has the final that the FTAAs approved before the DAO came into effect are to
authority, and approval of the President may be dispensed with; hence continue to be valid and will be recognized by the State. Nothing is said
the secretary is more powerful than the President. about their fiscal regimes. Certainly, there is no basis to claim that the
55
contractors under said FTAAs were being exempted from paying the SUMMATION
government a share in their mining incomes.
For the record, the WMCP FTAA is NOT and has never been To conclude, a summary of the key points discussed above is now
exempt from paying the government share. The WMCP FTAA has its in order.
own fiscal regime -- Section 7.7 -- which gives the government a
60 percent share in the net mining revenues of WMCP from the
commencement of commercial production. The Meaning of Agreements Involving
For that very reason, we have never said that DAO 99-56 is the Either Technical or Financial Assistance
basis for claiming that the WMCP FTAA has a consideration. Hence,
we find quite out of place Justice Carpios statement that ironically, DAO
Applying familiar principles of constitutional construction to the
99-56, the very authority cited to support the claim that the WMCP
phrase agreements involving either technical or financial assistance,
FTAA has a consideration, does not apply to the WMCP FTAA. By its
the framers choice of words does not indicate the intent to exclude other
own express terms, DAO 99-56 does not apply to FTAAs executed
modes of assistance, but rather implies that there are other
before the issuance of DAO 99-56, like the WMCP FTAA. The majoritys
things being included or possibly being made part of the agreement,
position has allegedly no leg to stand on since even DAO 99-56,
apart from financial or technical assistance. The drafters avoided the
assuming it is valid, cannot save the WMCP FTAA from want of
use of restrictive and stringent phraseology; a verba legis scrutiny of
consideration. Even assuming arguendo that DAO 99-56 does not
Section 2 of Article XII of the Constitution discloses not even a hint of a
apply to the WMCP FTAA, nevertheless, the WMCP FTAA has its own
desire to prohibit foreign involvement in the management or operation
fiscal regime, found in Section 7.7 thereof. Hence, there is no such thing
of mining activities, or to eradicateservice contracts. Such moves would
as want of consideration here.
necessarily imply an underlying drastic shift in fundamental economic
Still more startling is this claim: The majority supposedly agrees and developmental policies of the State. That change requires a much
that the provisions of the WMCP FTAA, which grant a sham more definite and irrefutable basis than mere omission of the words
consideration to the State, are void. Since the majority agrees that the service contract from the new Constitution.
WMCP FTAA has a sham consideration, the WMCP FTAA thus lacks
Furthermore, a literal and restrictive interpretation of this
the third element of a valid contract. The Decision should declare the
paragraph leads to logical inconsistencies. A constitutional provision
WMCP FTAA void for want of consideration unless it treats the contract
specifically allowing foreign-owned corporations to render financial or
as an MPSA under Section 80. Indeed the only recourse of WMCP to
technical assistance in respect of mining or any other commercial
save the validity of its contract is to convert it into an MPSA.
activity was clearly unnecessary; the provision was meant to refer to
To clarify, we said that Sections 7.9 and 7.8(e) of the WMCP FTAA more than mere financial or technical assistance.
are provisions grossly disadvantageous to government and detrimental
Also, if paragraph 4 permits only agreements for financial or
to the interests of the Filipino people, as well as violative of public policy,
technical assistance, there would be no point in requiring that they
and must therefore be stricken off as invalid. Since the offending
be based on real contributions to the economic growth and general
provisions are very much separable from Section 7.7 and the rest of the
welfare of the country. And considering that there were various long-
FTAA, the deletion of Sections 7.9 and 7.8(e) can be done without
term service contracts still in force and effect at the time the new
affecting or requiring the invalidation of the WMCP FTAA itself, and
Charter was being drafted, the absence of any transitory provisions to
such deletion will preserve for government its due share of the 60
govern the termination and closing-out of the then existing service
percent benefits. Therefore, the WMCP FTAA is NOT bereft of a valid
contracts strongly militates against the theory that the mere omission of
consideration (assuming for the nonce that indeed this is the
service contracts signaled their prohibition by the new Constitution.
consideration of the FTAA).
56
 Resort to the deliberations of the Constitutional Commission is with respect to the day-to-day operations of the enterprise, and
therefore unavoidable, and a careful scrutiny thereof conclusively measures for the protection of the interests of the foreign corporation,
shows that the ConCom members discussed agreements involving at least to the extent that they are consistent with Philippine sovereignty
either technical or financial assistance in the same sense as service over natural resources, the constitutional requirement of State control,
contracts and used the terms interchangeably. The drafters in fact knew and beneficial ownership of natural resources remaining vested in the
that the agreements with foreign corporations were going to entail not State.
mere technical or financial assistance but, rather, foreign investment in
From the foregoing, it is clear that agreements involving either
and management of an enterprise for large-scale exploration,
development and utilization of minerals. technical or financial assistance referred to in paragraph 4 are in
fact service contracts, but such new service contracts are between
The framers spoke about service contracts as the concept was foreign corporations acting as contractors on the one hand, and on the
understood in the 1973 Constitution. It is obvious from their discussions other hand government as principal or owner (of the works), whereby
that they did not intend to ban or eradicate service contracts. Instead, they the foreign contractor provides the capital, technology and technical
were intent on crafting provisions to put in place safeguards that would know-how, and managerial expertise in the creation and operation of
eliminate or minimize the abuses prevalent during the martial law the large-scale mining/extractive enterprise, and government through
regime. In brief, they were going to permit service contracts with its agencies (DENR, MGB) actively exercises full control and
foreign corporations as contractors, but with safety measures to supervision over the entire enterprise.
prevent abuses, as an exception to the general norm established in
the first paragraph of Section 2 of Article XII, which reserves or limits Such service contracts may be entered into only with respect to
to Filipino citizens and corporations at least 60 percent owned by minerals, petroleum and other mineral oils. The grant of such service
such citizens the exploration, development and utilization of mineral contracts is subject to several safeguards, among them: (1) that the
or petroleum resources. This was prompted by the service contract be crafted in accordance with a general law setting
perceived insufficiency of Filipino capital and the felt need for foreign standard or uniform terms, conditions and requirements; (2) the
expertise in the EDU of mineral resources. President be the signatory for the government; and (3) the President
report the executed agreement to Congress within thirty days.
Despite strong opposition from some ConCom members during the
final voting, the Article on the National Economy and Patrimony --
including paragraph 4 allowing service contracts with foreign Ultimate Test:
corporations as an exception to the general norm in paragraph 1 of Full State Control
Section 2 of the same Article -- was resoundingly and overwhelmingly
approved.
To repeat, the primacy of the principle of the States sovereign
The drafters, many of whom were economists, academicians, ownership of all mineral resources, and its full control and supervision
lawyers, businesspersons and politicians knew that foreign entities will over all aspects of exploration, development and utilization of natural
not enter into agreements involving assistance without requiring resources must be upheld. But full control and supervision cannot be
measures of protection to ensure the success of the venture and taken literally to mean that the State controls and supervises everything
repayment of their investments, loans and other financial assistance, down to the minutest details and makes all required actions, as this
and ultimately to protect the business reputation of the foreign would render impossible the legitimate exercise by the contractor of a
corporations. The drafters, by specifying such agreements involving reasonable degree of management prerogative and authority,
assistance, necessarily gave implied assent to everything that these indispensable to the proper functioning of the mining enterprise. Also,
agreements entailed or that could reasonably be deemed necessary to government need not micro-manage mining operations and day-to-day
make them tenable and effective -- including management authority

57
affairs of the enterprise in order to be considered as exercising full Through the foregoing provisions, the government agencies
control and supervision. concerned are empowered to approve or disapprove -- hence, in a
position to influence, direct, and change -- the various work programs
Control, as utilized in Section 2 of Article XII, must be taken to and the corresponding minimum expenditure commitments for each of
mean a degree of control sufficient to enable the State to direct, the exploration, development and utilization phases of the enterprise.
restrain, regulate and govern the affairs of the extractive enterprises. Once they have been approved, the contractors compliance with its
Control by the State may be on a macro level, through the commitments therein will be monitored. Figures for mineral production
establishment of policies, guidelines, regulations, industry standards
and sales are regularly monitored and subjected to government review,
and similar measures that would enable government to regulate the to ensure that the products and by-products are disposed of at the best
conduct of affairs in various enterprises, and restrain activities deemed prices; copies of sales agreements have to be submitted to and
not desirable or beneficial, with the end in view of ensuring that these registered with MGB.
enterprises contribute to the economic development and general
welfare of the country, conserve the environment, and uplift the well- The contractor is mandated to open its books of accounts and
being of the local affected communities. Such a degree of control would records for scrutiny, to enable the State to determine that the
be compatible with permitting the foreign contractor sufficient and government share has been fully paid. The State may likewise compel
reasonable management authority over the enterprise it has invested compliance by the contractor with mandatory requirements on mine
in, to ensure efficient and profitable operation. safety, health and environmental protection, and the use of anti-
pollution technology and facilities. The contractor is also obligated to
assist the development of the mining community, and pay royalties to
Government Granted Full Control the indigenous peoples concerned. And violation of any of the FTAAs
by RA 7942 and DAO 96-40 terms and conditions, and/or non-compliance with statutes or
regulations, may be penalized by cancellation of the FTAA. Such
sanction is significant to a contractor who may have yet to recover the
Baseless are petitioners sweeping claims that RA 7942 and its tens or hundreds of millions of dollars sunk into a mining project.
Implementing Rules and Regulations make it possible for FTAA
contracts to cede full control and management of mining enterprises Overall, the State definitely has a pivotal say in the operation of the
over to fully foreign owned corporations. Equally wobbly is the assertion individual enterprises, and can set directions and objectives, detect
that the State is reduced to a passive regulator dependent on submitted deviations and non-compliances by the contractor, and enforce
plans and reports, with weak review and audit powers and little say in compliance and impose sanctions should the occasion arise. Hence,
the decision-making of the enterprise, for which reasons beneficial RA 7942 and DAO 96-40 vest in government more than a sufficient
ownership of the mineral resources is allegedly ceded to the foreign degree of control and supervision over the conduct of mining
contractor. operations.

As discussed hereinabove, the States full control and supervision Section 3(aq) of RA 7942 was objected to as being unconstitutional
over mining operations are ensured through the following provisions for allowing a foreign contractor to apply for and hold an exploration
in RA 7942: Sections 8, 9, 16, 19, 24, 35[(b), (e), (f), (g), (h), (k), (l), (m) permit. During the exploration phase, the permit grantee (and
and (o)], 40, 57, 66, 69, 70, and Chapters XI and XVII; as well as the prospective contractor) is spending and investing heavily in exploration
following provisions of DAO 96-40: Sections7[(d) and (f)], 35(a-2), activities without yet being able to extract minerals and generate
53[(a-4) and (d)], 54, 56[(g), (h), (l), (m) and (n)], 56(2), 60, 66, 144, revenues. The exploration permit issued under Sections 3(aq), 20 and
168, 171 and 270, and also Chapters XV, XVI and XXIV. 23 of RA 7942, which allows exploration but not extraction, serves to
protect the interests and rights of the exploration permit grantee (and
would-be contractor), foreign or local. Otherwise, the exploration works

58
already conducted, and expenditures already made, may end up only contractor to submit reports to the secretary on the production, ore
benefiting claim-jumpers. Thus, Section 3(aq) of RA 7942 is not reserves, work accomplished and work in progress, profile of its work
unconstitutional. force and management staff, and other technical information (Clause
6.3); subjects any expansions, modifications, improvements and
replacements of mining facilities to the approval of the secretary
WMCP FTAA Likewise Gives the (Clause 6.4); subjects to State control the amount of funds that the
State Full Control and Supervision contractor may borrow within the Philippines (Clause 7.2); subjects to
State supervisory power any technical, financial and marketing issues
(Clause 10.1-a); obligates the contractor to ensure 60 percent Filipino
The WMCP FTAA obligates the contractor to account for the value equity in the contractor within ten years of recovering specified
of production and sale of minerals (Clause 1.4); requires that the expenditures unless not so required by subsequent legislation (Clause
contractors work program, activities and budgets be approved by the 10.1); gives the State the right to terminate the FTAA for unremedied
State (Clause 2.1); gives the DENR secretary power to extend the substantial breach thereof by the contractor (Clause 13.2); requires
exploration period (Clause 3.2-a); requires approval by the State for State approval for any assignment of the FTAA by the contractor to an
incorporation of lands into the contract area (Clause 4.3-c); requires entity other than an affiliate (Clause 14.1).
Bureau of Forest Development approval for inclusion of forest reserves
as part of the FTAA contract area (Clause 4.5); obligates the contractor In short, the aforementioned provisions of the WMCP FTAA, far
to periodically relinquish parts of the contract area not needed for from constituting a surrender of control and a grant of beneficial
exploration and development (Clause 4.6); requires submission of a ownership of mineral resources to the contractor in question, vest the
declaration of mining feasibility for approval by the State (Clause 4.6- State with control and supervision over practically all aspects of the
b); obligates the contractor to report to the State the results of its operations of the FTAA contractor, including the charging of pre-
exploration activities (Clause 4.9); requires the contractor to obtain operating and operating expenses, and the disposition of mineral
State approval for its work programs for the succeeding two year products.
periods, containing the proposed work activities and expenditures There is likewise no relinquishment of control on account of specific
budget related to exploration (Clause 5.1); requires the contractor to provisions of the WMCP FTAA. Clause 8.2 provides a mechanism to
obtain State approval for its proposed expenditures for exploration prevent the mining operations from grinding to a complete halt as a
activities (Clause 5.2); requires the contractor to submit an annual result of possible delays of more than 60 days in the governments
report on geological, geophysical, geochemical and other information processing and approval of submitted work programs and budgets.
relating to its explorations within the FTAA area (Clause 5.3-a); requires Clause 8.3 seeks to provide a temporary, stop-gap solution in case a
the contractor to submit within six months after expiration of exploration disagreement between the State and the contractor (over the proposed
period a final report on all its findings in the contract area (Clause 5.3- work program or budget submitted by the contractor) should result in a
b); requires the contractor after conducting feasibility studies to submit deadlock or impasse, to avoid unreasonably long delays in the
a declaration of mining feasibility, along with a description of the area performance of the works.
to be developed and mined, a description of the proposed mining
operations and the technology to be employed, and the proposed work The State, despite Clause 8.3, still has control over the contract
program for the development phase, for approval by the DENR area, and it may, as sovereign authority, prohibit work thereon until the
secretary (Clause 5.4); obligates the contractor to complete the dispute is resolved, or it may terminate the FTAA, citing substantial
development of the mine, including construction of the production breach thereof. Hence, the State clearly retains full and effective
facilities, within the period stated in the approved work program (Clause control.
6.1); requires the contractor to submit for approval a work program Clause 8.5, which allows the contractor to make changes to
covering each period of three fiscal years (Clause 6.2); requires the approved work programs and budgets without the prior approval of the
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DENR secretary, subject to certain limitations with respect to the percent foreign owned, could permit Filipino equity ownership.
variance/s, merely provides the contractor a certain amount of flexibility Moreover, what is important is that the contractor, regardless of its
to meet unexpected situations, while still guaranteeing that the ownership, is always in a position to render the services required under
approved work programs and budgets are not abandoned altogether. the FTAA, under the direction and control of the government.
And if the secretary disagrees with the actions taken by the contractor
in this instance, he may also resort to cancellation/termination of the Clauses 10.4(e) and (i) bind government to allow amendments to
FTAA as the ultimate sanction. the FTAA if required by banks and other financial institutions as part of
the conditions of new lendings. There is nothing objectionable here,
Clause 4.6 of the WMCP FTAA gives the contractor discretion to since Clause 10.4(e) also provides that such financing arrangements
select parts of the contract area to be relinquished. The State is not in should in no event reduce the contractors obligations or the
a position to substitute its judgment for that of the contractor, who governments rights under the FTAA. Clause 10.4(i) provides that
knows exactly which portions of the contract area do not contain government shall favourably consider any request for amendments of
minerals in commercial quantities and should be relinquished. Also, this agreement necessary for the contractor to successfully obtain
since the annual occupation fees paid to government are based on the financing. There is no renunciation of control, as the proviso does not
total hectarage of the contract area, net of the areas relinquished, the say that government shall automatically grant any such request. Also,
contractors self-interest will assure proper and efficient relinquishment. it is up to the contractor to prove the need for the requested changes.
The government always has the final say on whether to approve or
Clause 10.2(e) of the WMCP FTAA does not mean that the disapprove such requests.
contractor can compel government to use its power of eminent domain.
It contemplates a situation in which the contractor is a foreign-owned In fine, the FTAA provisions do not reduce or abdicate State
corporation, hence, not qualified to own land. The contractor identifies control.
the surface areas needed for it to construct the infrastructure for mining
operations, and the State then acquires the surface rights on behalf of
the former. The provision does not call for the exercise of the power of No Surrender of
eminent domain (or determination of just compensation); it seeks to Financial Benefits
avoid a violation of the anti-dummy law.
Clause 10.2(l) of the WMCP FTAA giving the contractor the right The second paragraph of Section 81 of RA 7942 has been
to mortgage and encumber the mineral products extracted may have denounced for allegedly limiting the States share in FTAAs with foreign
been a result of conditions imposed by creditor-banks to secure the contractors to just taxes, fees and duties, and depriving the State of
loan obligations of WMCP. Banks lend also upon the security of a share in the after-tax income of the enterprise. However, the inclusion
encumbrances on goods produced, which can be easily sold and of the phrase among other things in the second paragraph of Section
converted into cash and applied to the repayment of loans. Thus, 81 clearly and unmistakably reveals the legislative intent to have the
Clause 10.2(l) is not something out of the ordinary. Neither is it State collect more than just the usual taxes, duties and fees.
objectionable, because even though the contractor is allowed to
mortgage or encumber the mineral end-products themselves, the Thus, DAO 99-56, the Guidelines Establishing the Fiscal Regime
contractor is not thereby relieved of its obligation to pay the government of Financial or Technical Assistance Agreements, spells out the
its basic and additional shares in the net mining revenue. The financial benefits government will receive from an FTAA, as consisting
contractors ability to mortgage the minerals does not negate the States of not only a basic government share, comprised of all direct taxes,
right to receive its share of net mining revenues. fees and royalties, as well as other payments made by the contractor
during the term of the FTAA, but also an additional government
Clause 10.2(k) which gives the contractor authority to change its share, being a share in the earnings or cash flows of the mining
equity structure at any time, means that WMCP, which was then 100
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enterprise, so as to achieve a fifty-fifty sharing of net benefits from passes upon and either approves or rejects; if approved, the same will
mining between the government and the contractor. subsequently be recorded as pre-operating expenses that the
contractor will have to recoup over the grace period.
The additional government share is computed using one of three
(3) options or schemes detailed in DAO 99-56, viz., (1) the fifty-fifty Under Section 24, when an exploration permittee files with the
sharing of cumulative present value of cash flows; (2) the excess profit- MGB a declaration of mining project feasibility, it must submit a work
related additional government share; and (3) the additional sharing program for development, with corresponding budget, for approval by
based on the cumulative net mining revenue. Whichever option or the Bureau, before government may grant an FTAA or MPSA or other
computation is used, the additional government share has nothing to mineral agreements; again, government has the opportunity to approve
do with taxes, duties, fees or charges. The portion of revenues or reject the proposed work program and budgeted expenditures
remaining after the deduction of the basic and additional government for development works, which will become the pre-operating and
shares is what goes to the contractor. development costs that will have to be recovered. Government is able
to know ahead of time the amounts of pre-operating and other
The basic government share and the additional government expenses to be recovered, and the approximate period of time needed
share do not yet take into account the indirect taxes and other financial therefor. The aforecited provisions have counterparts in Section 35,
contributions of mining projects, which are real and actual benefits
which deals with the terms and conditions exclusively applicable to
enjoyed by the Filipino people; if these are taken into account, total FTAAs.In sum, the third or last paragraph of Section 81 of RA 7942
government share increases to 60 percent or higher (as much as 77 cannot be deemed defective.
percent, and 89 percent in one instance) of the net present value of
total benefits from the project. Section 80 of RA 7942 allegedly limits the States share in a mineral
production-sharing agreement (MPSA) to just the excise tax on the
The third or last paragraph of Section 81 of RA 7942 is slammed
mineral product, i.e., only 2 percent of market value of the minerals.
for deferring the payment of the government share in FTAAs until after The colatilla in Section 84 reiterates the same limitation in Section
the contractor shall have recovered its pre-operating expenses, 80. However, these two provisions pertain only to MPSAs, and
exploration and development expenditures. Allegedly, the collection of have no application to FTAAs. These particular provisions do not
the States share is rendered uncertain, as there is no time limit in RA come within the issues defined by this Court. Hence, on due
7942 for this grace period or recovery period. But although RA 7942 did process grounds, no pronouncement can be made in this case in
not limit the grace period, the concerned agencies (DENR and MGB) in respect of the constitutionality of Sections 80 and 84.
formulating the 1995 and 1996 Implementing Rules and Regulations
provided that the period of recovery, reckoned from the date of Section 112 is disparaged for reverting FTAAs and all mineral
commercial operation, shall be for a period not exceeding five years, or agreements to the old license, concession or lease system, because it
until the date of actual recovery, whichever comes earlier. allegedly effectively reduces the government share in FTAAs to just the
2 percent excise tax which pursuant to Section 80 comprises the
And since RA 7942 allegedly does not require government government share in MPSAs. However, Section 112 likewise does not
approval for the pre-operating, exploration and development expenses
come within the issues delineated by this Court, and was never touched
of the foreign contractors, it is feared that such expenses could be upon by the parties in their pleadings. Moreover, Section 112 may not
bloated to wipe out mining revenues anticipated for 10 years, with the properly apply to FTAAs. The mining law obviously meant to treat
result that the States share is zero for the first 10 years. However, the
FTAAs as a breed apart from mineral agreements. There is absolutely
argument is based on incorrect information. no basis to believe that the law intends to exact from FTAA contractors
Under Section 23 of RA 7942, the applicant for exploration permit merely the same government share (i.e., the 2 percent excise tax) that
is required to submit a proposed work program for exploration, it apparently demands from contractors under the three forms of
containing a yearly budget of proposed expenditures, which the State mineral agreements.

61
 While there is ground to believe that Sections 80, 84 and 112 are Section 7.9 of the WMCP FTAA clearly renders illusory the States
indeed unconstitutional, they cannot be ruled upon here. In any event, 60 percent share of WMCPs revenues. Under Section 7.9, should
they are separable; thus, a later finding of nullity will not affect the rest WMCPs foreign stockholders (who originally owned 100 percent of the
of RA 7942. equity) sell 60 percent or more of their equity to a Filipino citizen or
corporation, the State loses its right to receive its share in net mining
In fine, the challenged provisions of RA 7942 cannot be said revenues under Section 7.7, without any offsetting compensation to the
to surrender financial benefits from an FTAA to the foreign State. And what is given to the State in Section 7.7 is by mere tolerance
contractors.
of WMCPs foreign stockholders, who can at any time cut off the
Moreover, there is no concrete basis for the view that, in FTAAs governments entire share by simply selling 60 percent of WMCPs
with a foreign contractor, the State must receive at least 60 percent of equity to a Philippine citizen or corporation.
the after-tax income from the exploitation of its mineral resources, and In fact, the sale by WMCPs foreign stockholder on January 23,
that such share is the equivalent of the constitutional requirement that 2001 of the entire outstanding equity in WMCP to Sagittarius Mines,
at least 60 percent of the capital, and hence 60 percent of the income, Inc., a domestic corporation at least 60 percent Filipino owned, can be
of mining companies should remain in Filipino hands. Even if the State deemed to have automatically triggered the operation of Section 7.9
is entitled to a 60 percent share from other mineral agreements (CPA,
and removed the States right to receive its 60 percent share. Section
JVA and MPSA), that would not create a parallel or analogous situation 7.9 of the WMCP FTAA has effectively given away the States
for FTAAs. We are dealing with an essentially different equation. Here share without anything in exchange.
we have the old apples and oranges syndrome.
Moreover, it constitutes unjust enrichment on the part of the local
The Charter did not intend to fix an iron-clad rule of 60 percent and foreign stockholders in WMCP, because by the mere act of
share, applicable to all situations, regardless of circumstances. There
divestment, the local and foreign stockholders get a windfall, as their
is no indication of such an intention on the part of the framers. share in the net mining revenues of WMCP is automatically increased,
Moreover, the terms and conditions of petroleum FTAAs cannot serve without having to pay anything for it.
as standards for mineral mining FTAAs, because the technical and
operational requirements, cost structures and investment needs Being grossly disadvantageous to government and detrimental to
of off-shore petroleum exploration and drilling companies do not the Filipino people, as well as violative of public policy, Section 7.9 must
have the remotest resemblance to those of on-shore mining therefore be stricken off as invalid. The FTAA in question does not
companies. involve mere contractual rights but, being impressed as it is with public
interest, the contractual provisions and stipulations must yield to the
To take the position that governments share must be not less than common good and the national interest. Since the offending provision
60 percent of after-tax income of FTAA contractors is nothing short of is very much separable from the rest of the FTAA, the deletion of
this Court dictating upon the government. The State resultantly ends up
Section 7.9 can be done without affecting or requiring the invalidation
losing control. To avoid compromising the States full control and of the entire WMCP FTAA itself.
supervision over the exploitation of mineral resources, there must be
no attempt to impose a minimum 60 percent rule. It is sufficient that the Section 7.8(e) of the WMCP FTAA likewise is invalid, since by
State has the power and means, should it so decide, to get a 60 percent allowing the sums spent by government for the benefit of the contractor
share (or greater); and it is not necessary that the State does so to be deductible from the States share in net mining revenues, it results
in every case. in benefiting the contractor twice over. This constitutes unjust
enrichment on the part of the contractor, at the expense of government.
For being grossly disadvantageous and prejudicial to government and
Invalid Provisions of contrary to public policy, Section 7.8(e) must also be declared without
the WMCP FTAA
62
effect. It may likewise be stricken off without affecting the rest of the our country and in securing the assistance of foreign groups to
FTAA. eradicate the grinding poverty of our people and answer their cry for
viable employment opportunities in the country.
The judiciary is loath to interfere with the due exercise by coequal
EPILOGUE branches of government of their official functions.[99] As aptly spelled out
seven decades ago by Justice George Malcolm, Just as the Supreme
AFTER ALL IS SAID AND DONE, it is clear that there is unanimous Court, as the guardian of constitutional rights, should not sanction
agreement in the Court upon the key principle that the State must usurpations by any other department of government, so should it as
exercise full control and supervision over the exploration, development strictly confine its own sphere of influence to the powers expressly or
and utilization of mineral resources. by implication conferred on it by the Organic Act.[100] Let the
development of the mining industry be the responsibility of the political
The crux of the controversy is the amount of discretion to be branches of government. And let not this Court interfere inordinately
accorded the Executive Department, particularly the President of the and unnecessarily.
Republic, in respect of negotiations over the terms of FTAAs,
particularly when it comes to the government share of financial benefits The Constitution of the Philippines is the supreme law of the land.
from FTAAs. The Court believes that it is not unconstitutional to allow a It is the repository of all the aspirations and hopes of all the people. We
wide degree of discretion to the Chief Executive, given the nature and fully sympathize with the plight of Petitioner La Bugal Blaan and other
complexity of such agreements, the humongous amounts of capital and tribal groups, and commend their efforts to uplift their communities.
financing required for large-scale mining operations, the complicated However, we cannot justify the invalidation of an otherwise
technology needed, and the intricacies of international trade, coupled constitutional statute along with its implementing rules, or the
with the States need to maintain flexibility in its dealings, in order to nullification of an otherwise legal and binding FTAA contract.
preserve and enhance our countrys competitiveness in world markets. We must never forget that it is not only our less privileged brethren
We are all, in one way or another, sorely affected by the recently in tribal and cultural communities who deserve the attention of this
reported scandals involving corruption in high places, duplicity in the Court; rather, all parties concerned -- including the State itself, the
negotiation of multi-billion peso government contracts, huge payoffs to contractor (whether Filipino or foreign), and the vast majority of our
government officials, and other malfeasances; and perhaps, there is citizens -- equally deserve the protection of the law and of this Court.
the desire to see some measures put in place to prevent further To stress, the benefits to be derived by the State from mining activities
abuse. However, dictating upon the President what minimum must ultimately serve the great majority of our fellow citizens. They
share to get from an FTAA is not the solution. It sets a bad have as much right and interest in the proper and well-ordered
precedent since such a move institutionalizes the very reduction if not development and utilization of the countrys mineral resources as the
deprivation of the States control. The remedy may be worse than the petitioners.
problem it was meant to address. In any event, provisions in such future Whether we consider the near term or take the longer view, we
agreements which may be suspected to be grossly disadvantageous or cannot overemphasize the need for an appropriate balancing of
detrimental to government may be challenged in court, and the culprits interests and needs -- the need to develop our stagnating mining
haled before the bar of justice. industry and extract what NEDA Secretary Romulo Neri estimates is
Verily, under the doctrine of separation of powers and due respect some US$840 billion (approx. PhP47.04 trillion) worth of mineral wealth
for co-equal and coordinate branches of government, this Court must lying hidden in the ground, in order to jumpstart our floundering
restrain itself from intruding into policy matters and must allow the economy on the one hand, and on the other, the need to enhance our
President and Congress maximum discretion in using the resources of nationalistic aspirations, protect our indigenous communities, and
prevent irreversible ecological damage.
63
 This Court cannot but be mindful that any decision rendered in this Davide Jr., C.J., Sandoval-Gutierrez, Austria-
case will ultimately impact not only the cultural communities which Martinez, and Garcia, JJ., concur.
lodged the instant Petition, and not only the larger community of the Puno, J., in the result and votes to invalidate sections 3.3; 7.8 and
Filipino people now struggling to survive amidst a fiscal/budgetary 7.9 of the WMC FTAA.
deficit, ever increasing prices of fuel, food, and essential commodities Quisumbing, J., in the result.
and services, the shrinking value of the local currency, and a Ynares-Santiago, J., joins dissenting opinion of J. Antonio Carpio
government hamstrung in its delivery of basic services by a severe lack & J. Conchita C. Morales.
of resources, butalso countless future generations of Filipinos. Carpio, and Carpio-Morales, JJ., see dissenting opinion.
Corona, J., certifies he voted affirmatively with the majority and he
For this latter group of Filipinos yet to be born, their eventual was allowed to do so although he is on leave.
access to education, health care and basic services, their overall level Callejo, Sr., J., concurs to the dissenting opinion of J. Carpio.
of well-being, the very shape of their lives are even now being Azcuna, J., took no part-same reason.
determined and affected partly by the policies and directions being Tinga, and Chico-Nazario, JJ., concur with a separate opinion.
adopted and implemented by government today. And in part by the this
Resolution rendered by this Court today.
Verily, the mineral wealth and natural resources of this country are
meant to benefit not merely a select group of people living in the areas
locally affected by mining activities, but the entire Filipino
nation, present and future, to whom the mineral wealth really belong.
This Court has therefore weighed carefully the rights and interests of all
concerned, and decided for the greater good of the greatest number.
JUSTICE FOR ALL, not just for some; JUSTICE FOR THE PRESENT
AND THE FUTURE, not just for the here and now.
WHEREFORE, the Court RESOLVES to GRANT the respondents
and the intervenors Motions for Reconsideration;
to REVERSE and SET ASIDE this Courts January 27, 2004 Decision;
to DISMISS the Petition; and to issue this new judgment
declaring CONSTITUTIONAL (1) Republic Act No. 7942 (the Philippine
Mining Law), (2) its Implementing Rules and Regulations contained in
DENR Administrative Order (DAO) No. 9640 -- insofar as they relate to
financial and technical assistance agreements referred to in paragraph
4 of Section 2 of Article XII of the Constitution; and (3) the Financial and
Technical Assistance Agreement (FTAA) dated March 30, 1995
executed by the government and Western Mining Corporation
Philippines Inc. (WMCP), except Sections 7.8 and 7.9 of the subject
FTAA which are hereby INVALIDATED for being contrary to public
policy and for being grossly disadvantageous to the government.
SO ORDERED.

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