Energy Reviewer

8/11/2019 Energy Reviewer

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Energy Law Cases and Optional Readings – Atty. Dimalanta

Gamboa vs. Teves

In 1928, the Philippine Long Distance Telephone Company (PLDT) was granted a franchise to engage in the

business of telecommunications. Telecommunications is a nationalized area of activity where a corporation engaged

therein must have 60% of its capital be owned by Filipinos as provided for by Section 11, Article XII (National

Economy and Patrimony) of the 1987 Constitution, to wit:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be

granted except to citizens of the Philippines or to corporations or associations organized under the laws of the

Philippines, at least sixty per centum of whose capital is owned by such citizens; xxx

In 1999, First Pacific, a foreign corporation, acquired 37% of PLDT common shares. Wilson Gamboa opposed said

acquisition because at that time, 44.47% of PLDT common shares already belong to various other foreign

corporations. Hence, if First Pacific’s share is added, foreign shares will amount to 81.47% or more than the 40%

threshold prescribed by the Constitution.

Margarito Teves, as Secretary of Finance, and the other respondents argued that this is okay because in totality, most

of the capital stocks of PLDT is Filipino owned. It was explained that all PLDT subscribers, pursuant to a law

passed by Marcos, are considered shareholders (they hold serial preferred shares). Broken down, preferred shares

consist of 77.85% while common shares consist of 22.15%.

Gamboa argued that the term “capital” should only pertain to the common shares because that is the share which is

entitled to vote and thus have effective control over the corporation.

ISSUE: What does the term “capital” pertain to? Does the term “capital” in Section 11, Article XII of the

Constitution refer to common shares or to the total outstanding capital stock (combined total of common and non-

voting preferred shares)?

HELD: Gamboa is correct. Capital only pertains to common shares. It will be absurd for capital to pertain as

inclusive of non-voting shares. This is because a corporation consisting of 1,000,000 capital stocks, 100 of which are

common shares which are foreign owned and the rest (999,900 shares) are preferred shares which are non-voting

shares and are Filipino owned, would seem compliant to the constitutional requirement – here 99.999% is Filipino

owned. But if scrutinized, the controlling stock – the voting stock – or that miniscule .001% is foreign owned. That

is absurd.

In this case, it is true that at least 77.85% of the capital is owned by Filipinos (the PLDT subscribers). But these

subscribers, who hold non-voting preferred shares, have no control over the corporation. Hence, capital should only

pertain to common shares.

Thus, to be compliant with the constitution, 60% of the common shares of PLDT should be Filipino owned. That is

not so in this case as it appears that 81.47% of the common shares are already foreign owned (split between First

Pacific (37%) and a Japanese corporation).

IMPORTANT:

When may preferred shares be considered part of the capital share?

If the preferred shares are allowed to vote like common shares.




Redmont Case (2010)

Facts: Mining company allegedly using layers of corporations to conceal failure to comply with citizenship

requirements.

Doctrine Only: SEC applied the grandfather rule because the foreign investor provided “practically all the funds” of

the Philippine mining companies; as such, the SEC concluded that the 60-40 Filipino alien equity ownership was in

doubt and therefore the grandfather rule should be applied.

While the control test shall be used as standard to determine the nationality of corporations, the grandfather rule will

be applied if there is doubt about compliance with Filipino ownership requirements

The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our natural

resources. Necessarily, therefore, the Rule interpreting the constitutional provision should not diminish that right

through the legal fiction of corporate ownership and control. But the constitutional provision, as interpreted and

practiced via the 1967 SEC Rules, has favored foreigners contrary to the command of the Constitution. Hence, the

Grandfather Rule must be applied to accurately determine the actual participation, both direct and indirect, of

foreigners in a corporation engaged in a nationalized activity or business.

Compliance with the constitutional limitation(s) on engaging in nationalized activities must be determined byascertaining if 60% of the investing corporation’s outstanding capital stock is owned by “Filipino citizens”, or as

interpreted, by natural or individual Filipino citizens. If such investing corporation is in turn owned to some extent

by another investing corporation, the same process must be observed. One must not stop until the citizenships of the

individual or natural stockholders of layer after layer of investing corporations have been established , the very

essence of the Grandfather Rule.

Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather Rule

Grandfather Rule: the citizenship of individuals or natural persons who ultimately own or control the shares of

stock of the corporation must be considered for purposes of determining compliance with the Filipino ownership

requirement

Chavez vs. PEA

The Public Estates Authority is the central implementing agency tasked to undertake reclamation projects

nationwide. It took over the leasing and selling functions of the DENR insofar as reclaimed or about to be reclaimed

foreshore lands are concerned.

PEA sought the transfer to AMARI, a private corporation, of the ownership of 77.34 hectares of the Freedom

Islands. PEA also sought to have 290.156 hectares of submerged areas of Manila Bay to AMARI.

ISSUE: Whether or not the transfer is valid.

HELD: No. To allow vast areas of reclaimed lands of the public domain to be transferred to PEA as private lands

will sanction a gross violation of the constitutional ban on private corporations from acquiring any kind of alienable

land of the public domain.

The Supreme Court affirmed that the 157.84 hectares of reclaimed lands comprising the Freedom Islands, now

covered by certificates of title in the name of PEA, are alienable lands of the public domain. The 592.15 hectares of

submerged areas of Manila Bay remain inalienable natural resources of the public domain. Since the Amended JVA

seeks to transfer to AMARI, a private corporation, ownership of 77.34 hectares of the Freedom Islands, such transfer

is void for being contrary to Section 3, Article XII of the 1987 Constitution which prohibits private corporations




the Constitution of the Philippines so as to permit the taking effect as laws of the Philippines of such part of the

provisions of Paragraph 1 of this Article as is in conflict with such Constitution before a such amendment.

Republic Act No. 1355 (Laurel-Langley Act)

ARTICLE VI

1. The disposition, exploitation, development, and utilization of all agricultural, timber, and mineral lands of the

public domain, waters, minerals, coal, petroleum and other mineral oils, all forces and sources of potential energy,

and other natural resources of either Party, and the operation of public utilities, shall, if open to any person, be open

to citizens of the other Party and to all forms of business enterprise owned or controlled, directly or indirectly, by

citizens of such other Party in the same manner as to and under the same conditions imposed upon citizens or

corporations or associations owned or controlled by citizens of the Party granting the right.

2. The rights provided for in Paragraph 1 may be exercised, in the case of citizens of the Philippines with respect to

natural resources in the United States which are subject to Federal control or regulations, only through the medium

of a corporation organized under the laws of the United States or one of the States thereof and likewise, in the case

of citizens of the United States with respect to natural resources in the public domain in the Philippines, only

through the medium of a corporation organized under the laws of the Philippines and at least 60% of the capitalstock of which is owned or controlled by citizens of the United States. This provision, however, does not affect the

right of citizens of the United States to acquire or own private agricultural lands in the Philippines or citizens of the

Philippines to acquire or own land in the United States which is subject to the jurisdiction of the United States and

not within the jurisdiction of any State and which is not within the public domain. The Philippines reserves the right

to dispose of its public lands in small quantities on especially favorable terms exclusively to actual settlers or other

users who are its own citizens. The United States reserves the right to dispose of its public lands in small quantities

on especially favorable terms exclusively to actual settlers or other users who are its own citizens or aliens who have

declared their intention to become citizens. Each Party reserves the right to limit the extent to which aliens may

engage in fishing or engage in enterprises which furnish communications services and air or water transport. The

United States also reserves the right to limit the extent to which aliens may own land in its outlaying territories and

possessions, but the Philippines will extend to American Nationals who are residents of any of those outlaying

territories and possessions only the same rights, with respect to ownership of lands, which are granted therein to

citizens of the Philippines. The rights provided for in this Paragraph shall not, however, be exercised by either Partyso as to derogate from the rights previously acquired by citizens or corporations or associations owned or controlled

by citizens of the other Party.

3. The United States of America reserves the rights of the several States of the United States to limit the extent to

which citizens or corporations or associations owned or controlled by citizens of the Philippines may engage in the

activities specified in this Article. The Republic of the Philippines reserves the power to deny any of the rights

specified in this Article to citizens of the United States who are citizens of States, or to corporations or associations

at least 60% of whose capital stock or capital is owned or controlled by citizens of States, which deny like rights to

citizens of the Philippines, or to corporations or associations which are owned or controlled by citizens of the

Philippines. The exercise of this reservation on the part of the Philippines shall not affect that any State of the United

States of America should in the future impose restrictions which would deny to citizens or corporations or

associations owned or controlled by citizens of the Philippines the right to continue to engage in activities in which

they were engaged therein at the time of the imposition of such restrictions, the Republic of the Philippines shall be

free to apply like limitations to the

Presidential Decree No. 151 (13 March 1973)

1. Citizens of the Philippines or corporations or associations which have acquired lands of the public domain or

which now own, hold or control such lands under the Public Land Act or any other law, are hereby allowed to enter




into service contracts for financial, technical, management or other forms of assistance with any foreign person or

entity whenever and wherever such contracts are vital to achieve sound and more expeditious exploration,

development, exploitation or utilization of such lands owned, held or controlled by such citizens or corporations.

2. For purposes of this Decree, a service contract with a foreign citizen or entity for financial, technical,

management and other forms of assistance shall be considered vital to a national interest if, consistent with

requirements for national security, the exploration, exploitation or utilization of land subject thereof is necessary forcarrying out agricultural, industrial and commercial development projects such as the development of export

oriented industries, import substitution and other dollar saving industries, cottage industries, cooperative

development, land reform, research projects, and such other activities which may be certified by the President upon

recommendation of the National Economic Development Authority as vital to national interest.

3. No service contract for financial, technical, management or other forms of assistance shall be valid without the

prior approval of the Secretary of Agriculture and Natural Resources shall promulgate such rules and regulations as

may be necessary to carry this Decree into effect.

4. Service contracts for financial, technical, management or other forms of assistance that are valid and existing as of

January 17, 1973, shall be recognized and the terms and conditions thereof shall remain in full force and effect

unless modified by the parties thereto.

PICOP V. BASE METALS

G.R. No. 163509

December 6, 2006

Ponente: T inga

FACTS: In 1987, the Central Mindanao Mining and Development Corporation (CMMCI for brevity) entered into a

Mines Operating Agreement with Banahaw Mining and Development Corporation whereby the latter agreed to actas Mine Operator for the exploration, development, and eventual commercial operation of CMMCI's 18 mining

claims located in Agusan del Sur. Pursuant to the terms of the Agreement, Banahaw Mining filed applications for

Mining Lease Contracts over the mining claims with the Bureau of Mines. On April 29, 1988, Banahaw Mining was

issued a Mines Temporary Permit authorizing it to extract and dispose of precious minerals found within its mining

claims. Since a portion of Banahaw Mining's mining claims was located in petitioner PICOP's logging concession in

Agusan del Sur, Banahaw Mining and petitioner PICOP entered into a MOA whereby petitioner PICOP allowed

Banahaw Mining an access to its mining claims. In 1991, Banahaw Mining converted its mining claims to

applications for Mineral Production Sharing Agreements (MPSA for brevity).

While the MPSA were pending, Banahaw Mining, on December 18, 1996, decided to sell/assign its rights

and interests over 37 mining claims in favor of private respondent Base Metals Mineral Resources Corporation. The

transfer included those covered by its mining operating agreement with CMMCI. Upon being informed of the

development, CMMCI, as claim owner, immediately approved the assignment made by Banahaw Mining in favor of private respondent Base Metals, thereby recognizing private respondent Base Metals as the new operator of its

claims. On March 10, 1997, private respondent Base Metals amended Banahaw Mining's pending MPSA

applications with the Bureau of Mines to substitute itself as applicant and to submit additional documents in support

of the application. Area clearances from the DENR Regional Director and Superintendent of the Agusan Marsh and

Wildlife Sanctuary were submitted, as required.

On November 18, 1997, petitioner PICOP filed with the Mines Geo-Sciences Bureau (MGB), an

Opposition to private respondent Base Metals' application because it violate the non-impairment clause and will be

prejudicial to herein petitioner. The Panel Arbitrator initially ruled for petitioner, but upon appeal to the Mines




Adjudication Board, judgment was in favor of respondent, CA affirmed stating that the Presidential Warranty of

September 25, 1968 issued by then President Ferdinand E. Marcos merely confirmed the timber license granted to

PICOP and warranted the latter's peaceful and adequate possession and enjoyment of its concession areas. It was

only given upon the request of the Board of Investments to establish the boundaries of PICOP's timber license

agreement. The Presidential Warranty did not convert PICOP's timber license into a contract because it did not

create any obligation on the part of the government in favor of PICOP. Thus, the non-impairment clause finds no

application.

Issue: W/N the concession area of petitioner is closed to mining activities and that the conversion of the agreement

into MPSA will run counter to the non-impairment clause of the Constitution. – NO, a Timber license agreement is

not a contract, but a mere privilege.

RATIO: We should state at this juncture that the policy of multiple land use is enshrined in our laws towards the

end that the country's natural resources may be rationally explored, developed, utilized and conserved. In like

manner, RA 7942, recognizing the equiponderance between mining and timber rights, gives a mining contractor the

right to enter a timber concession and cut timber therein provided that the surface owner or concessionaire shall be

properly compensated for any damage done to the property as a consequence of mining operations.

Firstly, assuming that the area covered by Base Metals' MPSA is a government reservation, defined as

proclaimed reserved lands for specific purposes other than mineral reservations, such does not necessarily preclude

mining activities in the area. Sec. 15(b) of DAO 96-40 provides that government reservations may be opened for

mining applications upon prior written clearance by the government agency having jurisdiction over such

reservation. Sec. 6 of RA 7942 also provides that mining operations in reserved lands other than mineral

reservations may be undertaken by the DENR, subject to certain limitations. Secondly, RA 7942 does not disallow

mining applications in all forest reserves but only those proclaimed as watershed forest reserves. There is no

evidence in this case that the area covered by Base Metals' MPSA has been proclaimed as watershed forest reserves.

DENR Memorandum Order No. 03-98, which provides the guidelines in the issuance of area status and clearance or

consent for mining applications pursuant to RA 7942, provides that timber or forest lands, military and other

government reservations, forest reservations, forest reserves other than critical watershed forest reserves, and

existing DENR Project Areas within timber or forest lands, reservations and reserves, among others, are open to

mining applications subject to area status and clearance.

Lastly, PICOP failed to present any evidence that the area covered by the MPSA is a protected wilderness

area designated as an initial component of the NIPAS pursuant to a law, presidential decree, presidential

proclamation or executive order as required by RA 7586.

ALVAREZ V. PICOP

G.R. No. 162243

December 3, 2009

Ponente: Chico-Nazari o

FACTS: PICOP (Paper Industries Corp of the Phil) filed with the DENR an application to have its Timber License

Agreement (TLA) No. 43 converted into an IFMA (Integrated forest management agreement). In the middle of the

processing of PICOP’s application, however, PICOP refused to attend further meetings with the DENR. Instead, on

2 September 2002, PICOP filed before the RTC of Quezon City a Petition for Mandamus1 against then DENR

Secretary Heherson T. Alvarez. PICOP seeks the issuance of a privileged writ of mandamus to compel the DENR

Secretary to sign, execute and deliver an IFMA to PICOP. Lower court ruled in favor of respondents, CA affirmed,

http://www.lawphil.net/judjuris/juri2009/dec2009/gr_162243_2009.html#fnt1







but upon appeal to the Supreme Court, it reversed the judgment of the CA. Now PICOP files a Motion for

Reconsideration.

ISSUE: W/N PICOP is entitled to the IFMA by way of mandamus and due to the non-impairment clause of the

Constitution in relation to Document 1969. – NO, Document 1969 is not a contact, but a mere collateral undertaking

pursuant to the TLA.

RATIO: An examination of the Presidential Warranty (Doc. 1969) at once reveals that it simply reassures PICOP ofthe government’s commitment to uphold the terms and conditions of its timber license and guarantees PICOP’s

peaceful and adequate possession and enjoyment of the areas which are the basic sources of raw materials for its

wood processing complex. The warranty covers only the right to cut, collect, and remove timber in its concession

area, and does not extend to the utilization of other resources, such as mineral resources, occurring within the

concession. The Presidential Warranty cannot be considered a contract distinct from PTLA No. 47 and FMA No. 35.

It is merely a collateral undertaking which cannot amplify PICOP’s rights under its timber license. The ruling in

Oposa v. Factoran that a timber license is not a contract within the purview of the non-impairment clause is edifying.

Also, PICOP failed to secure NCIP Cerification based on R.A. 8371 and Sanggunian consultation and

approval for environmentally critical projects based on the Local Government Code.

Q: Are ‘Service Contracts’ and ‘FTAAs’ the same?

A: Essentially, Yes.

The Meaning of “Agreements Involving Either Technical or Financial Assistance”

A constitutional provision specifically allowing foreign-owned corporation to render financial or technical

assistance in respect of mining or any other commercial activity was clearly unnecessary; the provision meant to

refer to more than mere financial or technical assistance.

The framers of the Constitution, during its deliberation regarding foreign investment in and management of an

enterprise for large-scale exploration, development and utilization of minerals spoke about service contracts as theconcept was understood in the 1973 Constitution. It is obvious from their discussions that they did not intend to ban

or eradicate service contracts. Instead, they were intent on crafting provisions to put in place safeguards that would

eliminate the abuses prevalent during the martial law regime.

They were going to permit service contracts with foreign corporations as contractors – but with safety measures to

prevent abuses – as an exception to the general norm established in the first paragraph of Section 2 of Article XII,

which reserves or limits to Filipino citizens and corporations that are at least 60 percent owned by such citizens the

exploration, development and utilization of mineral or petroleum resources. This was prompted by the perceived

insufficiency of Filipino capital and the felt need for foreign expertise in the EDU of mineral resources.

The drafters, by specifying such agreements involving assistance, necessarily gave implied assent to everything that

these agreements entailed or that could reasonably be deemed necessary to make them tenable and effective –

including management authority with respect to the day-to-day operations of the enterprise, and measures for the protection of the interests of the foreign corporation, at least to the extent that they are consistent with Philippine

sovereignty over natural resources, the constitutional requirement of State control, and beneficial ownership of

natural resources remains vested in the State.

It is clear that agreements involving either technical or financial assistance referred to in paragraph 4 are in fact

service contracts, but such new service contracts are between foreign corporations acting as contractors on the one

hand, and on the other hand government as principal or “owner” of the works, whereby the foreign contractor

provides the capital, technology and technical know-how, and managerial expertise in the creation and operation of




the large-scale mining/extractive enterprise, and government through its agencies (DENR, MGB) actively exercises

full control and supervision over the entire enterprise.

Such service contracts may be entered into only with respect to mineral oils. The grant of such service is subject to

several safeguards, among them: (1) that the service contract be crafted in accordance with a general law setting

standard or uniform terms, conditions and requirements; (2) the President be the signatory for the government; and

(3) the President report the executed agreement to Congress within thirty days.

La Bugal B’laan Cases

LA BUGAL-B'LAAN vs DENR

Jan. 21, 2004

Facts: R.A. No. 7942 defines the modes of mineral agreements for mining operations, outlines the procedure for

their filing and approval, assignment/transfer and withdrawal, and fixes their terms. Similar provisions govern

financial or technical assistance agreements.

Petitioners filed the present petition for prohibition and mandamus, with a prayer for a temporary restraining order

alleging that at the time of the filing of the petition, 100 FTAA applications had already been filed, covering an area

of 8.4 million hectares, 64 of which applications are by fully foreign-owned corporations covering a total of 5.8million hectares, and at least one by a fully foreign-owned mining company over offshore areas.

Issue: Are foreign-owned corporations in the large-scale exploration, development, and utilization of petroleum,

minerals and mineral oils limited to “technical” or “financial” assistance only?

Ruling: Only technical assistance or financial assistance agreements may be entered into, and only for large-scale

activities. These are contract forms which recognize and assert our sovereignty and ownership over natural resources

since the foreign entity is just a pure contractor and not a beneficial owner of our economic resources. The proposal

recognizes the need for capital and technology to develop our natural resources without sacrificing our sovereignty

and control over such resources by the safeguard of a special law which requires two-thirds vote of all the members

of the Legislature.

It is true that the word “technical” encompasses a broad number of possible services. However, the law follows the

maxim “casus omisus pro omisso habendus est” which means a person, object or thing omitted from an enumerationmust be held to have been omitted intentionally.

LA BUGAL-B'LAAN vs DENR

Dec. 1, 2004

Facts: On January 27, 2004, the Court en banc promulgated its Decision granting the Petition and declaring the

unconstitutionality of certain provisions of RA 7942, DAO 96-40, as well as of the entire FTAA executed between

the government and WMCP, mainly on the finding that FTAAs are service contracts prohibited by the 1987

Constitution.

The Decision struck down the subject FTAA for being similar to service contracts, which, though permitted under

the 1973 Constitution, were subsequently denounced for being antithetical to the principle of sovereignty over our

natural resources, because they allowed foreign control over the exploitation of our natural resources, to the

prejudice of the Filipino nation.

Issue: Are foreign-owned corporations in the large-scale exploration, development, and utilization of petroleum,

minerals and mineral oils limited to “technical” or “financial” assistance only?

Ruling: Only technical assistance or financial assistance agreements may be entered into, and only for large-scale

activities. Full control is not anathematic to day-to-day management by the contractor, provided that the State retains

the power to direct overall strategy; and to set aside, reverse or modify plans and actions of the contractor. The idea

of full control is similar to that which is exercised by the board of directors of a private corporation: the performance




of managerial, operational, financial, marketing and other functions may be delegated to subordinate officers or

given to contractual entities, but the board retains full residual control of the business.

Tatad vs. Garcia

Considering that oil is not endemic to this country, history shows that the government has always been finding ways

to alleviate the oil industry. The government created laws accommodate these innovations in the oil industry. Onesuch law is the Downstream Oil Deregulation Act of 1996 or RA 8180. This law allows that “any person or entity

may import or purchase any quantity of crude oil and petroleum products from a foreign or domestic source, lease or

own and operate refineries and other downstream oil facilities and market such crude oil or use the same for his own

requirement,” subject only to monitoring by the Department of Energy. Tatad assails the constitutionality of the law.

He claims, among others, that the imposition of different tariff rates on imported crude oil and imported refined

petroleum products violates the equal protection clause. Tatad contends that the 3%-7% tariff differential unduly

favors the three existing oil refineries and discriminates against prospective investors in the downstream oil industry

who do not have their own refineries and will have to source refined petroleum products from abroad.3% is to be

taxed on unrefined crude products and 7% on refined crude products.

ISSUE: Whether or not RA 8180 is constitutional.

HELD: The SC declared the unconstitutionality of RA 8180 because it violated Sec 19 of Art 12 of theConstitution. It violated that provision because it only strengthens oligopoly which is contrary to free competition. It

cannot be denied that our downstream oil industry is operated and controlled by an oligopoly, a foreign oligopoly at

that. Petron, Shell and Caltex stand as the only major league players in the oil market. All other players belong to the

lilliputian league. As the dominant players, Petron, Shell and Caltex boast of existing refineries of various

capacities. The tariff differential of 4% therefore works to their immense benefit. Yet, this is only one edge of the

tariff differential. The other edge cuts and cuts deep in the heart of their competitors. It erects a high barrier to the

entry of new players. New players that intend to equalize the market power of Petron, Shell and Caltex by building

refineries of their own will have to spend billions of pesos. Those who will not build refineries but compete with

them will suffer the huge disadvantage of increasing their product cost by 4%. They will be competing on an uneven

field. The argument that the 4% tariff differential is desirable because it will induce prospective players to invest in

refineries puts the cart before the horse. The first need is to attract new players and they cannot be attracted by

burdening them with heavy disincentives. Without new players belonging to the league of Petron, Shell and Caltex,

competition in our downstream oil industry is an idle dream.

RA 8180 is unconstitutional on the ground inter alia that it discriminated against the “new players” insofar as it

placed them at a competitive disadvantage vis-à-vis the established oil companies by requiring them to meet certain

conditions already being observed by the latter.

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