La Bugal B’laan Tribal Assoc. v. DENR , G.R. No. 127882, December 1, 2004, [Reconsideration]. Ponente: Panganiban, J.

Facts: Petition for prohibition and mandamus, challenges the constitutionality of (1) RA 7942 (the Philippine Mining Law), (2) its Implementing Rules and Regulations (IRR) in DENR Administrative Order No. 9640 (3), the Financial and Technical Assistance Agreement (FTAA) dated March 30, 1995 by the government and Western Mining Corporation Philippines Inc. (WMCP).

On January 27, 2004, the Court en banc granted the petition and declared the unconstitutionality of certain provisions of RA 7942, DENR AO 9640, and the entire FTAA between the government and WMCP mainly on the finding that FTAAs are service contracts prohibited by the 1987 Constitution.

Held: The Court resolves to grant the respondents’ and intervenors’ Motions for Reconsideration; reverse and set aside this Court’s January 27, 2004 decision; to dismiss the petition; to issue new judgment declaring constitutional (1) R.A. 7942, (2) IRR contained in DENR AO 9640 – insofar as they relate to financial and technical assistance agreements referred to in Art. XII Sec. 2 (4) of the Constitution; (3) the FTAA dated March 30, 1995 executed by the government and 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.

Issues/Ratio:

1. WON case is rendered moot by the sale of Western Mining Corporation (WMC) shares in WMCP to Sagittarius (60% of Sagittarius equity is owned by Filipinos and/or Filipino-owned corporations) and subsequent transfer and registration of the FTAA from WMCP to Sagittarius?

a. Nullity of FTAA is based on WMCP being a foreign corporation. Had it been issued to a Filipino corporation, there would not have been any issue to its constitutionality.

b. Transfer of WMCP FTAA to a Filipino corporation (Sagittarius) is like a sale of land to foreigner who then acquires Filipino citizenship or who later resells the land to a Filipino citizen.

c. Nowhere is it found that a Filipino Corporation is not allowed by the Constitution to enter into an FTAA with the government.

d. There is no need for separate litigation on “suspicious sale” of WMCP to Sagittarius. Section 40 of RA 7942 expressly requiring the President to notify Congress of applies to the assignment of a FTAA does not apply to sale of shares of stock in WMCP.

2. Assuming case was rendered moot, WON it is proper to resolve the constitutionality of assailed provisions of RA 7942, DENR AO 9640, and the WMCP FTAA?

a. Through several provisions of RA 7942, DENR AO 9640 and WMCP FTAA, the government agencies are empowered to approve or disapprove various work programs and corresponding expenditure commitments for each of the EDU phases. Any violation of the FTAA terms and conditions or non-compliance of the statutes may be penalized by cancellation of the FTAA.

b. Section 3(aq) of RA7942, which allows foreign corporations to hold exploration permits, is not unconstitutional. There is no prohibition at all against foreign or local corporations or contractors holding exploration permits.

c. An exploration permit merely grants the right to conduct exploration for all minerals in specified areas. It does not amount to an authorization to extract and carry off the mineral resources that may be discovered. The exploration permit protects the investment from claim-jumpers.

d. Clause 8.2, 8.3 and 8.5 of the WMCP FTAA do not relinquish control. They only provide mechanisms for preventing the business or mining operations from grinding to a complete halt as a result of possibly over-long and unjustified delays in governments processing and approval of submitted work programs and budgets.

e. In RA Section 91 (2), the inclusion of the phrase “among other things” reveals the legislative intent to have the State collect more than just the usual taxes, duties and fees.

f. DENR AO 9956 , “Guidelines Establishing Fiscal Regime of Financial or Technical Assistance Agreements” spells out financial benefits government will receive from an FTAA. It contains not only of basic government share, but also of an additional government share such as share in the earnings or cash flows of the mining enterprise, so as to achieve a 50-50 sharing of net benefits from mining between government and contractor.

g. Section 7.9 of the WMCP FTAA states that should WMCP’s foreign stockholders (originally owned 100% of equity) sell 60% or more of their equity to a Filipino citizen or corporation, the State loses its right to receive its share in net mining revenues without offsetting compensation to the State. Section 7.9 is declared INVALID for it constitutes unjust enrichment on the part of local and foreign stockholders of WMCP, being grossly disadvantageous to the government and detrimental to Filipino people and violative of public policy.

h. Section 7.8(e) of the WMCP FTAA is likewise INVALID , since by allowing the sums spent by government for the benefit of the contractor to be deductible from the State’s share in net mining revenues, it results in benefiting the contractor twice

over. This constitutes unjust enrichment on the part of the contractor.

i. Both Section 7.9 and 7.8(e) of the WMCP FTAA can be stricken off without affecting the rest of the FTAA.

3. What is the proper interpretation of the phrase agreements involving either technical or financial assistance contained in Art. XII Sec. 2 (4) of the Constitution? Does it allow management of mining operations to be given to foreign companies?

a. The use of the word “involving” signifies the possibility of inclusion of other forms of assistance or activities related to or compatible with financial or technical assistance.

b. What petitioners seek (complete ban on foreign participation in management of mining operations) is brining significant change in economic policies of our government. Omission of “service contract” in the new Constitution cannot be meant to prejudice existing service contracts.

c. If par. 4 permits only agreements of financial or technical assistance, there is no point in requiring that they be “based on real contributions to the economic growth and general welfare of the country.”

d. “Technical or financial assistance” recognizes that foreign corporations have with the resources and know-how to provide technical, financial assistance for large-scale exploration, development, utilization (EDU) of these resources.

e. Drafters of the Constitution will have to be credited with enough pragmatism and savvy to know that these foreign entities will not enter into such “agreements involving assistance” without requiring arrangements for the protection of their investments, gains and benefits.

f. The framers knew at the time they were deliberating that there were various service contracts in force and effect, including those in the petroleum industry. If they intended to end service contracts, they would have left instructions to Congress to deal with these issues, similar to the transitory guidelines found in Article XVIII of our Constitution.

g. Pertinent portions of the deliberations show that they discussed agreements involving either technical or financial assistance in the same breath as service contracts and use the terms interchangeably.

h. “Full control and supervision” by the State must be understood as one that does not preclude the legitimate exercise of management prerogatives by the foreign contractor. Government does not have to micro-manage the mining operations in order for it to be considered as having full control and supervision.