PROCLAMATION NO.

2146
PROCLAIMING CERTAIN AREAS AND TYPES OF PROJECTS AS ENVIRONMENTALLY
CRITICAL AND WITHIN THE SCOPE OF THE ENVIRONMENTAL IMPACT STATEMENT
SYSTEM ESTABLISHED UNDER PRESIDENTIAL DECREE NO. 1586.

3. Introduction of fauna (exotic-animals) in public/private forests

4. Forest occupancy
5. Extraction of mangrove products
6. Grazing
c. Fishery Projects

WHEREAS, it is the national policy to attain and maintain a rational and orderly balance between
socio-economic growth and environmental conservation and protection;
WHEREAS, there is an urgent need to bring about an intensive, integrated program of
environmental protection through a requirement of environmental impact assessments and
statements;
WHEREAS, the environmental impact statement system established under Presidential Decree
No, 1586 calls for the proper management of environmentally critical areas;

1. Dikes for/and fishpond development projects

III. Infrastructure Projects
a. Major dams
b. Major power plants (fossil-fueled, nuclear fueled, hydroelectric or geothermal)
c. Major reclamation projects
d. Major roads and bridges

WHEREAS, the pursuit of a comprehensive and integrated environmental protection program

necessitates the establishment and institutionalization of a system whereby the exigencies of
socio-economic undertakings can be reconciled with the requirements of environmental protection
and conservation;

B. Environmentally Critical Areas

WHEREAS, the national leadership mandates the establishment of such a system to regulate and
minimize the environmental impacts of projects and undertakings which may significantly affect the
quality of the environment in Presidential Decree No. 1586; and

2. Areas set aside as aesthetic potential tourist spots;

WHEREAS, in the effective implementation of such a system, there arises the need to identify and
declare certain projects determined to be environmentally critical;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the
powers vested in me by law, hereby proclaim the following areas and types of projects as
environmentally critical and within the scope of the Environmental Impact Statement System;

1. All areas declared by law as national parks, watershed reserves, wildlife preserves and
sanctuaries;

3. Areas which constitute the habitat for any endangered or threatened species of indigenous
Philippine Wildlife (flora and fauna);
4. Areas of unique historic, archaeological, or scientific interests;
5. Areas which are traditionally occupied by cultural communities or tribes;

A. Environmentally Critical Projects

6. Areas frequently visited and/or hard-hit by natural calamities (geologic hazards, floods,
typhoons, volcanic activity, etc.);

I. Heavy Industries

7. Areas with critical slopes;

a. Non-ferrous metal industries

b. Iron and steel mills
c. Petroleum and petro-chemical industries including oil and gas
d. Smelting plants

8. Areas classified as prime agricultural lands;

9. Recharged areas of aquifers;
10. Water bodies characterized by one or any combination of the following conditions;

II. Resource Extractive Industries

a. Major mining and quarrying projects
b. Forestry projects
1. Logging
2. Major wood processing projects

a. tapped for domestic purposes

b. within the controlled and/or protected areas declared by appropriate authorities
c. which support wildlife and fishery activities
11. Mangrove areas characterized by one or any combination of the following conditions:

a. with primary pristine and dense young growth;

b. adjoining mouth of major river systems;
c. near or adjacent to traditional productive fry or fishing grounds;
d. which act as natural buffers against shore erosion, strong winds and storm floods;
e. on which people are dependent for their livelihood.
12. Coral reefs characterized by one or any combinations of the following conditions:
a. With 50% and above live coralline cover;
b. Spawning and nursery grounds for fish;
c. which act as natural breakwater of coastlines.
This Proclamation shall take effect immediately.
IN WITNESS WHEREOF, I have hereunto set my hand and caused the seal of the Republic of the
Philippines to be affixed.
Done in the City of Manila, this 14th day of December, in the year of Our Lord, nineteen hundred
and eighty-one.

Republic Act No. 8550

February 25, 1998

AN ACT PROVIDING FOR THE DEVELOPMENT, MANAGEMENT AND CONSERVATION OF

THE FISHERIES AND AQUATIC RESOURCES, INTEGRATING ALL LAWS PERTINENT
THERETO, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled::
Section 1. Title. - This Act shall be known as "The Philippine Fisheries Code of 1998."
CHAPTER I
Declaration of Policy and Definitions
Section 2. Declaration of Policy. - It is hereby declared the policy of the State:
(a) to achieve food security as the overriding consideration in the utilization,
management, development, conservation and protection of fishery resources in order to
provide the food needs of the population. A flexible policy towards the attainment of food
security shall be adopted in response to changes in demographic trends for fish,
emerging trends in the trade of fish and other aquatic products in domestic and
international markets, and the law of supply and demand;lawphi1
(b) to limit access to the fishery and aquatic resources of the Philippines for the
exclusive use and enjoyment of Filipino citizens;
(c) to ensure the rational and sustainable development, management and conservation
of the fishery and aquatic resources in Philippine waters including the Exclusive
Economic Zone (EEZ) and in the adjacent high seas, consistent with the primordial
objective of maintaining a sound ecological balance, protecting and enhancing the
quality of the environment;
(d) to protect the rights of fisherfolk, especially of the local communities with priority to
municipal fisherfolk, in the preferential use of the municipal waters. Such preferential
use, shall be based on, but not limited to, Maximum Sustainable Yield (MSY) or Total
Allowable Catch (TAC) on the basis of resources and ecological conditions, and shall be
consistent with our commitments under international treaties and agreements;
(e) to provide support to the fishery sector, primarily to the municipal fisherfolk, including
women and youth sectors, through appropriate technology and research, adequate
financial, production, construction of post-harvest facilities, marketing assistance, and
other services. The protection of municipal fisherfolk against foreign intrusion shall
extend to offshore fishing grounds. Fishworkers shall receive a just share for their labor
in the utilization of marine and fishery resources;

(f) to manage fishery and aquatic resources, in a manner consistent with the concept of
an integrated coastal area management in specific natural fishery management areas,
appropriately supported by research, technical services and guidance provided by the
State; and
(g) to grant the private sector the privilege to utilize fishery resources under the basic
concept that the grantee, licensee or permittee thereof shall not only be a privileged
beneficiary of the State but also active participant and partner of the Government in the
sustainable development, management, conservation and protection of the fishery and
aquatic resources of the country.
The state shall ensure the attainment of the following objectives of the fishery sector:
1. Conservation, protection and sustained management of the country's fishery and
aquatic resources;
2. Poverty alleviation and the provision of supplementary livelihood among municipal
fisherfolk;
3. Improvement of productivity of aquaculture within ecological limits;
4. Optimal utilization of offshore and deep-sea resources; and
5. Upgrading of post-harvest technology.
Section 3. Application of its Provisions. - The provisions of this Code shall be enforced in:
(a) all Philippine waters including other waters over which the Philippines has
sovereignty and jurisdiction, and the country's 200-nautical mile Exclusive Economic
Zone (EEZ) and continental shelf;
(b) all aquatic and fishery resources whether inland, coastal or offshore fishing areas,
including but not limited to fishponds, fishpens/cages; and
(c) all lands devoted to aquaculture, or businesses and activities relating to fishery,
whether private or public lands.lawphi1
Section 4. Definition of Terms. - As used in this Code, the following terms and phrases shall
mean as follows:
1. Ancillary Industries - firms or companies related to the supply, construction and
maintenance of fishing vessels, gears, nets and other fishing paraphernalia; fishery
machine shops; and other facilities such as hatcheries, nurseries, feed plants, cold
storage and refrigeration, processing plants and other pre-harvest and post-harvest
facilities.
2. Appropriate Fishing Technology - adaptable technology, both in fishing and ancillary
industries, that is ecologically sound, locally source-based and labor intensive.
3. Aquaculture - fishery operations involving all forms of raising and culturing fish and
other fishery species in fresh, brackish and marine water areas.

4. Aquatic Pollution - the introduction by human or machine, directly or indirectly, of

substances or energy to the aquatic environment which result or is likely to result in such
deleterious effects as to harm living and non-living aquatic resources, pose potential
and/or real hazard to human health, hindrance to aquatic activities such as fishing and
navigation, including dumping/disposal of waste and other marine litters, discharge of
petroleum or residual products of petroleum or carbonaceous materials/substances, and
other, radioactive, noxious or harmful liquid, gaseous or solid substances, from any
water, land or air transport or other human-made structure. Deforestation, unsound
agricultural practices such as the use of banned chemicals and excessive use of
chemicals, intensive use of artificial fish feed, and wetland conversion, which cause
similar hazards and deleterious effects shall also constitute aquatic pollution.
5. Aquatic Resources - includes fish, all other aquatic flora and fauna and other living
resources of the aquatic environment, including, but not limited to, salt and corals.
6. Artificial Reefs - any structure of natural or man-made materials placed on a body of
water to serve as shelter and habitat, source of food, breeding areas for fishery species
and shoreline protection.
7. Catch Ceilings - refer to the annual catch limits allowed to be taken, gathered or
harvested from any fishing area in consideration of the need to prevent overfishing and
harmful depletion of breeding stocks of aquatic organisms.
8. Closed Season - the period during which the taking of specified fishery species by a
specified fishing gear is prohibited in a specified area or areas in Philippine waters.
9. Coastal Area/Zone - is a band of dry land and adjacent ocean space (water and
submerged land. in which terrestrial processes and uses directly affect oceanic
processes and uses, and vice versa; its geographic extent may include areas within a
landmark limit of one (1. kilometer from the shoreline at high tide to include mangrove
swamps, brackish water ponds, nipa swamps, estuarine rivers, sandy beaches and
other areas within a seaward limit of 200 meters isobath to include coral reefs, algal
flats, seagrass beds and other soft-bottom areas.
10. Commercial Fishing - the taking of fishery species by passive or active gear for
trade, business & profit beyond subsistence or sports fishing, to be further classified as:
(1) Small scale commercial fishing - fishing with passive or active gear utilizing
fishing vessels of 3.1 gross tons (GT) up to twenty (20) GT;
(2) Medium scale commercial fishing - fishing utilizing active gears and
vessels of 20.1 GT up to one hundred fifty (150) GT; and
(3) Large commercial fishing - fishing utilizing active gears and vessels of
more than one hundred fifty (150) GT.
11. Commercial Scale - a scheme of producing a minimum harvest per hectare per year
of milkfish or other species including those raised in pens, cages, and tanks to be
determined by the Department in consultation with the concerned sectors;
12. Coral - the hard calcareous substance made up of the skeleton of marine
coelenterate polyps which include reefs, shelves and atolls or any of the marine
coelenterate animals living in colonies where their skeletons form a stony mass. They
include: (a. skeletons of anthozoan coelenterates characterized as having a rigid axis of

compact calcareous or horny spicules, belonging to the genus corallium as represented

by the red, pink, and white corals which are considered precious corals; (b. skeletons of
anthozoan coelenterates characterized by thorny, horny axis such as the antipatharians
represented by the black corals which are considered semi-precious corals; and (c.
ordinary corals which are any kind of corals that are not precious nor semi-precious.

surface or covered and held in a place by wooden/bamboo posts or various types of

anchors and floats.

13. Coral Reef - a natural aggregation of coral skeleton, with or without living coral
polyps, occurring in intertidal and subtidal marine waters.

24. Fish Corral or "Baklad" - a stationary weir or trap devised to intercept and capture
fish consisting of rows of bamboo stakes, plastic nets and other materials fenced with
split blood mattings or wire mattings with one or more enclosures, usually with easy
entrance but difficult exit, and with or without leaders to direct the fish to the catching
chambers, purse or bags.

14. Demarcated Areas - boundaries defined by markers and assigned exclusively to

specific individuals or organizations for certain specified and limited uses such as:

25. Fish fingerlings - a stage in the life cycle of the fish measuring to about 6-13 cm.
depending on the species.

(a) Aquaculture, sea ranching and sea farming;

26. Fish fry - a stage at which a fish has just been hatched usually with sizes from 1-2.5
cm.

(b) Fish aggregating devices;

(c) Fixed and passive fishing gears; and
(d) Fry and fingerlings gathering.

27. Fish pen - an artificial enclosure constructed within a body of water for culturing fish
and fishery/aquatic resources made up of poles closely arranged in an enclosure with
wooden materials, screen or nylon netting to prevent escape of fish.
28. Fisherfolk - people directly or personally and physically engaged in taking and/or
culturing and processing fishery and/or aquatic resources.lawphi1

15. Department - shall mean the Department of Agriculture.

16. Electrofishing - the use of electricity generated by batteries, electric generators and
other source of electric power to kill, stupefy, disable or render unconscious fishery
species, whether or not the same are subsequently recovered.

29. Fisherfolk Cooperative - a duly registered association of fisherfolk with a common

bond of interest, who have voluntarily joined together to achieve a lawful common social
or economic end, making equitable contribution to the capital requirement and accepting
a fair share of the risks and benefits of the undertakings in accordance with universally
accepted cooperative principles.

17. Endangered Rare and/or Threatened Species - aquatic plants, animals, including
some varieties of corals and sea shells in danger of extinction as provided for in existing
fishery laws, rules and regulations or in the Protected Areas and Wildlife Bureau of the
Department of Environment and Natural Resources (DENR. and in the Convention on
the International Trade of Endangered Species of Flora and Fauna (CITES).

30. Fisherfolk Organization - an organized group, association, federation, alliance or an

institution of fisherfolk which has at least fifteen (15. members, a set of officers, a
constitution and by-laws, an organizational structure and a program of action.

18. Exclusive Economic Zone (EEZ. - an area beyond and adjacent to the territorial sea
which shall not extend beyond 200 nautical miles from the baselines as defined under
existing laws.
19. FARMCs - the Fisheries and Aquatic Resources Management Councils.
20. Farm-to-Market Roads - shall include roads linking the fisheries production sites,
coastal landing points and other post-harvest facilities to major market and arterial roads
and highways.
21. Fine Mesh Net - net with mesh size of less than three centimeters (3 cm.. measured
between two (2. opposite knots of a full mesh when stretched or as otherwise
determined by the appropriate government agency.
22. Fish and Fishery/Aquatic Products - include not only finfish but also mollusks,
crustaceans, echinoderms, marine mammals, and all other species of aquatic flora and
fauna and all other products of aquatic living resources in any form.
23. Fish Cage - refers to an enclosure which is either stationary or floating made up of
nets or screens sewn or fastened together and installed in the water with opening at the

31. Fisheries - refers to all activities relating to the act or business of fishing, culturing,
preserving, processing, marketing, developing, conserving and managing aquatic
resources and the fishery areas, including the privilege to fish or take aquatic resource
thereof.
32. Fish Pond - a land-based facility enclosed with earthen or stone material to impound
water for growing fish.
33. Fishing Boat/Gear License - a permit to operate specific types of fishing boat/gear
for specific duration in areas beyond municipal waters for demersal or pelagic fishery
resources.
34. Fishery Management Areas - a bay, gulf, lake or any other fishery area which may
be delineated for fishery resource management purposes.
35. Fishery Operator - one who owns and provides the means including land, labor,
capital, fishing gears and vessels, but does not personally engage in fishery.
36. Fishery Refuge and Sanctuaries - a designated area where fishing or other forms of
activities which may damage the ecosystem of the area is prohibited and human access
may be restricted.

37. Fishery Reserve - a designated area where activities are regulated and set aside for
educational and research purposes.
38. Fishery Species - all aquatic flora and fauna including, but not restricted to, fish,
algae, coelenterates, mollusks, crustaceans, echinoderms and cetaceans.
39. Fishing - the taking of fishery species from their wild state of habitat, with or without
the use of fishing vessels.
40. Fishing gear - any instrument or device and its accessories utilized in taking fish and
other fishery species.
(a) Active fishing gear - is a fishing device characterized by gear movements,
and/or the pursuit of the target species by towing, lifting, and pushing the
gears, surrounding, covering, dredging, pumping and scaring the target
species to impoundments; such as, but not limited to, trawl, purse seines,
Danish seines, bag nets, paaling, drift gill net and tuna longline.
(b) Passive fishing gear - is characterized by the absence of gear movements
and/or the pursuit of the target species; such as, but not limited to, hook and
line, fishpots, traps and gill nets across the path of the fish.
41. Fishing vessel - any boat, ship or other watercraft equipped to be used for taking of
fishery species or aiding or assisting one (1. or more vessels in the performance of any
activity relating to fishing, including, but not limited to, preservation, supply, storage,
refrigeration, transportation and/or processing.
42. Fishing with Explosives - the use of the dynamite, other explosives or other chemical
compounds that contain combustible elements or ingredients which upon ignition by
friction, concussion, percussion or detonation of all or parts of the compound, will kill,
stupefy, disable or render unconscious any fishery species. It also refers to the use of
any other substance and/or device which causes an explosion that is capable of
producing the said harmful effects on any fishery species and aquatic resources and
capable of damaging and altering the natural habitat.
43. Fishing with Noxious or Poisonous Substances - the use of any substance, plant
extracts or juice thereof, sodium cyanide and/or cyanide compounds or other chemicals
either in a raw or processed form, harmful or harmless to human beings, which will kill,
stupefy, disable or render unconscious any fishery species and aquatic resources and
capable of damaging and altering the natural habitat.
44. Fishworker - a person regularly or not regularly employed in commercial fishing and
related industries, whose income is either in wage, profit-sharing or stratified sharing
basis, including those working in fish pens, fish cages, fish corrals/traps, fishponds,
prawn farms, sea farms, salt beds, fish ports, fishing boat or trawlers, or fish processing
and/or packing plants. Excluded from this category are administrators, security guards
and overseers.
45. Food Security - refers to any plan, policy or strategy aimed at ensuring adequate
supplies of appropriate food at affordable prices. Food security may be achieved
through self-sufficiency (i.e. ensuring adequate food supplies from domestic production),
through self-reliance (i.e. ensuring adequate food supplies through a combination of
domestic production and importation), or through pure importation.

46. Foreshore Land - a string of land margining a body of water; the part of a seashore
between the low-water line usually at the seaward margin of a low tide terrace and the
upper limit of wave wash at high tide usually marked by a beach scarp or berm.
47. Fully-developed Fishpond Area - a clean leveled area enclosed by dikes, at least
one foot higher than the highest floodwater level in the locality and strong enough to
resist pressure at the highest flood tide; consists of at least a nursery pond, a transition
pond, a rearing pond or a combination of any or all said classes of ponds, and a
functional water control system and producing in a commercial scale.
48. Gross Tonnage - includes the underdeck tonnage, permanently enclosed spaces
above the tonnage deck, except for certain exemptions. In broad terms, all the vessel's
'closed-in' spaces expressed in volume terms on the bases of one hundred cubic feet
(that equals one gross ton).
49. Inland Fishery - the freshwater fishery and brackishwater fishponds.
50. Lake - an inland body of water, an expanded part of a river, a reservoir formed by a
dam, or a lake basin intermittently or formerly covered by water.
51. Limited Access - a fishery policy by which a system of equitable resource and
allocation is established by law through fishery rights granting and licensing procedure
as provided by this Code.
52. Mangroves - a community of intertidal plants including all species of trees, shrubs,
vines and herbs found on coasts, swamps, or border of swamps.
53. Maximum Sustainable Yield (MSY. - is the largest average quantity of fish that can
be harvested from a fish stocks/resource within a period of time (e.g. one year. on a
sustainable basis under existing environmental conditions.
54. Migratory species - refers to any fishery species which in the course of their life
could travel from freshwater to marine water or vice versa, or any marine species which
travel over great distances in waters of the ocean as part of their behavioral adaptation
for survival and speciation:
(a) Anadromous species - marine fishes which migrate to freshwater areas to
spawn;
(b) Catadromous species - freshwater fishes which migrate to marine areas to
spawn.
55. Monitoring, control and surveillance (a) Monitoring - the requirement of continuously observing: (1) fishing effort
which can be expressed by the number of days or hours of fishing, number of
fishing gears and number of fisherfolk; (2) characteristics of fishery resources;
and (3) resource yields (catch);
(b) Control - the regulatory conditions (legal framework) under which the
exploitation, utilization and disposition of the resources may be conducted;
and

(c) Surveillance - the degree and types of observations required to maintain

compliance with regulations.lawphi1ALF
56. Municipal fisherfolk - persons who are directly or indirectly engaged in municipal
fishing and other related fishing activities.
57. Municipal fishing - refers to fishing within municipal waters using fishing vessels of
three (3. gross tons or less, or fishing not requiring the use of fishing vessels.
58. Municipal waters - include not only streams, lakes, inland bodies of water and tidal
waters within the municipality which are not included within the protected areas as
defined under Republic Act No. 7586 (The NIPAS Law), public forest, timber lands,
forest reserves or fishery reserves, but also marine waters included between two (2.
lines drawn perpendicular to the general coastline from points where the boundary lines
of the municipality touch the sea at low tide and a third line parallel with the general
coastline including offshore islands and fifteen (15. kilometers from such coastline.
Where two (2. municipalities are so situated on opposite shores that there is less than
thirty (30. kilometers of marine waters between them, the third line shall be equally
distant from opposite shore of the respective municipalities.
59. Non-governmental organization (NGO. - an agency, institution, a foundation or a
group of persons whose purpose is to assist peoples organizations/associations in
various ways including, but not limited to, organizing, education, training, research
and/or resource accessing.
60. Payao - a fish aggregating device consisting of a loating raft anchored by a weighted
line with suspended materials such as palm fronds to attract pelagic and schooling
species common in deep waters.
61. Pearl Farm Lease - public waters leased for the purpose of producing cultured
pearls.
62. People's Organization - a bona fide association of citizens with demonstrated
capacity to promote the public interest and with identifiable leadership, membership and
structure. Its members belong to a sector/s who voluntarily band themselves together to
work for and by themselves for their own upliftment, development and greater good.
63. Person - natural or juridical entities such as individuals, associations, partnership,
cooperatives or corporations.
64. Philippine waters - include all bodies of water within the Philippine territory such as
lakes, rivers, streams, creeks, brooks, ponds, swamps, lagoons, gulfs, bays and seas
and other bodies of water now existing or which may hereafter exist in the provinces,
cities, municipalities, and barangays and the waters around, between and connecting
the islands of the archipelago regardless of their breadth and dimensions, the territorial
sea, the sea beds, the insular shelves, and all other waters over which the Philippines
has sovereignty and jurisdiction including the 200-nautical miles Exclusive Economic
Zone and the continental shelf.
65. Post-harvest facilities - these facilities include, but are not limited to, fishport,
fishlanding, ice plants and cold storages, fish processing plants.
66. Purse Seine - a form of encircling net having a line at the bottom passing through
rings attached to the net, which can be drawn or pursed. In general, the net is set from a

boat or pair of boats around the school of fish. The bottom of the net is pulled closed
with the purse line. The net is then pulled aboard the fishing boat or boats until the fish
are concentrated in the bunt or fish bag.
67. Resource Rent - the difference between the value of the products produced from
harvesting a publicly owned resource less the cost of producing it, where cost includes
the normal return to capital and normal return to labor.
68. Sea farming - the stocking of natural or hatchery-produced marine plants or animals,
under controlled conditions, for purposes of rearing and harvesting, but not limited to
commercially-important fishes, mollusks (such as pearl and giant clam culture), including
seaweeds and seagrasses.
69. Sea ranching - the release of the young of fishery species reared in hatcheries and
nurseries into natural bodies of water for subsequent harvest at maturity or the
manipulation of fishery habitat, to encourage the growth of the wild stocks.
70. Secretary - the Secretary of the Department of Agriculture.
71. Superlight - also called magic light, is a type of light using halogen or metal halide
bulb which may be located above the sea surface or submerged in the water. It consists
of a ballast, regulator, electric cable and socket. The source of energy comes from a
generator, battery or dynamo coupled with the main engine.
72. Total Allowable Catch (TAC. - the maximum harvest allowed to be taken during a
given period of time from any fishery area, or from any fishery species or group of
fishery species, or a combination of area and species and normally would not exceed
the MSY.
73. Trawl - an active fishing gear consisting of a bag shaped net with or without otter
boards to open its opening which is dragged or towed along the bottom or through the
water column to take fishery species by straining them from the water, including all
variations and modifications of trawls (bottom, mid-water, and baby trawls) and tow nets.
CHAPTER II
Utilization, Management, Development, Conservation and Allocation System of Fisheries
and Aquatic Resources
Section 5. Use of Philippine Waters. - The use and exploitation of the fishery and aquatic
resources in Philippine waters shall be reserved exclusively to Filipinos: Provided, however, That
research and survey activities may be allowed under strict regulations, for purely research,
scientific, technological and educational purposes that would also benefit Filipino citizens.
Section 6. Fees and Other Fishery Charges. - The rentals for fishpond areas covered by the
Fishpond Lease Agreement (FLA) and license fees for Commercial Fishing Boat Licenses (CFBL)
shall be set at levels that reflect resource rent accruing from the utilization of resources and shall
be determined by the Department: Provided, That the Department shall also prescribe fees and
other fishery charges and issue the corresponding license or permit for fishing gear, fishing
accessories and other fishery activities beyond the municipal waters: Provided, further, That the
license fees of fishery activity in municipal waters shall be determined by the Local Government
Units (LGUs) in consultation with the FARMCs. The FARMCs may also recommend the
appropriate license fees that will be imposed.

Section 7. Access to Fishery Resources. - The Department shall issue such number of licenses
and permits for the conduct of fishery activities subject to the limits of the MSY of the resource as
determined by scientific studies or best available evidence. Preference shall be given to resource
users in the local communities adjacent or nearest to the municipal waters.
Section 8. Catch Ceiling Limitations. - The Secretary may prescribe limitations or quota on the
total quantity of fish captured, for a specified period of time and specified area based on the best
available evidence. Such a catch ceiling may be imposed per species of fish whenever necessary
and practicable: Provided, however, That in municipal waters and fishery management areas, and
waters under the jurisdiction of special agencies, catch ceilings may be established upon the
concurrence and approval or recommendation of such special agency and the concerned LGU in
consultation with the FARMC for conservation or ecological purposes.
Section 9. Establishment of Closed Season. - The Secretary may declare, through public notice
in at least two (2) newspapers of general circulation or in public service announcements,
whichever is applicable, at least five (5) days before the declaration, a closed season in any or all
Philippine waters outside the boundary of municipal waters and in bays, for conservation and
ecological purposes. The Secretary may include waters under the jurisdiction of special agencies,
municipal waters and bays, and/or other areas reserved for the use of the municipal fisherfolk in
the area to be covered by the closed season: Provided, however, That this shall be done only
upon the concurrence and approval or recommendation of such special agency and the concerned
LGU and FARMC: Provided, further, That in municipal waters, fishery management areas and
other areas reserved for the use of the municipal fisherfolk, closed season may be established by
the concerned LGU in consultation with the FARMC for conservation or ecological purposes. The
FARMCs may also recommend the establishment of closed seasons in municipal waters, fisheries
management and other areas reserved for the use of the municipal fisherfolk.
Section 10. Introduction of Foreign Aquatic Species. - No foreign finfish, mollusk, crustacean
or aquatic plants shall be introduced in Philippine waters without a sound ecological, biological and
environmental justification based on scientific studies subject to the bio-safety standard as
provided for by existing laws: Provided, however, That the Department may approve the
introduction of foreign aquatic species for scientific/research purposes.
Section 11. Protection of Rare, Threatened and Endangered Species. - The Department shall
declare closed seasons and take conservation and rehabilitation measures for rare, threatened
and endangered species, as it may determine, and shall ban the fishing and/or taking of rare,
threatened and/or endangered species, including their eggs/offspring as identified by existing laws
in concurrence with concerned government agencies.
Section 12. Environmental Impact Statement (EIS). - All government agencies as well as
private corporations, firms and entities who intend to undertake activities or projects which will
affect the quality of the environment shall be required to prepare a detailed Environmental Impact
Statement (EIS) prior to undertaking such development activity. The preparation of the EIS shall
form an integral part of the entire planning process pursuant to the provisions of Presidential
Decree No. 1586 as well as its implementing rules and regulations.
Section 13. Environmental Compliance Certificate (ECC). - All Environmental Impact
Statements (EIS) shall be submitted to the Department of Environment and Natural Resources
(DENR) for review and evaluation. No person, natural or juridical, shall undertake any
development project without first securing an Environmental Compliance Certificate (ECC) from
the Secretary of the DENR.
Section 14. Monitoring, Control and Surveillance of Philippine Waters. - A monitoring, control
and surveillance system shall be established by the Department in coordination with LGUs,
FARMCs, the private sector and other agencies concerned to ensure that the fisheries and aquatic

resources in Philippine waters are judiciously and wisely utilized and managed on a sustainable
basis and conserved for the benefit and enjoyment exclusively of Filipino citizens.
Section 15. Auxiliary Invoices. - All fish and fishery products must have an auxiliary invoice to be
issued by the LGUs or their duly authorized representatives prior to their transport from their point
of origin to their point of destination in the Philippines and/or export purposes upon payment of a
fee to be determined by the LGUs to defray administrative costs therefor.

ARTICLE I
MUNICIPAL FISHERIES
Section 16. Jurisdiction of Municipal/City Government. - The municipal/city government shall
have jurisdiction over municipal waters as defined in this Code. The municipal/city government, in
consultation with the FARMC shall be responsible for the management, conservation,
development, protection, utilization, and disposition of all fish and fishery/aquatic resources within
their respective municipal waters.
The municipal/city government may, in consultation with the FARMC, enact appropriate ordinances
for this purpose and in accordance with the National Fisheries Policy. The ordinances enacted by
the municipality and component city shall be reviewed pursuant to Republic Act No. 7160 by the
sanggunian of the province which has jurisdiction over the same.
The LGUs shall also enforce all fishery laws, rules and regulations as well as valid fishery
ordinances enacted by the municipal/city council.
The management of contiguous fishery resources such as bays which straddle several
municipalities, cities or provinces, shall be done in an integrated manner, and shall not be based
on political subdivisions of municipal waters in order to facilitate their management as single
resource systems. The LGUs which share or border such resources may group themselves and
coordinate with each other to achieve the objectives of integrated fishery resource management.
The Integrated Fisheries and Aquatic Resources Management Councils (FARMCs) established
under Section 76 of this Code shall serve as the venues for close collaboration among LGUs in the
management of contiguous resources.
Section 17. Grant of Fishing Privileges in Municipal Waters. - The duly registered fisherfolk
organizations/cooperatives shall have preference in the grant of fishery rights by the Municipal/City
Council pursuant to Section 149 of the Local Government Code: Provided, That in areas where
there are special agencies or offices vested with jurisdiction over municipal waters by virtue of
special laws creating these agencies such as, but not limited to, the Laguna Lake Development
Authority and the Palawan Council for Sustainable Development, said offices and agencies shall
continue to grant permits for proper management and implementation of the aforementioned
structures.
Section 18. Users of Municipal Waters. - All fishery related activities in municipal waters, as
defined in this Code, shall be utilized by municipal fisherfolk and their cooperatives/organizations
who are listed as such in the registry of municipal fisherfolk.
The municipal or city government, however, may, through its local chief executive and acting
pursuant to an appropriate ordinance, authorize or permit small and medium commercial fishing
vessels to operate within the ten point one (10.1) to fifteen (15) kilometer area from the shoreline
in municipal waters as defined herein, provided, that all the following are met:

(a) no commercial fishing in municipal waters with depth less than seven (7) fathoms as
certified by the appropriate agency;
(b) fishing activities utilizing methods and gears that are determined to be consistent
with national policies set by the Department;
(c) prior consultation, through public hearing, with the M/CFARMC has been conducted;
and
(d) the applicant vessel as well as the shipowner, employer, captain and crew have been
certified by the appropriate agency as not having violated this Code, environmental laws
and related laws.
In no case shall the authorization or permit mentioned above be granted for fishing in bays as
determined by the Department to be in an environmentally critical condition and during closed
season as provided for in Section 9 of this Code.
Section 19. Registry of Municipal Fisherfolk. - The LGU shall maintain a registry of municipal
fisherfolk, who are fishing or may desire to fish in municipal waters for the purpose of determining
priorities among them, of limiting entry into the municipal waters, and of monitoring fishing
activities an/or other related purposes: Provided, That the FARMC shall submit to the LGU the list
of priorities for its consideration.
Such list or registry shall be updated annually or as may be necessary, and shall be posted in
barangay halls or other strategic locations where it shall be open to public inspection, for the
purpose of validating the correctness and completeness of the list. The LGU, in consultation with
the FARMCs, shall formulate the necessary mechanisms for inclusion or exclusion procedures that
shall be most beneficial to the resident municipal fisherfolk. The FARMCs may likewise
recommend such mechanisms.
The LGUs shall also maintain a registry of municipal fishing vessels by type of gear and other boat
particulars with the assistance of the FARMC.
Section 20. Fisherfolk Organizations and/or Cooperatives. - Fisherfolk
organizations/cooperatives whose members are listed in the registry of municipal fisherfolk, may
be granted use of demarcated fishery areas to engage in fish capture, mariculture and/or fish
farming: Provided, however, That an organization/cooperative member whose household is
already in possession of a fishery right other than for fish capture cannot enjoy the fishing rights
granted to the organization or cooperative.

Section 24. Support to Municipal Fisherfolk. - The Department and the LGUs shall provide
support to municipal fisherfolk through appropriate technology and research, credit, production and
marketing assistance and other services such as, but not limited to training for
additional/supplementary livelihood.
Section 25. Rights and Privileges of Fishworkers. - The fishworkers shall be entitled to the
privileges accorded to other workers under the Labor Code, Social Security System and other
benefits under other laws or social legislation for workers: Provided, That fishworkers on board any
fishing vessels engaged in fishing operations are hereby covered by the Philippine Labor Code, as
amended.
ARTICLE II
COMMERCIAL FISHERIES
Section 26. Commercial Fishing Vessel License and Other Licenses. - No person shall
operate a commercial fishing vessel, pearl fishing vessel or fishing vessel for scientific, research or
educational purposes, or engage in any fishery activity, or seek employment as a fishworker or
pearl diver without first securing a license from the Department, the period of which shall be
prescribed by the Department: Provided, That no such license shall be required of a fishing vessel
engaged in scientific, research or educational purposes within Philippine waters pursuant to an
international agreement of which the Philippines is a signatory and which agreement defines the
status, privileges and obligations of said vessel and its crew and the non-Filipino officials of the
international agency under which said vessel operates: Provided, further, That members of the
crew of a fishing vessel used for commercial fishing except the duly licensed and/or authorized
patrons, marine engineers, radio operators and cooks shall be considered as fisherfolk: Provided,
furthermore, That all skippers/master fishers shall be required to undertake an orientation training
on detection of fish caught by illegal means before they can be issued their fishworker licenses:
Provided, finally, That the large commercial fishing vessels license herein authorized to be granted
shall allow the licensee to operate only in Philippine waters seven (7) or more fathoms deep, the
depth to be certified by the NAMRIA, and subject to the conditions that may be stated therein and
the rules and regulations that may be promulgated by the Department.
Section 27. Persons Eligible for Commercial Fishing Vessel License. - No commercial fishing
vessel license shall be issued except to citizens of the Philippines, partnerships or to associations,
cooperatives or corporations duly registered in the Philippines at least sixty percent (60%) of the
capital stock of which is owned by Filipino citizens. No person to whom a license has been issued
shall sell, transfer or assign, directly or indirectly, his stock or interest therein to any person not
qualified to hold a license. Any such transfer, sale or assignment shall be null and void and shall
not be registered in the books of the association, cooperative or corporation.

Section 21. Priority of Resident Municipal Fisherfolk. - Resident municipal fisherfolk of the
municipality concerned and their organizations/cooperatives shall have priority to exploit municipal
and demarcated fishery areas of the said municipality.

For purposes of commercial fishing, fishing vessels owned by citizens of the Philippines,
partnerships, corporations, cooperatives or associations qualified under this section shall secure
Certificates of Philippine Registry and such other documents as are necessary for fishing
operations from the concerned agencies: Provided, That the commercial fishing vessel license
shall be valid for a period to be determined by the Department.

Section 22. Demarcated Fishery Right. - The LGU concerned shall grant demarcated fishery
rights to fishery organizations/cooperatives for mariculture operation in specific areas identified by
the Department.

Section 28. Commercial Fishing Vessel Registration. - The registration, documentation,

inspection and manning of the operation of all types of fishing vessels plying Philippine waters
shall be in accordance with laws, rules and regulations.

Section 23. Limited Entry Into Overfished Areas. - Whenever it is determined by the LGUs and
the Department that a municipal water is overfished based on available data or information or in
danger of being overfished, and that there is a need to regenerate the fishery resources in that
water, the LGU shall prohibit or limit fishery activities in the said waters.

Section 29. Registration and Licensing of Fishing Gears Used in Commercial Fishing. Before a commercial fishing vessel holding a commercial fishing vessel license may begin fishing
operations in Philippine waters, the fishing gear it will utilize in fishing shall be registered and a
license granted therefor. The Department shall promulgate guidelines to implement this provision
within sixty (60) days from approval of this Code.

Section 30. Renewal of Commercial Boat License. - The commercial fishing boat license shall
be renewed every three (3) years.
The owner/operator of a fishing vessel has a period of sixty (60) days prior to the expiration of the
license within which to renew the same.
Section 31. Report of Transfer of Ownership. - The owner/operator of a registered fishing
vessel shall notify the Department in writing of the transfer of the ownership of the vessel with a
copy of such document within ten (10) days after its transfer to another person.
Section 32. Fishing by Philippine Commercial Fishing Fleet in International Waters. - Fishing
vessels of Philippine registry may operate in international waters or waters of other countries
which allow such fishing operations: Provided, That they comply with the safety, manning and
other requirements of the Philippine Coast Guard, Maritime Industry Authority and other agencies
concerned: Provided, however, That they secure an international fishing permit and certificate of
clearance from the Department: Provided, further, That the fish caught by such vessels shall be
considered as caught in Philippine waters and therefore not subject to all import duties and taxes
only when the same is landed in duly designated fish landings and fish ports in the Philippines:
Provided, furthermore, That landing ports established by canneries, seafood processors and all
fish landing sites established prior to the effectivity of this Code shall be considered authorized
landing sites: Provided, finally, That fishworkers on board Philippine registered fishing vessels
conducting fishing activities beyond the Philippine Exclusive Economic Zone are not considered as
overseas Filipino workers.
Section 33. Importation of Fishing Vessels or Construction of New Fishing Boats. - Prior to
the importation of fishing vessels and the construction of new fishing vessels, the
approval/clearance of the Department must first be obtained.
Section 34. Incentives for Municipal and Small-Scale Commercial Fisherfolk. - Municipal and
small-scale commercial fisherfolk shall be granted incentives which shall include, but are not
limited to, the following:
(a) at least ten percent (10%) of the credit and the guarantee funds of government
financing institutions shall be made available for post-harvest and marketing projects for
the purpose of enhancing our fisherfolk competitiveness by reducing post-harvest
losses. Qualified projects shall include, but shall not be limited to, ice plants, cold
storage, canning, warehouse, transport and other related infrastructure projects and
facilities; and
(b) the Department shall undertake the following programs:
1. a capability-building program for targeted parties shall be developed by the
Department to promote greater bankability and credit worthiness of municipal
and small-scale commercial fishers. Such program shall include organizing
activities, technology transfer, and skills training related to commercial fishing
as well as credit management. Groups and cooperatives organized under the
program shall have priority access over credit and guarantee funds
established under this Code; and
2. an information campaign shall be conducted to promote the capability
building and credit programs. The campaign shall ensure greater information
dissemination and accessibility to targeted fisherfolk.
Section 35. Incentives for Commercial Fishers to Fish Farther into the Exclusive Economic
Zone. - In order to encourage fishing vessel operators to fish farther in the EEZ and beyond, new

incentives for improvement of fishing vessels and acquisition of fishing equipment shall be granted
in addition to incentives already available from the Board of Investments (BOI). Such incentives
shall be granted subject to exhaustive evaluation of resource and exploitation conditions in the
specified areas of fishing operations. The incentive shall include, but not be limited to:
(a) long term loans supported by guarantee facilities to finance the building and
acquisition and/or improvement of fishing vessels and equipment;
(b) commercial fishing vessel operators of Philippine registry shall enjoy a limited period
of tax and duty exemptions on the importation of fishing vessels not more than five (5)
years old, equipment and paraphernalia, the period of exemption and guidelines shall be
fixed by the Department within ninety (90) days from the effectivity of this Code;
(c) commercial fishing operator of Philippine registry engaged in fisheries in the high
seas shall be entitled to duty and tax rebates on fuel consumption for commercial
fisheries operations. Guidelines shall be promulgated within ninety (90) days from the
effectivity of this Code by the Department; and
(d) all applicable incentives available under the Omnibus Investment Code of 1987:
Provided, That the fishing operation project is qualified for registration and is duly
registered with the BOI.
Section 36. Complement of Fishing Vessels. - Every commercial fishing vessel of Philippine
registry when actually operated, shall be manned in accordance with the requirements of the
Philippine Merchant Marine rules and regulations.
Section 37. Medical Supplies and Life-Saving Devices. - All fishing vessels shall be provided
with adequate medical supplies and life-saving devices to be determined by the Occupational
Safety and Health Center: Provided, That a fishing vessel of twenty (20) GT or more shall have as
a member of its crew a person qualified as a first aider duly certified by the Philippine National Red
Cross.
Section 38. Reportorial Requirements. - Each commercial fishing vessel shall keep a daily
record of fish catch and spoilage, landing points, and quantity and value of fish caught, and offloaded for transshipment, sale and/or other disposal. Detailed information shall be duly certified by
the vessel's captain and transmitted monthly to the officer or representative of the Department, at
the nearest designated landing point.
Section 39. Report of Meteorological and Other Data. - All vessels and crafts passing
navigational lanes or engaged in fisheries activity shall be required to contribute to meteorological
and other data, and shall assist the Department in documentation or reporting of information vital
to navigation and the fishing industry.
Section 40. Color Code and Radio Frequency. - For administrative efficiency and enforcement
of regulations, registered fishing vessels shall bear a color code as may be determined by the
Department and may be assigned a radio frequency specific and distinct to its area of operation.
Section 41. Passage. - Commercial and other passage not in the regular conduct of fisheries
activity shall be made at designated navigational lanes.
Section 42. Transshipment. - Foreign fishing vessels wishing to avail of land, air and sea
facilities available in the Philippines to transport fishery products which are caught outside
Philippine territorial waters to its final destination shall call only at duly designated governmentowned or -controlled regional fishport complexes after securing clearance from the Department.

Section 43. Operation of Radio Communication Facilities on Board Fishing Vessels. - The
Department shall promulgate guidelines in the operation of radio communication facilities on board
fishing vessels and the assignment of radio frequencies specific and distinct to area of operation in
coordination with the National Telecommunications Commission.
Section 44. Use of Superlight. - The number and wattage of superlights used in commercial
fishing vessels shall be regulated by the Department: Provided, That the use of superlights is
banned within municipal waters and bays.
ARTICLE III
AQUACULTURE
Section 45. Disposition of Public Lands for Fishery Purposes. - Public lands such as tidal
swamps, mangroves, marshes, foreshore lands and ponds suitable for fishery operations shall not
be disposed or alienated. Upon effectivity of this Code, FLA may be issued for public lands that
may be declared available for fishpond development primarily to qualified fisherfolk
cooperatives/associations: Provided, however, That upon the expiration of existing FLAs the
current lessees shall be given priority and be entitled to an extension of twenty-five (25) years in
the utilization of their respective leased areas. Thereafter, such FLAs shall be granted to any
Filipino citizen with preference, primarily to qualified fisherfolk cooperatives/associations as well as
small and medium enterprises as defined under Republic Act No. 8289: Provided, further, That the
Department shall declare as reservation, portions of available public lands certified as suitable for
fishpond purposes for fish sanctuary, conservation, and ecological purposes: Provided, finally, That
two (2) years after the approval of this Act, no fish pens or fish cages or fish traps shall be allowed
in lakes.
Section 46. Lease of Fishponds. - Fishpond leased to qualified persons and fisherfolk
organizations/cooperatives shall be subject to the following conditions:
(a) Areas leased for fishpond purposes shall be no more than 50 hectares for individuals
and 250 hectares for corporations or fisherfolk organizations;
(b) The lease shall be for a period of twenty-five (25) years and renewable for another
twenty-five (25) years: Provided, That in case of the death of the lessee, his spouse
and/or children, as his heirs, shall have preemptive rights to the unexpired term of his
Fishpond Lease Agreement subject to the same terms and conditions provided herein
provided that the said heirs are qualified;
(c) Lease rates for fishpond areas shall be determined by the Department: Provided,
That all fees collected shall be remitted to the National Fisheries Research and
Development Institute and other qualified research institutions to be used for
aquaculture research development;
(d) The area leased shall be developed and producing on a commercial scale within
three (3) years from the approval of the lease contract: Provided, however, That all
areas not fully producing within five (5) years from the date of approval of the lease
contract shall automatically revert to the public domain for reforestation;
(e) The fishpond shall not be subleased, in whole or in part, and failure to comply with
this provision shall mean cancellation of FLA;
(f) The transfer or assignment of rights to FLA shall be allowed only upon prior written
approval of the Department;

(g) The lessee shall undertake reforestation for river banks, bays, streams, and
seashore fronting the dike of his fishpond subject to the rules and regulations to be
promulgated thereon; and
(h) The lessee shall provide facilities that will minimize environmental pollution, i.e.,
settling ponds, reservoirs, etc: Provided, That failure to comply with this provision shall
mean cancellation of FLA.
Section 47. Code of Practice for Aquaculture. - The Department shall establish a code of
practice for aquaculture that will outline general principles and guidelines for environmentallysound design and operation to promote the sustainable development of the industry. Such Code
shall be developed through a consultative process with the DENR, the fishworkers, FLA holders,
fishpond owners, fisherfolk cooperatives, small-scale operators, research institutions and the
academe, and other potential stakeholders. The Department may consult with specialized
international organizations in the formulation of the code of practice.
Section 48. Incentives and Disincentives for Sustainable Aquaculture Practices. - The
Department shall formulate incentives and disincentives, such as, but not limited to, effluent
charges, user fees and negotiable permits, to encourage compliance with the environmental
standards and to promote sustainable management practices.
Section 49. Reversion of All Abandoned, Undeveloped or Underutilized Fishponds. - The
DENR, in coordination with the Department, LGUs, other concerned agencies and FARMCs shall
determine which abandoned, underdeveloped or underutilized fishponds covered by FLAs can be
reverted to their original mangrove state and after having made such determination shall take all
steps necessary to restore such areas in their original mangrove state.
Section 50. Absentee Fishpond Lease Agreement Holders. - Holders of fishpond lease
agreements who have acquired citizenship in another country during the existence of the FLA shall
have their lease automatically cancelled and the improvements thereon to be forfeited in favor of
the government and disposed of in accordance with rules and regulations promulgated thereon.
Section 51. License to Operate Fish Pens, Fish Cages, Fish Traps and Other Structures for
the Culture of Fish and Other Fishery Products. - Fish pens, fish cages, fish traps and other
structures for the culture of fish and other fishery products shall be constructed and shall operate
only within established zones duly designated by LGUs in consultation with the FARMCs
concerned consistent with national fisheries policies after the corresponding licenses thereof have
been secured. The area to be utilized for this purpose for individual person shall be determined by
the LGUs in consultation with the concerned FARMC: Provided, however, That not over ten
percent (10%) of the suitable water surface area of all lakes and rivers shall be allotted for
aquaculture purposes like fish pens, fish cages and fish traps; and the stocking density and
feeding requirement which shall be controlled and determined by its carrying capacity: Provided,
further, That fish pens and fish cages located outside municipal waters shall be constructed and
operated only within fish pen and fish cage belts designated by the Department and after
corresponding licenses therefor have been secured and the fees thereof paid.
Section 52. Pearl Farm Leases. - The foregoing provisions notwithstanding, existing pearl farm
leases shall be respected and allowed to operate under the terms thereof. New leases may be
granted to qualified persons who possess the necessary capital and technology, by the LGUs
having jurisdiction over the area.
Section 53. Grant of Privileges for Operations of Fish Pens, Cages, Corrals/Traps and
Similar Structures. - No new concessions, licenses, permits, leases and similar privileges for the
establishment or operation of fish pens, fish cages, fish corrals/traps and other similar structures in
municipal areas shall be granted except to municipal fisherfolk and their organizations.

Section 54. Insurance for Fishponds, Fish Cages and Fish Pens. - Inland fishponds, fish
cages and fish pens shall be covered under the insurance program of the Philippine Crop
Insurance Corporation for losses caused by force majeure and fortuitous events.
Section 55. Non-Obstruction to Navigation. - Nothing in the foregoing sections shall be
construed as permitting the lessee, licensee, or permittee to undertake any construction which will
obstruct the free navigation in any stream, river, lakes, or bays flowing through or adjoining the fish
pens, fish cages, fish traps and fishponds, or impede the flow of the tide to and from the area. Any
construction made in violation hereof shall be removed upon the order of the Department in
coordination with the other government agencies concerned at the expense of the lessee,
licensee, or occupants thereof, whenever applicable. The Department shall within thirty (30) days
after the effectivity of this Code formulate and implement rules and regulations for the immediate
dismantling of existing obstruction to navigation.
Section 56. Non-Obstruction to Defined Migration Paths. - Nothing in the foregoing sections
shall be construed as permitting the lessee, permittee, or licensee to undertake any construction
which will obstruct any defined migration path of migratory fish species such as river mouths and
estuaries with a distance determined by the concerned LGUs in consultation with and upon the
recommendation of the FARMCs.
Section 57. Registration of Fish Hatcheries and Private Fishponds, etc. - All fish hatcheries,
fish breeding facilities and private fishponds must be registered with the LGUs which shall
prescribe minimum standards for such facilities in consultation with the Department: Provided,
That the Department shall conduct a yearly inventory of all fishponds, fish pens and fish cages
whether in public or private lands: Provided, further, That all fishpond, fish pens and fish cage
operators shall annually report to the Department the type of species and volume of production in
areas devoted to aquaculture.
ARTICLE IV
POST-HARVEST FACILITIES, ACTIVITIES AND TRADES
Section 58. Comprehensive Post-harvest and Ancillary Industries Plan. - The Department
shall conduct a regular study of fisheries post-harvest operations and ancillary industries, in the
formulation of a comprehensive plan for post-harvest and ancillary industries. It shall take into
account among others, the following:
(a) detailed and clear guidelines on the distribution, construction, maintenance and use
of post-harvest infrastructure facilities;
(b) extension of credit and incentives for post-harvest operations;
(c) promotion and strengthening of semi-processing, processing and handling;
(d) development of domestic fishmeal industry;
(e) development of fisheries ship-building and repair as a viable industry;
(f) development and strengthening of marketing facilities and activities, including the
pricing system, with emphasis on collective marketing and the elimination of middlemen;
(g) increased participation of cooperatives and non-governmental organizations in postharvest operations and ancillary industries; and

(h) integration of fisheries post-harvest operations into the national fisheries plan.
Section 59. Establishment of Post-Harvest Facilities for Fishing Communities. - The LGUs
shall coordinate with the private sector and other concerned agencies and FARMCs in the
establishment of post-harvest facilities for fishing communities such as, but not limited to,
municipal fish landing sites, fish ports, ice plants and cold storage and other fish processing
establishments to serve primarily the needs of municipal fisherfolk: Provided, That such postharvest facilities shall be consistent with the Comprehensive Post-harvest and Ancillary Industries
Plan.
Section 60. Registration and Licensing of all Post-Harvest Facilities. - All post-harvest
facilities such as fish processing plants, ice plants, and cold storages, fish ports/landings and other
fishery business establishments must register with and be licensed by the LGUs which shall
prescribe minimum standards for such facilities in consultation with the Department.
Section 61. Importation and Exportation of Fishery Products. (a) Export of fishery products shall be regulated whenever such exportation affects
domestic food security and production: Provided, That exportation of live fish shall be
prohibited except those which are hatched or propagated in accredited hatcheries and
ponds;
(b) To protect and maintain the local biodiversity or ensure the sufficiency of domestic
supply, spawners, breeders, eggs and fry of bangus, prawn and other endemic species,
as may be determined by the Department, shall not be exported or caused to be
exported by any person;
(c) Fishery products may be imported only when the importation has been certified as
necessary by the Department in consultation with the FARMC, and all the requirements
of this Code, as well as all existing rules and regulations have been complied with:
Provided, That fish imports for canning/processing purposes only may be allowed
without the necessary certification, but within the provisions of Section 61(d) of this
Code; and
(d) No person, shall import and/or export fishery products of whatever size, stage or
form for any purpose without securing a permit from the Department.
The Department in consultation with the FARMC shall promulgate rules and regulations on
importation and exportation of fish and fishery/aquatic resources with the Government's
export/import simplification procedures.
Section 62. Instruments of Weights and Measures, and Quality Grades/Standards. Standards for weights, volume and other measurements for all fishery transactions shall be set by
the Department.
All fish and fishery products for export, import and domestic consumption shall meet the quality
grades/standards as determined by the Department.
The LGU concerned shall, by appropriate ordinance, penalize fraudulent practices and unlawful
possession or use of instruments of weights and measures.
CHAPTER III
Reconstitution of The Bureau of Fisheries and Aquatic Resources and Creation of Fisheries
and Aquatic Resources Management Councils

ARTICLE I
RECONSTITUTION OF THE BUREAU OF FISHERIES AND AQUATIC RESOURCES
Section 63. Creation of the Position of Undersecretary for Fisheries and Aquatic
Resources. - There is hereby created in the Department of Agriculture the position of
Undersecretary for Fisheries and Aquatic Resources, solely for the purpose of attending to the
needs of the fishing industry, to be appointed by the President. Such Undersecretary shall have
the following functions:
(a) set policies and formulate standards for the effective, efficient and economical
operations of the fishing industry in accordance with the programs of the government;
(b) exercise overall supervision over all functions and activities of all offices and
instrumentalities and other offices related to fisheries including its officers;
(c) establish, with the assistance of the director, such regional, provincial and other
fishery officers as may be necessary and appropriate and organize the internal structure
of BFAR in such manner as is necessary for the efficient and effective attainment of its
objectives and purposes; and
(d) perform such other functions as may be necessary or proper to attain the objectives
of this Code.
Section 64. Reconstitution of the BFAR. - The Bureau of Fisheries and Aquatic Resources
(BFAR) is hereby reconstituted as a line bureau under the Department of Agriculture.
Section 65. Functions of the Bureau of Fisheries and Aquatic Resources. - As a line bureau,
the BFAR shall have the following functions:
(a) prepare and implement a Comprehensive National Fisheries Industry Development
Plan;
(b) issue licenses for the operation of commercial fishing vessels;
(c) issue identification cards free of charge to fishworkers engaged in commercial
fishing;
(d) monitor and review joint fishing agreements between Filipino citizens and foreigners
who conduct fishing activities in international waters, and ensure that such agreements
are not contrary to Philippine commitment under international treaties and convention on
fishing in the high seas;
(e) formulate and implement a Comprehensive Fishery Research and Development
Program, such as, but not limited to, sea farming, sea ranching, tropical/ornamental fish
and seaweed culture, aimed at increasing resource productivity, improving resource use
efficiency, and ensuring the long-term sustainability of the country's fishery and aquatic
resources;
(f) establish and maintain a Comprehensive Fishery Information System;
(g) provide extensive development support services in all aspects of fisheries
production, processing and marketing;

(h) provide advisory services and technical assistance on the improvement of quality of
fish from the time it is caught (i.e. on board fishing vessel, at landing areas, fish markets,
to the processing plants and to the distribution and marketing chain);
(i) coordinate efforts relating to fishery production undertaken by the primary fishery
producers, LGUs, FARMCs, fishery and organizations/cooperatives;
(j) advise and coordinate with LGUs on the maintenance of proper sanitation and
hygienic practices in fish markets and fish landing areas;
(k) establish a corps of specialists in collaboration with the Department of National
Defense, Department of the Interior and Local Government, Department of Foreign
Affairs for the efficient monitoring, control and surveillance of fishing activities within
Philippine territorial waters and provide the necessary facilities, equipment and training
therefor;
(l) implement an inspection system for import and export of fishery/aquatic products and
fish processing establishments, consistent with international standards to ensure
product quality and safety;
(m) coordinate with LGUs and other concerned agencies for the establishment of
productivity enhancing and market development programs in fishing communities to
enable women to engage in other fisheries/economic activities and contribute
significantly to development efforts;
(n) enforce all laws, formulate and enforce all rules and regulations governing the
conservation and management of fishery resources, except in municipal waters, and to
settle conflicts of resource use and allocation in consultation with the NFARMC, LGUs
and local FARMCs;
(o) develop value-added fishery-products for domestic consumption and
export;lawphi1
(p) recommend measures for the protection/enhancement of the fishery industries;
(q) assist the LGUs in developing their technical capability in the development,
management, regulation, conservation, and protection of the fishery resources;
(r) formulate rules and regulations for the conservation and management of straddling
fish stocks and highly migratory fish stocks; and
(s) perform such other related functions which shall promote the development,
conservation, management, protection and utilization of fisheries and aquatic resources.
Section 66. Composition of BFAR. - As a line bureau, the BFAR shall be headed by a Director
and assisted by two (2) Assistant Directors who shall supervise the administrative and technical
services of the bureau respectively. It shall establish regional, provincial and municipal offices as
may be appropriate and necessary to carry out effectively and efficiently the provisions of this
Code.
Section 67. Fisheries Inspection and Quarantine Service. - For purposes of monitoring and
regulating the importation and exportation of fish and fishery/aquatic resources, the Fisheries

Inspection and Quarantine Service in the BFAR is hereby strengthened and shall have the
following functions:
(a) conduct fisheries quarantine and quality inspection of all fish and fishery/aquatic
products coming into and going out of the country by air or water transport, to detect the
presence of fish pest and diseases and if found to harbor fish pests or diseases shall be
confiscated and disposed of in accordance with environmental standards and practices;
(b) implement international agreements/commitments on bio-safety and bio-diversity as
well as prevent the movement or trade of endemic fishery and aquatic resources to
ensure that the same are not taken out of the country;
(c) quarantine such aquatic animals and other fishery products determined or suspected
to be with fishery pests and diseases and prevent the movement or trade from and/or
into the country of these products so prohibited or regulated under existing laws, rules
and regulations as well as international agreements of which the Philippines is a State
Party;
(d) examine all fish and fishery products coming into or going out of the country which
may be a source or medium of fish pests or diseases and/or regulated by existing
fishery regulations and ensure that the quality of fish import and export meet
international standards; and
(e) document and authorize the movement or trade of fish and fishery products when
found free of fish pests or diseases and collect necessary fees prescribed by law and
regulations.
ARTICLE II
THE FISHERIES AND AQUATIC RESOURCES MANAGEMENT COUNCILS (FARMCs)
Section 68. Development of Fisheries and Aquatic Resources in Municipal Waters and
Bays. - Fisherfolk and their organizations residing within the geographical jurisdiction of the
barangays, municipalities or cities with the concerned LGUs shall develop the fishery/aquatic
resources in municipal waters and bays.
Section 69. Creation of Fisheries and Aquatic Resources Management Councils
(FARMCs). - FARMCs shall be established in the national level and in all municipalities/cities
abutting municipal waters as defined by this Code. The FARMCs shall be formed by fisherfolk
organizations/cooperatives and NGOs in the locality and be assisted by the LGUs and other
government entities. Before organizing FARMCs, the LGUs, NGOs, fisherfolk, and other
concerned POs shall undergo consultation and orientation on the formation of FARMCs.
Section 70. Creation and Composition of the National Fisheries and Aquatic Resources
Management Council (NFARMC). - There is hereby created a National Fisheries and Aquatic
Resources Management Council hereinafter referred to as NFARMC as an
advisory/recommendatory body to the Department. The NFARMC shall be composed of fifteen
(15) members consisting of:
(a) the Undersecretary of Agriculture, as Chairman;
(b) the Undersecretary of the Interior and Local Government;
(c) five (5) members representing the fisherfolk and fishworkers;

(d) five (5) members representing commercial fishing and aquaculture operators and the
processing sectors;
(e) two (2) members from the academe; and
(f) one (1) representative of NGOs involved in fisheries.
The members of the NFARMC, except for the Undersecretary of Agriculture and the
Undersecretary of the Interior and Local Government, shall be appointed by the President upon
the nomination of their respective organizations.
Section 71. Terms of Office. - The members of NFARMC, except the Undersecretary of
Agriculture and the Undersecretary of the Interior and Local Government, shall serve for a term of
three (3) years without reappointment.
Section 72. Functions of the NFARMC. - The NFARMC shall have the following functions:
(a) assist in the formulation of national policies for the protection, sustainable
development and management of fishery and aquatic resources for the approval of the
Secretary;
(b) assist the Department in the preparation of the National Fisheries and Industry
Development Plan; and
(c) perform such other functions as may be provided by law.
Section 73. The Municipal/City Fisheries and Aquatic Resources Management Councils
(M/CFARMCs). - The M/CFARMCs shall be created in each of the municipalities and cities
abutting municipal waters. However, the LGU may create the Barangay Fisheries and Aquatic
Resources Management Councils (BFARMCs) and the Lakewide Fisheries and Aquatic Resources
Management Councils (LFARMCs) whenever necessary. Such BFARMCs and LFARMCs shall
serve in an advisory capacity to the LGUs.
Section 74. Functions of the M/CFARMCs. - The M/CFARMCs shall exercise the following
functions:
(a) assist in the preparation of the Municipal Fishery Development Plan and submit such
plan to the Municipal Development Council;
(b) recommend the enactment of municipal fishery ordinances to the sangguniang
bayan/sangguniang panlungsod through its Committee on Fisheries;
(c) assist in the enforcement of fishery laws, rules and regulations in municipal waters;
(d) advise the sangguniang bayan/panlungsod on fishery matters through its Committee
on Fisheries, if such has been organized; and
(e) perform such other functions which may be assigned by the sangguniang
bayan/panlungsod.

Section 75. Composition of the M/CFARMC . - The regular member of the M/CFARMCs shall be
composed of:

(c) the Municipal/City Development Officers of the concerned municipalities/cities;

(d) one (1) representative from NGO;

(a) Municipal/City Planning Development Officer;

(e) one (1) representative from private sector; and
(b) Chairperson, Agriculture/Fishery Committee of the Sangguniang Bayan/Panlungsod;
(c) representative of the Municipal/City Development Council;

(f) at least nine (9) representatives from the fisherfolk sector which include
representatives from the youth and women sector.

(d) representative from the accredited non-government organization;

The Council shall adopt rules and regulations necessary to govern its proceedings and election.

(e) representative from the private sector;

Section 79. Source of Funds of the FARMCs. - A separate fund for the NFARMC, IFARMCs and
M/CFARMCs shall be established and administered by the Department from the regular annual
budgetary appropriations.

(f) representative from the Department of Agriculture; and

(g) at least eleven (11) fisherfolk representatives (seven (7) municipal fisherfolk, one (1)
fishworker and three (3) commercial fishers) in each municipality/city which include
representative from youth and women sector.
The Council shall adopt rules and regulations necessary to govern its proceedings and election.
Section 76. The Integrated Fisheries and Aquatic Resources Management Councils
(IFARMCs). - The IFARMCs shall be created in bays, gulfs, lakes and rivers and dams bounded
by two (2) or more municipalities/cities.
Section 77. Functions of the IFARMCs. - The IFARMC shall have the following functions:
(a) assist in the preparation of the Integrated Fishery Development Plan and submit
such plan to the concerned Municipal Development Councils;
(b) recommend the enactment of integrated fishery ordinances to the concerned
sangguniang bayan/panlungsod through its Committee on Fisheries, if such has been
organized;
(c) assist in the enforcement of fishery laws, rules and regulations in concerned
municipal waters;
(d) advice the concerned sangguniang bayan/panlungsod on fishery matters through its
Committee on Fisheries, if such has been organized; and
(e) perform such other functions which may be assigned by the concerned sangguniang
bayan/panlungsod.
Section 78. Composition of the IFARMCs. - The regular members of the IFARMCs shall be
composed of the following:
(a) the chairperson of the Committee on Agriculture/Fisheries of the concerned
sangguniang bayan/panlungsod;
(b) the Municipal/City Fisheries Officers of the concerned municipalities/cities;

CHAPTER IV
Fishery Reserves, Refuge and Sanctuaries
Section 80. Fishing Areas Reserves for Exclusive Use of Government. - The Department may
designate area or areas in Philippine waters beyond fifteen (15) kilometers from shoreline as
fishery reservation for the exclusive use of the government or any of its political subdivisions,
agencies or instrumentalities, for propagation, educational, research and scientific purposes:
Provided, That in municipalities or cities, the concerned LGUs in consultation with the FARMCs
may recommend to the Department that portion of the municipal waters be declared as fishery
reserves for special or limited use, for educational, research, and/or special management
purposes. The FARMCs may recommend to the Department portions of the municipal waters
which can be declared as fisheries reserves for special or limited use for educational, research
and special management purposes.
Section 81. Fish Refuge and Sanctuaries. - The Department may establish fish refuge and
sanctuaries to be administered in the manner to be prescribed by the BFAR at least twenty-five
percent (25%) but not more than forty percent (40%) of bays, foreshore lands, continental shelf or
any fishing ground shall be set aside for the cultivation of mangroves to strengthen the habitat and
the spawning grounds of fish. Within these areas no commercial fishing shall be allowed. All
marine fishery reserves, fish sanctuaries and mangrove swamp reservations already declared or
proclaimed by the President or legislated by the Congress of the Philippines shall be continuously
administered and supervised by the concerned agency: Provided, however, That in municipal
waters, the concerned LGU in consultation with the FARMCs may establish fishery refuge and
sanctuaries. The FARMCs may also recommend fishery refuge and sanctuaries: Provided, further,
That at least fifteen percent (15%) where applicable of the total coastal areas in each municipality
shall be identified, based on the best available scientific data and in consultation with the
Department, and automatically designated as fish sanctuaries by the LGUs in consultation with the
concerned FARMCs.
CHAPTER V
Fisheries Research and Development
Section 82. Creation of a National Fisheries Research and Development Institute (NFRDI). In recognition of the important role of fisheries research in the development, management,
conservation and protection of the country's fisheries and aquatic resources, there is hereby
created a National Fisheries Research and Development Institute (NFRDI).
The Institute shall form part of the National Research and Development Network of the
Department of Science and Technology (DOST).

The Institute, which shall be attached to the Department shall serve as the primary research arm
of the BFAR. The overall governance of the Institute shall be vested in the Governing Board which
shall formulate policy guidelines for its operation. The plans, programs and operational budget
shall be passed by the Board. The Board may create such committees as it may deem necessary
for the proper and effective performance of its functions. The composition of the Governing Board
shall be as follows:
(a) Undersecretary for Fisheries - Chairman

(a) establish a national infrastructure unit complete with technologically-advanced

features and modern scientific equipment, which shall facilitate, monitor, and implement
various research needs and activities of the fisheries sector;
(b) provide a venue for intensive training and development of human resources in the
field of fisheries, a repository of all fisheries researches and scientific information;
(c) provide intensive training and development of human resources in the field of
fisheries for the maximum utilization of available technology;

(b) BFAR Director - Vice Chairman

(c) NFRDI Executive Director - Member
(d) PCAMRD Executive Director - Member
(e) Representative from the academe - Member
(f) four (4) representatives from the private sector who shall come from the following
subsectors: - Members

Municipal Fisherfolk
Commercial Fishing Operator
Aquaculture Operator
Post-Harvest/Processor

The NFRDI shall have a separate budget specific to its manpower requirements and operations to
ensure the independent and objective implementation of its research activities.
Section 83. Qualification Standard. - The Institute shall be headed by an Executive Director to
be appointed by the President of the Philippines upon the recommendation of the governing
board. The Executive Director shall hold a Doctorate degree in fisheries and/or other related
disciplines. The organizational structure and staffing pattern shall be approved by the Department:
Provided, however, That the staffing pattern and remunerations for scientific and technical staff
shall be based on the qualification standards for science and technology personnel.
Section 84. Research and Development Objectives. - Researches to be done by the NFRDI are
expected to result in the following:
(a) To raise the income of the fisherfolk and to elevate the Philippines among the top five
(5) in the world ranking in the fish productions;

(d) hasten the realization of the economic potential of the fisheries sector by maximizing
developmental research efforts in accordance with the requirements of the national
fisheries conservations and development programs, also possibly through collaborative
effort with international institutions; and
(e) formally establish, strengthen and expand the network of fisheries-researching
communities through effective communication linkages nationwide.
CHAPTER VI
Prohibitions and Penalties
Section 86. Unauthorized Fishing or Engaging in Other Unauthorized Fisheries Activities. No person shall exploit, occupy, produce, breed, culture, capture or gather fish, fry or fingerlings of
any fishery species or fishery products, or engage in any fishery activity in Philippine waters
without a license, lease or permit.
Discovery of any person in an area where he has no permit or registration papers for a fishing
vessel shall constitute a prima facie presumption that the person and/or vessel is engaged in
unauthorized fishing: Provided, That fishing for daily food sustenance or for leisure which is not for
commercial, occupation or livelihood purposes may be allowed.
It shall be unlawful for any commercial fishing vessel to fish in bays and in such other fishery
management areas which may hereinafter be declared as over-exploited.
Any commercial fishing boat captain or the three (3) highest officers of the boat who commit any of
the above prohibited acts upon conviction shall be punished by a fine equivalent to the value of
catch or Ten thousand pesos (P10,000.00) whichever is higher, and imprisonment of six (6)
months, confiscation of catch and fishing gears, and automatic revocation of license.
It shall be unlawful for any person not listed in the registry of municipal fisherfolk to engage in any
commercial fishing activity in municipal waters. Any municipal fisherfolk who commits such
violation shall be punished by confiscation of catch and a fine of Five hundred pesos (500.00).

(b) to make the country's fishing industry in the high seas competitive;
(c) to conduct social research on fisherfolk families for a better understanding of their
conditions and needs; and
(d) to coordinate with the fisheries schools, LGUs and private sectors regarding the
maximum utilization of available technology, including the transfer of such technology to
the industry particularly the fisherfolk.
Section 85. Functions of the NFRDI . - As a national institute, the NFRDI shall have the following
functions:

Section 87. Poaching in Philippine Waters. - It shall be unlawful for any foreign person,
corporation or entity to fish or operate any fishing vessel in Philippine waters.
The entry of any foreign fishing vessel in Philippine waters shall constitute a prima facie evidence
that the vessel is engaged in fishing in Philippine waters.
Violation of the above shall be punished by a fine of One hundred thousand U.S. Dollars
(US$100,000.00), in addition to the confiscation of its catch, fishing equipment and fishing vessel:
Provided, That the Department is empowered to impose an administrative fine of not less than

Fifty thousand U.S. Dollars (US$50,000.00) but not more than Two hundred thousand U.S. Dollars
(US$200,000.00) or its equivalent in the Philippine Currency.
Section 88. Fishing Through Explosives, Noxious or Poisonous Substance, and/or
Electricity. (1) It shall be unlawful for any person to catch, take or gather or cause to be caught,
taken or gathered, fish or any fishery species in Philippine waters with the use of
electricity, explosives, noxious or poisonous substance such as sodium cyanide in the
Philippine fishery areas, which will kill, stupefy, disable or render unconscious fish or
fishery species: Provided, That the Department, subject to such safeguards and
conditions deemed necessary and endorsement from the concerned LGUs, may allow,
for research, educational or scientific purposes only, the use of electricity, poisonous or
noxious substances to catch, take or gather fish or fishery species: Provided, further,
That the use of poisonous or noxious substances to eradicate predators in fishponds in
accordance with accepted scientific practices and without causing adverse
environmental impact in neighboring waters and grounds shall not be construed as
illegal fishing.
It will likewise be unlawful for any person, corporation or entity to possess, deal in, sell
or in any manner dispose of, any fish or fishery species which have been illegally
caught, taken or gathered.
The discovery of dynamite, other explosives and chemical compounds which contain
combustible elements, or noxious or poisonous substances, or equipment or device for
electro-fishing in any fishing vessel or in the possession of any fisherfolk, operator,
fishing boat official or fishworker shall constitute prima facie evidence, that the same
was used for fishing in violation of this Code. The discovery in any fishing vessel of fish
caught or killed with the use of explosive, noxious or poisonous substances or by
electricity shall constitute prima facie evidence that the fisherfolk, operator, boat official
or fishworker is fishing with the use thereof.
(2) Mere possession of explosive, noxious or poisonous substances or electrofishing
devices for illegal fishing shall be punishable by imprisonment ranging from six (6)
months to two (2) years.
(3) Actual use of explosives, noxious or poisonous substances or electrofishing devices
for illegal fishing shall be punishable by imprisonment ranging from five (5) years to ten
(10) years without prejudice to the filing of separate criminal cases when the use of the
same result to physical injury or loss of human life.
(4) Dealing in, selling, or in any manner disposing of, for profit, illegally caught/gathered
fisheries species shall be punished by imprisonment ranging from six (6) months to two
(2) years.
(5) In all cases enumerated above, the explosives, noxious or poisonous substances
and/or electrical devices, as well as the fishing vessels, fishing equipment and catch
shall be forfeited.
Section 89. Use of Fine Mesh Net. - It shall be unlawful to engage in fishing using nets with mesh
smaller than that which may be fixed by the Department: Provided, That the prohibition on the use
of fine mesh net shall not apply to the gathering of fry, glass eels, elvers, tabios, and alamang and
such species which by their nature are small but already mature to be identified in the
implementing rules and regulations by the Department.

Violation of the above shall subject the offender to a fine from Two thousand pesos (P2,000.00) to
Twenty thousand pesos (P20,000.00) or imprisonment from six (6) months to two (2) years or both
such fine and imprisonment at the discretion of the court: Provided, That if the offense is
committed by a commercial fishing vessel, the boat captain and the master fisherman shall also be
subject to the penalties provided herein: Provided, further, That the owner/operator of the
commercial fishing vessel who violates this provision shall be subjected to the same penalties
provided herein: Provided, finally, That the Department is hereby empowered to impose upon the
offender an administrative fine and/or cancel his permit or license or both.
Section 90. Use of Active Gear in the Municipal Waters and Bays and Other Fishery
Management Areas. - It shall be unlawful to engage in fishing in municipal waters and in all bays
as well as other fishery management areas using active fishing gears as defined in this Code.
Violators of the above prohibitions shall suffer the following penalties:
(1) The boat captain and master fisherman of the vessels who participated in the
violation shall suffer the penalty of imprisonment from two (2) years to six (6) years;
(2) The owner/operator of the vessel shall be fined from Two thousand pesos
(P2,000.00) to Twenty thousand pesos (20,000.00) upon the discretion of the court.
If the owner/operator is a corporation, the penalty shall be imposed on the chief
executive officer of the Corporation.
If the owner/operator is a partnership the penalty shall be imposed on the managing
partner.
(3) The catch shall be confiscated and forfeited.
Section 91. Ban on Coral Exploitation and Exportation. - It shall be unlawful for any person or
corporation to gather, possess, sell or export ordinary precious and semi-precious corals, whether
raw or in processed form, except for scientific or research purposes.
Violations of this provision shall be punished by imprisonment from six (6) months to two (2) years
and a fine from Two thousand pesos (P2,000.00) to Twenty thousand pesos (20,000.00), or both
such fine and imprisonment, at the discretion of the court, and forfeiture of the subject corals,
including the vessel and its proper disposition.
The confiscated corals shall either be returned to the sea or donated to schools and museums for
educational or scientific purposes or disposed through other means.
Section 92. Ban on Muro-Ami Other Methods and Gear Destructive to Coral Reefs and
Other Marine Habitat. - It shall be unlawful for any person, natural or juridical, to fish with gear
method that destroys coral reefs, seagrass beds, and other fishery marine life habitat as may be
determined by the Department. "Muro-Ami" and any of its variation, and such similar gear and
methods that require diving, other physical or mechanical acts to pound the coral reefs and other
habitat to entrap, gather or catch fish and other fishery species are also prohibited.
The operator, boat captain, master fisherman, and recruiter or organizer of fishworkers who violate
this provision shall suffer a penalty of two (2) years to ten (10) years imprisonment and a fine of
not less than One hundred thousand pesos (P100,000.00) to Five hundred thousand pesos
(P500,000.00) or both such fine and imprisonment, at the discretion of the court. The catch and
gear used shall be confiscated.

It shall likewise be unlawful for any person or corporation to gather, sell or export white sand,
silica, pebbles and any other substances which make up any marine habitat.
The person or corporation who violates this provision shall suffer a penalty of two (2) years to ten
(10) years imprisonment and a fine of not less than One hundred thousand pesos (P100,000.00)
to Five hundred thousand pesos (P500,000.00) or both such fine and imprisonment, at the
discretion of the court. The substance taken from its marine habitat shall be confiscated.
Section 93. Illegal Use of Superlights. - It shall be unlawful to engage in fishing with the use of
superlights in municipal waters or in violation of the rules and regulations which may be
promulgated by the Department on the use of superlights outside municipal waters.
Violations of this provision shall be punished by imprisonment from six (6) months to two (2) years
or a fine of Five thousand pesos (P5,000.00) per superlight, or both such fine and imprisonment at
the discretion of the courts. The superlight, fishing gears and vessel shall be confiscated.
Section 94. Conversion of Mangroves. - It shall be unlawful for any person to convert
mangroves into fishponds or for any other purposes.
Violation of the provision of this section shall be punished by imprisonment of six (6) years and
one (1) day to twelve (12) years and/or a fine of Eighty thousand pesos (P80,000.00): Provided,
That if the area requires rehabilitation or restoration as determined by the court, the offender
should also be required to restore or compensate for the restoration of the damage.
Section 95. Fishing in Overfished Area and During Closed Season. - It shall be unlawful to fish
in overfished area and during closed season.
Violation of the provision of this section shall be punished by imprisonment of six (6) months and
one (1) day to six (6) years and/or fine of Six thousand pesos (P6,000.00) and by forfeiture of the
catch and cancellation of fishing permit or license.
Section 96. Fishing in Fishery Reserves, Refuge and Sanctuaries. - It shall be unlawful to fish
in fishery areas declared by the Department as fishery reserves, refuge and sanctuaries.
Violation of the provision of this section shall be punished by imprisonment of two (2) years to six
(6) years and/or fine of Two thousand pesos (P2,000.00) to Twenty thousand pesos (P20,000.00)
and by forfeiture of the catch and the cancellation of fishing permit or license.
Section 97. Fishing Or Taking of Rare, Threatened or Endangered Species. - It shall be
unlawful to fish or take rare, threatened or endangered species as listed in the CITES and as
determined by the Department.
Violation of the provision of this section shall be punished by imprisonment of twelve (12) years to
twenty (20) years and/or a fine of One hundred and twenty thousand pesos (P120,000.00) and
forfeiture of the catch, and the cancellation of fishing permit.
Section 98. Capture of Sabalo and Other Breeders/Spawners. - It shall be unlawful for any
person to catch, gather, capture or possess mature milkfish or "sabalo" and such other breeders or
spawners of other fishery species as may be determined by the Department: Provided, That
catching of "sabalo" and other breeders/spawners for local breeding purposes or scientific or
research purposes may be allowed subject to guidelines to be promulgated by the Department.

Violation of the provision of this section shall be punished by imprisonment of six (6) months and
one (1) day to eight (8) years and/or a fine of Eighty thousand pesos (P80,000.00) and forfeiture of
the catch, and fishing equipment used and revocation of license.
Section 99. Exportation of Breeders, Spawners, Eggs or Fry. - Exportation of breeders,
spawners, eggs or fry as prohibited in this Code shall be punished by imprisonment of eight (8)
years, confiscation of the same or a fine equivalent to double the value of the same, and
revocation of the fishing and/or export license/permit.
Section 100. Importation or Exportation of Fish or Fishery Species. - Any importation or
exportation of fish or fisheries species in violation of this Code shall be punished by eight (8) years
of imprisonment, a fine of Eighty thousand pesos (P80,000.00) and destruction of live fishery
species or forfeiture of non-live fishery species in favor of the department for its proper disposition:
Provided, That violator of this provision shall be banned from being members or stock holders of
companies currently engaged in fisheries or companies to be created in the future, the guidelines
for which shall be promulgated by the Department.
Section 101. Violation of Catch Ceilings. - It shall be unlawful for any person to fish in violation
of catch ceilings as determined by the Department. Violation of the provision of this section shall
be punished by imprisonment of six (6) months and one (1) day to six (6) years and/or a fine of
Fifty thousand pesos (P50,000.00) and forfeiture of the catch, and fishing equipment used and
revocation of license.
Section 102. Aquatic Pollution. - Aquatic pollution, as defined in this Code shall be unlawful.
Violation of the provision of this section shall be punished by imprisonment of six (6) years and
one (1) day to twelve (12) years and/or a fine of Eighty thousand pesos (P80,000.00) plus an
additional fine of Eight thousand pesos (P8,000.00) per day until such violation ceases and the
fines paid.
Section 103. Other Violations. - The following fisheries activities shall also be considered as a
violation of this Code:
(a) Failure to Comply with Minimum Safety Standards. - The owner and captain of a
commercial fishing vessel engaged in fishing who, upon demand by proper authorities,
fails to exhibit or show proof of compliance with the safety standards provided in this
Code, shall be immediately prevented from continuing with his fishing activity and
escorted to the nearest port or landing point. The license to operate the commercial
fishing vessel shall be suspended until the safety standard has been complied with.
(b) Failure to Conduct a Yearly Report on all Fishponds, Fish Pens and Fish Cages. The FLA of the holder who fails to render a yearly report shall be immediately cancelled:
Provided, That if the offender be the owner of the fishpond, fish pen or fish cage, he
shall be subjected to the following penalties: (1) first offense, a fine of Five hundred
pesos (P500.00) per unreported hectare; (2) subsequent offenses, a fine of One
thousand pesos (1,000.00) per unreported hectare.
(c) Gathering and Marketing of Shell Fishes. - It shall be unlawful for any person to take,
sell, transfer, or have in possession for any purpose any shell fish which is sexually
mature or below the minimum size or above the maximum quantities prescribed for the
particular species.
(d) Obstruction to Navigation or Flow and Ebb of Tide in any Stream, River, Lake or Bay.
- It shall be unlawful for any person who causes obstruction to navigation or flow or ebb
of tide.

(e) Construction and Operation of Fish Corrals/Traps, Fish Pens and Fish Cages. - It
shall be unlawful to construct and operate fish corrals/traps, fish pens and fish cages
without a license/permit.
Subject to the provision of subparagraph (b) of this section, violation of the above-enumerated
prohibited acts shall subject the offender to a fine ranging from Two thousand pesos (P2,000.00)
to Ten thousand pesos (P10,000.00) or imprisonment from one (1) month and one (1) day to six
(6) months, or both such fine and imprisonment, upon the discretion of the court: Provided, That
the Secretary is hereby empowered to impose upon the offender an administrative fine of not more
than Ten thousand pesos (P10,000.00) or to cancel his permit or license, or to impose such fine
and to cancel his permit or license, in the discretion of the Secretary: Provided, further, That the
Secretary, or his duly authorized representative, and law enforcement agents are hereby
empowered to impound with the assistance of the Philippine Coast Guard, PNP-Maritime
Command: Provided, finally, That any person who unlawfully obstructs or delays the inspection
and/or movement of fish and fishery/aquatic products when such inspection and/or movement is
authorized under this Code, shall be subject to a fine of not more than Ten thousand pesos
(P10,000.00) or imprisonment of not more than two (2) years, or both such fine and imprisonment,
upon the discretion of the court.
Every penalty imposed for the commission of an offense shall carry with it the forfeiture of the
proceeds of such offense and the instruments or tools with which it was committed.

Section 108. Fisherfolk Settlement Areas. - The Department shall establish and create fisherfolk
settlement areas in coordination with concerned agencies of the government, where certain areas
of the public domain, specifically near the fishing grounds, shall be reserved for the settlement of
the municipal fisherfolk. Nothing in this section shall be construed to vest ownership of any
resettlement area to a municipal fisherfolk for whom said areas may have been reserved for or had
been actually granted to.
Section 109. Municipal Fisheries Grant Fund. - For the development, management and
conservation of the municipal resources, there is hereby created a Fishery Grant Fund to finance
fishery projects of the LGUs primarily for the upliftment of the municipal fisherfolk. The amount of
One hundred million pesos (P100,000,000.00) is hereby appropriated out of the Department's
allocation in the General Appropriations Act (GAA) to support the Grant Fund.
For this purpose, the Department may seek financial assistance from any source and may receive
any donation therefore.
Section 110. Fishery Loan and Guarantee Fund. - Pursuant to Section 7, Article XIII of the
Constitution, there is hereby created a Fishery Loan and Guarantee Fund with an initial of One
hundred million pesos (P100,000,000.00), which shall be administered by the Land Bank of the
Philippines. The fund shall be made available for lending to qualified borrowers to finance the
development of the fishery industry under a program to be prescribed by the Department.

Such proceeds and instruments or tools shall be confiscated and forfeited in favor of the
Government, unless they be the property of a third person not liable for the offense, but those
articles which are not subject of lawful commerce shall be destroyed.

For the same purpose, the Department may seek financial assistance from any source and may
receive any donation therefrom.

Section 104. Commercial Fishing Vessel Operators Employing Unlicensed Fisherfolk or

Fishworker or Crew. - The owner/operator of a commercial fishing vessel employing unlicensed
fisherfolk or fishworker shall be fined Five hundred pesos (P500.00) each for every month that the
same has been employed and/or One thousand pesos (P1,000.00) for every month for each
unlicensed crew member who has been employed.

Section 111. Fishing Vessels Development Fund. - There is hereby created a Fishing Vessels
Development Fund to enhance the building and/or acquisition of fishing vessels. This shall be a
long-term loan facility that shall be administered by the Development Bank of the Philippines. The
amount of Two hundred and fifty million pesos (P250,000,000.00) per year for five (5) years is
hereby appropriated out of the Department's allocation in the GAA to support this Development
Fund.

Section 105. Obstruction of Defined Migration Paths. - Obstruction of any defined migration
paths of anadromous, catadromous and other migratory species, in areas including, but not limited
to river mouths and estuaries within a distance determined by the concerned FARMCs shall be
punished by imprisonment of seven (7) years to twelve (12) years or a fine from Fifty thousand
pesos (P50,000.00) to One hundred thousand pesos (P100,000.00)or both imprisonment and fine
at the discretion of the court, and cancellation of permit/license, if any, and dismantling of
obstruction shall be at his own expense and confiscation of same.

Section 112. Special Fisheries Science and Approfishtech Fund. - The Department shall
provide subsidy for full technical and financial support to the development of appropriate
technology, both in fishery and ancillary industries, that are ecologically sound, locally sourcebased and labor intensive, based on the requirement and needs of the FARMCs. An initial amount
of One hundred million pesos (100,000,000.00) shall be authorized for the purpose of a Special
Fisheries Science and Approfishtech Fund, and thereafter shall be included in the GAA.

Section 106. Obstruction to Fishery Law Enforcement Officer. - The boat owner, master or
operator or any person acting on his behalf of any fishing vessel who evades, obstructs or hinders
any fishery law enforcement officer of the Department to perform his duty, shall be fined Ten
thousand pesos (P10,000.00). In addition, the registration, permit and/or license of the vessel
including the license of the master fisherman shall be canceled.
Section 107. Promulgation of Administrative Orders. - For purposes of fishery regulation or
other fishery adjustments, the Department in consultation with the LGUs and local FARMCs, shall
issue Fishery Administrative Orders or regulations for the conservation, preservation, management
and sustainable development of fishery and aquatic resources.
CHAPTER VII
General Provisions

Section 113. Aquaculture Investment Fund. - An Aquaculture Investment Fund in the minimum
amount of Fifty million pesos (P50,000,000.00) shall be established for soft loans which shall be
extended to municipal fisherfolk and their organization who will engage in aquaculture, and for the
development of underdeveloped or underutilized inland fishponds.
Section 114. Other Fisheries Financing Facilities. - In addition to fisheries credit guarantee,
grant and other similar facilities granted under this Code, qualified Filipino fisherfolk and fisheries
enterprises shall enjoy such other facilities granted them under existing and/or new laws, specially
as to rural credit, with preference being given to fisheries cooperatives.
Section 115. Professionalization of Fisheries Graduates. - There is hereby created a Fisheries
Board of Examiners in the Professional Regulation Commission to upgrade the Fisheries
Profession: Provided, however, That those who have passed the Civil Service Examination for
Fisheries shall automatically be granted eligibility by the Fisheries Board of Examiners: Provided,
further, That they have served the industry in either public or private capacity for not less than five

(5) years: Provided, finally, That the first Board Examination for B.S. Fisheries Graduates shall be
conducted within one (1) year from the approval of this Code.
Section 116. Upgrading of State Fisheries Schools/Colleges. - The Department, in
coordination with the Commission on Higher Education (CHED), Department of Education, Culture
and Sports (DECS), and Technical Education and Skills Development Authority (TESDA), shall
upgrade State Fisheries Schools/Colleges which provide both formal and non-formal education:
Provided, however, That the CHED shall incorporate Approfishtech in the curricula of fisheries
schools/colleges.
The Department and the CHED shall jointly formulate standards to upgrade all fisheries
schools/colleges. Fisheries schools/colleges that do not meet minimum standards shall be closed.
Section 117. Inclusion of Fisheries Conservation Subjects in School Curriculum. - Fisheries
conservation subjects shall be incorporated in the curricula of elementary and secondary schools
both private and public.
Section 118. Educational campaign at all levels. - The Department, the CHED, the DECS and
the Philippine Information Agency shall launch and pursue a nationwide educational campaign to:
(a) help realize the policies and implement the provisions of this Code;
(b) promote the development, management, conservation and proper use of the
environment;
(c) promote the principle of sustainable development; and
(d) promote the development of truly Filipino-oriented fishing and ancillary industries.
Section 119. Infrastructure Support. - The Department in cooperation with concerned agencies
shall:
(a) prepare and implement a nationwide plan for the development of municipal fishing
ports and markets;
(b) prioritize the construction of farm-to-market roads linking the fisheries production
sites, coastal landing points and other post-harvest facilities to major market and arterial
roads/highways;
(c) identity community infrastructure facilities such as fish landing ports, ice plant and
cold storage facilities in consultation with fishery cooperatives/associations and prepare
plans and designs for their construction that would be consistent with international
environmental impact;
(d) establish and maintain quality laboratories in major fish ports and prescribe the
highest standards for the operation and maintenance of such post-harvest facilities;
(e) arrange and make representations with appropriate funding institutions to finance
such facilities for the use of the fishery cooperatives/associations;
(f) develop and strengthen marketing facilities and promote cooperative marketing
systems; and

(g) promote and strengthen local fisheries ship-building and repair industry.
Section 120. Extension Services. - The Department shall develop cost-effective, practical and
efficient extension services on a sustained basis, in addition to those provided by state educational
institutions, especially to municipal fisherfolk in undeveloped areas, utilizing practicable and
indigenous resources and government agencies available, and based upon a system of selfreliance and self-help.
Section 121. Protection of Sensitive Technical Information. - The Department shall take such
measures as may be necessary in order to protect trade, industrial and policy information of
Filipino fisherfolk, fisheries owners/operators, entrepreneurs, manufacturers and researchers,
when disclosure of such information will injure the competitiveness or viability of domestic
fisheries.
Section 122. Assistance in Collecting Information. - The Department, in coordination with other
government entities concerned, may require Filipino representatives abroad and foreign-based
personnel to assist in the collection of fisheries data and information.
Section 123. Charting of Navigational Lanes and Delineation of Municipal Waters. - The
Department shall authorize the National Mapping and Resource Information Authority (NAMRIA)
for the designation and charting of navigational lanes in fishery areas and delineation of municipal
waters. The Philippine Coast Guard shall exercise control and supervision over such designated
navigational lanes.
Section 124. Persons and Deputies Authorized to Enforce this Code and Other Fishery
Laws, Rules and Regulations. - The law enforcement officers of the Department, the Philippine
Navy, Philippine Coast Guard, Philippine National Police (PNP), PNP-Maritime Command, law
enforcement officers of the LGUs and other government enforcement agencies, are hereby
authorized to enforce this Code and other fishery laws, rules and regulations. Other competent
government officials and employees, punong barangays and officers and members of fisherfolk
associations who have undergone training on law enforcement may be designated in writing by the
Department as deputy fish wardens in the enforcement of this Code and other fishery laws, rules
and regulations.
Section 125. Strengthening Prosecution and Conviction of Violators of Fishery Laws. - The
Department of Justice (DOJ) shall embark on a program to strengthen the prosecution and
conviction aspects of fishery law enforcement through augmentation of the current complement of
state prosecutors and through their continuous training and reorientation on fishery laws, rules and
regulations.
Section 126. Foreign Grants and Aids. - All foreign grants, aids, exchange programs, loans,
researches and the like shall be evaluated and regulated by the Department to ensure that such
are consistent with the Filipinization, democratization and industrialization of fishing industry and
the development of the entire country.
Section 127. Mandatory Review. - The Congress of the Philippines shall undertake a mandatory
review of this Code at least once every five (5) years and as often as it may deem necessary, to
ensure that fisheries policies and guidelines remain responsive to changing circumstances.
CHAPTER VIII
Transitory Provisions
Section 128. Moratoria. - The Department shall, upon the recommendation of the Bureau, have
the power to declare a moratorium on the issuance of licenses for commercial fishing vessels to
operate in specified area or areas in Philippine waters for a limited period of time if there are

indications of overfishing brought about by a decrease in the volume and sizes of fish caught
therein or for conservation or ecological purposes.

(n) Representative of the municipal fisherfolk;lawphi1

(o) Representative of the commercial fishers;

No new licenses and similar privileges on exploitation of specific fishery areas in Philippine waters
and aquaculture production areas shall be issued in accordance with this Code. Such moratoria
shall not exceed five (5) years from the effectivity of this Code.
Section 129. Formulation of Implementing Rules and Regulations. - An Inter-agency
Committee is hereby created to formulate rules and regulations for the full implementation of this
Code within ninety (90) days of its effectivity: Provided, however, That the formulated rules and
regulations shall be submitted to both Houses of Congress for information and guidance. Such
rules and regulations shall take effect upon publication in a newspaper of general circulation.
The Inter-agency Committee shall be composed of the following:
(a) Secretary of Agriculture as Chairman;
(b) Secretary of the Interior and Local Government;

(p) Representative of the non-government organizations involved in fishing concerns;

and
(q) A representative from the academe coming from the specialized fisheries institution.
CHAPTER IX
Final Provisions
Section 130. Appropriation. - The sum necessary to effectively carry out the provisions of this
Act during the first year of implementation shall be sourced from the budget of the DA/BFAR and
other agencies performing fisheries-related functions: Provided, however, That such amount as
may be necessary to carry out the provisions of Sections 79, 109, 110, 111, 112, 113 are hereby
appropriated out of the unappropriated funds of the National Treasury. The Congress of the
Philippines shall provide for the appropriations of the Department, the NFRDI and the Fisheries
Scholarship Program for the succeeding years to be included in the annual GAA.

(c) Secretary of Environment and Natural Resources;

(d) Secretary of Justice;
(e) Secretary of Finance;
(f) Secretary of Budget and Management;
(g) Secretary of Labor and Employment;
(h) Secretary of National Defense;

Section 131. Repealing Clause. - Presidential Decree No. 704, as amended by Presidential
Decree Nos. 1015 and 1058, Presidential Decree No. 977, as amended, Executive Order No. 967,
Series of 1984, Executive Order No. 116, Series of 1987, Executive Order No. 292, Series of
1987, Executive Order No. 473, Series of 1991 and other existing laws except Republic Act No.
7611, decrees, executive orders, and rules and regulations or parts thereof, which are inconsistent
with this Code, are hereby repealed or modified accordingly.
Section 132. Separability Clause. - If any portion or provision of this Code is declared
unconstitutional or invalid, the other portions or provisions hereof, which are not affected thereby,
shall continue in full force and effect.
Section 133. Effectivity. - This Code shall take effect fifteen (15) days after its publication in the
Official Gazette or in two (2) newspapers of general publication.

(i) Commissioner of Civil Service Commission;

Approved: February 25, 1998
(j) Director of BFAR;
(k) Executive Director of PCAMRD;
(l) General Manager of PFDA;
(m) One (1) representative from each of the following:
(a.1) The League of Provinces;
(a.2) The League of Cities;
(a.3) The League of Municipalities;
(a.4) The Liga ng mga Barangay;

i) Any combination of such substances occurring in whole or in part as a result

of chemical reaction or occurring in nature; and
ii) Any element or uncombined chemical.
Republic Act No. 6969

October 26, 1990

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled::

b) Chemical mixture means any combination of two or more chemical substances if the
combination does not occur in nature and is not, in whole or in part, the result of a
chemical reaction, if none of the chemical substances comprising the combination is a
new chemical substance and if the combination could have been manufactured for
commercial purposes without a chemical reaction at the time the chemical substances
comprising the combination were combined. This shall include nonbiodegradable
mixtures.

Section 1. Short title. This Act shall be known as the "Toxic Substances and Hazardous and
Nuclear Wastes Control Act of 1990."

c) Process means the preparation of a chemical substance or mixture after its

manufacture for commercial distribution:

AN ACT TO CONTROL TOXIC SUBSTANCES AND HAZARDOUS AND NUCLEAR WASTES,

PROVIDING PENALTIES FOR VIOLATIONS THEREOF, AND FOR OTHER PURPOSES

Section 2. Declaration of Policy. It is the policy of the State to regulate, restrict or prohibit the
importation, manufacture, processing, sale, distribution, use and disposal of chemical substances
and mixtures that present unreasonable risk and/or injury to health or the environment; to prohibit
the entry, even in transit, of hazardous and nuclear wastes and their disposal into the Philippine
territorial limits for whatever purpose; and to provide advancement and facilitate research and
studies on toxic chemicals.
Section 3. Scope. This Act shall cover the importation, manufacture, processing, handling,
storage, transportation, sale, distribution, use and disposal of all unregulated chemical substances
and mixtures in the Philippines, including the entry, even in transit as well as the keeping or
storage and disposal of hazardous and nuclear wastes into the country for whatever purpose.
Section 4. Objectives. The objectives of this Act are:
a) To keep an inventory of chemicals that are presently being imported, manufactured,
or used, indicating, among others, their existing and possible uses, test data, names of
firms manufacturing or using them, and such other information as may be considered
relevant to the protection of health and the environment;
b) To monitor and regulate the importation, manufacture, processing, handling, storage,
transportation, sale, distribution, use and disposal of chemical substances and mixtures
that present unreasonable risk or injury to health or to the environment in accordance
with national policies and international commitments;
c) To inform and educate the populace regarding the hazards and risks attendant to the
manufacture, handling, storage, transportation, processing, distribution, use and
disposal of toxic chemicals and other substances and mixture; and
d) To prevent the entry, even in transit, as well as the keeping or storage and disposal of
hazardous and nuclear wastes into the country for whatever purpose.
Section 5. Definition. As used in this Act:
a) Chemical substance means any organic or inorganic substance of a particular
molecular identity, including:

i) In the same form or physical state or in a different form or physical state

from that which it was received by the person so preparing such substance or
mixture; or
ii) As part of an article containing a chemical substance or mixture.
d) Importation means the entry of a products or substances into the Philippines (through
the seaports or airports of entry) after having been properly cleared through or still
remaining under customs control, the product or substance of which is intended for
direct consumption, merchandising, warehousing, or for further processing.
e) Manufacture means the mechanical or chemical transformation of substances into
new products whether work is performed by power-driven machines or by hand, whether
it is done in a factory or in the worker's home, and whether the products are sold at
wholesale or retail.
f) Unreasonable risk means expected frequency of undesirable effects or adverse
responses arising from a given exposure to a substance.
g) Hazardous substances are substances which present either:
1) short-term acute hazards, such as acute toxicity by ingestion, inhalation or
skin absorption, corrosivity or other skin or eye contact hazards or the risk of
fire or explosion; or
2) long-term environmental hazards, including chronic toxicity upon repeated
exposure, carcinogenicity (which may in some cases result from acute
exposure but with a long latent period), resistance to detoxification process
such as biodegradation, the potential to pollute underground or surface
waters, or aesthetically objectionable properties such as offensive odors.
h) Hazardous wastes are hereby defined as substances that are without any safe
commercial, industrial, agricultural or economic usage and are shipped, transported or
brought from the country of origin for dumping or disposal into or in transit through any
part of the territory of the Philippines.

Hazardous wastes shall also refer to by-products, side-products, process residues,

spent reaction media, contaminated plant or equipment or other substances from
manufacturing operations, and as consumer discards of manufacture products.
i) Nuclear wastes are hazardous wastes made radioactive by exposure to the radiation
incidental to the production or utilization of nuclear fuels but does not include nuclear
fuel, or radioisotopes which have reached the final stage of fabrication so as to be
usable for any scientific, medical, agricultural, commercial, or industrial purpose.
Section 6. Function, Powers and Responsibilities of the Department of Environment and
Natural Resources. The Department of Environment and Natural Resources shall be the
implementing agency tasked with the following functions, powers, and responsibilities:

l) To exercise such powers and perform such other functions as may be necessary to
carry out its duties and responsibilities under this Act.
Section 7. Inter-Agency Technical Advisory Council. There is hereby created an InterAgency Technical Advisory Council attached to the Department of Environment and Natural
Resources which shall be composed of the following officials or their duly authorized
representatives:

Secretary of Environment and Natural Resources

Chairman

Secretary of Health

Member

b) To require chemical substances and mixtures that present unreasonable risk or injury
to health or to the environment to be tested before they are manufactured or imported
for the first time;

Director of the Philippine Nuclear Research Institute

Member

c) To require chemical substances and mixtures which are presently being manufactured
or processed to be tested if there is a reason to believe that they pose unreasonable risk
or injury to health or the environment;

Secretary of Trade and Industry

Member

d) To evaluate the characteristics of chemicals that have been tested to determine their
toxicity and the extent of their effects on health and the environment;

Secretary of Science and Technology

Member

e) To enter into contracts and make grants for research, development, and monitoring of
chemical substances and mixtures;

Secretary of National Defense

Member

f) To conduct inspection of any establishment in which chemicals are manufactured,

processed, stored or held before or after their commercial distribution and to make
recommendations to the proper authorities concerned;

Secretary of Foreign Affairs

Member

Secretary of Labor and Employment

Member

Secretary of Finance

Member

j) To call on any department, bureau, office, agency, state university or college, and
other instrumentalities of the Government for assistance in the form of personnel,
facilities, and other resources as the need arises in the discharge of its functions;

Secretary of Agriculture

Member

k) To disseminate information and conduct educational awareness campaigns on the

effects of chemical substances, mixtures and wastes on health and environment; and

Representative from a non-governmental organization on health and safety

Member

a) To keep an updated inventory of chemicals that are presently being manufactured or

used, indicating, among others, their existing and possible uses, quality, test data,
names of firms manufacturing or using them, and such other information as the
Secretary may consider relevant to the protection of health and the environment;

g) To confiscate or impound chemicals found not falling within said acts cannot be
enjoined except after the chemicals have been impounded;
h) To monitor and prevent the entry, even in transit, of hazardous and nuclear wastes
and their disposal into the country;
i) To subpoena witnesses and documents and to require other information if necessary
to carry out the provisions of this Act;

The representative from the non-governmental organization shall be appointed by the President
for a term of three (3) years.

a) Those included in the categories of chemical substances and mixtures already listed
in the inventory of existing chemicals;

The Council shall have the following functions:

b) Those to be produced in small quantities solely for experimental or research and

developmental purposes;

a) To assist the Department of Environment and Natural Resources in the formulation of

the pertinent rules and regulations for the effective implementation of this Act;
b) To assist the Department of Environment and Natural Resources in the preparation
and updating of the inventory of chemical substances and mixtures that fall within the
coverage of this Act;
c) To conduct preliminary evaluation of the characteristics of chemical substances and
mixtures to determine their toxicity and effects on health and the environment and make
the necessary recommendations to the Department of Environment and Natural
Resources; and
d) To perform such other functions as the Secretary of Environment and Natural
Resources may, from time to time, require.
Section 8. Pre-Manufacture and Pre-Importation Requirements. Before any new chemical
substance or mixture can be manufactured, processed or imported for the first time as determined
by the Department of Environment and Natural Resources, the manufacturer, processor or
importer shall submit the following information: the name of the chemical substance or mixture; its
chemical identity and molecular structure; proposed categories of use; an estimate of the amount
to be manufactured, processed or imported; processing and disposal thereof; and any test data
related to health and environmental effects which the manufacturer, processor or importer has.
Section 9. Chemicals Subject to Testing. Testing shall be required in all cases where:
a) There is a reason to believe that the chemical substances or mixture may present an
unreasonable risk to health or the environment or there may be substantial human or
environmental exposure thereto;
b) There are insufficient data and experience for determining or predicting the health
and environmental effects of the chemical substance or mixture; and

c) Chemical substances and mixtures that will not present an unreasonable risk to
health and the environment; and
d) Chemical substances and mixtures that exist temporarily and which have no human
or environmental exposure such as those which exist as a result of chemical reaction in
the manufacture or processing of a mixture of another chemical substance.
Section 12. Public Access to Records, Reports or Notification. The public shall have access
to records, reports, or information concerning chemical substances and mixtures including safety
data submitted, data on emission or discharge into the environment, and such documents shall be
available for inspection or reproduction during normal business hours except that the Department
of Environment and Natural resources may consider a record, report or information or particular
portions thereof confidential and may not be made public when such would divulge trade secrets,
production or sales figures or methods, production or processes unique to such manufacturer,
processor or distributor, or would otherwise tend to affect adversely the competitive position of
such manufacturer, processor or distributor. The Department of Environment and Natural
Resources, however, may release information subject to claim of confidentiality to a medical
research or scientific institution where the information is needed for the purpose of medical
diagnosis or treatment of a person exposed to the chemical substance or mixture.
Section 13. Prohibited Acts. The following acts and omissions shall be considered unlawful:
a) Knowingly use a chemical substance or mixture which is imported, manufactured,
processed or distributed in violation of this Act or implementing rules and regulations or
orders;
b) Failure or refusal to submit reports, notices or other information, access to records, as
required by this Act, or permit inspection of establishment where chemicals are
manufactured, processed, stored or otherwise held;
c) Failure or refusal to comply with the pre-manufacture and pre-importation
requirements; and

c) The testing of the chemical substance or mixture is necessary to develop such data.
The manufacturers, processors or importers shall shoulder the costs of testing the chemical
substance or mixture that will be manufactured, processed, or imported.
Section 10. Action by the Secretary of Environment and Natural Resources of his Duly
Authorized Representative. The Secretary of Environment and Natural Resources or his duly
authorized representative shall, within ninety (90) days from the date of filing of the notice of
manufacture, processing or importation of a chemical substance or mixture, decide whether or not
to regulate or prohibit its importation, manufacture, processing, sale, distribution, use or disposal.
The Secretary may, for justifiable reasons, extend the ninety-day pre-manufacture period within a
reasonable time.
Section 11. Chemical Substances Exempt from Pre-Manufacture Notification. The
manufacture of the following chemical substances or mixtures shall be exempt from premanufacture notification:

d) Cause, aid or facilitate, directly or indirectly, in the storage, importation, or bringing

into Philippines territory, including its maritime economic zones, even in transit, either by
means of land, air or sea transportation or otherwise keeping in storage any amount of
hazardous and nuclear wastes in any part of the Philippines.
Section 14. Criminal Offenses and Penalties.
a) (i) The penalty of imprisonment of six (6) months and one day to six (6) years and one
day and a fine ranging from Six hundred pesos (P600.00) to Four thousand pesos
(P4,000.00) shall be imposed upon any person who shall violate section 13 (a) to (c) of
this Act and shall not be covered by the Probation Law.f the offender is a foreigner, he or
she shall be deported and barred from any subsequent entry into the Philippines after
serving his or her sentence;

ii) In case any violation of this Act is committed by a partnership, corporation,

association or any juridical person, the partner, president, director or manager who shall
consent to or shall knowingly tolerate such violation shall be directly liable and
responsible for the act of the employee and shall be criminally liable as a co-principal;
(iii) In case the offender is a government official or employee, he or she shall, in addition
to the above penalties, be deemed automatically dismissed from office and permanently
disqualified from holding any elective or appointive position.
b) (i) The penalty of imprisonment of twelve (12) years and one day to twenty (20) years,
shall be imposed upon any person who shall violate section 13 (d) of this Act.f the
offender is a foreigner, he or she shall be deported and barred from any subsequent
entry into the Philippines after serving his or her sentence;
(ii) In the case of corporations or other associations, the above penalty shall be imposed
upon the managing partner, president or chief executive in addition to an exemplary
damage of at least Five hundred thousand pesos (P500,000.00).f it is a foreign firm, the
director and all officers of such foreign firm shall be barred from entry into the
Philippines, in addition to the cancellation of its license to do business in the Philippines;

Section 17. Appropriations. Such amount as may be necessary to implement the provisions of
this Act is hereby annually appropriated and included in the budget of the Department of
Environment and Natural Resources.
Section 18. Separability Clause. If any provision of this Act is declared void or unconstitutional,
the remaining provisions thereof not affected thereby shall remain in full force and effect.
Section 19. Repealing Clause. All laws, presidential decrees, executive orders and issuances,
and rules and regulations which are inconsistent with this Act are hereby repealed or modified
accordingly.
Section 20. Effectivity. This Act shall take effect after fifteen (15) days following its publication
in the Official Gazette or in any newspaper of general circulation.
Approved: October 26, 1990

(iii) In case the offender is a government official or employee, he or she in addition to the
above penalties be deemed automatically dismissed from office and permanently
disqualified from holding any elective or appointive position.
c) Every penalty imposed for the unlawful importation, entry, transport, manufacture,
processing, sale or distribution of chemical substances or mixtures into or within the
Philippines shall carry with it the confiscation and forfeiture in favor of the Government of
the proceeds of the unlawful act and instruments, tools or other improvements including
vehicles, sea vessels, and aircrafts used in or with which the offense was committed.
Chemical substances so confiscated and forfeited by the Government at its option shall
be turned over to the Department of Environment and Natural resources for safekeeping
and proper disposal.
REPUBLIC ACT 9003 January 26, 2001
d) The person or firm responsible or connected with the bringing or importation into the
country of hazardous or nuclear wastes shall be under obligation to transport or send
back said prohibited wastes;
Any and all means of transportation, including all facilities and appurtenances that may
have been used in transporting to or in the storage in the Philippines of any significant
amount of hazardous or nuclear wastes shall at the option of the government be
forfeited in its favor.
Section 15. Administrative Fines. In all cases of violations of this Act, including violations of
implementing rules and regulations which have been duly promulgated and published in
accordance with Section 16 of this Act, the Secretary of Environment and Natural Resources is
hereby authorized to impose a fine of not less than Ten thousand pesos (P10,000.00), but not
more than Fifty thousand pesos (P50,000.00) upon any person or entity found guilty thereof. The
administrative fines imposed and collected by the Department of Environment and Natural
Resources shall accrue to a special fund to be administered by the Department exclusively for
projects and research activities relative to toxic substances and mixtures.
Section 16. Promulgation of Rules and Regulations. The Department of Environment and
Natural Resources, in coordination with the member agencies of the Inter-Agency Technical
Advisory Council, shall prepare and publish the rules and regulations implementing this Act within
six months from the date of its effectivity.

AN ACT PROVIDING FOR AN ECOLOGICAL SOLID WASTE MANAGEMENT PROGRAM,

CREATING THE NECESSARY INSTITUTIONAL MECHANISMS AND INCENTIVES,
DECLARING CERTAIN ACTS PROHIBITED AND PROVIDING PENALTIES, APPROPRIATING
FUNDS THEREFOR, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representative of the Philippines in Congress
assembled:
CHAPTER I
BASIC POLICIES
Article 1
General Provisions
Section 1. Short Title - This Act shall be known as the "Ecological Solid Waste Management Act of
2000."
Section 2. Declaration of Policies - It is hereby declared the policy of the State to adopt a
systematic, comprehensive and ecological solid waste management program which shall:

(a) Ensure the protection of the public health and environment;

(b) Utilize environmentally-sound methods that maximize the utilization of valuable
resources and encourage resource conservation and recovery;
(c) Set guidelines and targets for solid waste avoidance and volume reduction through
source reduction and waste minimization measures, including composting, recycling, reuse, recovery, green charcoal process, and others, before collection, treatment and
disposal in appropriate and environmentally sound solid waste management facilities in
accordance with ecologically sustainable development principles;
(d) Ensure the proper segregation, collection, transport, storage, treatment and disposal
of solid waste through the formulation and adoption of the best environmental practice in
ecological waste management excluding incineration;
(e) Promote national research and development programs for improved solid waste
management and resource conservation techniques, more effective institutional
arrangement and indigenous and improved methods of waste reduction, collection,
separation and recovery;

(d) Buy-back center shall refer to a recycling center that purchases of otherwise accepts
recyclable materials from the public for the purpose of recycling such materials;
(e) Collection shall refer to the act of removing solid waste from the source or from a
communal storage point;
(f) Composting shall refer to the controlled decomposition of organic matter by microorganisms, mainly bacteria and fungi, into a humus-like product;
(g) Consumer electronics shall refer to special waste that includes worn-out, broken, and
other discarded items such as radios, stereos, and TV sets;
(h) Controlled dump shall refer to a disposal site at which solid waste is deposited in
accordance with the minimum prescribed standards of site operation;
(i) Department shall refer to the Department of Environment and Natural Resources;
(j) Disposal shall refer to the discharge, deposit, dumping, spilling, leaking or placing of
any solid waste into or in an land;

(f) Encourage greater private sector participation in solid waste management;

(g) Retain primary enforcement and responsibility of solid waste management with local
government units while establishing a cooperative effort among the national
government, other local government units, non- government organizations, and the
private sector;
(h) Encourage cooperation and self-regulation among waste generators through the
application of market-based instruments;
(i) Institutionalize public participation in the development and implementation of national
and local integrated, comprehensive, and ecological waste management programs; and
(j) Strength the integration of ecological solid waste management and resource
conservation and recovery topics into the academic curricula of formal and non-formal
education in order to promote environmental awareness and action among the citizenry.
Article 2
Definition of Terms
Section 3. Definition of Terms - For the purposes of this Act:
(a) Agricultural waste shall refer to waste generated from planting or harvesting of crops,
trimming or pruning of plants and wastes or run-off materials from farms or fields;
(b) Bulky wastes shall refer to waste materials which cannot be appropriately placed in
separate containers because of either its bulky size, shape or other physical attributes.
These include large worn-out or broken household, commercial, and industrial items
such as furniture, lamps, bookcases, filing cabinets, and other similar items;
(c) Bureau shall refer to the Environmental Management Bureau;

(k) Disposal site shall refer to a site where solid waste is finally discharged and
deposited;
(l) Ecological solid waste management shall refer to the systematic administration of
activities which provide for segregation at source, segregated transportation, storage,
transfer, processing, treatment, and disposal of solid waste and all other waste
management activities which do not harm the environment;
(m) Environmentally acceptable shall refer to the quality of being re-usable,
biodegradable or compostable, recyclable and not toxic or hazardous to the
environment;
(n) Generation shall refer to the act or process of producing solid waste;
(o) Generator shall refer to a person, natural or juridical, who last uses a material and
makes it available for disposal or recycling;
(p) Hazardous waste shall refer to solid waste management or combination of solid
waste which because of its quantity, concentration or physical, chemical or infectious
characteristics may:
(1) cause, or significantly contribute to an increase in mortality or an increase
in serious irreversible, or incapacitating reversible, illness; or
(2) pose a substantial present or potential hazard to human health or the
environment when improperly treated, stored, transported, or disposed of, or
otherwise managed;
(q) Leachate shall refer to the liquid produced when waste undergo decomposition, and
when water percolate through solid waste undergoing decomposition. It is contaminated
liquid that contains dissolved and suspended materials;

(r) Materials recovery facility - includes a solid waste transfer station or sorting station,
drop-off center, a composting facility, and a recycling facility;
(s) Municipal waste shall refer to wastes produced from activities within local
government units which include a combination of domestic, commercial, institutional and
industrial wastes and street litters;
(t) Open dump shall refer to a disposal area wherein the solid wastes are
indiscriminately thrown or disposed of without due planning and consideration for
environmental and Health standards;
(u) Opportunity to recycle shall refer to the act of providing a place for collecting sourceseparated recyclable material, located either at a disposal site or at another location
more convenient to the population being served, and collection at least once a month of
source-separated recyclable material from collection service customers and to providing
a public education and promotion program that gives notice to each person of the
opportunity to recycle and encourage source separation of recyclable material;
(v) Person(s) shall refer to any being, natural or judicial, susceptible of rights and
obligations, or of being the subject of legal relations;
(w) Post-consumer material shall refer only to those materials or products generated by
a business or consumer which have served their intended end use, and which have
been separated or diverted from solid waste for the purpose of being collected,
processed and used as a raw material in the manufacturing of recycled product,
excluding materials and by-products generated from, and by-products generated from,
and commonly used within an original manufacturing process, such as mill scrap;
(x) Receptacles shall refer to individual containers used for the source separation and
the collection of recyclable materials;
(y) Recovered material shall refer to material and by products that have been recovered
or diverted from solid waste for the purpose of being collected, processed and used as a
raw material in the manufacture of a recycled product;
(z) Recyclable material shall refer to any waste material retrieved from the waste stream
and free from contamination that can still be converted into suitable beneficial use or for
other purposes, including, but not limited to, newspaper, ferrous scrap metal, nonferrous scrap metal, used oil, corrugated cardboard, aluminum, glass, office paper, tin
cans and other materials as may be determined by the Commission;
(aa) Recycled material shall refer to post-consumer material that has been recycled and
returned to the economy;
(bb) Recycling shall refer to the treating of used or waste materials through a process of
making them suitable for beneficial use and for other purposes, and includes any
process by which solid waste materials are transformed into new products in such a
manner that the original product may lose their identity, and which maybe used as raw
materials for the production of other goods or services: Provided, That the collection,
segregation and re-use of previously used packaging material shall be deemed recycling
under this Act;

(cc) Resource conversation shall refer to the reduction of the amount of solid waste that
are generated or the reduction of overall resource consumption, and utilization of
recovered resources;
(dd) Resources recovery shall refer to the collection, extraction or recovery of recyclable
materials from the waste stream for the purpose of recycling, generating energy or
producing a product suitable for beneficial use: Provided, That such resource recovery
facilities exclude incineration;
(ee) Re-use shall refer to the process of recovering materials intended for the same or
different purpose without the alteration of physical and chemical characteristics;
(ff) Sanitary landfill shall refer to a waste disposal site designed, constructed, operated
and maintained in a manner that exerts engineering control over significant potential
environment impacts arising from the development and operation of the facility;
(gg) Schedule of Compliance shall refer to an enforceable sequence of actions or
operations to be accomplished within a stipulated time frame leading to compliance with
a limitation, prohibition or standard set forth in this Act or any rule of regulation issued
pursuant thereto;
(hh) Secretary landfill shall refer to the Secretary of the Department of Environment and
Natural Resources;
(ii) Segregation shall refer to a solid waste management practice of separating different
materials found in solid waste in order to promote recycling and re-use of resources and
to reduce the volume of waste for collection and disposal;
(jj) Segregation at source shall refer to a solid waste management practice of
separating, at the point of origin, different materials found in solid waste in order to
promote recycling and re-use of resources and to reduce the volume of waste for
collection and disposal;
(kk) Solid waste shall refer to all discarded household, commercial waste, nonhazardous institutional and industrial waste, street sweepings, construction debris,
agricultural waste, and other non-hazardous/non-toxic solid waste.
Unless specifically noted otherwise, the term "solid waste" as used in this Act shall not
include:
(1) Waste identified or listed as hazardous waste of a solid, liquid, contained
gaseous or semisolid form which may cause or contribute to an increase in
mortality or in serious or incapacitating reversible illness, or acute/chronic
effect on the health of persons and other organisms;
(2) Infectious waste from hospitals such as equipment, instruments, utensils,
and fomites of a disposable nature from patients who are suspected to have
or have been diagnosed as having communicable diseases and must
therefore be isolated as required by public health agencies, laboratory wastes
such as pathological specimens (i.e. all tissues, specimens of blood elements,
excreta, and secretions obtained from patients or laboratory animals) and
disposable fomites that may harbor or transmit pathogenic organisms, and
surgical operating room pathologic materials from outpatient areas and
emergency rooms; and

(3) Waste resulting from mining activities, including contaminated soil and
debris.
(ll) Solid waste management shall refer to the discipline associated with the control of
generation, storage, collection, transfer and transport, processing, and disposal of solid
wastes in a manner that is in accord with the best principles of public health, economics,
engineering, conservation, aesthetics, and other environmental considerations, and that
is also responsive to public attitudes;
(mm) Solid waste management facility shall refer to any resource recovery system or
component thereof; any system, program, or facility for resource conservation; any
facility for the collection, source separation, storage, transportation, transfer, processing,
treatment, or disposal of solid waste;

(uu) Yard waste shall refer to wood, small or chipped branches, leaves, grass clippings,
garden debris, vegetable residue that is recognized as part of a plant or vegetable and
other materials identified by the Commission.
CHAPTER II
INSTITUTIONAL MECHANISM
Section 4. National Solid Waste Management Commission - There is hereby established a
National Solid Waste Management Commission, hereinafter referred to as the Commission, under
the Office of the President. The Commissioner shall be composed of fourteen (14) members from
the government sector and three members from the private sector. The government sector shall be
represented by the heads of the following agencies in their ex officio capacity:
(1) Department of Environment and Natural Resources (DENR);

(nn) Source reduction shall refer to the reduction of solid waste before it enters the solid
waste stream by methods such as product design, materials substitution, materials reuse and packaging restrictions;
(oo) Source separation shall refer to the sorting of solid waste into some or all of its
component parts at the point of generation;

(2) Department of the Interior and Local Government (DILG);

(3) Department of Science and Technology (DOST);
(4) Department of Public Works and Highways (DPWH);

(pp) Special wastes shall refer to household hazardous wastes such as paints, thinners,
household batteries, lead-acid batteries, spray canisters and the like. These include
wastes from residential and commercial sources that comprise of bulky wastes,
consumer electronics, white goods, yard wastes that are collected separately, batteries,
oil, and tires. These wastes are usually handled separately from other residential and
commercial wastes;

(5) Department of Health (DOH);

(6) Department of Trade and Industry (DTI);
(7) Department of Agriculture (DA);

(qq) Storage shall refer to the interim containment of solid wastes after generation and
prior to collection for ultimate recovery or disposal;
(rr) Transfer stations shall refer to those facilities utilized to receive solid wastes,
temporarily store, separate, convert, or otherwise process the materials in the solid
wastes, or to transfer the solid wastes directly from smaller to larger vehicles for
transport. This term does not include any of the following:
(1) a facility whose principal function is to receive, store, separate, convert or
otherwise process in accordance with national minimum standards, manure;

(8) Metro Manila Development Authority (MMDA);

(9) League of provincial governors;
(10) League of city mayors;
(11) League of municipal mayors;
(12) Association of barangay councils;

(2) a facility, whose principal function is to receive, store, convert, or otherwise

process wastes which have already been separated for re-use and are
intended for disposals, and
(3) the operations premises of a duly licensed solid waste handling operator
who is receives, stores, transfers, or otherwise processes wastes as an
activity incidental to the conduct of a refuse collection and disposal business.

(13) Technical Education and Skills Development Authority (TESDA); and

(14) Philippine Information Agency.
The private sector shall be represented by the following:

(ss) Waste diversion shall refer to activities which reduce or eliminate the amount of
solid waste from waste disposal facilities;

(a) A representative from nongovernment organizations (NGOs) whose principal

purpose is to promote recycling and the protection of air and water quality;

(tt) White goods shall refer to large worn-out or broken household, commercial, and
industrial appliances such as stoves, refrigerators, dishwashers, and clothes washers
and dryers collected separately. White goods ate usually dismantled for the recovery of
specific materials (e.g., copper, aluminum, etc.);

(b) A representative from the recycling industry; and

(c) A representative from the manufacturing or packaging industry;

The Commission may, from time to time, call on any other concerned agencies or sectors as it
may deem necessary.

(i) Develop a mechanism for the imposition of sanctions for the violations environmental
rules and regulations;

Provided, That representatives from the NGOs, recycling and manufacturing or packaging
industries shall be nominated through a process designed by themselves and shall be appointed
by the President for a term of three (3) years.

(j) Manage the Solid Waste Management Fund;

Provided, further, That the Secretaries of the member agencies of the Commission shall formulate
action plans for their respective agencies to complement the National Solid Waste Management
Framework.
The Department Secretary and a private sector representative of the Commission shall serve as
chairman and vice chairman, respectively. The private sector representatives of the Commission
shall be appointed on the basis of their integrity, high decree of professionalism and having
distinguished themselves in environmental and resource management. The members of the
Commission shall serve and continue to hold office until their successors shall have been
appointed and qualified. Should a member of the Commission fail to complete his/her term, the
unexpired portion of the term. Finally, the members shall be entitled to reasonable traveling
expenses and honoraria.
The Department, through the Environmental Management Bureau, shall provide secretariat
support to the Commission. The Secretariat shall be headed by an executive director who shall be
nominated by the members of the Commission and appointed by the chairman.
Section 5. Powers and Functions of the Commission - The Commission shall oversee the
implementation of solid waste management plans and prescribe policies to achieve the objectives
of this Act. The Commission shall undertake the following activities.
(a) Prepare the national solid waste management framework;
(b) Approve local solid waste management plans in accordance with its rules and
regulations;

(k) Develop and prescribe procedures for the issuance of appropriate permits and
clearances.
(l) Review the incentives scheme for effective solid waste management, for purpose of
ensuring relevance and efficiency in achieving the objectives of this Act;
(m) Formulate the necessary education promotion and information campaign strategies;
(n) Establish, after notice and hearing of the parties concerned, standards, criteria,
guidelines, and formula that are fair, equitable and reasonable, in establishing tipping
charges and rates that the proponent will charge in the operation and management of
solid waste management facilities and technologies.
(o) Develop safety nets and alternative livelihood programs for small recyclers and other
sectors that will be affected as a result of the construction and/or operation of solid
waste management recycling plant or facility.
(p) Formulate and update a list of non-environmentally acceptable materials in
accordance with the provisions of this Act. For this purpose, it shall be necessary that
proper consultation be conducted by the Commission with all concerned industries to
ensure a list that is based on technological and economic viability.
(q) Encourage private sector initiatives, community participation and investments
resource recovery-based livelihood programs for local communities.
(r) Encourage all local government agencies and all local government units to patronize
products manufactured using recycled and recyclable materials;

(c) Review and monitor the implementation of local solid waste management plans;
(d) Coordinate the operation of local solid waste management boards in the provincial
and city/municipal levels;
(e) To the maximum extent feasible, utilizing existing resources, assist provincial, city
and municipal solid waste management plans;
(f) Develop a model provincial, city and municipal solid waste management plan that will
establish prototypes of the content and format which provinces, cities and municipalities
may use in meeting the requirements of the National Solid Waste Management
Framework;
(g) Adopt a program to provide technical and other capability building assistance and
support to local government units in the development and implementation of source
reduction programs;
(h) Develop and implement a program to assist local government units in the
identification of markets for materials that are diverted from disposal facilities through reuse, recycling, and composting, and other environment-friendly methods;

(s) Propose and adopt regulations requiring the source separation and post separation
collection, segregated collection, processing, marketing and sale of organic and
designated recyclable material generated in each local government unit; and
(t) Study and review of the following:
(i) Standards, criteria and guidelines for promulgation and implementation of
an integrated national solid waste management framework; and
(ii) Criteria and guidelines for siting, design, operation and maintenance of
solid waste management facilities.
Section 6. Meetings - The Commission shall meet at least once a month. The presence of at least
a majority of the members shall constitute a quorum. The chairman, or in his absence the vicechairman, shall be the presiding officer. In the absence of the heads of the agencies mentioned in
Sec. 4 of this Act, they may designate permanent representatives to attend the meetings.

Section 7. The National Ecology Center - There shall be established a National Ecology Center
under the Commission which shall provide consulting, information, training, and networking
services for the implementation of the provisions of this Act.

(g) Exercise visitorial and enforcement powers to ensure strict compliance with this Act;
(h) Perform such other powers and functions necessary to achieve the objectives of this
Act; and

In this regard, it shall perform the following functions:

(i) Issue rules and regulations to effectively implement the provisions of this Act.
(a) Facilitate training and education in integrated ecological solid waste management;
(b) Establish and manage a solid waste management information data base, in
coordination with the DTI and other concerned agencies:
(1) on solid waste generation and management techniques as well as the
management, technical and operational approaches to resource recovery; and
(2) of processors/recyclers, the list of materials being recycled or bought by
them and their respective prices;
(c) Promote the development of a recycling market through the establishment of a
national recycling network that will enhance the opportunity to recycle;
(d) Provide or facilitate expert assistance in pilot modeling of solid waste management
facilities; and
(e) Develop, test, and disseminate model waste minimization and reduction auditing
procedures for evaluating options.
The National Ecology Center shall be headed by the director of the Bureau in his ex
officio capacity. It shall maintain a multi-sectoral, multi-disciplinary pool of experts including those
from the academe, inventors, practicing professionals, business and industry, youth , women and
other concerned sectors, who shall be screened according to qualifications set by the
Commission.
Section 8. Role of the Departmen. - For the furtherance of the objectives of this Act, the
Department shall have the following functions:

Section 9. Visitorial Powers of the Department. - The Department or its duly authorized
representative shall have access to, and the right to copy therefrom, the records required to be
maintained pursuant to the provisions of this Act. The Secretary or the duly authorized
representative shall likewise have the right to enter the premises of any generator, recycler or
manufacturer, or other facilities any time to question any employee or investigate any fact,
condition or matter which may be necessary to determine any violation, or which may aid in the
effective enforcement of this Act and its implementing rules and regulations. This Section shall not
apply to private dwelling places unless the visitorial power is otherwise judicially authorized.
Section 10. Role of LGUs in Solid Waste Management - Pursuant to the relevant provisions of
R.A. No. 7160, otherwise known as the Local government code, the LGUs shall be primarily
responsible for the implementation and enforcement of the provisions of this Act within their
respective jurisdictions.
Segregation and collection of solid waste shall be conducted at the barangay level specifically for
biodegradable, compostable and reusable wastes: Provided, That the collection of non-recyclable
materials and special wastes shall be the responsibility of the municipality or city.
Section 11. Provincial Solid Waste Management Board - A Provincial Solid Waste Management
board shall be established in every province, to be chaired by the governor. Its members shall
include:
(a) All the mayors of its component cities and municipalities;
(b) One (1) representative from the Sangguniang Panlalawigan to be represented by the
chairperson of either the Committees on Environment or Health or their equivalent
committees, to be nominated by the presiding officer;

(a) Chair the Commission created pursuant to this Act;

(c) The provincial health and/or general services officers, whichever may be
recommended by the governor;

(b) Prepare an annual National Solid Waste Management Status Report;

(d) The provincial environment and natural resources officer;

(c) Prepare and distribute information, education and communication materials on solid
waste management;

(e) The provincial engineer;

(f) Congressional representatives from each congressional district within the province;

(d) Establish methods and other parameters for the measurement of waste reduction,
collection and disposal;
(e) Provide technical and other capability building assistance and support to the LGUs in
the development and implementation of local solid waste management plans and
programs;
(f) Recommend policies to eliminate barriers to waste reduction programs;

(g) A representative from the NGO sector whose principal purpose is to promote
recycling and the protection of air and water quality;
(h) A representative from the recycling industry;
(i) A representative from the manufacturing or packaging industry; and

(j) A representative of each concerned government agency possessing relevant

technical and marketing expertise as may be determined by the board.
The Provincial Solid Waste Management Board may, from time to time, call on any other
concerned agencies or sectors as it may deem necessary.
Provided, That representatives from the NGOs, recycling and manufacturing or packaging
industries shall be selected through a process designed by themselves and shall be endorsed by
the government agency of representatives of the Board: Provided, further, that in the Province of
Palawan, the Board shall be chaired by the chairman of the Palawan Council for Sustainable
Development, pursuant to Republic Act No. 7611.
In the case of Metro Manila, the Board shall be chaired by the chairperson of the MMDA and its
members shall include:
(i) all mayors of its component cities and municipalities;
(ii) a representative from the NGO sector whose principal purpose is to promote
recycling and the protection of air and water quality;

(4) Recommend measures to generate resources, funding and implementation of project

and activities as specified in the duly approved solid waste management plans;
(5) Identify areas within its jurisdiction which have common solid waste management
problems and are appropriate units are planning local solid waste management services
in accordance with Section 41 hereof;
(6) Coordinate the efforts of the component cities and municipalities in the
implementation of the Provincial Solid Waste Management Plan;
(7) Develop an appropriate incentive scheme as an integral component of the Provincial
Solid Waste Management Plan;
(8) Convene joint meetings of the provincial, city and municipal solid waste management
boards at least every quarter for purposes of integrating, synchronizing, monitoring and
evaluating the development and implementation of its provincial solid waste
management plan;
(9) Represent any of its component city or municipality in coordinating its resource and
operational requirements with agencies of the national government;

(iii) a representative from the recycling industry; and

(10) Oversee the implementation of the Provincial Solid Waste Management Plant;
(iv) a representative from the manufacturing or packaging industry.
The Board may, from time to time, call on any other concerned agencies or sectors as it may deem
necessary.
Provided, That representatives from the NGOs, recycling and manufacturing or packaging
industries shall be selected through a process designed by themselves and shall be endorsed by
the government agency representatives of the Board.
The Provincial Solid Waste Management Board shall have the following functions and
responsibilities:
(1) Develop a provincial solid waste management plan from the submitted solid waste
management plans of the respective city and municipal solid waste management boards
herein created. It shall review and integrate the submitted plans of all its component
cities and municipalities and ensure that the various plan complement each other, and
have the requisite components. The Provincial Solid Waste Management Plan shall be
submitted to the Commission for approval.
The Provincial Plans shall reflect the general program of action and initiatives of the
provincial government and implementing a solid waste management program that would
support the various initiatives of its component cities and municipalities.
(2) Provide the necessary logistical and operational support to its component cities and
municipalities in consonance with subsection (f) of Sec.17 of the Local Government
Code;
(3) Recommend measures and safeguards against pollution and for the preservation of
the natural ecosystem;

(11) Review every two (2) years or as the need arises the Provincial Solid Waste
Management Plan for purposes of ensuring its sustainability, viability, effectiveness and
relevance in relation to local and international development in the field of solid waste
management; and
(12) Allow for the clustering of LGUs for the solution of common solid waste
management problems.
Section 12. City and Municipal Solid Waste Management Board - Each city or municipality shall
form a City or Municipal Waste Management Board that shall prepare, submit and implement a
plan for the safe and sanitary management of solid waste generated in areas under in geographic
and political coverage.
The City or Municipal Solid Waste Management Board shall be composed of the city or municipal
mayor as head with the following as members:
a) One (1) representative of Sangguniang Panlungsod or the Sangguniang Bayan,
preferably chairpersons of either the Committees on Environment or Health, who will be
designated by the presiding officer;
b) President of the Association of Barangay Councils in the municipality or city;
c) Chairperson of the Sangguniang Kabataan Federation;
d) A representative from NGOs whose principal purpose is to promote recycling and the
protection of air and water quality;
e) A representative from the recycling industry;

f) A representative from the manufacturing or packaging industry; and

g) A representative of each concerned government agency possessing relevant
technical and marketing expertise as may be determined by the Board.
The City or Municipal Solid Waste Management Board may, from time to time, call on any
concerned agencies or sectors as it may deem necessary.
Provided, That representatives from NGOs, recycling and manufacturing or packaging industries
shall be selected through a process designed by themselves and shall be endorsed by the
government agency representatives of the Board.
The City and Municipal Solid Waste Management Boards shall have the following duties and
responsibilities:
(1) Develop the City or Municipal Solid Waste Management Plan that shall ensure the
long-term management of solid waste, as well as integrate the various solid waste
management plans and strategies of the barangays in its area of jurisdiction. In the
development of the Solid Waste Management Plan, it shall conduct consultations with
the various sectors of the community;
(2) Adopt measures to promote and ensure the viability and effective implementation of
solid waste management programs in its component barangays;
(3) Monitor the implementation of the City or Municipal Solid Waste Management Plan
through its various political subdivisions and in cooperation with the private sector and
the NGOs;
(4) Adopt specific revenue-generating measures to promote the viability of its Solid
Waste Management Plan;
(5) Convene regular meetings for purposes of planning and coordinating the
implementation of the solid waste management plans of the respective component
barangays;

(10) Provide the necessary logistical and operational support to its component cities and
municipalities in consonance with subsection (f) of Sec. 17 of the Local Government
Code;
(11) Recommended measures and safeguards against pollution and for the preservation
of the natural ecosystem; and
(12) Coordinates the efforts of its components barangays in the implementation of the
city or municipal Solid Waste Management Plan.
Section13. Establishment of Multi-Purpose Environment Cooperatives or Association in Every
LGU - Multi-purpose cooperatives and associations that shall undertake activities to promote the
implementation and/ or directly undertake projects in compliance with the provisions of this Act
shall be encouraged and promoted in every LGU.
CHAPTER III
COMPREHENSIVE SOLID WASTE MANAGEMENT
Article 1
General Provisions
Section 14. National Solid Waste Management Status Report - The Department, in coordination
with the DOH and other concerned agencies, shall within six (6) months after the effectivity of this
Act, prepare a National Solid Waste Management Status Report which shall be used as a basis in
formulating the National Solid Waste Management Framework provided in Sec. 15 of this Act. The
concerned agencies shall submit to the Department relevant data necessary for the completion of
the said report within three (3) months following the effectivity of this Act. The said report shall
include, but shall not be limited to, the following:
(a) Inventory of existing solid waste facilities;
(b) General waste characterization, taking into account the type, quantity of waste
generated and estimation of volume and type of waste for reduction and recycling;
(c) Projection of waste generation;

(6) Oversee the implementation of the City or Municipal Solid Waste Management Plan;
(7) Review every two (2) years or as the need arises the City or Municipal Solid Waste
Management Plan for purposes of ensuring its sustainability, viability, effectiveness and
relevance in relation to local and international developments in the field of solid waste
management;

(d) The varying regional geologic, hydrologic, climatic, and other factors vital in the
implementation of solid waste practices to ensure the reasonable protection of:
(1) the quality of surface and groundwater from leachate contamination;
(2) the quality of surface waters from surface run-off contamination; and

(8) Develop the specific mechanics and guidelines for the implementation of the City or
Municipal Solid Waste Management Plan;
(9) Recommended to appropriate local government authorities specific measures or
proposals for franchise or build-operate-transfer agreements with duly recognized
institutions, pursuant to R.A.6957, to provide either exclusive or non-exclusive authority
for the collection, transfer, storage, processing, recycling or disposal of municipal solid
waste. The proposals shall take into consideration appropriate government rules and
regulations on contracts, franchise and build-operate-transfer agreements;

(3) ambient air quality.

(e) Population density, distribution and projected growth;
(f) The political, economic, organizational, financial and management problems affecting
comprehensive solid waste management;
(g) Systems and techniques of waste reduction, re-use and recycling;

(h) Available markets for recyclable materials;

(i) Estimated cost of collecting, storing, transporting, marketing and disposal of wastes
and recyclable materials; and
(j) Pertinent qualitative and quantitative information concerning the extent of solid waste
management problems and solid waste management activities undertaken by local
government units and the waste generators.
Provided, That the Department, in consultation with concerned agencies, shall review, update and
publish a National Solid Waste Management Status Report every two (2) years or as the need
arises.
Section 15. National Solid Waste Management Framework - Within six (6) months from the
completion of the national solid waste management status report under Sec. 14 of this Act, the
Commission created under Sec. 4 of this Act shall, with public participation, formulate and
implement a National Solid Waste Management Framework. Such framework shall consider and
include:
(a) Analysis and evaluation of the current state, trends, projections of solid waste
management on the national, provincial and municipal levels;
(b) Identification of critical solid waste facilities and local government units which will
need closer monitoring and/or regulation;
(c) Characteristics and conditions of collection, storage, processing, disposal, operating
methods, techniques and practices, location of facilities where such operating methods,
techniques and practices are conducted, taking into account the nature of the waste;
(d) Waste diversion goal pursuant to Sec. 20 of this Act;
(e) Schedule for the closure and/or upgrading of open and controlled dumps pursuant to
Sec. 37 of this Act;
(f) Methods of closing or upgrading open dumps for purposes of eliminating potential
health hazards;
(g) The profile of sources, including industrial, commercial, domestic, and other sources;
(h) Practical applications of environmentally sound techniques of water minimization
such as, but not limited to, resource conservation, segregation at source, recycling,
resource recovery, including waste-to-energy generation, re-use and composting;
(i) A technical and economic description of the level of performance that can be attained
by various available solid waste management practices which provide for the protection
of public health and the environment;
(j) Appropriate solid waste facilities and conservation systems;
(k) Recycling programs for the recyclable materials, such as but not limited to glass,
paper, plastic and metal;

(l) Venues for public participation from all sectors at all phases/stages of the waste
management program/project;
(m) Information and education campaign strategies;
(n) A description of levels of performance and appropriate methods and degrees of
control that provide, at the minimum, for protection of public health and welfare through:
(1) Protection of the quality of groundwater and surface waters from leachate
and run-off contamination;
(2) Disease and epidemic prevention and control;
(3) Prevention and control of offensive odor; and
(4) Safety and aesthetics.
(o) Minimum criteria to be used by the local government units to define ecological solid
waste management practices. As much as practicable, such guidelines shall also
include minimum information for use in deciding the adequate location, design and
construction of facilities associated with solid waste management practices, including
the consideration of regional, geographic, demographic and climatic factors; and
(p) The method and procedure for the phaseout and the eventual closure within
eighteen (18) months from the effectivity of this Act in case of existing open dumps
and/or sanitary landfills located within an aquifer, groundwater reservoir or watershed
area.
Section 16. Local Government Solid Waste Management Plans - The province, city or
municipality, through its local solid waste management boards, shall prepare its respective 10-year
solid waste management plans consistent with the national solid waste management
framework: Provided, That the waste management plan shall be for the re-use, recycling and
composting of wastes generated in their respective jurisdictions: Provided,further, That the solid
waste management plan of the LGU shall ensure the efficient management of solid waste
generated within its jurisdiction. The plan shall place primary emphasis on implementation of all
feasible re-use, recycling, and composting programs while identifying the amount of landfill and
transformation capacity that will be needed for solid waste which cannot be re-used, recycled, or
composted. The plan shall contain all the components provided in Sec. 17 of this Act and a
timetable for the implementation of the solid waste management program in accordance with the
National Framework and pursuant to the provisions of this Act: Provided, finally, That it shall be
reviewed and updated every year by the provincial, city or municipal solid waste management
board.
For LGUs which have considered solid waste management alternatives to comply with Sec. 37 of
this Act, but are unable to utilize such alternatives, a timetable or schedule of compliance
specifying the remedial measure and eventual compliance shall be included in the plan.
All local government solid waste management plans shall be subjected to the approval of the
Commission. The plan shall be consistent with the national framework and in accordance with the
provisions of this Act and of the policies set by the Commission; Provided, That in the province of
Palawan, the local government solid waste management plan shall be approved by the Palawan
Council for Sustainable Development, pursuant to R.A. No. 7611.

Section 17. The Components of the Local Government Solid Waste Management Plan - The solid
waste management plan shall include, but not limited to, the following components:
(a) City or Municipal Profile - The plan shall indicate the following background
information on the city or municipality and its component barangays, covering important
highlights of the distinct geographic and other conditions:
(1) Estimated population of each barangay within the city or municipality and
population project for a 10-year period;
(2) Illustration or map of the city/municipality, indicating locations of
residential, commercial, and industrial centers, and agricultural area, as well
as dump, landfills and other solid waste facilities. The illustration shall indicate
as well, the proposed sites for disposal and other solid waste facilities;
(3) Estimated solid waste generation and projection by source, such as
residential, market, commercial, industrial, construction/ demolition, street
waste,agricultural, agro-industrial, institutional, other waste; and

(5) Provision of properly trained officers and workers to handle solid waste
disposal.
The plan shall define and specify the methods and systems for the transfer of solid
waste from specific collection points to solid waste management facilities.
(d) Processing - The Plan shall define the methods and the facilities required to process
the solid waste, including the use of intermediate treatment facilities for composting,
recycling, conversion and other waste processing systems. Other appropriate waste
processing technologies may also be considered provided that such technologies
conform with internationally-acceptable and other standards set in other standards set in
other laws and regulations.
(e) Source reduction - The source reduction component shall include a program and
implementation schedule which shows the methods by which the LGU will, in
combination with the recycling and composting components, reduce a sufficient amount
of solid waste disposed of in accordance with the diversion requirements of Sec. 20.
The source reduction component shall describe the following:

(4) Inventory of existing waste disposal and other solid waste facilities and
capacities.

(1) strategies in reducing the volume of solid waste generated at source;

(b) Waste characterization - For the initial source reduction and recycling element of a
local waste management plan, the LGU waste characterization component shall identify
the constituent materials which comprise the solid waste generated within the
jurisdiction of the LGU. The information shall be representative of the solid waste
generated and disposed of within the area. The constituent materials shall be identified
by volume, percentage in weight or its volumetric equivalent, material type, and source
of generation which includes residential, commercial, industrial, governmental, or other
materials. Future revisions of waste characterization studies shall identify the constituent
materials which comprise the solid waste disposed of at permitted disposal facilities.

(2) measures for implementing such strategies and the resources necessary
to carry out such activities;

(c) Collection and Transfer - The plan shall take into account the geographic
subdivisions to define the coverage of the solid waste collection area in every barangay.
The barangay shall be responsible for ensuring that a 100% collection efficiency from
residential, commercial, industrial and agricultural sources, where necessary within its
area of coverage, is achieved. Toward this end, the plan shall define and identify the
specific strategies and activities to be undertaken by its component barangays, taking
into account the following concerns:

(5) the methods that the LGU will use to determine the categories of solid
wastes to be diverted from disposal at a disposal facility through re-use,
recycling and composting; and

(1) Availability and provision of properly designed containers or receptacles in

selected collection points for the temporary storage of solid waste while
awaiting collection and transfer to processing sites or to final disposal sites;
(2) Segregation of different types of solid waste for re-use, recycling and
composting;
(3) Hauling and transfer of solid waste from source or collection points to
processing sites or final disposal sites;
(4) Issuance and enforcement of ordinances to effectively implement a
collection system in the barangay; and

(3) other appropriate waste reduction technologies that may also be

considered, provided that such technologies conform with the standards set
pursuant to this Act;
(4) the types of wastes to be reduced pursuant to Sec. 15 of this Act;

(6) new facilities and expansion of existing facilities which will be needed to
implement re-use, recycling and composting.
The LGU source reduction component shall include the evaluation and identification of
rate structures and fees for the purpose of reducing the amount of waste generated, an
other source reduction strategies, including but not limited to, programs and economic
incentives provided under Sec. 46 of this Act to reduce the use of non-recyclable
materials, replace disposable materials and products with reusable materials and
products, reduce packaging, and increase the efficiency of the use of paper, cardboard,
glass, metal, and other materials. The waste reduction activities of the community shall
also take into account, among others, local capability, economic viability, technical
requirements, social concerns' disposition of residual waste and environmental
impact: Provided, That, projection of future facilities needed and estimated cost shall be
incorporated in the plan.
(f) Recycling - The recycling component shall include a program and implementation
schedule which shows the methods by which the LGU shall, in combination with source
reduction and composting components, reduce a sufficient amount of solid waste
disposed of in accordance with the diversion requirements set in Sec .20.

The LGU recycling component shall describe the following:

(2) The methods for determining the categories of solid wastes to be diverted
from disposal at a disposal facility through composting; and

(1) The types of materials to be recycled under the programs;

(2) The methods for determining the categories of solid wastes to be diverted
from disposal at a disposal facility through recycling; and
(3) New facilities and expansion of existing facilities needed to implement the
recycling component.
The LGU recycling component shall described methods for developing the markets for
recycled materials, including, but not limited to, an evaluation of the feasibility of
procurement preferences for the purchase of recycled products. Each LGU may
determine and grant a price preference to encourage the purchase of recycled products.
The five-year strategy for collecting, processing, marketing and selling the designated
recyclable materials shall take into account persons engaged in the business of
recycling or persons otherwise providing recycling services before the effectivity of this
Act. Such strategy may be base upon the results of the waste composition analysis
performed pursuant to this Section or information obtained in the course of past
collection of solid waste by the local government unit, and may include
recommendations with respect to increasing the number of materials designated for
recycling pursuant to this Act.
The LGU recycling component shall evaluate industrial, commercial, residential,
agricultural, governmental and other curbside, mobile, drop-off and buy-back recycling
programs, manual and automated materials recovery facilities, zoning, building code
changes and rate structures which encourage recycling of materials. The Solid Waste
Management Plan shall indicate the specific measures to be undertaken to meet the
waste diversion specified under Sec. 20 of this Act.
Recommended revisions to the building ordinances, requiring newly-constructed
buildings and buildings undergoing specified alterations to contain storage space,
devices or mechanisms that facilitate source separation and storage of designated
recyclable materials to enable the local government unit to efficiently collect, process,
market and sell the designated materials. Such recommendations shall include, but shall
not be limited to separate chutes to facilitate source separation in multi-family dwellings,
storage areas that conform to fire and safety code regulations, and specialized storage
containers.
The Solid Waste Management Plan shall indicate the specific measures to be
undertaken to meet the recycling goals pursuant to the objectives of this Act.
(g) Composting - The composting component shall include a program and
implementation schedule which shows the methods by which the LGU shall, in
combination with the source reduction and recycling components, reduce a sufficient
amount of solid waste disposed of within its jurisdiction to comply with the diversion
requirements of Sec. 20 hereof.
The LGU composting component shall describe the following:
(1) The types of materials which will be composted under the programs;

(3) New facilities, and expansion of existing facilities needed to implement the
composting component.
The LGU composting component shall describe methods for developing the markets for
composted materials, including, but not limited to, an evaluation of the feasibility of
procurement preferences for the purchase of composted products. Each LGU may
determine and grant a price preference to encourage the purchase of composted
products.
(h) Solid waste facility capacity and final disposal - The solid waste facility component
shall include, but shall not be limited to, a projection of the amount of disposal capacity
needed to accommodate the solid waste generated, reduced by the following:
(1) Implementation of source reduction, recycling and composting programs
required in this Section or through implementation of other waste diversion
activities pursuant to Sec. 20 of this Act;
(2) Any permitted disposal facility which will be available during the 10-year
planning period; and
(3) All disposal capacity which has been secured through an agreement with
another LGU, or through an agreement with a solid waste enterprise.
The plan shall identify existing and proposed disposal sites and waste management
facilities in the city or municipality or in other areas. The plan shall specify the strategies
for the efficient disposal of waste through existing disposal facilities and the identification
of prospective sites for future use. The selection and development of disposal sites shall
be made on the basis of internationally accepted standards and on the guidelines set in
Sec. 41 and 42 of this Act.
Strategies shall be included to improve said existing sites to reduce adverse impact on
health and the environment, and to extent life span and capacity. The plan shall clearly
define projections for future disposal site requirements and the estimated cost for these
efforts.
Open dump sites shall not be allowed as final disposal sites. If an open dump site is
existing within the city or municipality, the plan shall make provisions for its closure or
eventual phase out within the period specified under the framework and pursuant to the
provisions under Sec. 37 of this Act. As an alternative, sanitary landfill sites shall be
developed and operated as a final disposal site for solid and, eventually, residual wastes
of a municipality or city or a cluster of municipality and/or cities. Sanitary landfills shall
be designed and operated in accordance with the guidelines set under Secs. 40 and 41
of this Act.
(i) Education and public information - The education and public information component
shall describe how the LGU will educate and inform its citizens about the source
reduction, recycling and composting programs.
The plan shall make provisions to ensure that information on waste collection services,
solid waste management and related health and environmental concerns are widely
disseminated among the public. This shall be undertaken through the print and

broadcast media and other government agencies in the municipality. The DECS and the
Commission on Higher Education shall ensure that waste management shall be
incorporated in the curriculum of primary, secondary and college students.
(j) Special Waste - The special waste component shall include existing waste handling
and disposal practices for special wastes or household hazardous wastes, and the
identification of current and proposed programs to ensure the proper handling, re-use,
and long-term disposal of special wastes;
(k) Resource requirement and funding - The funding component includes identification
and description of project costs, revenues, and revenue sources the LGU will use to
implement all components of the LGU solid waste management plan;
The plan shall likewise indicate specific projects, activities, equipment and technological
requirements for which outside sourcing of funds or materials may be necessary to carry
out the specific components of the plan. It shall define the specific uses for its resource
requirement s and indicate its costs. The plan shall likewise indicate how the province,
city or municipality intends to generate the funds for the acquisition of its resource
requirements. It shall also indicate if certain resource requirements are being or will be
sourced from fees, grants, donations, local funding and other means. This will serve as
basis for the determination and assessment of incentives which may be extended to the
province, city or municipality as provided for in Sec. 45 of this Act.
(l) Privatization of solid waste management projects - The plan shall likewise indicate
specific measures to promote the participation of the private sector in the management
of solid wastes, particularly in the generation and development of the essential
technologies for solid waste management. Specific projects or component activities of
the plan which may be offered as private sector investment activity shall be identified
and promoted as such. Appropriate incentives for private sector involvement in solid
waste management shall likewise be established and provided for in the plan, in
consonance with Sec. 45 hereof and other existing laws, policies and regulations; and
(m) Incentive programs - A program providing for incentives, cash or otherwise, which
shall encourage the participation of concerned sectors shall likewise be included in the
plan.
Section 18. Owner and Operator - Responsibility for compliance with the standards in this Act
shall rest with the owner and/or operator. If specifically designated, the operator is considered to
have primary responsibility for compliance; however, this does not relieve the owner of the duty to
take all reasonable steps to assure compliance with these standards and any assigned conditions.
When the title to a disposal is transferred to another person, the new owner shall be notified by the
previous owner of the existence of these standards and of the conditions assigned to assure
compliance.
Section 19. Waste characterization - The Department in coordination with the LGUs, shall be
responsible for the establishment of the guidelines for the accurate characterization of wastes
including determination of whether or not wastes will be compatible with containment features and
other wastes, and whether or not wastes are required to be managed as hazardous wastes under
R.A. 6969, otherwise known as the Toxic Substance and Hazardous and Nuclear Wastes Control
Act.
Section 20. Establishing Mandatory Solid Waste Diversion - Each LGU plan shall include an
implementation schedule which shows that within five (5) years after the effectivity of this Act, the
LGU shall divert at least 25% of all solid waste from waste disposal facilities through re-use,
recycling and composting activities and other resource recovery activities; Provided, That the
waste diversion goals shall be increased every three (3) years thereafter; Provided, further, That

nothing in this Section prohibits a local government unit from implementing re-use, recycling, and
composting activities designed to exceed the goal.
Article 2
Segregation of Wastes
Section 21. Mandatory Segregation of Solid Wastes - The LGUs shall evaluate alternative roles
for the public and private sectors in providing collection services, type of collection system, or
combination of systems, that best meet their needs: Provided, That segregation of wastes shall
primarily be conducted at the source, to include household, institutional, industrial, commercial and
agricultural sources: Provided, further; That wastes shall be segregated into the categories
provided in Sec. 22 of this Act.
For premises containing six (6) or more residential units, the local government unit shall
promulgate regulations requiring the owner or person in charge of such premises to:
(a) provide for the residents a designated area and containers in which to accumulate
source separated recyclable materials to be collected by the municipality or private
center; and
(b) notify the occupants of each buildings of the requirements of this Act and the
regulations promulgated pursuant thereto.
Section 22. Requirements for the Segregation and Storage of Solid Waste - The following shall be
the minimum standards and requirements for segregation and storage of solid waste pending
collection:
(a) There shall be a separate container for each type of waste from all
sources: Provided, That in the case of bulky waste, it will suffice that the same be
collected and placed in a separate designated area; and
(b) The solid waste container depending on its use shall be properly marked or identified
for on-site collection as "compostable", "non-recyclable", "recyclable" or "special waste",
or any other classification as may be determined by the Commission.
Article 3
Collection and Transport of Solid Wastes
Section 23. Requirements for Collection of Solid Wastes - The following shall be the minimum
standards and requirements for the collection of solid waste:
(a) All collectors and other personnel directly dealing with collection of solid waste shall
be equipped with personal protective equipment to protect them from the hazards of
handling wastes;
(b) Necessary training shall be given to the collectors and personnel to ensure that the
solid wastes are handled properly and in accordance with the guidelines pursuant to this
Act; and
(c) Collection of solid waste shall be done in a manner which prevents damage to the
container and spillage or scattering of solid waste within the collection vicinity.

Section 24. Requirements for the Transport of Solid Waste - The use of separate collection
schedules and/or separate trucks or haulers shall be required for specific types of wastes.
Otherwise, vehicles used for the collection and transport of solid wastes shall have the appropriate
compartments to facilitate efficient storing of sorted wastes while in transit.
Vehicles shall be designed to consider road size, condition and capacity to ensure the sage and
efficient collection and transport of solid wastes.
The waste compartment shall have a cover to ensure the containment of solid wastes while in
transit.
For the purpose of identification, vehicles shall bear the body number, the name, and the
telephone number of the contractor/agency collecting solid waste.
Section 25. Guidelines for Transfer Stations - Transfer stations shall be designed and operated for
efficient waste handling capacity and in compliance with environmental standards and guidelines
set pursuant to this Act and other regulations: Provided, That no waste shall be stored in such
station beyond twenty-four (24) hours.
The siting of the transfer station shall consider the land use plan, proximity to collection area, and
accessibility of haul routes to disposal facility. The design shall give primary consideration to size
and space sufficiency in order to accommodate the waste for storage and vehicles for loading and
unloading of wastes.
Article 4
Recycling Program
Section 26. Inventory of Existing Markets for Recyclable Materials - The DTI shall within six (6)
months from the effectivity of this Act and in cooperation with the Department, the DILG and other
concerned agencies and sectors, publish a study of existing markets for processing and
purchasing recyclable materials and the potential steps necessary to expand these markets. Such
study shall include, but not be limited to, an inventory of existing markets for recyclable materials,
product standards for recyclable and recycled materials, and a proposal, developed in conjunction
with the appropriate agencies, to stimulate the demand for the production of products containing
post consumer and recovered materials.
Section 27. Requirement for Eco-Labeling - The DTI shall formulate and implement a coding
system for packaging materials and products to facilitate waste and recycling and re-use.
Section 28. Reclamation Programs and Buy-back Centers for Recyclables and Toxics - The
National Ecology Center shall assist LGUs in establishing and implementing deposit or
reclamation programs in coordination with manufacturers, recyclers and generators to provide
separate collection systems or convenient drop-off locations for recyclable materials and
particularly for separated toxic components of the waste stream like dry cell batteries and tires to
ensure that they are not incinerated or disposed of in a landfill. Upon effectivity of this Act, toxic
materials present in the waste stream should be separated at source, collected separately and
further screened and sent to appropriate hazardous waste treatment and disposal plants,
consistent with the provisions of R.A. No. 6969.
Section 29. Non-Environmentally Acceptable Products - Within one (1) year from the effectivity of
this Act, the Commission shall, after public notice and hearing, prepare a list of nonenvironmentally
acceptable products as defined in this Act that shall be prohibited according to a schedule that
shall be prepared by the Commission:Provided, however, That non-environmentally acceptable
products shall not be prohibited unless the Commission first finds that there are alternatives

available which are available to consumers at no more than ten percent (10%) greater cost than
the disposable product.
Notwithstanding any other provisions to the contrary, this section shall not apply to:
(a) Packaging used at hospitals, nursing homes or other medical facilities; and
(b) Any packaging which is not environmentally acceptable, but for which there is no
commercially available alternatives as determined by the Commission.
The Commission shall annually review and update the list of prohibited non-environmentally
acceptable products.
Section 30. Prohibition on the Use of Non-Environmentally Acceptable Packaging - No person
owning, operating or conducting a commercial establishment in the country shall sell or convey at
retail or possess with the intent to sell or convey at retail any products that are placed, wrapped or
packaged in or on packaging which is not environmentally acceptable packaging: Provided, That
the Commission shall determine a phaseout period after proper consultation and hearing with the
stakeholders or with the sectors concerned. The presence in the commercial establishment of nonenvironmentally acceptable packaging shall constitute a rebuttable presumption of intent to sell or
convey the same at retail to customers.
Any person who is a manufacturer, broker or warehouse operator engaging in the distribution or
transportation of commercial products within the country shall file a report with the concerned local
government within one (1) year from the effectivity of this Act, and annually thereafter, a listing of
any products in packaging which is not environmentally acceptable. The Commission shall
prescribe the form of such report in its regulations.
A violation of this Section shall be sufficient grounds for the revocation, suspension, denial or nonrenewal of any license for the establishment in which the violation occurs.
Section 31. Recycling Market Development - The Commission together with the National Ecology
Center, the DTI and the Department of Finance shall establish procedures, standards and
strategies to market recyclable materials and develop the local market for recycle goods, including
but not limited to:
(a) measures providing economic incentives and assistance including loans and grants
for the establishment of privately-owned facilities to manufacture finished products from
post-consumer materials;
(b) guarantees by the national and local governments to purchase a percentage of the
output of the facility; and
(c) maintaining a list of prospective buyers, establishing contact with prospective buyers
and reviewing and making any necessary changes in collecting or processing the
materials to improve their marketability.
In order to encourage establishments of new facilities to produce goods from post-consumer and
recovered materials generated within local government units, and to conserve energy by reducing
materials transportation, whenever appropriate, each local government unit may arranged for longterm contracts to purchase a substantial share of the product output of a proposed facility which
will be based in the jurisdiction of the local government unit if such facility will manufacture such
finished products form post-consumer and recovered materials.

Section 32. Establishment of LGU Materials Recovery Facility. - There shall be established a
Materials Recovery Facility (MRF) in every barangay or cluster of barangays. The facility shall be
established in a barangay-owned or -leased land or any suitable open space to be determined by
the barangay through its Sanggunian. For this purpose, the barangay or cluster of barangays shall
allocate a certain parcel of land for the MRF. The MRF shall receive mixed waste for final sorting,
segregation, composting, and recycling. The resulting residual wastes shall be transferred to a
long term storage or disposal facility or sanitary landfill.
Section 33. Guidelines for Establishment of Materials Recovery Facility - Materials recovery
facilities shall be designed to receive, sort, process and store compostable and recyclable material
efficiently and in an environmentally sound manner. The facility shall address the following
considerations:
(a) The building and/or land layout and equipment must be designed to accommodate
efficient and safe materials processing, movement, and storage; and

Section 39. Guidelines for Controlled Dumps - The following shall be the minimum considerations
for the establishments of controlled dumps:
(a) Regular inert cover;
(b) Surface water and peripheral site drainage control;
(c) Provision for aerobic and anaerobic decomposition;
(d) Restriction of waste deposition to small working areas;
(e) Fence, including provisions for litter control;
(f) Basic record-keeping;

(b) The building must be designed to allow efficient and safe external access and to
accommodate internal flow.
Article 5
Composting
Section 34. Inventory of Markets of Composts - Within six (6) months after the effectivity of this
Act, the DA shall publish an inventory of existing markets and demands for composts. Said
inventory shall thereafter be updated and published annually: Provided, That the composting of
agricultural wastes and other compostable materials, including but not limited to garden wastes,
shall be encouraged.
Section 35. Guidelines for Compost Quality - Compost products intended to be distributed
commercially shall conform with the standards for organic fertilizers set by the DA. The DA shall
assist the compost producers to ensure that the compost products conform to such standards.
Article 6
Waste Management Facilities
Section 36. Inventory of Waste Disposal Facilities - Within six (6) months from the effectivity of
this Act, the Department, in cooperation with the DOH, DILG and other concerned agencies, shall
publish an inventory of all solid waste disposal facilities or sites in the country.
Section 37. Prohibition Against the Use of Open Dumps for Solid Waste - No open dumps shall be
established and operated, nor any practice or disposal of solid waste by any person, including
LGUs, which constitutes the use of open dumps for solid wastes, be allowed after the effectivity of
this Acts: Provided, That within three (3) years after the effectivity of this Act, every LGU shall
convert its open dumps into controlled dumps, in accordance with the guidelines set in Sec. 41 of
this Act: Provided, further, That no controlled dumps shall be allowed five (5) years following the
effectivity of this Act.
Section 38. Permit for Solid Waste Management Facility Construction and Expansion - No person
shall commence operation, including site preparation and construction of a new solid waste
management facility or the expansion of an existing facility until said person obtains an
Environment Compliance Certificate (ECC) from the Department pursuant to P.D. 1586 and other
permits and clearances form concerned agencies.

(g) Provision of maintained access road;

(h) Controlled waste picking and trading;
(i) Post-closure site cover and vegetation; and
(j) Hydro geological siting.
Section 40. Criteria for Siting a Sanitary Landfill - The following shall be the minimum criteria for
the siting of sanitary landfills:
(a) The site selected must be consistent with the overall land use plan of the LGU;
(b) The site must be accessible from major roadways or thoroughfares;
(c) The site should have an adequate quantity of earth cover material that is easily
handled and compacted;
(d) The site must be chosen with regard for the sensitivities of the community's
residents;
(e) The site must be located in an area where the landfill's operation will not
detrimentally affect environmentally sensitive resources such as aquifer, groundwater
reservoir or watershed area;
(f) The site should be large enough to accommodate the community's wastes for a
period of five (5) years during which people must internalize the value of environmentally
sound and sustainable solid waste disposal;
(g) The site chosen should facilitate developing a landfill that will satisfy budgetary
constraints, including site development, operation for many years, closure, post-closure
care and possible remediation costs;
(h) Operating plans must include provisions for coordinating with recycling and resource
recovery projects; and

(i) Designation of a separate containment area for household hazardous wastes.

(3) Daily log book or file of the following information: fires, landslides,
earthquake damage, unusual and sudden settlement, injury and property
damage, accidents, explosions, receipts or rejection of unpermitted wastes,
flooding and other unusual occurrences;

Section 41. Criteria for Establishment of Sanitary Landfill - The following shall be the minimum
criteria for the establishment of sanitary landfills:

(4) Record of personnel training; and

(a) Liners - a system of clay layers and/or geosynthethic membranes used to contain
leachate and reduce or prevent contaminant flow to groundwater;

(5) Copy of written notification to the Department, local health agency, and fire
authority of names, addresses and telephone numbers of the operator or
responsible party of the site;

(b) Leachate collection and treatment system - installation of pipes at the low areas of
the liner to collect leachate for storage and eventual treatment and discharge;
(c) Gas control and recovery system - a series of vertical wells or horizontal trenches
containing permeable materials and perforated piping placed in the landfill to collect gas
for treatment or productive use as an energy source;
(d) Groundwater monitoring well system - wells placed at an appropriate location and
depth for taking water that are representative of ground water quality;

(b) Water quality monitoring of surface and ground waters and effluent, and gas
emissions;
(c) Documentation of approvals, determinations and other requirements by the
Department;
(d) Signs:

(e) Cover - two (2) forms of cover consisting of soil and geosynthetic materials to protect
the waste from long-term contact with the environment:
(i) a daily cover placed over the waste at the close of each day's operations,
and;
(ii) a final cover, or cap, which is the material placed over the completed
landfill to control infiltration of water, gas emission to the atmosphere, and
erosion.
(f) Closure procedure with the objectives of establishing low maintenance cover systems
and final cover that minimizes the infiltration of precipitation into the waste. Installation of
the final cover must be completed within six (6) months of the last receipt of waste;
(g) Post-closure care procedure - During this period, the landfill owner shall be
responsible for providing for the general upkeep of the landfill, maintaining all of the
landfill's environmental protection features, operating monitoring equipment, remediating
groundwater should it become contaminated and controlling landfill gas migration or
emission.
Section 42. Operating Criteria for Sanitary Landfills - In the operation of a sanitary land fill, each
site operator shall maintain the following minimum operating equipments:
(a) Disposal site records of, but not limited to:
(1) Records of weights or volumes accepted in a form and manner approved
by the Department. Such records shall be submitted to the Department upon
request, accurate to within ten percent (10%) and adequate for overall
planning purposes and forecasting the rate of site filling;
(2) Records of excavations which may affect the safe and proper operation of
the site or cause damage to adjoining properties;

(1) Each point of access from a public road shall be posted with an easily
visible sigh indicating the facility name and other pertinent information as
required by the Department;
(2) If the site is open to the public, there shall be an easily visible sign at the
primary entrance of the site indicating the name of the site operator, the
operator's telephone number, and hours of operation; an easily visible sign at
an appropriate point shall indicate the schedule of changes and the general
types of materials which will either be accepted or not;
(3) If the site is open to the public, there shall be an easily visible road sign
and/or traffic control measures which direct traffic to the active face and other
areas where wastes or recyclable materials will be deposited; and
(4) Additional signs and/or measures may be required at a disposal site by the
Department to protect personnel and public health and safety;
(e) Monitoring of quality of surface, ground and effluent waters, and gas emissions;
(f) The site shall be designed to discourage unauthorized access by persons and
vehicles by using a perimeter barrier or topographic constraints. Areas within the site
where open storage, or pounding of hazardous materials occurs shall be separately
fenced or otherwise secured as determined by the Department. The Department may
also require that other areas of the site be fenced to create an appropriate level of
security;
(g) Roads within the permitted facility boundary shall be designed to minimize the
generation of dust and the tracking of material onto adjacent public roads. Such roads
shall be kept in safe condition and maintained such that vehicle access and unloading
can be conducted during inclement weather;
(h) Sanitary facilities consisting of adequate number of toilets and handwashing
facilities, shall be available to personnel at or in the immediate vicinity of the site;

(i) Safe and adequate drinking water supply for the site personnel shall be available;
(j) The site shall have communication facilities available to site personnel to allow quick
response to emergencies;
(k) Where operations are conducted during hours of darkness, the site and/or equipment
shall be equipped with adequate lighting as approved by the Department to ensure
safety and to monitor the effectiveness of operations;

waste management, the Commission shall, as soon as practicable but not later than six (6) months
from the effectivity of this Act, publish guidelines for the identification of those areas which have
common solid waste management problems and are appropriate units for clustered solid waste
management services. The guidelines shall be based on the following:
(a) the size and location of areas which should be included;
(b) the volume of solid waste which would be generated;

(l) Operating and maintenance personnel shall wear and use appropriate safety
equipment as required by the Department;

(c) the available means of coordinating local government planning between and among
the LGUs and for the integration of such with the national plan; and

(m) Personnel assigned to operate the site shall be adequately trained in subject
pertinent to the site operation and maintenance, hazardous materials recognition and
screening, and heavy equipment operations, with emphasis on safety, health,
environmental controls and emergency procedures. A record of such training shall be
placed in the operating record;

(d) possible lifespan of the disposal facilities.

(n) The site operator shall provide adequate supervision of a sufficient number of
qualified personnel to ensure proper operation of the site in compliance with all
applicable laws, regulations, permit conditions and other requirements. The operator
shall notify the Department and local health agency in writing of the names, addresses,
and telephone number of the operator or responsible party. A copy of the written
notification shall be placed in the operation record;
(o) Any disposal site open to the public shall have an attendant present during public
operating hours or the site shall be inspected by the operator on a regularly scheduled
basis, as determined by the Department;
(p) Unloading of solid wastes shall be confined to a small area as possible to
accommodate the number of vehicles using the area without resulting in traffic,
personnel, or public safety hazards. Waste materials shall normally be deposited at the
toe of the fill, or as otherwise approved by the Department;
(q) Solid waste shall be spread and compacted in layers with repeated passages of the
landfill equipment to minimize voids within the cell and maximize compaction. The loose
layer shall not exceed a depth approximately two feet before compaction. Spreading and
compacting shall be accomplished as rapidly as practicable, unless otherwise approved
by the Department;
(r) Covered surfaces of the disposal area shall be graded to promote lateral runoff of
precipitation and to prevent pounding. Grades shall be established of sufficient slopes to
account for future settlement of the fill surface. Other effective maintenance methods
may be allowed by the Department; and
(s) Cover material or native material unsuitable for cover, stockpiled on the site for use
or removal, shall be placed so as not to cause problems or interfere with unloading,
spreading, compacting, access, safety drainage, or other operations.
Article 7
Local Government Solid Waste Management
Section 43. Guidelines for Identification of Common Solid Waste Management Problems - For
purposes of encouraging and facilitating the development of local government plans for solid

Section 44. Establishment of Common Waste Treatment and Disposal Facilities - Pursuant to
Sec. 33 of R.A.7160, otherwise known as the Local Government Code, all provinces, cities,
municipalities and barangays, through appropriate ordinances, are hereby mandated to
consolidate, or coordinate their efforts, services, and resources for purposes of jointly addressing
common solid waste management problems and/or establishing common waste disposal facilities.
The Department, the Commission and local solid waste management boards shall provide
technical and marketing assistance to the LGUs.
CHAPTER IV
INCENTIVES
Section 45. Incentives. (a) Rewards, monetary or otherwise, shall be provided to individuals, private
organizations and entitles, including non-government organizations, that have
undertaken outstanding and innovative projects, technologies, processes and
techniques or activities in re-use, recycling and reduction. Said rewards shall be sourced
from the Fund herein created.
(b) An incentive scheme is hereby provided for the purpose of encouraging LGUs,
enterprises, or private entities, including NGOs, to develop or undertake an effective
solid waste management, or actively participate in any program geared towards the
promotion thereof as provided for in this Act.
(1) Fiscal Incentives. - Consistent with the provisions of E.O. 226, otherwise known as the
Omnibus Investments Code, the following tax incentives shall be granted:
(a) Tax and Duty Exemption on Imported Capital Equipment and Vehicles - Within ten
(10) years upon effectively of this Act, LGUs, enterprises or private entities shall enjoy
tax and duty free importation of machinery, equipment, vehicles and spare parts used for
collection, transportation, segregation, recycling, re-use and composing of solid
wastes: Provided, That the importation of such machinery, equipment, vehicle and spare
parts shall comply with the following conditions:
(i) They are not manufactured domestically in sufficient quantity, of
comparable quality and at reasonable prices;

(ii) They are reasonably needed and will be used actually, directly and
exclusively for the above mentioned activities;
(iii) The approval of the Board of Investment (BOI) of the DTI for the
importation of such machinery, equipment, vehicle and spare parts.
Provided, further, That the sale, transfer or disposition of such machinery, equipment,
vehicle and spare parts, without prior approval of the (BOI), within five (5) years from the
date of acquisition shall be prohibited, otherwise, the LGU concerned, enterprise or
private entities and the vendee, transferee, or assignee shall be solidarily liable to pay
twice the amount of tax and duty exemption given it.

Section 46. Solid Waste Management Fund - There is hereby created, as a special account in the
National Treasury, a Solid Waste Management Fund to be administered by the Commission. Such
fund shall be sourced from the following:
(a) Fines and penalties imposed, proceeds of permits and licenses issued by the
Department under this Act, donations, endowments, grants and contributions from
domestic and foreign sources; and
(b) Amounts specifically appropriated for the Fund under the annual General
Appropriations Act;
The Fund shall be used to finance the following:

(b) Tax Credit on Domestic Equipment - Within ten (10) years from the effectivity of this
Act, a tax credit equivalent to 50% of the value of the national internal revenue taxes
and customs duties that would have been waived on the machinery, equipment, vehicle
and spare parts, had these items been imported shall be given to enterprises, private
entities, including NGOs, subject to the same conditions and prohibition cited in the
preceding paragraph.
(c) Tax and Duty Exemption of Donations, Legacies and Gift - All legacies, gifts and
donations to LGUs, enterprises or private entities, including NGOs, for the support and
maintenance of the program for effective solid waste management shall be exempt from
all internal revenue taxes and customs duties, and shall be deductible in full from the
gross income of the donor for income tax purposes.

(1) products, facilities, technologies and processes to enhance proper solid

waste management;
(2) awards and incentives;
(3) research programs;
(4) information, education, communication and monitoring activities;
(5) technical assistance; and

(2) Non-Fiscal Incentives. - LGUs, enterprises or private entities availing of tax incentives under
this Act shall also be entitled to applicable non-fiscal incentives provided for under E.O. 226,
otherwise known as the Omnibus Investments Code.
The Commission shall provide incentives to businesses and industries that are engaged in the
recycling of wastes and which are registered with the Commission and have been issued ECCs in
accordance with the guidelines established by the Commission. Such incentives shall include
simplified procedures for the importation of equipment, spare parts, new materials, and supplies,
and for the export of processed products.
(3) Financial Assistance Program. - Government financial institutions such as the Development
Bank of the Philippines (DBP), Landbank of the Philippines (LBP), Government Service Insurance
System (GSIS), and such other government institutions providing financial services shall, in
accordance with and to the extent allowed by the enabling provisions of their respective charters
or applicable laws, accord high priority to extend financial services to individuals, enterprises, or
private entities engaged in solid waste management.
(4) Extension of Grants to LGUs. - Provinces, cities and municipalities whose solid waste
management plans have been duly approved by the Commission or who have been commended
by the Commission for adopting innovative solid waste management programs may be entitled to
receive grants for the purpose of developing their technical capacities toward actively participating
in the program for effectively and sustainable solid waste management.
(5) Incentives to Host LGUs. - Local government units who host common waste management
facilities shall be entitled to incentives.
CHAPTER V
FINANCING SOLID WASTE MANAGEMENT

(6) capability building activities.

LGUs are entitled to avail of the Fund on the basis of their approved solid waste management
plan. Specific criteria for the availment of the Fund shall be prepared by the Commission.
The fines collected under Sec. 49 shall be allocated to the LGU where the fined prohibited acts are
committed in order to finance the solid waste management of said LGU. Such allocation shall be
based on a sharing scheme between the Fund and the LGU concerned.
In no case, however, shall the Fund be used for the creation of positions or payment of salaries
and wages.
Section 47. Authority to Collect Solid Waste Management Fees - The local government unit shall
impose fees in amounts sufficient to pay the costs of preparing, adopting, and implementing a
solid waste management plan prepared pursuant to this Act. The fees shall be based on the
following minimum factors:
(a) types of solid waste;
(b) amount/volume of waste; and
(c) distance of the transfer station to the waste management facility.
The fees shall be used to pay the actual costs incurred by the LGU in collecting the local fees. In
determining the amounts of the fees, an LGU shall include only those costs directly related to the
adoption and implementation of the plan and the setting and collection of the local fees.

CHAPTER VI
PENAL PROVISIONS
Section 48. Prohibited Acts - The following acts are prohibited:
(1) Littering, throwing, dumping of waste matters in public places, such as roads,
sidewalks, canals, esteros or parks, and establishment, or causing or permitting the
same;
(2) Undertaking activities or operating, collecting or transporting equipment in violation of
sanitation operation and other requirements or permits set forth in established pursuant;
(3) The open burning of solid waste;

(16) The construction or operation of landfills or any waste disposal facility on any
aquifer, groundwater reservoir, or watershed area and or any portions thereof.
Section 49. Fines and Penalties (a) Any person who violates Sec. 48 paragraph (1) shall, upon conviction, be punished
with a fine of not less than Three hundred pesos (P300.00) but not more than One
thousand pesos (P1,000.00) or render community service for not less than one (1) day
to not more than fifteen (15) days to an LGU where such prohibited acts are committed,
or both;
(b) Any person who violates Sec. 48, pars. (2) and (3), shall, upon conviction be
punished with a fine of not less than Three hundred pesos (P300.00) but not more than
One thousand pesos (P1,000.00) or imprisonment of not less than one (1) day but to not
more than fifteen (15) days, or both;

(4) Causing or permitting the collection of non-segregated or unsorted wastes;

(5) Squatting in open dumps and landfills;
(6) Open dumping, burying of biodegradable or non-biodegradable materials in flood
prone areas;
(7) Unauthorized removal of recyclable material intended for collection by authorized
persons;
(8) The mixing of source-separated recyclable material with other solid waste in any
vehicle, box, container or receptacle used in solid waste collection or disposal;
(9) Establishment or operation of open dumps as enjoined in this Act, or closure of said
dumps in violation of Sec. 37;
(10) The manufacture, distribution or use of non-environmentally acceptable packaging
materials;
(11) Importation of consumer products packaged in non-environmentally acceptable
materials;
(12) Importation of toxic wastes misrepresented as "recyclable" or "with recyclable
content";
(13) Transport and dumplog in bulk of collected domestic, industrial, commercial, and
institutional wastes in areas other than centers or facilities prescribe under this Act;
(14) Site preparation, construction, expansion or operation of waste management
facilities without an Environmental Compliance Certificate required pursuant to
Presidential Decree No. 1586 and this Act and not conforming with the land use plan of
the LGU;
(15) The construction of any establishment within two hundred (200) meters from open
dumps or controlled dumps, or sanitary landfill; and

(c) Any person who violates Sec. 48, pars. (4), (5), (6) and (7) shall, upon conviction, be
punished with a fine of not less than One thousand pesos (P1,000.00) but not more than
Three thousand pesos (P3,000.00) or imprisonment of not less than fifteen (15) day but
to not more than six (6) months, or both;
(d) Any person who violates Sec. 48, pars (8), (9), (10) and (11) for the first time shall,
upon conviction, pay a fine of Five hundred thousand pesos (P500,000.00) plus and
amount not less than five percent (5%) but not more than ten percent (10%) of his net
annual income during the previous year.
The additional penalty of imprisonment of a minimum period of one (1) year but not to
exceed three (3) years at the discretion of the court, shall be imposed for second or
subsequent violations of Sec. 48, pars. (9) and (10).
(e) Any person who violates Sec. 48, pars. (12) and (13) shall, upon conviction, be
punished with a fine not less than Ten thousand pesos (P10,000.00) but not more than
Two hundred thousand pesos (P200,000.00) or imprisonment of not less than thirty (30)
days but not more than three (3) years, or both;
(f) Any person who violates Sec. 48, pars. (14), (15) and (16) shall, upon conviction, be
punished with a fine not less than One hundred thousand pesos (P100,000.00) but not
more than One million pesos (P1,000,000.00), or imprisonment not less than one (1)
year but not more than six (6) years, or both.
If the offense is committed by a corporation, partnership, or other juridical identity duly recognized
in accordance with the law, the chief executive officer, president, general manager, managing
partner or such other officer-in-charge shall be liable for the commission of the offense penalized
under this Act.
If the offender is an alien, he shall, after service of the sentence prescribed above, be deported
without further administrative proceedings.
The fines herein prescribed shall be increased by at lest ten (10%) percent every three (3) years to
compensate for inflation and to maintain the deterrent functions of such fines.
Section 50. Administrative Sanctions - Local government officials and officials of government
agencies concerned who fail to comply with and enforce rules and regulations promulgated

relative to this Act shall be charged administratively in accordance with R.A. 7160 and other
existing laws, rules and regulations
CHAPTER VII
MISCELLANEOUS PROVISIONS
Section 51. Mandatory Public Hearings - Mandatory public hearings for national framework and
local government solid waste management plans shall be undertaken by the Commission and the
respective Boards in accordance with process to be formulated in the implementing rules and
regulations.
Section 52. Citizens Suits - For the purposes of enforcing the provisions of this Act or its
implementing rules and regulations, any citizen may file an appropriate civil, criminal or
administrative action in the proper courts/bodies against:
(a) Any person who violates or fails to comply with the provisions of this Act its
implementing rules and regulations; or
(b) The Department or other implementing agencies with respect to orders, rules and
regulations issued inconsistent with this Act; and/or
(c) Any public officer who willfully or grossly neglects the performance of an act
specifically enjoined as a duty by this Act or its implementing rules and regulations; or
abuses his authority in the performance of his duty; or, in any many improperly performs
his duties under this Act or its implementing rules and regulations; Provided, however,
That no suit can be filed until after thirty-day (30) notice has been given to the public
officer and the alleged violator concerned and no appropriate action has been taken
thereon.
The Court shall exempt such action from the payment of filing fees and statements likewise,
upon prima facieshowing of the non-enforcement or violation complained of, exempt the plaintiff
from the filing of an injunction bond for the issuance of preliminary injunction.
In the event that the citizen should prevail, the Court shall award reasonable attorney's fees, moral
damages and litigation costs as appropriate.
Section 53. Suits and Strategic Legal Action Against Public Participation (SLAPP) and the
Enforcement of this Act- Where a suit is brought against a person who filed an action as provided
in Sec. 52 of this Act, or against any person, institution or government agency that implements this
Act, it shall be the duty of the investigating prosecutor or the Court, as the case may be, to
immediately make a determination not exceeding thirty (30) days whether said legal action has
been filed to harass, vex, exert undue pressure or stifle such legal recourses of the person
complaining of or enforcing the provisions of this Act. Upon determination thereof, evidence
warranting the same, the Court shall dismiss the complaint and award the attorney's fees and
double damages.
This provision shall also apply and benefit public officers who are sued for acts committed in their
official capacity, there being no grave abuse of authority, and done in the course of enforcing this
Act.
Section 54. Research on Solid Waste Management - The Department after consultations with the
cooperating agencies, shall encourage, cooperate with, and render financial and other assistance
to appropriate government agencies and private agencies, institutions and individuals in the

conduct and promotion researches, experiments, and other studies on solid waste management,
particularly those relating to:
>
(a) adverse health effects of the release into the environment of materials present in
solid wastes, and methods to eliminate said effects;
(b) the operation and financing of solid waste disposal programs;
(c) the planning, implementing and operation of resource recovery and resource
conservation systems;
(d) the production of usable forms of recovered resources, including fuel from solid
waste;
(e) the development and application of new and improved methods of collecting and
disposing of solid waste and processing and recovering materials and energy from solid
waste;
(f) improvements in land disposal practices for solid waste (including sludge); and
(g) development of new uses of recovered resources and identification of existing or
potential markets of recovered resources.
In carrying out solid waste researches and studies, the Secretary of the Department or the
authorized representative may make grants or enter into contracts with government agencies,
nongovernment organizations and private persons.
Section 55. Public Education and Information - The Commission shall, in coordination with DECS,
TESDA, CHED, DILG and PIA, conduct a continuing education and information campaign on solid
waste management, such education and information program shall:
(a) Aim to develop public awareness of the ill-effects of and the community based
solutions to the solid waste problem;
(b) Concentrate on activities which are feasible and which will have the greatest impact
on the solid waste problem of the country, like resource conservation and recovery,
recycling, segregation at source, re-use, reduction, and composing of solid waste; and
(c) Encourage the general public, accredited NGOs and people's organizations to
publicity endorse and patronize environmentally acceptable products and packaging
materials.
Section 56. Environmental Education in the Formal and Nonformal Sectors - The national
government, through the DECS and in coordination with concerned government agencies, NGOs
and private institutions, shall strengthen the integration of environmental concerns in school
curricula at all levels, with particular emphasis on the theory and practice of waste management
principles like waste minimization, specifically resource conservation and recovery, segregation at
source, reduction, recycling, re-use,and composing, in order to promote environmental awareness
and action among the citizenry.

Section 57. Business and Industry Role - The Commission shall encourage commercial and
industrial establishments, through appropriate incentives other than tax incentives to initiate,
participate and invest in integrated ecological solid waste management projects to manufacture
environment-friendly products, to introduce develop and adopt innovative processes that shall
recycle and re-use materials, conserve raw materials and energy, reduce waste, and prevent
pollution and to undertake community activities to promote and propagate effective solid waste
management practices.
Section 58. Appropriations - For the initial operating expenses of the Commission and the
National Ecology Center as well as the expensed of the local government units to carry out the
mandate of this Act, the amount of Twenty million pesos (P20,000,000.00) is hereby appropriated
from the Organizational Adjustment Fund on the year this Act is approved. Thereafter, it shall
submit to the Department of Budget and Management its proposed budget for inclusion in the
General Appropriations Act.
Section 59. Implementing Rules and Regulations (IRR) - The Department, in coordination with the
Committees on Environment and Ecology of the Senate and House of Representative,
respectively, the representatives of the Leagues of Provinces, Cities, Municipalities and Barangay
Councils, the MMDA and other concerned agencies, shall promulgate the implementing rules and
regulations of this Act, within one (1) year after its enactment:Provided, That rules and regulations
issued by other government agencies and instrumentalities for the prevention and/or abatement of
the solid waste management problem not inconsistent with this Act shall supplement the rules and
regulations issued by the Department, pursuant to the provisions of this Act.

accomplishments and progress on solid waste management during the year and make the
necessary recommendations in areas where there is need for legislative action.
Section 64. Separability Clause - If any provision of this Act or the application of such provision to
any person or circumstances is declared unconstitutional, the remainder of the Act or the
application of such provision to other persons or circumstances shall not be affected by such
declaration.
Section 65. Repealing Clause - All laws, decrees, issuances, rules and regulations or parts
thereof inconsistent with the provisions of this Act are hereby repealed or modified accordingly.
Section 66. Effectivity - This Act shall take effect fifteen (15) days after its publication in at least
two (2) newspapers of general circulation.
Approved: January 26, 2001

The draft of the IRR shall be published and be the subject of public consultation with affected
sectors. It shall be submitted to the Committee on Environment Ecology of the Senate and House
of Representatives, respectively, for review before approved by the Secretary.
Section 60. Joint Congressional Oversight Committee - There is hereby created a Joint
Congressional Oversight Committee to monitor the implementation of the Act and to oversee the
functions of the Commission. The Committee shall be composed of five (5) Senators and five (5)
Representatives to be appointed by the Senate President and Speaker of the House of
Representatives, respectively. The Oversight Committee shall be co-chaired by a Senator and a
Representative designated by the Senate President and the Speaker of the House of
Representatives, respectively.
Section 61. Abolition of the Presidential Task Force On Waste Management and the Project
Management Office on Solid Waste Management - The Presidential Task Force on Waste
Management which was created by virtue of Memorandum Circular No. 39 dated November 2,
1987, as amended by Memorandum Circular No. 39A and 88 is hereby abolished.

REPUBLIC ACT NO. 9729

AN ACT MAINSTREAMING CLIMATE CHANGE INTO GOVERNMENT POLICY
FORMULATIONS, ESTABLISHING THE FRAMEWORK STRATEGY AND PROGRAM ON
CLIMATE CHANGE, CREATING FOR THIS PURPOSE THE CLIMATE CHANGE COMMISSION,
AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:

Further, pursuant to Administrative Order No. 90 dated October 19, 1992, the Project Management
Office on Solid Waste Management is likewise hereby abolished. Consequently their powers and
functions shall be absorbed by the Commission pursuant to the provisions of this Act.

Section 1. Title. This Act shall be known as the Climate Change Act of 2009.

Section 62. Transitory Provision - Pending the establishment of the framework under Sec. 15
hereof, plans under Sec. 16 and promulgation of the IRR under Sec. 59 of this Act, existing laws,
regulations, programs and projects on solid waste management shall

Section 2. Declaration of Policy. It is the policy of the State to afford full protection and the
advancement of the right of the people to a healthful ecology in accord with the rhythm and
harmony of nature. In this light, the State has adopted the Philippine Agenda 21 framework which
espouses sustainable development, to fulfill human needs while maintaining the quality of the
natural environment for current and future generations.

be enforced: Provided, That for specific undertaking, the same may be revised in the interim in
accordance with the intentions of this Act.
Section 63. Report to Congress - The Commission shall report to Congress not later than March
30 of every year following the approval of this Act, giving a detailed account of its

Towards this end, the State adopts the principle of protecting the climate system for the benefit of
humankind, on the basis of climate justice or common but differentiated responsibilities and the
Precautionary Principle to guide decision-making in climate risk management. As a party to the
United Nations Framework Convention on Climate Change, the State adopts the ultimate objective
of the Convention which is the stabilization of greenhouse gas concentrations in the atmosphere at

a level that would prevent dangerous anthropogenic interference with the climate system which
should be achieved within a time frame sufficient to allow ecosystems to adapt naturally to climate
change, to ensure that food production is not threatened and to enable economic development to
proceed in a sustainable manner.1awphil As a party to the Hyogo Framework for Action, the State
likewise adopts the strategic goals in order to build national and local resilience to climate changerelated disasters.

typically decades or longer, whether due to natural variability or as a result of human

activity.

Recognizing the vulnerability of the Philippine archipelago and its local communities, particularly
the poor, women, and children, to potential dangerous consequences of climate change such as
rising seas, changing landscapes, increasing frequency and/or severity of droughts, fires, floods
and storms, climate-related illnesses and diseases, damage to ecosystems, biodiversity loss that
affect the countrys environment, culture, and economy, the State shall cooperate with the global
community in the resolution of climate change issues, including disaster risk reduction. It shall be
the policy of the State to enjoin the participation of national and local governments, businesses,
nongovernment organizations, local communities and the public to prevent and reduce the
adverse impacts of climate change and, at the same time, maximize the benefits of climate
change. It shall also be the policy of the State to incorporate a gender-sensitive, pro-children and
pro-poor perspective in all climate change and renewable energy efforts, plans and programs. In
view thereof, the State shall strengthen, integrate, consolidate and institutionalize government
initiatives to achieve coordination in the implementation of plans and programs to address climate
change in the context of sustainable development.

(f) Climate Risk refers to the product of climate and related hazards working over the
vulnerability of human and natural ecosystems.

Further recognizing that climate change and disaster risk reduction are closely interrelated and
effective disaster risk reduction will enhance climate change adaptive capacity, the State shall
integrate disaster risk reduction into climate change programs and initiatives.

(i) Gender mainstreaming refers to the strategy for making womens as well as
mens concerns and experiences an integral dimension of the design, implementation,
monitoring, and evaluation of policies and programs in all political, economic, and
societal spheres so that women and men benefit equally and inequality is not
perpetuated. It is the process of assessing the implications for women and men of any
planned action, including legislation, policies, or programs in all areas and at all levels.

Cognizant of the need to ensure that national and subnational government policies, plans,
programs and projects are founded upon sound environmental considerations and the principle of
sustainable development, it is hereby declared the policy of the State to systematically integrate
the concept of climate change in various phases of policy formulation, development plans, poverty
reduction strategies and other development tools and techniques by all agencies and
instrumentalities of the government.
Section 3. Definition of Terms. For purposes of this Act, the following shall have the
corresponding meanings:

(e) Climate Variability refers to the variations in the average state and in other
statistics of the climate on all temporal and spatial scales beyond that of individual
weather events.

(g) Disaster refers to a serious disruption of the functioning of a community or a

society involving widespread human, material, economic or environmental losses and
impacts which exceed the ability of the affected community or society to cope using its
own resources.
(h) Disaster risk reduction refers to the concept and practice of reducing disaster
risks through systematic efforts to analyze and manage the causal factors of disasters,
including through reduced exposure to hazards, lessened vulnerability of people and
property, wise management of land and the environment, and improved preparedness
for adverse events.

(j) Global Warming refers to the increase in the average temperature of the Earths
near-surface air and oceans that is associated with the increased concentration of
greenhouse gases in the atmosphere.
(k) Greenhouse effect refers to the process by which the absorption of infrared
radiation by the atmosphere warms the Earth.

(a) Adaptation refers to the adjustment in natural or human systems in response to

actual or expected climatic stimuli or their effects, which moderates harm or exploits
beneficial opportunities.

(l) Greenhouse gases (GHG) refers to constituents of the atmosphere that contribute
to the greenhouse effect including, but not limited to, carbon dioxide, methane, nitrous
oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride.

(b) Adaptive capacity refers to the ability of ecological, social or economic systems
to adjust to climate change including climate variability and extremes, to moderate or
offset potential damages and to take advantage of associated opportunities with
changes in climate or to cope with the consequences thereof.

(m) Mainstreaming refers to the integration of policies and measures that address
climate change into development planning and sectoral decision-making.

(c) Anthropogenic causes refer to causes resulting from human activities or

produced by human beings.
(d) Climate Change refers to a change in climate that can be identified by changes in
the mean and/or variability of its properties and that persists for an extended period

(n) Mitigation in the context of climate change, refers to human intervention to

address anthropogenic emissions by sources and removals by sinks of all GHG,
including ozone- depleting substances and their substitutes.
(o) Mitigation potential shall refer to the scale of GHG reductions that could be
made, relative to emission baselines, for a given level of carbon price (expressed in cost
per unit of carbon dioxide equivalent emissions avoided or reduced).

(p) Sea level rise refers to an increase in sea level which may be influenced by
factors like global warming through expansion of sea water as the oceans warm and
melting of ice over land and local factors such as land subsidence.

(j) Secretary of the Department of Science and Technology;

(q) Vulnerability refers to the degree to which a system is susceptible to, or unable to
cope with, adverse effects of climate change, including climate variability and extremes.
Vulnerability is a function of the character, magnitude, and rate of climate change and
variation to which a system is exposed, its sensitivity, and its adaptive capacity.

(l) Secretary of the Department of Trade and Industry;

(k) Secretary of the Department of Social Welfare and Development;

(m) Secretary of the Department of Transportation and Communications;

Section 4. Creation of the Climate Change Commission. There is hereby established a Climate
Change Commission, hereinafter referred to as the Commission.

(n) Director-General of the National Economic and Development Authority, in his

capacity as Chair of the Philippine Council for Sustainable Development;

The Commission shall be an independent and autonomous body and shall have the same status
as that of a national government agency. It shall be attached to the Office of the President.

(o) Director-General of the National Security Council;

(p) Chairperson of the National Commission on the Role of Filipino Women;

The Commission shall be the sole policy-making body of the government which shall be tasked to
coordinate, monitor and evaluate the programs and action plans of the government relating to
climate change pursuant to the provisions of this Act.

(q) President of the League of Provinces;

(r) President of the League of Cities;

The Commission shall be organized within sixty (60) days from the effectivity of this Act.
(s) President of the League of Municipalities;
Section 5. Composition of the Commission. The Commission shall be composed of the
President of the Republic of the Philippines who shall serve as the Chairperson, and three (3)
Commissioners to be appointed by the President, one of whom shall serve as the Vice
Chairperson of the Commission.
The Commission shall have an advisory board composed of the following:
(a) Secretary of the Department of Agriculture;
(b) Secretary of the Department of Energy;
(c) Secretary of the Department of Environment and Natural Resources;
(d) Secretary of the Department of Education;
(e) Secretary of the Department of Foreign Affairs;
(f) Secretary of the Department of Health;

(t) President of the Liga ng mga Barangay;

(u) Representative from the academe;
(v) Representative from the business sector; and
(w) Representative from nongovernmental organizations.
At least one (1) of the sectoral representatives shall come from the disaster risk reduction
community.
The representatives shall be appointed by the President from a list of nominees submitted by their
respective groups. They shall serve for a term of six (6) years without reappointment unless their
representation is withdrawn by the sector they represent. Appointment to any vacancy shall be
only for the unexpired term of the predecessor.
Only the ex officio members of the advisory board shall appoint a qualified representative who
shall hold a rank of no less than an Undersecretary.

(g) Secretary of the Department of the Interior and Local Government;

(h) Secretary of the Department of National Defense, in his capacity as Chair of the
National Disaster Coordinating Council;
(i) Secretary of the Department of Public Works and Highways;

Section 6. Meetings of the Commission. The Commission shall meet once every three (3)
months, or as often as may be deemed necessary by the Chairperson. The Chairperson may
likewise call upon other government agencies for the proper implementation of this Act.
Section 7. Qualifications, Tenure, Compensation of Commissioners. The Commissioners must
be Filipino citizens, residents of the Philippines, at least thirty (30) years of age at the time of

appointment, with at least ten (10) years of experience on climate change and of proven honesty
and ntegrity. The Commissioners shall be experts in climate change by virtue of their educational
background, training and experience: Provided, That at least one (1) Commissioner shall be
female: Provided, further, That in no case shall the Commissioners come from the same sector:
Provided, finally, That in no case shall any of the Commissioners appoint representatives to act on
their behalf.
The Commissioners shall hold office for a period of six (6) years, and may be subjected to
reappointment: Provided, That no person shall serve for more than two (2) consecutive terms:
Provided, further, That in case of a vacancy, the new appointee shall fully meet the qualifications of
a Commissioner and shall hold office for the unexpired portion of the term only: Provided, finally,
That in no case shall a Commissioner be designated in a temporary or acting capacity.
The Vice Chairperson and the Commissioners shall have the rank and privileges of a Department
Secretary and Undersecretary, respectively. They shall be entitled to corresponding compensation
and other emoluments and shall be subject to the same disqualifications.
Section 8. Climate Change Office. There is hereby created a Climate Change Office that shall
assist the Commission. It shall be headed by a Vice Chairperson of the Commission who shall act
as the Executive Director of the Office. The Commission shall have the authority to determine the
number of staff and create corresponding positions necessary to facilitate the proper
implementation of this Act, subject to civil service laws, rules and regulations. The officers and
employees of the Commission shall be appointed by the Executive Director.
Section 9. Powers and Functions of the Commission. The Commission shall have the following
powers and functions:
(a) Ensure the mainstreaming of climate change, in synergy with disaster risk reduction,
into the national, sectoral and local development plans and programs;
(b) Coordinate and synchronize climate change programs of national government
agencies;
(c) Formulate a Framework Strategy on Climate Change to serve as the basis for a
program for climate change planning, research and development, extension, and
monitoring of activities on climate change;
(d) Exercise policy coordination to ensure the attainment of goals set in the framework
strategy and program on climate change;
(e) Recommend legislation, policies, strategies, programs on and appropriations for
climate change adaptation and mitigation and other related activities;

(h) Create an enabling environment that shall promote broader multi-stakeholder

participation and integrate climate change mitigation and adaptation;
(i) Formulate strategies on mitigating GHG and other anthropogenic causes of climate
change;
(j) Coordinate and establish a close partnership with the National Disaster Coordinating
Council in order to increase efficiency and effectiveness in reducing the peoples
vulnerability to climate-related disasters;
(k) In coordination with the Department of Foreign Affairs, represent the Philippines in
the climate change negotiations;
(l) Formulate and update guidelines for determining vulnerability to climate change
impacts and adaptation assessments and facilitate the provision of technical assistance
for their implementation and monitoring;
(m) Coordinate with local government units (LGUs) and private entities to address
vulnerability to climate change impacts of regions, provinces, cities and municipalities;
(n) Facilitate capacity building for local adaptation planning, implementation and
monitoring of climate change initiatives in vulnerable communities and areas;
(o) Promote and provide technical and financial support to local research and
development programs and projects in vulnerable communities and areas; and
(p) Oversee the dissemination of information on climate change, local vulnerabilities and
risks, relevant laws and protocols and adaptation and mitigation measures.
Section 10. Panel of Technical Experts. The Commission shall constitute a national panel of
technical experts consisting of practitioners in disciplines that are related to climate change,
including disaster risk reduction.
The Panel shall provide technical advice to the Commission in climate science, technologies, and
best practices for risk assessment and enhancement of adaptive capacity of vulnerable human
settlements to potential impacts of climate change.
The Commission shall set the qualifications and compensation for the technical experts. It shall
provide resources for the operations and activities of the Panel.

(f) Recommend key development investments in climate- sensitive sectors such as

water resources, agriculture, forestry, coastal and marine resources, health, and
infrastructure to ensure the achievement of national sustainable development goals;

Section 11. Framework Strategy and Program on Climate Change. The Commission shall,
within six (6) months from the effectivity of this Act, formulate a Framework Strategy on Climate
Change. The Framework shall serve as the basis for a program for climate change planning,
research and development, extension, and monitoring of activities to protect vulnerable
communities from the adverse effects of climate change.

(g) Create an enabling environment for the design of relevant and appropriate risksharing and risk-transfer instruments;

The Framework shall be formulated based on climate change vulnerabilities, specific adaptation
needs, and mitigation potential, and in accordance with the international agreements.

The Framework shall be reviewed every three (3) years, or as may be deemed necessary.
Section 12. Components of the Framework Strategy and Program on Climate Change. The
Framework shall include, but not limited to, the following components:
(a) National priorities;
(b) Impact, vulnerability and adaptation assessments;
(c) Policy formulation;
(d) Compliance with international commitments;
(e) Research and development;
(f) Database development and management;
(g) Academic programs, capability building and mainstreaming;
(h) Advocacy and information dissemination;

Section 14. Local Climate Change Action Plan. The LGUs shall be the frontline agencies in the
formulation, planning and implementation of climate change action plans in their respective areas,
consistent with the provisions of the Local Government Code, the Framework, and the National
Climate Change Action Plan.
Barangays shall be directly involved with municipal and city governments in prioritizing climate
change issues and in identifying and implementing best practices and other solutions. Municipal
and city governments shall consider climate change adaptation, as one of their regular functions.
Provincial governments shall provide technical assistance, enforcement and information
management in support of municipal and city climate change action plans. Inter-local government
unit collaboration shall be maximized in the conduct of climate- related activities.
LGUs shall regularly update their respective action plans to reflect changing social, economic, and
environmental conditions and emerging issues. The LGUs shall furnish the Commission with
copies of their action plans and all subsequent amendments, modifications and revisions thereof,
within one (1) month from their adoption. The LGUs shall mobilize and allocate necessary
personnel, resources and logistics to effectively implement their respective action plans.
The local chief executive shall appoint the person responsible for the formulation and
implementation of the local action plan.
It shall be the responsibility of the national government to extend technical and financial assistance
to LGUs for the accomplishment of their Local Climate Change Action Plans.

(i) Monitoring and evaluation; and

(j) Gender mainstreaming.
Section 13. National Climate Change Action Plan. The Commission shall formulate a National
Climate Change Action Plan in accordance with the Framework within one (1) year after the
formulation of the latter.
The National Climate Change Action Plan shall include, but not limited to, the following
components:
(a) Assessment of the national impact of climate change;
(b) The identification of the most vulnerable communities/areas, including ecosystems to
the impacts of climate change, variability and extremes;
(c) The identification of differential impacts of climate change on men, women and
children;

The LGU is hereby expressly authorized to appropriate and use the amount from its Internal
Revenue Allotment necessary to implement said local plan effectively, any provision in the Local
Government Code to the contrary notwithstanding.
Section 15. Role of Government Agencies. To ensure the effective implementation of the
framework strategy and program on climate change, concerned agencies shall perform the
following functions:
(a) The Department of Education (DepED) shall integrate climate change into the
primary and secondary education curricula and/or subjects, such as, but not limited to,
science, biology, sibika, history, including textbooks, primers and other educational
materials, basic climate change principles and concepts;
(b) The Department of the Interior and Local Government (DILG) and Local Government
Academy shall facilitate the development and provision of a training program for LGUs
in climate change. The training program shall include socioeconomic, geophysical,
policy, and other content necessary to address the prevailing and forecasted conditions
and risks of particular LGUs. It shall likewise focus on women and children, especially in
the rural areas, since they are the most vulnerable;

(d) The assessment and management of risk and vulnerability;

(e) The identification of GHG mitigation potentials; and
(f) The identification of options, prioritization of appropriate adaptation measures for joint
projects of national and local governments.

(c) The Department of Environment and Natural Resources (DENR) shall oversee the
establishment and maintenance of a climate change information management system
and network, including on climate change risks, activities and investments, in
collaboration with other concerned national government agencies, institutions and
LGUs;

(d) The Department of Foreign Affairs (DFA) shall review international agreements
related to climate change and make the necessary recommendation for ratification and
compliance by the government on matters pertaining thereto;
(e) The Philippine Information Agency (PIA) shall disseminate information on climate
change, local vulnerabilities and risk, relevant laws and protocols and adaptation and
mitigation measures; and
(f) Government financial institutions, shall, any provision in their respective charters to
the contrary notwithstanding, provide preferential financial packages for climate changerelated projects. In consultation with the Bangko Sentral ng Pilipinas (BSP), they shall,
within thirty (30) days from the effectivity of this Act, issue and promulgate the
implementing guidelines therefor.
The Commission shall evaluate, recommend the approval of loans and monitor the use of said
funds of LGUs.
Section 16. Coordination with Various Sectors. In the development and implementation of the
National Climate Change Action Plan, and the local action plans, the Commission shall coordinate
with the nongovernment organizations (NGOs), civic organizations, academe, peoples
organizations, the private and corporate sectors and other concerned stakeholder groups.
Section 17. Authority to Receive Donations and/or Grants. The Commission is hereby
authorized to accept grants, contributions, donations, endowments, bequests, or gifts in cash, or in
kind from local and foreign sources in support of the development and implementation of climate
change programs and plans: Provided, That in case of donations from foreign governments,
acceptance thereof shall be subject to prior clearance and approval of the President of the
Philippines upon recommendation of the Secretary of Foreign Affairs: Provided, further, That such
donations shall not be used to fund personal services expenditures and other operating expenses
of the Commission.
The proceeds shall be used to finance:
(a) Research, development, demonstration and promotion of technologies;
(b) Conduct of assessment of vulnerabilities to climate change impacts, resource
inventory, and adaptation capability building;
(c) Advocacy, networking and communication activities in the conduct of information
campaign; and
(d) Conduct of such other activities reasonably necessary to carry out the objectives of
this Act, as may be defined by the Commission.
Section 18. Funding Allocation for Climate Change. All relevant government agencies and LGUs
shall allocate from their annual appropriations adequate funds for the formulation, development
and implementation, including training, capacity building and direct intervention, of their respective
climate change programs and plans. It shall also include public awareness campaigns on the
effects of climate change and energy-saving solutions to mitigate these effects, and initiatives,

through educational and training programs and micro-credit schemes, especially for women in
rural areas. In subsequent budget proposals, the concerned offices and units shall appropriate
funds for program/project development and implementation including continuing training and
education in climate change.1avvphi1
Section 19. Joint Congressional Oversight Committee. There is hereby created a Joint
Congressional Oversight Committee to monitor the implementation of this Act. The Oversight
Committee shall be composed of five (5) Senators and five (5) Representatives to be appointed by
the Senate President and the Speaker of the House of Representatives, respectively. The
Oversight Committee shall be co-chaired by a Senator and a Representative to be designated by
the Senate President and the Speaker of the House of Representatives, respectively. Its funding
requirement shall be charged against the appropriations of Congress.
Section 20. Annual Report. The Commission shall submit to the President and to both Houses
of Congress, not later than March 30 of every year following the effectivity of this Act, or upon the
request of the Congressional Oversight Committee, a report giving a detailed account of the status
of the implementation of this Act, a progress report on the implementation of the National Climate
Change Action Plan and recommend legislation, where applicable and necessary. LGUs shall
submit annual progress reports on the implementation of their respective local action plan to the
Commission within the first quarter of the following year.
Section 21. Appropriations. The sum of Fifty million pesos (Php50,000,000.00) is hereby
appropriated as initial operating fund in addition to the unutilized fund of the Presidential Task
Force on Climate Change and the Office of the Presidential Adviser on Global Warming and
Climate Change. The sum shall be sourced from the Presidents contingent fund.
Thereafter, the amount necessary to effectively carry out the provisions of this Act shall be
included in the annual General Appropriations Act.
Section 22. Implementing Rules and Regulations. Within ninety (90) days after the approval of
this Act, the Commission shall, upon consultation with government agencies, LGUs, private sector,
NGOs and civil society, promulgate the implementing rules and regulations of this Act: Provided,
That failure to issue rules and regulations shall not in any manner affect the executory nature of
the provisions of this Act.
Section 23. Transitory Provisions. Upon the organization of the Commission, the Presidential
Task Force on Climate Change created under Administrative Order No. 171 and the Inter-Agency
Committee on Climate Change created by virtue of Administrative Order No. 220, shall be
abolished: Provided, That their powers and functions shall be absorbed by the Commission:
Provided, further, That the officers and employees thereof shall continue in a holdover capacity
until such time as the new officers and employees of the Commission shall have been duly
appointed pursuant to the provisions of this Act. All qualified regular or permanent employees who
may be transferred to the Commission shall not suffer any loss in seniority or rank or decrease in
emoluments. Any employee who cannot be absorbed by the Commission shall be entitled to a
separation pay under existing retirement laws.
Section 24. Separability Clause. If for any reason any section or provision of this Act is declared
as unconstitutional or invalid, the other sections or provisions hereof shall not be affected thereby.

Section 25. Repealing Clause. All laws, ordinances, rules and regulations, and other issuances
or parts thereof which are inconsistent with this Act are hereby repealed or modified accordingly.

(c) The establishment of wood-processing plants shall be encouraged and rationalized;

and

Section 26. Effectivity. This Act shall take effect fifteen (15) days after the completion of its
publication in the Official Gazette or in at least two (2) national newspapers of general circulation.

(d) The protection, development and rehabilitation of forest lands shall be emphasized
so as to ensure their continuity in productive condition.
Section 3. Definitions.

Approved: October 23, 2009

(a) Public forest is the mass of lands of the public domain which has not been the
subject of the present system of classification for the determination of which lands are
needed for forest purposes and which are not.

PRESIDENTIAL DECREE No. 705

May 19, 1975

REVISING PRESIDENTIAL DECREE NO. 389, OTHERWISE KNOWN AS THE FORESTRY

REFORM CODE OF THE PHILIPPINES

(b) Permanent forest or forest reserves refer to those lands of the public domain which
have been the subject of the present system of classification and determined to be
needed for forest purposes.
(c) Alienable and disposable lands refer to those lands of the public domain which have
been the subject of the present system of classification and declared as not needed for
forest purposes.

WHEREAS, proper classification, management and utilization of the lands of the public domain to
maximize their productivity to meet the demands of our increasing population is urgently needed;

(d) Forest lands include the public forest, the permanent forest or forest reserves, and
forest reservations.

WHEREAS, to achieve the above purpose, it is necessary to reassess the multiple uses of forest
lands and resources before allowing any utilization thereof to optimize the benefits that can be
derived therefrom;

(e) Grazing land refers to that portion of the public domain which has been set aside, in
view of the suitability of its topography and vegetation, for the raising of livestock.

WHEREAS, it is also imperative to place emphasis not only on the utilization thereof but more so
on the protection, rehabilitation and development of forest lands, in order to ensure the continuity
of their productive condition;
WHEREAS, the present laws and regulations governing forest lands are not responsive enough to
support re-oriented government programs, projects and efforts on the proper classification and
delimitation of the lands of the public domain, and the management, utilization, protection,
rehabilitation, and development of forest lands;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the
powers in me vested by the Constitution, do hereby revise Presidential Decree No. 389 to read as
follows:
Section 1. Title of this Code. This decree shall be known as the "Revised Forestry Code of the
Philippines."
Section 2. Policies. The State hereby adopts the following policies:
(a) The multiple uses of forest lands shall be oriented to the development and progress
requirements of the country, the advancement of science and technology, and the public
welfare;
(b) Land classification and survey shall be systematized and hastened;

(f) Mineral lands refer to those lands of the public domain which have been classified as
such by the Secretary of Natural Resources in accordance with prescribed and
approved criteria, guidelines and procedure.
(g) Forest reservations refer to forest lands which have been reserved by the President
of the Philippines for any specific purpose or purposes.
(h) National park refers to a forest land reservation essentially of primitive or wilderness
character which has been withdrawn from settlement or occupancy and set aside as
such exclusively to preserve the scenery, the natural and historic objects and the wild
animals or plants therein, and to provide enjoyment of these features in such a manner
as will leave them unimpaired for future generations.
(i) Game refuge or bird sanctuary refers to a forest land designated for the protection of
game animals, birds and fish and closed to hunting and fishing in order that the excess
population may flow and restock surrounding areas.
(j) Marine parks refers to any off-shore area inhabited by rare and unique species of
marine flora and fauna.
(k) Seashore park refers to any public shore area delimited for outdoor recreation, sports
fishing, water skiing and related healthful activities.
(l) Watershed reservation is a forest land reservation established to protect or improve
the conditions of the water yield thereof or reduce sedimentation.

(m) Watershed is a land area drained by a stream or fixed body of water and its
tributaries having a common outlet for surface run-off.
(n) Critical watershed is a drainage area of a river system supporting existing and
proposed hydro-electric power and irrigation works needing immediate rehabilitation as
it is being subjected to a fast denudation causing accelerated erosion and destructive
floods. It is closed from logging until it is fully rehabilitated.
(o) Mangrove is a term applied to the type of forest occurring on tidal flat along the sea
coast, extending along streams where the water is brackish.
(p) Kaingin is a portion of the forest land, whether occupied or not, which is subjected to
shifting and/or permanent slash-and-burn cultivation having little or no provision to
prevent soil erosion.
(q) Forest product means timber, pulpwood, firewood, bark, tree top, resin, gum, wood,
oil, honey, beeswax, nipa, rattan, or other forest growth such as grass, shrub, and
flowering plant, the associated water, fish, game, scenic, historical, recreational and
geologic resources in forest lands.
(r) Dipterocarp forest is a forest dominated by trees of the dipterocarp species, such as
red lauan, tengile, tiaong, white lauan, almon, bagtikan and mayapis of the Philippine
mahogany group, apitong and the yakals.
(s) Pine forest is a forest composed of the Benguet Pine in the Mountain Provinces or
the Mindoro pine in Mindoro and Zambales provinces.
(t) Industrial tree plantation is any tract of forest land purposely and extensively planted
to timber crops primarily to supply the raw material requirements of existing or proposed
processing plants and related industries.
(u) Tree farm refers to any tract of forest land purposely and extensively planted to trees
of economic value for their fruits, flowers, leaves, barks, or extractives, but not for the
wood thereof.
(v) Multiple-use is the harmonized utilization of the numerous beneficial uses of the land,
soil, water, wildlife, recreation value, grass and timber of forest lands.
(w) Selective logging means the systematic removal of the mature, over-mature and
defective trees in such manner as to leave adequate number and volume of healthy
residual trees of the desired species necessary to assure a future crop of timber, and
forest cover for the protection and conservation of soil and water.

(aa) Processing plant is any mechanical set-up, machine or combination of machine

used for the processing of logs and other forest raw materials into lumber, veneer,
plywood, wallboard, block-board, paper board, pulp, paper or other finished wood
products.
(bb) Lease is a privilege granted by the State to a person to occupy and possess, in
consideration of a specified rental, any forest land of the public domain in order to
undertake any authorized activity therein.
(cc) License is a privilege granted by the State to a person to utilize forest resources as
in any forest land, without any right of occupation and possession over the same, to the
exclusion of others, or establish and operate a wood-processing plant, or conduct any
activity involving the utilization of any forest resources.
(dd) License agreement is a privilege granted by the State to a person to utilize forest
resources within any forest land with the right of possession and occupation thereof to
the exclusion of others, except the government, but with the corresponding obligation to
develop, protect and rehabilitate the same in accordance with the terms and conditions
set forth in said agreement.
(ee) Permit is a short-term privilege or authority granted by the State to a person to
utilize any limited forest resources or undertake a limited activity with any forest land
without any right of occupation and possession therein.
(ff) Annual allowable cut is the volume of materials, whether of wood or other forest
products, that is authorized to be cut regularly from the forest.
(gg) Cutting cycle is the number of years between major harvests in the same working
unit and/or region, within a rotation.
(hh) Ecosystem means the ecological community considered together with non-living
factors and its environment as a unit.
(ii) Silviculture is the establishment, development reproduction and care of forest trees.
(jj) Rationalization is the organization of a business or industry using scientific business
management principles and simplified procedures to obtain greater efficiency of
operation.
(kk) Forest officer means any official or employee of the Bureau who, by the nature of
his appointment or the function of the position to which he is appointed, is delegated by
law or by competent authority to execute, implement or enforce the provisions of this
Code, other related laws, as well as their implementing regulations.

(x) Seed tree system is partial clearcutting with seed trees left to regenerate the area.
(y) Healthy residual is a sound or slightly injured tree of the commercial species left after
logging.
(z) Sustained-yield management implies continuous or periodic production of forest
products in a working unit with the aid of achieving at the earliest practicable time an
approximate balance between growth and harvest or use. This is generally applied to
the commercial timber resources and is also applicable to the water, grass, wildlife, and
other renewable resources of the forest.

(ll) Primitive tribe is a group of endemic tribe living primitively as a distinct portion of a
people from a common ancestor.
(mm) Private right means or refers to titled rights of ownership under existing laws, and
in the case of primitive tribes, to rights of possession existing at the time a license is
granted under this Code, which possession may include places of abode and worship,
burial grounds, and old clearings, but excludes production forest inclusive of logged-over
areas, commercial forests and established plantations of forest trees and trees of
economic value.

(nn) Person includes natural as well as juridical person.

CHAPTER I
ORGANIZATION AND JURISDICTION OF THE BUREAU
Section 4. Creation of, and merger of all forestry agencies into, the Bureau of Forest
Development. For the purpose of implementing the provisions of this Code, the Bureau of Forestry,
the Reforestation Administration, the Southern Cebu Reforestation Development Project, and the
Parks and Wildlife Office, including applicable appropriations, records, equipment, property and
such personnel as may be necessary, are hereby merged into a single agency to be known as the
Bureau of Forest Development, hereinafter referred to as the Bureau.
Section 5. Jurisdiction of Bureau. The Bureau shall have jurisdiction and authority over all forest
land, grazing lands, and all forest reservations including watershed reservations presently
administered by other government agencies or instrumentalities.
It shall be responsible for the protection, development, management, regeneration, and
reforestation of forest lands; the regulation and supervision of the operation of licensees, lessees
and permittees for the taking or use of forest products therefrom or the occupancy or use thereof;
the implementation of multiple use and sustained yield management in forest lands; the protection,
development and preservation of national parks, marine parks, game refuges and wildlife; the
implementation of measures and programs to prevent kaingin and managed occupancy of forest
and grazing lands; in collaboration with other bureaus, the effective, efficient and economic
classification of lands of the public domain; and the enforcement of forestry, reforestation, parks,
game and wildlife laws, rules, and regulations.

Section 10. Creation of Functional Divisions, and Regional and District Offices. All positions in the
merged agencies are considered vacant. Present occupants may be appointed in accordance with
a staffing pattern or plan of organization to be prepared by the Director and approved by the
Department Head. Any appointee who fails to report for duty in accordance with the approved plan
within thirty (30) days upon receipt of notification shall be deemed to have declined the
appointment, in which case the position may be filed by any other qualified applicant.
For the efficient and effective implementation of the program of the Bureau, the following divisions
and sections are hereby created, to wit:

Divisions

Sections

Planning and Evaluation

Program Planning;
Performance Evaluation;
Forest Economics;
Management Analysis
Data & Information.

Administrative Division

Personnel;
Budget;
Accounting;
Information;
General Services.

Legal Division
Reforestation and Afforestation Division

Cooperative Planting;
Planting Stock Production;
Plantation Management.

Timber Management Division

Forest Surveys, Data & Mapping;

Sulviculture;
Timber Inventory & Photo-Interpretation;
Timber Management Plans;
Land Classification.

No person shall be appointed Director or Assistant Director of the Bureau unless he is a natural
born citizen of the Philippines, at least 30 years of age, a holder of at least a Bachelor's Degree in
Forestry or its equivalent, and a registered forester.

Utilization Division

Timber Operations;
Land Uses;
Utilization.

Section 7. Supervision and Control. The Bureau shall be directly under the control and
supervision of the Secretary of the Department of Natural Resources, hereinafter referred to as the
Department Head.

Forest Protection and Infrastructure

Forest Protection;
Forest Occupancy
Management;
Watershed Management; Infrastructure.

Parks, Wildlife Division

Parks Management;
Recreation Management;
Wildlife Management;
Range Management.

The Bureau shall regulate the establishment and operation of sawmills, veneer and plywood mills
and other wood processing plants and conduct studies of domestic and world markets of forest
products.
Section 6. Director and Assistant Director and their qualifications. The Bureau shall be headed by
a Director, who shall be assisted by one or more Assistant Directors. The Director and Assistant
Directors shall be appointed by the President.

Section 8. Review. All actions and decisions of the Director are subject to review, motu propio or
upon appeal of any person aggrieved thereby, by the Department Head whose decision shall be
final and executory after the lapse of thirty (30) days from receipt by the aggrieved party of said
decision, unless appealed to the President in accordance with the Executive Order No. 19, series
of 1966. The Decision of the Department Head may not be reviewed by the courts except through
a special civil action for certiorari or prohibition.

Security and Intelligence Division

Section 9. Rules and Regulations. The Department Head, upon the recommendation of the
Director of Forest Development, shall promulgate the rules and regulations necessary to
implement effectively the provisions of this Code.

Forest Development Training Center

Technical Training;
Non-Technical Training.

The Department Head may, upon recommendation of the Director, reorganize or create such other
divisions, sections of units as may be deemed necessary and to appoint the personnel there:
Provided, That an employee appointed or designated as officer-in-charge of a newly created
division, section or unit, or to an existing vacant position with a higher salary, shall receive, from
the date of such appointment or designation until he is replaced or reverted to his original position,
the salary corresponding to the position temporarily held by him.
There shall be created at least eleven regional offices. In each region, there shall be as many
forest districts as may be necessary, in accordance with the extent of forest area, established work
loads, need for forest protection, fire prevention and other factors, the provisions of any law to the
contrary notwithstanding: Provided, That the boundaries of such districts shall follow, whenever
possible, natural boundaries of watersheds under the river-basin concept of management.
Section 11. Manpower Development. The Bureau shall establish and operate an in-service
training center for the purpose of upgrading and training its personnel and new employees.
The Bureau shall also set aside adequate funds to enable personnel to obtain special education
and training in local or foreign colleges or institutions.
Section 12. Performance Evaluation. The Bureau shall devise a system, to be approved by the
Department Head, to evaluate the performance of its employees. The system shall measure
accomplishment in quantity and quality of performance as related to the funded program of work
assigned to each organizational unit. There shall be included a system of periodic inspection of
district offices by the regional offices and the regional and district offices by the Central Office in
both functional fields and in the overall assessment of how each administrative unit has
implemented the laws, regulations, policies, programs, and practices relevant to such unit. The
evaluation system shall provide the information necessary for annual progress reports and
determination of employee training civil service awards and transfer or disciplinary action.
CHAPTER II
CLASSIFICATION AND SURVEY
Section 13. System of Land Classification. The Department Head shall study, devise, determine
and prescribe the criteria, guidelines and methods for the proper and accurate classification and
survey of all lands of the public domain into agricultural, industrial or commercial, residential,
resettlement, mineral, timber or forest, and grazing lands, and into such other classes as now or
may hereafter be provided by law, rules and regulations.
In the meantime, the Department Head shall simplify through inter-bureau action the present
system of determining which of the unclassified lands of the public domain are needed for forest
purposes and declare them as permanent forest to form part of the forest reserves. He shall
decree those classified and determined not to be needed for forest purposes as alienable and
disposable lands, the administrative jurisdiction and management of which shall be transferred to
the Bureau of Lands: Provided, That mangrove and other swamps not needed for shore protection
and suitable for fishpond purposes shall be released to, and be placed under the administrative
jurisdiction and management of, the Bureau of Fisheries and Aquatic Resources. Those still to be
classified under the Present system shall continue to remain as part of the public forest.
Section 14. Existing Pasture Leases and Permits in Forest Lands. Forest lands which have been
the subject of pasture leases and permits shall remain classified as forest lands until classified as
grazing lands under the criteria, guidelines and methods of classification to be prescribed by the
Department Head: Provided, That the administration, management and disposition of grazing
lands shall remain under the Bureau.

Section 15. Topography. No land of the public domain eighteen per cent (18%) in slope or over
shall be classified as alienable and disposable, nor any forest land fifty per cent (50%) in slope or
over, as grazing land.
Lands eighteen per cent (18%) in slope or over which have already been declared as alienable
and disposable shall be reverted to the classification of forest lands by the Department Head, to
form part of the forest reserves, unless they are already covered by existing titles or approved
public land application, or actually occupied openly, continuously, adversely and publicly for a
period of not less than thirty (30) years as of the effectivity of this Code, where the occupant is
qualified for a free patent under the Public Land Act: Provided, That said lands, which are not yet
part of a well-established communities, shall be kept in a vegetative condition sufficient to prevent
erosion and adverse effects on the lowlands and streams: Provided, further, That when public
interest so requires, steps shall be taken to expropriate, cancel defective titles, reject public land
application, or eject occupants thereof.
Section 16. Areas needed for forest purposes. The following lands, even if they are below
eighteen per cent (18%) in slope, are needed for forest purposes, and may not, therefore, be
classified as alienable and disposable land, to wit:
1. Areas less than 250 hectares which are far from, or are not contiguous with, any
certified alienable and disposable land;
2. Isolated patches of forest of at least five (5) hectares with rocky terrain, or which
protect a spring for communal use;
3. Areas which have already been reforested;
4. Areas within forest concessions which are timbered or have good residual stocking to
support an existing, or approved to be established, wood processing plant;
5. Ridge tops and plateaus regardless of size found within, or surrounded wholly or
partly by, forest lands where headwaters emanate;
6. Appropriately located road-rights-or-way;
7. Twenty-meter strips of land along the edge of the normal high waterline of rivers and
streams with channels of at least five (5) meters wide;
8. Strips of mangrove or swamplands at least twenty (20) meters wide, along shorelines
facing oceans, lakes, and other bodies of water, and strips of land at least twenty (20)
meters wide facing lakes;
9. Areas needed for other purposes, such as national parks, national historical sites,
game refuges and wildlife sanctuaries, forest station sites, and others of public interest;
and
10. Areas previously proclaimed by the President as forest reserves, national parks,
game refuge, bird sanctuaries, national shrines, national historic sites:
Provided, That in case an area falling under any of the foregoing categories shall have been titled
in favor of any person, steps shall be taken, if public interest so requires, to have said title
cancelled or amended, or the titled area expropriated.

Section 17. Establishment of boundaries of forest lands. All boundaries between permanent
forests and alienable and disposable lands shall be clearly marked and maintained on the ground,
with infrastructure or roads, or concrete monuments at intervals of not more than five hundred
(500) meters in accordance with established procedures and standards, or any other visible and
practicable signs to insure protection of the forest.
Section 18. Reservations in forest lands and off-shore areas. The President of the Philippines
may establish within any lands of the public domain, forest reserve and forest reservation for the
national park system, for preservation as critical watersheds, or for any other purpose, and modify
boundaries of existing ones. The Department Head may reserve and establish any portion of the
public forest or forest reserve as site or experimental forest for use of the Forest Research
Institute.
When public interest so requires, any off-shore area needed for the preservation and protection of
its educational, scientific, historical, ecological and recreational values including the marine life
found therein, shall be established as marine parks.
CHAPTER III
UTILIZATION AND MANAGEMENT
Section 19. Multiple use. The numerous beneficial uses of the timber, land, soil, water, wildlife,
recreation value and grass of forest lands shall be evaluated and weighted before allowing the
utilization, exploitation, occupation or possession thereof, or the conduct of any activity therein.
Only the utilization, exploitation, occupation or possession of any forest land, or any activity
therein, involving one or more or its resources, which will produce the optimum benefits to the
development and progress of the country and the public welfare, without impairment or with the
least injury to its other resources, shall be allowed.
All forest reservations may be open to uses not inconsistent with the principal objectives of the
reservation: Provided, That critical watersheds and national parks shall not be subject to logging
operations.
Section 20. License agreement, license, lease or permit. No person may utilize, exploit, occupy,
possess or conduct any activity within any forest land, or establish and operate any woodprocessing plant, unless he has been authorized to do so under a license agreement, lease,
license, or permit.
Section 21. Sustained yield. All measures shall be taken to achieve an approximate balance
between growth and harvest or use of forest products in forest lands.

(c) For other types of forest, the silvicultural and harvesting system that will be found
suitable by research shall be applied. Meanwhile, a system based on observation and
practices abroad may be adopted initially.
Any practised system are subject to modification or changes based on research findings.
Section 23. Timber inventory. The Bureau shall conduct a program of progressive inventories of
the harvestable timber and young trees in all forest lands, whether covered by any license
agreement, license, lease or permit, or not, until a one hundred per cent (100%) timber inventory
thereon has been achieved.
Section 24. Required inventory prior to timber utilization in forest lands. No harvest of timber in
any forest land shall be allowed unless it has been the subject of at least a five per cent (5%)
timber inventory, or any statistically sound timber estimate, made not earlier than five (5) years
prior to the issuance of a license agreement or license allowing such utilization.
Section 25. Cutting cycle. The Bureau shall apply scientific cutting cycle and rotation in all forest
lands, giving particular consideration to the age, volume and kind of healthy residual trees which
may be left undisturbed and undamaged for future harvest and forest cover indipterocarp area,
and seed trees and reproduction in pine area.
Section 26. Annual allowable cut. The annual allowable cut of any particular forest land shall be
determined on the basis of the established rotation and cutting cycle thereof, and the volume and
kind of harvestable timber and healthy residuals, seed trees and reproduction found therein.
Section 27. Duration of license agreement or license to harvest timber in forest lands. The
duration of the privilege to harvest timber in any particular forest land under a license agreement
or license shall be fixed and determined in accordance with the annual allowable cut therein, the
established cutting cycle thereof, the yield capacity of harvestable timber, and the capacity of
healthy residuals for a second growth.
The privilege shall automatically terminate, even before the expiration of the license agreement of
license, the moment the harvestable timber have been utilized without leaving any logged-over
area capable of commercial utilization.
The maximum period of any privilege to harvest timber is twenty-five (25) years, renewable for a
period, not exceeding twenty-five (25) years, necessary to utilize all the remaining commercial
quantity or harvestable timber either from the unlogged or logged-over area.
It shall be a condition for the continued privilege to harvest timber under any license or license
agreement that the licensee shall reforest all the areas which shall be determined by the Bureau.

A. TIMBER
Section 28. Size of forest concessions. Forest lands shall not be held in perpetuity.
Section 22. Silvicultural and harvesting systems. In any logging operations in production forests
within forest lands, the proper silvicultural and harvesting systems that will promote optimum
sustained yield shall be practised.
(a) For dipterocarp forest, selective logging shall be practised.
(b) For pine forest, the seed tree system with planting when necessary shall be
practised.

The size of the forest lands which may be the subject of timber utilization shall be limited to that
which a person may effectively utilize and develop for a period of fifty (50) years, considering the
cutting cycle, the past performance of the applicant and his capacity not only to utilize but, more
importantly, to protect and manage the whole area, and the requirements of processing plants
existing or to be installed in the region.
Forest concessions which had been the subject of consolidations shall be reviewed and reevaluated for the effective implementation of protection, reforestation and management thereof
under the multiple use and sustained yield concepts, and for the processing locally of the timber
resources therefrom.

B. WOOD-PROCESSING
Section 29. Incentives to the wood industry. The Department Head, in collaboration with other
government agencies and the wood industry associations and other private entities in the country,
shall evolve incentives for the establishment of an integrated wood industry in designated wood
industry centers and/or economic area.
The President of the Philippines, upon the recommendations of the National Economic
Development Authority and the Department Head, may establish wood industry import-export
centers in selected locations: Provided, That logs imported for such centers shall be subject to
such precaution as may be imposed by the Bureau, in collaboration with proper government
agencies, to prevent the introduction of pests, insects and/or diseases detrimental to the forests.
Section 30. Rationalization of the wood industry. While establishment of wood-processing plants
shall be encouraged, their locations and operations shall be regulated in order to rationalize the
industry. No new processing plant shall be established unless adequate raw material is available
on a sustained-yield basis in the area where the raw materials will come from.
The Department Head may cancel, suspend, or phase-out all uneconomical wood-processing
plants which are not responsive to the rationalization program of the government.
Section 31. Wood wastes, weed trees and residues. Timber licensees shall be encouraged and
assisted to gather and save the wood wastes and weed trees in their concessions, and those with
processing plants, the wood residues thereof, for utilization and conversion into wood by-products
and derivatives.
Section 32. Log production and processing. Unless otherwise decreed by the President, upon
recommendation of the National Economic Development Authority, the entire production of logs by
all licensees shall, beginning January 1, 1976, be processed locally.
A licensee who has no processing plant may, subject to the approval of the Director, enter into a
contract with a wood processor for the processing of his logs. Wood processors shall accept for
processing only logs cut by, or purchased from, licensees of good standing at the time of the
cutting of logs.
C. REFORESTATION
Section 33. Forest lands to be reforested. The following shall be reforested and covered with
suitable and sufficient trees, to wit:

(e) Denuded or inadequately-timbered areas proclaimed by the President as forest

reserves and reservations as critical watersheds, national parks, game refuge, bird
sanctuaries, national shrines, national historic sites;
(f) Inadequately-stocked forest lands within forest concessions;
(g) Portions of areas covered by pasture leases or permits having a slope of at least fifty
per cent (50%); and
(h) River banks, easements, road rights-of-ways, deltas, swamps, former river beds, and
beaches.
Section 34. Industrial Tree Plantations and Tree Farms. A lease for a period of twenty-five (25)
years, renewable for another period not exceeding twenty-five (25) years, for the establishment of
an industrial tree plantation or a tree farm may be granted by the Department Head upon
recommendation of the Director to any person qualified to develop and exploit natural resources,
over timber or forest lands of the public domain categorized in Section 33 hereof, with a minimum
area of One Thousand (1,000) hectares for industrial tree plantation and One Hundred (100)
hectares for tree farm; Provided, That the size of the area that may be granted under each
category shall in each case depend upon the capacity of the lessee to develop or convert the area
into productive condition within the term of the lease; Provided, further, That no lease shall be
granted within critical watersheds.
Scattered areas of less than One Hundred (100) hectares each may be leased for the
establishment of tree farms to different qualified persons upon a showing that if developed as an
integrated unit these areas can be economically exploited: Provided, That it shall be a condition of
the lease that such persons organize themselves into a cooperative to ensure the orderly
management thereof.
The lease may be granted under such terms and conditions as the Department Head may
prescribe, taking into account, among others, the raw material needs of forest-based industries
and the maintenance of a wholesome ecological balance.
Reforestation projects of the Government, or portions thereof which, upon field evaluation, are
found to be more suitable for, or can be better developed as, industrial tree plantations or tree
farms in terms of benefits to the Government and the general surrounding area, may be the
subject of the lease under this section.
Section 35. Priority. Over any suitable area covered by a timber license agreement, or a pasture
lease agreement or permit, the priority to establish industrial forest plantation or tree farm shall be
given to the holder thereof.

(a) Bare or grass-covered tracts of forest lands with at least fifty per cent (50%) slope;
(b) Bare or grass-covered tracts of forest lands with less than fifty per cent (50%) slope,
but with soil so highly erodible as to make grass cover inadequate for soil erosion
control;
(c) Brushlands or tracts of forest lands generally covered with brush, which need to be
developed to increase their productivity;

The priority herein granted must, however, be availed of within a reasonable period to be
determined by the Department Head, otherwise, the area shall be declared open to any qualified
person and consequently segregated from the holder's area.
Section 36. Incentives. To encourage qualified persons to engage in industrial tree plantation
and/or tree farming, the following incentives are granted:
(a) Payment of a nominal filing fee of fifty centavos (P0.50) per hectare;

(d) Open tracts of forest lands with slopes or gradients generally exceeding fifty per cent
(50%), interspersed with patches of forest each of which is less than two hundred fifty
(250) hectares in area;

(b) No rental shall be collected during the first five (5) years from the date of the lease;
from the sixth year to the tenth year, the annual rental shall be fifty centavos (P0.50) per
hectare; and thereafter, the annual rental shall be one peso (P1.00) per hectare:

Provided, That lessees of areas long denuded as certified by the Director and approved
by the Department Head, shall be exempted from the payment of rental for the full term
of the lease which shall not exceed twenty-five (25) years; for the first five (5) years
following the renewal of the lease, the annual rental shall be fifty centavos (P0.50) per
hectare; and thereafter, the annual rental shall be one peso (P1.00) per hectare.
(c) The lessee shall pay forest charges on the timber and other forest products grown
and cut or gathered in an industrial tree plantation or tree farm equivalent to six percent
(6%) current market value thereof;
(d) Sale at cost of seedlings and free technical advice and assistance to persons who
will develop their privately-owned lands into industrial tree plantation or tree farm;
(e) Exemption from the payment of the percentage tax levied in Title V of the National
Internal Revenue Code when the timber and forest products are sold, bartered or
exchanged by the lessee whether in their original state or not;
(f) The Board of Investments shall, notwithstanding its nationality requirement on
projects involving natural resources, classify industrial tree plantations and tree farms as
pioneer areas of investment under its annual priority plan, to be governed by the rules
and regulations of said Board. A lessee of an industrial tree plantation or tree farm may
either apply to the Board of Investments for the tax and other benefits thereunder, or
avail of the following benefits:
1. Amounts expended by a lessee in the development and operation of an
industrial tree plantation or tree farm prior to the time when the production
state is reached, may, at the option of said lessee, be regarded as ordinary
and necessary business expenses or as capital expenditures; and
2. Deduction from an investor's taxable income for the year, of an annual
investment allowance equivalent to thirty-three and one-third per cent (331/3%) of his actual investment during the year in an enterprise engaged in
industrial tree plantation or tree farm: Provided, That such investment shall not
be withdrawn for a period of at least ten (10) years from the date of
investment: Provided, further, That should the investment be withdrawn within
such period, a tax equivalent to double the amount of the total income tax
rebate resulting from the investment allowance shall be payable as a lump
sum in addition to the income tax due from the taxpayer for the year the
investment was withdrawn.
(g) Except when public interest demands the alteration or modification, the boundaries
of an area covered by an industrial tree plantation or tree farm lease, once established
on the ground, shall not be altered or modified; and
(h) A lessee shall not be subject to any obligation prescribed in, or arising out of, the
provisions of the National Internal Revenue Code on withholding of tax at source upon
interests paid on borrowings incurred for development and operation of the industrial
tree plantation or tree farm.
The Department Head may provide other incentives in addition to those hereinabove granted to
promote industrial tree plantation and tree farms in special areas such as, but not limited to, those
where there are no roads or where roads are inadequate, or areas with rough topography and
remote areas far from processing plants.

All amounts collected under this section shall accrue to a special deposit of the Bureau to be used
for reforestation of critical watersheds or degraded areas and other development activities, over
and above the general appropriation of the said Bureau.
D. FOREST PROTECTION
Section 37. Protection of all resources. All measures shall be taken to protect the forest resources
from destruction, impairment and depletion.
Section 38. Control of concession area. In order to achieve the effective protection of the forest
lands and the resources thereof from illegal entry, unlawful occupation, kaingin, fire, insect
infestation, theft, and other forms of forest destruction, the utilization of timber therein shall not be
allowed except through license agreements under which the holders thereof shall have the
exclusive privilege to cut all the allowable harvestable timber in their respective concessions, and
the additional right of occupation, possession, and control over the same, to the exclusive of all
others, except the government, but with the corresponding obligation to adopt all the protection
and conservation measures to ensure the continuity of the productive condition of said areas,
conformably with multiple use and sustained yield management.
If the holder of a license agreement over a forest area expressly or impliedly waives the privilege
to utilize any softwood, hardwood or mangrove species therein, a license may be issued to
another person for the harvest thereof without any right of possession or occupation over the
areas where they are found, but he shall, likewise, adopt protection and conservation measures
consistent with those adopted by the license agreement holder in the said areas.
Section 39. Regulation of timber utilization in all other classes of lands and of wood-processing
plants. The utilization of timber in alienable and disposable lands, private lands, civil reservations,
and all lands containing standing or felled timber, including those under the jurisdiction of other
government agencies, and the establishment and operation of saw-mills and other woodprocessing plants, shall be regulated in order to prevent them from being used as shelters for
excessive and unauthorized harvests in forest lands, and shall not therefore be allowed except
through a license agreement, license, lease or permit.
Section 40. Timber inventory in other lands containing standing or felled timber. The Bureau shall
conduct a one hundred per cent (100%) timber inventory in alienable and disposable lands and
civil reservations immediately upon classification or reservation thereof.
No harvest of standing or felled timber in alienable and disposable lands, private lands, civil
reservation, and all other lands, including those under the jurisdiction of other government
agencies, shall be allowed unless a one hundred per cent (100%) timber inventory has been
conducted thereon.
Section 41. Sworn timber inventory reports. All reports on timber inventories of forest lands,
alienable and disposable lands, private lands, civil reservations, and all lands containing standing
or felled timber must be subscribed and sworn to by all the forest officers who conducted the
same.
Section 42. Participation in the development of alienable and disposable lands and civil
reservations. The privilege to harvest timber in alienable and disposable lands and civil
reservations shall be given to those who can best help in the delineation and development of such
areas in accordance with the management plan of the appropriate government exercising
jurisdiction over the same.
The extent of participation shall be based on the amount of timber which may be harvested
therefrom.

Section 43. Swamplands and mangrove forests. Strips of mangrove forest bordering numerous
islands which protect the shoreline, the shoreline roads, and even coastal communities from the
destructive force of the sea during high winds and typhoons, shall be maintained and shall not be
alienated. Such strips must be kept from artificial obstruction so that flood water will flow
unimpeded to the sea to avoid flooding or inundation of cultivated areas in the upstream.

Section 49. Roads and other infrastructure. Roads and other infrastructure in forest lands shall be
constructed with the least impairment to the resource values thereof.

All mangrove swamps set aside for coast-protection purposes shall not be subject to clear-cutting
operation.

Government agencies undertaking the construction of roads, bridges, communications, and other
infrastructure and installations inside forest lands, shall coordinate with the Bureau, especially if it
will involve the utilization or destruction of timber and/or other forest resources, or watershed
disturbance therein, in order to adopt measures to avoid or reduce damage or injury to the forest
resource values.

Mangrove and other swamps released to the Bureau of Fisheries and Aquatic Resources for
fishpond purposes which are not utilized, or which have been abandoned for five (5) years from
the date of such release shall revert to the category of forest land.

They shall likewise extend assistance in the planning and establishment of roads, wharves, piers,
port facilities, and other infrastructure in locations designated as wood-processing centers or for
the convenience of wood-based industries.

Section 44. Visitorial power. The Department Head may, by himself or thru the Director or any
qualified person duly designated by the Department Head, investigate, inspect and examine
records, books and other documents relating to the operation of any holder of a license
agreement, license, lease, or permit, and its subsidiary or affiliated companies, to determine
compliance with the terms and conditions thereof, this Code and pertinent laws, policies, rules and
regulations.

In order to coincide and conform to government plans, programs, standards, and specifications,
holders of license agreements, licenses, leases and permits shall not undertake road or
infrastructure construction or installation in forest lands without the prior approval of the Director, or
in alienable and disposable lands, civil reservations and other government lands, without the
approval of the government agencies having administrative jurisdiction over the same.

Section 45. Authority of forest officers. When in the performance of their official duties, forest
officers, or other government officials or employees duly authorized by the Department Head or
Director, shall have free entry into areas covered by a license agreement, license, lease or permit.
Forest officers are authorized to administer oath and take acknowledgment in official matters
connected with the functions of their office, and to take testimony in official investigations
conducted under the authority of this Code and the implementing rules and regulations.

All roads and infrastructure constructed by holders of license agreements, licenses, leases and
permits belong to the State and the use and administration thereof shall be transferred to the
government immediately upon the expiration or termination thereof. Prior thereto the Bureau may
authorize the public use thereof, if it will not be detrimental to forest conservation measures.
Where roads are utilized by more than one commercial forest user, the Bureau shall prescribe the
terms and conditions of joint use including the equitable sharing of construction and/or
maintenance costs, and of the use of these roads by other parties and the collection of such fees
as may be deemed necessary.

Section 46. Scaling stations. In collaboration with appropriate government agencies, the Bureau
shall establish control or scaling stations at suitably located outlets of timber and other forest
products to insure that they were legally cut or harvested.

Section 50. Logging roads. There shall be indiscriminate construction of logging roads.

Section 47. Mining operations. Mining operations in forest lands shall be regulated and conducted
with due regard to protection, development and utilization of other surface resources.

Such roads shall be strategically located and their widths regulated so as to minimize clear-cutting,
unnecessary damage or injury to healthy residuals, and erosion. Their construction must not only
serve the transportation need of the logger but, most importantly, the requirement to save as many
healthy residuals as possible during cutting and hauling operations.

Location, prospecting, exploration, utilization or exploitation of mineral resources in forest

reservations shall be governed by Mining laws, rules and regulations. No location, prospecting,
exploration, utilization, or exploitation of mineral resources inside forest concessions shall be
allowed unless proper notice has been served upon the licensees thereof and the prior approval of
the Director, secured.

Section 51. Management of occupancy in forest lands. Forest occupancy shall henceforth be
managed. The Bureau shall study, determine and define which lands may be the subject of
occupancy and prescribed therein, an agro-forestry development program.
Occupants shall undertake measures to prevent and protect forest resources.

Mine tailings and other pollutants affecting the health and safety of the people, water, fish,
vegetation, animal life and other surface resources, shall be filtered in silt traps or other filtration
devices and only clean exhausts and liquids shall be released therefrom.
Surface-mined areas shall be restored to as near its former natural configuration or as approved
by the Director prior to its abandonment by the mining concern.
Section 48. Mineral Reservations. Mineral reservations which are not the subject of mining
operations or where operations have been suspended for more than five (5) years shall be placed
under forest management by the Bureau.
Mineral reservations where mining operations have been terminated due to the exhaustion of its
minerals shall revert to the category of forest land, unless otherwise reserved for other purposes.

Any occupancy in forest land which will result in sedimentation, erosion, reduction in water yield
and impairment of other resources to the detriment of community and public interest shall not be
allowed.
In areas above 50% in slope, occupation shall be conditioned upon the planting of desirable trees
thereon and/or adoption of other conservation measures.
Section 52. Census of kaingineros, squatters, cultural minorities and other occupants and
residents in forest lands. Henceforth, no person shall enter into forest lands and cultivate the same
without lease or permit.

A complete census of kaingineros, squatters, cultural minorities and other occupants and residents
in forest lands with or without authority or permits from the government, showing the extent of their
respective occupation and resulting damage, or impairment of forest resources, shall be
conducted.
The Bureau may call upon other agencies of the government and holders of license agreement,
license, lease and permits over forest lands to participate in the census.
Section 53. Criminal Prosecution. Kaingineros, squatters, cultural minorities and other occupants
who entered into forest lands before the effectivity of this Code, without permits or authority, shall
not be prosecuted: Provided, That they do not increase their clearings: Provided, further, That they
undertake, within two (2) months from the notice thereof, the activities which will be imposed upon
them by the Bureau in accordance with a management plan calculated to conserve and protect
forest resources.
E. SPECIAL USES
Section 54. Pasture in forest lands. No forest land 50% in slope or over may be utilized for
pasture purposes.
Forest lands which are being utilized for pasture shall be maintained with sufficient grass cover to
protect soil, water and other forest resources.
If grass cover is insufficient, the same shall be supplemented with trees or such vegetative cover
as may be deemed necessary.
The size of forest lands that may be allowed for pasture and other special uses shall be
determined by rules and regulations, any provision of law to the contrary notwithstanding.
Section 55. Wildlife. Wildlife may be destroyed, killed, consumed, eaten or otherwise disposed of,
without the necessity of permit, for the protection of life, health, safety and property, and the
convenience of the people.
However, the Director may regulate the killing and destruction of wildlife in forest lands in order to
maintain an ecological balance of flora and fauna.

Section 58. Diffusion of benefits. The privilege to utilize, exploit, occupy, or possess forest lands,
or to conduct any activity therein, or to establish and operate wood-processing plants, shall be
diffused to as many qualified and deserving applicants as possible.
Section 59. Citizenship. In the evaluation of applications of corporations, increased Filipino equity
and participation beyond the 60% constitutional limitation shall be encouraged. All other factors
being equal, the applicant with more Filipino equity and participation shall be preferred.
Section 60. Financial and technical capability. No license agreement, license, lease or permit over
forest lands shall be issued to an applicant unless he proves satisfactorily that he has the financial
resources and technical capability not only to minimize utilization, but also to practice forest
protection, conservation and development measures to insure the perpetuation of said forest in
productive condition.
Section 61. Transfers. Unless authorized by the Department Head, no licensee, lessee, or
permittee may transfer, exchange, sell or convey his license agreement, license, lease or permit,
or any of his rights or interests therein, or any of his assets used in connection therewith.
The licensee, lessee, or permittee shall be allowed to transfer or convey his license agreement,
license, lease or permit only if he has not violated any forestry law, rule or regulation; has been
faithfully complying with the terms and conditions of the license agreement, license, lease or
permit; the transferee has all the qualifications and none of the disqualifications to hold a license
agreement, license, lease or permit; there is no evidence that such transfer or conveyance is being
made for purposes of speculation; and the transferee shall assume all the obligations of the
transferor.
The transferor shall forever be barred from acquiring another license agreement, license, lease or
permit.
Section 62. Service contracts. The Department Head, may in the national interest, allow forest
products licensees, lessees, or permittees to enter into service contracts for financial, technical,
management, or other forms of assistance, in consideration of a fee, with any foreign person or
entity for the exploration, development, exploitation or utilization of the forest resources, covered
by their license agreements, licenses, leases or permits. Existing valid and binding service
contracts for financial, technical, management or other forms of assistance are hereby recognized
as such.

Section 56. Recreation. The Bureau shall, in the preparation of multiple-use management plans,
identify and provide for the protection of scenic areas in all forest lands which are potentially
valuable for recreation and tourism, and plan for the development and protection of such areas to
attract visitors thereto and meet increasing demands therefor.

Section 63. Equity sharing. Every corporation holding a license agreement, license, lease or
permit to utilize, exploit, occupy or possess any forest land, or conduct any activity therein, or
establish and operate a wood-processing plant, shall within one (1) year after the effectivity of this
Code, formulate and submit to the Department Head for approval a plan for the sale of at least
twenty percent (20%) of its subscribed capital stock in favor of its employees and laborers.

The construction and operation of necessary facilities to accommodate outdoor recreation shall be
done by the Bureau with the use of funds derived from rentals and fees for the operation and use
of recreational facilities by private persons or operators, in addition to whatever funds may be
appropriated for such purposes.

The plan shall be so implemented that the sale of the shares of stock shall be effected by the
corporation not later than the sixth year of its operation, or the first year of the effectivity of this
Code, if the corporation has been in operation for more than 5 years prior to such effectivity.

Section 57. Other special uses of forest lands. Forest lands may be leased for a period not
exceeding twenty-five (25) years, renewable upon the expiration thereof for a similar period, or
held under permit, for the establishment of sawmills, lumber yards, timber depots, logging camps,
rights-of-way, or for the construction of sanatoria, bathing establishments, camps, salt works, or
other beneficial purposes which do not in any way impair the forest resources therein.
F. QUALIFICATIONS

No corporation shall be issued any license agreement, license, lease or permit after the effectivity
of this Code, unless it submits such a plan and the same is approved for implementation within the
sixth year of its operation.
The Department Head shall promulgate the necessary rules and regulations to carry out the
provisions of this section, particularly on the determination of the manner of payment, factors
affecting the selling price, establishment of priorities in the purchase of the shares of stock, and
the capability of the deserving employees and laborers. The industries concerned shall extend all

assistance in the promulgation of policies on the matter, such as the submission of all data and
information relative to their operation, personnel management, and asset evaluation.
G. REGULATORY FEES
Section 64. Charges, fees and bonds. The Department Head, upon recommendation of the
Director, shall fix the amount of charges, rental, bonds and fees for the different kinds of utilization,
exploitation, occupation, possession, or activity inside forest lands, the filing and processing of
applications therefor, the issuance and renewal of license agreements, licenses, leases and
permits, and for other services; Provided, That all fees and charges presently being collected
under existing laws and regulations shall continue to be imposed and collected until otherwise
provided; Provided, further, That timber taken and removed from private lands for commercial
purposes shall be exempt from the payment of forest charges.
Section 65. Authority of Department Head to impose other fees. In addition to the fees and
charges imposed under existing laws, rules and regulations, the Department Head is hereby
authorized, upon recommendation of the Director and in consultation with representatives of the
industries affected, to impose other fees for forest protection, management, reforestation, and
development, the proceeds of which shall accrue into a special deposit of the Bureau as its
revolving fund for the aforementioned purposes.
Section 66. Collection and Disbursement. The collection of the charges and fees abovementioned shall be the responsibility of the Director or his authorized representative. The Director
shall remit his monthly collection of fees and charges mentioned in Section 64 to the Treasurer of
the Philippines within the first ten (10) days of the succeeding month; Provided, That the proceeds
of the collection of the fees imposed under Section 65 and the special deposit heretofore required
of licensees shall be constituted into a revolving fund for such purposes and be deposited in the
Philippine National Bank, as a special deposit of the Bureau. The Budget Commissioner and the
National Treasurer shall effect the quarterly releases out of the collection accruing to the general
fund upon request of the Director on the basis of a consolidated annual budget of a work program
approved by the Department Head and the President.
In the case of the special deposit revolving fund, withdrawals therefrom shall be effected by the
Department Head on the basis of a consolidated annual budget prepared by the Director of a work
program for the specific purposes mentioned in Section 65.
Section 67. Basis of Assessment. Tree measurement shall be the basis for assessing government
charges and other fees on timber cut and removed from forest lands, alienable or disposable
lands, and the civil reservations; Provided, That until such time as the mechanics of tree
measurement shall have been developed and promulgated in rules and regulations, the present
scaling method provided for in the National Internal Revenue Code shall be used.
The Director may, with the approval of the Department Head, prescribe a new method of
assessment of forest products and collection of charges thereon based upon the result of
production cost and market studies undertaken by the Bureau; Provided, That such charges shall
not be lower than those now imposed.
CHAPTER IV
CRIMINAL OFFENSES AND PENALTIES
Section 68. Cutting, gathering and/or collecting timber or other products without license. Any
person who shall cut, gather, collect, or remove timber or other forest products from any forest
land, or timber from alienable and disposable public lands, or from private lands, without any
authority under a license agreement, lease, license or permit, shall be guilty of qualified theft as
defined and punished under Articles 309 and 310 of the Revised Penal Code; Provided, That in

the case of partnership, association or corporation, the officers who ordered the cutting, gathering
or collecting shall be liable, and if such officers are aliens, they shall, in addition to the penalty, be
deported without further proceedings on the part of the Commission on Immigration and
Deportation.
The Court shall further order the confiscation in favor of the government of the timber or forest
products to cut, gathered, collected or removed, and the machinery, equipment, implements and
tools used therein, and the forfeiture of his improvements in the area.
The same penalty plus cancellation of his license agreement, lease, license or permit and
perpetual disqualification from acquiring any such privilege shall be imposed upon any licensee,
lessee, or permittee who cuts timber from the licensed or leased area of another, without prejudice
to whatever civil action the latter may bring against the offender.
Section 69. Unlawful occupation or destruction of forest lands. Any person who enters and
occupies or possesses, or makes kaingin for his own private use or for others any forest land
without authority under a license agreement, lease, license or permit, or in any manner destroys
such forest land or part thereof, or causes any damage to the timber stand and other products and
forest growths found therein, or who assists, aids or abets any other person to do so, or sets a fire,
or negligently permits a fire to be set in any forest land shall, upon conviction, be fined in an
amount of not less than five hundred pesos (P500.00) nor more than twenty thousand pesos
(P20,000.00) and imprisoned for not less than six (6) months nor more than two (2) years for each
such offense, and be liable to the payment of ten (10) times the rental fees and other charges
which would have been accrued had the occupation and use of the land been authorized under a
license agreement, lease, license or permit: Provided, That in the case of an offender found guilty
of making kaingin, the penalty shall be imprisoned for not less than two (2) nor more than (4) years
and a fine equal to eight (8) times the regular forest charges due on the forest products destroyed,
without prejudice to the payment of the full cost of restoration of the occupied area as determined
by the Bureau.
The Court shall further order the eviction of the offender from the land and the forfeiture to the
Government of all improvements made and all vehicles, domestic animals and equipment of any
kind used in the commission of the offense. If not suitable for use by the Bureau, said vehicles
shall be sold at public auction, the proceeds of which shall accrue to the Development Fund of the
Bureau.
In case the offender is a government official or employee, he shall, in addition to the above
penalties, be deemed automatically dismissed from office and permanently disqualified from
holding any elective or appointive position.
Section 70. Pasturing Livestock. Imprisonment for not less than six (6) months nor more than two
(2) years and a fine equal to ten (10) times the regular rentals due, in addition to the confiscation
of such livestock and all improvement introduced in the area in favor of the government, shall be
imposed upon any person, who shall, without authority under a lease or permit, graze or cause to
graze livestock in forest lands, grazing lands and alienable and disposable lands which have not
as yet been disposed of in accordance with the Public Land Act; Provided, That in case the
offender is a corporation, partnership or association, the officers and directors thereof shall be
liable.
Section 71. Illegal occupation of national parks system and recreation areas and vandalism
therein. Any person who shall, without permit, occupy for any length of time any portion of the
national parks system or shall, in any manner, cut, destroy, damage or remove timber or any
species of vegetation or forest cover and other natural resources found therein, or shall mutilate,
deface or destroy objects of natural beauty or of scenic value within areas in the national parks
system, shall be fined not less than two hundred (P200.00) pesos or more than five hundred
(P500.00) pesos exclusive of the value of the thing damaged; Provided, That if the area requires

rehabilitation or restoration as determined by the Director, the offender shall also be required to
restore or compensate for the restoration of the damage; Provided, Further, That any person who,
without proper permit shall hunt, capture or kill any kind of bird, fish or wild animal life within any
area in the national parks system shall be subject to the same penalty; Provided, Finally, That the
Court shall order eviction of the offender from the land and the forfeiture in favor of the
Government of all timber or any species of vegetation and other natural resources collected or
removed, and any construction or improvement made thereon by the offender. If the offender is an
association or corporation, the president or manager shall be directly responsible and liable for the
act of his employees or laborers.
In the event that an official of a city or municipal government is primarily responsible for detecting
and convicting the violator of the provisions of this Section, fifty per centum (50%) of the fine
collected shall accrue to such municipality or city for the development of local parks.
Section 72. Destruction of wildlife resources. Any person violating the provisions of Section 55 of
this Code, or the regulations promulgated thereunder, shall be fined not less than one hundred
(P100.00) pesos for each such violation and in addition shall be denied a permit for a period of
three (3) years from the date of the violation.
Section 73. Survey by unauthorized person. Imprisonment for not less than two (2) nor more than
four (4) years, in addition to the confiscation of the implements used in the violation of this section
including the cancellation of the license, if any, shall be imposed upon any person who shall,
without permit to survey from the Director, enter any forest lands, whether covered by a license
agreement, lease, license, or permit, or not, and conduct or undertake a survey for whatever
purpose.
Section 74. Misclassification and survey by government official or employee. Any public officer or
employee who knowingly surveys, classifies, or recommends the release of forest lands as
alienable and disposable lands contrary to the criteria and standards established in this Code, or
the rules and regulations promulgated hereunder, shall, after an appropriate administrative
proceeding, be dismissed from the service with prejudice to re-employment, and upon conviction
by a court of competent jurisdiction, suffer an imprisonment of not less than one (1) year and a fine
of not less than one thousand, (P1,000.00) pesos. The survey, classification or release of forest
lands shall be null and void.
Section 75. Tax declaration on real property. Imprisonment for a period of not less than two (2) nor
more than four (4) years and perpetual disqualification from holding an elective or appointive
office, shall be imposed upon any public officer or employee who shall issue a tax declaration on
real property without a certification from the Director of Forest Development and the Director of
Lands or their duly designated representatives that the area declared for taxation is alienable and
disposable lands, unless the property is titled or has been occupied and possessed by members of
the national cultural minorities prior to July 4, 1955.
Section 76. Coercion and influence. Any person who coerces, influences, abets or persuades the
public officer or employee referred to in the two preceding sections to commit any of the acts
mentioned therein shall suffer imprisonment of not less than one (1) year and pay a fine of five
hundred (P500.00) pesos for every hectare or a fraction thereof so improperly surveyed, classified
or released.
Section 77. Unlawful possession of implements and devices used by forest officers. Imprisonment
for a period of not less than (2) nor more than four (4) years and a fine of not less than one
thousand pesos (P1,000.00), nor more than ten thousand (P10,000.00) pesos in addition to the
confiscation of such implements and devices, and the automatic cancellation of the license
agreement, lease, license or permit, if the offender is a holder thereof, shall be imposed upon any
person who shall, without authority from the Director or his authorized representative, make,
manufacture, or has in his possession any government marking, hatchet or other marking

implement, or any marker, poster, or other devices officially used by officers of the Bureau for the
marking or identification of timber or other products, or any duplicate, counterfeit, or imitation
thereof, or make or apply a government mark on timber or any other forest products by means of
any authentic or counterfeit device, or alter, deface, or remove government marks or signs, from
trees, logs, stumps, firewoods or other forest products, or destroy, deface, remove or disfigure any
such mark, sign, poster or warning notices set by the Bureau to designate the boundaries of
cutting areas, municipal or city forest or pasture, classified timber land, forest reserve, and areas
under the national park system or to make any false mark or imitation of any mark or sign herein
indicated; Provided, That if the offender is a corporation, partnership or association, the officers
and directors thereof shall be liable.
Section 78. Payment, collection and remittance of forest charges. Any person who fails to pay the
amount due and payable under the provisions of this Code, the National Internal Revenue Code,
or the rules and regulations promulgated thereunder, shall be liable to the payment of a surcharge
of twenty-five per centum (25%) of the amount due and payable.
Any person who fails or refuses to remit to the proper authorities said forest charges collectible
pursuant to the provisions of this Code or the National Internal Revenue Code, or who delays,
obstructs or prevents the same, or who orders, causes or effects the transfer or diversion of the
funds for purposes other than those specified in this Code, for each such offense shall, upon
conviction, be punished by a fine of not exceeding one hundred thousand pesos (P100,000.00)
and/or imprisonment for a period of not exceeding six (6) years in the discretion of the Court. If the
offender is a government official or employee, he shall, in addition, be dismissed from the service
with prejudice to reinstatement and with disqualification from holding any elective or appointive
office.
If the offender is a corporation, partnership or association, the officers and directors thereof shall
be liable.
Section 79. Sale of wood products. No person shall sell or offer for sale any log, lumber, plywood
or other manufactured wood products in the international or domestic market unless he complies
with grading rules and established or to be established by the Government.
Failure to adhere to the established grading rules and standards, or any act of falsification of the
volume of logs, lumber, or other forest products shall be a sufficient cause for the suspension of
the export, sawmill, or other license or permit authorizing the manufacture or sale of such products
for a period of not less than two (2) years.
A duly accredited representative of the Bureau shall certify to the compliance by the licensees with
grading rules.
Every dealer in lumber and other building material covered by this Code shall issue an invoice for
each sale of such material and such invoice shall state that the kind, standard and size of material
sold to each purchaser in exactly the same as described in the invoice. Any violation of this
Section shall be sufficient ground for the suspension of the dealer's license for a period of not less
than two (2) years and, in addition thereto, the dealer shall be punished for each such offense by a
fine of not less than two hundred pesos (P200.00) or the total value of the invoice, whichever is
greater.
Section 80. Arrest; Institution of criminal actions. A forest officer or employee of the Bureau shall
arrest even without warrant any person who has committed or is committing in his presence any of
the offenses defined in this Chapter. He shall also seize and confiscate, in favor of the
Government, the tools and equipment used in committing the offense, and the forest products cut,
gathered or taken by the offender in the process of committing the offense. The arresting forest
officer or employee shall thereafter deliver within six (6) hours from the time of arrest and seizure,
the offender and the confiscated forest products, tools and equipment to, and file the proper

complaint with, the appropriate official designated by law to conduct preliminary investigations and
file informations in court.
If the arrest and seizure are made in the forests, far from the authorities designated by law to
conduct preliminary investigations, the delivery to, and filing of the complaint with, the latter shall
be done within a reasonable time sufficient for ordinary travel from the place of arrest to the place
of delivery. The seized products, materials and equipment shall be immediately disposed of in
accordance with forestry administrative orders promulgated by the Department Head.
The Department Head may deputize any member or unit of the Philippine Constabulary, police
agency, barangay or barrio official, or any qualified person to protect the forest and exercise the
power or authority provided for in the preceding paragraph.
Reports and complaints regarding the commission of any of the offenses defined in this Chapter,
not committed in the presence of any forest officer or employee, or any of the deputized officers or
officials, shall immediately be investigated by the forest officer assigned in the area where the
offense was allegedly committed, who shall thereupon receive the evidence supporting the report
or complaint.
If there is prima facie evidence to support the complaint or report, the investigating forest officer
shall file the necessary complaint with the appropriate official authorized by law to conduct a
preliminary investigation of criminal cases and file an information in Court.
SPECIAL CLAUSES
Section 81. Separability Clause. Should any provision herein be subsequently declared
unconstitutional, the same shall not affect the validity or the legality of the other provisions.
Section 82. Repealing Clause. Presidential Decree Nos. 330, and 389, C.A. No. 452, R.A. No.
4715 and all laws, orders, rules and regulations or any part thereof which are inconsistent herewith
are hereby repealed or amended accordingly.
Section 83. Date of Effectivity. This Code shall take effect immediately upon promulgation.
Done in the City of Manila, this 19th day of May, in the year of Our Lord, nineteen hundred and
seventy-five.

Republic Act No. 9175

November 7, 2002

AN ACT REGULATING THE OWNERSHIP, POSSESSION, SALE, IMPORTATION AND USE OF

CHAIN SAWS, PENALIZING VIOLATIONS THEREOF AND FOR OTHER PURPOSES
Be it enacted by the Senate and the House of Representatives of the Philippines in Congress
assembled:
Section 1. Title. - This Act shall be known as the "Chain Saw Act of 2002".
Section 2. Declaration Policy. It is the policy of the State consistent with the Constitution, to
conserve, develop and protect the forest resources under sustainable management. Toward this
end, the State shall pursue an aggressive forest protection program geared towards eliminating
illegal logging and other forms of forest destruction which are being facilitated with the use of chain
saws. The State shall therefore regulate the ownership, possession, sale, transfer, importation
and/or use of chain saws to prevent them from being used in illegal logging or unauthorized
clearing of forests.
Section 3. Definition of Terms. - As used in this Act, the term:
(a) "Chain saw" shall refer to any portable power saw or similar cutting implement,
rendered operative by an electric or internal combustion engine or similar means, that
may be used for, but is not limited to, the felling of trees or the cutting of timber;
(b) "Chain saw dealer" shall refer to a person, natural or juridical, engaged in the
manufacture, importation, distribution, purchase and/or sale of chain saws;
(c) "Department" shall refer to the Department of Environment and Natural Resources;
and
(d) "Secretary" shall refer to the Secretary of the Department of Environment and
Natural Resources.

Section 4. Persons Authorized to Manufacturer, Sell and Import Chain Saws. - Chain saws shall
only be sold and/or imported by manufacturers, dealers and/or private owners who are duly
authorized by the Department.
Section 5. Persons Authorized to Possess and Use a Chain Saw. - The Department is hereby
authorized to issue permits to possess and/or use a chain saw for the felling land/or cutting of
trees, timber and other forest or agro-forest products to any applicant who:
(a) has a subsisting timber license agreement, production sharing agreement, or similar
agreements, or a private land timber permit;
(b) is an orchard and fruit tree farmer;
(c) is an industrial tree farmer;
(d) is a licensed wood processor and the chain saw shall be used for the cutting of
timber that has been legally sold to said applicant; or
(e) shall use the chain saw for a legal purpose.
Agencies of the government that use chain saws in some aspects of their functions must likewise
secure the necessary permit from the Department before operating the same.
Section 6. Registration of Chain Saws. - Within a period of three (3) months from the effectivity
hereof, all persons who own or are otherwise in possession of chain saws must register the same
with the Department, through any of its Community Environment and Natural Resources Office,
which shall issue the corresponding registration certificate or permit if it finds such persons to be
qualified hereunder.
Every permit to possess and/or use a chain saw for legitimate purpose shall be valid for two (2)
years upon issuance: Provided, That permits to possess and use chainsaw issued to noncommercial orchard and fruit tree farmers shall be valid for a period of five (5) years upon
issuance. For this purpose, the Department shall be allowed to collect reasonable registration fees
for the effective implementation of this Act.
Section 7. Penal Provisions. (a) Selling, Purchasing, Re-selling, Transferring, Distributing or Possessing a Chain Saw
Without a Proper Permit. - Any person who sells, purchases, transfer the ownership,
distributes or otherwise disposes or possesses a chain saw without first securing the
necessary permit from the Department shall be punished with imprisonment of four (4)
years, two (2) months and one (1) day to six (6) years or a fine of not less than Fifteen
thousand pesos (P15,000.00) but not more Thirty thousand pesos (30,000.00) or both at
the discretion of the court, and the chain saw/s confiscated in favor of the government.
(2) Unlawful Importation or Manufacturing of Chain Saw. - Any person who imports or
manufactures a chain saw without obtaining prior authorization from the Department
shall be punished by imprisonment of not less than one (1) month nor more than six (6)

months and a fine of not less than One thousand pesos (P1,000.00) for more than Four
thousand pesos (P4,000.00).
(3) Tampering of Engine Serial Number. - Any person who is found to have defaced or
tampered with the original registered engine serial number of any chain saw unit shall be
punished by imprisonment of not less than one (1) month nor more than six (6) months
and a fine of not less than One thousand pesos (P1,000.00) nor more than Four
thousand pesos (P4,000.00).
(4) Actual Unlawful Use of Chain Saw. - Any person who is found to be in possession of
a chain saw and uses the same to cut trees and timber in forest land or elsewhere
except as authorized by the Department shall be penalized with imprisonment of six (6)
years and one (1) day to eight (8) years or a fine of not less that Thirty thousand pesos
(P30,000.00) but not more than Fifty thousand pesos (P50,000.00) or both at the
discretion of the court without prejudice to being prosecuted for a separate offense that
may have been simultaneously committed. The chain saw unlawfully used shall be
likewise confiscated in favor of the government.
If the violation under this Section is committed by or through the command or order of another
person, partnership or corporation, the penalties herein provided shall likewise be imposed on
such other person, or the responsible officer(s) in such partnership or corporation.
If the offender is a public official or employee, in addition to the above penalties, he shall be
removed from office and perpetually disqualified from holding any public office.
The chain saws confiscated under this Section shall be sold at public auction to qualified buyers
and the proceeds thereof shall go to the Department.
Section 8. Reward. - Any person who voluntarily gives information leading to the recovery or
confiscation of an unregistered chain saw and the conviction of persons charged thereof shall be
entitled to a reward equivalent to twenty person (20%) of the value of the chain saw unit(s). The
Department is authorized to include in its budget the amount necessary to carry out the purpose of
this Section.
Section 9. Authority of the Secretary. - To effectively implement the provisions of this Act, the
Secretary shall issue the implementing rules and regulations within ninety (90) days upon approval
of this Act. He shall likewise organize an office within the Department to ensure that requirements
imposed by this Act may be complied with by qualified persons, within the shortest possible time,
at the least possible expense.
In the Province of Palawan, the provisions of this Act shall be implemented by the Palawan
Council for Sustainable Development pursuant to Republic Act No. 7611 or the Strategic
Environmental Plan for Palawan.
Section 10. Revocation of Registration and Permit. - The Secretary may revoke any Certificate of
Registration or permit previously issued to a person found violating the provisions of this Act, or
the rules and regulations issued pursuant thereto.

Section 11. Joint Congressional Oversight Committee. - To monitor and oversee the
implementation of this Act, including the approval of the rules and regulations issued pursuant
hereto, there is hereby created a Joint Congressional Oversight Committee to be composed of the
Chairpersons of the Senate Committee on Environment and Natural Resources and the House
Committee on Natural Resources as Chairperson and Co-Chairperson, five (5) members of each
of the Senate and the House of Representatives who shall be designated by the Senate President
and the Speaker of the House of Representatives as members: Provided, That the two (2) of the
five (5) senators and two (2) of the five (5) House members shall be nominated by the respective
Minority Leaders of the Senate and the House of Representatives.

(a) to conserve and protect wildlife species and their habitats to promote ecological balance and
enhance biological diversity;

Section 12. Transitory Provision. - In the interim while the Department is formulating the
implementing rules and regulations to effectively carry out the provisions of this Act, the Bureau of
Customs is prohibited from approving any chain saw importation without clearance from said
Department.

Section 3. Scope of Application. The provisions of this Act shall be enforceable for all wildlife
species found in all areas of the country, including protected areas under Republic Act No. 7586,
otherwise known as the National Integrated Protected Areas System (NIPAS) Act, and critical
habitats. This Act shall also apply to exotic species which are subject to trade, are cultured,
maintained and/or bred in captivity or propagated in the country.

Section 13. Separability Clause. - If, for any reason, any part or provision of this act shall be
declared as unconstitutional or invalid, such parts or provisions not affected thereby shall remain in
full force and effect.
Section 14. Repealing Clause. - all laws, executive orders, presidential decrees, letters of
instruction, rules and regulations, or parts thereof which are inconsistent with any of the provisions
of this Act are hereby repealed and/or amended accordingly.
Section 15. Effectivity. - This Act shall take effect fifteen (15) days after its complete publication in
the Official Gazette or in at least two (2) national newspapers of general circulation, whichever
comes earlier.
Approved: November 7, 2002

REPUBLIC ACT NO. 9147

(b) to regulate the collection and trade of wildlife;

(c) to pursue, with due regard to the national interest, the Philippine commitment to international
conventions, protection of wildlife and their habitats; and
(d) to initiate or support scientific studies on the conservation of biological diversity.

Section 4. Jurisdiction of the Department of Environment and Natural Resources and the
Department of Agriculture. The Department of Environment and Natural Resources (DENR) shall
have jurisdiction over all terrestrial plant and animal species, all turtles and tortoises and wetland
species, including but not limited to crocodiles, waterbirds and all amphibians and dugong. The
Department of Agriculture (DA) shall have jurisdiction over all declared aquatic critical habitats, all
aquatic resources including but not limited to all fishes, aquatic plants, invertebrates and all marine
mammals, except dugong. The secretaries of the DENR and the DA shall review, and by joint
administrative order, revise and regularly update the list of species under their respective
jurisdiction. In the Province of Palawan, jurisdiction herein conferred is vested to the Palawan
Council for Sustainable Development pursuant to Republic Act No. 7611.
CHAPTER II
DEFINITION OF TERMS
Section 5. Definition of Terms. As used in the Act, the term:

July 30, 2001

AN ACT PROVIDING FOR THE CONSERVATION AND PROTECTION OF WILDLIFE

RESOURCES AND THEIR HABITATS, APPROPRIATING FUNDS THEREFOR AND FOR
OTHER PURPOSES
Be it enacted by the Senate and the House of Representatives of the Philippines in Congress
assembled:
CHAPTER I
GENERAL PROVISIONS
Section 1. Title. This act shall be known as the "Wildlife Resources Conservation and Protection
Act."
Section 2. Declaration of Policy. It shall be the policy of the State to conserve the country's
wildlife resources and their habitats for sustainability. In the pursuit of this policy, this Act shall have
the following objectives:

(a) "Bioprospecting" means the research, collection and utilization of biological and genetic
resources for purposes of applying the knowledge derived there from solely for commercial
purposes;
(b) "By-product or derivatives" means any part taken or substance extracted from wildlife, in raw or
in processed form. This includes stuffed animals and herbarium specimens;
(c) "Captive-breeding/culture or propagation" means the process of producing individuals under
controlled conditions or with human interventions;
(d) "Collection or collecting" means the act of gathering or harvesting wildlife, its by-products or
derivatives;
(e) "Conservation" means preservation and sustainable utilization of wildlife, and/or maintenance,
restoration and enhancement of the habitat;
(f) "Critically endangered species" refers to a species or subspecies that is facing extremely high
risk of extinction in the wild in the immediate future;

(g) "Economically important species" means species or subspecies which have actual or potential
value in trade or utilization for commercial purpose;

(x) "Wildlife" means wild forms and varieties of flora and fauna, in all developmental stages,
including those which are in captivity or are being bred or propagated;

(h) "Endangered species" refers to species or subspecies that is not critically endangered but
whose survival in the wild is unlikely if the causal factors continue operating;

(y) "Wildlife collector's permit" means a permit to take or collect from the wild certain species and
quantities of wildlife for commercial purposes; and

(i) "Endemic species" Means species or subspecies which is naturally occurring and found only
within specific areas in the country;

(z) "Wildlife farm/culture permit" means a permit to develop, operate and maintain a wildlife
breeding farm for conservation, trade and/or scientific purposes.

(j) "Exotic species" means species or subspecies which do not naturally occur in the country;
(k) "Export permit" refers to a permit authorizing an individual to bring out wildlife from the
Philippines to any other country;
(l) "Gratuitous permit" means permit issued to any individual or entity engaged in noncommercial
scientific, or educational undertaking to collect wildlife;
(m) "Habitat" means place or environment where species or subspecies naturally occur or has
naturally established its population;
(n) "Import permit" refers to a permit authorizing an individual to bring in wildlife from another
country;
(o) "Indigenous wildlife" means species or subspecies of wildlife naturally occurring or has
naturally established population in the country;
(p) "Introduction" means bringing species into the wild that is outside its natural habitat;

CHAPTER III
CONSERVATION AND PROTECTION OF WILDLIFE RESOURCES
ARTICLE ONE
General Provision
Section 6. Wildlife Information. All activities, as subsequently manifested under this Chapter, shall
be authorized by the Secretary upon proper evaluation of best available information or scientific
data showing that the activity is, or for a purpose, not detrimental to the survival of the species or
subspecies involved and/or their habitat. For this purpose, the Secretary shall regularly update
wildlife information through research.
Section 7. Collection of Wildlife. Collection of wildlife may be allowed in accordance with Section
6 of this Act:Provided, That in the collection of wildlife, appropriate and acceptable wildlife
collection techniques with least or no detrimental effects to the existing wildlife populations and
their habitats shall, likewise, be required: Provided, further, That collection of wildlife by indigenous
people may be allowed for traditional use and not primarily for trade: Provided, furthermore, That
collection and utilization for said purpose shall not cover threatened species:Provided, finally, That
Section 23 of this Act shall govern the collection of threatened species.

(q) "Reexport permit" refers to a permit authorizing an individual to bring out of the country a
previous imported wildlife;

Section 8. Possession of Wildlife. - No person or entity shall be allowed possession of wildlife

unless such person or entity can prove financial and technical capability and facility to maintain
said wildlife: Provided,

(r) "Secretary" means either or both the Secretary of the Department of Environment and Natural
Resources and the Secretary of the Department of Agriculture;

That the source was not obtained in violation of this Act.

(s) "Threatened species" a general term to denote species or subspecies considered as critically
endangered, endangered, vulnerable or other accepted categories of wildlife whose population is
at risk of extinction;
(t) "Trade" means the act of engaging in the exchange, exportation or importation, purchase or
sale of wildlife, their derivatives or by-products, locally or internationally;
(u) "Traditional use" means utilization of wildlife by indigenous people in accordance with written or
unwritten rules, usage, customs and practices traditionally observed, accepted and recognized by
them;
(v) "Transport permit" means a permit issued authorizing an individual to bring wildlife from one
place to another within the territorial jurisdiction of the Philippines;
(w) "Vulnerable species" refers to species or subspecies that is not critically endangered nor
endangered but is under threat from adverse factors throughout their range and is likely to move to
the endangered category in the near future;

Section 9. Collection and/or Possession of By-Products and Derivatives. By-products and

derivatives may be collected and/or possessed: Provided, That the source was not obtained in
violation of this Act.
Section 10. Local Transport of Wildlife, By-Products and Derivatives. - Local transport of wildlife,
by-products and derivatives collected or possessed through any other means shall be authorized
unless the same is prejudicial to the wildlife and public health.
Section 11. Exportation and/or Importation of Wildlife. Wildlife species may be exported to or
imported from another country as may be authorized by the Secretary or the designated
representative, subject to strict compliance with the provisions of this Act and rules and regulations
promulgated pursuant thereto: Provided, That the recipient of the wildlife is technically and
financially capable to maintain it.
Section 12. Introduction, Reintroduction or Restocking of Endemic or Indigenous Wildlife. - The
introduction, reintroduction or restocking of endemic and indigenous wildlife shall be allowed only
for population enhancement of recovery purposes subject to prior clearance from the Secretary of
the authorized representative pursuant to Section 6 of this Act. Any proposed introduction shall be

subject to a scientific study which shall focus on the bioecology. The proponent shall also conduct
public consultations with concerned individuals or entities.
Section 13. Introduction of Exotic Wildlife. - No exotic species shall be introduced into the country,
unless a clearance from the Secretary or the authorized representative is first obtained. In no case
shall exotic species be introduced into protected areas covered by Republic Act No. 7586 and to
critical habitats under Section 25 hereof.
In cases where introduction is allowed, it shall be subject to environmental impact study which
shall focus on the bioecology, socioeconomic and related aspects of the area where the species
will be introduced. The proponent shall also be required to secure the prior informed consent from
the local stakeholders.
Section 14. Bioprospecting. - Bioprospecting shall be allowed upon execution of an undertaking
by any proponent, stipulating therein its compliance with and commitment(s) to reasonable terms
and conditions that may be imposed by the Secretary which are necessary to protect biological
diversity.
The Secretary or the authorized representative, in consultation with the concerned agencies,
before granting the necessary permit, shall require that prior informed consent be obtained by the
applicant from the concerned indigenous cultural communities, local communities, management
board under Republic Act No. 7586 or private individual or entity. The applicant shall disclose fully
the intent and scope of the bioprospecting activity in a language and process understandable to
the community. The prior informed consent from the indigenous peoples shall be obtained in
accordance with existing laws. The action on the bioprospecting proposal by concerned bodies
shall be made within a reasonable period.
Upon submission of the complete requirements, the Secretary shall act on the research proposal
within a reasonable period.
If the applicant is a foreign entity or individual, a local institution should be actively involved in the
research, collection and, whenever applicable and appropriate in the technological development of
the products derived from the biological and genetic resources.
Section 15. Scientific Researches on Wildlife. Collection and utilization of biological resources for
scientific research and not for commercial purposes shall be allowed upon execution of an
undertaking/agreement with and issuance of a gratuitous permit by the Secretary or the authorized
representative: Provided, That prior clearance from concerned bodies shall be secured before the
issuance of the gratuitous permit: Provided, further, That the last paragraph of Section 14 shall
likewise apply.
Section 16. Biosafety - All activities dealing on genetic engineering and pathogenic organisms in
the Philippines, as well as activities requiring the importation, introduction, field release and
breeding of organisms that are potentially harmful to man and the environment shall be reviewed
in accordance with the biosafety guidelines ensuring public welfare and the protection and
conservation of wildlife and their habitats.
Section 17. Commercial Breeding or Propagation of Wildlife Resources. - Breeding or propagation
of wildlife for commercial purposes shall be allowed by the Secretary or the authorized
representative pursuant to Section 6 through the issuance of wildlife farm culture permit: Provided,
That only progenies of wildlife raised, as well as unproductive parent stock shall be utilized for
trade: Provided, further: That commercial breeding operations for wildlife, whenever appropriate,
shall be subject to an environmental impact study.

Section 18. Economically Important Species. The Secretary, within one (1) year after the
effectivity of this Act, shall establish a list of economically-important species. A population
assessment of such species shall be conducted within a reasonable period and shall be regularly
reviewed and updated by the Secretary.
The Collection of certain species shall only be allowed when the results of the assessment show
that, despite certain extent of collection, the population of such species can still remain viable and
capable of recovering its numbers. For this purpose, the Secretary shall establish a schedule and
volume of allowable harvests.
Whenever an economically important species become threatened, any form of collection shall be
prohibited except for scientific, educational or breeding/propagation purposes, pursuant to the
provisions of this Act.
Section 19. Designation of Management and Scientific Authorities for International Trade in
Endangered Species of Wild Fauna and Flora. For the implementation of International agreement
on international trade in endangered species of wild fauna and fora, the management authorities
for terrestrial and aquatic resources shall be the Protected Areas and Wildlife Bureau (PAWB) of
the DENR and the Bureau of Fisheries and Aquatic Resources (BFAR) of the DA, respectively and
that in the Province of Palawan the implementation hereof is vested to the Palawan Council for
Sustainable Development pursuant to Republic Act No. 7611.
To provide advice to the management authorities, there shall be designated scientific authorities
for terrestrial and aquatic/marine species. For the terrestrial species, the scientific authorities shall
be the Ecosystems Research and Development Bureau (ERDB) of the DENR, the U.P. Institute of
Biological Sciences and the National Museum and other agencies as may be designated by the
Secretary. For the marine and aquatic species, the scientific authorities shall be the BFAR, the
U.P. Marine Science Institute, U.P. Visayas, Siliman University and the National Museum and other
agencies as may be designated by the Secretary: Provided, That in the case of terrestrial species,
the ERDB shall chair the scientific authorities, and in the case of marine and aquatic species, the
U.P. Marine Science Institute shall chair the scientific authorities.
Section 20. Authority of the Secretary to Issue Permits. - The Secretary or the duly authorized
representative, in order to effectively implement this Act, shall issue
permits/certifications/clearances with corresponding period of validity, whenever appropriate,
which shall include but not limited to the following:

(1)

Wildlife farm or culture permit

3 to 5 years;

(2)

Wildlife collector's permit

1 to 3 years;

(3)

Gratuitous permit

1 year;

(4)

Local transport permit

1 to 3 months; and

The Secretary shall also prepare and publish a list of wildlife which resembles so closely in
appearance with listed threatened wildlife, which species shall likewise be categorized as
threatened.

(5)

Export/Import/Reexport permit

1 to 6 months.

These permits may be renewed subject to the guidelines issued by the appropriate agency and
upon consultation with concerned groups.
Section 21. Fees and Charges. - Reasonable fees and charges as may be determined upon
consultation with the concerned groups, and in the amount fixed by the Secretary shall be imposed
for the issuances of permits enumerated in the preceding section.
For the export of wildlife species, an export permit fee of not greater than three percentum (3%) of
the export value, excluding transport costs, shall be charged: Provided, however, That in the
determination of aforesaid fee, the production costs shall be given due consideration. Cutflowers,
leaves and the like, produced from farms shall be exempted from the said export fee: Provided,
further, That fees and charges shall be reviewed by the Secretary every two (2) years or as the
need arises and revise the same accordingly, subject to consultation with concerned sectors.
ARTICLE TWO
Protection of Threatened Species
Section 22. Determination of Threatened Species. - The Secretary shall determine whether any
wildlife species or subspecies is threatened, and classify the same as critically endangered,
endangered, vulnerable or other accepted categories based on the best scientific data and with
due regard to internationally accepted criteria, including but not limited to the following:
(a) present or threatened destruction, modification or curtailment of its habitat or range;
(b) over-utilization for commercial, recreational, scientific or educational purposes;
(c) inadequacy of existing regulatory mechanisms; and
(d) other natural or man-made factors affecting the existence of wildlife.
The Secretary shall review, revise and publish the list of categorized threatened wildlife within one
(1) year after effectivity of this Act. Thereafter, the list shall be updated regularly or as the need
arises: Provided, That a species listed as threatened shall not be removed there from within three
(3) years following its initial listing.
Upon filing of a petition based on substantial scientific information of any person seeking for the
addition or deletion of a species from the list, the Secretary shall evaluate in accordance with the
relevant factors stated in the first paragraph of this section, the status of the species concerned
and act on said petition within a reasonable period.

Section 23. Collection of Threatened Wildlife, By-products and Derivatives The collection of
threatened wildlife, as determined and listed pursuant to this Act, including its by-products and
derivatives, shall be allowed only for scientific, or breeding or propagation purposes in accordance
with Section 6 of this Act: Provided, That only the accredited individuals, business, research,
educational or scientific entities shall be allowed to collect for conservation breeding or
propagation purposes.
Section 24. Conservation Breeding or Propagation of Threatened Species Conservation breeding
or propagation of threatened species shall be encouraged in order to enhance its population in its
natural habitat. It shall be done simultaneously with the rehabilitation and/or protection of the
habitat where the captive-bred or propagated species shall be released, reintroduced or restocked.
Commercial breeding or propagation of threatened species may be allowed provided that the
following minimum requirements are met by the applicant, to wit:
(a) Proven effective breeding and captive management techniques of the species; and
(b) Commitment to undertake commercial breeding in accordance with Section 17 of this Act,
simultaneous with conservation breeding.
The Secretary shall prepare a list of threatened species for commercial breeding and shall
regularly revise or update such list or as the need arises.
Section 25. Establishment of Critical Habitats. - Within two (2) years following the effectivity of this
Act, The Secretary shall designate critical habitats outside protected areas under Republic Act No.
7586, where threatened species are found. Such designation shall be made on the basis of the
best scientific data taking into consideration species endemicity and/or richness, presence of manmade pressures/threats to the survival of wildlife living in the area, among others.
All designated, critical habitats shall be protected, in coordination with the local government units
and other concerned groups, from any form of exploitation or destruction which may be detrimental
to the survival of the threatened species dependent therein. For such purpose, the Secretary may
acquire, by purchase, donation or expropriation, lands, or interests therein, including the
acquisition of usufruct, establishment of easements or other undertakings appropriate in protecting
the critical habitat.
ARTICLE THREE
Registration of Threatened and Exotic Species
Section 26. Registration of Threatened and Exotic Wildlife in the Possession of Private Persons. No person or entity shall be allowed possession of wildlife unless such person or entity can prove
financial and technical capability and facility to maintain said wildlife. Twelve (12) months after the
effectivity of this Act, the Secretary shall set a period, within which persons/entities shall register all
threatened species collected and exotic species imported prior to the effectivity of this Act.
However, when the threatened species is needed for breeding/propagation or research purposes,
the State may acquire the wildlife through a mutually acceptable arrangement.
After the period set has elapsed, threatened wildlife possessed without certificate of registration
shall be confiscated in favor of the government, subject to the penalties herein provided.

All Philippine wildlife which are not listed as threatened prior to the effectivity of this Act but which
may later become so, shall likewise be registered during the period set after the publication of the
updated list of threatened species.
CHAPTER IV
ILLEGAL ACTS
Section 27. Illegal Acts. - Unless otherwise allowed in accordance with this Act, it shall be unlawful
for any person to willfully and knowingly exploit wildlife resources and their habitats, or undertake
the following acts;
(a) killing and destroying wildlife species, except in the following instances;
(i) when it is done as part of the religious rituals of established tribal groups or
indigenous cultural communities;
(ii) when the wildlife is afflicted with an incurable communicable disease;

(h) maltreating and/or inflicting other injuries not covered by the preceding paragraph; and
(i) transporting of wildlife.
CHAPTER V
FINES AND PENALTIES
Section 28. Penalties for Violations of this Act. For any person who undertakes illegal acts under
paragraph (a) of the immediately preceding section to any species as may be categorized
pursuant to this Act, the following penalties and/or fines shall be imposed;
(a) imprisonment of a minimum of six (6) years and one (1) day to twelve (12) years and/or a fine
of One hundred thousand pesos (P100,000.00) to One million pesos (P1,000,000.00), if inflicted or
undertaken against species listed as critical;
(b) imprisonment of four (4) and one (1) day to six (6) years and/or a fine of Fifty thousand pesos
(P50,000.00) to Five hundred thousand pesos (P500,000.00) if inflicted or undertaken against
endangered species;

(iii) when it is deemed necessary to put an end to the misery suffered by the wildlife;
(iv) when it is done to prevent an imminent danger to the life or limb of a human being;
and
(v) when the wildlife is killed or destroyed after it has been used in authorized research
or experiments.
(b) inflicting injury which cripples and/or impairs the reproductive system of wildlife species;
(c) effecting any of the following acts in critical habitat(s)
(i) dumping of waste products detrimental to wildlife;
(ii) squatting or otherwise occupying any portion of the critical habitat;
(iii) mineral exploration and/or extraction;
(iv) burning;
(v) logging; and
(vi) quarrying
(d) introduction, reintroduction or restocking of wildlife resources;
(e) trading of wildlife;
(f) collecting, hunting or possessing wildlife, their by-products and derivatives;
(g) gathering or destroying of active nests, nest trees, host plants and the like;

(c) imprisonment of two (2) years and one (1) day to four (4) years and/or a fine of Thirty thousand
pesos (P30,000.00) to Three hundred thousand pesos (P300,000.00), if inflicted or undertaken
against vulnerable species;
(d) imprisonment of one (1) year and one (1) day to two (2) years and/or a fine of Twenty thousand
pesos (P20,000.00) to Two hundred thousand pesos (P200,000.00) if inflicted or undertaken
against other threatened species; and
(e) imprisonment of six (6) months and one (1) day to one (1) year and/or a fine of Ten thousand
pesos (P10,000.00) to One hundred thousand pesos (P100,000.00), if inflicted or undertaken
against other wildlife species.
For illegal acts under paragraph (b) of the immediately preceding section, the following penalties
and/or fines shall be imposed;
(a) imprisonment of minimum of four (4) years and one (1) day to six (6) years and/or a fine of Fifty
thousand pesos (P50,000.00) to Five hundred thousand pesos (P500,000.00), if inflicted or
undertaken against species listed as critical;
(b) imprisonment of two (2) years and one (1) day to four (4) years and/or a fine of Thirty thousand
pesos (P30,000.00) to Two hundred thousand pesos (P200,000.00), if inflicted or undertaken
against endangered species;
(c) imprisonment of one (1) year and one (1) day to two (2) years and/or a fine of Twenty thousand
pesos (P20,000.00) to Two hundred thousand pesos (P200,000.00), if inflicted or undertaken
against vulnerable species;
(d) imprisonment of six (6) months and one (1) day to one (1) year and/or fine of Ten thousand
pesos (P10,000.00) to Fifty thousand pesos (P50,000.00), if inflicted or undertaken against other
threatened species; and

(e) imprisonment of one (1) month to six (6) months and/or a fine of Five thousand pesos
(P5,000.00) to Twenty thousand pesos (P20,000.00), if inflicted or undertaken against other
wildlife species.
For illegal acts under paragraphs (c) and (d) of the immediately preceding section, an
imprisonment of one (1) month to eight (8) years and/or a fine of Five thousand pesos (P5,000.00)
to Five million pesos (P5,000,000.00) shall be imposed.
For illegal acts under paragraph (e), the following penalties and/or fines shall be imposed:
(a) imprisonment of two (2) years and one (1) day to four (4) years and/or a fine of Five thousand
pesos (P5,000.00) to Three hundred thousand pesos (P300,000.00), if inflicted or undertaken
against species listed as critical;
(b) imprisonment of one (1) year and one (1) day to two (2) years and/or a fine of Two thousand
pesos (P2,000.00) to Two hundred thousand pesos (P200,000.00), if inflicted or undertaken
against endangered species;
(c) imprisonment of six (6) months and one (1) day to one (1) year and/or a fine of One thousand
pesos (P1,000.00) to One hundred thousand pesos (P100,000.00), if inflicted or undertaken
against vulnerable species;
(d) imprisonment of one (1) month and one (1) day to six (6) months and/or a fine of Five hundred
pesos (P500.00) to Fifty thousand pesos (P50,000.00), if inflicted or undertaken against species
listed as threatened species; and
(e) imprisonment of ten (10) days to one (1) month and/or a fine of Two hundred pesos (P200.00)
to Twenty thousand pesos (P20,000.00), if inflicted or undertaken against other wildlife species.
For illegal acts under paragraphs (f) and (g) of the immediately preceding section, the following
penalties and/or fines shall be imposed:
(a) imprisonment of two (2) years and one (1) day to four (4) years and a fine of Thirty thousand
pesos (P30,000.00) to Three hundred thousand pesos (P300,000.00), if inflicted or undertaken
against species listed as critical;
(b) imprisonment of one (1) year and one (1) day to two (2) years and a fine of Twenty thousand
pesos (P20,000.00) to Two hundred thousand pesos (P200,000.00), if inflicted or undertaken
against endangered species;
(c) imprisonment of six (6) months and one (1) day to one (1) year and a fine of Ten thousand
pesos (P10,000.00) to One hundred thousand pesos (P100,000.00), if inflicted or undertaken
against vulnerable species;
(d) imprisonment of one (1) month and one (1) day to six (6) months and a fine of Five thousand
pesos (P5,000.00) to Fifty thousand pesos (P50,000.00), if inflicted or undertaken against species
as other threatened species; and
(e) imprisonment of ten (10) days to one (1) month and a fine of One thousand pesos (P1,000.00)
to Five thousand pesos (P5,000.00), if inflicted or undertaken against other wildlife
species: Provided, That in case of paragraph (f), where the acts were perpetuated through the
means of inappropriate techniques and devices, the maximum penalty herein provided shall be
imposed.

For illegal acts under paragraph (h) and (i) of the immediately preceding section, the following
penalties and/or fines shall be imposed:
(a) imprisonment of six (6) months and one (1) day to one (1) year and a fine of Fifty thousand
pesos (P50,000.00) to One hundred thousand pesos (P100,000.00) if inflicted or undertaken
against species listed as critical species;
(b) imprisonment of three (3) months and one (1) day to six (6) months and a fine of Twenty
thousand pesos (P20,000.00) to Fifty thousand pesos (P50,000.00), if inflicted or undertaken
against endangered species;
(c) imprisonment of one (1) month and one (1) day to three (3) months and a fine of Five thousand
pesos (P5,000.00) to Twenty thousand pesos (P20,000.00), if inflicted or undertaken against
vulnerable species;
(d) imprisonment of ten (10) days to one (1) month and a fine of One thousand pesos (P1,000.00)
to Five thousand pesos (P5,000.00), if inflicted or undertaken against species listed as other
threatened species;
(e) imprisonment of five (5) days to ten (10) days and a fine of Two hundred pesos (P200.00) to
One thousand pesos (P1,000.00), if inflicted or undertaken against other wildlife species.
All wildlife, its derivatives or by-products, and all paraphernalia, tools and conveyances used in
connection with violations of this Act, shall be ipso facto forfeited in favor of the
government; Provided, That where the ownership of the aforesaid conveyances belong to third
persons who has no participation in or knowledge of the illegal acts, the same may be released to
said owner. The apprehending agency shall immediately cause the transfer of all wildlife that have
been seized or recovered to the nearest Wildlife Rescue Center of the Department in the area.
If the offender is an alien, he shall be deported after service and payment of fines, without any
further proceedings.
The fines herein prescribed shall be increased by at least ten percent (10%) every three (3) years
to compensate for inflation and to maintain the deterrent function of such fines.
CHAPTER VI
MISCELLANEOUS PROVISIONS
Section 29. Wildlife Management Fund. There is hereby established a Wildlife Management Fund
to be administered by the Department as a special account in the National Treasury which shall
finance rehabilitation or restoration of habitats affected by acts committed in violation of this Act
and support scientific research, enforcement and monitoring activities, as well as enhancement of
capabilities of relevant agencies.
The Fund shall derive from fines imposed and damages awarded, fees, charges, donations,
endowments, administrative fees or grants in the form of contributions. Contributions to the Fund
shall be exempted from donor taxes and all other tax charges or fees imposed by the government.
Section 30. Deputation of Wildlife Enforcement Officers. - The Secretary shall deputize wildlife
enforcement officers from non-government organizations, citizens groups, community
organizations and other volunteers who have undergone necessary training for this purpose. The
Philippine National Police (PNP), the Armed Forces of the Philippines (AFP), the National Bureau
of Investigation (NBI) and other law enforcement agencies shall designate wildlife enforcement
officers. As such, the wild enforcement officers shall have the full authority to seize illegally traded

wildlife and to arrest violators of this Act subject to existing laws, rules and regulations on arrest
and detention.

Section 39. Separability Clause. - Should any provision of this Act be subsequently declared as
unconstitutional, the same shall not affect the validity or the legality of the other provisions.

Section 31. Establishment of National Wildlife Research Centers. The Secretary shall establish
national wildlife research centers for terrestrial and aquatic species to lead in the conduct of
scientific researches on the proper strategies for the conservation and protection of wildlife,
including captive breeding or propagation. In this regard, the Secretary shall encourage the
participation of experts from academic/research institutions and wildlife industry.

Section 40. Repealing Clause. - Act Nos. 2590 and 3983, Commonwealth Act No. 63, as
amended, Presidential Decree No. 1219, as amended, Republic Act No. 6147, and other laws,
orders and regulations inconsistent herewith are hereby repealed or amended accordingly.

Section 32. Wildlife Rescue Center. - The Secretary shall establish or designate wildlife rescue
centers to take temporary custody and care of all confiscated, abandoned and/or donated wildlife
to ensure their welfare and well-being. The Secretary shall formulate guidelines for the disposition
of wildlife from the rescue centers.
Section 33. Creation of Wildlife Traffic Monitoring Units. - The Secretary shall create wildlife traffic
monitoring units in strategic air and seaports all over the country to ensure the strict compliance
and effective implementation of all existing wildlife laws, rules and regulations, including pertinent
international agreements.
Customs officers and/or other authorized government representatives assigned at air or seaports
who may have intercepted wildlife commodities in the discharge of their official functions shall,
prior to further disposition thereof, secure a clearance from the wildlife traffic monitoring unit
assigned in the area.
Section 34. Exemption from taxes - Any donation, contribution, bequest, subsidy or financial aid
which may be made to the Department of Environment and Natural Resources or to the
Department of Agriculture and to NGOs engaged in wildlife conservation duly registered with the
Securities and Exchange Commission as certified by the local government unit, the Department of
Environment and Natural Resources or the Department of Agriculture, for the conservation and
protection of wildlife resources and their habitats shall constitute as an allowable deduction from
the taxable income of the donor and shall be exempt from donor's tax.
Section 35. Flagship Species. Local government units shall initiate conservation measures for
endemic species in their areas. For this purpose, they may adopt flagship species such as the
Cebu black shama (copsychus cebuensis), tamaraw (bubalus mindorensis), Philippine tarsier
(tarsius syrichta), Philippine teak (tectona philippinensis), which shall serve as emblems of
conservation for the local government concerned.
Section 36. Botanical Gardens, Zoological Parks and Other Similar Establishments. The
Secretary shall regulate the establishment, operation and maintenance of botanical gardens,
zoological parks and other similar establishments for recreation, education and conservation.
Section 37. Implementing Rules and Regulations. - Within twelve (12) months following the
effectivity of this Act, secretaries of the Department of Environment and Natural Resources and the
Department of Agriculture, in coordination with the Committees on Environment and Ecology of the
Senate and the House of Representatives, respectively, shall promulgate respective rules and
regulations for the effective implementation of this Act. Whenever appropriate, coordination in the
preparation and implementation of rules and regulations on joint and inseparable issues shall be
done by both Departments. The commitments of the State to international agreements and
protocols shall likewise be a consideration in the implementation of this Act.
Section 38. Appropriations. - The amount necessary to implement the provisions of this Act shall
be charged against the appropriations of the Department of Environment and Natural Resources in
the current General Appropriations Act. Therefore, such sums as may be necessary to fully
implement the provisions of this Act shall be included in the annual General Appropriations Act.

Section 41. Effectivity. - This Act shall take effect fifteen (15) days after publication in the Official
Gazette or two (2) newspapers of general circulation.
Approved: July 30, 2001

REPUBLIC ACT NO. 7586

AN ACT PROVIDING FOR THE ESTABLISHMENT AND MANAGEMENT OF NATIONAL
INTEGRATED PROTECTED AREAS SYSTEM, DEFINING ITS SCOPE AND COVERAGE, AND
FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:
Section 1. Title This Act shall be known and referred to as the "National Integrated Protected
Areas System Act of 1992.
Section 2. Declaration of Policy Cognizant of the profound impact of mans activities on all
components of the natural environment particularly the effect of increasing population, resource
exploitation and industrial advancement and recognizing the critical importance of protecting and
maintaining the natural biological and physical diversities of the environment notably on areas with
biologically unique features to sustain human life and development, as well as plant and animal
life, it is hereby declared the policy of the State to secure for the Filipino people of present and
future generations the perpetual existence of all native plants and animals through the
establishment of a comprehensive system of integrated protected areas within the classification of
national park as provided for in the Constitution.
It is hereby recognized that these areas, although distinct in features, posses common ecological
values that may be incorporated into a holistic plan representative of our natural heritage; that
effective administration of this area is possible only through cooperation among national
government, local government and concerned private organizations; that the use and enjoyment of
these protected areas must be consistent with the principles of biological diversity and sustainable
development.
To this end, there is hereby established a National Integrated Protected Areas System (NIPAS),
which shall encompass outstandingly remarkable areas and biologically important public lands that
are habitats of rare and endangered species of plants and animals, biogeographic zones and
related ecosystems, whether terrestrial, wetland or marine, all of which shall be designated as
"protected areas".
Section 3. Categories The following categories of protected areas are hereby established:
a. Strict nature reserve;

g. Natural biotic areas; and

h. Other categories established by law, conventions or international agreements which
the Philippine Government is a signatory.
Section 4. Definition of Terms For purposes of this Act, the following terms shall be defined as
follows:
1. "National Integrated Protected Areas System (NIPAS)" is the classification and
administration of all designated protected areas to maintain essential ecological
processes and life-support systems, to preserve genetic diversity, to ensure sustainable
use of resources found therein, and to maintain their natural conditions to the greatest
extent possible;
2. "Protected Area" refers to identified portions of land and water set aside by reason of
their unique physical and biological significance, managed to enhance biological
diversity and protected against destructive human exploitation;
3. "Buffer zones" are identified areas outside the boundaries of and immediately
adjacent to designated protected areas pursuant to Section 8 that need special
development control in order to avoid or minimize harm to the protected area;
4. "Indigenous cultural community" refers to a group of people sharing common bonds of
language, customs, traditions and other distinctive cultural traits and who have since
time immemorial, occupied, possessed and utilized a territory;
5. "National park" refers to a forest reservation essentially of natural wilderness
character which has been withdrawn from settlement, occupancy or any form of
exploitation except in conformity with approved management plan and set aside as such
exclusively to conserve the area or preserve the scenery, the natural and historic
objects, wild animals and plants therein and to provide enjoyment of these features in
such areas;
6. "Natural monuments" is a relatively small area focused on protection of small features
to protect or preserve nationally significant natural features on account of their special
interest or unique characteristics;
7. "Natural biotic area" is an area set aside to allow the way of life of societies living in
harmony with the environment to adapt to modern technology at their pace;

b. Natural park;
c. Natural monument;
d. Wildlife sanctuary;
e. Protected landscapes and seascapes;
f. Resource reserve;

8. "Natural park" is a relatively large area not materially altered by human activity where
extractive resource uses are not allowed and maintained to protect outstanding natural
and scenic areas of national or international significance for scientific, educational and
recreational use;
9. "Protected landscapes/seascapes" are areas of national significance which are
characterized by the harmonious interaction of man and land while providing
opportunities for public enjoyment through the recreation and tourism within the normal
lifestyle and economic activity of these areas;

10. "Resource reserve" is an extensive and relatively isolated and uninhabited area
normally with difficult access designated as such to protect natural resources of the area
for future use and prevent or contain development activities that could affect the
resource pending the establishment of objectives which are based upon appropriate
knowledge and planning;

4. Within three (3) years from the effectivity of this Act, the DENR shall study and review
each area tentatively composing the System as to its suitability or non-suitability for
preservation as protected area and inclusion in the System according to the categories
established in Section 3 hereof and report its findings to the President as soon as each
study is completed. The study must include in each area:

11. "Strict nature reserve" is an area possessing some outstanding ecosystem, features
and/or species of flora and fauna of national scientific importance maintained to protect
nature and maintain processes in an undisturbed state in order to have ecologically
representative examples of the natural environment available for scientific study,
environmental monitoring, education, and for the maintenance of genetic resources in a
dynamic and evolutionary state;

1. A forest occupants survey;

12. "Tenured migrant communities" are communities within protected areas which have
actually and continuously occupied such areas for five (5) years before the designation
of the same as protected areas in accordance with this Act and are solely dependent
therein for subsistence; and

4. Land use plans done in coordination with the respective Regional

Development Councils; and

13. "Wildlife sanctuary" comprises an area which assures the natural conditions
necessary to protect nationally significant species, groups of species, biotic communities
or physical features of the environment where these may require specific human
manipulations for their perpetuation.
Section 5. Establishment and Extent of the System The establishment and operationalization of
the System shall involve the following:
1. All areas or islands in the Philippines proclaimed, designated or set aside, pursuant to
a law, presidential decree, presidential proclamation or executive order as national park,
game refuge, bird and wildlife sanctuary, wilderness area, strict nature reserve,
watershed, mangrove reserve, fish sanctuary, natural and historical landmark, protected
and managed landscape/seascape as well as identified virgin forests before the
effectivity of this Act are hereby designated as initial components of the System. The
initial components of the System shall be governed by existing laws, rules and
regulations, not inconsistent with this Act;
2. Within one (1) year from the effectivity of this Act, the DENR shall submit to the
Senate and the House of Representatives a map and legal descriptions or natural
boundaries of each protected area initially comprising the System. Such maps and legal
description shall, by virtue of this Act, constitute the official documentary representation
of the entire System, subject to such changes as Congress deems necessary;
3. All DENR records pertaining to said protected areas, including maps and legal
descriptions or natural boundaries, copies of rules and regulations governing them,
copies of public notices of, and reports submitted to Congress regarding pending
additions, eliminations, or modifications shall be made available to the public. These
legal documents pertaining to protected areas shall also be available to the public in the
respective DENR Regional Offices, Provincial Environment and Natural Resources
Offices (PENROs) and Community Environment and Natural Resources Offices
(CENROs) where NIPAS areas are located;

2. An ethnographic study;
3. A protected area resource profile;

5. Such other background studies as will be sufficient bases for selection.

The DENR shall:
1. Notify the public of proposed action through publication in a newspaper of general
circulation, and such other means as the System deems necessary in the area or areas
in the vicinity of the affected land thirty (30) days prior to the public hearing;
i. Conduct public hearings at the locations nearest to the area affected;
ii. At least thirty (30) days prior to the date of hearing, advise all Local
Government Units (LGUs) in the affected areas, national agencies concerned,
peoples organizations and non-government organizations and invite such
officials to submit their views on the proposed action at the hearing not later
than thirty (30) days following the date of hearing; and
iii. Give due consideration to the recommendations at the public hearing; and
provide sufficient explanation for his recommendations contrary to the general
sentiments expressed in the public hearing;
2. Upon receipt of the recommendations of the DENR, the President shall issue a
presidential proclamation designating the recommended areas as protected areas and
providing for measures for their protection until such time when Congress shall have
enacted a law finally declaring such recommended areas as part of the integrated
protected area systems; and
3. Thereafter, the President shall send to the Senate and the House of Representatives
his recommendations with respect to the designations as protected areas or
reclassification of each area on which review has been completed, together with maps
and legal description of boundaries. The President, in his recommendation, may
propose the alteration of existing boundaries of any or all proclaimed protected areas,
addition of any contiguous area of public land of predominant physical and biological
value. Nothing contained herein shall limit the President to propose, as part of his

recommendation to Congress, additional areas which have not been designated,

proclaimed or set aside by law, presidential decree, proclamation or executive orders as
protected area/s.
Section 6. Additional Areas to be Integrated to the System. Notwithstanding the establishment
of the initial component of the additional areas with outstanding physical features, anthropological
significance and biological diversity in accordance with the provisions of Section 5d.
Section 7. Disestablishment as Protected Area. When in the opinion of the DENR a certain
protected area should be withdrawn or disestablished, or its boundaries modified as warranted by
a study and sanctioned by the majority of the members of the respective boards for the protected
area as herein established in Section 11, it shall, in turn, advice Congress. Disestablishment of a
protected area under the System or modification of its boundary shall take effect pursuant to an
act of Congress. Thereafter, said area shall revert to the category of public forests unless
otherwise classified by Congress: Provided however, that after disestablishment by Congress, the
Secretary may recommend the transfer of such disestablished area to other government agencies
to serve other priority programs of national interest.
Section 8. Buffer Zones. For each protected area, there shall be established peripheral buffer
zones when necessary, in the same manner as Congress establishes the protected area, to
protect the same from activities that will directly and indirectly harm it. Such buffer zones shall be
included in the individual protected area management plan that shall prepared for each protected
area. The DENR shall exercise its authority over protected areas as provided in this Act on such
area and designated as buffer zones.

proposed by the Secretary, duly approved by the Department of Budget and Management, and
appropriated by the Congress. The Service thus established shall manage protected areas and
promote the permanent preservation, to the greatest extent possible of their natural conditions.
To carry out the mandate of this Act, the Secretary of the DENR is empowered to perform any and
all of the following acts:
a. To conduct studies on various characteristic features and conditions of the different
protected areas, using commonalities in their characteristics, classify and define them
into categories and prescribe permissible or prohibited human activities in each category
in the System;
b. To adopt and enforce a land use scheme and zoning plan in adjoining areas for the
preservation and control of activities that may threaten the ecological balance in the
protected areas;
c. To cause the preparation of and exercise the power to review all plans and proposals
for the management of protected areas;
d. To promulgate rules and regulations necessary to carry out the provisions of this Act;
e. To deputize field officers and delegate any of his powers under this Act and other laws
to expedite its implementation and enforcement;

Section 9. Management Plans. There shall be a general management planning strategy to serve
as guide in formulating individual plans for each protected area. The management planning
strategy shall, at the minimum, promote the adoption and implementation of innovative
management techniques including if necessary, the concept of zoning, buffer zone management
for multiple use and protection, habitat conservation and rehabilitation, diversity management,
community organizing, socioeconomic and scientific researches, site-specific policy development,
pest management, and fire control. The management planning strategy shall also provide
guidelines for the protection of indigenous cultural communities, other tenured migrant
communities and sites for close coordination between and among local agencies of the
Government as well as the private sector.

f. To fix and prescribe reasonable NIPAS fees to be collected from government agencies
or any person, firm or corporation deriving benefits from the protected areas;

Each component area of the System shall be planned and administered to further protect and
enhance the permanent preservation of its natural conditions. A management manual shall be
formulated and developed which must contain the following: an individual management plan
prepared by three (3) experts, basic background information, field inventory of the resources within
the area, an assessment of assets and limitations, regional interrelationships, particular objectives
for managing the area, appropriate division of the area into management zones, a review of the
boundaries of the area, and a design of the management programs.

i. To accept in the name of the Philippine Government and in behalf of NIPAS funds,
gifts or bequests of money for immediate disbursements or other property in the interest
of the NIPAS, its activities or its services;

Section 10. Administration and Management of the System. The National Integrated Protected
Areas System is hereby placed under the control and administration of the Department of
Environment and Natural Resources. For this purpose, there is hereby created a division in the
regional offices of the Department to be called the Protected Areas and Wildlife Division in regions
where protected areas have been established, which shall be under the supervision of a Regional
Technical Director, and shall include subordinate officers, clerks, and employees as may be

k. To submit an annual report to the President of the Philippines and to Congress on the
status of protected areas in the country;

g. To exact administrative fees and fines as authorized in Section 21 for violation of

guidelines, rules and regulations of this Act as would endanger the viability of protected
areas;
h. To enter into contracts and/or agreements with private entities or public agencies as
may be necessary to carry out the purposes of this Act;

j. To call on any agency or instrumentality of the Government as well as academic

institutions, non-government organizations and the private sector as may be necessary
to accomplish the objectives and activities of the System;

l. To establish a uniform marker of the System, including an appropriate and distinctive

symbol for each category in the System, in consultation with appropriate government
agencies and public and private organizations;

m. To determine the specification of the class, type and style of buildings and other
structures to be constructed in protected areas and the materials to be used;
n. Control the construction, operation and maintenance of roads, trails, waterworks,
sewerage, fire protection, and sanitation systems and other public utilities within the
protected area;
o. Control occupancy of suitable portions of the protected area and resettle outside of
said area forest occupants therein, with the exception of the members of indigenous
communities area; and
p. To perform such other functions as may be directed by the President of the
Philippines, and to do such acts as may be necessary or incidental to the
accomplishment of the purpose and objectives of the System.
Section 11. Protected Area Management Board. A Protected Area Management Board for each
of the established protected area shall be created and shall be composed of the following: The
Regional Executive Director under whose jurisdiction the protected area is located; one (1)
representative from the autonomous regional government, if applicable; the Provincial
Development Officer; one (1) representative from the municipal government; one (1)
representative from each barangay covering the protected area; one (1) representative from each
tribal community, if applicable; and, at least three (3) representatives from non-government
organizations/local community organizations, and if necessary, one (1) representative from other
departments or national government agencies involved in protected area management.
The Board shall, by a majority vote, decide the allocations for budget, approve proposals for
funding, decide matters relating to planning, peripheral protection and general administration of
the area in accordance with the general management strategy. The members of the Board shall
serve for a term of five (5) years without compensation, except for actual and necessary traveling
and subsistence expenses incurred in the performance of their duties. They shall be appointed by
the Secretary of the DENR as follows:
a. A member who shall be appointed to represent each local government down to
barangay level whose territory or portion is included in the protected area. Each
appointee shall be the person designated by the head of such LGU, except for the
Provincial Development Officer who shall serve ex officio;
b. A member from non-government organizations who shall be endorsed by heads of
organizations which are preferably based in the area or which have established and
recognized interest in protected areas;
c. The RED/s in the region/s where such protected area lies shall sit as ex officio
member of the Board and shall serve as adviser/s in matters related to the technical
aspect of management of the area; and
d. The RED shall act as chairman of the Board. When there are two (2) or more REDs in
the Board, the Secretary shall designate one (1) of them to be the Chairman. Vacancies
shall be filled in the same manner as the original appointment.

Section 12. Environmental Impact Assessment. Proposals for activities which are outside the
scope of the management plan for protected areas shall be subject to an environmental impact
assessment as required by law before they are adopted, and the results thereof shall be taken into
consideration in the decision-making process.
No actual implementation of such activities shall be allowed without the required Environmental
Compliance Certificate (ECC) under the Philippine Environmental Impact Assessment (EIA)
system. In instances where such activities are allowed to be undertaken, the proponent shall plan
and carry them out in such manner as will minimize any adverse effects and take preventive and
remedial action when appropriate. The proponent shall be liable for any damage due to lack of
caution or indiscretion.
Section 13. Ancestral Lands and Rights Over Them. Ancestral lands and customary rights and
interest arising shall be accorded due recognition. The DENR shall prescribe rules and regulations
to govern ancestral lands within protected areas: Provided, that the DENR shall have so power to
evict indigenous communities from their present occupancy nor resettle them to another area
without their consent: Provided, however, That all rules and regulations, whether adversely
affecting said communities or not, shall be subjected to notice and hearing to be participated in by
members of concerned indigenous community.
Section 14. Survey for Energy Resources. Consistent with the policies declared in Section 2
hereof, protected areas, except strict nature reserves and natural parks, may be subjected to
exploration only for the purpose of gathering information on energy resources and only if such
activity is carried out with the least damage to surrounding areas. Surveys shall be conducted only
in accordance with a program approved by the DENR, and the result of such surveys shall be
made available to the public and submitted to the President for recommendation to Congress. Any
exploitation and utilization of energy resources found within NIPAS areas shall be allowed only
through a law passed by Congress.
Section 15. Areas Under the Management of Other Departments and Government
Instrumentalities. Should there be protected areas, or portions thereof, under the jurisdiction of
government instrumentalities other than the DENR, such jurisdiction shall, prior to the passage of
this Act, remain in the said department or government instrumentality; Provided, That the
department or government instrumentality exercising administrative jurisdiction over said protected
area or a portion thereof shall coordinate with the DENR in the preparation of its management
plans, upon the effectivity of this Act.
Section 16. Integrated Protected Areas Fund. There is hereby established a trust fund to be
known as Integrated Protected Areas (IPAS) Fund for purposes of financing projects of the
System. The IPAS may solicit and receive donations, endowments, and grants in the form of
contributions, and such endowment shall be exempted from income or gift taxes and all other
taxes, charges or fees imposed by the Government or any political subdivision or instrumentality
thereof.
All incomes generated from the operation of the System or management of wild flora and fauna
shall accrue to the Fund and may be utilized directly by the DENR for the above purpose. These
incomes shall be derived from:
a. Taxes from the permitted sale and export of flora and fauna and other resources from
protected areas;

b. Proceeds from lease of multiple use areas;

c. Contributions from industries and facilities directly benefiting from the protected area;
and
d. Such other fees and incomes derived from the operation of the protected area.
Disbursements from the Funds shall be made solely for the protection, maintenance,
administration, and management of the System, and duly approved projects endorsed
by the PAMBs, in the amounts authorized by the DENR.
Section 17. Annual Report to Congress. At the opening of each session of Congress, the DENR
shall report to the President, for transmission to Congress, on the status of the System, regulation
in force and other pertinent information, together with recommendations.
Section 18. Field Officers. All officials, technical personnel and forest guards employed in the
integrated protected area service or all persons deputized by the DENR, upon recommendation of
the Management Board shall be considered as field officers and shall have the authority to
investigate and search premises and buildings and make arrests in accordance with the rules on
criminal procedure for the violation of laws and regulations relating to the protected areas. Persons
arrested shall be brought to the nearest police precinct for investigation.
Nothing herein mentioned shall be construed as preventing regular law enforcers and police
officers from arresting any person in the act of violating said laws and regulations.
Section 19. Special Prosecutors. The Department of Justice shall designate special prosecutors
to prosecute violations of laws, rules and regulations in protected areas.
Section 20. Prohibited Acts. Except as may be allowed by the nature of their categories and
pursuant to rules and regulations governing the same, the following acts are prohibited within
protected areas:

h. Leaving in exposed or unsanitary conditions refuse or debris, or depositing in ground

or in bodies of water; and
i. Altering, removing destroying or defacing boundary marks or signs.
Section 21. Penalties. Whoever violates this Act or any rules and regulations issued by the
Department pursuant to this Act or whoever is found guilty by a competent court of justice of any of
the offenses in the preceding section shall be fined in the amount of not less than Five thousand
pesos (P5,000) nor more than Five hundred thousand pesos (P500,000), exclusive of the value of
the thing damaged or imprisonment for not less than one (1) year but not more than six (6) years,
or both, as determined by the court: Provided, that, if the area requires rehabilitation or restoration
as determined by the court, the offender shall be required to restore or compensate for the
restoration to the damages: Provided, further, that court shall order the eviction of the offender
from the land and the forfeiture in favor of the Government of all minerals, timber or any species
collected or removed including all equipment, devices and firearms used in connection therewith,
and any construction or improvement made thereon by the offender. If the offender is an
association or corporation, the president or manager shall be directly responsible for the act of his
employees and laborers: Provided, finally, that the DENR may impose administrative fines and
penalties consistent with this Act.
Section 22. Separability Clause. If any part or section of this Act is declared unconstitutional,
such declaration shall not affect the other parts or sections of this Act.
Section 23. Repealing Clause. All laws, presidential decrees, executive orders, rules and
regulations inconsistent with any provisions of this Act shall be deemed repealed or modified
accordingly.
Section 24. Effectivity Clause. This Act shall take effect fifteen (15) days after its complete
publication in two (2) newspapers of general circulation.
Approved: June 01 1992

a. Hunting, destroying, disturbing, or mere possession of any plants or animals or

products derived therefrom without a permit from the Management Board;
b. Dumping of any waste products detrimental to the protected area, or to the plants and
animals or inhabitants therein;
c. Use of any motorized equipment without a permit from the Management Board;
d. Mutilating, defacing or destroying objects of natural beauty, or objects of interest to
cultural communities (of scenic value);
e. Damaging and leaving roads and trails in a damaged condition;

REPUBLIC ACT NO. 7942

March 3, 1995

AN ACT INSTITUTING A NEW SYSTEM OF MINERAL RESOURCES EXPLORATION,

DEVELOPMENT, UTILIZATION, AND CONSERVATION

f. Squatting, mineral locating, or otherwise occupying any land;

g. Constructing or maintaining any kind of structure, fence or enclosures, conducting any
business enterprise without a permit;

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:

h. Co-production agreement (CA) means an agreement entered into between the

Government and one or more contractors in accordance with Section 26(b) hereof.
CHAPTER I
INTRODUCTORY PROVISIONS
Section 1
Title
This Act shall be known as the "Philippine Mining Act of 1995."
Section 2
Declaration of Policy
All mineral resources in public and private lands within the territory and exclusive economic zone
of the Republic of the Philippines are owned by the State. It shall be the responsibility of the State
to promote their rational exploration, development, utilization and conservation through the
combined efforts of government and the private sector in order to enhance national growth in a
way that effectively safeguards the environment and protect the rights of affected communities.
Section 3
Definition of Terms
As used in and for purposes of this Act, the following terms, whether in singular or plural, shall
mean:
a. Ancestral lands refers to all lands exclusively and actually possessed, occupied, or
utilized by indigenous cultural communities by themselves or through their ancestors in
accordance with their customs and traditions since time immemorial, and as may be
defined and delineated by law.
b. Block or meridional block means an area bounded by one-half (1/2) minute of latitude
and one-half (1/2) minute of longitude, containing approximately eighty-one hectares (81
has.).
c. Bureau means the Mines and Geosciences Bureau under the Department of
Environment and Natural Resources.
d. Carrying capacity refers to the capacity of natural and human environments to
accommodate and absorb change without experiencing conditions of instability and
attendant degradation.
e. Contiguous zone refers to water, sea bottom and substratum measured twenty-four
nautical miles (24 n.m.) seaward from the base line of the Philippine archipelago.
f. Contract area means land or body of water delineated for purposes of exploration,
development, or utilization of the minerals found therein.
g. Contractor means a qualified person acting alone or in consortium who is a party to a
mineral agreement or to a financial or technical assistance agreement.

i. Department means the Department of Environment and Natural Resources.

j. Development means the work undertaken to explore and prepare an ore body or a
mineral deposit for mining, including the construction of necessary infrastructure and
related facilities.
k. Director means the Director of the Mines and Geosciences Bureau.
l. Ecological profile or eco-profile refers to geographic-based instruments for planners
and decision-makers which presents an evaluation of the environmental quality and
carrying capacity of an area.
m. Environmental compliance certificate (ECC) refers to the document issued by the
government agency concerned certifying that the project under consideration will not
bring about an unacceptable environmental impact and that the proponent has complied
with the requirements of the environmental impact statement system.
n. Environmental impact statement (EIS) is the document which aims to identify, predict,
interpret, and communicate information regarding changes in environmental quality
associated with a proposed project and which examines the range of alternatives for the
objectives of the proposal and their impact on the environment.
o. Exclusive economic zone means the water, sea bottom and subsurface measured
from the baseline of the Philippine archipelago up to two hundred nautical miles (200
n.m.) offshore.
p. Existing mining/quarrying right means a valid and subsisting mining claim or permit or
quarry permit or any mining lease contract or agreement covering a mineralized area
granted/issued under pertinent mining laws.
q. Exploration means the searching or prospecting for mineral resources by geological,
geochemical or geophysical surveys, remote sensing, test pitting, trenching, drilling,
shaft sinking, tunneling or any other means for the purpose of determining the existence,
extent, quantity and quality thereof and the feasibility of mining them for profit.
r. Financial or technical assistance agreement means a contract involving financial or
technical assistance for large-scale exploration, development, and utilization of mineral
resources.
s. Force majeure means acts or circumstances beyond the reasonable control of
contractor including, but not limited to, war, rebellion, insurrection, riots, civil disturbance,
blockade, sabotage, embargo, strike, lockout, any dispute with surface owners and other
labor disputes, epidemic, earthquake, storm, flood or other adverse weather conditions,
explosion, fire, adverse action by government or by any instrumentality or subdivision
thereof, act of God or any public enemy and any cause that herein describe over which
the affected party has no reasonable control.
t. Foreign-owned corporation means any corporation, partnership, association, or
cooperative duly registered in accordance with law in which less than fifty per centum
(50%) of the capital is owned by Filipino citizens.

u. Government means the government of the Republic of the Philippines.

v. Gross output means the actual market value of minerals or mineral products from its
mining area as defined in the National Internal Revenue Code.
w. Indigenous cultural community means a group or tribe of indigenous Filipinos who
have continuously lived as communities on communally-bounded and defined land since
time immemorial and have succeeded in preserving, maintaining, and sharing common
bonds of languages, customs, traditions, and other distinctive cultural traits, and as may
be defined and delineated by law.
x. Joint venture agreement (JVA) means an agreement entered into between the
Government and one or more contractors in accordance with Section 26(c) hereof.
y. Mineral processing means the milling, beneficiation or upgrading of ores or minerals
and rocks or by similar means to convert the same into marketable products.
z. Mine wastes and tailings shall mean soil and rock materials from surface or
underground mining and milling operations with no economic value to the generator of
the same.
aa. Minerals refers to all naturally occurring inorganic substance in solid, gas, liquid, or
any intermediate state excluding energy materials such as coal, petroleum, natural gas,
radioactive materials, and geothermal energy.
ab. Mineral agreement means a contract between the government and a contractor,
involving mineral production-sharing agreement, co-production agreement, or jointventure agreement.
ac. Mineral land means any area where mineral resources are found.
ad. Mineral resource means any concentration of minerals/rocks with potential economic
value.
ae. Mining area means a portion of the contract area identified by the contractor for
purposes of development, mining, utilization, and sites for support facilities or in the
immediate vicinity of the mining operations.
af. Mining operation means mining activities involving exploration, feasibility,
development, utilization, and processing.
ag. Non-governmental organization (NGO) includes nonstock, nonprofit organizations
involved in activities dealing with resource and environmental conservation,
management and protection.
ah. Net assets refers to the property, plant and equipment as reflected in the audited
financial statement of the contractor net of depreciation, as computed for tax purposes,
excluding appraisal increase and construction in progress.
ai. Offshore means the water, sea bottom and subsurface from the shore or coastline
reckoned from the mean low tide level up to the two hundred nautical miles (200 n.m.)
exclusive economic zone including the archipelagic sea and contiguous zone.

aj. Onshore means the landward side from the mean tide elevation, including
submerged lands in lakes, rivers and creeks.
ak. Ore means a naturally occurring substance or material from which a mineral or
element can be mined and/or processed for profit.
al. Permittee means the holder of an exploration permit.
am. Pollution control and infrastructure devices refers to infrastructure, machinery,
equipment and/or improvements used for impounding, treating or neutralizing,
precipitating, filtering, conveying and cleansing mine industrial waste and tailings as well
as eliminating or reducing hazardous effects of solid particles, chemicals, liquids or other
harmful byproducts and gases emitted from any facility utilized in mining operations for
their disposal.
an. President means the President of the Republic of the Philippines.
ao. Private land refers to any land belonging to any private person which includes
alienable and disposable land being claimed by a holder, claimant, or occupant who has
already acquired a vested right thereto under the law, although the corresponding
certificate or evidence of title or patent has not been actually issued.
ap. Public land refers to lands of the public domain which have been classified as
agricultural lands and subject to management and disposition or concession under
existing laws.
aq. Qualified person means any citizen of the Philippines with capacity to contract, or a
corporation, partnership, association, or cooperative organized or authorized for the
purpose of engaging in miring, with technical and financial capability to undertake
mineral resources development and duly registered in accordance with law at least sixty
per centum (60%) of the capital of which is owned by citizens of the Philippines:
Provided, That a legally organized foreign-owned corporation shall be deemed a
qualified person for purposes of granting an exploration permit, financial or technical
assistance agreement or mineral processing permit.
ar. Quarrying means the process of extracting, removing and disposing quarry resources
found on or underneath the surface of private or public land.
as. Quarry permit means a document granted to a qualified person for the extraction and
utilization of quarry resources on public or private lands.
at. Quarry resources refers to any common rock or other mineral substances as the
Director of Mines and Geosciences Bureau may declare to be quarry resources such as,
but not limited to, andesite, basalt, conglomerate, coral sand, diatomaceous earth,
diorite, decorative stones, gabbro, granite, limestone, marble, marl, red burning clays for
potteries and bricks, rhyolite, rock phosphate, sandstone, serpentine, shale, tuff,
volcanic cinders, and volcanic glass: Provided, That such quarry resources do not
contain metals or metallic constituents and/or other valuable minerals in economically
workable quantities: Provided, further, That non-metallic minerals such as kaolin,
feldspar, bull quartz, quartz or silica, sand and pebbles, bentonite, talc, asbestos, barite,
gypsum, bauxite, magnesite, dolomite, mica, precious and semi-precious stones, and
other non-metallic minerals that may later be discovered and which the: Director
declares the same to be of economically workable quantities, shall not be classified
under the category of quarry resources.

au. Regional director means the regional director of any mines regional office under the
Department of Environment and Natural Resources.
av. Regional office means any of the mines regional offices of the Department of
Environment and Natural Resources.
aw. Secretary means the Secretary of the Department of Environment and Natural
Resources.
ax. Special allowance refers to payment to the claim-owners or surface right-owners
particularly during the transition period from Presidential Decree No. 463 and Executive
Order No. 279, series of 1987.
ay. State means the Republic of the Philippines.
az. Utilization means the extraction or disposition of minerals.

Mining operations in reserved lands other than mineral reservations may be undertaken by the
Department, subject to limitations as herein provided. In the event that the Department cannot
undertake such activities, they may be undertaken by a qualified person in accordance with the
rules and regulations promulgated by the Secretary. The right to develop and utilize the minerals
found therein shall be awarded by the President under such terms and conditions as
recommended by the Director and approved by the Secretary: Provided, That the party who
undertook the exploration of said reservation shall be given priority. The mineral land so awarded
shall be automatically excluded from the reservation during the term of the agreement: Provided,
further, That the right of the lessee of a valid mining contract existing within the reservation at the
time of its establishment shall not be prejudiced or impaired.
Section 7
Periodic Review of Existing Mineral Reservations
The Secretary shall periodically review existing mineral reservations for the purpose of determining
whether their continued existence is consistent with the national interest, and upon his
recommendation, the President may, by proclamation, alter or modify the boundaries thereof or
revert the same to the public domain without prejudice to prior existing rights.

CHAPTER II
GOVERNMENT MANAGEMENT

Section 8
Authority of the Department

Section 4
Ownership of Mineral Resources

The Department shall be the primary government agency responsible for the conservation,
management, development, and proper use of the State's mineral resources including those in
reservations, watershed areas, and lands of the public domain. The Secretary shall have the
authority to enter into mineral agreements on behalf of the Government upon the recommendation
of the Director, promulgate such rules and regulations as may be necessary to implement the
intent and provisions of this Act.

Mineral resources are owned by the State and the exploration, development, utilization, and
processing thereof shall be under its full control and supervision. The State may directly undertake
such activities or it may enter into mineral agreements with contractors.
The State shall recognize and protect the rights of the indigenous cultural communities to their
ancestral lands as provided for by the Constitution.
Section 5
Mineral Reservations
When the national interest so requires, such as when there is a need to preserve strategic raw
materials for industries critical to national development, or certain minerals for scientific, cultural or
ecological value, the President may establish mineral reservations upon the recommendation of
the Director through the Secretary. Mining operations in existing mineral reservations and such
other reservations as may thereafter be established, shall be undertaken by the Department or
through a contractor: Provided, That a small scale-mining cooperative covered by Republic Act No.
7076 shall be given preferential right to apply for a small-scale mining agreement for a maximum
aggregate area of twenty-five percent (25%) of such mineral reservation, subject to valid existing
mining/quarrying rights as provided under Section 112 Chapter XX hereof. All submerged lands
within the contiguous zone and in the exclusive economic zone of the Philippines are hereby
declared to be mineral reservations.
A ten per centum (10%) share of all royalties and revenues to be derived by the government from
the development and utilization of the mineral resources within mineral reservations as provided
under this Act shall accrue to the Mines and Geosciences Bureau to be allotted for special projects
and other administrative expenses related to the exploration and development of other mineral
reservations mentioned in Section 6 hereof.
Section 6
Other Reservations

Section 9
Authority of the Bureau
The Bureau shall have direct charge in the administration and disposition of mineral lands and
mineral resources and shall undertake geological, mining, metallurgical, chemical, and other
researches as well as geological and mineral exploration surveys. The Director shall recommend
to the Secretary the granting of mineral agreements to duly qualified persons and shall monitor the
compliance by the contractor of the terms and conditions of the mineral agreements. The Bureau
may confiscate surety, performance and guaranty bonds posted through an order to be
promulgated by the Director. The Director may deputize, when necessary, any member or unit of
the Philippine National Police, barangay, duly registered non-governmental organization (NGO) or
any qualified person to police all mining activities.
Section 10
Regional Offices
There shall be as many regional offices in the country as may be established by the Secretary,
upon the recommendation of the Director.
Section 11
Processing of Applications
The system of processing applications for mining rights shall be prescribed in the rules and
regulations of this Act.

Section 12
Survey, Charting and Delineation of Mining Areas
A sketch plan or map of the contract or mining area prepared by a deputized geodetic engineer
suitable for publication purposes shall be required during the filing of a mineral agreement or
financial or technical assistance agreement application. Thereafter, the contract or mining area
shall be surveyed and monumented by a deputized geodetic engineer or bureau geodetic
engineer and the survey plan shall be approved by the Director before the approval of the mining
feasibility.
Section 13
Meridional Blocks
For purposes of the delineation of the contract or mining areas under this Act, the Philippine
territory and its exclusive economic zone shall be divided into meridional blocks of one-half (1/2)
minute of latitude and one-half (1/2) minute of longitude.
Section 14
Recording System
There shall be established a national and regional filing and recording system. A mineral resource
database system shall be set up in the Bureau which shall include, among others, a mineral rights
management system. The Bureau shall publish at least annually, a mineral gazette of nationwide
circulation containing among others, a current list of mineral rights, their location in the map,
mining rules and regulations, other official acts affecting mining, and other information relevant to
mineral resources development. A system and publication fund shall be included in the regular
budget of the Bureau.

CHAPTER III
SCOPE OF APPLICATION
Section 15
Scope of Application
This Act shall govern the exploration, development, utilization and processing of all mineral
resources.

Section 18
Areas Open to Mining Operations
Subject to any existing rights or reservations and prior agreements of all parties, all mineral
resources in public or private lands, including timber or forestlands as defined in existing laws,
shall be open to mineral agreements or financial or technical assistance agreement applications.
Any conflict that may arise under this provision shall be heard and resolved by the panel of
arbitrators.
Section 19
Areas Closed to Mining Applications
Mineral agreement or financial or technical assistance agreement applications shall not be
allowed:
a. In military and other government reservations, except upon prior written clearance by
the government agency concerned;
b. Near or under public or private buildings, cemeteries, archeological and historic sites,
bridges, highways, waterways, railroads, reservoirs, dams or other infrastructure
projects, public or private works including plantations or valuable crops, except upon
written consent of the government agency or private entity concerned;
c. In areas covered by valid and existing mining rights;
d. In areas expressedly prohibited by law;
e. In areas covered by small-scale miners as defined by law unless with prior consent of
the small-scale miners, in which case a royalty payment upon the utilization of minerals
shall be agreed upon by the parties, said royalty forming a trust fund for the
socioeconomic development of the community concerned; and
f. Old growth or virgin forests, proclaimed watershed forest reserves, wilderness areas,
mangrove forests, mossy forests, national parks provincial/municipal forests, parks,
greenbelts, game refuge and bird sanctuaries as defined by law and in areas expressly
prohibited under the National Integrated Protected Areas System (NIPAS) under
Republic Act No. 7586, Department Administrative Order No. 25, series of 1992 and
other laws.

Section 16
Opening of Ancestral Lands for Mining Operations
No ancestral land shall be opened for mining-operations without prior consent of the indigenous
cultural community concerned.
Section 17
Royalty Payments for Indigenous Cultural Communities
In the event of an agreement with an indigenous cultural community pursuant to the preceding
section, the royalty payment, upon utilization of the minerals shall be agreed upon by the parties.
The said royalty shall form part of a trust fund for the socioeconomic well-being of the indigenous
cultural community.

CHAPTER IV
EXPLORATION PERMIT
Section 20
Exploration Permit
An exploration permit grants the right to conduct exploration for all minerals in specified areas. The
Bureau shall have the authority to grant an exploration Permit to a qualified person.

Section 21
Terms and Conditions of the Exploration Permit
An exploration permit shall be for a period of two (2) years, subject to annual review and
relinquishment or renewal upon the recommendation of the Director.
Section 22
Maximum Areas for Exploration Permit
The maximum area that a qualified person may hold at any one time shall be:
a. Onshore, in any one province
1. for individuals, twenty (20) blocks: and
2. for partnerships, corporations, cooperatives, or associations, two hundred
(200) blocks.
b. Onshore, in the entire Philippines

application shall be granted if the permittee meets the necessary qualifications and the terms and
conditions of any such agreement: Provided, That the exploration period covered by the
exploration permit shall be included as part of the exploration period of the mineral agreement or
financial or technical assistance agreement.
Section 24
Declaration of Mining Project Feasibility
A holder of an exploration permit who determines the commercial viability of a project covering a
mining area may, within the term of the permit, file with the Bureau a declaration of mining project
feasibility accompanied by a work program for development. The approval of the mining project
feasibility and compliance with other requirements provided in this Act shall entitle the holder to an
exclusive right to a mineral production sharing agreement or other mineral agreements or financial
or technical assistance agreement.
Section 25
Transfer or Assignment
An exploration permit may be transferred or assigned to a qualified person subject to the approval
of the Secretary upon the recommendation of the Director.

1. for individuals, forty (40) blocks; and

2. for partnerships, corporations, cooperatives, or associations, four hundred
(400) blocks.
c. Offshore, beyond five hundred meters (500m) from the mean low tide level:
1. for individuals, one hundred (100) blocks; and
2. for partnerships, corporations, cooperatives, or associations, one thousand
(1,000) blocks.
Section 23
Rights and Obligations of the Permittee

CHAPTER V
MINERAL AGREEMENTS
Section 26
Modes of Mineral Agreement
For purposes of mining operations, a mineral agreement may take the following forms as herein
defined:
a. Mineral production sharing agreement is an agreement where the Government grants
to the contractor the exclusive right to conduct mining operations within a contract area
and shares in the gross output. The contractor shall provide the financing, technology,
management and personnel necessary for the implementation of this agreement.

An exploration permit shall grant to the permittee, his heirs or successors-in-interest, the right to
enter, occupy and explore the area: Provided, That if private or other parties are affected, the
permittee shall first discuss with the said parties the extent, necessity, and manner of his entry,
occupation and exploration and in case of disagreement, a panel of arbitrators shall resolve the
conflict or disagreement.

b. Co-production agreement is an agreement between the Government and the

contractor wherein the Government shall provide inputs to the mining operations other
than the mineral resource.

The permittee shall undertake an exploration work on the area as specified by its permit based on
an approved work program.

c. Joint venture agreement is an agreement where a joint-venture company is organized

by the Government and the contractor with both parties having equity shares. Aside from
earnings in equity, the Government shall be entitled to a share in the gross output.

Any expenditure in excess of the yearly budget of the approved work program may be carried
forward and credited to the succeeding years covering the duration of the permit. The Secretary,
through the Director, shall promulgate rules and regulations governing the terms and conditions of
the permit.
The permittee may apply for a mineral production sharing agreement, joint venture agreement, coproduction agreement or financial or technical assistance agreement over the permit area, which

A mineral agreement shall grant to the contractor the exclusive right to conduct mining operations
and to extract all mineral resources found in the contract area. In addition, the contractor may be
allowed to convert his agreement into any of the modes of mineral agreements or financial or
technical assistance agreement covering the remaining period of the original agreement subject to
the approval of the Secretary.

Section 27
Eligibility
A qualified person may enter into any of the three (3) modes of mineral agreement with the
government for the exploration, development and utilization of mineral resources: Provided, That
in case the applicant has been in the mining industry for any length of time, he should possess a
satisfactory environmental track record as determined by the Mines and Geosciences Bureau and
in consultation with the Environmental Management Bureau of the Department.
Section 28
Maximum Areas for Mineral Agreement
The maximum area that a qualified person may hold at any time under a mineral agreement shall
be:

copies thereof shall be submitted to the President. Thereafter, the President shall provide a list to
Congress of every approved mineral agreement within thirty (30) days from its approval by the
Secretary.
Section 30
Assignment/Transfer
Any assignment or transfer of rights and obligations under any mineral agreement except a
financial or technical assistance agreement shall be subject to the prior approval of the Secretary.
Such assignment or transfer shall be deemed automatically approved if not acted upon by the
Secretary within thirty (30) working days from official receipt thereof, unless patently
unconstitutional or illegal.
Section 31
Withdrawal from Mineral Agreements

a. Onshore, in any one province

1. for individuals, ten (10) blocks; and
2. for partnerships, cooperatives, associations, or corporations, one hundred
(100) blocks.
b. Onshore, in the entire Philippines
1. for individuals, twenty (20) blocks; and
2. for partnerships, cooperatives, associations, or corporations, two hundred
(200) blocks.
c. Offshore, in the entire Philippines

The contractor may, by giving due notice at any time during the term of the agreement, apply for
the cancellation of the mineral agreement due to causes which, in the opinion of the contractor,
make continued mining operations no longer feasible or viable. The Secretary shall consider the
notice and issue its decision within a period of thirty (30) days: Provided, That the contractor has
met all its financial, fiscal and legal obligations.
Section 32
Terms
Mineral agreements shall have a term not exceeding twenty-five (25) years to start from the date
of execution thereof, and renewable for another term not exceeding twenty-five (25) years under
the same terms and conditions thereof, without prejudice to changes mutually agreed upon by the
parties. After the renewal period, the operation of the mine may be undertaken by the Government
or through a contractor. The contract for the operation of a mine shall be awarded to the highest
bidder in a public bidding after due publication of the notice thereof: Provided, That the contractor
shall have the right to equal the highest bid upon reimbursement of all reasonable expenses of the
highest bidder.

1. for individuals fifty (50) blocks;

2. for partnerships, cooperatives, associations, or corporations, five hundred
(500) blocks; and
3. for the exclusive economic zone, a larger area to be determined by the
Secretary.
The maximum areas mentioned above that a contractor may hold under a mineral agreement shall
not include mining/quarry areas under operating agreements between the contractor and a
claimowner/lessee/permittee/licensee entered into under Presidential Decree No. 463.
Section 29
Filing and Approval of Mineral Agreements
All proposed mineral agreements shall be filed in the region where the areas of interest are
located, except in mineral reservations which shall be filed with the Bureau.
The filing of a proposal for a mineral agreement shall give the proponent the prior right to areas
covered by the same. The proposed mineral agreement will be approved by the Secretary and

CHAPTER VI
FINANCIAL OR TECHNICAL ASSISTANCE AGREEMENT
Section 33
Eligibility
Any qualified person with technical and financial capability to undertake large-scale exploration,
development, and utilization of mineral resources in the Philippines may enter into a financial or
technical assistance agreement directly with the Government through the Department.
Section 34
Maximum Contract Area
The maximum contract area that may be granted per qualified person, subject to relinquishment
shall be:

a. 1,000 meridional blocks onshore;

b. 4,000 meridional blocks offshore; or
c. Combinations of a and b provided that it shall not exceed the maximum limits for
onshore and offshore areas.
Section 35
Terms and Conditions
The following terms, conditions, and warranties shall be incorporated in the financial or technical
assistance agreement, to wit:
a. A firm commitment in the form of a sworn statement, of an amount corresponding to
the expenditure obligation that will be invested in the contract area: Provided, That such
amount shall be subject to changes as may be provided for in the rules and regulations
of this Act;
b. A financial guarantee bond shall be posted in favor of the Government in an amount
equivalent to the expenditure obligation of the applicant for any year;
c. Submission of proof of technical competence, such as, but not limited to, its track
record in mineral resource exploration, development, and utilization; details of
technology to be employed in the proposed operation; and details of technical personnel
to undertake the operation;
d. Representations and warranties that the applicant has all the qualifications and none
of the disqualifications for entering into the agreement;
e. Representations and warranties that the contractor has or has access to all the
financing, managerial and technical expertise and, if circumstances demand, the
technology required to promptly and effectively carry out the objectives of the agreement
with the understanding to timely deploy these resources under its supervision pursuant
to the periodic work programs and related budgets, when proper, providing an
exploration period up to two (2) years, extendible for another two (2) years but subject to
annual review by the Secretary in accordance with the implementing rules and
regulations of this Act, and further, subject to the relinquishment obligations;
f. Representations and warranties that, except for payments for dispositions for its
equity, foreign investments in local enterprises which are qualified for repatriation, and
local supplier's credits and such other generally accepted and permissible financial
schemes for raising funds for valid business purposes, the contractor shall not raise any
form of financing from domestic sources of funds, whether in Philippine or foreign
currency, for conducting its mining operations for and in the contract area;
g. The mining operations shall be conducted in accordance with the provisions of this
Act and its implementing rules and regulations;
h. Work programs and minimum expenditures commitments;
i. Preferential use of local goods and services to the maximum extent practicable;

j. A stipulation that the contractors are obligated to give preference to Filipinos in all
types of mining employment for which they are qualified and that technology shall be
transferred to the same;
k. Requiring the proponent to effectively use appropriate anti-pollution technology and
facilities to protect the environment and to restore or rehabilitate mined out areas and
other areas affected by mine tailings and other forms of pollution or destruction;
l. The contractors shall furnish the Government records of geologic, accounting, and
other relevant data for its mining operations, and that book of accounts and records shall
be open for inspection by the government;
m. Requiring the proponent to dispose of the minerals and byproducts produced under a
financial or technical assistance agreement at the highest price and more advantageous
terms and conditions as provided for under the rules and regulations of this Act;
n. Provide for consultation and arbitration with respect to the interpretation and
implementation of the terms and conditions of the agreements; and
o. Such other terms and conditions consistent with the Constitution and with this Act as
the Secretary may deem to be for the best interest of the State and the welfare of the
Filipino people.
Section 36
Negotiations
A financial or technical assistance agreement shall be negotiated by the Department and executed
and approved by the President. The President shall notify Congress of all financial or technical
assistance agreements within thirty (30) days from execution and approval thereof.
Section 37
Filing and Evaluation of Financial or Technical Assistance Agreement Proposals
All financial or technical assistance agreement proposals shall be filed with the Bureau after
payment of the required processing fees. If the proposal is found to be sufficient and meritorious in
form and substance after evaluation, it shall be recorded with the appropriate government agency
to give the proponent the prior right to the area covered by such proposal: Provided, That existing
mineral agreements, financial or technical assistance agreements and other mining rights are not
impaired or prejudiced thereby. The Secretary shall recommend its approval to the President.
Section 38
Term of Financial or Technical Assistance Agreement
A financial or technical assistance agreement shall have a term not exceeding twenty-five (25)
years to start from the execution thereof, renewable for not more than twenty-five (25) years under
such terms and conditions as may be provided by law.
Section 39
Option to Convert into a Mineral Agreement
The contractor has the option to convert the financial or technical assistance agreement to a
mineral agreement at any time during the term of the agreement, if the economic viability of the
contract area is found to be inadequate to justify large-scale mining operations, after proper notice

to the Secretary as provided for under the implementing rules and regulations: Provided, That the
mineral agreement shall only be for the remaining period of the original agreement.
In the case of a foreign contractor, it shall reduce its equity to forty percent (40%) in the
corporation, partnership, association, or cooperative. Upon compliance with this requirement by
the contractor, the Secretary shall approve the conversion and execute the mineral productionsharing agreement.
Section 40
Assignment/Transfer
A financial or technical assistance agreement may be assigned or transferred, in whole or in part,
to a qualified person subject to the prior approval of the President: Provided, That the President
shall notify Congress of every financial or technical assistance agreement assigned or converted
in accordance with this provision within thirty (30) days from the date of the approval thereof.

The maximum area which a qualified person may hold at any one time shall be five hectares (5
has.): Provided, That in large-scale quarry operations involving cement raw materials, marble,
granite, sand and gravel and construction aggregates, a qualified person and the government may
enter into a mineral agreement as defined herein.
A quarry permit shall have a term of five (5) years, renewable for like periods but not to exceed a
total term of twenty-five (25) years. No quarry permit shall be issued or granted on any area
covered by a mineral agreement or financial or technical assistance agreement.
Section 44
Quarry Fee and Taxes
A permittee shall, during the term of his permit, pay a quarry fee as provided for under the
implementing rules and regulations. The permittee shall also pay the excise tax as provided by
pertinent laws.

Section 41
Withdrawal from Financial or Technical Assistance Agreement

Section 45
Cancellation of Quarry Permit

The contractor shall manifest in writing to the Secretary his intention to withdraw from the
agreement, if in his judgment the mining project is no longer economically feasible, even after he
has exerted reasonable diligence to remedy the cause or the situation. The Secretary may accept
the withdrawal: Provided, That the contractor has complied or satisfied all his financial, fiscal or
legal obligations.

A quarry permit may be cancelled by the provincial governor for violations of the provisions of this
Act or its implementing rules and regulations or the terms and conditions of said permit: Provided,
That before the cancellation of such permit, the holder thereof shall be given the opportunity to be
heard in an investigation conducted for the purpose.
Section 46
Commercial Sand and Gravel Permit

CHAPTER VII
SMALL-SCALE MINING
Section 42
Small-scale Mining
Small-scale mining shall continue to be governed by Republic Act No. 7076 and other pertinent
laws.

CHAPTER VIII
QUARRY RESOURCES
Section 43
Quarry Permit
Any qualified person may apply to the provincial/city mining regulatory board for a quarry permit on
privately-owned lands and/or public lands for building and construction materials such as marble,
basalt, andesite, conglomerate, tuff, adobe, granite, gabbro, serpentine, inset filling materials, clay
for ceramic tiles and building bricks, pumice, perlite and other similar materials that are extracted
by quarrying from the ground. The provincial governor shall grant the permit after the applicant has
complied with all the requirements as prescribed by the rules and regulations.

Any qualified person may be granted a permit by the provincial governor to extract and remove
sand and gravel or other loose or unconsolidated materials which are used in their natural state,
without undergoing processing from an area of not more than five hectares (5 has.) and in such
quantities as may be specified in the permit.
Section 47
Industrial Sand and Gravel Permit
Any qualified person may be granted an industrial sand and gravel permit by the Bureau for the
extraction of sand and gravel and other loose or unconsolidated materials that necessitate the use
of mechanical processing covering an area of more than five hectares (5 has.) at any one time.
The permit shall have a term of five (5) years, renewable for a like period but not to exceed a total
term of twenty-five (25) years.
Section 48
Exclusive Sand and Gravel Permit
Any qualified person may be granted an exclusive sand and gravel permit by the provincial
governor to quarry and utilize sand and gravel or other loose or unconsolidated materials from
public lands for his own use, provided that there will be no commercial disposition thereof.
A mineral agreement or a financial technical assistance agreement contractor shall, however, have
the right to extract and remove sand and gravel and other loose unconsolidated materials without
need of a permit within the area covered by the mining agreement for the exclusive use in the
mining operations: Provided, That monthly reports of the quantity of materials extracted therefrom
shall be submitted to the mines regional office concerned: Provided, further, That said right shall
be coterminous with the expiration of the agreement.

Holders of existing mining leases shall likewise have the same rights as that of a contractor:
Provided, That said right shall be coterminous with the expiry dates of the lease.
Section 49
Government Gratuitous Permit
Any government entity or instrumentality may be granted a gratuitous permit by the provincial
governor to extract sand and gravel, quarry or loose unconsolidated materials needed in the
construction of building and/or infrastructure for public use or other purposes over an area of not
more than two hectares (2 has.) for a period coterminous with said construction.
Section 50
Private Gratuitous Permit
Any owner of land may be granted a private gratuitous permit by the provincial governor.
Section 51
Guano Permit
Any qualified person may be granted a guano permit by the provincial governor to extract and
utilize loose unconsolidated guano and other organic fertilizer materials in any portion of a
municipality where he has established domicile. The permit shall be for specific caves and/or for
confined sites with locations verified by the Department's field officer in accordance with existing
rules and regulations.
Section 52
Gemstone Gathering Permit
Any qualified person may be granted a non-exclusive gemstone gathering permit by the provincial
governor to gather loose stones useful as gemstones in rivers and other locations.

No person shall engage in the trading of mineral products, either locally or internationally, unless
registered with the Department of Trade and Industry and accredited by the Department, with a
copy of said registration submitted to the Bureau.
Section 55
Minerals Processing Permit
No person shall engage in the processing of minerals without first securing a minerals processing
permit from the Secretary. Minerals processing permit shall be for a period of five (5) years
renewable for like periods but not to exceed a total term of twenty-five (25) years. In the case of
mineral ores or minerals produced by the small-scale miners, the processing thereof as well as the
licensing of their custom mills, or processing plants shall continue to be governed by the provisions
of Republic Act No. 7076.
Section 56
Eligibility of Foreign-owned/-controlled Corporation
A foreign-owned/-controlled corporation may be granted a mineral processing permit.

CHAPTER X
DEVELOPMENT OF MINING COMMUNITIES, SCIENCE AND MINING TECHNOLOGY
Section 57
Expenditure for Community Development and Science and Mining Technology
A contractor shall assist in the development of its mining community, the promotion of the general
welfare of its inhabitants, and the development of science and mining technology.
Section 58
Credited Activities

CHAPTER IX
TRANSPORT, SALE AND PROCESSING OF MINERALS
Section 53
Ore Transport Permit
A permit specifying the origin and quantity of non-processed mineral ores or minerals shall be
required for their transport. Transport permits shall be issued by the mines regional director who
has jurisdiction over the area where the ores were extracted. In the case of mineral ores or
minerals being transported from the small-scale mining areas to the custom mills or processing
plants, the Provincial Mining Regulatory Board (PMRB) concerned shall formulate their own
policies to govern such transport of ores produced by small-scale miners. The absence of a permit
shall be considered as prima facie evidence of illegal mining and shall be sufficient cause for the
Government to confiscate the ores or minerals being transported, the tools and equipment utilized,
and the vehicle containing the same. Ore samples not exceeding two metric tons (2 m.t.) to be
used exclusively for assay or pilot test purposes shall be exempted from such requirement.
Section 54
Mineral Trading Registration

Activities that may be credited as expenditures for development of mining communities, and
science and mining technology are the following:
a. Any activity or expenditure intended to enhance the development of the mining and
neighboring communities of a mining operation other than those required or provided for
under existing laws, or collective bargaining agreements, and the like; and
b. Any activity or expenditure directed towards the development of geosciences and
mining technology such as, but not limited to, institutional and manpower development,
and basic and applied researches. Appropriate supervision and control mechanisms
shall be prescribed in the implementing rules and regulations of this Act.
Section 59
Training and Development
A contractor shall maintain an effective program of manpower training and development
throughout the term of the mineral agreement and shall encourage and train Filipinos to participate
in all aspects of the mining operations, including the management thereof. For highly-technical and

specialized mining operations, the contractor may, subject to the necessary government
clearances, employ qualified foreigners.
Section 60
Use of Indigenous Goods, Services and Technologies
A contractor shall give preference to the use of local goods, services and scientific and technical
resources in the mining operations, where the same are of equivalent quality, and are available on
equivalent terms as their imported counterparts.
Section 61
Donations/Turn Over of Facilities
Prior to cessation of mining operations occasioned by abandonment or withdrawal of operations,
on public lands by the contractor, the latter shall have a period of one (1) year therefrom within
which to remove his improvements; otherwise, all the social infrastructure and facilities shall be
turned over or donated tax-free to the proper government authorities, national or local, to ensure
that said infrastructure and facilities are continuously maintained and utilized by the host and
neighboring communities.
Section 62
Employment of Filipinos
A contractor shall give preference to Filipino citizens in all types of mining employment within the
country insofar as such citizens are qualified to perform the corresponding work with reasonable
efficiency and without hazard to the safety of the operations. The contractor, however, shall not be
hindered from hiring employees of his own selection, subject to the provisions of Commonwealth
Act No. 613, as amended, for technical and specialized work which, in his judgment and with the
approval of the Director, requires highly-specialized training or long experience in exploration,
development or utilization of mineral resources: Provided, That in no case shall each employment
exceed five (5) years or the payback period as represented in original project study, whichever is
longer: Provided, further, That each foreigner employed as mine manager, vice-president for
operations or in an equivalent managerial position in charge of mining, milling, quarrying or drilling
operation shall:
a. Present evidence of his qualification and work experience; or
b. Shall pass the appropriate government licensure examination; or
c. In special cases, may be permitted to work by the Director for a period not exceeding
one (1) year: Provided, however, That if reciprocal privileges are extended to Filipino
nationals in the country of domicile, the Director may grant waivers or exemptions.

All contractors and permittees shall strictly comply with all the mines safety rules and regulations
as may be promulgated by the Secretary concerning the safe and sanitary upkeep of the mining
operations and achieve waste-free and efficient mine development. Personnel of the Department
involved in the implementation of mines safety, health and environmental rules and regulations
shall be covered under Republic Act No. 7305.
Section 64
Mine Labor
No person under sixteen (16) years of age shall be employed in any phase of mining operations
and no person under eighteen (18) years of age shall be employed underground in a mine.
Section 65
Mine Supervision
All mining and quarrying operations that employ more than fifty (50) workers shall have at least
one (1) licensed mining engineer with at least five (5) years of experience in mining operations,
and one (1) registered foreman.
Section 66
Mine Inspection
The regional director shall have exclusive jurisdiction over the safety inspection of all installations,
surface or underground, in mining operations at reasonable hours of the day or night and as much
as possible in a manner that will not impede or obstruct work in progress of a contractor or
permittee.
Section 67
Power to Issue Orders
The mines regional director shall, in consultation with the Environmental Management Bureau,
forthwith or within such time as specified in his order, require the contractor to remedy any practice
connected with mining or quarrying operations, which is not in accordance with safety and antipollution laws and regulations. In case of imminent danger to life or property, the mines regional
director may summarily suspend the mining or quarrying operations until the danger is removed, or
appropriate measures are taken by the contractor or permittee.
Section 68
Report of Accidents
In case of any incident or accident, causing or creating the danger of loss of life or serious physical
injuries, the person in charge of operations shall immediately report the same to the regional office
where the operations are situated. Failure to report the same without justifiable reason shall be a
cause for the imposition of administrative sanctions prescribed in the rules and regulations
implementing this Act.

CHAPTER XI
SAFETY AND ENVIRONMENTAL PROTECTION

Section 69
Environmental Protection

Section 63
Mines Safety and Environmental Protection

Every contractor shall undertake an environmental protection and enhancement program covering
the period of the mineral agreement or permit. Such environmental program shall be incorporated
in the work program which the contractor or permittee shall submit as an accompanying document
to the application for a mineral agreement or permit. The work program shall include not only plans
relative to mining operations but also to rehabilitation, regeneration, revegetation and reforestation

of mineralized areas, slope stabilization of mined-out and tailings covered areas, aquaculture,
watershed development and water conservation; and socioeconomic development.
Section 70
Environmental Impact Assessment (EIA)
Except during the exploration period of a mineral agreement or financial or technical assistance
agreement or an exploration permit, an environmental clearance certificate shall be required based
on an environmental impact assessment and procedures under the Philippine Environmental
Impact Assessment System including Sections 26 and 27 of the Local Government Code of 1991
which require national government agencies to maintain ecological balance, and prior consultation
with the local government units, non-governmental and people's organizations and other
concerned sectors of the community: Provided, That a completed ecological profile of the
proposed mining area shall also constitute part of the environmental impact assessment. People's
organizations and non-governmental organizations shall be allowed and encouraged to participate
in ensuring that contractors/permittees shall observe all the requirements of environmental
protection.
Section 71
Rehabilitation
Contractors and permittees shall technically and biologically rehabilitate the excavated, mined-out,
tailings covered and disturbed areas to the condition of environmental safety, as may be provided
in the implementing rules and regulations of this Act. A mine rehabilitation fund shall be created,
based on the contractor's approved work program, and shall be deposited as a trust fund in a
government depository bank and used for physical and social rehabilitation of areas and
communities affected by mining activities and for research on the social, technical and preventive
aspects of rehabilitation. Failure to fulfill the above obligation shall mean immediate suspension or
closure of the mining activities of the contractor/permittee concerned.

A contractor shall have water rights for mining operations upon approval of application with the
appropriate government agency in accordance with existing water laws, rules and regulations
promulgated thereunder: Provided, That water rights already granted or vested through long use,
recognized and acknowledged by local customs, laws, and decisions of courts shall not thereby be
impaired: Provided, further, That the Government reserves the right to regulate water rights and
the reasonable and equitable distribution of water supply so as to prevent the monopoly of the use
thereof.
Section 74
Right to Possess Explosives
A contractor/exploration permittee shall have the right to possess and use explosives within his
contract/permit area as may be necessary for his mining operations upon approval of application
with the appropriate government agency in accordance with existing laws, rules and regulations
promulgated thereunder: Provided, That the Government reserves the right to regulate and control
the explosive accessories to ensure safe mining operations.
Section 75
Easement Rights
When mining areas are so situated that for purposes of more convenient mining operations it is
necessary to build, construct or install on the mining areas or lands owned, occupied or leased by
other persons, such infrastructure as roads, railroads, mills, waste dump sites, tailings ponds,
warehouses, staging or storage areas and port facilities, tramways, runways, airports, electric
transmission, telephone or telegraph lines, dams and their normal flood and catchment areas,
sites for water wells, ditches, canals, new river beds, pipelines, flumes, cuts, shafts, tunnels, or
mills, the contractor, upon payment of just compensation, shall be entitled to enter and occupy said
mining areas or lands.
Section 76
Entry into Private Lands and Concession Areas

CHAPTER XII
AUXILIARY MINING RIGHTS
Section 72
Timber Rights
Any provision of law to the contrary notwithstanding, a contractor may be granted a right to cut
trees or timber within his mining area as may be necessary for his mining operations subject to
forestry laws, rules and regulations: Provided, That if the land covered by the mining area is
already covered by existing timber concessions, the volume of timber needed and the manner of
cutting and removal thereof shall be determined by the mines regional director, upon consultation
with the contractor, the timber concessionaire/permittee and the Forest Management Bureau of the
Department: Provided, further, That in case of disagreement between the contractor and the
timber concessionaire, the matter shall be submitted to the Secretary whose decision shall be
final. The contractor shall perform reforestation work within his mining area in accordance with
forestry laws, rules and regulations.
Section 73
Water Rights

Subject to prior notification, holders of mining rights shall not be prevented from entry into private
lands and concession areas by surface owners, occupants, or concessionaires when conducting
mining operations therein: Provided, That any damage done to the property of the surface owner,
occupant, or concessionaire as a consequence of such operations shall be properly compensated
as may be provided for in the implementing rules and regulations: Provided, further, That to
guarantee such compensation, the person authorized to conduct mining operation shall, prior
thereto, post a bond with the regional director based on the type of properties, the prevailing prices
in and around the area where the mining operations are to be conducted, with surety or sureties
satisfactory to the regional director.

CHAPTER XIII
SETTLEMENT OF CONFLICTS
Section 77
Panel of Arbitrators
There shall be a panel of arbitrators in the regional office of the Department composed of three (3)
members, two (2) of whom must be members of the Philippine Bar in good standing and one a
licensed mining engineer or a professional in a related field, and duly designated by the Secretary

as recommended by the Mines and Geosciences Bureau Director. Those designated as members
of the panel shall serve as such in addition to their work in the Department without receiving any
additional compensation As much as practicable, said members shall come from the different
bureaus of the Department in the region. The presiding officer thereof shall be selected by the
drawing of lots. His tenure as presiding officer shall be on a yearly basis. The members of the
panel shall perform their duties and obligations in hearing and deciding cases until their
designation is withdrawn or revoked by the Secretary. Within thirty (30) working days, after the
submission of the case by the parties for decision, the panel shall have exclusive and original
jurisdiction to hear and decide on the following:
a. Disputes involving rights to mining areas;
b. Disputes involving mineral agreements or permits;

1. To hold any person in contempt, directly or indirectly, and impose

appropriate penalties therefor; and
2. To enjoin any or all acts involving or arising from any case pending before it
which, if not restrained forthwith, may cause grave or irreparable damage to
any of the parties to the case or seriously affect social and economic stability.
In any proceeding before the Board, the rules of evidence prevailing in courts of law or equity shall
not be controlling and it is the spirit and intention of this Act that shall govern. The Board shall use
every and all reasonable means to ascertain the facts in each case speedily and objectively and
without regard to technicalities of law or procedure, all in the interest of due process. In any
proceeding before the Board, the parties may be represented by legal counsel. The findings of fact
of the Board shall be conclusive and binding on the parties and its decision or order shall be final
and executory.

c. Disputes involving surface owners, occupants and claimholders/concessionaires; and

d. Disputes pending before the Bureau and the Department at the date of the effectivity
of this Act.

A petition for review by certiorari and question of law may be filed by the aggrieved party with the
Supreme Court within thirty (30) days from receipt of the order or decision of the Board.

Section 78
Appellate Jurisdiction
The decision or order of the panel of arbitrators may be appealed by the party not satisfied thereto
to the Mines Adjudication Board within fifteen (15) days from receipt thereof which must decide the
case within thirty (30) days from submission thereof for decision.
Section 79
Mines Adjudication Board
The Mines Adjudication Board shall be composed of three (3) members. The Secretary shall be
the chairman with the Director of the Mines and Geosciences Bureau and the Undersecretary for
Operations of the Department as members thereof. The Board shall have the following powers and
functions:
a. To promulgate rules and regulations governing the hearing and disposition of cases
before it, as well as those pertaining to its internal functions, and such rules and
regulations as may be necessary to carry out its functions;
b. To administer oaths, summon the parties to a controversy, issue subpoenas requiring
the attendance and testimony of witnesses or the production of such books, papers,
contracts, records, statement of accounts, agreements, and other documents as may be
material to a just determination of the matter under investigation, and to testify in any
investigation or hearing conducted in pursuance of this Act;
c. To conduct hearings on all matters within its jurisdiction, proceed to hear and
determine the disputes in the absence of any party thereto who has been summoned or
served with notice to appear, conduct its proceedings or any part thereof in public or in
private, adjourn its hearings at any time and place, refer technical matters or accounts to
an expert and to accept his report as evidence after hearing of the parties upon due
notice, direct parties to be joined in or excluded from the proceedings, correct, amend,
or waive any error, defect or irregularity, whether in substance or in form, give all such
directions as it may deem necessary or expedient in the determination of the dispute
before it, and dismiss the mining dispute as part thereof, where it is trivial or where
further proceedings by the Board are not necessary or desirable:

CHAPTER XIV
GOVERNMENT SHARE
Section 80
Government Share in Mineral Production Sharing Agreement
The total government share in a mineral production sharing agreement shall be the excise tax on
mineral products as provided in Republic Act No. 7729, amending Section 151(a) of the National
Internal Revenue Code, as amended.
Section 81
Government Share in Other Mineral Agreements
The share of the Government in co-production and joint-venture agreements shall be negotiated
by the Government and the contractor taking into consideration the:
a. capital investment of the project;
b. risks involved;
c. contribution of the project to the economy; and
d. other factors that will provide for a fair and equitable sharing between the Government
and the contractor.
The Government shall also be entitled to compensations for its other contributions which shall be
agreed upon by the parties, and shall consist, among other things, the contractor's income tax,
excise tax, special allowance, withholding tax due from the contractor's foreign stockholders
arising from dividend or interest payments to the said foreign stockholders, in case of a foreign
national, and all such other taxes, duties and fees as provided for under existing laws.

The Government share in financial or technical assistance agreement shall consist of, among
other things, the contractor's corporate income tax, excise tax, special allowance, withholding tax
due from the contractor's foreign 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 fees as
provided for under existing laws.
The collection of Government share in financial or technical assistance agreement shall
commence after the financial or technical assistance agreement contractor has fully recovered its
pre-operating expenses, exploration, and development expenditures, inclusive.
Section 82
Allocation of Government Share
The Government share as referred to in the preceding sections shall be shared and allocated in
accordance with Sections 290 and 292 of Republic Act No. 7160 otherwise known as the Local
Government Code of 1991. In case the development and utilization of mineral resources is
undertaken by a government-owned or -controlled corporation, the sharing and allocation shall be
in accordance with Sections 291 and 292 of the said Code.

c. Infrastructure and the revegetation and rehabilitation of silted farm lands and other
areas devoted to agriculture and fishing caused by mining pollution.
This is in addition to the suspension or closure of the activities of the contractor at any time and
the penal sanctions imposed upon the same.
The Secretary is authorized to increase mine wastes and tailings fees, when public interest so
requires, upon the recommendation of the Director.
Section 86
Occupation Fees
There shall be collected from any holder of a mineral agreement, financial or technical assistance
agreement or exploration permit on public or private lands, an annual occupation fee in
accordance with the following schedule:
a. For exploration permit - Five pesos (P5.00) per hectare or fraction thereof per annum;
b. For mineral agreements and financial or technical assistance agreements - Fifty
pesos (P50.00) per hectare or fraction thereof per annum; and

CHAPTER XV
TAXES AND FEES
Section 83
Income Taxes
After the lapse of the income tax holiday as provided for in the Omnibus Investments Code, the
contractor shall be liable to pay income tax as provided in the National Internal Revenue Code, as
amended.
Section 84
Excise Tax on Mineral Products
The contractor shall be liable to pay the excise tax on mineral products as provided for under
Section 151 of the National Internal Revenue Code: Provided, however, That with respect to a
mineral production sharing agreement, the excise tax on mineral products shall be the government
share under said agreement.
Section 85
Mine Wastes and Tailings Fees
A semi-annual fee to be known as mine wastes and tailings fee is hereby imposed on all operating
mining companies in accordance with the implementing rules and regulations. The mine wastes
and tailings fee shall accrue to a reserve fund to be used exclusively for payment for damages to:
a. Lives and personal safety;
b. Lands, agricultural crops and forest products, marine life and aquatic resources,
cultural resources; and

c. For mineral reservation - One hundred pesos (P100.00) per hectare or fraction thereof
per annum.
The Secretary is authorized to increase the occupation fees provided herein when the public
interest so requires, upon recommendation of the Bureau Director.
Section 87
Manner of Payment of Fees
The fees shall be paid on the date the mining agreement is registered with the appropriate office
and on the same date every year thereafter. It shall be paid to the treasurer of the municipality or
city where the onshore mining areas are located, or to the Director in case of offshore mining
areas. For this purpose, the appropriate officer shall submit to the treasurer of the municipality or
city where the onshore mining area is located, a complete list of all onshore mining rights
registered with his office, indicating therein the names of the holders, area in hectares, location,
and date registered. If the fee is not paid on the date specified, it shall be increased by twenty-five
per centum (25%).
Section 88
Allocation of Occupation Fees
Thirty per centum (30%) of all occupational fees collected from holders of mining rights in onshore
mining areas shall accrue to the province and seventy per centum (70%) to the municipality in
which the onshore mining areas are located. In a chartered city, the full amount shall accrue to the
city concerned.
Section 89
Filing Fees and Other Charges
The Secretary is authorized to charge reasonable filing fees and other charges as he may
prescribe in accordance with the implementing rules and regulations.

actual exploration and development expenditures minus the twenty-five per centum (25%) net
income from mining shall be carried forward to the succeeding years until fully deducted.
CHAPTER XVI
INCENTIVES
Section 90
Incentives
The contractors in mineral agreements, and financial or technical assistance agreements shall be
entitled to the applicable fiscal and non-fiscal incentives as provided for under Executive Order No.
226, otherwise known as the Omnibus Investments Code of 1987. Provided, That holders of
exploration permits may register with the Board of Investments and be entitled to the fiscal
incentives granted under the said Code for the duration of the permits or extensions thereof:
Provided, further, That mining activities shall always be included in the investment priorities plan.
Section 91
Incentives for Pollution Control Devices
Pollution control devices acquired, constructed or installed by contractors shall not be considered
as improvements on the land or building where they are placed, and shall not be subject to real
property and other taxes or assessments: Provided, however, That payment of mine wastes and
tailings fees is not exempted.
Section 92
Income Tax-Carry Forward of Losses
A net operating loss without the benefit of incentives incurred in any of the first ten (10) years of
operations may be carried over as a deduction from taxable income for the next five (5) years
immediately following the year of such loss. The entire amount of the loss shall be carried over to
the first of the five (5) taxable years following the loss, and any portion of such loss which exceeds
the taxable income of such first year shall be deducted in like manner from the taxable income of
the next remaining four (4) years.
Section 93
Income Tax-Accelerated Depreciation
Fixed assets may be depreciated as follows:
a. To the extent of not more than twice as fast as the normal rate of depreciation or
depreciated at normal rate of depreciation if the expected life is ten (10) years or less; or
b. Depreciated over any number of years between five (5) years and the expected life if
the latter is more than ten (10) years, and the depreciation thereon allowed as deduction
from taxable income: Provided, That the contractor notifies the Bureau of Internal
Revenue at the beginning of the depreciation period which depreciation rate allowed by
this section will be used.
In computing for taxable income, unless otherwise provided in this Act, the contractor may, at his
option, deduct exploration and development expenditures accumulated at cost as of the date of
the prospecting or exploration and development expenditures paid or incurred during the taxable
year: Provided, That the total amount deductible for exploration and development expenditures
shall not exceed twenty-five per centum (25%) of the net income from mining operations. The

Net income from mining operation is defined as gross income from operations less allowable
deductions which are necessary or related to mining operations. Allowable deductions shall
include mining, milling and marketing expenses, depreciation of properties directly used in the
mining operations. This paragraph shall not apply to expenditures for the acquisition or
improvement of property of a character which is subject to the allowances for depreciation.
Section 94
Investment Guarantees
The contractor shall be entitled to the basic rights and guarantees provided in the Constitution and
such other rights recognized by the government as enumerated hereunder:
a. Repatriation of investments. The right to repatriate the entire proceeds of the
liquidation of the foreign investment in the currency in which the investment was
originally made and at the exchange rate prevailing at the time of repatriation.
b. Remittance of earnings. The right to remit earnings from the investment in the
currency in which the foreign investment was originally made and at the exchange rate
prevailing at the time of remittance.
c. Foreign loans and contracts. The right to remit at the exchange rate prevailing at the
time of remittance such sums as may be necessary to meet the payments of interest
and principal on foreign loans and foreign obligations arising from financial or technical
assistance contracts.
d. Freedom from expropriation. The right to be free from expropriation by the
Government of the property represented by investments or loans, or of the property of
the enterprise except for public use or in the interest of national welfare or defense and
upon payment of just compensation. In such cases, foreign investors or enterprises shall
have the right to remit sums received as compensation for the expropriated property in
the currency in which the investment was originally made and at the exchange rate
prevailing at the time of remittance.
e. Requisition of investment. The right to be free from requisition of the property
represented by the investment or of the property of the enterprises except in case of war
or national emergency and only for the duration thereof. Just compensation shall be
determined and paid either at the time or immediately after cessation of the state of war
or national emergency. Payments received as compensation for the requisitioned
property may be remitted in the currency in which the investments were originally made
and at the exchange rate prevailing at the time of remittance.
f. Confidentiality. Any confidential information supplied by the contractor pursuant to this
Act and its implementing rules and regulations shall be treated as such by the
Department and the Government, and during the term of the project to which it relates.

CHAPTER XVII
GROUND FOR CANCELLATION, REVOCATION, AND TERMINATION

Section 95
Late or Non-filing of Requirements

CHAPTER XIX
PENAL PROVISIONS

Failure of the permittee or contractor to comply with any of the requirements provided in this Act or
in its implementing rules and regulations, without a valid reason, shall be sufficient ground for the
suspension of any permit or agreement provided under this Act.

Section 101
False Statements

Section 96
Violation of the Terms and Conditions of Permits or Agreements
Violation of the terms and conditions of the permits or agreements shall be a sufficient ground for
cancellation of the same.
Section 97
Non-Payment of Taxes and Fees
Failure to pay the taxes and fees due the Government for two (2) consecutive years shall cause
the cancellation of the exploration permit, mineral agreement, financial or technical assistance
agreement and other agreements and the re-opening of the area subject thereof to new
applicants.
Section 98
Suspension or Cancellation of Tar Incentives and Credits
Failure to abide by the terms and conditions of tax incentive and credits shall cause the
suspension or cancellation of said incentives and credits.
Section 99
Falsehood or Omission of Facts in the Statement
All statements made in the exploration permit, mining agreement and financial or technical
assistance agreement shall be considered as conditions and essential parts thereof and any
falsehood in said statements or omission of facts therein which may alter, change or affect
substantially the facts set forth in said statements may cause the revocation and termination of the
exploration permit, mining agreement and financial or technical assistance agreement.

Any person who knowingly presents any false application, declaration, or evidence to the
Government or publishes or causes to be published any prospectus or other information
containing any false statement relating to mines, mining operations or mineral agreements,
financial or technical assistance agreements and permits shall, upon conviction, be penalized by a
fine of not exceeding Ten thousand pesos (P10,000.00).
Section 102
Illegal Exploration
Any person undertaking exploration work without the necessary exploration permit shall, upon
conviction, be penalized by a fine of not exceeding Fifty thousand pesos (P50,000.00).
Section 103
Theft of Minerals
Any person extracting minerals and disposing the same without a mining agreement, lease,
permit, license, or steals minerals or ores or the products thereof from mines or mills or processing
plants shall, upon conviction, be imprisoned from six (6) months to six (6) years or pay a fine from
Ten thousand pesos (P10,000.00) to Twenty thousand pesos (P20,000.00) or both, at the
discretion of the appropriate court. In addition, he shall be liable to pay damages and
compensation for the minerals removed, extracted, and disposed of. In the case of associations,
partnerships, or corporations, the president and each of the directors thereof shall be responsible
for the acts committed by such association, corporation, or partnership.
Section 104
Destruction of Mining Structures
Any person who willfully destroys or damages structures in or on the mining area or on the mill
sites shall, upon conviction, be imprisoned for a period not to exceed five (5) years and shall, in
addition, pay compensation for the damages which may have been caused thereby.
Section 105
Mines Arson

CHAPTER XVIII
ORGANIZATIONAL AND INSTITUTIONAL ARRANGEMENTS
Section 100
From Staff Bureau to Line Bureau
The Mines and Geosciences Bureau is hereby transformed into a line bureau consistent with
Section 9 of this Act: Provided, That under the Mines and Geosciences Bureau shall be the
necessary mines regional, district and other pertinent offices - the number and specific functions of
which shall be provided in the implementing rules and regulations of this Act.

Any person who willfully sets fire to any mineral stockpile, mine or workings, fittings or a mine,
shall be guilty of arson and shall be punished, upon conviction, by the appropriate court in
accordance with the provisions of the Revised Penal Code and shall, in addition, pay
compensation for the damages caused hereby.
Section 106
Willful Damage to a Mine
Any person who willfully damages a mine, unlawfully causes water to run into a mine, or obstructs
any shaft or passage to a mine, or renders useless, damages or destroys any machine, appliance,
apparatus, rope, chain, tackle, or any other things used in a mine, shall be punished, upon
conviction, by the appropriate court, by imprisonment not exceeding a period of five (5) years and
shall, in addition, pay compensation for the damages caused thereby.

Section 107
Illegal Obstruction to Permittees or Contractors
Any person who, without justifiable cause, prevents or obstructs the holder of any permit,
agreement or lease from undertaking his mining operations shall be punished, upon conviction by
the appropriate court, by a fine not exceeding Five thousand pesos (P5,000.00) or imprisonment
not exceeding one (1) year, or both, at the discretion of the court.
Section 108
Violation of the Terms and Conditions of the Environmental Compliance Certificate
Any person who willfully violates or grossly neglects to abide by the terms and conditions of the
environmental compliance certificate issued to said person and which causes environmental
damage through pollution shall suffer the penalty of imprisonment of six (6) months to six (6) years
or a fine of Fifty thousand pesos (P50,000.00) to Two hundred thousand pesos (P200,000.00), or
both, at the discretion of the court.
Section 109
Illegal Obstruction to Government Officials
Any person who illegally prevents or obstructs the Secretary, the Director or any of their
representatives in the performance of their duties under the provisions of this Act and of the
regulations promulgated hereunder shall be punished upon conviction, by the appropriate court, by
a fine not exceeding Five thousand pesos (P5,000.00) or by imprisonment not exceeding one (1)
year, or both, at the discretion of the court.

secretary, in writing, not to avail of said provisions: Provided, further, That no renewal of mining
lease contracts shall be made after the expiration of its term: Provided, finally, That such leases,
production-sharing agreements, financial or technical assistance agreements shall comply with the
applicable provisions of this Act and its implementing rules and regulations.
Section 113
Recognition of Valid and Existing Mining Claims and Lease/Quarry Applications
Holders of valid and existing mining claims, lease/quarry applications shall be given preferential
rights to enter into any mode of mineral agreement with the government within two (2) years from
the promulgation of the rules and regulations implementing this Act.
Section 114
Separability Clause
If any of the provision of this Act is held or declared to be unconstitutional or invalid by a
competent court, the other provisions hereof shall continue to be in force as if the provision so
annulled or voided had never been incorporated in this Act.
Section 115
Repealing and Amending Clause
All laws, executive orders, presidential decrees, rules and regulations or parts thereof which are
inconsistent with any of the provisions of this Act are hereby repealed or amended accordingly.
Section 116
Effectivity Clause

Section 110
Other Violations
Any other violation of this Act and its implementing rules and regulations shall constitute an
offense punishable with a fine not exceeding Five thousand pesos (P5,000.00).
Section 111
Fines

This Act shall take effect thirty (30) days following its complete publication in two (2) newspapers
of general circulation in the Philippines.
Approved: MARCH 03 1995

The Secretary is authorized to charge fines for late or non-submission of reports in accordance
with the implementing rules and regulations of this Act.

G.R. No. 127882

CHAPTER XX
TRANSITORY AND MISCELLANEOUS PROVISIONS
Section 112
Non-Impairment of Existing Mining/Quarrying Rights
All valid and existing mining lease contracts, permits/licenses, leases pending renewal, mineral
production-sharing agreements granted under Executive Order No. 279, at the date of effectivity of
this Act, shall remain valid, shall not be impaired, and shall be recognized by the Government:
Provided, That the provisions of Chapter XIV on government share in mineral production-sharing
agreement and of Chapter XVI on incentives of this Act shall immediately govern and apply to a
mining lessee or contractor unless the mining lessee or contractor indicates his intention to the

January 27, 2004

LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., represented by its Chairman F'LONG

MIGUEL M. LUMAYONG, WIGBERTO E. TAADA, PONCIANO BENNAGEN, JAIME TADEO,
RENATO R. CONSTANTINO, JR., F'LONG AGUSTIN M. DABIE, ROBERTO P. AMLOY, RAQIM
L. DABIE, SIMEON H. DOLOJO, IMELDA M. GANDON, LENY B. GUSANAN, MARCELO L.
GUSANAN, QUINTOL A. LABUAYAN, LOMINGGES D. LAWAY, BENITA P. TACUAYAN, minors
JOLY L. BUGOY, represented by his father UNDERO D. BUGOY, ROGER M. DADING,
represented by his father ANTONIO L. DADING, ROMY M. LAGARO, represented by his
father TOTING A. LAGARO, MIKENY JONG B. LUMAYONG, represented by his father
MIGUEL M. LUMAYONG, RENE T. MIGUEL, represented by his mother EDITHA T. MIGUEL,
ALDEMAR L. SAL, represented by his father DANNY M. SAL, DAISY RECARSE, represented
by her mother LYDIA S. SANTOS, EDWARD M. EMUY, ALAN P. MAMPARAIR, MARIO L.
MANGCAL, ALDEN S. TUSAN, AMPARO S. YAP, VIRGILIO CULAR, MARVIC M.V.F. LEONEN,

JULIA REGINA CULAR, GIAN CARLO CULAR, VIRGILIO CULAR, JR., represented by their
father VIRGILIO CULAR, PAUL ANTONIO P. VILLAMOR, represented by his parents JOSE
VILLAMOR and ELIZABETH PUA-VILLAMOR, ANA GININA R. TALJA, represented by her
father MARIO JOSE B. TALJA, SHARMAINE R. CUNANAN, represented by her father
ALFREDO M. CUNANAN, ANTONIO JOSE A. VITUG III, represented by his mother
ANNALIZA A. VITUG, LEAN D. NARVADEZ, represented by his father MANUEL E.
NARVADEZ, JR., ROSERIO MARALAG LINGATING, represented by her father RIO OLIMPIO
A. LINGATING, MARIO JOSE B. TALJA, DAVID E. DE VERA, MARIA MILAGROS L. SAN
JOSE, SR., SUSAN O. BOLANIO, OND, LOLITA G. DEMONTEVERDE, BENJIE L.
NEQUINTO,1 ROSE LILIA S. ROMANO, ROBERTO S. VERZOLA, EDUARDO AURELIO C.
REYES, LEAN LOUEL A. PERIA, represented by his father ELPIDIO V. PERIA, 2 GREEN
FORUM PHILIPPINES, GREEN FORUM WESTERN VISAYAS, (GF-WV), ENVIRONMETAL
LEGAL ASSISTANCE CENTER (ELAC), PHILIPPINE KAISAHAN TUNGO SA KAUNLARAN
NG KANAYUNAN AT REPORMANG PANSAKAHAN (KAISAHAN), 3 KAISAHAN TUNGO SA
KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN (KAISAHAN),
PARTNERSHIP FOR AGRARIAN REFORM and RURAL DEVELOPMENT SERVICES, INC.
(PARRDS), PHILIPPINE PART`NERSHIP FOR THE DEVELOPMENT OF HUMAN RESOURCES
IN THE RURAL AREAS, INC. (PHILDHRRA), WOMEN'S LEGAL BUREAU (WLB), CENTER
FOR ALTERNATIVE DEVELOPMENT INITIATIVES, INC. (CADI), UPLAND DEVELOPMENT
INSTITUTE (UDI), KINAIYAHAN FOUNDATION, INC., SENTRO NG ALTERNATIBONG LINGAP
PANLIGAL (SALIGAN), LEGAL RIGHTS AND NATURAL RESOURCES CENTER, INC.
(LRC), petitioners,
vs.
VICTOR O. RAMOS, SECRETARY, DEPARTMENT OF ENVIRONMENT AND NATURAL
RESOURCES (DENR), HORACIO RAMOS, DIRECTOR, MINES AND GEOSCIENCES BUREAU
(MGB-DENR), RUBEN TORRES, EXECUTIVE SECRETARY, and WMC (PHILIPPINES),
INC.4 respondents.
DECISION
CARPIO-MORALES, J.:
The present petition for mandamus and prohibition assails the constitutionality of Republic Act No.
7942,5otherwise known as the PHILIPPINE MINING ACT OF 1995, along with the Implementing
Rules and Regulations issued pursuant thereto, Department of Environment and Natural
Resources (DENR) Administrative Order 96-40, and of the Financial and Technical Assistance
Agreement (FTAA) entered into on March 30, 1995 by the Republic of the Philippines and WMC
(Philippines), Inc. (WMCP), a corporation organized under Philippine laws.
On July 25, 1987, then President Corazon C. Aquino issued Executive Order (E.O.) No.
2796 authorizing the DENR Secretary to accept, consider and evaluate proposals from foreignowned corporations or foreign investors for contracts or agreements involving either technical or
financial assistance for large-scale exploration, development, and utilization of minerals, which,
upon appropriate recommendation of the Secretary, the President may execute with the foreign
proponent. In entering into such proposals, the President shall consider the real contributions to
the economic growth and general welfare of the country that will be realized, as well as the
development and use of local scientific and technical resources that will be promoted by the
proposed contract or agreement. Until Congress shall determine otherwise, large-scale mining, for
purpose of this Section, shall mean those proposals for contracts or agreements for mineral
resources exploration, development, and utilization involving a committed capital investment in a
single mining unit project of at least Fifty Million Dollars in United States Currency (US
$50,000,000.00).7
On March 3, 1995, then President Fidel V. Ramos approved R.A. No. 7942 to "govern the
exploration, development, utilization and processing of all mineral resources."8 R.A. No. 7942
defines the modes of mineral agreements for mining operations,9 outlines the procedure for their

filing and approval,10 assignment/transfer11and withdrawal,12 and fixes their terms.13 Similar
provisions govern financial or technical assistance agreements.14
The law prescribes the qualifications of contractors15 and grants them certain rights, including
timber,16 water17and easement18 rights, and the right to possess explosives.19 Surface owners,
occupants, or concessionaires are forbidden from preventing holders of mining rights from entering
private lands and concession areas.20 A procedure for the settlement of conflicts is likewise
provided for.21
The Act restricts the conditions for exploration,22 quarry23 and other24 permits. It regulates the
transport, sale and processing of minerals,25 and promotes the development of mining
communities, science and mining technology,26 and safety and environmental protection.27
The government's share in the agreements is spelled out and allocated,28 taxes and fees are
imposed,29incentives granted.30 Aside from penalizing certain acts,31 the law likewise specifies
grounds for the cancellation, revocation and termination of agreements and permits.32
On April 9, 1995, 30 days following its publication on March 10, 1995 in Malaya and Manila Times,
two newspapers of general circulation, R.A. No. 7942 took effect.33 Shortly before the effectivity of
R.A. No. 7942, however, or on March 30, 1995, the President entered into an FTAA with WMCP
covering 99,387 hectares of land in South Cotabato, Sultan Kudarat, Davao del Sur and North
Cotabato.34
On August 15, 1995, then DENR Secretary Victor O. Ramos issued DENR Administrative Order
(DAO) No. 95-23, s. 1995, otherwise known as the Implementing Rules and Regulations of R.A.
No. 7942. This was later repealed by DAO No. 96-40, s. 1996 which was adopted on December
20, 1996.
On January 10, 1997, counsels for petitioners sent a letter to the DENR Secretary demanding that
the DENR stop the implementation of R.A. No. 7942 and DAO No. 96-40,35 giving the DENR
fifteen days from receipt36 to act thereon. The DENR, however, has yet to respond or act on
petitioners' letter.37
Petitioners thus filed the present petition for prohibition and mandamus, with a prayer for a
temporary restraining order. They allege 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,38 64 of which
applications are by fully foreign-owned corporations covering a total of 5.8 million hectares, and at
least one by a fully foreign-owned mining company over offshore areas.39
Petitioners claim that the DENR Secretary acted without or in excess of jurisdiction:
I
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
Act No. 7942, the latter being unconstitutional in that it allows fully foreign owned corporations to
explore, develop, utilize and exploit mineral resources in a manner contrary to Section 2,
paragraph 4, Article XII of the Constitution;
II
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
Act No. 7942, the latter being unconstitutional in that it allows the taking of private property without
the determination of public use and for just compensation;

III
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
Act No. 7942, the latter being unconstitutional in that it violates Sec. 1, Art. III of the Constitution;
IV
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
Act No. 7942, the latter being unconstitutional in that it allows enjoyment by foreign citizens as well
as fully foreign owned corporations of the nation's marine wealth contrary to Section 2, paragraph
2 of Article XII of the Constitution;
V
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
Act No. 7942, the latter being unconstitutional in that it allows priority to foreign and fully foreign
owned corporations in the exploration, development and utilization of mineral resources contrary to
Article XII of the Constitution;
VI
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
Act No. 7942, the latter being unconstitutional in that it allows the inequitable sharing of wealth
contrary to Sections [sic] 1, paragraph 1, and Section 2, paragraph 4[,] [Article XII] of the
Constitution;
VII
x x x in recommending approval of and implementing the Financial and Technical Assistance
Agreement between the President of the Republic of the Philippines and Western Mining
Corporation Philippines Inc. because the same is illegal and unconstitutional.40
They pray that the Court issue an order:
(a) Permanently enjoining respondents from acting on any application for Financial or
Technical Assistance Agreements;
(b) Declaring the Philippine Mining Act of 1995 or Republic Act No. 7942 as
unconstitutional and null and void;

listed major Australian mining and exploration company."42 By WMCP's information, "it is a 100%
owned subsidiary of WMC LIMITED."43
Respondents, aside from meeting petitioners' contentions, argue that the requisites for judicial
inquiry have not been met and that the petition does not comply with the criteria for prohibition and
mandamus. Additionally, respondent WMCP argues that there has been a violation of the rule on
hierarchy of courts.
After petitioners filed their reply, this Court granted due course to the petition. The parties have
since filed their respective memoranda.
WMCP subsequently filed a Manifestation dated September 25, 2002 alleging that on January 23,
2001, WMC sold all its shares in WMCP to Sagittarius Mines, Inc. (Sagittarius), a corporation
organized under Philippine laws.44 WMCP was subsequently renamed "Tampakan Mineral
Resources Corporation."45 WMCP claims that at least 60% of the equity of Sagittarius is owned by
Filipinos and/or Filipino-owned corporations while about 40% is owned by Indophil Resources NL,
an Australian company.46 It further claims that by such sale and transfer of shares, "WMCP has
ceased to be connected in any way with WMC."47
By virtue of such sale and transfer, the DENR Secretary, by Order of December 18,
2001,48 approved the transfer and registration of the subject FTAA from WMCP to Sagittarius. Said
Order, however, was appealed by Lepanto Consolidated Mining Co. (Lepanto) to the Office of the
President which upheld it by Decision of July 23, 2002.49 Its motion for reconsideration having
been denied by the Office of the President by Resolution of November 12, 2002,50 Lepanto filed a
petition for review51 before the Court of Appeals. Incidentally, two other petitions for review related
to the approval of the transfer and registration of the FTAA to Sagittarius were recently resolved by
this Court.52
It bears stressing that this case has not been rendered moot either by the transfer and registration
of the FTAA to a Filipino-owned corporation or by the non-issuance of a temporary restraining
order or a preliminary injunction to stay the above-said July 23, 2002 decision of the Office of the
President.53 The validity of the transfer remains in dispute and awaits final judicial determination.
This assumes, of course, that such transfer cures the FTAA's alleged unconstitutionality, on which
question judgment is reserved.
WMCP also points out that the original claimowners of the major mineralized areas included in the
WMCP FTAA, namely, Sagittarius, Tampakan Mining Corporation, and Southcot Mining
Corporation, are all Filipino-owned corporations,54 each of which was a holder of an approved
Mineral Production Sharing Agreement awarded in 1994, albeit their respective mineral claims
were subsumed in the WMCP FTAA;55 and that these three companies are the same companies
that consolidated their interests in Sagittarius to whom WMC sold its 100% equity in
WMCP.56 WMCP concludes that in the event that the FTAA is invalidated, the MPSAs of the three
corporations would be revived and the mineral claims would revert to their original claimants. 57

(c) Declaring the Implementing Rules and Regulations of the Philippine Mining Act
contained in DENR Administrative Order No. 96-40 and all other similar administrative
issuances as unconstitutional and null and void; and

These circumstances, while informative, are hardly significant in the resolution of this case, it
involving the validity of the FTAA, not the possible consequences of its invalidation.

(d) Cancelling the Financial and Technical Assistance Agreement issued to Western
Mining Philippines, Inc. as unconstitutional, illegal and null and void.41

Of the above-enumerated seven grounds cited by petitioners, as will be shown later, only the first
and the last need be delved into; in the latter, the discussion shall dwell only insofar as it questions
the effectivity of E. O. No. 279 by virtue of which order the questioned FTAA was forged.

Impleaded as public respondents are Ruben Torres, the then Executive Secretary, Victor O.
Ramos, the then DENR Secretary, and Horacio Ramos, Director of the Mines and Geosciences
Bureau of the DENR. Also impleaded is private respondent WMCP, which entered into the assailed
FTAA with the Philippine Government. WMCP is owned by WMC Resources International Pty., Ltd.
(WMC), "a wholly owned subsidiary of Western Mining Corporation Holdings Limited, a publicly

I
Before going into the substantive issues, the procedural questions posed by respondents shall first
be tackled.

REQUISITES FOR JUDICIAL REVIEW

When an issue of constitutionality is raised, this Court can exercise its power of judicial review only
if the following requisites are present:

Public respondents' contention fails. The present action is not merely one for annulment of
contract but for prohibition and mandamus. Petitioners allege that public respondents acted
without or in excess of jurisdiction in implementing the FTAA, which they submit is unconstitutional.
As the case involves constitutional questions, this Court is not concerned with whether petitioners
are real parties in interest, but with whether they have legal standing. As held in Kilosbayan v.
Morato:72

(1) The existence of an actual and appropriate case;

(2) A personal and substantial interest of the party raising the constitutional question;
(3) The exercise of judicial review is pleaded at the earliest opportunity; and
(4) The constitutional question is the lis mota of the case.

58

Respondents claim that the first three requisites are not present.
Section 1, Article VIII of the Constitution states that "(j)udicial power includes the duty of the courts
of justice to settle actual controversies involving rights which are legally demandable and
enforceable." The power of judicial review, therefore, is limited to the determination of actual cases
and controversies.59
An actual case or controversy means an existing case or controversy that is appropriate or ripe for
determination, not conjectural or anticipatory,60 lest the decision of the court would amount to an
advisory opinion.61 The power does not extend to hypothetical questions62 since any attempt at
abstraction could only lead to dialectics and barren legal questions and to sterile conclusions
unrelated to actualities.63
"Legal standing" or locus standi has been defined as a personal and substantial interest in the
case such that the party has sustained or will sustain direct injury as a result of the governmental
act that is being challenged,64alleging more than a generalized grievance.65 The gist of the
question of standing is whether a party alleges "such personal stake in the outcome of the
controversy as to assure that concrete adverseness which sharpens the presentation of issues
upon which the court depends for illumination of difficult constitutional questions." 66Unless a
person is injuriously affected in any of his constitutional rights by the operation of statute or
ordinance, he has no standing.67
Petitioners traverse a wide range of sectors. Among them are La Bugal B'laan Tribal Association,
Inc., a farmers and indigenous people's cooperative organized under Philippine laws representing
a community actually affected by the mining activities of WMCP, members of said cooperative,68 as
well as other residents of areas also affected by the mining activities of WMCP.69 These petitioners
have standing to raise the constitutionality of the questioned FTAA as they allege a personal and
substantial injury. They claim that they would suffer "irremediable displacement" 70 as a result of the
implementation of the FTAA allowing WMCP to conduct mining activities in their area of residence.
They thus meet the appropriate case requirement as they assert an interest adverse to that of
respondents who, on the other hand, insist on the FTAA's validity.
In view of the alleged impending injury, petitioners also have standing to assail the validity of E.O.
No. 279, by authority of which the FTAA was executed.
Public respondents maintain that petitioners, being strangers to the FTAA, cannot sue either or
both contracting parties to annul it.71 In other words, they contend that petitioners are not real
parties in interest in an action for the annulment of contract.

x x x. "It is important to note . . . that standing because of its constitutional and public policy
underpinnings, is very different from questions relating to whether a particular plaintiff is the real
party in interest or has capacity to sue. Although all three requirements are directed towards
ensuring that only certain parties can maintain an action, standing restrictions require a partial
consideration of the merits, as well as broader policy concerns relating to the proper role of the
judiciary in certain areas.["] (FRIEDENTHAL, KANE AND MILLER, CIVIL PROCEDURE 328
[1985])
Standing is a special concern in constitutional law because in some cases suits are brought not by
parties who have been personally injured by the operation of a law or by official action taken, but
by concerned citizens, taxpayers or voters who actually sue in the public interest. Hence, the
question in standing is whether such parties have "alleged such a personal stake in the outcome
of the controversy as to assure that concrete adverseness which sharpens the presentation of
issues upon which the court so largely depends for illumination of difficult constitutional questions."
(Baker v. Carr, 369 U.S. 186, 7 L.Ed.2d 633 [1962].)
As earlier stated, petitioners meet this requirement.
The challenge against the constitutionality of R.A. No. 7942 and DAO No. 96-40 likewise fulfills the
requisites of justiciability. Although these laws were not in force when the subject FTAA was
entered into, the question as to their validity is ripe for adjudication.
The WMCP FTAA provides:
14.3 Future Legislation
Any term and condition more favourable to Financial &Technical Assistance Agreement contractors
resulting from repeal or amendment of any existing law or regulation or from the enactment of a
law, regulation or administrative order shall be considered a part of this Agreement.
It is undisputed that R.A. No. 7942 and DAO No. 96-40 contain provisions that are more favorable
to WMCP, hence, these laws, to the extent that they are favorable to WMCP, govern the FTAA.
In addition, R.A. No. 7942 explicitly makes certain provisions apply to pre-existing agreements.
SEC. 112. Non-impairment of Existing Mining/Quarrying Rights. x x x That the provisions of
Chapter XIV on government share in mineral production-sharing agreement and of Chapter XVI on
incentives of this Act shall immediately govern and apply to a mining lessee or contractor unless
the mining lessee or contractor indicates his intention to the secretary, in writing, not to avail of
said provisions x x x Provided, finally, That such leases, production-sharing agreements, financial
or technical assistance agreements shall comply with the applicable provisions of this Act and its
implementing rules and regulations.
As there is no suggestion that WMCP has indicated its intention not to avail of the provisions of
Chapter XVI of R.A. No. 7942, it can safely be presumed that they apply to the WMCP FTAA.

Misconstruing the application of the third requisite for judicial review that the exercise of the
review is pleaded at the earliest opportunity WMCP points out that the petition was filed only
almost two years after the execution of the FTAA, hence, not raised at the earliest opportunity.
The third requisite should not be taken to mean that the question of constitutionality must be
raised immediately after the execution of the state action complained of. That the question of
constitutionality has not been raised before is not a valid reason for refusing to allow it to be raised
later.73 A contrary rule would mean that a law, otherwise unconstitutional, would lapse into
constitutionality by the mere failure of the proper party to promptly file a case to challenge the
same.
PROPRIETY OF PROHIBITION AND MANDAMUS
Before the effectivity in July 1997 of the Revised Rules of Civil Procedure, Section 2 of Rule 65
read:

A becoming regard for judicial hierarchy most certainly indicates that petitions for the issuance of
extraordinary writs against first level ("inferior") courts should be filed with the Regional Trial Court,
and those against the latter, with the Court of Appeals. A direct invocation of the Supreme Court's
original jurisdiction to issue these writs should be allowed only where there are special and
important reasons therefor, clearly and specifically set out in the petition. This is established policy.
It is a policy necessary to prevent inordinate demands upon the Court's time and attention which
are better devoted to those matters within its exclusive jurisdiction, and to prevent further overcrowding of the Court's docket x x x.76 [Emphasis supplied.]
The repercussions of the issues in this case on the Philippine mining industry, if not the national
economy, as well as the novelty thereof, constitute exceptional and compelling circumstances to
justify resort to this Court in the first instance.
In all events, this Court has the discretion to take cognizance of a suit which does not satisfy the
requirements of an actual case or legal standing when paramount public interest is
involved.77 When the issues raised are of paramount importance to the public, this Court may
brush aside technicalities of procedure.78

SEC. 2. Petition for prohibition. When the proceedings of any tribunal, corporation, board, or
person, whether exercising functions judicial or ministerial, are without or in excess of its or his
jurisdiction, or with grave abuse of discretion, and there is no appeal or any other plain, speedy,
and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified
petition in the proper court alleging the facts with certainty and praying that judgment be rendered
commanding the defendant to desist from further proceeding in the action or matter specified
therein.

Petitioners contend that E.O. No. 279 did not take effect because its supposed date of effectivity
came after President Aquino had already lost her legislative powers under the Provisional
Constitution.

Prohibition is a preventive remedy.74 It seeks a judgment ordering the defendant to desist from
continuing with the commission of an act perceived to be illegal.75

And they likewise claim that the WMC FTAA, which was entered into pursuant to E.O. No. 279,
violates Section 2, Article XII of the Constitution because, among other reasons:

II

The petition for prohibition at bar is thus an appropriate remedy. While the execution of the
contract itself may be fait accompli, its implementation is not. Public respondents, in behalf of the
Government, have obligations to fulfill under said contract. Petitioners seek to prevent them from
fulfilling such obligations on the theory that the contract is unconstitutional and, therefore, void.

(1) It allows foreign-owned companies to extend more than mere financial or technical
assistance to the State in the exploitation, development, and utilization of minerals,
petroleum, and other mineral oils, and even permits foreign owned companies to
"operate and manage mining activities."

The propriety of a petition for prohibition being upheld, discussion of the propriety of the
mandamus aspect of the petition is rendered unnecessary.

(2) It allows foreign-owned companies to extend both technical and financial assistance,
instead of "either technical or financial assistance."

HIERARCHY OF COURTS
The contention that the filing of this petition violated the rule on hierarchy of courts does not
likewise lie. The rule has been explained thus:
Between two courts of concurrent original jurisdiction, it is the lower court that should initially pass
upon the issues of a case. That way, as a particular case goes through the hierarchy of courts, it is
shorn of all but the important legal issues or those of first impression, which are the proper subject
of attention of the appellate court. This is a procedural rule borne of experience and adopted to
improve the administration of justice.
This Court has consistently enjoined litigants to respect the hierarchy of courts. Although this Court
has concurrent jurisdiction with the Regional Trial Courts and the Court of Appeals to issue writs of
certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction, such concurrence
does not give a party unrestricted freedom of choice of court forum. The resort to this Court's
primary jurisdiction to issue said writs shall be allowed only where the redress desired cannot be
obtained in the appropriate courts or where exceptional and compelling circumstances justify such
invocation. We held in People v. Cuaresma that:

To appreciate the import of these issues, a visit to the history of the pertinent constitutional
provision, the concepts contained therein, and the laws enacted pursuant thereto, is in order.
Section 2, Article XII reads in full:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and utilization of natural 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-production, joint venture, or production-sharing agreements with
Filipino 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 exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and conditions as may be
provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses
other than the development of water power, beneficial use may be the measure and limit of the
grant.

The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as
well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers,
lakes, bays, and lagoons.
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions provided
by 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.
The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution.
THE SPANISH REGIME AND THE REGALIAN DOCTRINE
The first sentence of Section 2 embodies the Regalian doctrine or jura regalia. Introduced by
Spain into these Islands, this feudal concept is based on the State's power of dominium, which is
the capacity of the State to own or acquire property.79
In its broad sense, the term "jura regalia" refers to royal rights, or those rights which the King has
by virtue of his prerogatives. In Spanish law, it refers to a right which the sovereign has over
anything in which a subject has a right of property or propriedad. These were rights enjoyed during
feudal times by the king as the sovereign.
The theory of the feudal system was that title to all lands was originally held by the King, and while
the use of lands was granted out to others who were permitted to hold them under certain
conditions, the King theoretically retained the title. By fiction of law, the King was regarded as the
original proprietor of all lands, and the true and only source of title, and from him all lands were
held. The theory of jura regalia was therefore nothing more than a natural fruit of conquest.80
The Philippines having passed to Spain by virtue of discovery and conquest, 81 earlier Spanish
decrees declared that "all lands were held from the Crown."82
The Regalian doctrine extends not only to land but also to "all natural wealth that may be found in
the bowels of the earth."83 Spain, in particular, recognized the unique value of natural resources,
viewing them, especially minerals, as an abundant source of revenue to finance its wars against
other nations.84 Mining laws during the Spanish regime reflected this perspective.85
THE AMERICAN OCCUPATION AND THE CONCESSION REGIME
By the Treaty of Paris of December 10, 1898, Spain ceded "the archipelago known as the
Philippine Islands" to the United States. The Philippines was hence governed by means of organic
acts that were in the nature of charters serving as a Constitution of the occupied territory from
1900 to 1935.86 Among the principal organic acts of the Philippines was the Act of Congress of
July 1, 1902, more commonly known as the Philippine Bill of 1902, through which the United
States Congress assumed the administration of the Philippine Islands.87 Section 20 of said Bill
reserved the disposition of mineral lands of the public domain from sale. Section 21 thereof
allowed the free and open exploration, occupation and purchase of mineral deposits not only to
citizens of the Philippine Islands but to those of the United States as well:

Sec. 21. That all valuable mineral deposits in public lands in the Philippine Islands, both surveyed
and unsurveyed, are hereby declared to be free and open to exploration, occupation and
purchase, and the land in which they are found, to occupation and purchase, by citizens of the
United States or of said Islands: Provided, That when on any lands in said Islands entered and
occupied as agricultural lands under the provisions of this Act, but not patented, mineral deposits
have been found, the working of such mineral deposits is forbidden until the person, association,
or corporation who or which has entered and is occupying such lands shall have paid to the
Government of said Islands such additional sum or sums as will make the total amount paid for the
mineral claim or claims in which said deposits are located equal to the amount charged by the
Government for the same as mineral claims.
Unlike Spain, the United States considered natural resources as a source of wealth for its
nationals and saw fit to allow both Filipino and American citizens to explore and exploit minerals in
public lands, and to grant patents to private mineral lands.88 A person who acquired ownership
over a parcel of private mineral land pursuant to the laws then prevailing could exclude other
persons, even the State, from exploiting minerals within his property.89Thus, earlier
jurisprudence90 held that:
A valid and subsisting location of mineral land, made and kept up in accordance with the
provisions of the statutes of the United States, has the effect of a grant by the United States of the
present and exclusive possession of the lands located, and this exclusive right of possession and
enjoyment continues during the entire life of the location. x x x.
x x x.
The discovery of minerals in the ground by one who has a valid mineral location perfects his claim
and his location not only against third persons, but also against the Government. x x x. [Italics in
the original.]
The Regalian doctrine and the American system, therefore, differ in one essential respect. Under
the Regalian theory, mineral rights are not included in a grant of land by the state; under the
American doctrine, mineral rights are included in a grant of land by the government.91
Section 21 also made possible the concession (frequently styled "permit", license" or
"lease")92 system.93 This was the traditional regime imposed by the colonial administrators for the
exploitation of natural resources in the extractive sector (petroleum, hard minerals, timber, etc.).94
Under the concession system, the concessionaire makes a direct equity investment for the
purpose of exploiting a particular natural resource within a given area.95 Thus, the concession
amounts to complete control by the concessionaire over the country's natural resource, for it is
given exclusive and plenary rights to exploit a particular resource at the point of extraction.96 In
consideration for the right to exploit a natural resource, the concessionaire either pays rent or
royalty, which is a fixed percentage of the gross proceeds. 97
Later statutory enactments by the legislative bodies set up in the Philippines adopted the
contractual framework of the concession.98 For instance, Act No. 2932,99 approved on August 31,
1920, which provided for the exploration, location, and lease of lands containing petroleum and
other mineral oils and gas in the Philippines, and Act No. 2719,100 approved on May 14, 1917,
which provided for the leasing and development of coal lands in the Philippines, both utilized the
concession system.101
THE 1935 CONSTITUTION AND THE NATIONALIZATION OF NATURAL RESOURCES
By the Act of United States Congress of March 24, 1934, popularly known as the Tydings-McDuffie
Law, the People of the Philippine Islands were authorized to adopt a constitution.102 On July 30,

1934, the Constitutional Convention met for the purpose of drafting a constitution, and the
Constitution subsequently drafted was approved by the Convention on February 8, 1935.103 The
Constitution was submitted to the President of the United States on March 18, 1935.104 On March
23, 1935, the President of the United States certified that the Constitution conformed substantially
with the provisions of the Act of Congress approved on March 24, 1934.105On May 14, 1935, the
Constitution was ratified by the Filipino people.106
The 1935 Constitution adopted the Regalian doctrine, declaring all natural resources of the
Philippines, including mineral lands and minerals, to be property belonging to the State.107 As
adopted in a republican system, the medieval concept of jura regalia is stripped of royal overtones
and ownership of the land is vested in the State.108
Section 1, Article XIII, on Conservation and Utilization of Natural Resources, of the 1935
Constitution provided:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all forces of potential energy, and other
natural resources of the Philippines belong to the State, and their disposition,
exploitation, development, or utilization shall be limited to citizens of the Philippines, or
to corporations or associations at least sixty per centum of the capital of which is owned
by such citizens, subject to any existing right, grant, lease, or concession at the time of
the inauguration of the Government established under this Constitution. Natural
resources, with the exception of public agricultural land, shall not be alienated, and no
license, concession, or lease for the exploitation, development, or utilization of any of
the natural resources shall be granted for a period exceeding twenty-five years, except
as to water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, in which cases beneficial use may be the measure and the
limit of the grant.
The nationalization and conservation of the natural resources of the country was one of the fixed
and dominating objectives of the 1935 Constitutional Convention.109 One delegate relates:
There was an overwhelming sentiment in the Convention in favor of the principle of state
ownership of natural resources and the adoption of the Regalian doctrine. State ownership of
natural resources was seen as a necessary starting point to secure recognition of the state's
power to control their disposition, exploitation, development, or utilization. The delegates of the
Constitutional Convention very well knew that the concept of State ownership of land and natural
resources was introduced by the Spaniards, however, they were not certain whether it was
continued and applied by the Americans. To remove all doubts, the Convention approved the
provision in the Constitution affirming the Regalian doctrine.
The adoption of the principle of state ownership of the natural resources and of the Regalian
doctrine was considered to be a necessary starting point for the plan of nationalizing and
conserving the natural resources of the country. For with the establishment of the principle of state
ownership of the natural resources, it would not be hard to secure the recognition of the power of
the State to control their disposition, exploitation, development or utilization.110
The nationalization of the natural resources was intended (1) to insure their conservation for
Filipino posterity; (2) to serve as an instrument of national defense, helping prevent the extension
to the country of foreign control through peaceful economic penetration; and (3) to avoid making
the Philippines a source of international conflicts with the consequent danger to its internal security
and independence.111
The same Section 1, Article XIII also adopted the concession system, expressly permitting the
State to grant licenses, concessions, or leases for the exploitation, development, or utilization of

any of the natural resources. Grants, however, were limited to Filipinos or entities at least 60% of
the capital of which is owned by Filipinos.lawph!l.ne+
The swell of nationalism that suffused the 1935 Constitution was radically diluted when on
November 1946, the Parity Amendment, which came in the form of an "Ordinance Appended to
the Constitution," was ratified in a plebiscite.112 The Amendment extended, from July 4, 1946 to
July 3, 1974, the right to utilize and exploit our natural resources to citizens of the United States
and business enterprises owned or controlled, directly or indirectly, by citizens of the United
States:113
Notwithstanding the provision of section one, Article Thirteen, and section eight, Article Fourteen,
of the foregoing Constitution, during the effectivity of the Executive Agreement entered into by the
President of the Philippines with the President of the United States on the fourth of July, nineteen
hundred and forty-six, pursuant to the provisions of Commonwealth Act Numbered Seven hundred
and thirty-three, but in no case to extend beyond the third of July, nineteen hundred and seventyfour, the disposition, exploitation, development, and utilization of all agricultural, timber, and
mineral lands of the public domain, waters, minerals, coals, petroleum, and other mineral oils, all
forces and sources of potential energy, and other natural resources of the Philippines, and the
operation of public utilities, shall, if open to any person, be open to citizens of the United States
and to all forms of business enterprise owned or controlled, directly or indirectly, by citizens of the
United States in the same manner as to, and under the same conditions imposed upon, citizens of
the Philippines or corporations or associations owned or controlled by citizens of the Philippines.
The Parity Amendment was subsequently modified by the 1954 Revised Trade Agreement, also
known as the Laurel-Langley Agreement, embodied in Republic Act No. 1355.114
THE PETROLEUM ACT OF 1949 AND THE CONCESSION SYSTEM
In the meantime, Republic Act No. 387,115 also known as the Petroleum Act of 1949, was approved
on June 18, 1949.
The Petroleum Act of 1949 employed the concession system for the exploitation of the nation's
petroleum resources. Among the kinds of concessions it sanctioned were exploration and
exploitation concessions, which respectively granted to the concessionaire the exclusive right to
explore for116 or develop117 petroleum within specified areas.
Concessions may be granted only to duly qualified persons118 who have sufficient finances,
organization, resources, technical competence, and skills necessary to conduct the operations to
be undertaken.119
Nevertheless, the Government reserved the right to undertake such work itself.120 This proceeded
from the theory that all natural deposits or occurrences of petroleum or natural gas in public and/or
private lands in the Philippines belong to the State.121 Exploration and exploitation concessions did
not confer upon the concessionaire ownership over the petroleum lands and petroleum
deposits.122 However, they did grant concessionaires the right to explore, develop, exploit, and
utilize them for the period and under the conditions determined by the law.123
Concessions were granted at the complete risk of the concessionaire; the Government did not
guarantee the existence of petroleum or undertake, in any case, title warranty.124
Concessionaires were required to submit information as maybe required by the Secretary of
Agriculture and Natural Resources, including reports of geological and geophysical examinations,
as well as production reports.125 Exploration126 and exploitation127 concessionaires were also
required to submit work programs.lavvphi1.net

Exploitation concessionaires, in particular, were obliged to pay an annual exploitation tax,128 the
object of which is to induce the concessionaire to actually produce petroleum, and not simply to sit
on the concession without developing or exploiting it.129 These concessionaires were also bound to
pay the Government royalty, which was not less than 12% of the petroleum produced and saved,
less that consumed in the operations of the concessionaire.130 Under Article 66, R.A. No. 387, the
exploitation tax may be credited against the royalties so that if the concessionaire shall be actually
producing enough oil, it would not actually be paying the exploitation tax.131
Failure to pay the annual exploitation tax for two consecutive years,132 or the royalty due to the
Government within one year from the date it becomes due,133 constituted grounds for the
cancellation of the concession. In case of delay in the payment of the taxes or royalty imposed by
the law or by the concession, a surcharge of 1% per month is exacted until the same are paid.134
As a rule, title rights to all equipment and structures that the concessionaire placed on the land
belong to the exploration or exploitation concessionaire.135 Upon termination of such concession,
the concessionaire had a right to remove the same.136
The Secretary of Agriculture and Natural Resources was tasked with carrying out the provisions of
the law, through the Director of Mines, who acted under the Secretary's immediate supervision and
control.137 The Act granted the Secretary the authority to inspect any operation of the
concessionaire and to examine all the books and accounts pertaining to operations or conditions
related to payment of taxes and royalties.138
The same law authorized the Secretary to create an Administration Unit and a Technical
Board.139 The Administration Unit was charged, inter alia, with the enforcement of the provisions of
the law.140 The Technical Board had, among other functions, the duty to check on the performance
of concessionaires and to determine whether the obligations imposed by the Act and its
implementing regulations were being complied with.141
Victorio Mario A. Dimagiba, Chief Legal Officer of the Bureau of Energy Development, analyzed
the benefits and drawbacks of the concession system insofar as it applied to the petroleum
industry:
Advantages of Concession. Whether it emphasizes income tax or royalty, the most positive aspect
of the concession system is that the State's financial involvement is virtually risk free and
administration is simple and comparatively low in cost. Furthermore, if there is a competitive
allocation of the resource leading to substantial bonuses and/or greater royalty coupled with a
relatively high level of taxation, revenue accruing to the State under the concession system may
compare favorably with other financial arrangements.
Disadvantages of Concession. There are, however, major negative aspects to this system.
Because the Government's role in the traditional concession is passive, it is at a distinct
disadvantage in managing and developing policy for the nation's petroleum resource. This is true
for several reasons. First, even though most concession agreements contain covenants requiring
diligence in operations and production, this establishes only an indirect and passive control of the
host country in resource development. Second, and more importantly, the fact that the host
country does not directly participate in resource management decisions inhibits its ability to train
and employ its nationals in petroleum development. This factor could delay or prevent the country
from effectively engaging in the development of its resources. Lastly, a direct role in management
is usually necessary in order to obtain a knowledge of the international petroleum industry which is
important to an appreciation of the host country's resources in relation to those of other
countries.142
Other liabilities of the system have also been noted:

x x x there are functional implications which give the concessionaire great economic power arising
from its exclusive equity holding. This includes, first, appropriation of the returns of the
undertaking, subject to a modest royalty; second, exclusive management of the project; third,
control of production of the natural resource, such as volume of production, expansion, research
and development; and fourth, exclusive responsibility for downstream operations, like processing,
marketing, and distribution. In short, even if nominally, the state is the sovereign and owner of the
natural resource being exploited, it has been shorn of all elements of control over such natural
resource because of the exclusive nature of the contractual regime of the concession. The
concession system, investing as it does ownership of natural resources, constitutes a consistent
inconsistency with the principle embodied in our Constitution that natural resources belong to the
state and shall not be alienated, not to mention the fact that the concession was the bedrock of the
colonial system in the exploitation of natural resources.143
Eventually, the concession system failed for reasons explained by Dimagiba:
Notwithstanding the good intentions of the Petroleum Act of 1949, the concession system could
not have properly spurred sustained oil exploration activities in the country, since it assumed that
such a capital-intensive, high risk venture could be successfully undertaken by a single individual
or a small company. In effect, concessionaires' funds were easily exhausted. Moreover, since the
concession system practically closed its doors to interested foreign investors, local capital was
stretched to the limits. The old system also failed to consider the highly sophisticated technology
and expertise required, which would be available only to multinational companies.144
A shift to a new regime for the development of natural resources thus seemed imminent.
PRESIDENTIAL DECREE NO. 87, THE 1973 CONSTITUTION AND THE SERVICE CONTRACT
SYSTEM
The promulgation on December 31, 1972 of Presidential Decree No. 87,145 otherwise known as
The Oil Exploration and Development Act of 1972 signaled such a transformation. P.D. No. 87
permitted the government to explore for and produce indigenous petroleum through "service
contracts."146
"Service contracts" is a term that assumes varying meanings to different people, and it has carried
many names in different countries, like "work contracts" in Indonesia, "concession agreements" in
Africa, "production-sharing agreements" in the Middle East, and "participation agreements" in Latin
America.147 A functional definition of "service contracts" in the Philippines is provided as follows:
A service contract is a contractual arrangement for engaging in the exploitation and development
of petroleum, mineral, energy, land and other natural resources by which a government or its
agency, or a private person granted a right or privilege by the government authorizes the other
party (service contractor) to engage or participate in the exercise of such right or the enjoyment of
the privilege, in that the latter provides financial or technical resources, undertakes the exploitation
or production of a given resource, or directly manages the productive enterprise, operations of the
exploration and exploitation of the resources or the disposition of marketing or resources.148
In a service contract under P.D. No. 87, service and technology are furnished by the service
contractor for which it shall be entitled to the stipulated service fee.149 The contractor must be
technically competent and financially capable to undertake the operations required in the
contract.150
Financing is supposed to be provided by the Government to which all petroleum produced
belongs.151 In case the Government is unable to finance petroleum exploration operations, the
contractor may furnish services, technology and financing, and the proceeds of sale of the
petroleum produced under the contract shall be the source of funds for payment of the service fee

and the operating expenses due the contractor.152 The contractor shall undertake, manage and
execute petroleum operations, subject to the government overseeing the management of the
operations.153 The contractor provides all necessary services and technology and the requisite
financing, performs the exploration work obligations, and assumes all exploration risks such that if
no petroleum is produced, it will not be entitled to reimbursement.154 Once petroleum in
commercial quantity is discovered, the contractor shall operate the field on behalf of the
government.155
P.D. No. 87 prescribed minimum terms and conditions for every service contract.156 It also granted
the contractor certain privileges, including exemption from taxes and payment of tariff
duties,157 and permitted the repatriation of capital and retention of profits abroad.158
Ostensibly, the service contract system had certain advantages over the concession regime.159 It
has been opined, though, that, in the Philippines, our concept of a service contract, at least in the
petroleum industry, was basically a concession regime with a production-sharing element.160
On January 17, 1973, then President Ferdinand E. Marcos proclaimed the ratification of a new
Constitution.161Article XIV on the National Economy and Patrimony contained provisions similar to
the 1935 Constitution with regard to Filipino participation in the nation's natural resources. Section
8, Article XIV thereof provides:
Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all
forces of potential energy, fisheries, wildlife, and other natural resources of the Philippines belong
to the State. With the exception of agricultural, industrial or commercial, residential and
resettlement lands of the public domain, natural resources shall not be alienated, and no license,
concession, or lease for the exploration, development, exploitation, or utilization of any of the
natural resources shall be granted for a period exceeding twenty-five years, renewable for not
more than twenty-five years, except as to water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of water power, in which cases beneficial use may be
the measure and the limit of the grant.
While Section 9 of the same Article maintained the Filipino-only policy in the enjoyment of natural
resources, it also allowed Filipinos, upon authority of the Batasang Pambansa, to enter into
service contracts with any person or entity for the exploration or utilization of natural resources.
Sec. 9. The disposition, exploration, development, exploitation, or utilization of any of the natural
resources of the Philippines shall be limited to citizens, or to corporations or associations at least
sixty per centum of which is owned by such citizens. The Batasang Pambansa, in the national
interest, may allow such citizens, corporations or associations to enter into service contracts for
financial, technical, management, or other forms of assistance with any person or entity for the
exploration, or utilization of any of the natural resources. Existing valid and binding service
contracts for financial, technical, management, or other forms of assistance are hereby recognized
as such. [Emphasis supplied.]
The concept of service contracts, according to one delegate, was borrowed from the methods
followed by India, Pakistan and especially Indonesia in the exploration of petroleum and mineral
oils.162 The provision allowing such contracts, according to another, was intended to "enhance the
proper development of our natural resources since Filipino citizens lack the needed capital and
technical know-how which are essential in the proper exploration, development and exploitation of
the natural resources of the country."163
The original idea was to authorize the government, not private entities, to enter into service
contracts with foreign entities.164 As finally approved, however, a citizen or private entity could be
allowed by the National Assembly to enter into such service contract.165 The prior approval of the
National Assembly was deemed sufficient to protect the national interest. 166 Notably, none of the

laws allowing service contracts were passed by the Batasang Pambansa. Indeed, all of them were
enacted by presidential decree.
On March 13, 1973, shortly after the ratification of the new Constitution, the President promulgated
Presidential Decree No. 151.167 The law allowed Filipino citizens or entities which have acquired
lands of the public domain or which own, hold or control such lands to enter into service contracts
for financial, technical, management or other forms of assistance with any foreign persons or entity
for the exploration, development, exploitation or utilization of said lands.168
Presidential Decree No. 463,169 also known as The Mineral Resources Development Decree of
1974, was enacted on May 17, 1974. Section 44 of the decree, as amended, provided that a
lessee of a mining claim may enter into a service contract with a qualified domestic or foreign
contractor for the exploration, development and exploitation of his claims and the processing and
marketing of the product thereof.
Presidential Decree No. 704170 (The Fisheries Decree of 1975), approved on May 16, 1975,
allowed Filipinos engaged in commercial fishing to enter into contracts for financial, technical or
other forms of assistance with any foreign person, corporation or entity for the production, storage,
marketing and processing of fish and fishery/aquatic products.171
Presidential Decree No. 705172 (The Revised Forestry Code of the Philippines), approved on May
19, 1975, allowed "forest products licensees, lessees, or permitees to enter into service contracts
for financial, technical, management, or other forms of assistance . . . with any foreign person or
entity for the exploration, development, exploitation or utilization of the forest resources."173
Yet another law allowing service contracts, this time for geothermal resources, was Presidential
Decree No. 1442,174 which was signed into law on June 11, 1978. Section 1 thereof authorized the
Government to enter into service contracts for the exploration, exploitation and development of
geothermal resources with a foreign contractor who must be technically and financially capable of
undertaking the operations required in the service contract.
Thus, virtually the entire range of the country's natural resources from petroleum and minerals to
geothermal energy, from public lands and forest resources to fishery products was well covered
by apparent legal authority to engage in the direct participation or involvement of foreign persons
or corporations (otherwise disqualified) in the exploration and utilization of natural resources
through service contracts.175
THE 1987 CONSTITUTION AND TECHNICAL OR FINANCIAL ASSISTANCE AGREEMENTS
After the February 1986 Edsa Revolution, Corazon C. Aquino took the reins of power under a
revolutionary government. On March 25, 1986, President Aquino issued Proclamation No.
3,176 promulgating the Provisional Constitution, more popularly referred to as the Freedom
Constitution. By authority of the same Proclamation, the President created a Constitutional
Commission (CONCOM) to draft a new constitution, which took effect on the date of its ratification
on February 2, 1987.177
The 1987 Constitution retained the Regalian doctrine. The first sentence of Section 2, Article XII
states: "All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State."
Like the 1935 and 1973 Constitutions before it, the 1987 Constitution, in the second sentence of
the same provision, prohibits the alienation of natural resources, except agricultural lands.

The third sentence of the same paragraph is new: "The exploration, development and utilization of
natural resources shall be under the full control and supervision of the State." The constitutional
policy of the State's "full control and supervision" over natural resources proceeds from the
concept of jura regalia, as well as the recognition of the importance of the country's natural
resources, not only for national economic development, but also for its security and national
defense.178 Under this provision, the State assumes "a more dynamic role" in the exploration,
development and utilization of natural resources.179
Conspicuously absent in Section 2 is the provision in the 1935 and 1973 Constitutions authorizing
the State to grant licenses, concessions, or leases for the exploration, exploitation, development,
or utilization of natural resources. By such omission, the utilization of inalienable lands of public
domain through "license, concession or lease" is no longer allowed under the 1987 Constitution. 180
Having omitted the provision on the concession system, Section 2 proceeded to introduce
"unfamiliar language":181
The State may directly undertake such activities or it may enter into co-production, joint venture, or
production-sharing agreements with Filipino citizens, or corporations or associations at least sixty
per centum of whose capital is owned by such citizens.
Consonant with the State's "full supervision and control" over natural resources, Section 2 offers
the State two "options."182 One, the State may directly undertake these activities itself; or two, it
may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens,
or entities at least 60% of whose capital is owned by such citizens.
A third option is found in the third paragraph of the same section:
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as
well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers,
lakes, bays, and lagoons.
While the second and third options are limited only to Filipino citizens or, in the case of the former,
to corporations or associations at least 60% of the capital of which is owned by Filipinos, a fourth
allows the participation of foreign-owned corporations. The fourth and fifth paragraphs of Section 2
provide:
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions provided
by 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.
The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution.
Although Section 2 sanctions the participation of foreign-owned corporations in the exploration,
development, and utilization of natural resources, it imposes certain limitations or conditions to
agreements with such corporations.
First, the parties to FTAAs. Only the President, in behalf of the State, may enter into
these agreements, and only with corporations. By contrast, under the 1973 Constitution,
a Filipino citizen, corporation or association may enter into a service contract with a
"foreign person or entity."

Second, the size of the activities: only large-scale exploration, development, and
utilization is allowed. The term "large-scale usually refers to very capital-intensive
activities."183
Third, the natural resources subject of the activities is restricted to minerals, petroleum
and other mineral oils, the intent being to limit service contracts to those areas where
Filipino capital may not be sufficient.184
Fourth, consistency with the provisions of statute. The agreements must be in
accordance with the terms and conditions provided by law.
Fifth, Section 2 prescribes certain standards for entering into such agreements. The
agreements must be based on real contributions to economic growth and general
welfare of the country.
Sixth, the agreements must contain rudimentary stipulations for the promotion of the
development and use of local scientific and technical resources.
Seventh, the notification requirement. The President shall notify Congress of every
financial or technical assistance agreement entered into within thirty days from its
execution.
Finally, the scope of the agreements. While the 1973 Constitution referred to "service
contracts for financial, technical, management, or other forms of assistance" the 1987
Constitution provides for "agreements. . . involving either financial or technical
assistance." It bears noting that the phrases "service contracts" and "management or
other forms of assistance" in the earlier constitution have been omitted.
By virtue of her legislative powers under the Provisional Constitution,185 President Aquino, on July
10, 1987, signed into law E.O. No. 211 prescribing the interim procedures in the processing and
approval of applications for the exploration, development and utilization of minerals. The omission
in the 1987 Constitution of the term "service contracts" notwithstanding, the said E.O. still referred
to them in Section 2 thereof:
Sec. 2. Applications for the exploration, development and utilization of mineral resources, including
renewal applications and applications for approval of operating agreements and mining service
contracts, shall be accepted and processed and may be approved x x x. [Emphasis supplied.]
The same law provided in its Section 3 that the "processing, evaluation and approval of all mining
applications . . . operating agreements and service contracts . . . shall be governed by Presidential
Decree No. 463, as amended, other existing mining laws, and their implementing rules and
regulations. . . ."
As earlier stated, on the 25th also of July 1987, the President issued E.O. No. 279 by authority of
which the subject WMCP FTAA was executed on March 30, 1995.
On March 3, 1995, President Ramos signed into law R.A. No. 7942. Section 15 thereof declares
that the Act "shall govern the exploration, development, utilization, and processing of all mineral
resources." Such declaration notwithstanding, R.A. No. 7942 does not actually cover all the modes
through which the State may undertake the exploration, development, and utilization of natural
resources.

The State, being the owner of the natural resources, is accorded the primary power and
responsibility in the exploration, development and utilization thereof. As such, it may undertake
these activities through four modes:

financial capability to undertake mineral resources development and duly registered in accordance
with law at least sixty per centum (60%) of the capital of which is owned by citizens of the
Philippines x x x.206

The State may directly undertake such activities.

The fourth mode involves "financial or technical assistance agreements." An FTAA is defined as "a
contract involving financial or technical assistance for large-scale exploration, development, and
utilization of natural resources."207 Any qualified person with technical and financial capability to
undertake large-scale exploration, development, and utilization of natural resources in the
Philippines may enter into such agreement directly with the Government through the DENR.208 For
the purpose of granting an FTAA, a legally organized foreign-owned corporation (any corporation,
partnership, association, or cooperative duly registered in accordance with law in which less than
50% of the capital is owned by Filipino citizens)209 is deemed a "qualified person."210

(2) The State may enter into co-production, joint venture or production-sharing
agreements with Filipino citizens or qualified corporations.
(3) Congress may, by law, allow small-scale utilization of natural resources by Filipino
citizens.
(4) For the large-scale exploration, development and utilization of minerals, petroleum
and other mineral oils, the President may enter into agreements with foreign-owned
corporations involving technical or financial assistance. 186
Except to charge the Mines and Geosciences Bureau of the DENR with performing researches
and surveys,187and a passing mention of government-owned or controlled corporations,188 R.A. No.
7942 does not specify how the State should go about the first mode. The third mode, on the other
hand, is governed by Republic Act No. 7076189 (the People's Small-Scale Mining Act of 1991) and
other pertinent laws.190 R.A. No. 7942 primarily concerns itself with the second and fourth modes.
Mineral production sharing, co-production and joint venture agreements are collectively classified
by R.A. No. 7942 as "mineral agreements."191 The Government participates the least in a mineral
production sharing agreement (MPSA). In an MPSA, the Government grants the contractor192 the
exclusive right to conduct mining operations within a contract area193 and shares in the gross
output.194 The MPSA contractor provides the financing, technology, management and personnel
necessary for the agreement's implementation.195 The total government share in an MPSA is the
excise tax on mineral products under Republic Act No. 7729,196 amending Section 151(a) of the
National Internal Revenue Code, as amended.197

Other than the difference in contractors' qualifications, the principal distinction between mineral
agreements and FTAAs is the maximum contract area to which a qualified person may hold or be
granted.211 "Large-scale" under R.A. No. 7942 is determined by the size of the contract area, as
opposed to the amount invested (US $50,000,000.00), which was the standard under E.O. 279.
Like a CA or a JVA, an FTAA is subject to negotiation.212 The Government's contributions, in the
form of taxes, in an FTAA is identical to its contributions in the two mineral agreements, save that
in an FTAA:
The collection of Government share in financial or technical assistance agreement shall
commence after the financial or technical assistance agreement contractor has fully recovered its
pre-operating expenses, exploration, and development expenditures, inclusive.213
III
Having examined the history of the constitutional provision and statutes enacted pursuant thereto,
a consideration of the substantive issues presented by the petition is now in order.

In a co-production agreement (CA),198 the Government provides inputs to the mining operations
other than the mineral resource,199 while in a joint venture agreement (JVA), where the
Government enjoys the greatest participation, the Government and the JVA contractor organize a
company with both parties having equity shares.200 Aside from earnings in equity, the Government
in a JVA is also entitled to a share in the gross output.201 The Government may enter into a
CA202 or JVA203 with one or more contractors. The Government's share in a CA or JVA is set out in
Section 81 of the law:

Petitioners argue that E.O. No. 279, the law in force when the WMC FTAA was executed, did not
come into effect.

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

SECTION 1. Laws shall take effect after fifteen days following the completion of their publication
either in the Official Gazette or in a newspaper of general circulation in the Philippines, unless it is
otherwise provided.216[Emphasis supplied.]

All mineral agreements grant the respective contractors the exclusive right to conduct mining
operations and to extract all mineral resources found in the contract area.204 A "qualified person"
may enter into any of the mineral agreements with the Government.205 A "qualified person" is
any citizen of the Philippines with capacity to contract, or a corporation, partnership, association,
or cooperative organized or authorized for the purpose of engaging in mining, with technical and

THE EFFECTIVITY OF EXECUTIVE ORDER NO. 279

E.O. No. 279 was signed into law by then President Aquino on July 25, 1987, two days before the
opening of Congress on July 27, 1987.214 Section 8 of the E.O. states that the same "shall take
effect immediately." This provision, according to petitioners, runs counter to Section 1 of E.O. No.
200,215 which provides:

On that premise, petitioners contend that E.O. No. 279 could have only taken effect fifteen days
after its publication at which time Congress had already convened and the President's power to
legislate had ceased.
Respondents, on the other hand, counter that the validity of E.O. No. 279 was settled in Miners
Association of the Philippines v. Factoran, supra. This is of course incorrect for the issue in Miners
Association was not the validity of E.O. No. 279 but that of DAO Nos. 57 and 82 which were
issued pursuant thereto.

Nevertheless, petitioners' contentions have no merit.

It bears noting that there is nothing in E.O. No. 200 that prevents a law from taking effect on a date
other than even before the 15-day period after its publication. Where a law provides for its own
date of effectivity, such date prevails over that prescribed by E.O. No. 200. Indeed, this is the very
essence of the phrase "unless it is otherwise provided" in Section 1 thereof. Section 1, E.O. No.
200, therefore, applies only when a statute does not provide for its own date of effectivity.
What is mandatory under E.O. No. 200, and what due process requires, as this Court held in
Taada v. Tuvera,217 is the publication of the law for without such notice and publication, there
would be no basis for the application of the maxim "ignorantia legis n[eminem] excusat." It would
be the height of injustice to punish or otherwise burden a citizen for the transgression of a law of
which he had no notice whatsoever, not even a constructive one.
While the effectivity clause of E.O. No. 279 does not require its publication, it is not a ground for its
invalidation since the Constitution, being "the fundamental, paramount and supreme law of the
nation," is deemed written in the law.218 Hence, the due process clause,219 which, so Taada held,
mandates the publication of statutes, is read into Section 8 of E.O. No. 279. Additionally, Section 1
of E.O. No. 200 which provides for publication "either in the Official Gazette or in a newspaper of
general circulation in the Philippines," finds suppletory application. It is significant to note that E.O.
No. 279 was actually published in the Official Gazette220 on August 3, 1987.
From a reading then of Section 8 of E.O. No. 279, Section 1 of E.O. No. 200, and Taada v.
Tuvera, this Court holds that E.O. No. 279 became effective immediately upon its publication in the
Official Gazette on August 3, 1987.
That such effectivity took place after the convening of the first Congress is irrelevant. At the time
President Aquino issued E.O. No. 279 on July 25, 1987, she was still validly exercising legislative
powers under the Provisional Constitution.221 Article XVIII (Transitory Provisions) of the 1987
Constitution explicitly states:
Sec. 6. The incumbent President shall continue to exercise legislative powers until the first
Congress is convened.

postulate that the framers and the people mean what they say.225 Accordingly, following the literal
text of the Constitution, assistance accorded by foreign-owned corporations in the large-scale
exploration, development, and utilization of petroleum, minerals and mineral oils should be limited
to "technical" or "financial" assistance only.
WMCP nevertheless submits that the word "technical" in the fourth paragraph of Section 2 of E.O.
No. 279 encompasses a "broad number of possible services," perhaps, "scientific and/or
technological in basis."226 It thus posits that it may also well include "the area of management or
operations . . . so long as such assistance requires specialized knowledge or skills, and are related
to the exploration, development and utilization of mineral resources."227
This Court is not persuaded. As priorly pointed out, the phrase "management or other forms of
assistance" in the 1973 Constitution was deleted in the 1987 Constitution, which allows only
"technical or financial assistance." Casus omisus pro omisso habendus est. A person, object or
thing omitted from an enumeration must be held to have been omitted intentionally.228 As will be
shown later, the management or operation of mining activities by foreign contractors, which is the
primary feature of service contracts, was precisely the evil that the drafters of the 1987
Constitution sought to eradicate.
Respondents insist that "agreements involving technical or financial assistance" is just another
term for service contracts. They contend that the proceedings of the CONCOM indicate "that
although the terminology 'service contract' was avoided [by the Constitution], the concept it
represented was not." They add that "[t]he concept is embodied in the phrase 'agreements
involving financial or technical assistance.'"229 And point out how members of the CONCOM
referred to these agreements as "service contracts." For instance:
SR. TAN. Am I correct in thinking that the only difference between these future service
contracts and the past service contracts under Mr. Marcos is the general law to be
enacted by the legislature and the notification of Congress by the President? That is the
only difference, is it not?
MR. VILLEGAS. That is right.
SR. TAN. So those are the safeguards[?]

The convening of the first Congress merely precluded the exercise of legislative powers by
President Aquino; it did not prevent the effectivity of laws she had previously enacted.
There can be no question, therefore, that E.O. No. 279 is an effective, and a validly enacted,
statute.
THE CONSTITUTIONALITY OF THE WMCP FTAA
Petitioners submit that, in accordance with the text of Section 2, Article XII of the Constitution,
FTAAs should be limited to "technical or financial assistance" only. They observe, however, that,
contrary to the language of the Constitution, the WMCP FTAA allows WMCP, a fully foreign-owned
mining corporation, to extend more than mere financial or technical assistance to the State, for it
permits WMCP to manage and operate every aspect of the mining activity. 222
Petitioners' submission is well-taken. It is a cardinal rule in the interpretation of constitutions that
the instrument must be so construed as to give effect to the intention of the people who adopted
it.223 This intention is to be sought in the constitution itself, and the apparent meaning of the words
is to be taken as expressing it, except in cases where that assumption would lead to absurdity,
ambiguity, or contradiction.224 What the Constitution says according to the text of the provision,
therefore, compels acceptance and negates the power of the courts to alter it, based on the

MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
SR. TAN. Thank you, Madam President.230 [Emphasis supplied.]
WMCP also cites the following statements of Commissioners Gascon, Garcia, Nolledo
and Tadeo who alluded to service contracts as they explained their respective votes in
the approval of the draft Article:
MR. GASCON. Mr. Presiding Officer, I vote no primarily because of two reasons: One,
the provision on service contracts. I felt that if we would constitutionalize any provision
on service contracts, this should always be with the concurrence of Congress and not
guided only by a general law to be promulgated by Congress. x x x.231 [Emphasis
supplied.]
x x x.
MR. GARCIA. Thank you.

I vote no. x x x.
Service contracts are given constitutional legitimization in Section 3, even when they
have been proven to be inimical to the interests of the nation, providing as they do the
legal loophole for the exploitation of our natural resources for the benefit of foreign
interests. They constitute a serious negation of Filipino control on the use and
disposition of the nation's natural resources, especially with regard to those which are
nonrenewable.232 [Emphasis supplied.]

As earlier noted, the phrase "service contracts" has been deleted in the 1987 Constitution's Article
on National Economy and Patrimony. If the CONCOM intended to retain the concept of service
contracts under the 1973 Constitution, it could have simply adopted the old terminology ("service
contracts") instead of employing new and unfamiliar terms ("agreements . . . involving either
technical or financial assistance"). Such a difference between the language of a provision in a
revised constitution and that of a similar provision in the preceding constitution is viewed as
indicative of a difference in purpose.235 If, as respondents suggest, the concept of "technical or
financial assistance" agreements is identical to that of "service contracts," the CONCOM would not
have bothered to fit the same dog with a new collar. To uphold respondents' theory would reduce
the first to a mere euphemism for the second and render the change in phraseology meaningless.

xxx
MR. NOLLEDO. While there are objectionable provisions in the Article on National
Economy and Patrimony, going over said provisions meticulously, setting aside
prejudice and personalities will reveal that the article contains a balanced set of
provisions. I hope the forthcoming Congress will implement such provisions taking into
account that Filipinos should have real control over our economy and patrimony, and if
foreign equity is permitted, the same must be subordinated to the imperative demands
of the national interest.
x x x.
It is also my understanding that service contracts involving foreign corporations or
entities are resorted to only when no Filipino enterprise or Filipino-controlled enterprise
could possibly undertake the exploration or exploitation of our natural resources and that
compensation under such contracts cannot and should not equal what should pertain to
ownership of capital. In other words, the service contract should not be an instrument to
circumvent the basic provision, that the exploration and exploitation of natural resources
should be truly for the benefit of Filipinos.
Thank you, and I vote yes.233 [Emphasis supplied.]
x x x.
MR. TADEO. Nais ko lamang ipaliwanag ang aking boto.
Matapos suriin ang kalagayan ng Pilipinas, ang saligang suliranin, pangunahin ang
salitang "imperyalismo." Ang ibig sabihin nito ay ang sistema ng lipunang pinaghaharian
ng iilang monopolyong kapitalista at ang salitang "imperyalismo" ay buhay na buhay sa
National Economy and Patrimony na nating ginawa. Sa pamamagitan ng salitang
"based on," naroroon na ang free trade sapagkat tayo ay mananatiling tagapagluwas ng
hilaw na sangkap at tagaangkat ng yaring produkto. Pangalawa, naroroon pa rin ang
parity rights, ang service contract, ang 60-40 equity sa natural resources. Habang
naghihirap ang sambayanang Pilipino, ginagalugad naman ng mga dayuhan ang ating
likas na yaman. Kailan man ang Article on National Economy and Patrimony ay hindi
nagpaalis sa pagkaalipin ng ating ekonomiya sa kamay ng mga dayuhan. Ang solusyon
sa suliranin ng bansa ay dalawa lamang: ang pagpapatupad ng tunay na reporma sa
lupa at ang national industrialization. Ito ang tinatawag naming pagsikat ng araw sa
Silangan. Ngunit ang mga landlords and big businessmen at ang mga komprador ay
nagsasabi na ang free trade na ito, ang kahulugan para sa amin, ay ipinipilit sa ating
sambayanan na ang araw ay sisikat sa Kanluran. Kailan man hindi puwedeng sumikat
ang araw sa Kanluran. I vote no.234 [Emphasis supplied.]
This Court is likewise not persuaded.

An examination of the reason behind the change confirms that technical or financial assistance
agreements are not synonymous to service contracts.
[T]he Court in construing a Constitution should bear in mind the object sought to be accomplished
by its adoption, and the evils, if any, sought to be prevented or remedied. A doubtful provision will
be examined in light of the history of the times, and the condition and circumstances under which
the Constitution was framed. The object is to ascertain the reason which induced the framers of
the Constitution to enact the particular provision and the purpose sought to be accomplished
thereby, in order to construe the whole as to make the words consonant to that reason and
calculated to effect that purpose.236
As the following question of Commissioner Quesada and Commissioner Villegas' answer shows
the drafters intended to do away with service contracts which were used to circumvent the
capitalization (60%-40%) requirement:
MS. QUESADA. The 1973 Constitution used the words "service contracts." In this
particular Section 3, is there a safeguard against the possible control of foreign interests
if the Filipinos go into coproduction with them?
MR. VILLEGAS. Yes. In fact, the deletion of the phrase "service contracts" was our first
attempt to avoid some of the abuses in the past regime in the use of service contracts to
go around the 60-40 arrangement. The safeguard that has been introduced and this,
of course can be refined is found in Section 3, lines 25 to 30, where Congress will
have to concur with the President on any agreement entered into between a foreignowned corporation and the government involving technical or financial assistance for
large-scale exploration, development and utilization of natural resources.237 [Emphasis
supplied.]
In a subsequent discussion, Commissioner Villegas allayed the fears of Commissioner
Quesada regarding the participation of foreign interests in Philippine natural resources,
which was supposed to be restricted to Filipinos.
MS. QUESADA. Another point of clarification is the phrase "and utilization of natural
resources shall be under the full control and supervision of the State." In the 1973
Constitution, this was limited to citizens of the Philippines; but it was removed and
substituted by "shall be under the full control and supervision of the State." Was the
concept changed so that these particular resources would be limited to citizens of the
Philippines? Or would these resources only be under the full control and supervision of
the State; meaning, noncitizens would have access to these natural resources? Is that
the understanding?
MR. VILLEGAS. No, Mr. Vice-President, if the Commissioner reads the next sentence, it
states:

Such activities may be directly undertaken by the State, or it may enter into co-production, joint
venture, production-sharing agreements with Filipino citizens.
So we are still limiting it only to Filipino citizens.
x x x.
MS. QUESADA. Going back to Section 3, the section suggests that:
The exploration, development, and utilization of natural resources may be directly undertaken by
the State, or it may enter into co-production, joint venture or production-sharing agreement
with . . . corporations or associations at least sixty per cent of whose voting stock or controlling
interest is owned by such citizens.
Lines 25 to 30, on the other hand, suggest that in the large-scale exploration, development and
utilization of natural resources, the President with the concurrence of Congress may enter into
agreements with foreign-owned corporations even for technical or financial assistance.
I wonder if this part of Section 3 contradicts the second part. I am raising this point for fear that
foreign investors will use their enormous capital resources to facilitate the actual exploitation or
exploration, development and effective disposition of our natural resources to the detriment of
Filipino investors. I am not saying that we should not consider borrowing money from foreign
sources. What I refer to is that foreign interest should be allowed to participate only to the extent
that they lend us money and give us technical assistance with the appropriate government permit.
In this way, we can insure the enjoyment of our natural resources by our own people.
MR. VILLEGAS. Actually, the second provision about the President does not permit foreign
investors to participate. It is only technical or financial assistance they do not own anything but
on conditions that have to be determined by law with the concurrence of Congress. So, it is very
restrictive.
If the Commissioner will remember, this removes the possibility for service contracts which we said
yesterday were avenues used in the previous regime to go around the 60-40
requirement.238 [Emphasis supplied.]
The present Chief Justice, then a member of the CONCOM, also referred to this limitation in scope
in proposing an amendment to the 60-40 requirement:
MR. DAVIDE. May I be allowed to explain the proposal?
MR. MAAMBONG. Subject to the three-minute rule, Madam President.

I voted in favor of the Jamir proposal because it is not really exploitation that we granted to the
alien corporations but only for them to render financial or technical assistance. It is not for them to
enjoy our natural resources. Madam President, our natural resources are depleting; our population
is increasing by leaps and bounds. Fifty years from now, if we will allow these aliens to exploit our
natural resources, there will be no more natural resources for the next generations of Filipinos. It
may last long if we will begin now. Since 1935 the aliens have been allowed to enjoy to a certain
extent the exploitation of our natural resources, and we became victims of foreign dominance and
control. The aliens are interested in coming to the Philippines because they would like to enjoy the
bounty of nature exclusively intended for Filipinos by God.
And so I appeal to all, for the sake of the future generations, that if we have to pray in the
Preamble "to preserve and develop the national patrimony for the sovereign Filipino people and for
the generations to come," we must at this time decide once and for all that our natural resources
must be reserved only to Filipino citizens.
Thank you.239 [Emphasis supplied.]
The opinion of another member of the CONCOM is persuasive240 and leaves no doubt as to the
intention of the framers to eliminate service contracts altogether. He writes:
Paragraph 4 of Section 2 specifies large-scale, capital-intensive, highly technological undertakings
for which the President may enter into contracts with foreign-owned corporations, and enunciates
strict conditions that should govern such contracts. x x x.
This provision balances the need for foreign capital and technology with the need to maintain the
national sovereignty. It recognizes the fact that as long as Filipinos can formulate their own terms
in their own territory, there is no danger of relinquishing sovereignty to foreign interests.
Are service contracts allowed under the new Constitution? No. Under the new Constitution, foreign
investors (fully alien-owned) can NOT participate in Filipino enterprises except to provide: (1)
Technical Assistance for highly technical enterprises; and (2) Financial Assistance for large-scale
enterprises.
The intent of this provision, as well as other provisions on foreign investments, is to prevent the
practice (prevalent in the Marcos government) of skirting the 60/40 equation using the cover of
service contracts.241[Emphasis supplied.]
Furthermore, it appears that Proposed Resolution No. 496,242 which was the draft Article on
National Economy and Patrimony, adopted the concept of "agreements . . . involving either
technical or financial assistance" contained in the "Draft of the 1986 U.P. Law Constitution Project"
(U.P. Law draft) which was taken into consideration during the deliberation of the CONCOM.243 The
former, as well as Article XII, as adopted, employed the same terminology, as the comparative
table below shows:

MR. DAVIDE. It will not take three minutes.

The Commission had just approved the Preamble. In the Preamble we clearly stated that the
Filipino people are sovereign and that one of the objectives for the creation or establishment of a
government is to conserve and develop the national patrimony. The implication is that the national
patrimony or our natural resources are exclusively reserved for the Filipino people. No alien must
be allowed to enjoy, exploit and develop our natural resources. As a matter of fact, that principle
proceeds from the fact that our natural resources are gifts from God to the Filipino people and it
would be a breach of that special blessing from God if we will allow aliens to exploit our natural
resources.

DRAFT OF THE UP
LAW CONSTITUTION
PROJECT

PROPOSED
RESOLUTION NO. 496
OF THE
CONSTITUTIONAL
COMMISSION

ARTICLE XII OF THE

1987 CONSTITUTION

Sec. 1. All lands of the

public domain, waters,
minerals, coal,
petroleum and other
mineral oils, all forces of
potential energy,
fisheries, flora and
fauna and other natural
resources of the
Philippines are owned
by the State. With the
exception of agricultural
lands, all other natural
resources shall not be
alienated. The
exploration,
development and
utilization of natural
resources shall be
under the full control
and supervision of the
State. Such activities
may be directly
undertaken by the state,
or it may enter into coproduction, joint
venture, production
sharing agreements
with Filipino citizens or
corporations or
associations sixty per
cent of whose voting
stock or controlling
interest is owned by
such citizens for a
period of not more than
twenty-five years,
renewable for not more
than twenty-five years
and under such terms
and conditions as may
be provided by law. In
case as to water rights
for irrigation, water
supply, fisheries, or
industrial uses other
than the development of
water power, beneficial
use may be the
measure and limit of the
grant.
The National Assembly
may by law allow small

Sec. 3. All lands of the

public domain, waters,
minerals, coal,
petroleum and other
mineral oils, all forces of
potential energy,
fisheries, forests, flora
and fauna, and other
natural resources are
owned by the State.
With the exception of
agricultural lands, all
other natural resources
shall not be alienated.
The exploration,
development, and
utilization of natural
resources shall be
under the full control
and supervision of the
State. Such activities
may be directly
undertaken by the
State, or it may enter
into co-production, joint
venture, productionsharing agreements
with Filipino citizens or
corporations or
associations at least
sixty per cent of whose
voting stock or
controlling interest is
owned by such citizens.
Such agreements shall
be for a period of
twenty-five years,
renewable for not more
than twenty-five years,
and under such term
and conditions as may
be provided by law. In
cases of water rights for
irrigation, water supply,
fisheries or industrial
uses other than the
development for water
power, beneficial use
may be the measure
and limit of the grant.
The Congress may by
law allow small-scale
utilization of natural

Sec. 2. All lands of the

public domain, waters,
minerals, coal,
petroleum, and other
mineral oils, all forces of
potential energy,
fisheries, forests or
timber, wildlife, flora and
fauna, and other natural
resources are owned by
the State. With the
exception of agricultural
lands, all other natural
resources shall not be
alienated. The
exploration,
development, and
utilization of natural
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-production, joint
venture, or productionsharing agreements
with Filipino 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 exceeding
twenty-five years,
renewable for not more
than twenty-five years,
and under such terms
and conditions as may
be provided by law. In
case of water rights for
irrigation, water supply,
fisheries, or industrial
uses other than the
development of water
power, beneficial use
may be the measure
and limit of the grant.
The State shall protect
the nation's marine
wealth in its
archipelagic waters,

scale utilization of
natural resources by
Filipino citizens.
The National Assembly,
may, by two-thirds vote
of all its members by
special law provide the
terms and conditions
under which a foreignowned corporation may
enter into agreements
with the government
involving either
technical or financial
assistance for largescale exploration,
development, or
utilization of natural
resources. [Emphasis
supplied.]

resources by Filipino
citizens, as well as
cooperative fish farming
in rivers, lakes, bays,
and lagoons.
The President with the
concurrence of
Congress, by special
law, shall provide the
terms and conditions
under which a foreignowned corporation may
enter into agreements
with the government
involving either
technical or financial
assistance for largescale exploration,
development, and
utilization of natural
resources. [Emphasis
supplied.]

territorial sea, and

exclusive economic
zone, and reserve its
use and enjoyment
exclusively to Filipino
citizens.
The Congress may, by
law, allow small-scale
utilization of natural
resources by Filipino
citizens, as well as
cooperative fish
farming, with priority to
subsistence fishermen
and fish-workers in
rivers, lakes, bays, and
lagoons.
The President may
enter into agreements
with foreign-owned
corporations
involving either
technical or financial
assistance for largescale exploration,
development, and
utilization of minerals,
petroleum, and other
mineral oils according to
the general terms and
conditions provided by
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.
[Emphasis supplied.]
The President shall
notify the Congress of
every contract entered
into in accordance with
this provision, within
thirty days from its
execution.

The insights of the proponents of the U.P. Law draft are, therefore, instructive in interpreting the
phrase "technical or financial assistance."
In his position paper entitled Service Contracts: Old Wine in New Bottles?, Professor Pacifico A.
Agabin, who was a member of the working group that prepared the U.P. Law draft, criticized
service contracts for they "lodge exclusive management and control of the enterprise to the
service contractor, which is reminiscent of the old concession regime. Thus, notwithstanding the
provision of the Constitution that natural resources belong to the State, and that these shall not be
alienated, the service contract system renders nugatory the constitutional provisions cited."244 He
elaborates:
Looking at the Philippine model, we can discern the following vestiges of the concession regime,
thus:
1. Bidding of a selected area, or leasing the choice of the area to the interested party
and then negotiating the terms and conditions of the contract; (Sec. 5, P.D. 87)
2. Management of the enterprise vested on the contractor, including operation of the
field if petroleum is discovered; (Sec. 8, P.D. 87)
3. Control of production and other matters such as expansion and development; (Sec. 8)
4. Responsibility for downstream operations marketing, distribution, and processing
may be with the contractor (Sec. 8);
5. Ownership of equipment, machinery, fixed assets, and other properties remain with
contractor (Sec. 12, P.D. 87);
6. Repatriation of capital and retention of profits abroad guaranteed to the contractor
(Sec. 13, P.D. 87); and
7. While title to the petroleum discovered may nominally be in the name of the
government, the contractor has almost unfettered control over its disposition and sale,
and even the domestic requirements of the country is relegated to a pro rata basis (Sec.
8).
In short, our version of the service contract is just a rehash of the old concession regime x x x.
Some people have pulled an old rabbit out of a magician's hat, and foisted it upon us as a new and
different animal.
The service contract as we know it here is antithetical to the principle of sovereignty over our
natural resources restated in the same article of the [1973] Constitution containing the provision for
service contracts. If the service contractor happens to be a foreign corporation, the contract would
also run counter to the constitutional provision on nationalization or Filipinization, of the
exploitation of our natural resources.245 [Emphasis supplied. Underscoring in the original.]
Professor Merlin M. Magallona, also a member of the working group, was harsher in his reproach
of the system:
x x x the nationalistic phraseology of the 1935 [Constitution] was retained by the [1973] Charter,
but the essence of nationalism was reduced to hollow rhetoric. The 1973 Charter still provided that
the exploitation or development of the country's natural resources be limited to Filipino citizens or
corporations owned or controlled by them. However, the martial-law Constitution allowed them,

once these resources are in their name, to enter into service contracts with foreign investors for
financial, technical, management, or other forms of assistance. Since foreign investors have the
capital resources, the actual exploitation and development, as well as the effective disposition, of
the country's natural resources, would be under their direction, and control, relegating the Filipino
investors to the role of second-rate partners in joint ventures.
Through the instrumentality of the service contract, the 1973 Constitution had legitimized at the
highest level of state policy that which was prohibited under the 1973 Constitution, namely: the
exploitation of the country's natural resources by foreign nationals. The drastic impact of [this]
constitutional change becomes more pronounced when it is considered that the active party to any
service contract may be a corporation wholly owned by foreign interests. In such a case, the
citizenship requirement is completely set aside, permitting foreign corporations to obtain actual
possession, control, and [enjoyment] of the country's natural resources.246[Emphasis supplied.]
Accordingly, Professor Agabin recommends that:
Recognizing the service contract for what it is, we have to expunge it from the Constitution and
reaffirm ownership over our natural resources. That is the only way we can exercise effective
control over our natural resources.
This should not mean complete isolation of the country's natural resources from foreign
investment. Other contract forms which are less derogatory to our sovereignty and control over
natural resources like technical assistance agreements, financial assistance [agreements], coproduction agreements, joint ventures, production-sharing could still be utilized and adopted
without violating constitutional provisions. In other words, we can adopt contract forms which
recognize and assert our sovereignty and ownership over natural resources, and where the foreign
entity is just a pure contractor instead of the beneficial owner of our economic
resources.247[Emphasis supplied.]
Still another member of the working group, Professor Eduardo Labitag, proposed that:
2. Service contracts as practiced under the 1973 Constitution should be discouraged, instead the
government may be allowed, subject to authorization by special law passed by an extraordinary
majority to enter into either technical or financial assistance. This is justified by the fact that as
presently worded in the 1973 Constitution, a service contract gives full control over the contract
area to the service contractor, for him to work, manage and dispose of the proceeds or production.
It was a subterfuge to get around the nationality requirement of the constitution.248 [Emphasis
supplied.]
In the annotations on the proposed Article on National Economy and Patrimony, the U.P. Law draft
summarized the rationale therefor, thus:
5. The last paragraph is a modification of the service contract provision found in Section 9, Article
XIV of the 1973 Constitution as amended. This 1973 provision shattered the framework of
nationalism in our fundamental law (see Magallona, "Nationalism and its Subversion in the
Constitution"). Through the service contract, the 1973 Constitution had legitimized that which was
prohibited under the 1935 constitutionthe exploitation of the country's natural resources by
foreign nationals. Through the service contract, acts prohibited by the Anti-Dummy Law were
recognized as legitimate arrangements. Service contracts lodge exclusive management and
control of the enterprise to the service contractor, not unlike the old concession regime where the
concessionaire had complete control over the country's natural resources, having been given
exclusive and plenary rights to exploit a particular resource and, in effect, having been assured of
ownership of that resource at the point of extraction (see Agabin, "Service Contracts: Old Wine in
New Bottles"). Service contracts, hence, are antithetical to the principle of sovereignty over our
natural resources, as well as the constitutional provision on nationalization or Filipinization of the
exploitation of our natural resources.

Under the proposed provision, 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 twothirds vote of all the members of the Legislature. This will ensure that such agreements will be
debated upon exhaustively and thoroughly in the National Assembly to avert prejudice to the
nation.249[Emphasis supplied.]
The U.P. Law draft proponents viewed service contracts under the 1973 Constitution as grants of
beneficial ownership of the country's natural resources to foreign owned corporations. While, in
theory, the State owns these natural resources and Filipino citizens, their beneficiaries service
contracts actually vested foreigners with the right to dispose, explore for, develop, exploit, and
utilize the same. Foreigners, not Filipinos, became the beneficiaries of Philippine natural
resources. This arrangement is clearly incompatible with the constitutional ideal of nationalization
of natural resources, with the Regalian doctrine, and on a broader perspective, with Philippine
sovereignty.
The proponents nevertheless acknowledged the need for capital and technical know-how in the
large-scale exploitation, development and utilization of natural resources the second paragraph
of the proposed draft itself being an admission of such scarcity. Hence, they recommended a
compromise to reconcile the nationalistic provisions dating back to the 1935 Constitution, which
reserved all natural resources exclusively to Filipinos, and the more liberal 1973 Constitution,
which allowed foreigners to participate in these resources through service contracts. Such a
compromise called for the adoption of a new system in the exploration, development, and
utilization of natural resources in the form of technical agreements or financial agreements which,
necessarily, are distinct concepts from service contracts.
The replacement of "service contracts" with "agreements involving either technical or financial
assistance," as well as the deletion of the phrase "management or other forms of assistance,"
assumes greater significance when note is taken that the U.P. Law draft proposed other equally
crucial changes that were obviously heeded by the CONCOM. These include the abrogation of the
concession system and the adoption of new "options" for the State in the exploration,
development, and utilization of natural resources. The proponents deemed these changes to be
more consistent with the State's ownership of, and its "full control and supervision" (a phrase also
employed by the framers) over, such resources. The Project explained:
3. In line with the State ownership of natural resources, the State should take a more active role in
the exploration, development, and utilization of natural resources, than the present practice of
granting licenses, concessions, or leases hence the provision that said activities shall be under
the full control and supervision of the State. There are three major schemes by which the State
could undertake these activities: first, directly by itself; second, by virtue of co-production, joint
venture, production sharing agreements with Filipino citizens or corporations or associations sixty
per cent (60%) of the voting stock or controlling interests of which are owned by such citizens; or
third, with a foreign-owned corporation, in cases of large-scale exploration, development, or
utilization of natural resources through agreements involving either technical or financial
assistance only. x x x.
At present, under the licensing concession or lease schemes, the government benefits from such
benefits only through fees, charges, ad valorem taxes and income taxes of the exploiters of our
natural resources. Such benefits are very minimal compared with the enormous profits reaped by
theses licensees, grantees, concessionaires. Moreover, some of them disregard the conservation
of natural resources and do not protect the environment from degradation. The proposed role of
the State will enable it to a greater share in the profits it can also actively husband its natural
resources and engage in developmental programs that will be beneficial to them.

4. Aside from the three major schemes for the exploration, development, and utilization of our
natural resources, the State may, by law, allow Filipino citizens to explore, develop, utilize natural
resources in small-scale. This is in recognition of the plight of marginal fishermen, forest dwellers,
gold panners, and others similarly situated who exploit our natural resources for their daily
sustenance and survival.250
Professor Agabin, in particular, after taking pains to illustrate the similarities between the two
systems, concluded that the service contract regime was but a "rehash" of the concession system.
"Old wine in new bottles," as he put it. The rejection of the service contract regime, therefore, is in
consonance with the abolition of the concession system.
In light of the deliberations of the CONCOM, the text of the Constitution, and the adoption of other
proposed changes, there is no doubt that the framers considered and shared the intent of the U.P.
Law proponents in employing the phrase "agreements . . . involving either technical or financial
assistance."
While certain commissioners may have mentioned the term "service contracts" during the
CONCOM deliberations, they may not have been necessarily referring to the concept of service
contracts under the 1973 Constitution. As noted earlier, "service contracts" is a term that assumes
different meanings to different people.251 The commissioners may have been using the term
loosely, and not in its technical and legal sense, to refer, in general, to agreements concerning
natural resources entered into by the Government with foreign corporations. These loose
statements do not necessarily translate to the adoption of the 1973 Constitution provision allowing
service contracts.
It is true that, as shown in the earlier quoted portions of the proceedings in CONCOM, in response
to Sr. Tan's question, Commissioner Villegas commented that, other than congressional
notification, the only difference between "future" and "past" "service contracts" is the requirement
of a general law as there were no laws previously authorizing the same. 252 However, such remark
is far outweighed by his more categorical statement in his exchange with Commissioner Quesada
that the draft article "does not permit foreign investors to participate" in the nation's natural
resources which was exactly what service contracts did except to provide "technical or
financial assistance."253
In the case of the other commissioners, Commissioner Nolledo himself clarified in his work that the
present charter prohibits service contracts.254 Commissioner Gascon was not totally averse to
foreign participation, but favored stricter restrictions in the form of majority congressional
concurrence.255 On the other hand, Commissioners Garcia and Tadeo may have veered to the
extreme side of the spectrum and their objections may be interpreted as votes against any foreign
participation in our natural resources whatsoever.
WMCP cites Opinion No. 75, s. 1987,256 and Opinion No. 175, s. 1990257 of the Secretary of
Justice, expressing the view that a financial or technical assistance agreement "is no different in
concept" from the service contract allowed under the 1973 Constitution. This Court is not,
however, bound by this interpretation. When an administrative or executive agency renders an
opinion or issues a statement of policy, it merely interprets a pre-existing law; and the
administrative interpretation of the law is at best advisory, for it is the courts that finally determine
what the law means.258
In any case, the constitutional provision allowing the President to enter into FTAAs with foreignowned corporations is an exception to the rule that participation in the nation's natural resources is
reserved exclusively to Filipinos. Accordingly, such provision must be construed strictly against
their enjoyment by non-Filipinos. As Commissioner Villegas emphasized, the provision is "very
restrictive."259 Commissioner Nolledo also remarked that "entering into service contracts is an
exception to the rule on protection of natural resources for the interest of the nation and, therefore,
being an exception, it should be subject, whenever possible, to stringent rules."260Indeed,

exceptions should be strictly but reasonably construed; they extend only so far as their language
fairly warrants and all doubts should be resolved in favor of the general provision rather than the
exception.261
With the foregoing discussion in mind, this Court finds that R.A. No. 7942 is invalid insofar as said
Act authorizes service contracts. Although the statute employs the phrase "financial and technical
agreements" in accordance with the 1987 Constitution, it actually treats these agreements as
service contracts that grant beneficial ownership to foreign contractors contrary to the fundamental
law.
Section 33, which is found under Chapter VI (Financial or Technical Assistance Agreement) of R.A.
No. 7942 states:
SEC. 33. Eligibility.Any qualified person with technical and financial capability to undertake
large-scale exploration, development, and utilization of mineral resources in the Philippines may
enter into a financial or technical assistance agreement directly with the Government through the
Department. [Emphasis supplied.]
"Exploration," as defined by R.A. No. 7942,
means the searching or prospecting for mineral resources by geological, geochemical or
geophysical surveys, remote sensing, test pitting, trending, drilling, shaft sinking, tunneling or any
other means for the purpose of determining the existence, extent, quantity and quality thereof and
the feasibility of mining them for profit.262
A legally organized foreign-owned corporation may be granted an exploration permit, 263 which
vests it with the right to conduct exploration for all minerals in specified areas,264 i.e., to enter,
occupy and explore the same.265Eventually, the foreign-owned corporation, as such permittee, may
apply for a financial and technical assistance agreement.266
"Development" is the work undertaken to explore and prepare an ore body or a mineral deposit for
mining, including the construction of necessary infrastructure and related facilities.267
"Utilization" "means the extraction or disposition of minerals."268 A stipulation that the proponent
shall dispose of the minerals and byproducts produced at the highest price and more
advantageous terms and conditions as provided for under the implementing rules and regulations
is required to be incorporated in every FTAA.269
A foreign-owned/-controlled corporation may likewise be granted a mineral processing
permit.270 "Mineral processing" is the milling, beneficiation or upgrading of ores or minerals and
rocks or by similar means to convert the same into marketable products.271
An FTAA contractor makes a warranty that the mining operations shall be conducted in
accordance with the provisions of R.A. No. 7942 and its implementing rules272 and for work
programs and minimum expenditures and commitments.273 And it obliges itself to furnish the
Government records of geologic, accounting, and other relevant data for its mining operation.274
"Mining operation," as the law defines it, means mining activities involving exploration, feasibility,
development, utilization, and processing.275
The underlying assumption in all these provisions is that the foreign contractor manages the
mineral resources, just like the foreign contractor in a service contract.

Furthermore, Chapter XII of the Act grants foreign contractors in FTAAs the same auxiliary mining
rights that it grants contractors in mineral agreements (MPSA, CA and JV). 276 Parenthetically,
Sections 72 to 75 use the term "contractor," without distinguishing between FTAA and mineral
agreement contractors. And so does "holders of mining rights" in Section 76. A foreign contractor
may even convert its FTAA into a mineral agreement if the economic viability of the contract area
is found to be inadequate to justify large-scale mining operations, 277provided that it reduces its
equity in the corporation, partnership, association or cooperative to forty percent (40%).278
Finally, under the Act, an FTAA contractor warrants that it "has or has access to all the financing,
managerial, and technical expertise. . . ."279 This suggests that an FTAA contractor is bound to
provide some management assistance a form of assistance that has been eliminated and,
therefore, proscribed by the present Charter.
By allowing foreign contractors to manage or operate all the aspects of the mining operation, the
above-cited provisions of R.A. No. 7942 have in effect conveyed beneficial ownership over the
nation's mineral resources to these contractors, leaving the State with nothing but bare title
thereto.
Moreover, the same provisions, whether by design or inadvertence, permit a circumvention of the
constitutionally ordained 60%-40% capitalization requirement for corporations or associations
engaged in the exploitation, development and utilization of Philippine natural resources.
In sum, the Court finds the following provisions of R.A. No. 7942 to be violative of Section 2, Article
XII of the Constitution:
(1) The proviso in Section 3 (aq), which defines "qualified person," to wit:
Provided, That a legally organized foreign-owned corporation shall be deemed a
qualified person for purposes of granting an exploration permit, financial or technical
assistance agreement or mineral processing permit.
(2) Section 23,280 which specifies the rights and obligations of an exploration permittee,
insofar as said section applies to a financial or technical assistance agreement,
(3) Section 33, which prescribes the eligibility of a contractor in a financial or technical
assistance agreement;
(4) Section 35,281 which enumerates the terms and conditions for every financial or
technical assistance agreement;
(5) Section 39,282 which allows the contractor in a financial and technical assistance
agreement to convert the same into a mineral production-sharing agreement;
(6) Section 56,283 which authorizes the issuance of a mineral processing permit to a
contractor in a financial and technical assistance agreement;
The following provisions of the same Act are likewise void as they are dependent on the foregoing
provisions and cannot stand on their own:
(1) Section 3 (g),284 which defines the term "contractor," insofar as it applies to a financial
or technical assistance agreement.

Section 34,285 which prescribes the maximum contract area in a financial or technical
assistance agreements;
Section 36,286 which allows negotiations for financial or technical assistance
agreements;
Section 37,287 which prescribes the procedure for filing and evaluation of financial or
technical assistance agreement proposals;

(g) to erect, install or place any type of improvements, supplies, machinery and other
equipment relating to the Mining Operations and to use, sell or otherwise dispose of,
modify, remove or diminish any and all parts thereof;
(h) enjoy, subject to pertinent laws, rules and regulations and the rights of third Parties,
easement rights and the use of timber, sand, clay, stone, water and other natural
resources in the Contract Area without cost for the purposes of the Mining Operations;
xxx

Section 38,

288

which limits the term of financial or technical assistance agreements;

289

Section 40, which allows the assignment or transfer of financial or technical

assistance agreements;
Section 41,290 which allows the withdrawal of the contractor in an FTAA;
The second and third paragraphs of Section 81,291 which provide for the Government's
share in a financial and technical assistance agreement; and
Section 90,292 which provides for incentives to contractors in FTAAs insofar as it applies
to said contractors;
When the parts of the statute are so mutually dependent and connected as conditions,
considerations, inducements, or compensations for each other, as to warrant a belief that the
legislature intended them as a whole, and that if all could not be carried into effect, the legislature
would not pass the residue independently, then, if some parts are unconstitutional, all the
provisions which are thus dependent, conditional, or connected, must fall with them. 293
There can be little doubt that the WMCP FTAA itself is a service contract.
Section 1.3 of the WMCP FTAA grants WMCP "the exclusive right to explore, exploit, utilise[,]
process and dispose of all Minerals products and by-products thereof that may be produced from
the Contract Area."294 The FTAA also imbues WMCP with the following rights:
(b) to extract and carry away any Mineral samples from the Contract area for the
purpose of conducting tests and studies in respect thereof;
(c) to determine the mining and treatment processes to be utilised during the
Development/Operating Period and the project facilities to be constructed during the
Development and Construction Period;
(d) have the right of possession of the Contract Area, with full right of ingress and egress
and the right to occupy the same, subject to the provisions of Presidential Decree No.
512 (if applicable) and not be prevented from entry into private ands by surface owners
and/or occupants thereof when prospecting, exploring and exploiting for minerals
therein;
xxx
(f) to construct roadways, mining, drainage, power generation and transmission facilities
and all other types of works on the Contract Area;

(i) have the right to mortgage, charge or encumber all or part of its interest and
obligations under this Agreement, the plant, equipment and infrastructure and the
Minerals produced from the Mining Operations;
x x x. 295
All materials, equipment, plant and other installations erected or placed on the Contract Area
remain the property of WMCP, which has the right to deal with and remove such items within
twelve months from the termination of the FTAA.296
Pursuant to Section 1.2 of the FTAA, WMCP shall provide "[all] financing, technology,
management and personnel necessary for the Mining Operations." The mining company binds
itself to "perform all Mining Operations . . . providing all necessary services, technology and
financing in connection therewith,"297 and to "furnish all materials, labour, equipment and other
installations that may be required for carrying on all Mining Operations." 298> WMCP may make
expansions, improvements and replacements of the mining facilities and may add such new
facilities as it considers necessary for the mining operations. 299
These contractual stipulations, taken together, grant WMCP beneficial ownership over natural
resources that properly belong to the State and are intended for the benefit of its citizens. These
stipulations are abhorrent to the 1987 Constitution. They are precisely the vices that the
fundamental law seeks to avoid, the evils that it aims to suppress. Consequently, the contract from
which they spring must be struck down.
In arguing against the annulment of the FTAA, WMCP invokes the Agreement on the Promotion
and Protection of Investments between the Philippine and Australian Governments, which was
signed in Manila on January 25, 1995 and which entered into force on December 8, 1995.
x x x. Article 2 (1) of said treaty states that it applies to investments whenever made and thus the
fact that [WMCP's] FTAA was entered into prior to the entry into force of the treaty does not
preclude the Philippine Government from protecting [WMCP's] investment in [that] FTAA. Likewise,
Article 3 (1) of the treaty provides that "Each Party shall encourage and promote investments in its
area by investors of the other Party and shall [admit] such investments in accordance with its
Constitution, Laws, regulations and investment policies" and in Article 3 (2), it states that "Each
Party shall ensure that investments are accorded fair and equitable treatment." The latter
stipulation indicates that it was intended to impose an obligation upon a Party to afford fair and
equitable treatment to the investments of the other Party and that a failure to provide such
treatment by or under the laws of the Party may constitute a breach of the treaty. Simply stated,
the Philippines could not, under said treaty, rely upon the inadequacies of its own laws to deprive
an Australian investor (like [WMCP]) of fair and equitable treatment by invalidating [WMCP's] FTAA
without likewise nullifying the service contracts entered into before the enactment of RA 7942 such
as those mentioned in PD 87 or EO 279.
This becomes more significant in the light of the fact that [WMCP's] FTAA was executed not by a
mere Filipino citizen, but by the Philippine Government itself, through its President no less, which,

in entering into said treaty is assumed to be aware of the existing Philippine laws on service
contracts over the exploration, development and utilization of natural resources. The execution of
the FTAA by the Philippine Government assures the Australian Government that the FTAA is in
accordance with existing Philippine laws.300 [Emphasis and italics by private respondents.]
The invalidation of the subject FTAA, it is argued, would constitute a breach of said treaty which, in
turn, would amount to a violation of Section 3, Article II of the Constitution adopting the generally
accepted principles of international law as part of the law of the land. One of these generally
accepted principles is pacta sunt servanda, which requires the performance in good faith of treaty
obligations.
Even assuming arguendo that WMCP is correct in its interpretation of the treaty and its assertion
that "the Philippines could not . . . deprive an Australian investor (like [WMCP]) of fair and
equitable treatment by invalidating [WMCP's] FTAA without likewise nullifying the service contracts
entered into before the enactment of RA 7942 . . .," the annulment of the FTAA would not
constitute a breach of the treaty invoked. For this decision herein invalidating the subject FTAA
forms part of the legal system of the Philippines.301 The equal protection clause302 guarantees that
such decision shall apply to all contracts belonging to the same class, hence, upholding rather
than violating, the "fair and equitable treatment" stipulation in said treaty.
One other matter requires clarification. Petitioners contend that, consistent with the provisions of
Section 2, Article XII of the Constitution, the President may enter into agreements involving "either
technical or financial assistance" only. The agreement in question, however, is a technical and
financial assistance agreement.
Petitioners' contention does not lie. To adhere to the literal language of the Constitution would lead
to absurd consequences.303 As WMCP correctly put it:
x x x such a theory of petitioners would compel the government (through the President) to enter
into contract with two (2) foreign-owned corporations, one for financial assistance agreement and
with the other, for technical assistance over one and the same mining area or land; or to execute
two (2) contracts with only one foreign-owned corporation which has the capability to provide both
financial and technical assistance, one for financial assistance and another for technical
assistance, over the same mining area. Such an absurd result is definitely not sanctioned under
the canons of constitutional construction.304 [Underscoring in the original.]
Surely, the framers of the 1987 Charter did not contemplate such an absurd result from their use of
"either/or." A constitution is not to be interpreted as demanding the impossible or the impracticable;
and unreasonable or absurd consequences, if possible, should be avoided.305 Courts are not to
give words a meaning that would lead to absurd or unreasonable consequences and a literal
interpretation is to be rejected if it would be unjust or lead to absurd results.306 That is a strong
argument against its adoption.307 Accordingly, petitioners' interpretation must be rejected.
The foregoing discussion has rendered unnecessary the resolution of the other issues raised by
the petition.
WHEREFORE, the petition is GRANTED. The Court hereby declares unconstitutional and void:
(1) The following provisions of Republic Act No. 7942:
(a) The proviso in Section 3 (aq),
(b) Section 23,

(c) Section 33 to 41,

(d) Section 56,
(e) The second and third paragraphs of Section 81, and
(f) Section 90.
(2) All provisions of Department of Environment and Natural Resources Administrative
Order 96-40, s. 1996 which are not in conformity with this Decision, and
(3) The Financial and Technical Assistance Agreement between the Government of the
Republic of the Philippines and WMC Philippines, Inc.
SO ORDERED.

inadequacy of Filipino capital and technology in large-scale EDU activities, the State may secure
the help of foreign companies in all relevant matters -- especially financial and technical assistance
-- provided that, at all times, the State maintains its right of full control. The foreign assistor or
contractor assumes all financial, technical and entrepreneurial risks in the EDU activities; hence, it
may be given reasonable management, operational, marketing, audit and other prerogatives to
protect its investments and to enable the business to succeed.

G.R. No. 127882

December 1, 2004

LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., Represented by its Chairman F'LONG

MIGUEL M. LUMAYONG; WIGBERTO E. TAADA; PONCIANO BENNAGEN; JAIME TADEO;
RENATO R. CONSTANTINO JR.; F'LONG AGUSTIN M. DABIE; ROBERTO P. AMLOY; RAQIM
L. DABIE; SIMEON H. DOLOJO; IMELDA M. GANDON; LENY B. GUSANAN; MARCELO L.
GUSANAN; QUINTOL A. LABUAYAN; LOMINGGES D. LAWAY; BENITA P. TACUAYAN; Minors
JOLY L. BUGOY, Represented by His Father UNDERO D. BUGOY and ROGER M. DADING;
Represented by His Father ANTONIO L. DADING; ROMY M. LAGARO, Represented by His
Father TOTING A. LAGARO; MIKENY JONG B. LUMAYONG, Represented by His Father
MIGUEL M. LUMAYONG; RENE T. MIGUEL, Represented by His Mother EDITHA T. MIGUEL;
ALDEMAR L. SAL, Represented by His Father DANNY M. SAL; DAISY RECARSE,
Represented by Her Mother LYDIA S. SANTOS; EDWARD M. EMUY; ALAN P. MAMPARAIR;
MARIO L. MANGCAL; ALDEN S. TUSAN; AMPARO S. YAP; VIRGILIO CULAR; MARVIC M.V.F.
LEONEN; JULIA REGINA CULAR, GIAN CARLO CULAR, VIRGILIO CULAR JR., Represented
by Their Father VIRGILIO CULAR; PAUL ANTONIO P. VILLAMOR, Represented by His
Parents JOSE VILLAMOR and ELIZABETH PUA-VILLAMOR; ANA GININA R. TALJA,
Represented by Her Father MARIO JOSE B. TALJA; SHARMAINE R. CUNANAN,
Represented by Her Father ALFREDO M. CUNANAN; ANTONIO JOSE A. VITUG III,
Represented by His Mother ANNALIZA A. VITUG, LEAN D. NARVADEZ, Represented by His
Father MANUEL E. NARVADEZ JR.; ROSERIO MARALAG LINGATING, Represented by Her
Father RIO OLIMPIO A. LINGATING; MARIO JOSE B. TALJA; DAVID E. DE VERA; MARIA
MILAGROS L. SAN JOSE; Sr. SUSAN O. BOLANIO, OND; LOLITA G. DEMONTEVERDE;
BENJIE L. NEQUINTO;1 ROSE LILIA S. ROMANO; ROBERTO S. VERZOLA; EDUARDO
AURELIO C. REYES; LEAN LOUEL A. PERIA, Represented by His Father ELPIDIO V.
PERIA;2 GREEN FORUM PHILIPPINES; GREEN FORUM WESTERN VISAYAS (GF-WV);
ENVIRONMENTAL LEGAL ASSISTANCE CENTER (ELAC); KAISAHAN TUNGO SA
KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN
(KAISAHAN);3PARTNERSHIP FOR AGRARIAN REFORM and RURAL DEVELOPMENT
SERVICES, INC. (PARRDS); PHILIPPINE PARTNERSHIP FOR THE DEVELOPMENT OF
HUMAN RESOURCES IN THE RURAL AREAS, INC. (PHILDHRRA); WOMEN'S LEGAL
BUREAU (WLB); CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES, INC. (CADI);
UPLAND DEVELOPMENT INSTITUTE (UDI); KINAIYAHAN FOUNDATION, INC.; SENTRO NG
ALTERNATIBONG LINGAP PANLIGAL (SALIGAN); and LEGAL RIGHTS AND NATURAL
RESOURCES CENTER, INC. (LRC), petitioners,
vs.
VICTOR O. RAMOS, Secretary, Department of Environment and Natural Resources (DENR);
HORACIO RAMOS, Director, Mines and Geosciences Bureau (MGB-DENR); RUBEN
TORRES, Executive Secretary; and WMC (PHILIPPINES), INC., 4 respondents.
RESOLUTION
PANGANIBAN, J.:
All mineral resources are owned by the State. Their exploration, development and utilization (EDU)
must always be subject to the full control and supervision of the State. More specifically, given the

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.
Who or what organ of government actually exercises this power of control on behalf of the State?
The Constitution is crystal clear: the President. Indeed, the Chief Executive is the official
constitutionally mandated to "enter into agreements with foreign owned corporations." On the other
hand, Congress may review the action of the President once it is notified of "every contract
entered into in accordance with this [constitutional] provision within thirty days from its execution."
In contrast to this express mandate of the President and Congress in the EDU of natural
resources, Article XII of the Constitution is silent on the role of the judiciary. However, should the
President and/or Congress gravely abuse their discretion in this regard, the courts may -- in
a proper case -- exercise their residual duty under Article VIII. Clearly then, the judiciary should not
inordinately interfere in the exercise of this presidential power of control over the EDU of our
natural resources.
The Constitution should be read in broad, life-giving strokes. It should not be used to strangulate
economic growth or to serve narrow, parochial interests. Rather, it should be construed to grant
the President and Congress sufficient discretion and reasonable leeway to enable them to attract
foreign investments and expertise, as well as to secure for our people and our posterity the
blessings of prosperity and peace.
On the basis of this control standard, this Court upholds the constitutionality of the Philippine
Mining Law, its Implementing Rules and Regulations -- insofar as they relate to financial and
technical agreements -- as well as the subject Financial and Technical Assistance Agreement
(FTAA).5
Background
The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of (1)
Republic Act No. [RA] 7942 (The Philippine Mining Act of 1995); (2) its Implementing Rules and
Regulations (DENR Administrative Order No. [DAO] 96-40); and (3) the FTAA dated March 30,
1995,6 executed by the government with Western Mining Corporation (Philippines), Inc. (WMCP). 7
On January 27, 2004, the Court en banc promulgated its Decision8 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, 9 which, though
permitted under the 1973 Constitution,10 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.

The Decision quoted several legal scholars and authors who had criticized service contracts
for, inter alia, vesting in the foreign contractor exclusive management and control of the enterprise,
including operation of the field in the event petroleum was discovered; control of production,
expansion and development; nearly unfettered control over the disposition and sale of the
products discovered/extracted; effective ownership of the natural resource at the point of
extraction; and beneficial ownership of our economic resources. According to the Decision, the
1987 Constitution (Section 2 of Article XII) effectively banned such service contracts.
Subsequently, respondents filed separate Motions for Reconsideration. In a Resolution dated
March 9, 2004, the Court required petitioners to comment thereon. In the Resolution of June 8,
2004, it set the case for Oral Argument on June 29, 2004.
After hearing the opposing sides, the Court required the parties to submit their respective
Memoranda in amplification of their arguments. 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 respondents. The OSG said that it was
not interposing any objection to the Motion for Intervention filed by the Chamber of Mines of the
Philippines, Inc. (CMP) and was in fact joining and adopting the latter's Motion for
Reconsideration.

In declaring unconstitutional certain provisions of RA 7942, DAO 96-40, and the WMCP FTAA, the
majority Decision agreed with petitioners' contention that the subject FTAA had been executed in
violation of Section 2 of Article XII of the 1987 Constitution. According to petitioners, the FTAAs
entered into by the government with foreign-owned corporations are limited by the fourth
paragraph of the said provision to agreements involving only technical or financial assistance for
large-scale exploration, development and utilization of minerals, petroleum and other mineral oils.
Furthermore, the foreign contractor is allegedly permitted by the FTAA in question to fully manage
and control the mining operations and, therefore, to acquire "beneficial ownership" of our mineral
resources.
The Decision merely shrugged off the Manifestation by WMPC 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 transferred
from WMCP to Sagittarius.11 The ponenciadeclared that the instant case had not been rendered
moot by the transfer and registration of the FTAA to a Filipino-owned corporation, and that the
validity of the said transfer remained in dispute and awaited final judicial determination.12 Patently
therefore, the Decision is anchored on the assumption that WMCP had remained
aforeign corporation.
The crux of this issue of mootness is the fact that WMCP, at the time it entered into the
FTAA, happened to be wholly owned by WMC Resources International Pty., Ltd. (WMC), which in
turn was a wholly owned subsidiary of Western Mining Corporation Holdings Ltd., a publicly listed
major Australian mining and exploration company.

Memoranda were accordingly filed by the intervenor as well as by petitioners, public respondents,
and private respondent, dwelling at length on the three issues discussed below. Later, WMCP
submitted its Reply Memorandum, while the OSG -- in obedience to an Order of this Court -- filed
a Compliance submitting copies of more FTAAs entered into by the government.
Three Issues Identified by the Court
During the Oral Argument, the Court identified the three issues to be resolved in the present
controversy, as follows:
1. Has the case been rendered moot by the sale of WMC shares in WMCP to Sagittarius (60
percent of Sagittarius' equity is owned by Filipinos and/or Filipino-owned corporations while 40
percent is owned by Indophil Resources NL, an Australian company) and by the subsequent
transfer and registration of the FTAA from WMCP to Sagittarius?
2. Assuming that the case has been rendered moot, would it still be proper to resolve the
constitutionality of the assailed provisions of the Mining Law, DAO 96-40 and the WMCP FTAA?
3. What is the proper interpretation of the phrase Agreements Involving Either Technical or
Financial Assistancecontained in paragraph 4 of Section 2 of Article XII of the Constitution?
Should the Motion for Reconsideration Be Granted?
Respondents' and intervenor's Motions for Reconsideration should be granted, for the reasons
discussed below. The foregoing three issues identified by the Court shall now be taken
up seriatim.
First Issue:
Mootness

The nullity of the FTAA was obviously premised upon the contractor being a foreign corporation.
Had the FTAA been originally issued to a Filipino-owned corporation, there would have been no
constitutionality issue to speak of. Upon the other hand, the conveyance of the WMCP FTAA to a
Filipino corporation can be likened 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 conveyance would
be validated, as the property in question would no longer be owned by a disqualified vendee.
And, inasmuch as the FTAA is to be implemented now by a Filipino corporation, it is no longer
possible for the Court to declare it unconstitutional. The case pending in the Court of Appeals is a
dispute between two Filipino companies (Sagittarius and Lepanto), both claiming the right to
purchase the foreign shares in WMCP. So, regardless of which side eventually wins, the FTAA
would still be in the hands of a qualified Filipino company. Considering that there is no longer any
justiciable controversy, the plea to nullify the Mining Law has become a virtual petition for
declaratory relief, over which this Court has no original jurisdiction.
In their Final Memorandum, however, petitioners argue that the case has not become moot,
considering the invalidity of the alleged sale of the shares in WMCP from WMC to Sagittarius, and
of the transfer of the FTAA from WMCP to Sagittarius, resulting in the change of contractor in the
FTAA in question. And even assuming that the said transfers were valid, there still exists an actual
case predicated on the invalidity of RA 7942 and its Implementing Rules and Regulations (DAO
96-40). Presently, we shall discuss petitioners' objections to the transfer of both the shares and the
FTAA. We shall take up the alleged invalidity of RA 7942 and DAO 96-40 later on in the discussion
of the third issue.
No Transgression of the Constitution
by the Transfer of the WMCP Shares
Petitioners claim, first, that the alleged invalidity of the transfer of the WMCP shares to Sagittarius
violates the fourth paragraph of Section 2 of Article XII of the Constitution; second, that it is
contrary to the provisions of the WMCP FTAA itself; and third, that the sale of the shares is
suspect and should therefore be the subject of a case in which its validity may properly be
litigated.

On the first ground, petitioners assert that paragraph 4 of Section 2 of Article XII permits the
government to enter into FTAAs only with 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 resources to only three species of contracts -production sharing, co-production and joint venture -- to the exclusion of all other arrangements or
variations thereof, and the WMCP FTAA may therefore not be validly assumed and implemented
by Sagittarius. In short, petitioners claim that a Filipino corporation is not allowed by the
Constitution to enter into an FTAA with the government.
However, a textual analysis of the first paragraph of Section 2 of Article XII does not support
petitioners' argument. The pertinent part of the said provision states: "Sec. 2. x x x The
exploration, development and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may enter into coproduction, joint venture, or production-sharing agreements with Filipino citizens, or corporations
or associations at least sixty per centum of whose capital is owned by such citizens. x x
x." Nowhere in the provision is there any express limitation or restriction insofar as arrangements
other than the three aforementioned contractual schemes are concerned.
Neither can one reasonably discern any implied stricture to that effect. Besides, there is no basis
to believe that the framers of the Constitution, a majority of whom were obviously concerned with
furthering the development and utilization of the country's natural 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 Filipino
corporations in the development of our natural resources.

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
another foreign corporation, there is a logical application of the 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 safeguards, considering
that the new contractor is the subject of a foreign government.
On the other hand, when the transferee of the FTAA happens to be a Filipino corporation, the need
for such safeguard is not critical; hence, the lack of prior approval and notification may not be
deemed fatal as to render the transfer invalid. Besides, it is not as if approval by the President is
entirely absent in this instance. As pointed out by private respondent in its Memorandum,13 the
issue of approval is the subject of one of the cases brought by Lepanto against Sagittarius in GR
No. 162331. That case involved the review of the Decision of the Court of Appeals dated
November 21, 2003 in CA-GR SP No. 74161, which affirmed the DENR Order dated December
31, 2001 and the Decision of the Office of the President dated July 23, 2002, 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 January 23, 2001, executed between WMC and Sagittarius, the
price 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 capital stock of P250 million and a paid up capital
of P60 million. Therefore, at the time of approval of the sale by the DENR, the debt-to-equity ratio
of the transferee was over 9:1 -- hardly ideal for an FTAA contractor, according to petitioners.

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

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

FTAA Not Intended

Solely for Foreign Corporation

FTAA Not Void,

Thus Transferrable

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

To bolster further their claim that the case is not moot, petitioners insist that the FTAA is void and,
hence cannot be transferred; and that 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 parties serve
to ratify the void contract.

No Need for a Separate

Litigation of the Sale of Shares
Petitioners claim as third ground the "suspicious" sale of shares from WMC to Sagittarius; hence,
the need to litigate it in a separate case. Section 40 of RA 7942 (the Mining Law) allegedly
requires the President's prior approval of a transfer.
A re-reading of the said provision, however, leads to a different conclusion. "Sec.
40. Assignment/Transfer -- A financial or technical assistance agreement may be assigned or
transferred, in whole or in part, to a qualified person subject to the prior approval of the President:
Provided, That the President shall notify Congress of every financial or technical assistance
agreement assigned or converted in accordance with this provision within thirty (30) days from the
date of the approval thereof."

While the discussion in their Final Memorandum was skimpy, petitioners in their Comment (on the
MR) did ratiocinate that this Court had declared the FTAA to be void because, at the time it was
executed with WMCP, the latter was a fully foreign-owned corporation, in which the former vested
full control and management with respect to the exploration, development and utilization of mineral
resources, contrary to the provisions of paragraph 4 of Section 2 of Article XII of the Constitution.
And since the FTAA was per se void, no valid right could be transferred; neither could it be ratified,
so petitioners conclude.
Petitioners have assumed as fact that which has yet to be established. First and foremost, the
Decision of this Court declaring the FTAA void has not yet become final. That was precisely the
reason the Court still heard Oral Argument in this case. Second, the FTAA does not vest in the
foreign corporation full control and supervision over the exploration, development and utilization of
mineral resources, to the exclusion of the government. This point will be dealt with in greater detail
below; but for now, suffice it to say that a perusal of the FTAA provisions will prove that the
government has effective overall direction and control of the mining operations, including
marketing and product pricing, and that the contractor's work programs and budgets are subject to
its review and approval or disapproval.

As will be detailed later on, the government does not have to micro-manage the mining operations
and dip its hands into the day-to-day management of the enterprise in order to be considered as
having overall control and direction. Besides, for practical and pragmatic reasons, there is a need
for government agencies to delegate certain aspects of the management work to the contractor.
Thus the basis for declaring the FTAA void still has to be revisited, reexamined and reconsidered.
Petitioners sniff at the citation of Chavez v. Public Estates Authority,14 and Halili v. CA,15 claiming
that the doctrines in these cases are wholly inapplicable to the instant case.
Chavez clearly teaches: "Thus, the Court has ruled consistently that where a Filipino citizen sells
land to an alien who later sells the land to a Filipino, the invalidity of the first transfer is corrected
by the subsequent sale to a citizen. Similarly, where the alien who buys the land subsequently
acquires Philippine citizenship, the sale is validated since the purpose of the constitutional ban to
limit land ownership to Filipinos has been achieved. In short, the law disregards the constitutional
disqualification of the buyer to hold land if the land is subsequently transferred to a qualified party,
or the buyer himself becomes a qualified party."16
In their Comment, petitioners contend that in Chavez and Halili, the object of the transfer (the land)
was not what was assailed for alleged unconstitutionality. Rather, it was the transaction that was
assailed; hence subsequent compliance with 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 assailed as
invalid and unconstitutional. So, petitioners claim that the subsequent transfer of a void FTAA to a
Filipino corporation would not cure the defect.
Petitioners are confusing themselves. The present Petition has been filed, precisely because the
grantee of the FTAA was a wholly owned subsidiary of a foreign corporation. It cannot be gainsaid
that anyone would have asserted that the same FTAA was void if it had at the outset been issued
to a Filipino corporation. The FTAA, therefore, is not per se defective or unconstitutional. It was
questioned only because it had been issued to an allegedly non-qualified, foreign-owned
corporation.
We believe that this case is clearly analogous to Halili, in which the land acquired by a non-Filipino
was re-conveyed to a qualified vendee and the original transaction was thereby cured.
Paraphrasing Halili, the same rationale applies to the instant case: assuming arguendo the
invalidity of its prior grant to a foreign corporation, the disputed FTAA -- being now held by a
Filipino corporation -- can no longer be assailed; the objective of the constitutional provision -- to
keep the exploration, development and utilization of our natural resources in Filipino hands -- has
been served.
More accurately speaking, the present situation is one degree better than that obtaining in Halili, in
which the original sale to a non-Filipino was clearly and indisputably violative of the constitutional
prohibition and thus voidab initio. In the present case, the issuance/grant of the subject FTAA to
the then foreign-owned WMCP was notillegal, void or unconstitutional at the time. The matter had
to be brought to court, precisely for adjudication as to whether the FTAA and the Mining Law had
indeed violated the Constitution. Since, up to this point, the decision of this Court declaring the
FTAA void has yet to become final, to all intents and purposes, the FTAA must be deemed valid
and constitutional.17
At bottom, we find completely outlandish petitioners' contention that an FTAA could be entered into
by the government only with a foreign corporation, never with a Filipino enterprise. Indeed, the
nationalistic provisions of the Constitution are all anchored on the protection of Filipino interests.
How petitioners can now argue that foreigners have the exclusive right to FTAAs totally overturns
the entire basis of the Petition -- preference for the Filipino in the exploration, development and
utilization of our natural resources. It does not take deep knowledge of law and logic to understand
that what the Constitution grants to foreigners should be equally available to Filipinos.

Second Issue:
Whether the Court Can Still Decide the Case,
Even Assuming It Is Moot
All the protagonists are in agreement that the Court has jurisdiction to decide this controversy,
even assuming it to be moot.
Petitioners stress the following points. First, while a case becomes moot and academic
when "there is no more actual controversy between the parties or no useful purpose can be
served in passing upon the merits,"18 what is at issue in the instant case is not only the validity of
the WMCP FTAA, but also the constitutionality of RA 7942 and its Implementing Rules and
Regulations. Second, the acts of private respondent cannot operate to cure the law of its alleged
unconstitutionality or to divest this Court of its jurisdiction to decide. Third, the Constitution
imposes upon the Supreme Court the duty to declare invalid any law that offends the Constitution.
Petitioners also argue that no amendatory laws have been passed to make the Mining Act of 1995
conform to constitutional strictures (assuming that, at present, it does not); that public respondents
will continue to implement and enforce the statute until this Court rules otherwise; and that the said
law continues to be the source of legal authority in accepting, processing and approving numerous
applications for mining rights.
Indeed, it appears that as of June 30, 2002, some 43 FTAA applications had been filed with the
Mines and Geosciences Bureau (MGB), with an aggregate area of 2,064,908.65 hectares -spread over Luzon, the Visayas and Mindanao19 -- applied for. It may be a bit far-fetched to assert,
as petitioners do, that each and every FTAA that was entered into under the provisions of the
Mining Act "invites potential litigation" for as long as the constitutional issues are not resolved with
finality. Nevertheless, we must concede that there exists the distinct possibility that one or more of
the future FTAAs will be the subject of yet another suit grounded on constitutional issues.
But of equal if not greater significance is the cloud of uncertainty 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 Argument; and that Secretary General Romulo Neri of the
National Economic Development Authority (NEDA) requested this Court to allow him to speak,
during that Oral Argument, on the economic consequences of the Decision of January 27, 2004.20
We are convinced. We now agree that the Court must recognize the exceptional character of the
situation and the paramount public interest involved, as well as the necessity for a ruling to put an
end to the uncertainties plaguing the mining industry and the affected communities as a result of
doubts cast upon the constitutionality and validity of the Mining Act, the subject FTAA and future
FTAAs, and the need to avert a multiplicity of suits. ParaphrasingGonzales v. Commission on
Elections,21 it is evident that strong reasons of public policy demand that the constitutionality issue
be resolved now.22
In further support of the immediate resolution of the constitutionality issue, public respondents
cite Acop v. Guingona,23 to the effect that the courts will decide a question -- otherwise moot and
academic -- if it is "capable of repetition, yet evading review."24 Public respondents ask the Court to
avoid a situation in which the constitutionality issue may again arise with respect to another FTAA,
the resolution of which may not be achieved until after it has become too late for our mining
industry to grow out of its infancy. They also recall Salonga v. Cruz Pao,25 in which this Court
declared that "(t)he Court also has the duty to formulate guiding and controlling constitutional
principles, precepts, doctrines or rules. It has the symbolic function of educating the bench and bar
on the extent of protection given by constitutional guarantees. x x x."

The mootness of the case in relation to the WMCP FTAA led the undersigned ponente to state in
his dissent to the Decision that there was no more justiciable controversy and the plea to nullify the
Mining Law has become a virtual petition for declaratory relief.26 The entry of the Chamber of
Mines of the Philippines, Inc., however, has put into focus the seriousness of the allegations of
unconstitutionality of RA 7942 and DAO 96-40 which converts the case to one for prohibition 27 in
the enforcement of the said law and regulations.
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 contravened by RA 7942 and DAO 96-40, not whether
it was violated by specific acts implementing RA 7942 and DAO 96-40. "[W]hen an act of the
legislative department is seriously alleged to have infringed the Constitution, settling the
controversy becomes the duty of this Court. By the mere enactment of the questioned law or the
approval of the challenged action, the dispute is said to have ripened into a judicial controversy
even without any other overt act."28 This ruling can be traced from Taada v. Angara,29 in which the
Court said:
"In seeking to nullify an act of the Philippine Senate on the ground that it contravenes
the Constitution, the petition no doubt raises a justiciable controversy. Where an action
of the legislative branch is seriously alleged to have infringed the Constitution, it
becomes not only the right but in fact the duty of the judiciary to settle the dispute.

"The State shall protect the nation's marine wealth in its archipelagic waters, territorial
sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to
Filipino citizens.
"The Congress may, by law, allow small-scale utilization of natural resources by Filipino
citizens, as well as cooperative fish farming, with priority to subsistence fishermen and
fish-workers in rivers, lakes, bays and lagoons.
"The President may enter into agreements with foreign-owned corporations involving
either technical or financial assistance for large-scale exploration, development,
and utilization of minerals, petroleum, and other mineral oils according to the
general terms and conditions provided by 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.
"The President shall notify the Congress of every contract entered into in accordance
with this provision, within thirty days from its execution."31
No Restriction of Meaning by
a Verba Legis Interpretation

xxxxxxxxx
"As this Court has repeatedly and firmly emphasized in many cases, it will not shirk,
digress from or abandon its sacred duty and authority to uphold the Constitution in
matters that involve grave abuse of discretion brought before it in appropriate cases,
committed by any officer, agency, instrumentality or department of the government."30
Additionally, the entry of CMP into this case has also effectively forestalled any possible objections
arising from the standing or legal interest of the original parties.
For all the foregoing reasons, we believe that the Court should proceed to a resolution of the
constitutional issues in this case.

To interpret the foregoing provision, petitioners adamantly assert that the language of the
Constitution should prevail; that the primary method of interpreting it is to seek the ordinary
meaning of the words used in its provisions. They rely on rulings of this Court, such as the
following:
"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 which the constitutional provisions
are couched express the objective sought to be attained. In other words, verba
legis prevails. Only when the meaning of the words used is unclear and equivocal
should resort be made to extraneous aids of construction and interpretation, such as the
proceedings of the Constitutional Commission or Convention to shed light on and
ascertain the true intent or purpose of the provision being construed." 32

Third Issue:
The Proper Interpretation of the Constitutional Phrase
"Agreements Involving Either Technical or Financial Assistance"
The constitutional provision at the nucleus of the controversy is paragraph 4 of Section 2 of Article
XII of the 1987 Constitution. In order to appreciate its context, Section 2 is reproduced in full:

Very recently, in Francisco v. The House of Representatives,33 this Court indeed had the occasion
to reiterate the well-settled principles of constitutional construction:
"First, verba legis, that is, wherever possible, the words used in the Constitution must be
given theirordinary meaning except where technical terms are employed. x x x.
xxxxxxxxx

"Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development and utilization of natural 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-production, joint venture or production-sharing agreements with Filipino
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 exceeding twentyfive years, renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. In cases of water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of water power,
beneficial use may be the measure and limit of the grant.

"Second, where there is ambiguity, ratio legis est anima. The words of the Constitution
should be interpreted in accordance with the intent of its framers. x x x.
xxxxxxxxx
"Finally, ut magis valeat quam pereat. The Constitution is to be interpreted as a whole."34
For ease of reference and in consonance with verba legis, we reconstruct and stratify the
aforequoted Section 2 as follows:

1. All natural resources are owned by the State. Except for agricultural lands, natural
resources cannot be alienated by the State.
2. The exploration, development and utilization (EDU) of natural resources shall be
under the full control and supervision of the State.
3. The State may undertake these EDU activities through either of the following:
(a) By itself directly and solely
(b) By (i) co-production; (ii) joint venture; or (iii) production sharing
agreements with Filipino citizens or corporations, at least 60 percent of the
capital of which is owned by such citizens
4. Small-scale utilization of natural resources may be allowed by law in favor of Filipino
citizens.
5. For large-scale EDU of minerals, petroleum and other mineral oils, the President may
enter into "agreements with foreign-owned corporations involving either technical or
financial assistance according to the general terms and conditions provided by law x x
x."
Note that in all the three foregoing mining activities -- exploration, development and utilization -the State may undertake such EDU activities by itself or in tandem with Filipinos or Filipino
corporations, except in two instances:first, in small-scale utilization of natural resources, which
Filipinos may be allowed by law to undertake; andsecond, in large-scale EDU of minerals,
petroleum and mineral oils, which may be undertaken by the State via "agreements with foreignowned corporations involving either technical or financial assistance" as provided by law.
Petitioners claim that the phrase "agreements x x x involving either technical or financial
assistance" simply means technical assistance or financial assistance agreements, nothing more
and nothing else. They insist that there is no ambiguity in the phrase, and that a plain reading of
paragraph 4 quoted above leads to the inescapable conclusion that what a foreign-owned
corporation may enter into with the government is merely an agreement
for either financial or technical assistance only, for the large-scale exploration, development and
utilization of minerals, petroleum and other mineral oils; such a limitation, they argue, excludes
foreign management and operation of a mining enterprise.35
This restrictive interpretation, petitioners believe, is in line with the general policy enunciated by
the Constitution reserving to Filipino citizens and corporations the use and enjoyment of the
country's natural resources. They maintain that this Court's Decision36 of January 27, 2004
correctly declared the WMCP FTAA, along with pertinent provisions of RA 7942, void for allowing a
foreign contractor to have direct and exclusive management of a mining enterprise. Allowing such
a privilege not only runs counter to the "full control and supervision" that the State is
constitutionally mandated to exercise over the exploration, development and utilization of the
country's natural resources; doing so also vests in the foreign company "beneficial ownership" of
our mineral resources. It will be recalled that the Decision of January 27, 2004 zeroed in on
"management or other forms of assistance" or other activities associated with the "service
contracts" of the martial law regime, since "the management or operation of mining activities by
foreign contractors, which is the primary feature of service contracts, was precisely the evil that
the drafters of the 1987 Constitution sought to eradicate."
On the other hand, the intervenor37 and public respondents argue that the FTAA allowed by
paragraph 4 is not merely an agreement for supplying limited and specific financial or technical
services to the State. Rather, such FTAA is a comprehensive agreement for the foreign-owned

corporation's integrated exploration, development and utilization of mineral, petroleum or other

mineral oils on a large-scale basis. The agreement, therefore, authorizes the foreign contractor's
rendition of a whole range of integrated and comprehensive services, ranging from the discovery
to the development, utilization and production of minerals or petroleum products.
We do not see how applying a strictly literal or verba legis interpretation of paragraph 4 could
inexorably lead to the conclusions arrived at in the ponencia. First, the drafters' choice of words -their use of the phraseagreements x x x involving either technical or financial assistance -- does
not indicate the intent to exclude other modes of assistance. The drafters opted to
use involving when they could have simply said agreements forfinancial or technical
assistance, if that was their intention to begin with. In this case, the limitation would be very clear
and no further debate would ensue.
In contrast, the use of the word "involving" signifies the possibility of the inclusion of other
forms of assistance or activities having to do with, otherwise related to or compatible with
financial or technical assistance. The word "involving" as used in this context has three
connotations that can be differentiated thus:one, the sense of "concerning," "having to do with," or
"affecting"; two, "entailing," "requiring," "implying" or "necessitating"; and three, "including,"
"containing" or "comprising."38
Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the word
"involving," when understood in the sense of "including," as in including technical or financial
assistance, necessarily implies that there are activities other than those that are being included. In
other words, if an agreement includes technical or financial assistance, there is apart from such
assistance -- something else already in, and covered or may be covered by, the said agreement.
In short, it allows for the possibility that matters, other than those explicitly mentioned, could be
made part of the agreement. Thus, we are now led to the conclusion that the use of the word
"involving" implies that these agreements with foreign corporations are not limited to mere financial
or technical assistance. The difference in sense becomes very apparent when we juxtapose
"agreements for technical or financial assistance" against "agreements including technical or
financial assistance." This much is unalterably clear in a verba legisapproach.
Second, if the real intention of the drafters was to confine foreign corporations to financial or
technical assistance and nothing more, their language would have certainly been
so unmistakably restrictive and stringent as to leave no doubt in anyone's mind about their true
intent. For example, they would have used the sentence foreign corporations are absolutely
prohibited from involvement in the management or operation of mining or similar ventures or
words of similar import. A search for such stringent wording yields negative results. Thus, we
come to the inevitable conclusion that there was a conscious and deliberate decision to
avoid the use of restrictive wording that bespeaks an intent not to use the expression
"agreements x x x involving either technical or financial assistance" in an exclusionary and
limiting manner.
Deletion of "Service Contracts" to
Avoid Pitfalls of Previous Constitutions,
Not to Ban Service Contracts Per Se
Third, we do not see how a verba legis approach leads to the conclusion that "the management or
operation of mining activities by foreign contractors, which is the primary feature of service
contracts, was precisely the evil that the drafters of the 1987 Constitution sought to
eradicate." Nowhere in the above-quoted Section can be discerned the objective to keep out of
foreign hands the management or operation of mining activities or the plan to eradicate service
contracts as these were understood in the 1973 Constitution. Still, petitioners maintain that the
deletion or omission from the 1987 Constitution of the term "service contracts" found in the 1973

Constitution sufficiently proves the drafters' intent to exclude foreigners from the management of
the affected enterprises.
To our mind, however, such intent cannot be definitively and conclusively established from the
mere failure to carry the same expression or term over to the new Constitution, absent a more
specific, explicit and unequivocal statement to that effect. What petitioners seek (a complete ban
on foreign participation in the management of mining operations, as previously allowed by the
earlier Constitutions) is nothing short of bringing about a momentous sea change in the economic
and developmental policies; and the fundamentally capitalist, free-enterprise philosophy of our
government. We cannot imagine such a radical shift being undertaken by our government, to the
great prejudice of the mining sector in particular and our economy in general, merely on the basis
of the omission of the terms service contract from or the failure to carry them over to the new
Constitution. There has to be a much more definite and even unarguable basis for such a drastic
reversal of policies.
Fourth, a literal and restrictive interpretation of paragraph 4, such as that proposed by petitioners,
suffers from certain internal logical inconsistencies that generate ambiguities in the understanding
of the provision. As the intervenor pointed out, there has never been any constitutional or statutory
provision that reserved to Filipino citizens or corporations, at least 60 percent of which is Filipinoowned, the rendition of financial or technical assistance to companies engaged in mining or the
development of any other natural resource. The taking out of foreign-currency or pesodenominated loans or any other kind of financial assistance, as well as the rendition of technical
assistance -- 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 certainly be preposterous and unnecessary. As a matter of
fact, financial, and even technical assistance,regardless of the nationality of its source, would be
welcomed in the mining industry anytime with open arms, on account of the dearth of local capital
and the need to continually update technological know-how and improve technical skills.
There was therefore no need for a constitutional provision specifically allowing foreign-owned
corporations to render financial or technical assistance, whether in respect of mining or some other
resource development or commercial activity in the Philippines. The last point needs to be
emphasized: if merely financial or technical assistance agreements are allowed, there
would be no need to limit them to large-scale mining operations, as there would be far
greater need for them in the smaller-scale mining activities (and even in non-mining areas).
Obviously, the provision in question was intended to refer to agreements other than those
for mere financial or technical assistance.
In like manner, there would be no need to require the President of the Republic to report to
Congress, if only financial or technical assistance agreements are involved. Such agreements are
in the nature of foreign loans that -- pursuant to Section 20 of Article VII39 of the 1987 Constitution
-- the President may contract or guarantee, merely with the prior concurrence of the Monetary
Board. In turn, the Board is required to report to Congresswithin thirty days from the end of every
quarter of the calendar year, not thirty days after the agreement is entered into.
And if paragraph 4 permits only agreements for loans and other forms of financial, or technical
assistance, what is the point of requiring that they be based on real contributions to the economic
growth and general welfare of the country? For instance, how is one to measure and assess the
"real contributions" to the "economic growth" and "general welfare" of the country that may ensue
from a foreign-currency loan agreement or a technical-assistance agreement for, say, the
refurbishing of an existing power generating plant for a mining operation somewhere in Mindanao?
Such a criterion would make more sense when applied to a major business investment in a
principal sector of the industry.
The conclusion is clear and inescapable -- a verba legis construction shows that paragraph 4 is
not to be understood as one limited only to foreign loans (or other forms of financial support) and
to technical assistance. There is definitely more to it than that. These are provisions permitting

participation by foreign companies; requiring the President's report to Congress; and

using, as yardstick, contributions based on economic growth and general welfare. These
were neither accidentally inserted into the Constitution nor carelessly cobbled together by
the drafters in lip service to shallow nationalism. The provisions patently have significance and
usefulness in a context that allows agreements with foreign companies to include more than mere
financial or technical assistance.
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
question "To whom or for whom would it be rendered"? or Who is being 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 exploration, development and utilization of a
mineral resource, so it follows that the State must itself bear the liability and cost of repaying the
financing sourced from the foreign lender and/or of paying compensation to the foreign entity
rendering technical assistance.
However, it is of common knowledge, and of judicial notice as well, that the government is and has
for many many years been financially strapped, to the point that even the most essential services
have suffered serious curtailments -- education and health care, for instance, not to mention
judicial services -- have had to make do with inadequate budgetary allocations. Thus, government
has had to resort to build-operate-transfer and similar arrangements with the private sector, in
order to get vital infrastructure projects built without any governmental outlay.
The very recent brouhaha over the gargantuan "fiscal crisis" or "budget deficit" merely confirms
what the ordinary citizen has suspected all along. After the reality check, one will have to admit the
implausibility of a direct undertaking -- by the State itself -- of large-scale exploration, development
and utilization of minerals, petroleum and other mineral oils. Such an undertaking entails not only
humongous capital requirements, but also the attendant risk of never finding and developing
economically viable quantities of minerals, petroleum and other mineral oils.40
It is equally difficult to imagine that such a provision restricting foreign companies to the rendition
of only financial or technical assistance to the government was deliberately crafted by the drafters
of the Constitution, who were all well aware of the capital-intensive and technology-oriented nature
of large-scale mineral or petroleum extraction and the country's deficiency in precisely those
areas.41 To say so would be tantamount to asserting that the provision was purposely designed to
ladle the large-scale development and utilization of mineral, petroleum and related resources with
impossible conditions; and to remain forever and permanently "reserved" for future generations of
Filipinos.
A More Reasonable Look
at the Charter's Plain Language
Sixth, we shall now look closer at the plain language of the Charter and examining the logical
inferences. The drafters chose to emphasize and highlight agreements x x x involving either
technical or financial assistance in relation to foreign corporations' participation in large-scale
EDU. The inclusion of this clause on "technical or financial assistance" recognizes the fact that
foreign business entities and multinational corporations are the ones with the resources and knowhow to provide technical and/or financial assistance of the magnitude and type required for largescale exploration, development and utilization of these resources.
The drafters -- whose ranks included many academicians, economists, businessmen, lawyers,
politicians and government officials -- were not unfamiliar with the practices of foreign corporations
and multinationals.
Neither were they so nave as to believe that these entities would provide "assistance" without
conditionalities or some quid pro quo. Definitely, as business persons well know and as a matter of

judicial notice, this matter is not just a question of signing a promissory note or executing a
technology transfer agreement. Foreign corporations usually require that they be given a say in the
management, for instance, of day-to-day operations of the joint venture. They would demand the
appointment of their own men as, for example, operations managers, technical experts, quality
control heads, internal auditors or comptrollers. Furthermore, they would probably require seats on
the Board of Directors -- all these to ensure the success of the enterprise and the repayment of the
loans and other financial assistance and to make certain that the funding and the technology they
supply would not go to waste. Ultimately, they would also want to protect their business reputation
and bottom lines.42
In short, the drafters 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.
Thus, by specifying such "agreements involving assistance," the drafters necessarily gave implied
assent to everything that these agreements necessarily 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, PROVIDED THAT Philippine sovereignty over natural
resources and full control over the enterprise undertaking the EDU activities remain firmly in the
State.
Petitioners' Theory Deflated by the
Absence of Closing-Out Rules or Guidelines
Seventh and final point regarding the plain-language approach, one of the practical difficulties that
results from it is the fact that there is nothing by way of transitory provisions that would serve to
confirm the theory that the omission of the term "service contract" from the 1987 Constitution
signaled the demise of service contracts.
The framers knew at the time they were deliberating that there were various service contracts
extant and in force and effect, including those in the petroleum industry. Many of these service
contracts were long-term (25 years) and had several more years to run. If they had meant to ban
service contracts altogether, they would have had to provide for the termination or pretermination
of the existing contracts. Accordingly, they would have supplied the specifics and
the when and how of effecting the extinguishment of these existing contracts (or at least the
mechanics for determining them); and of putting in place the means to address the just claims of
the contractors for compensation for their investments, lost opportunities, and so on, if not for the
recovery thereof.
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 these closing-out issues, perhaps by way of general
guidelines and a timeline within which to carry them out. The following are some extant examples
of such transitory guidelines set forth in Article XVIII of our Constitution:
"Section 23. Advertising entities affected by paragraph (2), Section 11 of Article XVI of
this Constitution shall have five years from its ratification to comply on a graduated and
proportionate basis with the minimum Filipino ownership requirement therein.
xxxxxxxxx
"Section 25. After the expiration in 1991 of the Agreement between the 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 cast by the people in a national referendum held for that purpose,
and recognized as a treaty by the other contracting State.
"Section 26. The authority to issue sequestration or freeze orders under Proclamation
No. 3 dated March 25, 1986 in relation to the recovery of ill-gotten wealth shall remain
operative for not more than eighteen months after the ratification of this Constitution.
However, in the national interest, as certified by the President, the Congress may
extend such period.
A sequestration or freeze order shall be issued only upon showing of a prima facie case.
The order and the list of the sequestered or frozen properties shall forthwith be
registered with the proper court. For orders issued before the ratification of this
Constitution, the corresponding judicial action or proceeding shall be filed within six
months from its ratification. For those issued after such ratification, the judicial action or
proceeding shall be commenced within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action or
proceeding is commenced as herein provided." 43]
It is inconceivable that the drafters of the Constitution would leave such an important matter -- an
expression of sovereignty as it were -- indefinitely hanging in the air in a formless and ineffective
state. Indeed, the complete absence of even a general framework only serves to further deflate
petitioners' theory, like a child's balloon losing its air.
Under the circumstances, the logical inconsistencies resulting from petitioners' literal and
purely verba legisapproach to paragraph 4 of Section 2 of Article XII compel a resort to other aids
to interpretation.
Petitioners' Posture Also Negated
by Ratio Legis Et Anima
Thus, in order to resolve the inconsistencies, incongruities and ambiguities encountered and to
supply the deficiencies of the plain-language approach, there is a need for recourse to the
proceedings of the 1986 Constitutional Commission. There is a need for ratio legis et anima.
Service Contracts Not
"Deconstitutionalized"
Pertinent portions of the deliberations of the members of the Constitutional Commission (ConCom)
conclusively show that they discussed agreements involving either technical or financial
assistance in the same breadth asservice contracts and used the terms interchangeably. The
following exchange between Commissioner Jamir (sponsor of the provision) and Commissioner
Suarez irrefutably proves that the "agreements involving technical or financial assistance" were
none other than service contracts.
THE PRESIDENT. Commissioner Jamir is recognized. We are still on Section 3.
MR. JAMIR. Yes, Madam President. With respect to the second paragraph of Section 3,
my amendment by substitution reads: THE PRESIDENT MAY ENTER INTO
AGREEMENTS WITH FOREIGN-OWNED CORPORATIONS INVOLVING EITHER
TECHNICAL OR FINANCIAL ASSISTANCE FOR LARGE-SCALE EXPLORATION,
DEVELOPMENT AND UTILIZATION OF NATURAL RESOURCES ACCORDING TO
THE TERMS AND CONDITIONS PROVIDED BY LAW.

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

MR. GASCON. Commissioner Jamir had proposed an amendment with regard to

special service contracts which was accepted by the Committee. Since the Committee
has accepted it, I would like to ask some questions.

MR. JAMIR. Thank you.

THE PRESIDENT. Commissioner Gascon may proceed.
THE PRESIDENT. Commissioner Suarez is recognized.
MR. SUAREZ. Thank you, Madam President.
Will Commissioner Jamir answer a few clarificatory questions?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. This particular portion of the section has reference to what was
popularly known before as service contracts, among other things, is that correct?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. As it is formulated, the President may enter into service contracts but
subject to the guidelines that may be promulgated by Congress?
MR. JAMIR. That is correct.
MR. SUAREZ. Therefore, that aspect of negotiation and consummation will fall on the
President, not upon Congress?
MR. JAMIR. That is also correct, Madam President.
MR. SUAREZ. Except that all of these contracts, service or otherwise, must be made
strictly in accordance with guidelines prescribed by Congress?

MR. GASCON. As it is proposed now, such service contracts will be entered into by
the President with the guidelines of a general law on service contract to be enacted by
Congress. Is that correct?
MR. VILLEGAS. The Commissioner is right, Madam President.
MR. GASCON. According to the original proposal, if the President were to enter into a
particular agreement, he would need the concurrence of Congress. Now that it has been
changed by the proposal of Commissioner Jamir in that Congress will set the general
law to which the President shall comply, the President will, therefore, not need the
concurrence of Congress every time he enters into service contracts. Is that correct?
MR. VILLEGAS. That is right.
MR. GASCON. The proposed amendment of Commissioner Jamir is in indirect contrast
to my proposed amendment, so I would like to object and present my proposed
amendment to the body.
xxxxxxxxx
MR. GASCON. Yes, it will be up to the body.
I feel that the general law to be set by Congress as regard service contract
agreements which the President will enter into might be too general or since we do not
know the content yet of such a law, it might be that certain agreements will be
detrimental to the interest of the Filipinos. This is in direct contrast to my proposal which
provides that there be effective constraints in the implementation of service contracts.

MR. JAMIR. That is also correct.

MR. SUAREZ. And the Gentleman is thinking in terms of a law that uniformly covers
situations of the same nature?
MR. JAMIR. That is 100 percent correct.
MR. SUAREZ. I thank the Commissioner.
MR. JAMIR. Thank you very much.44
The following exchange leaves no doubt that the commissioners knew exactly what they were
dealing with: service contracts.
THE PRESIDENT. Commissioner Gascon is recognized.

So instead of a general law to be passed by Congress to serve as a guideline to the

President when entering into service contract agreements, I propose that
every service contract entered into by the President would need the concurrence of
Congress, so as to assure the Filipinos of their interests with regard to the issue in
Section 3 on all lands of the public domain. My alternative amendment, which we will
discuss later, reads: THAT THE PRESIDENT SHALL ENTER INTO SUCH
AGREEMENTS ONLY WITH THE CONCURRENCE OF TWO-THIRDS VOTE OF ALL
THE MEMBERS OF CONGRESS SITTING SEPARATELY.
xxxxxxxxx
MR. BENGZON. The reason we made that shift is that we realized the original proposal
could breed corruption. By the way, this is not just confined to service contracts but
also to financial assistance. If we are going to make every single contract subject to
the concurrence of Congress which, according to the Commissioner's amendment is
the concurrence of two-thirds of Congress voting separately then (1) there is a very
great chance that each contract will be different from another; and (2) there is a great
temptation that it would breed corruption because of the great lobbying that is going to
happen. And we do not want to subject our legislature to that.

Now, to answer the Commissioner's apprehension, by "general law," we do not mean

statements of motherhood. Congress can build all the restrictions that it wishes into that
general law so that every contract entered into by the President under that specific area
will have to be uniform. The President has no choice but to follow all the guidelines that
will be provided by law.
MR. GASCON. But my basic problem is that we do not know as of yet the contents of
such a general law as to how much constraints there will be in it. And to my mind,
although the Committee's contention that the regular concurrence from Congress would
subject Congress to extensive lobbying, I think that is a risk we will have to take since
Congress is a body of representatives of the people whose membership will be
changing regularly as there will be changing circumstances every time certain
agreements are made. It would be best then to keep in tab and attuned to the interest of
the Filipino people, whenever the President enters into any agreement with regard to
such an important matter as technical or financial assistance for large-scale
exploration, development and utilization of natural resources or service contracts,
the people's elected representatives should be on top of it.
xxxxxxxxx
MR. OPLE. Madam President, we do not need to suspend the session. If Commissioner
Gascon needs a few minutes, I can fill up the remaining time while he completes his
proposed amendment. I just wanted to 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
CONTRACT ENTERED INTO IN ACCORDANCE WITH THE GENERAL LAW. I think
the reason is, if I may state it briefly, as Commissioner Bengzon said, Congress can
always change the general law later on to conform to new perceptions of standards that
should be built into service contracts. But the only way Congress can do this is if there
were a notification requirement from the Office of the President that suchservice
contracts had been entered into, subject then to the scrutiny of the Members of
Congress. This pertains to a situation where the service contracts are already entered
into, and all that this amendment seeks is the reporting requirement from the Office of
the President. Will Commissioner Jamir entertain that?
MR. JAMIR. I will gladly do so, if it is still within my power.
MR. VILLEGAS. Yes, the Committee accepts the amendment.
xxxxxxxxx
SR. TAN. Madam President, may I ask a question?
THE PRESIDENT. Commissioner Tan is recognized.
SR. TAN. Am I correct in thinking that the only difference between these future service
contracts and the past service contracts under Mr. Marcos is the general law to be
enacted by the legislature and the notification of Congress by the President? That is the
only difference, is it not?

MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
SR. TAN. Thank you, Madam President.45
More Than Mere Financial
and Technical Assistance
Entailed by the Agreements
The clear words of Commissioner Jose N. Nolledo quoted below explicitly and eloquently
demonstrate that the drafters knew that the agreements with foreign corporations were going to
entail not mere technical or financial assistance but, rather, foreign investment in and
management of an enterprise involved in large-scale exploration,development and utilization of
minerals, petroleum, and other mineral oils.
THE PRESIDENT. Commissioner Nolledo is recognized.
MR. NOLLEDO. Madam President, I have the permission of the Acting Floor Leader to
speak for only two minutes in favor of the amendment of Commissioner Gascon.
THE PRESIDENT. Commissioner Nolledo may proceed.
MR. NOLLEDO. With due respect to the members of the Committee and Commissioner
Jamir, I am in favor of the objection of Commissioner Gascon.
Madam President, I was one of those who refused to sign the 1973
Constitution, and one of the reasons is that there were many provisions in the
Transitory Provisions therein that favored aliens. I was shocked when I read a
provision authorizing service contracts while we, in this Constitutional
Commission, provided for Filipino control of the economy. We are, therefore,
providing for exceptional instances where aliens may circumvent Filipino
control of our economy. And one way of circumventing the rule in favor of
Filipino control of the economy is to recognize service contracts.
As far as I am concerned, if I should have my own way, I am for the complete
deletion of this provision. However, we are presenting a compromise in the
sense that we are requiring a two-thirds vote of all the Members of Congress
as a safeguard. I think we should not mistrust the future Members of
Congress by saying that the purpose of this provision is to avoid corruption.
We cannot claim that they are less patriotic than we are. I think the Members
of this Commission should know that entering into service contracts is an
exception to the rule on protection of natural resources for the interest of the
nation, and therefore, being an exception it should be subject, whenever
possible, to stringent rules. It seems to me that we are liberalizing the rules in
favor of aliens.
I say these things with a heavy heart, Madam President. I do not claim to be a
nationalist, but I love my country. Although we need investments, we must
adopt safeguards that are truly reflective of the sentiments of the people and
not mere cosmetic safeguards as they now appear in the Jamir amendment.
(Applause)

MR. VILLEGAS. That is right.

Thank you, Madam President.46
SR. TAN. So those are the safeguards.

Another excerpt, featuring then Commissioner (now Chief Justice) Hilario G. Davide Jr., indicates
the limitations of the scope of such service contracts -- they are valid only in regard to minerals,
petroleum and other mineral oils, not to all natural resources.
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. Thank you, Madam President. This is an amendment to the Jamir
amendment and also to the Ople amendment. I propose to delete "NATURAL
RESOURCES" and substitute it with the following: MINERALS, PETROLEUM AND
OTHER MINERAL OILS. On the Ople amendment, I propose to add: THE
NOTIFICATION TO CONGRESS SHALL BE WITHIN THIRTY DAYS FROM THE
EXECUTION OF THE SERVICE CONTRACT.
THE PRESIDENT. What does the Committee say with respect to the first amendment in
lieu of "NATURAL RESOURCES"?
MR. VILLEGAS. Could Commissioner Davide explain that?
MR. DAVIDE. Madam President, with the use of "NATURAL RESOURCES" here, it
would necessarily include all lands of the public domain, our marine resources, forests,
parks and so on. So we would like to limit the scope of these service contracts to those
areas really where these may be needed, the exploitation, development and exploration
of minerals, petroleum and other mineral oils. And so, we believe that we should 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.
MR. SUAREZ. Just a point of clarification again, Madam President. When the
Commissioner made those enumerations and specifications, I suppose he deliberately
did not include "agricultural land"?
MR. DAVIDE. That is precisely the reason we have to enumerate what these resources
are into whichservice contracts may enter. So, beyond the reach of any service
contract will be lands of the public domain, timberlands, forests, marine resources,
fauna and flora, wildlife and national parks.47
After the Jamir amendment was voted upon and approved by a vote of 21 to 10 with 2
abstentions, Commissioner Davide made the following statement, which is very relevant to our
quest:

The foregoing are mere fragments of the framers' lengthy discussions of the provision dealing
with agreements x x x involving either technical or financial assistance, which ultimately became
paragraph 4 of Section 2 of Article XII of the Constitution. Beyond any doubt, the members of the
ConCom were actually debating about the martial-law-era service contracts for which they were
crafting appropriate safeguards.
In the voting that led to the approval of Article XII by the ConCom, the explanations given by
Commissioners Gascon, Garcia and Tadeo indicated that they had voted to reject this provision on
account of their objections to the "constitutionalization" of the "service contract" concept.
Mr. Gascon said, "I felt that if we would constitutionalize any provision on service contracts, this
should always be with the concurrence of Congress and not guided only by a general law to be
promulgated by Congress."49Mr. Garcia explained, "Service contracts are given constitutional
legitimization in Sec. 3, even when they have been proven to be inimical to the interests of the
nation, providing, as they do, the legal loophole for the exploitation of our natural resources for the
benefit of foreign interests."50 Likewise, Mr. Tadeo cited inter alia the fact that service contracts
continued to subsist, enabling foreign interests to benefit from our natural resources. 51It was
hardly likely that these gentlemen would have objected so strenuously, had the provision
called for mere technical or financial assistance and nothing more.
The deliberations of the ConCom and some commissioners' explanation of their votes leave no
room for doubt that the service contract concept precisely underpinned the commissioners'
understanding of the "agreements involving either technical or financial assistance."
Summation of the
Concom Deliberations
At this point, we sum up the matters established, based on a careful reading of the ConCom
deliberations, as follows:
In their deliberations on what was to become paragraph 4, the framers used the
term service contracts in referring to agreements x x x involving either technical or
financial assistance.
They spoke of service contracts as the concept was understood in the 1973
Constitution.
It was obvious from their discussions that they were not about to ban or
eradicate service contracts.

THE PRESIDENT. Commissioner Davide is recognized.

MR. DAVIDE. I am very glad that Commissioner Padilla emphasized minerals,
petroleum and mineral oils. The Commission has just approved the possible foreign
entry into the development, exploration and utilization of these minerals, petroleum and
other mineral oils by virtue of the Jamir amendment. I voted in favor of the Jamir
amendment because it will eventually give way to vesting in exclusively Filipino citizens
and corporations wholly owned by Filipino citizens the right to utilize the other natural
resources. This means that as a matter of policy, natural resources should be utilized
and exploited only by Filipino citizens or corporations wholly owned by 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 into service contracts with foreign corporations precisely for the
development and utilization of such resources. And so, there is nothing to fear that we
will stagnate in the development of minerals, petroleum and mineral oils because we
now allow service contracts. x x x."48

Instead, they were plainly crafting provisions to put in place safeguards that would
eliminate or minimize the abuses prevalent during the marital law regime. In brief, 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. This provision reserves or limits to Filipino
citizens -- and corporations at least 60 percent of which is owned by such citizens -- the
exploration, development and utilization of natural resources.
This provision was prompted by the perceived insufficiency of Filipino capital and the
felt need for foreign investments in the EDU of minerals and petroleum resources.
The framers for the most part debated about the sort of safeguards that would be
considered adequate and reasonable. But some of them, having more "radical"
leanings, wanted to ban service contracts altogether; for them, the provision would

permit aliens to exploit and benefit from the nation's natural resources, which they felt
should be reserved only for Filipinos.
In the explanation of their votes, the individual commissioners were heard by the entire
body. They sounded off their individual opinions, openly enunciated their philosophies,
and supported or attacked the provisions with fervor. Everyone's viewpoint was heard.
In the final voting, the Article on the National Economy and Patrimony -- including
paragraph 4 allowing service contracts with foreign corporations as an exception to the
general norm in paragraph 1 of Section 2 of the same article -- was resoundingly
approved by a vote of 32 to 7, with 2 abstentions.
Agreements Involving Technical
or Financial Assistance Are
Service Contracts With Safeguards
From the foregoing, we are impelled to conclude that the phrase agreements involving either
technical or financial assistance, referred to in paragraph 4, are in fact service contracts. But
unlike those of the 1973 variety, the new ones are between foreign corporations acting as
contractors on the one hand; and on the other, the government as principal or "owner" of the
works. In the new service contracts, the foreign contractors provide capital, technology and
technical know-how, and managerial expertise in the creation and operation of large-scale
mining/extractive enterprises; and the government, through its agencies (DENR, MGB), actively
exercises control and supervision over the entire operation.
Such service contracts may be entered into only with respect to minerals, petroleum and other
mineral oils. The grant thereof is subject to several safeguards, among which are these
requirements:
(1) The service contract shall be crafted in accordance with a general law that will set
standard or uniform terms, conditions and requirements, presumably to attain a certain
uniformity in provisions and avoid the possible insertion of terms disadvantageous to the
country.
(2) The President shall be the signatory for the government because, supposedly before
an agreement is presented to the President for signature, it will have been vetted
several times over at different levels to ensure that it conforms to law and can withstand
public scrutiny.
(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 the agreement
and interpose timely objections, if any.
Use of the Record of the
ConCom to Ascertain Intent
At this juncture, we shall address, rather than gloss over, the use of the "framers' intent" approach,
and the criticism hurled by petitioners who quote a ruling of this Court:

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

Fundamentally speaking, in the process of rewriting the Charter, the members of the ConCom as a
group were supposed to represent the entire Filipino people. Thus, we cannot but regard their
views as being very much indicative of the thinking of the people with respect to the matters
deliberated upon and to the Charter as a whole.
It is therefore reasonable and unavoidable to make the following conclusion, based on the
above arguments. As written by the framers and ratified and adopted by the people, the
Constitution allows the continued use of service contracts with foreign corporations -- as
contractors who would invest in and 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 and tangible benefit of the Filipino people.
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 the Decision, which had these findings: (a) paragraph 4
of Section 2 of Article XII limits foreign involvement in the local mining industry to agreements
strictly for either financial or technical assistance only; (b) the same paragraph precludes
agreements that grant to foreign corporations the management of local mining operations, as such
agreements are purportedly in the nature of service contracts as these were understood under the
1973 Constitution; (c) these service contracts were supposedly "de-constitutionalized" and
proscribed by the omission of the term service contracts from the 1987 Constitution; (d) since the
WMCP FTAA contains provisions permitting the foreign contractor to manage the concern, the said
FTAA is invalid for being a prohibited service contract; and (e) provisions of RA 7942 and DAO 9640, which likewise grant managerial authority to the foreign contractor, are also invalid and
unconstitutional.
Ultimate Test: State's "Control"
Determinative of Constitutionality
But we are not yet at the end of our quest. Far from it. It seems that we are confronted with a
possible collision of constitutional provisions. On the one hand, paragraph 1 of Section 2 of Article
XII explicitly mandates the State to exercise "full control and supervision" over the exploration,
development and utilization of natural resources. On the other hand, paragraph 4 permits
safeguarded service contracts with foreign contractors. Normally, pursuant thereto, the contractors
exercise management prerogatives over the mining operations and the enterprise as a whole.
There is thus a legitimate ground to be concerned that either the State's full control and
supervision may rule out any exercise of management authority by the foreign contractor; or, the
other way around, allowing the foreign contractor full management prerogatives may ultimately
negate the State's full control and supervision.
Ut Magis Valeat
Quam Pereat
Under the third principle of constitutional construction laid down in Francisco -- ut magis valeat
quam pereat --every part of the Constitution is to be given effect, and the Constitution is to be read
and understood as a harmonious whole. Thus, "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. Before any further discussion, we must stress the primacy and supremacy
of the principle of sovereignty and State control and supervision over all aspects of exploration,
development and utilization of the country's natural resources, as mandated in the first paragraph
of Section 2 of Article XII.
But in the next breadth we have to point out that "full control and supervision" cannot be taken
literally to mean that the State controls and supervises everything involved, down to the minutest
details, and makes all decisionsrequired 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 reasonable degree of management prerogative and authority necessary and

indispensable to their proper functioning.
For one thing, such an interpretation would discourage foreign entry into large-scale exploration,
development and utilization activities; and result in the unmitigated stagnation of this sector, to the
detriment of our nation's development. This scenario renders paragraph 4 inoperative and useless.
And as respondents have correctly pointed out, the government does not have to micro-manage
the mining operations and dip its hands into the day-to-day affairs of the enterprise in order for it to
be considered as having full control and supervision.
The concept of control53 adopted in Section 2 of Article XII must be taken to mean less than
dictatorial, all-encompassing control; but nevertheless sufficient to give the State the power to
direct, restrain, regulate and govern the affairs of the extractive enterprises. Control by the State
may be on a macro level, through the establishment of policies, guidelines, regulations, industry
standards and similar measures that would enable the government to control the conduct of affairs
in various enterprises and restrain activities deemed not desirable or beneficial.
The end in view is ensuring that these enterprises contribute to the economic development and
general welfare of the country, conserve the environment, and uplift the well-being of the affected
local communities. Such a concept of control would be compatible with permitting the foreign
contractor sufficient and reasonable management authority over the enterprise it invested in, in
order to ensure that it is operating efficiently and profitably, to protect its investments and to enable
it to succeed.
The question to be answered, then, is whether RA 7942 and its Implementing Rules enable
the government to exercise that degree of control sufficient to direct and regulate the
conduct of affairs of individual enterprises and restrain undesirable activities.
On the resolution of these questions will depend the validity and constitutionality of certain
provisions of the Philippine Mining Act of 1995 (RA 7942) and its Implementing Rules and
Regulations (DAO 96-40), as well as the WMCP FTAA.
Indeed, petitioners charge54 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
over to fully foreign-owned corporations, with the result that the State is allegedly reduced to a
passive regulator dependent on submitted plans 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 decisions made by the
enterprise. Petitioners then conclude that the law, the implementing regulations, and the WMCP
FTAA cede "beneficial ownership" of the mineral resources to the foreign contractor.
A careful scrutiny of the provisions of RA 7942 and its Implementing Rules belies petitioners'
claims. Paraphrasing the Constitution, Section 4 of the statute clearly affirms the State's control
thus:
"Sec. 4. Ownership of Mineral Resources. Mineral resources are owned by the State
and the exploration, development, utilization and processing thereof shall be under its
full control and supervision. The State may directly undertake such activities or it may
enter into mineral agreements with contractors.
"The State shall recognize and protect the rights of the indigenous cultural communities
to their ancestral lands as provided for by the Constitution."
The aforequoted provision is substantively reiterated in Section 2 of DAO 96-40 as follows:

"Sec. 2. Declaration of Policy. All mineral resources in public and private lands within the
territory and exclusive economic zone of the Republic of the Philippines are owned by
the State. It shall be the responsibility of the State to promote their rational exploration,
development, utilization and conservation through the combined efforts of the
Government and private sector in order to enhance national growth in a way that
effectively safeguards the environment and protects the rights of affected communities."
Sufficient Control Over Mining
Operations Vested in the State
by RA 7942 and DAO 96-40
RA 7942 provides for the State's control and supervision over mining operations. The following
provisions thereof establish the mechanism of inspection and visitorial rights over mining
operations and institute reportorial requirements in this manner:
1. Sec. 8 which provides for the DENR's power of over-all supervision and periodic
review for "the conservation, management, development and proper use of the State's
mineral resources";
2. Sec. 9 which authorizes the Mines and Geosciences Bureau (MGB) under the DENR
to exercise "direct charge in the administration and disposition of mineral resources",
and empowers the MGB to "monitor the compliance by the contractor of the terms and
conditions of the mineral agreements", "confiscate surety and performance bonds", and
deputize whenever necessary any member or unit of the Phil. National Police, barangay,
duly registered non-governmental organization (NGO) or any qualified person to police
mining activities;
3. Sec. 66 which vests in the Regional Director "exclusive jurisdiction over safety
inspections of all installations, whether surface or underground", utilized in mining
operations.
4. Sec. 35, which incorporates into all FTAAs the following terms, conditions and
warranties:

"(o) Such other terms and conditions consistent with the Constitution and with
this Act as the Secretary may deem to be for the best interest of the State and
the welfare of the Filipino people."
The foregoing provisions of Section 35 of RA 7942 are also reflected and
implemented in Section 56 (g), (h), (l), (m) and (n) of the Implementing Rules,
DAO 96-40.
Moreover, RA 7942 and DAO 96-40 also provide various stipulations confirming the government's
control over mining enterprises:
The contractor is to relinquish to the government those portions of the contract area not
needed for mining operations and not covered by any declaration of mining feasibility
(Section 35-e, RA 7942; Section 60, DAO 96-40).
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).
For violation of any of its terms and conditions, government may cancel an FTAA.
(Chapter XVII, RA 7942; Chapter XXIV, DAO 96-40).
An FTAA contractor is obliged to open its books of accounts and records for inspection
by the government (Section 56-m, DAO 96-40).
An FTAA contractor has to dispose of the minerals and by-products at the highest
market price and register with the MGB a copy of the sales agreement (Section 56-n,
DAO 96-40).
MGB is mandated to monitor the contractor's compliance with the terms and conditions
of the FTAA; and to deputize, when necessary, any member or unit of the Philippine
National Police, the barangay or a DENR-accredited nongovernmental organization to
police mining activities (Section 7-d and -f, DAO 96-40).

"(g) Mining operations shall be conducted in accordance with the provisions of

the Act and its IRR.

An FTAA cannot be transferred or assigned without prior approval by the President

(Section 40, RA 7942; Section 66, DAO 96-40).

"(h) Work programs and minimum expenditures commitments.

A mining project under an FTAA cannot proceed to the

construction/development/utilization stage, unless its Declaration of Mining Project
Feasibility has been approved by government (Section 24, RA 7942).

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

The Declaration of Mining Project Feasibility filed by the contractor cannot be approved
without submission of the following documents:
1. Approved mining project feasibility study (Section 53-d, DAO 96-40)

"(l) The contractors shall furnish the Government records of geologic,

accounting and other relevant data for its mining operation, and that books of
accounts and records shall be open for inspection by the government. x x x.
"(m) Requiring the proponent to dispose of the minerals at the highest price
and more advantageous terms and conditions.
"(n) x x x x x x x x x

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

3. Environmental compliance certificate (Section 70, RA 7942)
4. Approved environmental protection and enhancement program (Section 69,
RA 7942)

5. Approval by the Sangguniang Panlalawigan/Bayan/Barangay (Section 70,

RA 7942; Section 27, RA 7160)
6. Free and prior informed consent by the indigenous peoples concerned,
including payment of royalties through a Memorandum of Agreement (Section
16, RA 7942; Section 59, RA 8371)
The FTAA contractor is obliged to assist in the development of its mining community,
promotion of the general welfare of its inhabitants, and development of science and
mining technology (Section 57, RA 7942).
The FTAA contractor is obliged to submit reports (on quarterly, semi-annual or annual
basis as the case may be; per Section 270, DAO 96-40), pertaining to the following:
1. Exploration
2. Drilling
3. Mineral resources and reserves
4. Energy consumption
5. Production
6. Sales and marketing
7. Employment
8. Payment of taxes, royalties, fees and other Government Shares
9. Mine safety, health and environment
10. Land use
11. Social development
12. Explosives consumption
An FTAA pertaining to areas within government reservations cannot be granted without
a written clearance from the government agencies concerned (Section 19, RA 7942;
Section 54, DAO 96-40).
An FTAA contractor is required to post a financial guarantee bond in favor of the
government in an amount equivalent to its expenditures obligations for any particular
year. This requirement is apart from the representations and warranties of the contractor
that it has access to all the financing, managerial and technical expertise and technology
necessary to carry out the objectives of the FTAA (Section 35-b, -e, and -f, RA 7942).
Other reports to be submitted by the contractor, as required under DAO 96-40, are as
follows: an environmental report on the rehabilitation of the mined-out area and/or mine

waste/tailing covered area, and anti-pollution measures undertaken (Section 35-a-2);

annual reports of the mining operations and records of geologic accounting (Section 56m); annual progress reports and final report of exploration activities (Section 56-2).
Other programs required to be submitted by the contractor, pursuant to DAO 96-40, are
the following: a safety and health program (Section 144); an environmental work
program (Section 168); an annual environmental protection and enhancement program
(Section 171).
The foregoing gamut of requirements, regulations, restrictions and limitations imposed upon the
FTAA contractor by the statute and regulations easily overturns petitioners' contention. The setup
under RA 7942 and DAO 96-40 hardly relegates the State to the role of a "passive regulator"
dependent on submitted plans and reports. On the contrary, 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 for each of the
exploration, development and utilization phases of the mining enterprise.
Once these plans and reports are approved, the contractor is bound to comply with its
commitments therein. Figures for mineral production and sales are regularly monitored and
subjected to government review, in order to ensure that the products and by-products are disposed
of at the best prices possible; even copies of sales agreements have to be submitted to and
registered with MGB. And the contractor is mandated to open its books of accounts and records
for scrutiny, so as to enable the State to determine if the government share has been fully paid.
The State may likewise compel the contractor's compliance with mandatory requirements on mine
safety, health and environmental protection, and the use of anti-pollution technology and facilities.
Moreover, the contractor is also obligated to assist in the development of the mining community
and to pay royalties to the indigenous peoples concerned.
Cancellation of the FTAA may be the penalty for violation of any of its terms and conditions and/or
noncompliance with statutes or regulations. This general, all-around, multipurpose sanction is no
trifling matter, especially to a contractor who may have yet to recover the tens or hundreds of
millions of dollars sunk into a mining project.
Overall, considering the provisions of the statute and the regulations just discussed, we believe
that the State definitely possesses the means by which it can have the ultimate word in the
operation of the enterprise, set directions and objectives, and detect deviations and
noncompliance by the contractor; likewise, it has the capability to enforce compliance and to
impose sanctions, should the occasion therefor arise.
In other words, the FTAA contractor is not free to do whatever it pleases and get away with
it; on the contrary, it will have to follow the government line if it wants to stay in the
enterprise. Ineluctably then, RA 7942 and DAO 96-40 vest in the government more than a
sufficient degree of control and supervision over the conduct of mining operations.
Section 3(aq) of RA 7942
Not Unconstitutional
An objection has been expressed that Section 3(aq)55 of RA 7942 -- which allows a foreign
contractor to apply for and hold an exploration permit -- is unconstitutional. The reasoning is that
Section 2 of Article XII of the Constitution does not allow foreign-owned corporations to undertake
mining operations directly. They may act only as contractors of the State under an FTAA; and the
State, as the party directly undertaking exploitation of its natural resources, must hold through the
government all exploration permits and similar authorizations. Hence, Section 3(aq), in permitting
foreign-owned corporations to hold exploration permits, is unconstitutional.

The objection, however, is not well-founded. While the Constitution mandates the State to exercise
full control and supervision over the exploitation of mineral resources, nowhere does it require the
government to hold all exploration permits and similar authorizations. In fact, there is no prohibition
at all against foreign or local corporations or contractors holding exploration permits. The reason is
not hard to see.
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified person the
right to conduct exploration for all minerals in specified areas. Such a permit does not amount to
an authorization to extract and carry off the mineral resources that may be discovered. This phase
involves nothing but expenditures for exploring the contract area and locating the mineral bodies.
As no extraction is involved, there are no revenues or incomes to speak of. In short, the
exploration permit is an authorization for the grantee to spend its own funds on exploration
programs that are pre-approved by the government, without any right to recover anything should
no minerals in commercial quantities be discovered. The State risks nothing and loses nothing by
granting these permits to local or foreign firms; in fact, it stands to gain in the form of data
generated by the exploration activities.
Pursuant to Section 24 of RA 7942, an exploration permit grantee 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 feasibility accompanied by a work program for development. The approval of the
mining project feasibility and compliance with other requirements of RA 7942 vests in the grantee
the exclusive right to an MPSA or any other mineral agreement, or to an FTAA.
Thus, the permit grantee may apply for an MPSA, a joint venture agreement, a co-production
agreement, or an FTAA over the permit area, and the application shall be approved if the permit
grantee meets the necessary qualifications and the terms and conditions of any such agreement.
Therefore, the contractor will be in a position to extract minerals and earn revenues only when the
MPSA or another mineral agreement, or an FTAA, is granted. At that point, the contractor's rights
and obligations will be covered by an FTAA or a mineral agreement.
But prior to the issuance of such FTAA or mineral agreement, the exploration permit grantee (or
prospective contractor) cannot yet be deemed to have entered into any contract or agreement with
the State, and the grantee would definitely need to have some document or instrument as
evidence of its right to conduct exploration works within the specified area. This need is met by the
exploration permit issued pursuant to Sections 3(aq), 20 and 23 of RA 7942.
In brief, the exploration permit serves a practical and legitimate purpose in that it protects
the interests and preserves the rights of the exploration permit grantee (the would-be
contractor) -- foreign or local -- during the period of time that it is spending heavily on
exploration works, without yet being able to earn revenues to recoup any of its investments
and expenditures. Minus this permit and the protection it affords, the exploration works and
expenditures may end up benefiting only claim-jumpers. Such a possibility tends to discourage
investors and contractors. Thus, Section 3(aq) of RA 7942 may not be deemed unconstitutional.
The Terms of the WMCP FTAA
A Deference to State Control
A perusal of the WMCP FTAA also reveals a slew of stipulations providing for State control and
supervision:
1. The contractor is obligated to account for the value of production and sale of minerals
(Clause 1.4).

2. The contractor's work program, activities and budgets must be approved by/on behalf
of the State (Clause 2.1).
3. The DENR secretary has the power to extend the exploration period (Clause 3.2-a).
4. Approval by the State is necessary for incorporating lands into the FTAA contract area
(Clause 4.3-c).
5. The Bureau of Forest Development is vested with discretion in regard to approving
the inclusion of forest reserves as part of the FTAA contract area (Clause 4.5).
6. The contractor is obliged to relinquish periodically parts of the contract area not
needed for exploration and development (Clause 4.6).
7. A Declaration of Mining Feasibility must be submitted for approval by the State
(Clause 4.6-b).
8. The contractor is obligated to report to the State its exploration activities (Clause 4.9).
9. The contractor is required to obtain State approval of its work programs for the
succeeding two-year periods, containing the proposed work activities and expenditures
budget related to exploration (Clause 5.1).
10. The contractor is required to obtain State approval for its proposed expenditures for
exploration activities (Clause 5.2).
11. The contractor is required to submit an annual report on geological, geophysical,
geochemical and other information relating to its explorations within the FTAA area
(Clause 5.3-a).
12. The contractor is to submit within six months after expiration of exploration period a
final report on all its findings in the contract area (Clause 5.3-b).
13. The contractor, after conducting feasibility studies, shall submit a declaration of
mining feasibility, along with a description of the area to be developed and mined, a
description of the proposed mining operations and the technology to be employed, and a
proposed work program for the development phase, for approval by the DENR secretary
(Clause 5.4).
14. The contractor is obliged to complete the development of the mine, including
construction of the production facilities, within the period stated in the approved work
program (Clause 6.1).
15. The contractor is obligated to submit for approval of the DENR secretary a work
program covering each period of three fiscal years (Clause 6.2).
16. The contractor is to submit reports to the DENR secretary on the production, ore
reserves, work accomplished and work in progress, profile of its work force and
management staff, and other technical information (Clause 6.3).
17. Any expansions, modifications, improvements and replacements of mining facilities
shall be subject to the approval of the secretary (Clause 6.4).

18. The State has control with respect to the amount of funds that the contractor may
borrow within the Philippines (Clause 7.2).
19. The State has supervisory power with respect to technical, financial and marketing
issues (Clause 10.1-a).
20. The contractor is required to ensure 60 percent Filipino equity in the contractor,
within ten years of recovering specified expenditures, unless not so required by
subsequent legislation (Clause 10.1).
21. The State has the right to terminate the FTAA for the contractor's unremedied
substantial breach thereof (Clause 13.2);
22. The State's approval is needed for any assignment of the FTAA by the contractor to
an entity other than an affiliate (Clause 14.1).
We should elaborate a little on the work programs and budgets, and what they mean with respect
to the State's ability to exercise full control and effective supervision over the enterprise. For
instance, throughout the initial five-year exploration and feasibility phase of the 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 MGB) to the DENR secretary for approval.The programs will detail
the contractor's proposed exploration activities and budget covering each subsequent period of
two fiscal years.
In other words, the concerned government officials will be informed beforehand of the proposed
exploration activities and expenditures of the contractor for each succeeding two-year period, with
the right to approve/disapprove them or require changes or adjustments therein if deemed
necessary.
Likewise, under Clause 5.2(a), the amount that the contractor was supposed to spend for
exploration activities during the first contract year of the exploration period was fixed at not less
than P24 million; and then for the succeeding years, the amount shall be as agreed between the
DENR secretary and the contractor prior to the commencement of each subsequent fiscal year. If
no such agreement is arrived upon, the previous year's expenditure commitment shall apply.
This provision alone grants the government through the DENR secretary a very big say in the
exploration phase of the project. This fact is not something to be taken lightly, considering that
the government has absolutely no contribution to the exploration 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 such a degree of control over the project and, resultantly, over the mining
enterprise itself.
Following its exploration activities or feasibility studies, if the contractor believes that any part of
the contract area is likely to contain an economic mineral resource, it shall submit to the DENR
secretary a declaration of mining feasibility (per Clause 5.4 of the FTAA), together with a technical
description of the area delineated for development and production, a description of the proposed
mining operations including the technology to be used, a work program for development, an
environmental impact statement, and a description of the contributions to the economic and
general welfare of the country to be generated by the mining operations (pursuant to Clause 5.5).

Thus, notably, the development phase of the project is likewise subject to the control and
supervision of the government. It cannot be emphasized enough that the proper and timely
construction and deployment of the production facilities and the development of the mine are of
pivotal significance to the success of the mining venture. Any missteps here will potentially be very
costly to remedy. Hence, the submission of the work program for development to the DENR
secretary for approval is particularly noteworthy, considering that so many millions of dollars worth
of investments -- courtesy of the contractor -- are made to depend on the State's consideration
and action.
Throughout the operating period, the contractor is required to submit to the DENR secretary for
approval, copy furnished the director 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 mandated to
submit various quarterly and annual reports to the DENR secretary, copy furnished the director of
MGB, on the tonnages of production in terms of ores and concentrates, with corresponding
grades, values and destinations; reports of sales; total ore reserves, total tonnage of ores, work
accomplished and work in progress (installations and facilities related to mining operations),
investments made or committed, and so on and so forth.
Under Section VIII, during the period of mining operations, the contractor is also required to submit
to the DENR secretary (copy furnished the director of MGB) the work program and corresponding
budget for the contract area, describing the mining operations that are proposed to be carried out
during the period covered. The secretary is, of course, entitled to grant or deny approval of any
work program or budget and/or propose revisions thereto. Once the program/budget has been
approved, the contractor shall comply therewith.
In sum, the above provisions of the WMCP FTAA taken together, far from constituting a surrender
of control and a grant of beneficial ownership of mineral resources to the contractor in
question, bestow upon the State more than adequate control and supervision over the
activities of the contractor and the enterprise.
No Surrender of Control
Under the WMCP FTAA
Petitioners, however, take aim at Clause 8.2, 8.3, and 8.5 of the WMCP FTAA which, they say,
amount to a relinquishment of control by the State, since it "cannot truly impose its own discretion"
in respect of the submitted work programs.
"8.2. The Secretary shall be deemed to have approved any Work Programme or Budget
or variation thereofsubmitted by the Contractor unless within sixty (60) days after
submission by the Contractor the Secretary gives notice declining such approval or
proposing a revision of certain features and specifying its reasons therefor ('the
Rejection Notice').
8.3. If the Secretary gives a Rejection Notice, the Parties shall promptly meet and
endeavor to agree on amendments to the Work Programme or Budget. If the Secretary
and the Contractor fail to agree on the proposed revision within 30 days from delivery of
the Rejection Notice then the Work Programme or Budget or variation thereof proposed
by the Contractor shall be deemed approved, so as not to unnecessarily delay the
performance of the Agreement.
8.4. x x x x x x x x x

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

8.5. So far as is practicable, the Contractor shall comply with any approved Work
Programme and Budget. It is recognized by the Secretary and the Contractor that the
details of any Work Programmes or Budgets may require changes in the light of

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

Clause 8.5 provides the contractor a certain amount of flexibility to meet unexpected situations,
while still guaranteeing that the approved work programs and budgets are not abandoned
altogether. Clause 8.5 does not constitute proof that the State has relinquished control. And
ultimately, should there be disagreement with the actions taken by the contractor in this instance
as well as under Clause 8.3 discussed above, the DENR secretary may resort to
cancellation/termination of the FTAA as the ultimate sanction.
Discretion to Select Contract
Area Not an Abdication of Control
Next, petitioners complain that the contractor has full discretion to select -- and the government
has no say whatsoever as to -- the parts of the contract area to be relinquished pursuant to Clause
4.6 of the WMCP FTAA.56 This clause, however, does not constitute abdication of control. Rather, it
is a mere acknowledgment of the fact that the contractor will have determined, after appropriate
exploration works, which portions of the contract area do not contain minerals in commercial
quantities sufficient to justify developing the same and ought therefore to be relinquished. The
State cannot just substitute its judgment for that of the contractor and dictate upon the latter which
areas to give up.
Moreover, we can be certain that the contractor's self-interest will propel proper and efficient
relinquishment. According to private respondent,57 a mining company tries to relinquish as much
non-mineral areas as soon as possible, because the annual occupation fees paid to the
government are based on the total hectarage of the contract area, net of the areas relinquished.
Thus, the larger the remaining area, the heftier the amount of occupation fees to be paid by the
contractor. Accordingly, relinquishment is not an issue, given that the contractor will not want to
pay the annual occupation fees on the non-mineral parts of its contract area. Neither will it want to
relinquish promising sites, which other contractors may subsequently pick up.
Government Not a Subcontractor
Petitioners further maintain that the contractor can compel the government to exercise its power of
eminent domain to acquire surface areas within the contract area for the contractor's use. Clause
10.2 (e) of the WMCP FTAA provides that the government agrees that the contractor shall "(e)
have the right to require the Government at the Contractor's own cost, to purchase or acquire
surface areas for and on 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 to reimbursement of the costs of acquisition and
maintenance, adjusted for inflation, from the proceeds of sale."
According to petitioners, "government becomes a subcontractor to the contractor" and may, on
account of this provision, be compelled "to make use of its power of eminent domain, not for public
purposes but on behalf of a private party, i.e., the contractor." Moreover, the power of the courts to
determine the amount corresponding to the constitutional requirement of just compensation has
allegedly also been contracted away by the government, on account of the latter's commitment
that the acquisition shall be at such terms as may be acceptable to the contractor.
However, private respondent has proffered a logical explanation for the provision.58 Section 10.2(e)
contemplates a situation applicable to foreign-owned corporations. WMCP, at the time of the
execution of the FTAA, was a foreign-owned corporation and therefore not qualified to own land.
As contractor, it has at some future date to construct the infrastructure -- the mine processing
plant, the camp site, the tailings dam, and other infrastructure -- needed for the large-scale mining
operations. It will then have to identify and pinpoint, within the FTAA contract area, the particular
surface areas with favorable topography deemed ideal for such infrastructure and will need to
acquire the surface rights. The State owns the mineral deposits in the earth, and is also qualified
to own land.

Section 10.2(e) sets forth the mechanism whereby the foreign-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 the surface
land areas on behalf of the contractor, in order to enable the latter to proceed to fully implement
the FTAA.
The contractor, of course, shoulders the purchase price of the land. Hence, the provision allows it,
after termination of the FTAA, to be reimbursed from proceeds of the sale of the surface areas,
which the government will dispose of through public bidding. It should be noted that this provision
will not be applicable to Sagittarius as the present FTAA contractor, since it is a Filipino corporation
qualified to own and hold land. As such, it may therefore freely negotiate with the surface rights
owners and acquire the surface property in its own right.
Clearly, petitioners have needlessly jumped to unwarranted conclusions, without being aware of
the rationale for the said provision. 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.
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
transaction/s and foster transparency in the contractor's dealings with the local property owners.
The government, then, will not act as a subcontractor of the contractor; rather, it will facilitate the
transaction and enable the parties to avoid a technical violation of the Anti-Dummy Law.
Absence of Provision
Requiring Sale at Posted
Prices Not Problematic
The supposed absence of any provision in the WMCP FTAA directly and explicitly requiring the
contractor to sell the mineral products at posted or market prices is not a problem. Apart from
Clause 1.4 of the FTAA obligating the contractor to account for the total value of mineral
production and the sale of minerals, we can also look to Section 35 of RA 7942, which
incorporates into all FTAAs certain terms, conditions and warranties, including the following:

encumbrances of goods produced that can easily be sold and converted into cash that 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 deeds of assignment "by way of
security" over the production for the next twelve months and/or the proceeds of the sale thereof -or the corresponding accounts receivable, if sold on terms -- in favor of its creditor-banks. Such
deeds may include authorizing the creditors to sell the products themselves and to collect the
sales proceeds and/or the accounts receivable.
Seen in this context, Clause 10.2(l) is not something out of the ordinary or objectionable. In any
case, as will be explained below, even if it is allowed to mortgage or encumber the mineral endproducts themselves, the contractor is not freed of its obligation to pay the government its basic
and additional shares in the net mining revenue, which is the essential thing to consider.
In brief, the alarum raised over the contractor's right to mortgage the minerals is simply
unwarranted. Just the same, the contractor must account for the value of mineral production and
the sales proceeds therefrom. Likewise, under the WMCP FTAA, the government remains entitled
to its sixty percent share in the net mining revenues of the contractor. The latter's right to mortgage
the minerals does not negate the State's right to receive its share of net mining revenues.
Shareholders Free to Sell Their Stocks
Petitioners likewise criticize Clause 10.2(k), which gives the contractor authority "to change its
equity structure at any time." This provision may seem somewhat unusual, but considering that
WMCP then was 100 percent foreign-owned, any change would mean that such percentage would
either stay unaltered or be decreased in favor of Filipino ownership. Moreover, the foreign-held
shares may change hands freely. Such eventuality is as it should be.

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

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

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

Contractor's Right to Ask

For Amendment Not Absolute

For that matter, Section 56(n) of DAO 99-56 specifically obligates 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 agreement. After all, the provisions of prevailing statutes as well as rules and regulations
are deemed written into contracts.
Contractor's Right to Mortgage
Not Objectionable Per Se
Petitioners also question the absolute right of the contractor under Clause 10.2 (l) to mortgage and
encumber not only its rights and interests in the FTAA and the infrastructure and improvements
introduced, but also the mineral products extracted. Private respondents do not touch on this
matter, but we believe that this 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 security of mortgages on fixed assets, but also on

With respect to Clauses 10.4(e) and (i), petitioners complain that these provisions bind
government to allow amendments to the FTAA if required by banks and other financial institutions
as part of the 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 institutions, (the Government shall) cooperate with the Contractor in
such efforts provided that such financing arrangements will in no event reduce the Contractor's
obligations or the Government's rights hereunder." The colatilla obviously safeguards the State's
interests; if breached, it will give the government cause to object to the proposed amendments.
On the other hand, Clause 10.4(i) provides that "the Government shall favourably consider any
request from [the] Contractor for amendments of this Agreement which are necessary in order for
the Contractor to successfully obtain the financing." Petitioners see in this provision a complete
renunciation of control. We disagree.

The proviso does not say that the government shall grant any request for amendment. Clause
10.4(i) only obliges the State to favorably consider any such request, which is not at all
unreasonable, as it is not equivalent to saying that the government must automatically consent to
it. This provision should be read together with the rest of the FTAA provisions instituting
government control and supervision over the mining enterprise. The clause should not be given an
interpretation that enables the contractor to wiggle out of the restrictions imposed upon it by
merely suggesting that certain amendments are requested by the lenders.
Rather, it is up to the contractor to prove to the government that the requested changes to the
FTAA are indispensable, as they enable the contractor to obtain the needed financing; that without
such contract changes, the funders would absolutely refuse to extend the loan; that there are no
other sources of financing available to the contractor (a very unlikely scenario); and that without
the needed financing, the execution of the work programs will not proceed. But the bottom line is,
in the exercise of its power of control, the government has thefinal say on whether to approve or
disapprove such requested amendments to the FTAA. In short, approval thereof is not mandatory
on the part of the government.
In fine, the foregoing evaluation and analysis of the aforementioned FTAA provisions
sufficiently overturns petitioners' litany of objections to and criticisms of the State's
alleged lack of control.
Financial Benefits Not
Surrendered to the Contractor
One of the main reasons certain provisions of RA 7942 were struck down was the finding
mentioned in the Decision that beneficial ownership of the mineral resources had been conveyed
to the contractor. This finding was based on the underlying assumption, 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 all
the aspects of the mining operation, the above-cited provisions of R.A. No. 7942 have in
effect conveyed beneficial ownership over the nation's mineral resources to these contractors,
leaving the State with nothing but bare title thereto."60 As the WMCP FTAA contained similar
provisions deemed by the ponente to be abhorrent to the Constitution, the Decision struck down
the Contract as well.
Beneficial ownership has been defined as ownership recognized by law and capable of being
enforced in the courts at the suit of the beneficial owner.61 Black's Law Dictionary indicates that the
term is used in two senses:first, to indicate the interest of a beneficiary in trust property (also called
"equitable ownership"); and second, to refer to the power of a corporate shareholder to buy or sell
the shares, though the shareholder is not registered in the corporation's books as the
owner.62 Usually, beneficial ownership is distinguished from naked ownership, which is the
enjoyment of all the benefits and privileges of ownership, as against possession of the bare title to
property.

unduly benefits the contractor far in excess of the service rendered or value delivered, if any, in
exchange therefor.
A careful perusal of the statute itself and its implementing rules reveals that neither RA 7942 nor
DAO 99-56 can be said to convey beneficial ownership of any mineral resource or product to any
foreign FTAA contractor.
Equitable Sharing
of Financial Benefits
On the contrary, DAO 99-56, entitled "Guidelines Establishing the Fiscal Regime of Financial or
Technical Assistance Agreements" aims to ensure an equitable sharing of the benefits derived
from mineral resources. These benefits are to be equitably shared among the government
(national and local), the FTAA contractor, and the affected communities. The purpose is to ensure
sustainable mineral resources development; and a fair, equitable, competitive and stable
investment regime for the large-scale exploration, development and commercial utilization of
minerals. The general framework or concept followed in crafting the fiscal regime of the FTAA is
based on the principle that the government expects real contributions to the economic growth and
general welfare of the country, while the contractor expects a reasonable return on its investments
in the project.63
Specifically, under the fiscal regime, the government's expectation is, inter alia, the receipt of its
share from the taxes and fees normally paid by a mining enterprise. On the other hand, the FTAA
contractor is granted by the government certain fiscal and non-fiscal incentives64 to help support
the former's cash flow during the most critical phase (cost recovery) and to make the Philippines
competitive with other mineral-producing countries. After the contractor has recovered its initial
investment, it will pay all the normal taxes and fees comprising the basic share of the government,
plus an additional share for the government based on the options and formulae set forth in DAO
99-56.
The said DAO spells out the financial benefits the government will receive from an FTAA, referred
to as "the Government Share," composed of a basic government share and an additional
government share.
The basic government share is comprised of all direct taxes, fees and royalties, as well as other
payments made by the contractor during the term of the FTAA. These are amounts paid directly to
(i) the national government (through the Bureau of Internal Revenue, Bureau of Customs, Mines &
Geosciences Bureau and other national government agencies imposing taxes or fees), (ii) the
local government units where the mining activity is conducted, and (iii) persons and communities
directly affected by the mining project. The major taxes and other payments constituting the basic
government share are enumerated below:65
Payments to the National Government:

An assiduous examination of the WMCP FTAA uncovers no indication that it confers upon WMCP
ownership, beneficial or otherwise, of the mining property it is to develop, the minerals to be
produced, or the proceeds of their sale, which can be legally asserted and enforced as against the
State.
As public respondents correctly point out, any interest the contractor may have in the proceeds of
the mining operation is merely the equivalent of the consideration the government has undertaken
to pay for its services. All lawful contracts require such mutual prestations, and the WMCP FTAA is
no different. The contractor commits to perform certain services for the government in respect of
the mining operation, and in turn it is to be compensated out of the net mining revenues generated
from the sale of mineral products. What would be objectionable is a contractual provision that

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

Contractor' income tax - maximum of 32 percent of taxable income for
corporations
Customs duties and fees on imported capital equipment -the rate is set by
the Tariff and Customs Code (3-7 percent for chemicals; 3-10 percent for
explosives; 3-15 percent for mechanical and electrical equipment; and 3-10
percent for vehicles, aircraft and vessels

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

Royalties due the government on minerals extracted from mineral
reservations, if applicable 5 percent of the actual market value of the
minerals produced
Documentary stamp tax - the rate depends on the type of transaction
Capital gains tax on traded stocks - 5 to 10 percent of the value of the shares
Withholding tax on interest payments on foreign loans -15 percent of the
amount of interest
Withholding tax on dividend payments to foreign stockholders 15 percent
of the dividend
Wharfage and port fees

the government share shall be comprised of, among other things, certain taxes, duties and fees.
The subject proviso reads:
"The Government share in a financial or technical assistance agreement shall consist of, among
other things, the contractor's corporate income tax, excise tax, special allowance, withholding tax
due from the contractor's foreign 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 fees as
provided for under existing laws." (Bold types supplied.)
The government, through the DENR and the MGB, has interpreted the insertion of the
phrase among other thingsas signifying that the government is entitled to an "additional
government share" to be paid by the contractor apart from the "basic share," in order to attain a
fifty-fifty sharing of net benefits from mining.
The additional government share is computed by using one of three options or schemes
presented in DAO 99-56: (1) a fifty-fifty sharing in the cumulative present value of cash flows; (2)
the share based on excess profits; and (3) the sharing based on the cumulative net mining
revenue. The particular formula to be applied will be selected by the contractor, with a written
notice to the government prior to the commencement of the development and construction phase
of the mining project.66

Licensing fees (for example, radio permit, firearms permit, professional fees)
Other national taxes and fees.

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

Payments to Local Governments:

Local business tax - a maximum of 2 percent of gross sales or receipts (the
rate varies among local government units)
Real property tax - 2 percent of the fair market value of the property, based
on an assessment level set by the local government

National Government

50 percent

Provincial Government

10 percent

Municipal Government

20 percent

Affected Barangays

20 percent

Special education levy - 1 percent of the basis used for the real property tax
Occupation fees - PhP50 per hectare per year; PhP100 per hectare per year
if located in a mineral reservation
Community tax - maximum of PhP10,500 per year
All other local government taxes, fees and imposts as of the effective date of
the FTAA - the rate and the type depend on the local government
Other Payments:
Royalty to indigenous cultural communities, if any 1 percent of gross output
from mining operations
Special allowance - payment to claim owners and surface rights holders
Apart from the basic share, an additional government share is also collected from the FTAA
contractor in accordance with the second paragraph of Section 81 of RA 7942, which provides that

The portion of revenues remaining after the deduction of the basic and additional government
shares is what goes to the contractor.
Government's Share in an
FTAA Not Consisting Solely
of Taxes, Duties and Fees
In connection with the foregoing discussion on the basic and additional government shares, it is
pertinent at this juncture to mention the criticism leveled at the second paragraph of Section 81 of
RA 7942, quoted earlier. The said proviso has been denounced, because, allegedly, the State's

share in FTAAs with foreign contractors has been limited to taxes, fees and duties only; in effect,
the State has been deprived of a share in the after-tax income of the enterprise. In the face of this
allegation, one has to consider that the law does not define the termamong other things; and the
Office of the Solicitor General, in its Motion for Reconsideration, appears to have erroneously
claimed that the phrase refers to indirect taxes.
The law provides no definition of the term among other things, for the reason that Congress
deliberately avoided setting unnecessary limitations as to what may constitute compensation to the
State for the exploitation and use of mineral resources. But the inclusion of that phrase clearly and
unmistakably reveals the legislative intent to have the State collect more than just the usual taxes,
duties and fees. Certainly, there is nothing in that phrase -- or in the second paragraph of Section
81 -- that would suggest that such phrase should be interpreted as referring only to taxes, duties,
fees and the like.
Precisely for that reason, to fulfill the legislative intent behind the inclusion of the phrase among
other things in the second paragraph of Section 81,67 the DENR structured and formulated in DAO
99-56 the said additional government share. Such a share was to consist not of taxes, but of a
share in the earnings or cash flows of the mining 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
-- between the government and the contractor -- of net benefits from mining. In the Ramos-DeVera
paper, the explanation of the three options or formulas68 -- presented in DAO 99-56 for the
computation of the additional government share -- serves to debunk the claim that the
government's take from an FTAA consists solely of taxes, fees and duties.
Unfortunately, the Office of the Solicitor General -- although in possession of the relevant data -failed to fully replicate or echo the pertinent elucidation in the Ramos-DeVera paper regarding the
three schemes or options for computing the additional government share 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.
But, perhaps, on account of the esoteric discussion in the Ramos-DeVera paper, and the even
more abstruse mathematical jargon employed in DAO 99-56, the OSG omitted any mention of the
three options. Instead, the OSG skipped to a side discussion of the effect of indirect taxes, which
had nothing at all to do with the additional government share, to begin with. Unfortunately, this
move created the wrong impression, pointed out in Justice Antonio T. Carpio's Opinion, that the
OSG had taken the position that the additional government share consisted of indirect taxes.
In any event, what is quite evident is the fact that the additional government share, as
formulated, has nothing to do with taxes -- direct or indirect -- or with duties, fees or charges. To
repeat, it is over and above the basic government share composed of taxes and duties. Simply
put, the additional share may be (a) an amount that will result in a 50-50 sharing of the cumulative
present value of the cash flows69 of the enterprise; (b) an amount equivalent to 25 percent of
the additional or excess profits of the enterprise, reckoned against a benchmark return on
investments; or (c) an amount that will result in a fifty-fifty sharing of the cumulative net mining
revenue from the end of the recovery period up to the taxable year in question. The contractor is
required to select one of the three options or formulae for computing the additional share, an
option it will apply to all of its mining operations.
As used above, "net mining revenue" is defined as the gross output from mining operations for a
calendar year, less deductible expenses (inclusive of taxes, duties and fees). Such revenue would
roughly be equivalent to "taxable income" or income before income tax. Definitely, as compared
with, say, calculating the additional government share on the basis of net income (after income
tax), the net mining revenue is a better and much more reasonable basis for such computation, as
it gives a truer picture of the profitability of the company.

To demonstrate that the three options or formulations will operate as intended, Messrs. Ramos
and de Vera also performed some quantifications of the government share via a financial modeling
of each of the three options discussed above. They found that the government would get the
highest share from the option that is based on the net mining revenue, as compared with the other
two options, considering only the basic and the additional shares; and that, even though
production rate decreases, the government share will actually increase when the net mining
revenue and the additional profit-based options are used.
Furthermore, it should be noted that the three options or formulae do not yet take into account the
indirect taxes70 and other financial contributions71 of mining projects. These indirect taxes and
other contributions are real and actual benefits enjoyed by the Filipino people and/or government.
Now, if some of the quantifiable items are taken into account in the computations, the financial
modeling would show that the total government share increases to 60 percent or higher -- in one
instance, as much as 77 percent and even 89 percent -- of the net present value of total benefits
from the project. As noted in the Ramos-DeVera paper, these results are not at all shabby,
considering that the contractor puts in all the capital requirements and assumes all the risks,
without the government having to contribute or risk anything.
Despite the foregoing explanation, Justice Carpio still insisted during the Court's deliberations that
the phraseamong other things refers only to taxes, duties and fees. We are bewildered by his
position. On the one hand, he condemns the Mining Law for allegedly limiting the government's
benefits only to taxes, duties and fees; and on the other, he refuses to allow the State to benefit
from the correct and proper interpretation of the DENR/MGB. To remove all doubts then, we hold
that the State's share is not limited to taxes, duties and fees only and that the DENR/MGB
interpretation of the phrase among other things is correct. Definitely, this DENR/MGB interpretation
is not only legally sound, but also greatly advantageous to the government.
One last point on the subject. The legislature acted judiciously in not defining the terms among
other things and, instead, leaving it to the agencies concerned to devise and develop the various
modes of arriving at a reasonable and fair amount for the additional government share. As can
be seen from DAO 99-56, the agencies concerned did an admirable job of conceiving and
developing not just one formula, but three different formulae for arriving at the additional
government share. Each of these options is quite fair and reasonable; and, as Messrs. Ramos and
De Vera stated, other alternatives or schemes for a possible improvement of the fiscal regime for
FTAAs are also being studied by the government.
Besides, not locking into a fixed definition of the term among other things will ultimately be more
beneficial to the government, as it will have that innate flexibility to adjust to and cope with rapidly
changing circumstances, particularly those in the international markets. Such flexibility is
especially significant for the government in terms of helping our mining enterprises remain
competitive in world markets despite challenging and shifting economic scenarios.
In conclusion, we stress that we do not share the view that in FTAAs with foreign
contractors under RA 7942, the government's share is limited to taxes, fees and duties.
Consequently, we find the attacks on the second paragraph of Section 81 of RA 7942 totally
unwarranted.
Collections Not Made Uncertain
by the Third Paragraph of Section 81
The third or last paragraph of Section 8172 provides that the government share in FTAAs shall be
collected when the contractor shall have recovered its pre-operating expenses and exploration and
development expenditures. The objection has been advanced that, on account of the proviso, the
collection of the State's share is not even certain, as there is no time limit in RA 7942 for this grace
period or recovery period.

We believe that Congress did not set any time limit for the grace period, preferring to leave it to the
concerned agencies, which are, on account of their technical expertise and training, in a better
position to determine the appropriate durations for such recovery periods. After all, these recovery
periods are determined, to a great extent, by technical and technological factors peculiar to the
mining industry. Besides, with developments and advances in technology and in the geosciences,
we cannot discount the possibility of shorter recovery periods. At any rate, the concerned agencies
have not been remiss in this area. The 1995 and 1996 Implementing Rules and Regulations of RA
7942 specify that the period of recovery, reckoned from the date of commercial operation, shall be
for a period not exceeding five years, or until the date of actual recovery, whichever comes earlier.
Approval of Pre-Operating
Expenses Required by RA 7942
Still, RA 7942 is criticized for allegedly not requiring government approval of pre-operating,
exploration and development expenses of the foreign contractors, who are in effect given
unfettered discretion to determine the amounts of such expenses. Supposedly, nothing prevents
the contractors from recording such expenses in amounts equal to the mining revenues
anticipated for the first 10 or 15 years of commercial production, with the result that the share of
the State will be zero for the first 10 or 15 years. Moreover, under the circumstances, 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 well as speculation. Obviously,
certain crucial provisions in the Mining Law were overlooked. Section 23, dealing with the rights
and obligations of the exploration permit grantee, states: "The permittee shall undertake
exploration work on the area as specified by its permit based on an approved work program." The
next proviso reads: "Any expenditure in excess of the yearly budget of the approved work
program may be carried forward and credited to the succeeding years covering the duration of the
permit. x x x." (underscoring supplied)
Clearly, even at the stage of application for an exploration permit, the applicant is required to
submit -- for approval by the government -- a proposed work program for exploration, containing a
yearly budget of proposed expenditures. The State has the opportunity to pass upon (and approve
or reject) such proposed expenditures, with the foreknowledge that -- if approved -- these will
subsequently be recorded as pre-operating expenses that the contractor will have to recoup over
the grace period. That is not all.
Under Section 24, an exploration permit holder who determines the commercial viability of a
project covering a mining area may, within the term of the permit, file with the Mines and
Geosciences Bureau a declaration of mining project feasibility. This declaration is to be
accompanied by a work program for development for the Bureau's approval, the necessary
prelude for entering into an FTAA, a mineral 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 budgeted expenditures for development works on the
project. Such expenditures will ultimately become the pre-operating and development costs that
will have to be recovered by the contractor.
Naturally, with the submission of approved work programs and budgets for the exploration and the
development/construction phases, the government will be able to scrutinize and approve or
reject such expenditures. It will be well-informed as to the amounts of pre-operating and other
expenses that the contractor may legitimately recover and the approximate period of time needed
to effect such a recovery. There is therefore no way the contractor can just randomly post any
amount of pre-operating expenses and expect to recover the same.
The aforecited provisions on approved work programs and budgets have counterparts in Section
35, which deals with the terms and conditions exclusively applicable to FTAAs. The said provision
requires certain terms and conditions to be incorporated into FTAAs; among them, "a firm

commitment x x x of an amount corresponding to the expenditure obligation that will be invested in

the contract area" and "representations and warranties x x x to timely deploy these [financing,
managerial and technical expertise and technological] resources under its supervision pursuant to
the periodic work programs and related budgets x x x," as well as "work programs andminimum
expenditures commitments." (underscoring supplied)
Unarguably, given the provisions of Section 35, the State has every opportunity to pass upon the
proposed expenditures under an FTAA and approve or reject them. It has access to all the
information it may need in order to determine in advance the amounts of pre-operating and
developmental expenses that will have to be recovered by the contractor and the amount of time
needed for such recovery.
In summary, we cannot agree that the third or last paragraph of Section 81 of RA 7942 is in
any manner unconstitutional.
No Deprivation of Beneficial Rights
It is also claimed that aside from the second and the third paragraphs of Section 81 (discussed
above), Sections 80, 84 and 112 of RA 7942 also operate to deprive the State of beneficial rights
of ownership over mineral resources; and give them away for free to private business enterprises
(including foreign owned corporations). Likewise, the said provisions have been construed as
constituting, together with Section 81, an ingenious attempt to resurrect the old and discredited
system of "license, concession or lease."
Specifically, Section 80 is condemned for limiting the State's share in a mineral production-sharing
agreement (MPSA) to just the excise tax on the mineral product. Under Section 151(A) of the Tax
Code, such tax is only 2 percent of the market value of the gross output of the minerals.
The colatilla in Section 84, the portion considered offensive to the Constitution, reiterates the same
limitation made in Section 80.73
It should be pointed out that Section 80 and the colatilla in Section 84 pertain only to MPSAs and
have no application to FTAAs. These particular statutory provisions do not come within the issues
that were defined and delineated by this Court during the Oral Argument -- particularly the third
issue, which pertained exclusively to FTAAs. Neither did the parties argue upon them in their
pleadings. Hence, this Court cannot make any pronouncement in this case regarding the
constitutionality of Sections 80 and 84 without violating the fundamental rules of due process.
Indeed, the two provisos will have to await another case specifically placing them in issue.
On the other hand, Section 11274 is disparaged for allegedly reverting FTAAs and all mineral
agreements to the old and discredited "license, concession or lease" system. This Section states
in relevant part that "the provisions of Chapter XIV [which includes Sections 80 to 82] on
government share in mineral production-sharing agreement x x x shall immediately govern
and apply to a mining lessee or contractor." (underscoring supplied) This provision is construed as
signifying that the 2 percent excise tax which, pursuant to Section 80, comprises the government
share in MPSAs shall now also constitute the government share in FTAAs -- as well as in coproduction agreements and joint venture agreements -- to the exclusion of revenues of any other
nature or from any other source.
Apart from the fact that Section 112 likewise does not come within the issues delineated by this
Court during the Oral Argument, and was never touched upon by the parties in their pleadings, it
must also be noted that the criticism hurled against this Section is rooted in unwarranted
conclusions made without considering other relevant provisions in the statute. Whether Section
112 may properly apply to co-production or joint venture agreements, the fact of the matter is
that it cannot be made to apply to FTAAs.

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 insist that it covers FTAAs as well. Second, mineral agreements, of which there are three
types -- MPSAs, co-production agreements, and joint venture agreements -- are covered by
Chapter V of RA 7942. On the other hand, FTAAs are covered by and in fact are the subject of
Chapter VI, an entirely different chapter altogether. The law obviously intends to treat them as a
breed apart from mineral agreements, since Section 35 (found in Chapter VI) creates a long list of
specific terms, conditions, commitments, representations and warranties -- which have not been
made applicable to mineral agreements -- to be incorporated into FTAAs.
Third, under Section 39, the FTAA contractor is given the option to "downgrade" -- to convert the
FTAA into a mineral agreement at any time during the term if the economic viability of the contract
area is inadequate to sustain large-scale mining operations. Thus, there is no reason to think that
the law through Section 112 intends to exact from FTAA contractors merely the same government
share (a 2 percent excise tax) that it apparently demands from contractors under the three forms
of mineral agreements. In brief, Section 112 does not apply to FTAAs.
Notwithstanding the foregoing explanation, Justices Carpio and Morales maintain that the Court
must rule now on the constitutionality of Sections 80, 84 and 112, allegedly because the WMCP
FTAA contains a provision which grants the contractor unbridled and "automatic" authority to
convert the FTAA into an MPSA; and should such conversion happen, the State would be
prejudiced since its share would 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 on respondents' and
intervenor's Motions for Reconsideration. We hold however that, at this point, this argument is
based on pure speculation. The Court cannot rule on mere surmises and hypothetical
assumptions, without firm factual anchor. We repeat: basic due process requires that 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 would be arbitrary and capricious.
In any event, the conversion of the present FTAA into an MPSA is problematic. First, the contractor
must comply with the law, particularly Section 39 of RA 7942; inter alia, it must convincingly show
that the "economic viability of the contract is found to be inadequate to justify large-scale mining
operations;" second, it must contend with the President's exercise of the power of State control
over the EDU of natural resources; and third, it will have to risk a possible declaration of the
unconstitutionality (in a proper case) of Sections 80, 84 and 112.
The first requirement is not as simple as it looks. Section 39 contemplates a situation in which an
FTAA has already been executed and entered into, and is presumably being implemented, when
the contractor "discovers" that the mineral ore reserves in the contract area are not sufficient to
justify large-scale mining, and thus the contractor requests the conversion of the FTAA into an
MPSA. The contractor in effect needs to explain why, despite its exploration activities, including the
conduct of various geologic and other scientific tests and procedures in the contract area, it was
unable to determine correctly the mineral ore reserves and the economic viability of the area. The
contractor must explain why, after conducting such exploration activities, it decided to file
a declaration of mining feasibility, and to apply for an FTAA, thereby leading the State to believe
that the area could sustain large-scale mining. The contractor must justify fully why its earlier
findings, based on scientific procedures, tests and data, turned out to be wrong, or were way off. It
must likewise prove that its new findings, also based on scientific tests and procedures, are
correct. Right away, this puts the contractor's technical capabilities and expertise into serious
doubt. We wonder if anyone would relish being in this situation. The State could even question and
challenge the contractor's qualification and competence to continue the activity under an MPSA.
All in all, while there may be cogent grounds to assail the aforecited Sections, this Court -on considerations of due process -- cannot rule upon them here. Anyway, if later on these
Sections are declared unconstitutional, such declaration will not affect the other portions
since they are clearly separable from the rest.

Our Mineral Resources Not

Given Away for Free by RA 7942
Nevertheless, if only to disabuse our minds, we should address the contention that our mineral
resources are effectively given away for free by the law (RA 7942) in general and by Sections 80,
81, 84 and 112 in particular.
Foreign contractors do not just waltz into town one day and leave the next, taking away mineral
resources without paying anything. In order to get at the minerals, they have to invest huge sums
of money (tens or hundreds of millions of dollars) in exploration works first. If the 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
benefits therefrom cannot be simply ignored. And assuming that the 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 mine
shafts and connecting tunnels; prepare tailing ponds, storage areas and vehicle depots; install
their machinery and equipment, generator sets, pumps, water tanks and sewer systems, and so
on.
In short, they need to expend a great deal more of their funds for facilities, equipment and
supplies, fuel, salaries of local labor and technical staff, and other operating expenses. In the
meantime, they also have to pay taxes,75duties, fees, and royalties. All told, the exploration, prefeasibility, feasibility, development and construction phases together add up to as many as eleven
years.76 The contractors have to continually shell out funds for the duration of over a decade,
before they can commence commercial production from which they would eventually derive
revenues. All that money translates into a lot of "pump-priming" for the local economy.
Granted that the contractors are allowed subsequently to recover their pre-operating expenses,
still, that eventuality will happen only after they shall have first put out the cash and fueled the
economy. Moreover, in the process of recouping their investments and costs, the foreign
contractors do not actually pull out the money from the economy. Rather, they recover or recoup
their investments out of actual commercial production by not paying a portion of the basic
government share corresponding to national taxes, along with the additional government share, for
a period of not more than five years77 counted from the commencement of commercial production.
It must be noted that there can be no recovery without commencing actual commercial production.
In the meantime that the contractors are recouping costs, they need to continue operating; in order
to do so, they have to disburse money to meet their various needs. In short, money is continually
infused into the economy.
The foregoing discussion should serve to rid us of the mistaken belief that, since the foreign
contractors are allowed to recover their investments and costs, the end result is that they
practically get the minerals for free, which leaves the Filipino people none the better for it.
All Businesses Entitled
to Cost Recovery
Let it be put on record that not only foreign contractors, but all businessmen and all business
entities in general, have to recoup their investments and costs. That is one of the first things a
student learns in business school. Regardless of its nationality, and whether or not a business
entity has a five-year cost recovery period, it will -- must -- have to recoup its investments, one way
or another. This is just common business sense. Recovery of investments is absolutely
indispensable for business survival; and business survival ensures soundness of the economy,
which is critical and contributory to the general welfare of the people. Even government
corporations must recoup their investments in order to survive and continue in operation. And, as

the preceding discussion has shown, there is no business that gets ahead or earns profits without
any cost to it.
It must also be stressed that, though the State owns vast mineral wealth, such wealth is not readily
accessible or transformable into usable and negotiable currency without the intervention of the
credible mining companies. Those untapped mineral resources, hidden beneath tons of earth and
rock, may as well not be there for all the good they do us right now. They have first to be extracted
and converted into marketable form, and the country needs the foreign contractor's funds,
technology and know-how for that.
After about eleven years of pre-operation and another five years for cost recovery, the foreign
contractors will have just broken even. Is 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 the contract
term, they must strive to maintain profitability. During this period, they pay the whole of the basic
government share and the additional government share which, taken together with indirect taxes
and other contributions, amount to approximately 60 percent or more of the entire financial
benefits generated by the mining venture.
In sum, we can hardly talk about foreign contractors taking our mineral resources for free. It takes
a lot of hard cash to even begin to do what they do. And what they do in this country ultimately
benefits the local economy, grows businesses, generates employment, and creates infrastructure,
as discussed above. Hence, we definitely disagree with the sweeping claim that no FTAA under
Section 81 will ever make any real contribution to the growth of the economy or to the general
welfare of the country. This is not a plea for foreign contractors. Rather, this is a question of
focusing the judicial spotlight squarely on all the pertinent facts as they bear upon the issue at
hand, in order to avoid leaping precipitately to ill-conceived conclusions not solidly grounded upon
fact.
Repatriation of After-Tax Income
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
Constitution. Pursuant to Section 81 of the law, the entire after-tax income arising from the
exploitation of mineral resources owned by the 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. Clearly, this
contention is premised on erroneous assumptions.
First, as already discussed in detail hereinabove, the concerned agencies have correctly
interpreted the second paragraph of Section 81 of RA 7942 to mean that the government is
entitled to an additional share, to be computed based on any one of the following factors: net
mining revenues, the present value of the cash flows, or excess profits reckoned against a
benchmark rate of return on investments. So it is not correct to say that all of the after-tax income
will accrue to the foreign FTAA contractor, as the government effectively receives a significant
portion thereof.
Second, the foreign contractors can hardly "repatriate the entire after-tax income to their home
countries." Even a bit of knowledge of 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 particular year will
be taken out and repatriated. The "net income" figure reflected in the bottom line is a mere
accounting figure not necessarily corresponding to cash in the bank, or other quick assets. In order
to produce and set aside cash in an amount equivalent to the bottom line figure, one may need to
sell off assets or immediately collect receivables or liquidate short-term investments; but doing so
may very likely disrupt normal business operations.

In terms of cash flows, the funds corresponding to the net income as of a particular point in time
are actually in use in the normal course of business operations. Pulling out such net
income disrupts the cash 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 sane business person, concerned with maintaining the
mining 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.
The State's Receipt of Sixty
Percent of an FTAA Contractor's
After-Tax Income Not Mandatory
We now come to the next objection which runs this way: In FTAAs 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 share is the equivalent of the constitutional requirement that at least 60 percent of
the capital, and hence 60 percent of the income, of mining companies should remain in Filipino
hands.
First, we fail to see how we can properly conclude that the Constitution mandates the State to
extract at least 60 percent of the after-tax income from a mining company run by a foreign
contractor. The argument is that the Charter requires the State's partner in a co-production
agreement, joint venture agreement or MPSA to be a Filipino corporation (at least 60 percent
owned by Filipino citizens).
We question the logic of this reasoning, premised on a supposedly parallel or analogous situation.
We are, after all, dealing with an essentially different equation, one that involves different
elements. The Charter did not intend to fix an iron-clad rule on the 60 percent share,
applicable to all situations at all times and in all circumstances. If ever such was the intention
of the framers, they would have spelt it out in black and white.Verba legis will serve to dispel
unwarranted and untenable conclusions.
Second, if we would bother to do the math, we might better appreciate the impact (and
reasonableness) of what we are demanding of the foreign contractor. Let us use
a simplified illustration. Let us base it on gross revenues of, say, P500. After deducting operating
expenses, but prior to income tax, suppose a mining firm makes ataxable income of P100. A
corporate income tax of 32 percent results in P32 of taxable income going to the government,
leaving the mining firm 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 a total of P72.80 for every P100
of taxable income, leaving the mining 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 minimum
60 percent proposal, the government nets around P82.80 (not counting other taxes, duties, fees
and charges) from a taxable income of P100 (assuming gross revenues of P500, for purposes of
illustration). On the other hand, the foreign contractor, which provided all the capital, equipment
and labor, and took all the entrepreneurial risks -- receives P27.20. One cannot but wonder
whether such a distribution is even remotely equitable and reasonable, considering the nature of
the mining business. The amount of P82.80 out of P100.00 is really a lot it does not matter that
we call part of it excise taxor income tax, and another portion thereof income from exploitation of
mineral resources. Some might think it wonderful to be able to take the lion's share of the benefits.
But we have to ask ourselves if we are really serious in attracting the investments that are the
indispensable and key element in generating the monetary benefits of which we wish to take the
lion's share. Fairness is a credo not only in law, but also in business.
Third, the 60 percent rule in the petroleum industry cannot be insisted upon at all times in the
mining business. The reason happens to be the fact that in petroleum operations, the bulk of

expenditures is in exploration, but once the contractor has found and tapped into the deposit,
subsequent investments and expenditures are relatively minimal. The crude (or gas) keeps
gushing out, and the work entailed is just a matter of piping, transporting and storing. Not so in
mineral mining. The ore body does not pop out on its own. Even after it has been located, the
contractor must continually invest in machineries and expend funds to dig and build tunnels in
order to access and extract the minerals from underneath hundreds of tons of earth and rock.
As already stated, the numerous intrinsic differences involved in their respective operations and
requirements, cost structures and investment needs render it highly inappropriate to use petroleum
operations FTAAs as benchmarks for mining FTAAs. Verily, we cannot just ignore the realities of
the distinctly different situations and stubbornly insist on the "minimum 60 percent."
The Mining and the Oil Industries
Different From Each Other
To stress, there is no independent showing that the taking of at least a 60 percent share in the
after-tax income ofa mining company operated by a foreign contractor is fair and reasonable under
most if not all circumstances. The fact that some petroleum companies like Shell acceded to such
percentage of sharing does not ipso facto mean that it is per se reasonable and applicable to nonpetroleum situations (that is, mining companies) as well. We can take judicial notice of the fact that
there are, after all, numerous intrinsic differences involved in their respective operations and
equipment or technological requirements, costs structures and capital investment needs, and
product pricing and markets.
There is no showing, for instance, that mining companies can readily cope with a 60 percent
government share in the same way petroleum companies apparently can. What we have is a
suggestion to enforce the 60 percent quota on the basis of a disjointed analogy. The only factor
common to the two disparate situations is the extraction of natural resources.
Indeed, we should take note of the fact that Congress made a distinction between mining firms
and petroleum companies. In Republic Act No. 7729 -- "An Act Reducing the Excise Tax Rates on
Metallic and Non-Metallic Minerals and Quarry Resources, Amending for the Purpose Section
151(a) of the National Internal Revenue Code, as amended" -- the lawmakers fixed the excise tax
rate on metallic and non-metallic minerals at two percent of the actual market value of the 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 sale at fifteen percent of the fair international market price
thereof.
There must have been a very sound reason that impelled Congress to impose two very dissimilar
excise tax rate. We cannot assume, without proof, that our honorable legislators acted arbitrarily,
capriciously and whimsically in this instance. We cannot just ignore the reality of two distinctly
different situations and stubbornly insist on going "minimum 60 percent."
To repeat, the mere fact that gas and oil exploration contracts grant the State 60 percent of the net
revenues does not necessarily imply that mining contracts should likewise yield a minimum of 60
percent for the State.Jumping to that erroneous conclusion is like comparing apples with oranges.
The exploration, development and utilization of gas and oil are simply different from those of
mineral resources.

mineral ores are found in one area is no guarantee that an equal amount can be found in the
adjacent areas. There are simply continuing risks and need for more capital, expertise and
industry all the time.
Note, however, that the indirect benefits -- apart from the cash revenues -- are much more in the
mineral industry. As mines are explored and extracted, vast employment is created, roads and
other infrastructure are built, and other multiplier effects arise. On the other hand, once oil wells
start producing, there is less need for employment. Roads and other public works need not be
constructed continuously. In fine, there is no basis for saying that government revenues from the
oil industry and from the mineral industries are to be identical all the time.
Fourth, to our mind, the proffered "minimum 60 percent" suggestion tends to limit the flexibility and
tie the hands of government, ultimately hampering the country's competitiveness in the
international market, to the detriment of the Filipino people. This "you-have-to-give-us-60-percentof-after-tax-income-or-we-don't-do- business-with-you" approach is quite perilous. True, this
situation may not seem too unpalatable to the foreign contractor during good years, when
international market prices are up and the mining firm manages to keep its costs in check.
However, under unfavorable economic and business conditions, with costs spiraling skywards and
minerals prices plummeting, a mining firm may consider itself lucky to make just minimal profits.
The inflexible, carved-in-granite demand for a 60 percent government share may spell the end of
the mining venture, scare away potential investors, and thereby further worsen the already dismal
economic scenario. Moreover, such an unbending or unyielding policy prevents the government
from responding appropriately to changing economic conditions and shifting market forces. This
inflexibility further renders our country less attractive as an investment option compared with other
countries.
And fifth, for this Court to decree imperiously that the government's share should be not less than
60 percent of the after-tax income of FTAA contractors at all times is nothing short of dictating
upon the government. The result, ironically, is that the State ends up losing control. To avoid
compromising the State's full control and supervision over the exploitation of mineral resources,
this Court must back off from insisting upon a "minimum 60 percent" rule. It is sufficient that the
State has the power and means, should it so decide, to get a 60 percent share (or more) in the
contractor's net mining revenues or after-tax income, or whatever other basis the government may
decide to use in reckoning its share. It is not necessary for it to do so in every case, regardless of
circumstances.
In fact, the government must be trusted, must be accorded the liberty and the utmost flexibility to
deal, negotiate and transact with contractors and third parties as it sees fit; and upon terms that it
ascertains to be most favorable or most acceptable under the circumstances, even if it means
agreeing to less than 60 percent. Nothing must prevent the State from agreeing to a share less
than that, should it be deemed fit; otherwise the State will be deprived of full control over mineral
exploitation that the Charter has vested in it.

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

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

On the other hand, even if minerals are found in viable quantities, there is still need for continuous
fresh capital and expertise to dig the mineral ores from the mines. Just because deposits of

Finally, if it should later be found that the share agreed to is grossly disadvantageous to the
government, the officials responsible for entering into such a contract on its behalf will have to

answer to the courts for their malfeasance. And the contract provision voided. But this Court would
abuse its own authority should it force the government's hand to adopt the 60 percent demand of
some of our esteemed colleagues.
Capital and Expertise Provided,
Yet All Risks Assumed by Contractor
Here, we will repeat what has not been emphasized and appreciated enough: the fact that the
contractor in an FTAA provides all the needed capital, technical and managerial expertise, and
technology required to undertake the project.
In regard to the WMCP FTAA, the then foreign-owned WMCP as contractor committed, at the very
outset, to make capital investments of up to US$50 million in that single mining project. WMCP
claims to have already poured in well over P800 million into the country as of February 1998, with
more in the pipeline. These resources, valued in the tens or hundreds of millions of dollars, are
invested in a mining project that provides no assurance whatsoever that any part of the investment
will be ultimately recouped.

administrative expenses and overheads related to marketing offices also located abroad -provided that these deductions are directly related or properly allocatable to the mining operations
and reasonably related to the performance of the contractor's obligations and exercise of its rights.
In any event, more facts are needed. Until we see how these provisions actually operate, mere
"suspicions" will not suffice to propel this Court into taking action.
Section 7.9 of the WMCP FTAA
Invalid and Disadvantageous
Having defended the WMCP FTAA, we shall now turn to two defective provisos. Let us start with
Section 7.9 of the WMCP FTAA. While Section 7.7 gives the government a 60 percent share in the
net mining revenues of WMCP from the commencement of commercial production, Section 7.9
deprives the government of part or all of the said 60 percent. Under the latter provision, should
WMCP's foreign shareholders -- who originally owned 100 percent of the equity -- sell 60 percent
or more of its outstanding capital stock to a Filipino citizen or corporation, the State loses its right
to receive its 60 percent share in net mining revenues under Section 7.7.
Section 7.9 provides:

At the same time, the contractor must comply with legally imposed environmental standards and
the social obligations, for which it also commits to make significant expenditures of funds.
Throughout, the contractor assumes all the risks79 of the business, as mentioned earlier. These
risks are indeed very high, considering that the rate of success in exploration is extremely low. The
probability of finding any mineral or petroleum in commercially viable quantities is estimated to be
about 1:1,000 only. On that slim chance rides the contractor's hope of recouping investments and
generating profits. And when the contractor has recouped its initial investments in the project, the
government share increases to sixty percent of net benefits -- without the State ever being in peril
of incurring costs, expenses and losses.
And even in the worst possible scenario -- an absence of commercial quantities of minerals to
justify development -- the contractor would already have spent several million pesos for
exploration works, before arriving at the point in which it can make that determination and decide
to cut its losses. In fact, during the first year alone of the exploration period, the contractor was
already committed to spend not less than P24 million. The FTAA therefore clearly ensures 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 convey beneficial ownership of our mineral resources
to foreign contractors.
Deductions Allowed by the
WMCP FTAA Reasonable
Petitioners question whether the State's weak control might render the sharing arrangements
ineffective. They cite the so-called "suspicious" deductions allowed by the WMCP FTAA in arriving
at the net mining revenue, which is the basis for computing the government share. The WMCP
FTAA, for instance, allows expenditures for "development within and outside the Contract
Area relating to the Mining Operations,"80 "consulting fees incurred both inside and outside the
Philippines for work related directly to the Mining Operations,"81 and "the establishment and
administration of field offices including administrative overheads incurred within and outside the
Philippines which are properly allocatable to the Mining Operations and reasonably related to the
performance of the Contractor's obligations and exercise of its rights under this Agreement."82
It is quite well known, however, that mining companies do perform some marketing activities
abroad in respect of selling their mineral products and by-products. Hence, it would not be
improper to allow the deduction ofreasonable consulting fees incurred abroad, as well as

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 1percent ownership
interest in the Contractor (i.e., WMCP) held by a Qualified Entity.83
Evidently, what Section 7.7 grants to the State is taken away in the next breath by Section
7.9 without any offsetting compensation to the State. Thus, in reality, the State has no vested right
to receive any income from the FTAA for the exploitation of its mineral resources. Worse, it would
seem that what is given to the State in Section 7.7 is by mere tolerance of WMCP's foreign
stockholders, who can at any time cut off the government's entire 60 percent share. They can do
so by simply selling 60 percent of WMCP's outstanding capital stock to a Philippine citizen or
corporation. Moreover, the proceeds of such sale will of course accrue to the foreign stockholders
of WMCP, not to the State.
The sale of 60 percent of WMCP's outstanding equity to a corporation that is 60 percent Filipinoowned and 40 percent foreign-owned will still trigger the operation of Section 7.9. Effectively, the
State will lose its right to receive all 60 percent of the net mining revenues of WMCP; and foreign
stockholders will own beneficially up to 64 percent 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 WMCP's foreign stockholder of the entire outstanding equity
in WMCP to Sagittarius Mines, Inc. -- a domestic corporation at least 60 percent Filipino owned -may be deemed to have automatically triggered the operation of Section 7.9, without need of
further action by any party, and removed the State's right to receive the 60 percent share in net
mining revenues.
At bottom, Section 7.9 has the effect of depriving the State of its 60 percent share in the net mining
revenues of WMCP without any offset or compensation whatsoever. It is possible that the inclusion
of the offending provision was initially prompted by the desire to provide some form of incentive for
the principal foreign stockholder in WMCP to eventually reduce its equity position and ultimately
divest in favor of Filipino citizens and corporations. However, as finally structured, Section 7.9 has
the deleterious effect of depriving government of the entire 60 percent share in WMCP's net
mining revenues, without any form of compensation whatsoever. Such an outcome is completely
unacceptable.
The whole point of developing the nation's natural resources is to benefit the Filipino people, future
generations included. And the State as sovereign and custodian of the nation's natural wealth is

mandated to protect, conserve, preserve and develop that part of the national patrimony for their
benefit. Hence, the Charter lays great emphasis on "real contributions to the economic growth and
general welfare of the country"85 as essential guiding principles to be kept in mind when
negotiating the terms and conditions of FTAAs.

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

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

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

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

"(c) any payments to landowners, surface rights holders, occupiers,

indigenous people or Claimowners;
"(d) costs and expenses of fulfilling the Contractor's obligations to contribute
to national development in accordance with Clause 10.1(i) (1) and 10.1(i) (2);
"(e) an amount equivalent to whatever benefits that may be extended in the
future by the Government to the Contractor or to financial or technical
assistance agreement contractors in general;

Section 7.9 of the WMCP FTAA effectively gives away the State's share of net mining revenues
(provided for in Section 7.7) without anything in exchange. Moreover, this outcome
constitutes unjust enrichment on the part of the local and foreign stockholders of WMCP. By their
mere divestment of up to 60 percent equity in WMCP in favor of Filipino citizens and/or
corporations, the local and foreign stockholders get a windfall. Their share in the net mining
revenues of WMCP is automatically increased, without their having to pay the government
anything for it. In short, the provision in question is without a doubt grossly disadvantageous to the
government, detrimental to the interests of the Filipino people, and violative of public policy.
Moreover, it has been reiterated in numerous decisions86 that the parties to a contract may
establish any agreements, terms and conditions that they deem convenient; but these should not
be contrary to law, morals, good customs, public order or public policy.87 Being precisely violative
of anti-graft provisions and contrary to public policy, Section 7.9 must therefore be stricken off as
invalid.
Whether the government officials concerned acceded to that provision by sheer mistake or with full
awareness of the ill consequences, is of no moment. It is hornbook doctrine that the 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 on their part.89 It is therefore possible and proper to rectify the
situation at this time. Moreover, we may also say that the FTAA in question does not involve mere
contractual rights; being impressed as it is with public interest, the contractual provisions and
stipulations must yield to the common good and the national interest.
Since the offending provision is very much separable90 from Section 7.7 and the rest of the FTAA,
the deletion of Section 7.9 can be done without affecting or requiring the invalidation of the WMCP
FTAA itself. Such a deletion will preserve for the government its due share of the benefits. This
way, the mandates of the Constitution are complied with and the interests of the government fully
protected, while the business operations of the contractor are not needlessly disrupted.
Section 7.8(e) of the WMCP FTAA
Also Invalid and Disadvantageous
Section 7.8(e) of the WMCP FTAA is likewise invalid. It provides thus:
"7.8 The Government Share shall be deemed to include all of the following sums:

"(f) all of the foregoing items which have not previously been offset against
the Government Share in an earlier Fiscal Year, adjusted for inflation."
(underscoring supplied)
Section 7.8(e) is out of place in the FTAA. It makes no sense why, for instance, money spent by
the government for the benefit of the contractor in building roads leading to the mine site should
still be deductible from the State's share in net mining revenues. Allowing this deduction results in
benefiting the contractor twice over. It constitutesunjust enrichment on the part of the contractor at
the expense of the government, since the latter is effectively being made to pay twice for the same
item.91 For being grossly disadvantageous and prejudicial to the government and contrary to public
policy, Section 7.8(e) is undoubtedly invalid and must be declared to be without effect. Fortunately,
this provision can also easily be stricken off without affecting the rest of the FTAA.
Nothing Left Over
After Deductions?
In connection with Section 7.8, an objection has been raised: Specified in Section 7.8 are
numerous items of deduction from the State's 60 percent share. After taking these into account,
will the State ever receive anything for its ownership of the mineral resources?
We are confident that under normal circumstances, the answer will be yes. If we examine the
various items of "deduction" listed in Section 7.8 of the WMCP FTAA, we will find that they
correspond closely to the components or elements of the basic government share established in
DAO 99-56, as discussed in the earlier part of this Opinion.
Likewise, the balance of the government's 60 percent share -- after netting out the items of
deduction listed in Section 7.8 --corresponds closely to the additional government
share provided for in DAO 99-56 which, we once again stress, has nothing at all to do with indirect
taxes. The Ramos-DeVera paper92 concisely presents the fiscal contribution of an FTAA under
DAO 99-56 in this equation:

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

Transposed into a similar equation, the fiscal payments system from the WMCP FTAA assumes
the following formulation:
Government's 60 percent share in net mining revenues of WMCP = items listed in Sec.
7.8 of the FTAA + balance of Gov't share, payable 4 months from the end of the fiscal
year
It should become apparent that the fiscal arrangement under the WMCP FTAA is very similar to
that under DAO 99-56, with the "balance of government share payable 4 months from end of fiscal
year" being the equivalent of the additional government share computed in accordance with the
"net-mining-revenue-based option" under DAO 99-56, as discussed above. As we have
emphasized earlier, we find each of the three options for computing the additional government
share -- as presented in DAO 99-56 -- to be sound and reasonable.
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.
Section 3.3 of the WMCP
FTAA Constitutional
Section 3.3 of the WMCP FTAA is assailed for violating supposed constitutional restrictions on the
term of FTAAs. The provision in question reads:
"3.3 This Agreement shall be renewed by the Government for a further period of twentyfive (25) years under the same terms and conditions provided that the Contractor lodges
a request for renewal with the Government not less than sixty (60) days prior to the
expiry of the initial term of this Agreement and provided that the Contractor is not in
breach of any of the requirements of this Agreement."
Allegedly, the above provision runs afoul of Section 2 of Article XII of the 1987 Constitution, which
states:
"Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development and utilization of natural 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-production, joint venture or production-sharing agreements with Filipino
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 exceeding
twenty-five years, renewable for not more than twenty-five years, and under such
terms and conditions as may be provided by law. In cases of water rights for
irrigation, water supply, fisheries, or industrial uses other than the development of water
power, beneficial use may be the measure and limit of the grant.
"The State shall protect the nation's marine wealth in its archipelagic waters, territorial
sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to
Filipino citizens.

"The Congress may, by law, allow small-scale utilization of natural resources by Filipino
citizens, as well as cooperative fish farming, with priority to subsistence fishermen and
fish-workers in rivers, lakes, bays and lagoons.
"The President may enter into agreements with foreign-owned corporations involving
either technical or financial assistance for large-scale exploration, development, and
utilization of minerals, petroleum, and other mineral oils according to the general terms
and conditions provided by 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.
"The President shall notify the Congress of every contract entered into in accordance
with this provision, within thirty days from its execution."93
We hold that the term limitation of twenty-five years does not apply to FTAAs. The reason is that
the above provision is found within paragraph 1 of Section 2 of Article XII, which refers to mineral
agreements -- co-production agreements, joint venture agreements and mineral productionsharing agreements -- which the government may enter into with Filipino citizens and corporations,
at least 60 percent owned by Filipino citizens. The word "such" clearly refers to these three mineral
agreements -- CPAs, JVAs and MPSAs -- not to FTAAs.
Specifically, FTAAs are covered by paragraphs 4 and 5 of Section 2 of Article XII of the
Constitution. It will be noted that there are no term limitations provided for in the said paragraphs
dealing with FTAAs. This shows that FTAAs are sui generis, in a class of their own. This omission
was obviously a deliberate move on the part of the framers. They probably realized that FTAAs
would be different in many ways from MPSAs, JVAs and CPAs. The reason the framers did not fix
term limitations applicable to FTAAs is that they preferred to leave the matter to the discretion of
the legislature and/or the agencies involved in implementing the laws pertaining to FTAAs, in order
to give the latter enough flexibility and elbow room to meet changing circumstances.
Note also that, as previously stated, the exploratory phrases of an 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 agreement, the contractor assumes all
entrepreneurial risks. If no commercial quantities of minerals are found, the contractor bears all
financial losses. To compensate for this long gestation period and extra business risks, it would not
be totally unreasonable to allow it to continue EDU activities for another twenty five years.
In any event, the complaint is that, in essence, Section 3.3 gives 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 whether to renew the contract.
While we agree that Section 3.3 could have been worded so as to prevent it from favoring the
contractor, this provision does not violate any constitutional limits, since the said term limitation
does not apply at all to FTAAs. Neither can the provision be deemed in any manner to be illegal,
as no law is being violated thereby. It is certainly not illegal for the government to waive its option
to refuse the renewal of a commercial contract.
Verily, the government did not have to agree to Section 3.3. It could have said "No" to the
stipulation, but it did not. It appears that, in the process of negotiations, the other contracting party
was able to convince the government to agree to the renewal terms. Under the circumstances, it
does not seem proper for this Court to intervene and step in to undo what might have perhaps
been a possible miscalculation on the part of the State. If government believes that it is or will be
aggrieved by the effects of Section 3.3, the remedy is the renegotiation of the provision in order to
provide the State the option to not renew the FTAA.

Financial Benefits for Foreigners

Not Forbidden by the Constitution
Before leaving this subject matter, we find it necessary for us to rid ourselves of the false belief
that the Constitution somehow forbids foreign-owned corporations from deriving financial benefits
from the development of our natural or mineral resources.
The Constitution has never prohibited foreign corporations from acquiring and enjoying "beneficial
interest" in the development of Philippine natural resources. The State itself need not directly
undertake exploration, development, and utilization activities. Alternatively, the Constitution
authorizes the government to enter into joint venture agreements (JVAs), co-production
agreements (CPAs) and mineral production sharing agreements (MPSAs) with contractors who
are Filipino citizens or corporations that are at least 60 percent Filipino-owned. They may do the
actual "dirty work" -- the mining operations.
In the case of a 60 percent Filipino-owned corporation, the 40 percent individual and/or
corporate non-Filipino stakeholders obviously participate in the beneficial interest derived from the
development and utilization of our natural resources. They may receive by way of dividends, up to
40 percent of the contractor's earnings from the mining project. Likewise, they may have a say in
the decisions of the board of directors, since they are entitled to representation therein to the
extent of their equity participation, which the Constitution permits to be up to 40 percent of the
contractor's equity. Hence, the non-Filipino stakeholders may in that manner also participate in the
management of the contractor's natural resource development work. All of this is permitted by our
Constitution, for any natural resource, and without limitation even in regard to the magnitude of the
mining project or operations (see paragraph 1 of Section 2 of Article XII).
It is clear, then, that there is nothing inherently wrong with or constitutionally objectionable about
the idea of foreign individuals and entities having or enjoying "beneficial interest" in -- and
participating in the management of operations relative to -- the exploration, development and
utilization of our natural resources.
FTAA More Advantageous
Than Other Schemes
Like CPA, JVA and MPSA
A final point on the subject of beneficial interest. We believe the FTAA is a more advantageous
proposition for the government as compared with other agreements permitted by the Constitution.
In a CPA that the government enters into with one or more contractors, the government shall
provide inputs to the mining operations other than the mineral resource itself.94
In a JVA, a JV company is organized by the government and the contractor, with both parties
having equity shares (investments); and the contractor is granted the exclusive right to conduct
mining operations and to extract minerals found in the area.95 On the other hand, in an MPSA, the
government grants the contractor the exclusive right to conduct mining operations within the
contract area and shares in the gross output; and the contractor provides the necessary financing,
technology, management and manpower.
The point being made here is that, in two of the three types of agreements under consideration,
the government has to ante up some 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 notwithstanding, management and control of the
operations of the 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, without limitation and regardless of the size or magnitude of the
project or operations.

In contrast to the foregoing arrangements, and pursuant to paragraph 4 of Section 2 of Article XII,
the FTAA is limited to large-scale projects and only for minerals, petroleum and other mineral oils.
Here, the Constitution removes the 40 percent cap on foreign ownership and allows the foreign
corporation to own up to 100 percent of the equity. 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.
Correlatively, the foreign stakeholder bears up to 100 percent of the risk of loss if the project fails.
In respect of the particular FTAA granted to it, WMCP (then 100 percent foreign owned) was
responsible, as contractor, for providing the entire equity, including all the inputs for the project. It
was to bear 100 percent of the risk of loss if the project failed, but its maximum potential
"beneficial interest" consisted only of 40 percent of the net beneficial interest, because the other
60 percent is the share of the government, which will never be exposed to any risk of loss
whatsoever.
In consonance with the degree of risk assumed, the FTAA vested in WMCP the day-to-day
management of the mining operations. Still such management is subject to the overall control and
supervision of the State in terms of regular reporting, approvals of work programs and budgets,
and so on.
So, one needs to consider in relative terms, the costs of inputs for, degree of risk attendant to, and
benefits derived or to be derived from a CPA, a JVA or an MPSA vis--vis those pertaining to an
FTAA. It may not be realistically asserted that the foreign grantee of an FTAA is being unduly
favored or benefited as compared with a foreign stakeholder in a corporation holding a CPA, a JVA
or an MPSA. Seen the other way around, the government is definitely better off with an FTAA than
a CPA, a JVA or an MPSA.
Developmental Policy on the Mining Industry
During the Oral Argument and in their Final Memorandum, petitioners repeatedly urged the Court
to consider whether mining as an industry and economic activity deserved to be accorded priority,
preference and government support as against, say, agriculture and other activities in which
Filipinos and the Philippines may have an "economic advantage." For instance, a recent US
study96 reportedly examined the economic performance of all local US counties that were
dependent on mining and 20 percent of whose labor earnings between 1970 and 2000 came from
mining enterprises.
The study -- covering 100 US counties in 25 states dependent on mining -- showed that per capita
income grew about 30 percent less in mining-dependent communities in the 1980s and 25 percent
less for the entire period 1980 to 2000; the level of per capita income was also lower. Therefore,
given the slower rate of growth, the gap between these and other local counties increased.
Petitioners invite attention to the OXFAM America Report's warning to developing nations that
mining brings with it serious economic problems, including increased regional inequality,
unemployment and poverty. They also cite the final report97 of the Extractive Industries Review
project commissioned by the World Bank (the WB-EIR Report), which warns of environmental
degradation, social disruption, conflict, and uneven sharing of benefits with local communities that
bear the negative social and environmental impact. The Report suggests that countries need to
decide on the best way to exploit their natural resources, in order to maximize the value added
from the development of their resources and ensure that they are on the path to sustainable
development once the resources run out.
Whatever priority or preference may be given to mining vis--vis other economic or non-economic
activities is a question of policy that the President and Congress will have to address; it is not for
this Court to decide. This Court declares what the Constitution and the laws say, interprets only
when necessary, and refrains from delving into matters of policy.

Suffice it to say that the State control accorded by the Constitution 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 protect the environment
and to rehabilitate mined-out areas. Indeed, under the Mining Law, the government can ensure the
protection of the environment during and after mining. It can likewise provide for the mechanisms
to protect the rights of indigenous communities, and thereby mold a more socially-responsive,
culturally-sensitive and sustainable mining industry.

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

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

But if the Court should follow this restrictive and literal construction, can we really find two (or
more) contractors who are willing to participate in one single project -- one to provide the "financial
assistance" only and the other the "technical assistance" exclusively; it would be excellent if these
two or more contractors happen to be willing and are able to cooperate and work closely together
on the same project (even if they are otherwise competitors). And it would be superb if no conflicts
would arise between or among them in the entire course 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 of restriction is to say that they were either exceedingly optimistic, or incredibly nave. This
begs the question -- What laudable objective or purpose could possibly be served by such strict
and restrictive literal interpretation?

"Long term, high profit mining translates into higher revenues for government, more
decent jobs for the population, more raw materials to feed the engines of downstream
and allied industries, and improved chances of human resource and countryside
development by creating self-reliant communities away from urban centers.
xxxxxxxxx
"Against a fragile and finite environment, it is sustainability that holds the key. In
sustainable mining, we take a middle ground where both production and protection
goals are balanced, and where parties-in-interest come to terms."
Neither has the present leadership been remiss in addressing the concerns of sustainable mining
operations. Recently, on January 16, 2004 and April 20, 2004, President Gloria Macapagal Arroyo
issued Executive Orders Nos. 270 and 270-A, respectively, "to promote responsible mineral
resources exploration, development and utilization, in order to enhance economic growth, in a
manner that adheres to the principles of sustainable development and with due regard for justice
and equity, sensitivity to the culture of the Filipino people and respect for Philippine sovereignty."98
REFUTATION OF DISSENTS
The Court will now take up a number of other specific points raised in the dissents of Justices
Carpio and Morales.
1. Justice Morales introduced us to Hugh Morgan, former president and chief executive officer of
Western Mining Corporation (WMC) and former president of the Australian Mining Industry
Council, who spearheaded the vociferous opposition to the filing by aboriginal peoples of native
title claims against mining companies in Australia in the aftermath of the landmark Mabo decision
by the Australian High Court. According to sources quoted by our esteemed colleague, Morgan
was also a racist and a bigot. In the course of protesting Mabo, Morgan allegedly uttered
derogatory remarks belittling the aboriginal culture and race.
An unwritten caveat of this introduction is that this Court should be careful not to permit the entry
of the likes of Hugh Morgan and his hordes of alleged racist-bigots at WMC. With all due respect,
such scare tactics should have no place in the discussion of this case. We are deliberating on the
constitutionality of RA 7942, DAO 96-40 and the FTAA originally granted to WMCP, which had
been transferred to Sagittarius Mining, a Filipino corporation. We are not discussing the apparition
of white Anglo-Saxon racists/bigots massing at our gates.
2. On the proper interpretation of the phrase agreements involving either technical or financial
assistance, Justice Morales points out that 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.

3. Citing Oposa v. Factoran Jr., Justice Morales claims that a service contract is not a contract or
property right which merits protection by the due process clause of the Constitution, but merely a
license or privilege which may be validly revoked, rescinded or withdrawn by executive action
whenever dictated by public interest or public welfare.
Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy Executive Secretary as authority.
The latter cases dealt specifically with timber licenses only. Oposa allegedly reiterated that a
license is merely a permit or privilege to do what otherwise would be unlawful, and is not a
contract between the authority, federal, state or municipal, granting it and the person to whom it is
granted; neither is it property or a property right, nor does it create a vested right; nor is it taxation.
Thus this Court held that the granting of license does not create irrevocable rights, neither is it
property or property rights.
Should Oposa be deemed applicable to the case at bar, on the argument that natural resources
are also involved in this situation? We do not think so. A grantee of a timber license, permit or
license agreement gets to cut the timber already growing on the surface; it need not dig up tons of
earth to get at the logs. In a logging concession, the investment of the licensee is not as
substantial as the investment of a large-scale mining contractor. If a timber license were revoked,
the licensee packs up its gear and moves to a new area applied for, and starts over; what it leaves
behind are mainly the trails leading to the logging site.
In contrast, the mining contractor will have sunk a great deal of money (tens of millions of dollars)
into the ground, so to speak, for exploration activities, for development of the mine site and
infrastructure, and for the actual excavation and extraction of minerals, including the extensive
tunneling work to reach the ore body. The cancellation of the mining contract will utterly deprive
the contractor of its investments (i.e., prevent recovery of investments), most of which cannot be
pulled out.
To say that an FTAA is just like a mere timber license or permit and does not involve contract or
property rights which merit protection by the due process clause of the Constitution, and may
therefore be revoked or cancelled in the blink of an eye, is to adopt a well-nigh confiscatory
stance; at the very least, it is downright dismissive of the property rights of businesspersons and
corporate entities that have investments in the mining industry, whose investments, operations and
expenditures do contribute to the general welfare of the people, the coffers of government, and the
strength of the economy. Such a pronouncement will surely discourage investments (local and
foreign) which are critically needed to fuel the engine of economic growth and move this country
out of the rut of poverty. In sum, Oposa is not applicable.

4. Justice Morales adverts to the supposedly "clear intention" of the framers of the Constitution to
reserve our natural resources exclusively for the Filipino people. She then quoted from the records
of the ConCom deliberations a passage in which then Commissioner Davide explained his vote,
arguing in the process that aliens ought not be allowed to participate in the enjoyment of our
natural resources. One passage does not suffice to capture the tenor or substance of the entire
extensive deliberations of the commissioners, or to reveal the clear intention of the framers as a
group. A re-reading of the entire deliberations (quoted here earlier) is necessary if we are to
understand the true intent of the framers.
5. Since 1935, the Filipino people, through their Constitution, have decided that the retardation or
delay in the exploration, development or utilization of the nation's natural resources is merely
secondary to the protection and preservation of their ownership of the natural resources, so says
Justice Morales, citing Aruego. If it is true that the framers of the 1987 Constitution did not care
much about alleviating the retardation or delay in the development and utilization of our natural
resources, why did they bother to write paragraph 4 at all? Were they merely paying lip service to
large-scale exploration, development and utilization? They could have just completely ignored the
subject matter and left it to be dealt with through a future constitutional amendment. But we have
to harmonize every part of the Constitution and to interpret each provision in a manner that would
give life and meaning to it and to the rest of the provisions. It is obvious that a literal interpretation
of paragraph 4 will render it utterly inutile and inoperative.
6. According to Justice Morales, the deliberations of the Constitutional Commission do not support
our contention that the framers, by specifying such agreements involving financial or technical
assistance, necessarily gave implied assent to everything that these agreements implicitly
entailed, or that could reasonably be deemed necessary to make them tenable and effective,
including management authority in the day-to-day operations. As proof thereof, she quotes one
single passage from the ConCom deliberations, consisting of an exchange among Commissioners
Tingson, Garcia and Monsod.
However, the quoted exchange does not serve to contradict our argument; it even bolsters it.
Comm. Christian Monsod was quoted as saying: "xxx I think we have to make a distinction that it
is not really realistic to say that we will borrow on our own terms. Maybe we can say that we
inherited unjust loans, and we would like to repay these on terms that are not prejudicial to our
own growth. But the general statement that we should only borrow on our own terms is a bit
unrealistic." Comm. Monsod is one who knew whereof he spoke.
7. Justice Morales also declares that the optimal time for the conversion of an FTAA into an MPSA
is after completion of the exploration phase and just before undertaking the development and
construction phase, on account of the fact that the requirement for a minimum investment of $50
million is applicable only during the development, construction and utilization phase, but not during
the exploration phase, when the foreign contractor need merely comply with minimum ground
expenditures. Thus by converting, the foreign contractor maximizes its profits by avoiding its
obligation to make the minimum investment of $50 million.
This argument forgets that the foreign contractor is in the game precisely to make money. In order
to come anywhere near profitability, the contractor must first extract and sell the mineral ore. In
order to do that, it must also develop and construct the mining facilities, set up its machineries and
equipment and dig the tunnels to get to the deposit. The contractor is thus compelled to expend
funds in order to make profits. If it decides to cut back on investments and expenditures, it will
necessarily sacrifice the pace of development and utilization; it will necessarily sacrifice the
amount of profits it can make from the mining operations. In fact, at certain less-than-optimal
levels of operation, the stream of revenues generated may not even be enough to cover variable
expenses, let alone overhead expenses; this is a dismal situation anyone would want to avoid. In
order to make money, one has to spend money. This truism applies to the mining industry as well.
8. Mortgaging the minerals to secure a foreign FTAA contractor's obligations is anomalous,
according to Justice Morales since the contractor was from the beginning obliged to provide all

financing needed for the mining operations. However, the mortgaging of minerals by the contractor
does not necessarily signify that the contractor is unable to provide all financing required for the
project, or that it does not have the financial capability to undertake large-scale operations.
Mortgaging of mineral products, just like the assignment (by way of security) of manufactured
goods and goods in inventory, and the assignment of receivables, is an ordinary requirement of
banks, even in the case of clients with more than sufficient financial resources. And nowadays,
even the richest and best managed corporations make use of bank credit facilities -- it does not
necessarily signify that they do not have the financial resources or are unable to provide the
financing on their own; it is just a manner of maximizing the use of their funds.
9. Does the contractor in reality acquire the surface rights "for free," by virtue of the fact that it is
entitled to reimbursement for the costs of acquisition and maintenance, adjusted for inflation? We
think not. The "reimbursement" is possible only at the end of the term of the contract, when the
surface rights will no longer be needed, and the land previously acquired will have to be disposed
of, in which case the contractor gets reimbursement from the sales proceeds. The contractor has
to pay out the acquisition price for the land. That money will belong to the seller of the land. Only if
and when the land is finally sold off will the contractor get any reimbursement. In other words, the
contractor will have been cash-out for the entire duration of the term of the contract -- 25 or 50
years, depending. If we calculate the cost of money at say 12 percent per annum, that is the cost
or opportunity loss to the contractor, in addition to the amount of the acquisition price. 12 percent
per annum for 50 years is 600 percent; this, without any compounding yet. The cost of money is
therefore at least 600 percent of the original acquisition cost; it is in addition to the acquisition
cost. "For free"? Not by a long shot.
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 enable the contractor to establish its mine site, build its
facilities, establish a tailings pond, set up its machinery and equipment, and dig mine shafts and
tunnels, etc. It is impossible that the surface requirement will aggregate 5,000 hectares. Much of
the operations will consist of the tunneling and digging underground, which will not require
possessing or using any land surface. 5,000 hectares is way too much for the needs of a mining
operator. It simply will not spend its cash to acquire property that it will not need; the cash may be
better employed for the actual mining operations, to yield a profit.
11. Justice Carpio claims that the phrase among other things (found in the second paragraph of
Section 81 of the Mining Act) is being incorrectly treated as a delegation of legislative power to the
DENR secretary to issue DAO 99-56 and prescribe the formulae therein on the State's share from
mining operations. He adds that the phraseamong other things was not intended as a delegation
of legislative power to the DENR secretary, much less could it be deemed a valid delegation of
legislative power, since there is nothing in the second paragraph of Section 81 which can be said
to grant any delegated legislative power to the DENR secretary. And even if there were, such
delegation would be void, for lack of any standards by which the delegated power shall be
exercised.
While there is nothing in the second paragraph of Section 81 which can directly be construed as a
delegation of legislative power to the DENR secretary, it does not mean that DAO 99-56 is invalid
per se, or that the secretary acted without any authority or jurisdiction in issuing DAO 99-56. As we
stated earlier in our Prologue, "Who or what organ of government actually exercises this power of
control on behalf of the State? The Constitution is crystal clear: the President. Indeed, the Chief
Executive is the official constitutionally mandated to 'enter into agreements with foreign owned
corporations.' On the other hand, Congress may review the action of the President once it is
notified of 'every contract entered into in accordance with this [constitutional] provision within thirty
days from its execution.'" It is the President who is constitutionally mandated to enter into
FTAAs with foreign corporations, and in doing so, it is within the President's prerogative to
specify certain terms and conditions of the FTAAs, for example, the fiscal regime of FTAAs -i.e., the sharing of the net mining revenues between the contractor and the State.

Being the President's alter ego with respect to the control and supervision of the mining industry,
the DENR secretary, acting for the President, is necessarily clothed with the requisite authority and
power to draw up guidelines delineating certain terms and conditions, and specifying therein the
terms of sharing of benefits from mining, to be applicable to FTAAs in general. It is important to
remember that DAO 99-56 has been in existence for almost six years, and has not been amended
or revoked by the President.
The issuance of DAO 99-56 did not involve the exercise of delegated legislative power. The
legislature did not delegate the power to determine the nature, extent and composition of the items
that would come under the phrase among other things. The legislature's power pertains to the
imposition of taxes, duties and fees. This power was not delegated to the DENR secretary. But the
power to negotiate and enter into FTAAs was withheld from Congress, and reserved for the
President. In determining the sharing of mining benefits, i.e., in specifying what the phrase among
other things include, the President (through the secretary acting in his/her behalf) was not
determining the amount or rate of taxes, duties and fees, but rather the amount of INCOME to be
derived from minerals to be extracted and sold, income which belongs to the State as owner of the
mineral resources. We may say that, in the second paragraph of Section 81, the legislature in a
sense intruded partially into the President's sphere of authority when the former provided that
"The Government share in financial or technical assistance agreement shall consist of,
among other things, the contractor's corporate income tax, excise tax, special
allowance, withholding tax due from the contractor's foreign 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 fees as provided for under existing
laws."(Italics supplied)
But it did not usurp the President's authority since the provision merely included the enumerated
items as part of the government share, without foreclosing or in any way preventing (as in fact
Congress could not validly prevent) the President from determining what constitutes the State's
compensation derived from FTAAs. In this case, the President in effect directed the inclusion or
addition of "other things," viz., INCOME for the owner of the resources, in the government's share,
while adopting the items enumerated by Congress as part of the government share also.
12. Justice Carpio's insistence on applying the ejusdem generis rule of statutory construction to
the phraseamong other things is therefore useless, and must fall by the wayside. There is no point
trying to construe that phrase in relation to the enumeration of taxes, duties and fees found in
paragraph 2 of Section 81, precisely because "the constitutional power to prescribe the
sharing of mining income between the State and mining companies," to quote Justice Carpio
pursuant to an FTAA is constitutionally lodged with the President, not with Congress. It thus
makes no sense to persist in giving the phrase among other things a restricted meaning referring
only to taxes, duties and fees.
13. Strangely, Justice Carpio claims that the DENR secretary can change the formulae in DAO 9956 any time even without the approval of the President, and the secretary is the sole authority to
determine the amount of consideration that the State shall receive in an FTAA, because Section 5
of the DAO states that "xxx any amendment of an FTAA other than the provision on fiscal
regime shall require the negotiation with the Negotiation Panel and the recommendation of the
Secretary for approval of the President xxx". Allegedly, because of that provision, if an amendment
in the FTAA involves non-fiscal matters, the amendment requires approval of the President, but if
the amendment involves a change in the fiscal regime, the DENR secretary has the final authority,
and approval of the President may be dispensed with; hence the secretary is more powerful than
the President.
We believe there is some distortion resulting from the quoted provision being taken out of context.
Section 5 of DAO 99-56 reads as follows:

"Section 5. Status of Existing FTAAs. All FTAAs approved prior to the effectivity of this
Administrative Order shall remain valid and be recognized by the Government:
Provided, That should a Contractor desire to amend its FTAA, it shall do so by filing a
Letter of Intent (LOI) to the Secretary thru the Director. Provided, further, That if the
Contractor desires to amend the fiscal regime of its FTAA, it may do so by seeking for
the amendment of its FTAA's whole fiscal regime by adopting the fiscal regime provided
hereof: Provided, finally, That any amendment of an FTAA other than the provision on
fiscal regime shall require the negotiation with the Negotiating Panel and the
recommendation of the Secretary for approval of the President of the Republic of the
Philippines." (underscoring supplied)
It looks like another case of misapprehension. The proviso being objected to by Justice Carpio is
actually preceded by a phrase that requires a contractor desiring to amend the fiscal regime of its
FTAA, to amend thesame by adopting the fiscal regime prescribed in DAO 99-56 -- i.e., solely in
that manner, and in no other.Obviously, since DAO 99-56 was issued by the secretary under
the authority and with the presumed approval of the President, the amendment of an FTAA
by merely adopting the fiscal regime prescribed in said DAO 99-56 (and nothing more) need
not have the express clearance of the President anymore. It is as if the same had been preapproved. We cannot fathom the complaint that that makes the secretary more powerful than the
President, or that the former is trying to hide things from the President or Congress.
14. Based on the first sentence of Section 5 of DAO 99-56, which states "[A]ll FTAAs approved
prior to the effectivity of this Administrative Order shall remain valid and be recognized by the
Government", Justice Carpio concludes that said Administrative Order allegedly exempts FTAAs
approved prior to its effectivity -- like the WMCP FTAA -- from having to pay the State any share
from their mining income, apart from taxes, duties and fees.
We disagree. What we see in black and white is the statement that the FTAAs approved before the
DAO came into effect are to continue to be valid and will be recognized by the State. Nothing is
said about their fiscal regimes. Certainly, there is no basis to claim that the contractors under said
FTAAs were being exempted from paying the government a share in their mining incomes.
For the record, the WMCP FTAA is NOT and has never been exempt from paying the government
share. The WMCP FTAA has its 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.
For that very reason, we have never said that DAO 99-56 is the basis for claiming that the WMCP
FTAA has a consideration. Hence, we find quite out of place Justice Carpio's statement
that ironically, DAO 99-56, the very authority cited to support the claim that the WMCP FTAA has a
consideration, does not apply to the WMCP FTAA. By its own express terms, DAO 99-56 does not
apply to FTAAs executed before the issuance of DAO 99-56, like the WMCP FTAA. The majority's
position has allegedly no leg to stand on since even DAO 99-56, assuming it is valid, cannot save
the WMCP FTAA from want of consideration. Even assuming arguendo that DAO 99-56 does not
apply to the WMCP FTAA, nevertheless, the WMCP FTAA has its own fiscal regime, found in
Section 7.7 thereof. Hence, there is no such thing as "want of consideration" here.
Still more startling is this claim: The majority supposedly agrees that the provisions of the WMCP
FTAA, which grant a sham consideration to the State, are void. Since the majority agrees that the
WMCP FTAA has a sham consideration, the WMCP FTAA thus lacks the third element of a valid
contract. The Decision should declare the WMCP FTAA void for want of consideration unless it
treats the contract as an MPSA under Section 80. Indeed the only recourse of WMCP to save the
validity of its contract is to convert it into an MPSA.
To clarify, we said that Sections 7.9 and 7.8(e) of the WMCP FTAA are provisions grossly
disadvantageous to government and detrimental to the interests of the Filipino people, as well as

violative of public policy, and must therefore be stricken off as invalid. Since the offending
provisions are very much separable from Section 7.7 and the rest of the FTAA, the deletion of
Sections 7.9 and 7.8(e) can be done without affecting or requiring the invalidation of the WMCP
FTAA itself, and such deletion will preserve for government its due share of the 60 percent
benefits. Therefore, the WMCP FTAA is NOT bereft of a valid consideration (assuming for the
nonce that indeed this is the "consideration" of the FTAA).
SUMMATION

The framers spoke about service contracts as the concept 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 or minimize the abuses prevalent during the martial law regime. In brief, 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 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.

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

The Meaning of "Agreements Involving
Either Technical or Financial Assistance"
Applying familiar principles of constitutional construction to the phrase agreements involving either
technical or financial assistance, the framers' choice of words does not indicate the intent to
exclude other modes of assistance, but rather implies that there are other things being included or
possibly being made part of the agreement, apart from financial or technical assistance. The
drafters avoided the use of restrictive and stringent phraseology; a verba legis scrutiny of Section
2 of Article XII of the Constitution discloses not even a hint of a desire to prohibit foreign
involvement in the management or operation of mining activities, or to eradicate service contracts.
Such moves would necessarily imply an underlying drastic shift in fundamental economic and
developmental policies of the State. That change requires a much more definite and irrefutable
basis than mere omission of the words "service contract" from the new Constitution.
Furthermore, a literal and restrictive interpretation of this paragraph leads to logical
inconsistencies. A constitutional provision specifically allowing foreign-owned corporations to
render financial or technical assistancein respect of mining or any other commercial activity was
clearly unnecessary; the provision was meant to refer to more than mere financial or technical
assistance.
Also, if paragraph 4 permits only agreements for financial or technical assistance, there would be
no point in requiring that they be "based on real contributions to the economic growth and general
welfare of the country."And considering that there were various long-term service contracts still in
force and effect at the time the new Charter was being drafted, the absence of any transitory
provisions to govern the termination and closing-out of the then existing service contracts strongly
militates against the theory that the mere omission of "service contracts" signaled their prohibition
by the new Constitution.
Resort to the deliberations of the Constitutional Commission is therefore unavoidable, and a
careful scrutiny thereof conclusively shows that the ConCom members discussed agreements
involving either technical or financial assistance in the same sense as service contracts and used
the terms interchangeably. The drafters in fact knew that the agreements with foreign corporations
were going to entail not mere technical or financial assistance but, rather, foreign investment in
and management of an enterprise for large-scale exploration, development and utilization of
minerals.

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
corporations as an exception to the general norm in paragraph 1 of Section 2 of the same Article -was resoundingly and overwhelmingly approved.
The drafters, many of whom were economists, academicians, lawyers, businesspersons and
politicians knew that foreign entities will not enter into agreements involving assistance without
requiring measures of protection to ensure the success of the venture and repayment of their
investments, loans and other financial assistance, and ultimately to protect the business reputation
of the foreign corporations. 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 remaining vested in the State.
From the foregoing, 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 minerals, petroleum and other
mineral oils. The grant of such service contracts 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.
Ultimate Test: Full State Control
To repeat, the primacy of the principle of the State's sovereign ownership of all mineral resources,
and its full control and supervision over all aspects of exploration, development and utilization of
natural resources must be upheld. But "full control and supervision" cannot be taken literally to
mean that the State controls and superviseseverything down to the minutest details and makes all
required actions, as this would render impossible the legitimate exercise by the contractor of a
reasonable degree of management prerogative and authority, indispensable to the proper
functioning of the mining enterprise. Also, government need not micro-manage mining operations
and day-to-day affairs of the enterprise in order to be considered as exercising full control and
supervision.
Control, as utilized in Section 2 of Article XII, must be taken to mean a degree of control sufficient
to enable the State to direct, restrain, regulate and govern the affairs of the extractive enterprises.

Control by the State may be on a macro level, through the establishment of policies, guidelines,
regulations, industry standards and similar measures that would enable government to regulate
the conduct of affairs in various enterprises, and restrain activities deemed not desirable or
beneficial, with the end in view of ensuring that these enterprises contribute to the economic
development and general welfare of the country, conserve the environment, and uplift the wellbeing of the local affected communities. Such a degree of control would be compatible with
permitting the foreign contractor sufficient and reasonable management authority over the
enterprise it has invested in, to ensure efficient and profitable operation.

Section 3(aq) of RA 7942 was objected to as being unconstitutional for allowing a foreign
contractor to apply for and hold an exploration permit. During the exploration phase, the permit
grantee (and prospective contractor) is spending and investing heavily in exploration activities
without yet being able to extract minerals and generate revenues. The exploration permit issued
under Sections 3(aq), 20 and 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 already conducted, and expenditures already made,
may end up only benefiting claim-jumpers. Thus, Section 3(aq) of RA 7942 is not unconstitutional.

Government Granted Full Control

by RA 7942 and DAO 96-40

WMCP FTAA Likewise Gives the

State Full Control and Supervision

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

The WMCP FTAA obligates the contractor to account for the value of production and sale of
minerals (Clause 1.4); requires that the contractor's work program, activities and budgets be
approved by the State (Clause 2.1); gives the DENR secretary power to extend the exploration
period (Clause 3.2-a); requires approval by the State for incorporation of lands into the contract
area (Clause 4.3-c); requires Bureau of Forest Development approval for inclusion of forest
reserves as part of the FTAA contract area (Clause 4.5); obligates the contractor to periodically
relinquish parts of the contract area not needed for exploration and development (Clause 4.6);
requires submission of a declaration of mining feasibility for approval by the State (Clause 4.6-b);
obligates the contractor to report to the State the results of its exploration activities (Clause 4.9);
requires the contractor to obtain State approval for its work programs for the succeeding two year
periods, containing the proposed work activities and expenditures budget related to exploration
(Clause 5.1); requires the contractor to obtain State approval for its proposed expenditures for
exploration activities (Clause 5.2); requires the contractor to submit an annual report on geological,
geophysical, geochemical and other information relating to its explorations within the FTAA area
(Clause 5.3-a); requires the contractor to submit within six months after expiration of exploration
period a final report on all its findings in the contract area (Clause 5.3-b); requires the contractor
after conducting feasibility studies to submit a declaration of mining feasibility, along with a
description of the area to be developed and mined, a description of the proposed mining
operations and the technology to be employed, and the proposed work program for the
development phase, for approval by the DENR secretary (Clause 5.4); obligates the contractor to
complete the development of the mine, including construction of the production facilities, within the
period stated in the approved work program (Clause 6.1); requires the contractor to submit for
approval a work program covering each period of three fiscal years (Clause 6.2); requires the
contractor to submit reports to the secretary on the production, ore reserves, work accomplished
and work in progress, profile of its work 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 (Clause 6.4); subjects to State control the
amount of funds that the 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 equity in the contractor within ten years of recovering
specified expenditures unless not so required by subsequent legislation (Clause 10.1); gives the
State the right to terminate the FTAA for unremedied substantial breach thereof by the contractor
(Clause 13.2); requires State approval for any assignment of the FTAA by the contractor to an
entity other than an affiliate (Clause 14.1).

As discussed hereinabove, the State's full control and supervision over mining operations are
ensured through the following provisions in RA 7942: Sections 8, 9, 16, 19, 24, 35[(b), (e), (f), (g),
(h), (k), (l), (m) and (o)], 40, 57, 66, 69, 70, and Chapters XI and XVII; as well as the following
provisions of DAO 96-40: Sections7[(d) and (f)], 35(a-2), 53[(a-4) and (d)], 54, 56[(g), (h), (l), (m)
and (n)], 56(2), 60, 66, 144, 168, 171 and 270, and also Chapters XV, XVI and XXIV.
Through the foregoing provisions, the government agencies concerned are empowered to approve
or disapprove -- hence, in a position to influence, direct, and change -- the various work programs
and the corresponding minimum expenditure commitments for each of the exploration,
development and utilization phases of the enterprise. Once they have been approved, the
contractor's compliance with its commitments therein will be monitored. Figures for mineral
production and sales are regularly monitored and subjected to government review, to ensure that
the products and by-products are disposed of at the best prices; copies of sales agreements have
to be submitted to and registered with MGB.
The contractor is mandated to open its books of accounts and records for scrutiny, to enable the
State to determine that the government share has been fully paid. The State may likewise compel
compliance by the contractor with mandatory requirements on mine 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 the
indigenous peoples concerned. And violation of any of the FTAA's 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 tens or hundreds of millions
of dollars sunk into a mining project.
Overall, the State definitely has a pivotal say in the operation of the individual enterprises, and can
set directions and objectives, detect deviations and non-compliances by the contractor, and
enforce compliance and impose sanctions should the occasion arise. Hence, RA 7942 and DAO
96-40 vest in government more than a sufficient degree of control and supervision over the
conduct of mining operations.

In short, the aforementioned provisions of the WMCP FTAA, far from constituting a surrender of
control and a grant of beneficial ownership of mineral resources to the contractor in question, vest
the State with control and supervision over practically all aspects of the operations of the FTAA
contractor, including the charging of pre-operating and operating expenses, and the disposition of
mineral products.
There is likewise no relinquishment of control on account of specific provisions of the WMCP
FTAA. Clause 8.2 provides a mechanism to prevent the mining operations from grinding to a
complete halt as a result of possible delays of more than 60 days in the government's processing
and approval of submitted work programs and budgets. Clause 8.3 seeks to provide a temporary,
stop-gap solution in case a disagreement between the State and the contractor (over the proposed

work program or budget submitted by the contractor) should result in a deadlock or impasse, to
avoid unreasonably long delays in the performance of the works.

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

No Surrender of Financial Benefits

The State, despite Clause 8.3, still has control over the contract area, and it may, as sovereign
authority, prohibit work thereon until the dispute is resolved, or it may terminate the FTAA, citing
substantial breach thereof. Hence, the State clearly retains full and effective control.
Clause 8.5, which allows the contractor to make changes to approved work programs and budgets
without the prior approval of the DENR secretary, subject to certain limitations with respect to the
variance/s, merely provides the contractor a certain amount of flexibility to meet unexpected
situations, while still guaranteeing that the approved work programs and budgets are not
abandoned altogether. And if the secretary disagrees with the actions taken by the contractor in
this instance, he may also resort to cancellation/termination of the FTAA as the ultimate sanction.
Clause 4.6 of the WMCP FTAA gives the contractor discretion to select parts of the contract area
to be relinquished. The State is not in a position to substitute its judgment for that of the contractor,
who knows exactly which portions of the contract area do not contain minerals in commercial
quantities and should be relinquished. Also, since the annual occupation fees paid to government
are based on the total hectarage of the contract area, net of the areas relinquished, the
contractor's self-interest will assure proper and efficient relinquishment.
Clause 10.2(e) of the WMCP FTAA does not mean that the contractor can compel government to
use its power of eminent domain. It contemplates a situation in which the contractor is a foreignowned corporation, hence, not qualified to own land. The contractor identifies 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
eminent domain (or determination of just compensation); it seeks to avoid a violation of the antidummy law.
Clause 10.2(l) of the WMCP FTAA giving the contractor the right to mortgage and encumber the
mineral products extracted may have been a result of conditions imposed by creditor-banks to
secure the loan obligations of WMCP. Banks lend also upon the security of encumbrances
on goods produced, which can be easily sold and converted into cash and applied to the
repayment of loans. Thus, Clause 10.2(l) is not something out of the ordinary. Neither is it
objectionable, because even though the contractor is allowed to mortgage or encumber the
mineral end-products themselves, the contractor is not thereby relieved of its obligation to pay the
government its basic and additional shares in the net mining revenue. The contractor's ability to
mortgage the minerals does not negate the State's right to receive its share of net mining
revenues.
Clause 10.2(k) which gives the contractor authority "to change its equity structure at any time,"
means that WMCP, which was then 100 percent foreign owned, could permit Filipino equity
ownership. Moreover, what is important is that the contractor, regardless of its ownership, is
always in a position to render the services required under the FTAA, under the direction and
control of the government.
Clauses 10.4(e) and (i) bind government to allow amendments to the FTAA if required by banks
and other financial institutions as part of the conditions of new lendings. There is nothing
objectionable here, since Clause 10.4(e) also provides that such financing arrangements should in
no event reduce the contractor's obligations or the government's rights under the FTAA. Clause
10.4(i) provides that government shall "favourably consider" any request for amendments of this
agreement necessary for the contractor to successfully obtain financing. There is no renunciation
of control, as the proviso does not say that government shall automatically grant any such request.
Also, 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 disapprove such requests.

The second paragraph of Section 81 of RA 7942 has been denounced for allegedly limiting the
State's share in FTAAs with foreign contractors to just taxes, fees and duties, and depriving the
State of a share in the after-tax income of the enterprise. However, the inclusion of the
phrase "among other things" in the second paragraph of Section 81 clearly and unmistakably
reveals the legislative intent to have the State collect more than just the usual taxes, duties and
fees.
Thus, DAO 99-56, the "Guidelines Establishing the Fiscal Regime of Financial or Technical
Assistance Agreements," spells out the financial benefits government will receive from an FTAA,
as consisting of not only abasic government share, comprised of all direct taxes, fees and
royalties, as well as other payments made by the contractor during the term of the FTAA, but also
an additional government share, being a share in the earnings or cash flows of the mining
enterprise, so as to achieve a fifty-fifty sharing of net benefits from mining between the
government and the contractor.
The additional government share is computed using one of three (3) options or schemes
detailed in DAO 99-56, viz., (1) the fifty-fifty sharing of cumulative present value of cash flows; (2)
the excess profit-related additional government share; and (3) the additional sharing based on the
cumulative net mining revenue. Whichever option or computation is used, the additional
government share has nothing to do with taxes, duties, fees or charges. The portion of revenues
remaining after the deduction of the basic and additional government shares is what goes to the
contractor.
The basic government share and the additional government share do not yet take into account the
indirect taxes and other financial contributions of mining projects, which are real and actual
benefits enjoyed by the Filipino people; if these are taken into account, total government share
increases to 60 percent or higher (as much as 77 percent, and 89 percent in one instance) of the
net present value of total benefits from the project.
The third or last paragraph of Section 81 of RA 7942 is slammed for deferring the payment of the
government share in FTAAs until after the contractor shall have recovered its pre-operating
expenses, exploration and development expenditures. Allegedly, the collection of the State's share
is rendered uncertain, as there is no time limit in RA 7942 for this grace period or recovery period.
But although RA 7942 did not limit the grace period, the concerned agencies (DENR and MGB) in
formulating the 1995 and 1996 Implementing Rules and Regulations provided that the period of
recovery, reckoned from the date of commercial operation, shall be for a period not exceeding five
years, or until the date of actual recovery, whichever comes earlier.
And since RA 7942 allegedly does not require government approval for the pre-operating,
exploration and development expenses of the foreign contractors, it is feared that such expenses
could be bloated to wipe out mining revenues anticipated for 10 years, with the result that the
State's share is zero for the first 10 years. However, the argument is based on incorrect
information.
Under Section 23 of RA 7942, the applicant for exploration permit is required to submit a proposed
work program for exploration, containing a yearly budget of proposed expenditures, which the
State passes upon and either approves or rejects; if approved, the same will subsequently be
recorded as pre-operating expenses that the contractor will have to recoup over the grace period.
Under Section 24, when an exploration permittee files with the MGB a declaration of mining project
feasibility, it must submit a work program for development, with corresponding budget, for approval

by the Bureau, before government may grant an FTAA or MPSA or other mineral agreements;
again, government has the opportunity to approve or reject the proposed work program and
budgeted expenditures for development works, which will become the pre-operating and
development costs that will have to be recovered. Government is able to know ahead of time the
amounts of pre-operating and other expenses to be recovered, and the approximate period of time
needed therefor. The aforecited provisions have counterparts in Section 35, which deals with the
terms and conditions exclusively applicable to FTAAs. In sum, the third or last paragraph of
Section 81 of RA 7942 cannot be deemed defective.
Section 80 of RA 7942 allegedly limits the State's share in a mineral production-sharing agreement
(MPSA) to just the excise tax on the mineral product, i.e., only 2 percent of market value of the
minerals. The colatilla in Section 84 reiterates the same limitation in Section 80. However, these
two provisions pertain only to MPSAs, and have no application to FTAAs. These particular
provisions do not come within the issues defined by this Court. Hence, on due process
grounds, no pronouncement can be made in this case in respect of the constitutionality of
Sections 80 and 84.
Section 112 is disparaged for reverting FTAAs and all mineral agreements to the old "license,
concession or lease" system, because it allegedly effectively reduces the government share in
FTAAs to just the 2 percent excise tax which pursuant to Section 80 comprises the government
share in MPSAs. However, Section 112 likewise does not come within the issues delineated by
this Court, and was never touched upon by the parties in their pleadings. Moreover, Section 112
may not properly apply to FTAAs. The mining law obviously meant to treat FTAAs as a breed apart
from mineral agreements. There is absolutely no basis to believe that the law intends to exact from
FTAA contractors merely the same government share (i.e., the 2 percent excise tax) that it
apparently demands from contractors under the three forms of mineral agreements.
While there is ground to believe that Sections 80, 84 and 112 are indeed unconstitutional, they
cannot be ruled upon here. In any event, they are separable; thus, a later finding of nullity will not
affect the rest of RA 7942.
In fine, the challenged provisions of RA 7942 cannot be said to surrender financial benefits
from an FTAA to the foreign contractors.
Moreover, there is no concrete basis for the view that, in FTAAs with a foreign contractor, the State
must receive at least 60 percent of the after-tax income from the exploitation of its mineral
resources, and that such share is the equivalent of the constitutional requirement that at least 60
percent of the capital, and hence 60 percent of the income, of mining companies should remain in
Filipino hands. Even if the State is entitled to a 60 percent share from other mineral agreements
(CPA, JVA and MPSA), that would not create a parallel or analogous situation for FTAAs. We are
dealing with an essentially different equation. Here we have the old apples and oranges syndrome.
The Charter did not intend to fix an iron-clad rule of 60 percent share, applicable to all situations,
regardless of circumstances. There is no indication of such an intention on the part of the framers.
Moreover, the terms and conditions of petroleum FTAAs cannot serve as standards for mineral
mining FTAAs, because the technical and operational requirements, cost structures and
investment needs of off-shore petroleum exploration and drilling companies do not have
the remotest resemblance to those of on-shore mining companies.
To take the position that government's share must be not less than 60 percent of after-tax income
of FTAA contractors is nothing short of this Court dictating upon the government. The State
resultantly ends up losing control. To avoid compromising the State's full control and supervision
over the exploitation of mineral resources, there must be no attempt to impose a "minimum 60
percent" rule. It is sufficient that the State has the power and means, should it so decide, to get a
60 percent share (or greater); and it is not necessary that the State does so in every case.

Invalid Provisions of the WMCP FTAA

Section 7.9 of the WMCP FTAA clearly renders illusory the State's 60 percent share of WMCP's
revenues. Under Section 7.9, should WMCP's foreign stockholders (who originally owned 100
percent of the 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 revenues under Section 7.7, without any
offsetting compensation to the State. And what is given to the State in Section 7.7 is by mere
tolerance of WMCP's foreign stockholders, who can at any time cut off the government's entire
share by simply selling 60 percent of WMCP's equity to a Philippine citizen or corporation.
In fact, the sale by WMCP's foreign stockholder on January 23, 2001 of the entire outstanding
equity in WMCP to Sagittarius Mines, Inc., a domestic corporation at least 60 percent Filipino
owned, can be deemed to have automatically triggered the operation of Section 7.9 and removed
the State's right to receive its 60 percent share. Section 7.9 of the WMCP FTAA has effectively
given away the State's share without anything in exchange.
Moreover, it constitutes unjust enrichment on the part of the local and foreign stockholders in
WMCP, because by the mere act of divestment, the local and foreign stockholders get a windfall,
as their share in the net mining revenues of WMCP is automatically increased, without having to
pay anything for it.
Being grossly disadvantageous to government and detrimental to the Filipino people, as well as
violative of public policy, Section 7.9 must therefore be stricken off as invalid. The FTAA in
question does not involve mere contractual rights but, being impressed as it is with public interest,
the contractual provisions and stipulations must yield to the common good and the national
interest. Since the offending provision is very much separable from the rest of the FTAA, the
deletion of Section 7.9 can be done without affecting or requiring the invalidation of the entire
WMCP FTAA itself.
Section 7.8(e) of the WMCP FTAA likewise is 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, at the expense of government. For being grossly disadvantageous and
prejudicial to government and contrary to public policy, Section 7.8(e) must also be declared
without effect. It may likewise be stricken off without affecting the rest of the FTAA.
EPILOGUE
AFTER ALL IS SAID AND DONE, it is clear that there is unanimous agreement in the Court upon
the key principle that the State must exercise full control and supervision over the exploration,
development and utilization of mineral resources.
The crux of the controversy is the amount of discretion to be accorded the Executive Department,
particularly the President of the Republic, in respect of negotiations over the terms of FTAAs,
particularly when it comes to the government share of financial benefits from FTAAs. The Court
believes that it is not unconstitutional to allow a wide degree of discretion to the Chief Executive,
given the nature and complexity of such agreements, the humongous amounts of capital and
financing required for large-scale mining operations, the complicated technology needed, and the
intricacies of international trade, coupled with the State's need to maintain flexibility in its dealings,
in order to preserve and enhance our country's competitiveness in world markets.
We are all, in one way or another, sorely affected by the recently reported scandals involving
corruption in high places, duplicity in the negotiation of multi-billion peso government contracts,
huge payoffs to government officials, and other malfeasances; and perhaps, there is the desire to
see some measures put in place to prevent further abuse. However, dictating upon the

President what minimum share to get from an FTAA is not the solution. It sets a bad
precedent since such a move institutionalizes the very reduction if not deprivation of the State's
control. The remedy may be worse than the problem it was meant to address. In any event,
provisions in such future agreements which may be suspected to be grossly disadvantageous or
detrimental to government may be challenged in court, and the culprits haled before the bar of
justice.
Verily, under the doctrine of separation of powers and due respect for co-equal and coordinate
branches of government, this Court must restrain itself from intruding into policy matters and must
allow the President and Congress maximum discretion in using the resources of our country and in
securing the assistance of foreign groups to 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 branches of government of
their official functions."99 As aptly spelled out seven decades ago by Justice George Malcolm,
"Just as the Supreme Court, as the guardian of constitutional rights, should not sanction
usurpations by any other department of government, so should it as strictly confine its own sphere
of influence to the powers expressly or by implication conferred on it by the Organic Act."100 Let the
development of the mining industry be the responsibility of the political branches of government.
And let not this Court interfere inordinately and unnecessarily.
The Constitution of the Philippines is the supreme law of the land. It is the repository of all the
aspirations and hopes of all the people. We fully sympathize with the plight of Petitioner La Bugal
B'laan and other tribal groups, and commend their efforts to uplift their communities. However, we
cannot justify the invalidation of an otherwise constitutional statute along with its implementing
rules, or the nullification of an otherwise legal and binding FTAA contract.
We must never forget that it is not only our less privileged brethren in tribal and cultural
communities who deserve the attention of this Court; rather, all parties concerned -- including the
State itself, the contractor (whether Filipino or foreign), and the vast majority of our citizens -equally deserve the protection of the law and of this Court. To stress, the benefits to be derived by
the State from mining activities must ultimately serve the great majority of our fellow citizens. They
have as much right and interest in the proper and well-ordered development and utilization of the
country's mineral resources as the petitioners.
Whether we consider the near term or take the longer view, we cannot overemphasize the need
for anappropriate balancing of interests and needs -- the need to develop our stagnating
mining industry and extract what NEDA Secretary Romulo Neri estimates is some US$840 billion
(approx. PhP47.04 trillion) worth of mineral wealth lying hidden in the ground, in order to jumpstart
our floundering economy on the one hand, and on the other, the need to enhance our nationalistic
aspirations, protect our indigenous communities, and prevent irreversible ecological damage.
This Court cannot but be mindful that any decision rendered in this case will ultimately impact not
only the cultural communities which lodged the instant Petition, and not only the larger community
of the Filipino people now struggling to survive amidst a fiscal/budgetary deficit, ever increasing
prices of fuel, food, and essential commodities and services, the shrinking value of the local
currency, and a government hamstrung in its delivery of basic services by a severe lack of
resources, but also countless future generations of Filipinos.
For this latter group of Filipinos yet to be born, their eventual access to education, health care and
basic services, their overall level of well-being, the very shape of their lives are even now being
determined and affected partly by the policies and directions being 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 Court's 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.
Davide Jr., C.J., Sandoval-Gutierrez, Austria-Martinez, and Garcia, JJ., concur.
Puno, J., in the result and votes to invalidate sections 3.3; 7.8 and 7.9 of the WMC FTAA.
Quisumbing, J., in the result.
Ynares-Santiago, J., joins dissenting opinion of J. Antonio Carpio & J. Conchita C. Morales.
Carpio, and Carpio-Morales, JJ., see dissenting opinion.
Corona, J., certifies he voted affirmatively with the majority and he was allowed to do so although
he is on leave.
Callejo, Sr., J., concurs to the dissenting opinion of J. Carpio.
Azcuna, J., took no part-same reason.
Tinga, and Chico-Nazario, JJ., concur with a separate opinion.
CONCURRING OPINION
CHICO-NAZARIO, J.:
I concur in the well-reasoned ponencia of my esteemed colleague Mr. Justice Artemio V.
Panganiban. I feel obligated, however, to add the following observations:
I. RE "FULL CONTROL AND SUPERVISION"
With all due respect, I believe that the issue of unconstitutionality of Republic Act No. 7942, its
implementing rules, and the Financial Assistance Agreement between the Philippine Government
and WMPC (Philippines) Inc. (WMPC FTAA) executed pursuant to Rep. Act No. 7942 hinges, to a
large extent, on the interpretation of the phrase in Section 2, Article XII of the 1987 Constitution,
which states:
(T)he exploration, development, and utilization of natural resources shall be under
the full control and supervision of the State. x x x. (Emphasis supplied)
Construing said phrase vis--vis the entire provision, it appears from the deliberations in the
Constitutional Commission that the term "control" does not have the meaning it ordinarily has in
political law which is the power of a superior to substitute his judgment for that of an inferior.1 Thus

MR. NOLLEDO: Suppose a judicial entity is given the power to exploit natural resources
and, of course, there are decisions made by the governing board of that judicial entity,
can the state change the decisions of the governing board of that entity based on the
words "full control".
MR. VILLEGAS: If it is within the context of the contract, I think the State cannot violate
the laws of the land.2
Moreover, "full control and supervision" does not mean that foreign stockholders cannot be legally
elected as members of the board of a corporation doing business under, say, a co-production, joint
venture or profit-sharing agreement, 40% of whose capital is foreign owned. Otherwise, and as
Commissioner Romulo declared, it would be unfair to the foreign stockholder 3 and, per
Commissioner Padilla, "refusing them a voice in management would make a co-production, joint
venture and production sharing illusory."4
It is apparently for the foregoing reasons that there was a disapproval of the amendment proposed
by Commissioner, now Mr. Chief Justice Davide, that the governing and managing bodies of such
corporations shall be vested exclusively in citizens of the Philippines5 so that control of all
corporations involved in the business of utilizing our natural resources would always be in Filipino
hands.
The disapproval must be juxtaposed with the fact that a provision substantially similar to the
proposed Davide amendment was approved with regard to educational institutions, viz:
Section 4 (2). Educational institutions, other than those established by religious groups
and mission boards, shall be owned solely by citizens of the Philippines or corporations
or associations at least sixty per centumof the capital of which is owned by such
citizens. The Congress may, however, require increased Filipino equity participation in
all educational institutions.
The control and administration of educational institutions shall be vested in citizens of
the Philippines. (Emphasis supplied)
From the foregoing, it can be clearly inferred that it was NOT the intention of the framers of the
Constitution to deprive governing boards of domestic corporations with non-Filipino members, the
right to control and administer the corporation that explores, develops and utilizes natural
resources insofar as agreements with the State for co-production, joint venture and productionsharing are concerned, otherwise the Davide amendment would have been approved and, like the
prohibition in above-quoted Section 4(2), Article XIV, control and supervision of all business
involved in the exploration and development of mineral resources would have been left solely in
Filipino hands.
Accordingly, to the extent that the corporate board governs and manages the operations for the
exploration and use of natural resources, to that extent the "full control and supervision" thereof by
the State is diminished.
In effect, therefore, when the State enters into such agreements as provided in the Constitution, it
allows itself to surrender part of its sovereign right to full control and supervision of said activities,
the State having the right to partly surrender the exercise of sovereign powers under the doctrine
of auto-limitation.6
If foreigners (under joint ventures etc.) have a say in the management of the business of utilizing
natural resources as corporate directors of domestic corporations, there is no justification for
holding that foreign corporations who put in considerably large amounts of money under
agreements involving either technical or financial assistance for large scale exploration,

development and utilization of minerals, petroleum and other mineral oils are prohibited from
managing such business.
Indeed, to say that the Constitution requires the State to have full and total control and supervision
of the exploration, development and utilization of minerals when undertaken in a large scale under
agreements with foreign corporations involving huge amounts of money is to divorce oneself from
reality. As Mr. Justice Panganiban said, no firm would invest funds in such enterprise unless it has
a say in the management of the business.
To paraphrase this Court in one of its landmark cases, the fundamental law does not intend an
impossible undertaking.7 It must therefore be presumed that the Constitution did not at all intend
an interpretation of Section 2, Article XII which deprives the foreign corporation engaged in large
scale mining activities a measure of control in the management and operation of such activities,
and in said manner, remove from the realm of the possible the enterprise the Constitution
envisions thereunder.
This brings me to the final point raised by my esteemed colleague, Mme. Justice Conchita Carpio
Morales, that it is of no moment that the declaration of Rep. Act No. 7942 may discourage foreign
assistance and/or retard or delay the exploration, development or utilization of the nation's natural
resources as the Filipino people, as early as the 1935 Constitution, have determined such matters
as secondary to the protection and preservation of their ownership of these natural resources.
With due respect, I find such proposition not legally justifiable as it looks backward to the
justification in the 1935 Constitution instead of forward under the 1987 Constitution which
expressly allows foreign participation in the exploration, development or utilization of the nation's
marine wealth to allow the State to take advantage of foreign funding or technical assistance. As
long as the means employed by such foreign assistance result in real contributions to the
economic growth of our country and enhance the general welfare of our people, the development
of our mineral resources by and through foreign corporations, such FTAAs are not
unconstitutional.
II. RE: REQUIREMENT THAT FTAAs MUST BE "BASED
ON REAL CONTRIBUTIONS TO THE ECONOMIC GROWTH
AND GENERAL WELFARE OF THE COUNTRY"
The policy behind Rep. Act No. 7942 is to promote the "rational exploration, development,
utilization and conservation" of the State-owned mineral resources "through the combined efforts
of government and the private sector in order to enhance national growth in a way that effectively
safe-guards the environment and protect the rights of affected communities". 8 This policy, with
reference specifically to FTAAs, is in keeping with the constitutional precept that FTAAs must be
based on real contributions to the economic growth and general welfare of the country. As has
been said, "a statute derives its vitality from the purpose for which it is enacted and to construe it
in a manner that disregards or defeats such purpose is to nullify or destroy the law."9 In this regard,
much has been said about the alleged unconstitutionality of Section 81 of Rep. Act No. 7942 as it
allegedly allows for the waiver of the State's right to receive income from the exploitation of its
mineral resources as it limits the State's share in FTAAs with foreign contractors to taxes, duties
and fees. For clarity, the provision states
SEC. 81. Government Share in Other Mineral Agreements. -- The share of the
Government in co-production and joint-venture agreements shall be negotiated by the
Government and the contractor taking into consideration the: (a) capital investment of
the project, (b) risks involved, (c) contribution of the project to the economy, and (d)
other factors that will provide for a fair and equitable sharing between the Government
and the contractor. The Government shall also be entitled to compensations for its other
contributions which shall be agreed upon by the parties, and shall consist, among other
things, the contractor's income tax, excise tax, special allowance, withholding tax due
from the contractor's foreign stockholders, arising from dividend or interest payments to

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

I dissent and vote to deny respondents' motions for reconsideration. I find that Section 3(aq),
Section 39, Section 80, the second paragraph of Section 81, the proviso in Section 84, and the
first proviso in Section 112 of Republic Act No. 79421 ("RA 7942") violate Section 2, Article XII of
the 1987 Constitution and are therefore unconstitutional.
In essence, these provisions of RA 7942 waive the State's ownership rights under the
Constitution over mineral resources. These provisions also abdicate the State's
constitutional duty to control and supervise fully the exploitation of mineral resources.
A. The Threshold Issue for Resolution

The collection of Government share in financial or technical assistance agreement shall

commence after the financial or technical assistance agreement contractor has fully
recovered its pre-operating expenses, exploration, and development expenditures,
inclusive. (Emphasis supplied)
The controversy revolves around the proper interpretation of "among other things" stated in the
second paragraph of Section 81. Mr. Justice Carpio is of the opinion that "among other things"
could only mean "among other taxes", referring to the unnamed "other taxes, duties, and fees as
provided for under existing laws" contained in the last clause of Section 81, paragraph 2. If such
were the correct interpretation, then truly, the provision is unconstitutional as a sharing based only
on taxes cannot be considered as contributing to the economic growth and general welfare of the
country. I am bothered, however, by the interpretation that the phrase "among other things" refers
to "and all such other taxes, duties and fees as provided for under existing laws" since it would
render the former phrase superfluous. In other words, there would have been no need to include
the phrase "among other things" if all it means is "all other taxes" since the latter is already
expressly stated in the provision. As it is a truism that all terms/phrases used in a statute has
relevance to the object of the law, then I find the view of Mr. Justice Panganiban that "all other
things" means "additional government share" in the form of "earnings or cash flow of the mining
enterprise" as interpreted by the DENR -- more compelling. Besides, such an interpretation would
affirm the constitutionality of the provision which would then be in keeping with the rudimentary
principle that a law shall not be declared invalid unless the conflict with the Constitution is clear
beyond reasonable doubt.10 To justify nullification of a law, there must be a clear and unequivocal
breach of the Constitution, not a doubtful and argumentative implication.11
Finally, I wish to stress that it would appear that the constitutional mandate that large-scale mining
activities under FTAAs must be based on real contributions to the economic growth and general
welfare of the country is both a standard for the statute required to implement subject provision as
well as the vehicle for the exercise of the State's resultant residual control and supervision of the
mining activities.
In all FTAAs, the State is deemed to reserve its right to control the end to be achieved so that real
contributions to the economy can be realized and, in the final analysis, the business will redound
to the general welfare of the country.
However, the question of whether or not the FTAA will, in fact, redound to the general welfare of
the public involves a "judgment call" by our policy makers who are answerable to our people
during the appropriate electoral exercises and are not subject to judicial pronouncements based
on grave abuse of discretion.12
For the foregoing reasons, I vote to grant the motion for reconsideration.

DISSENTING OPINION
CARPIO, J.:

Petitioners claim that respondent Department of Environment and Natural Resources Secretary
Victor O. Ramos, in issuing the rules to implement RA 7942, gravely abused his discretion
amounting to lack or excess of jurisdiction. Petitioners assert that RA 7942 is unconstitutional for
the following reasons:
1. RA 7942 "allows fully foreign owned corporations to explore, develop, utilize and
exploit mineral resources in a manner contrary to Section 2, paragraph 4, Article XII of
the Constitution";
2. RA 7942 "allows enjoyment by foreign citizens as well as fully foreign owned
corporations of the nation's marine wealth contrary to Section 2, paragraph 2 of Article
XII of the Constitution";
3. RA 7942 "violates Section 1, Article III of the Constitution";
4. RA 7942 "allows priority to foreign and fully foreign owned corporations in the
exploration, development and utilization of mineral resources contrary to Article XII of
the Constitution";
5. RA 7942 "allows the inequitable sharing of wealth contrary to Section 1,
paragraph 1, and Section 2, paragraph 4, Article XII of the
Constitution."2 (Emphasis supplied)
Petitioners also assail the validity of the Financial and Technical Assistance Agreement between
the Philippine Government and WMCP (Philippines), Inc. dated 2 March 19953 ("WMCP FTAA") for
violation of Section 2, Article XII of the 1987 Constitution.
The issues that petitioners raise boil down to whether RA 7942 and the WMCP FTAA violate
Section 2, Article XII of the 1987 Constitution.
B. The Constitutional Declaration and Mandate
Section 2, Article XII of the 1987 Constitution4 provides as follows:
All x x x minerals, x x x petroleum, and other mineral oils, x x x and other natural
resources are owned by the State. x x x The exploration, development, and utilization
of natural resources shall be under the full control and supervision of the State. x x x.
(Emphasis supplied)

Two basic principles flow from this constitutional provision. First, the Constitution vests in the State
ownership of all mineral resources. Second, the Constitution mandates the State to exercise
full control and supervisionover the exploitation of mineral resources.
The first principle reiterates the Regalian doctrine, which established State ownership of natural
resources since the arrival of the Spaniards in the Philippines in the 16th century. The 1935, 1973
and 1987 Constitutions incorporate the Regalian doctrine.5 The State, as owner of the nation's
natural resources, exercises the attributes of ownership over its natural resources.6 An important
attribute of ownership is the right to receive the income from any commercial exploitation of
the natural resources.7
The second principle insures that the benefits of State ownership of natural resources accrue to
the Filipino people. The framers of the 1987 Constitution introduced the second principle to avoid
the adverse effects of the "license, concession or lease"8 system of exploitation under the 1935
and 1973 Constitutions.9 The "license, concession or lease" system enriched the private
concessionaires who controlled the exploitation of natural resources. However, the "license,
concession or lease" system left the Filipino people impoverished, starkly exemplified by the
nation's denuded forests whose exploitation did not benefit the Filipino people.
The framers of the 1987 Constitution clearly intended to abandon the "license, concession or
lease" system prevailing under the 1935 and 1973 Constitutions. This exchange in the
deliberations of the Constitutional Commission reveals this clear intent:
MR. DAVIDE: Thank you, Mr. Vice-President. I would like to seek some clarifications.
MR. VILLEGAS: Yes.
MR. DAVIDE: Under the proposal, I notice that except for the lands of the public domain,
all the other natural resources cannot be alienated and in respect to lands of the public
domain, private corporations with the required ownership by Filipino citizens can only
lease the same. Necessarily, insofar as other natural resources are concerned, it
would only be the State which can exploit, develop, explore and utilize the same.
However, the State may enter into a joint venture, co-production or productionsharing. Is that not correct?
MR. VILLEGAS: Yes.
MR. DAVIDE: Consequently, henceforth upon the approval of this Constitution, no
timber or forest concessions, permits or authorization can be exclusively granted
to any citizen of the Philippines nor to any corporation qualified to acquire lands
of the public domain?
MR. VILLEGAS: Would Commissioner Monsod like to comment on that? I think his
answer is "yes."
MR. DAVIDE: So, what will happen now to licenses or concessions earlier granted by
the Philippine government to private corporations or to Filipino citizens? Would they be
deemed repealed?
MR. VILLEGAS: This is not applied retroactively. They will be respected.10 (Emphasis
supplied)
To carry out this intent, the 1987 Constitution uses a different phraseology from that used in the
1935 and 1973 Constitutions. The previous Constitutions used the phrase "license, concession or

lease" in referring to exploitation of natural resources. The 1987 Constitution uses the phrase "coproduction, joint venture or production-sharing agreements," with "full control and supervision" by
the State. The change in language was a clear rejection of the old system of "license, concession
or lease."
The 1935 and 1973 Constitutions also used the words "belong to" in stating the Regalian doctrine,
thus declaring that natural resources "belong to the State." The 1987 Constitution uses the word
"owned," thus prescribing that natural resources are "owned" by the State. In using the word
"owned," the 1987 Constitution emphasizes the attributes of ownership, among which is the right
to the income of the property owned.11
The State as owner of the natural resources must receive income from the exploitation of its
natural resources.The payment of taxes, fees and charges, derived from the taxing or police
power of the State, is not a substitute. The State is duty bound to secure for the Filipino people
a fair share of the income from any exploitation of the nation's precious and exhaustible natural
resources. As explained succinctly by a textbook writer:
Under the former licensing, concession, or lease schemes, the government benefited
from such activitiesonly through fees, charges and taxes. Such benefits were very
minimal compared with the enormous profits reaped by the licensees, concessionaires
or lessees who had control over the particular resources over which they had been
given exclusive right to exploit. Moreover, some of them disregarded the conservation of
natural resources. With the new role, the State will be able to obtain a greater share in
the profits. It can also actively husband our natural resources and engage in
development programs that will be beneficial to the nation.12 (Emphasis supplied)
Thus, the 1987 Constitution commands the State to exercise full control and supervision over
the exploitation of natural resources to insure that the State receives its fair share of the income.
In Miners Association of the Philippines v. Hon. Factoran, Jr., et al.,13 the Court ruled that "the
old system of exploration, development and utilization of natural resources through
'license, concession or lease' x x x has been disallowed by Article XII, Section 2 of the 1987
Constitution." The Court explained:
Upon the effectivity of the 1987 Constitution on February 2, 1987, the State
assumed a more dynamic role in the exploration, development and utilization of
the natural resources of the country. Article XII, Section 2 of the said Charter
explicitly ordains that the exploration, development and utilization of natural resources
shall be under the full control and supervision of the State. Consonant therewith, the
exploration, development and utilization of natural resources may be undertaken by
means of direct act of the State, or it may opt to enter into co-production, joint venture,
or production-sharing agreements, or it may enter into agreements with foreign-owned
corporations involving either technical or financial assistance for large-scale exploration,
development, and utilization of minerals, petroleum, and other mineral oils according to
the general terms and conditions provided by law, based on real contributions to
the economic growth and general welfare of the country. (Emphasis supplied)
The old system of "license, concession or lease" which merely gave the State a pittance in the
form of taxes, fees and charges is now buried in history. Any attempt to resurrect it is
unconstitutional and deserves outright rejection by this Court.
The Constitution prohibits the alienation of all natural resources except agricultural lands.14 The
Constitution, however, allows the State to exploit commercially its natural resources and sell the
marketable products from such exploitation. This the State may do through a co-production, joint
venture or production-sharing arrangement with companies at least 60% Filipino owned. The
necessary implication is that the State, as owner of the natural resources, must receive a fair

share of the income from such commercial operation. The State may receive its share of the net
income in cash or in kind.
The State may also directly exploit its natural resources in either of two ways. The State may set
up its own company to engage in the exploitation of natural resources. Alternatively, the State may
enter into a financial or technical assistance agreement ("FTAA") with private companies who act
as contractors of the State. The State may seek from such contractors either financial or technical
assistance, or both, depending on the State's own needs. Under an FTAA, the contractor, foreign
or local, manages the contracted work or operations to the extent of its financial or technical
contribution, subject to the State's control and supervision.
Except in large-scale exploitation of certain minerals, the State's contractors must be 60% Filipino
owned companies. The State pays such contractors, for their technical services or financial
assistance, a share of the income from the exploitation of the natural resources. The State retains
the remainder of the income after paying the Filipino owned contractor.
In large-scale exploitation of minerals, petroleum and other mineral oils, the Constitution allows the
State to contract with "foreign-owned corporations" under an FTAA. This is still a direct
exploitation by the State but using a foreign instead of a local contractor. However, the
Constitution requires that the participation of foreign contractors must make a real contribution to
the national economy and the general welfare. The State pays the foreign contractor, for its
technical services or financial assistance, a share of the income from the exploitation of the
minerals, petroleum or other mineral oils. The State retains the rest of the income after paying the
foreign contractor.
Whether the FTAA contractor is local or foreign, the State must retain its fair share of the income
from the exploitation of the natural resources that it owns. To insure it retains its fair share of the
income, the State must exercise full control and supervision over the exploitation of its natural
resources. And whether the FTAA contractor is local or foreign, the State is directly
undertaking the exploitation of its natural resources, with the FTAA contractor providing technical
services or financing to the State. Since the State is directly undertaking the exploitation, all
exploration permits and similar authorizations are in the name of the Philippine
Government, which then authorizes the contractor to act on its behalf.
The State exercises full control and supervision over the mining operations in the Philippines of the
foreign contractor. However, the State does not exercise control and supervision over the foreign
contractor itself or its board of directors. The State does not also exercise any control or
supervision over the foreign contractor's mining operations in other countries, or even its nonmining operations in the Philippines. There is no conflict of power between the State and the
foreign contractor's board of directors. By entering into an FTAA, the foreign contractor, through its
board of directors, agrees to manage the contracted work or operations to the extent of its financial
or technical contribution subject to the State's control and supervision.
No government should contract with a corporation, local or foreign, to exploit commercially the
nation's natural resources without the State receiving any income as owner of the natural
resources. Natural resources are non-renewable and exhaustible assets of the State. Certainly, no
government in its right mind should give away for free its natural resources to private business
enterprises, local or foreign, amidst widespread poverty among its people.
In sum, two basic constitutional principles govern the exploitation of natural resources in the
country. First, the State owns the country's natural resources and must benefit as owner from any
exploitation of its natural resources. Second, to insure that it receives its fair share as owner of the
natural resources, the State must exercise full control and supervision over the exploitation of its
natural resources.
We shall subject RA 7942 to constitutional scrutiny based on these two basic principles.

C. Waiver of Beneficial Rights from Ownership of Mineral Resources

RA 7942 contains five provisions which waive the State's right to receive income from the
exploitation of its mineral resources. These provisions are Sections 39, 80, 81, 84 and 112:
Section 39. Option to Convert into a Mineral Agreement. The contractor has the
option to convert the financial or technical assistance agreement to a mineral
agreement at any time during the term of the agreement, if the economic viability
of the contract area is found to be inadequate to justify large-scale mining
operations, after proper notice to the Secretary as provided for under the implementing
rules and regulations: Provided, That the mineral agreement shall only be for the
remaining period of the original agreement.
In the case of a foreign contractor, it shall reduce its equity to forty percent (40%) in the
corporation, partnership, association, or cooperative. Upon compliance with this
requirement by the contractor, the Secretary shall approve the conversion and
execute the mineral production-sharing agreement.
Section 80. Government Share in Mineral Production Sharing Agreement. The total
government share in a mineral production sharing agreement shall be the excise
tax on mineral products as provided in Republic Act No. 7729, amending Section
151(a) of the National Internal Revenue Code, as amended.
Section 81. Government Share in Other Mineral Agreements. The share of the
Government in co-production and joint-venture agreements shall be negotiated by the
Government and the contractor taking into consideration the: (a) capital investment of
the project, (b) risks involved, (c) contribution of the project to the economy, and (d)
other factors that will provide for a fair and equitable sharing between the Government
and the contractor. The Government shall also be entitled to compensation for its other
contributions which shall be agreed upon by the parties, and shall consist, among other
things, the contractor's income tax, excise tax, special allowance, withholding tax due
from the contractor's foreign stockholders arising from dividend or interest payments to
the said foreign stockholders, in case of a foreign national, and all such other taxes,
duties and fees as provided for under existing laws.
The Government share in financial or technical assistance agreement shall
consist of, among other things, the contractor's corporate income tax, excise tax,
special allowance, withholding tax due from the contractor's foreign 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 fees as provided for
under existing laws.
The collection of Government share in financial or technical assistance
agreement shall commence after the financial or technical assistance agreement
contractor has fully recovered its pre-operating expenses, exploration, and
development expenditures, inclusive.
Section 84. Excise Tax on Mineral Products. The contractor shall be liable to pay the
excise tax on mineral products as provided for under Section 151 of the National Internal
Revenue Code: Provided, however, That with respect to a mineral production
sharing agreement, the excise tax on mineral products shall be the government
share under said agreement.
Section 112. Non-impairment of Existing Mining/Quarrying Rights. - All valid and
existing mining lease contracts, permits/licenses, leases pending renewal, mineral

productionsharing agreements granted under Executive Order No. 279, at the date of
effectivity of this Act, shall remain valid x x x Provided, That the provisions of Chapter
XIV15 on government share in mineral production-sharing agreement x x x shall
immediately govern and apply to a mining lessee or contractor unless the mining
lessee or contractor indicates his intention to the Secretary, in writing, not to avail of said
provisions: x x x.

State receives only an excise tax flowing from its taxing power, not from its ownership of the
mineral resources. The excise tax is imposed not only on mineral products, but also on alcohol,
tobacco and automobiles17 produced by companies that do not exploit natural resources owned by
the State. The excise tax is not payment for the exploitation of the State's natural resources, but
payment for the "privilege of engaging in business."18 Clearly, under Section 80 of RA 7942, the
State does not receive as owner of the mineral resources any income from the exploitation of its
mineral resources.

(Emphasis supplied)
Section 80 of RA 7942 limits to the excise tax the State's share in a mineral production-sharing
agreement ("MPSA"). Section 80 expressly states that the excise tax on mineral products shall
constitute the "total government share in a mineral production sharing agreement." Under
Section 151(A) of the Tax Code, this excise tax on metallic and non-metallic minerals is only 2% of
the market value, as follows:
Section 151. Mineral Products.
(A) Rates of Tax. There shall be levied, assessed and collected on minerals, mineral
products and quarry resources, excise tax as follows:
(1) On coal and coke, a tax of Ten pesos (P10.00) per metric ton;
(2) On all nonmetallic minerals and quarry resources, a tax of two percent (2%) based
on the actual market value of the gross output thereof at the time of removal, in the case
of those locally extracted or produced; or the value used by the Bureau of Customs in
determining tariff and customs duties, net of excise tax and value-added tax, in the case
of importation.
xxx
(3) On all metallic minerals, a tax based on the actual market value of the gross output
thereof at the time of removal, in the case of those locally extracted or produced; or the
value used by the Bureau of Customs in determining tariff and customs duties, net of
excise tax and value-added tax, in the case of importation, in accordance with the
following schedule:

The second paragraph of Section 81 of RA 7942 also limits the State's share in FTAAs with foreign
contractors to taxes, duties and fees. Section 81 of RA 7942 provides that the State's share in
FTAAs with foreign contractors
shall consist of, among other things, the contractor's corporate income tax, excise tax,
special allowance, withholding tax due from the contractor's foreign 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 fees as provided for under existing laws.
(Emphasis supplied)
RA 7942 does not explain the phrase "among other things." The Solicitor General states correctly
that the phrase refers to taxes.19 The phrase is an ejusdem generis phrase, and means "among
other taxes, duties and fees" since the items specifically enumerated are all taxes, duties and fees.
The last phrase "all such other taxes, duties and fees as provided for under existing laws" at the
end of the sentence clarifies further that the phrase "among other things" refers to taxes, duties
and fees.
The second paragraph of Section 81 does not require the Government and the foreign FTAA
contractor to negotiate the State's share. In contrast, the first paragraph of Section 81 expressly
provides that the "share of the Government in co-production and joint-venture agreements shall
be negotiated by the Government and the contractor" which is 60% Filipino owned.
In a co-production or joint venture agreement, the Government contributes other inputs or equity in
addition to its mineral resources.20 Thus, the first paragraph of Section 81 requires the
Government and the 60% Filipino owned company to negotiate the State's share. However, in an
FTAA with a foreign contractor under the second paragraph of Section 81, the Government's
contribution is only the mineral resources. Section 81 does not require the Government and the
foreign contractor to negotiate the State's share from the net proceeds because there is no share
for the State. Section 81 does not recognize the State's contribution of mineral resources as
worthy of any share of the net proceeds from the mining operations.

(a) Copper and other metallic minerals:

(i) On the first three (3) years upon the effectivity of Republic Act No. 7729,
one percent (1%);
(ii) On the fourth and the fifth years, one and a half percent (1%); and

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

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

(b) Gold and chromite, two percent (2%).
x x x. (Emphasis supplied)
Section 80 of RA 7942 does not allow the State to receive any income as owner of the
mineral resources.The proviso in Section 84 of RA 7942 reiterates this when it states that "the
excise tax on mineral products shall be the government share under said agreement."16 The

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

mineral products - 2% on metallic and non-metallic minerals and 3% on indigenous

petroleum.
In allowing the payment of the excise tax as the only share of the government in any mineral
agreement, whether co-production, joint venture or production-sharing, Section 112 of RA 7942
reinstates the old "license, concession or lease" system where the State receives only minimal
taxes, duties and fees. This clearly violates Section 2, Article XII of the Constitution and is
therefore unconstitutional. Section 112 of RA 7942 is a sweeping negation of the clear letter and
intent of the 1987 Constitution that the exploitation of the State's natural resources must benefit
primarily the Filipino people.
Of course, Section 112 gives contractors the option not to avail of the benefit of Section 112. This
is in the guise that the enactment of RA 7942 shall not impair pre-existing mining rights, as the
heading of Section 112 states. It is doubtful, however, if any contractor of sound mind would refuse
to receive 100% rather than only 40% of the net proceeds from the exploitation of minerals under
the FTAA.
Another provision that violates Section 2, Article XII of the Constitution is Section 39 of RA 7942.
Section 39 grants the foreign contractor the option to convert the FTAA into a "mineral productionsharing agreement" if the foreign contractor finds that the mineral deposits do not justify largescale mining operations. Section 39 of RA 7942 operates to deprive the State of income from the
mining operations and limits the State to the excise tax on mineral products.
Section 39 grants the foreign contractor the option to revert to the "license, concession or lease"
system which the 1987 Constitution has banned. The only requirement for the exercise of the
option is for the foreign contractor to divest 60% of its equity to a Philippine citizen or to a
corporation 60% Filipino owned. Section 39 states, "Upon compliance with this requirement by
the contractor, the Secretary shall approve the conversion and execute the mineral
production-sharing agreement." The foreign contractor only needs to give "proper notice to the
Secretary as provided for under the implementing rules and regulations" if the contractor finds the
contract area not viable for large-scale mining. Thus, Section 39 of RA 7942 is unconstitutional.
Sections 39, 80, 81, 84 and 112 of RA 7942 operate to deprive the State of the beneficial rights
arising from its ownership of mineral resources. What Section 2, Article XII of the 1987 Constitution
vests in absolute ownership to the State, Sections 80, 81, 84 and 112 of RA 7942 take away and
give for free to private business enterprises, including foreign-owned companies.
The legislature has discretion whether to tax a business or product. If the legislature chooses to
tax a business or product, it is free to determine the rate or amount of the tax, provided it is not
confiscatory.22 The legislature has the discretion to impose merely a 2% excise tax on mineral
products. Courts cannot inquire into the wisdom of the amount of such tax, no matter how meager
it may be. This discretion of the legislature emanates from the State's taxing power, a power
vested solely in the legislature.
However, the legislature has no power to waive for free the benefits accruing to the State from its
ownership of mineral resources. Absent considerations of social justice, the legislature has no
power to give away for free what forms part of the national patrimony of the State. Any surrender
by the legislature of the nation's mineral resources, especially to foreign private enterprises, is
repugnant to the concept of national patrimony. Mineral resources form part of the national
patrimony under Article XII (National Economy and Patrimony) of the 1987 Constitution.

Under the last paragraph of Section 81, the collection of the State's so-called "share" (consisting of
taxes) in FTAAs with foreign contractors is not even certain. This paragraph provides that the
State's "share x x x shall commence after the financial or technical assistance agreement
contractor has fully recovered its pre-operating expenses, exploration, and development
expenditures." There is no time limit in RA 7942 for this grace period when the collection of the
State's "share" does not run.23
RA 7942 itself does not require government approval for the pre-operating, exploration and
development expenses of the foreign contractor. The determination of the amount of preoperating, exploration and development expenses is left solely to the discretion of the foreign
contractor. Nothing prevents the foreign contractor from recording pre-operating, exploration and
development expenses equal to the mining revenues it anticipates for the first 10 years. If that
happens, the State's share is ZERO for the first 10 years.
The Government cannot tell the Filipino people when the State will start to receive its "share"
(consisting of taxes) in mining revenues under the FTAA. The Executive Department cannot
correct these deficiencies in RA 7942 through remedial implementing rules. The correction
involves substantive legislation, not merely filling in the implementing details of the law.
Taxes, fees and duties cannot constitute payment for the State's share as owner of the mineral
resources. This was the mode of payment used under the old system of "license, concession or
lease" which the 1987 Constitution abrogated. Obviously, Sections 80, 81, 84 and 112 of RA
7942 constitute an ingenious attempt to resurrect the old and discredited system, which the
1987 Constitution has now outlawed. Under the 1987 Constitution, the State must receive its
fair share as owner of the mineral resources, separate from taxes, fees and duties paid by
taxpayers. The legislature may waive taxes, fees and duties, but it cannot waive the State's share
in mining operations.
Any law waiving for free the State's right to the benefits arising from its ownership of mineral
resources is unconstitutional. Such law negates Section 2, Article XII of the 1987 Constitution
vesting ownership of mineral resources in the State. Such law will not contribute to "economic
growth and the general welfare of the country" as required in the fourth paragraph of Section 2.
Thus, in waiving the State's income from the exploitation of mineral resources, Section 80, the
second paragraph of Section 81, the proviso in Section 84, and Section 112 of RA 7942 violate the
Constitution and are therefore void.
D. Abdication of the State's Duty to Control and Supervise
Fully the Exploitation of Mineral Resources
The 1987 Constitution commands the State to exercise "full control and supervision" over the
exploitation of natural resources. The purpose of this mandatory directive is to insure that the State
receives its fair share in the exploitation of natural resources. The framers of the Constitution were
determined to avoid the disastrous mistakes of the past. Under the old system of "license,
concession or lease," the State gave full control to the concessionaires who enriched themselves
while paying the State minimal taxes, fees and charges.
Under the 1987 Constitution, for a co-production, joint venture or production-sharing agreement to
be valid the State must exercise full control and supervision over the mining operations. This
means that the State should approve all capital and operating expenses in the exploitation of the
natural resources. Approval of capital expenses determines how much capital is recoverable by
the mining contractor. Approval of operating expenses determines the reasonable amounts
deductible from the annual income from mining operations. Such approvals are essential because
the net income from mining operations, which is the basis of the State's share, depends on the
allowable amount of capital and operating expenses. There is approval of capital and operating
expenses when the State approves them, or if the State disapproves them and a dispute arises,
when their final allowance is subject to arbitration.

The provisions of RA 7942 on MPSAs and FTAAs do not give the State any control and
supervision over mining operations. The reason is obvious. The State's so-called "share" in a
mineral production-sharing agreement under Section 80 is limited solely to the excise tax on
mineral products. This excise tax is based on the market value of the mineral product determined
without reference to the capital or operating expenses of the mining contractor.
Likewise, the State's "share" in an FTAA under Section 81 has no relation to the capital or
operating expenses of the foreign contractor. The State's "share" constitutes the same excise tax
on mineral products, in addition to other direct and indirect taxes. The basis of the excise tax is the
selling price of the mineral product. Hence, there is no reason for the State to approve or
disapprove the capital or operating expenses of the mining contractor. Consequently, RA 7942
does not give the State any control and supervision over mining operations contrary to the express
command of the Constitution. This makes Section 80, the second paragraph of Section 81, the
proviso in Section 84, and Section 112 of RA 7942 unconstitutional.
E. RA 7942 Will Not Contribute to Economic
Growth or General Welfare of the Country

b. The State receives 60% of the net proceeds from the petroleum operations,
while the foreign contractor receives the remaining 40%;29
c. The DOE has a right to inspect and audit every year the foreign contractor's books
and accounts relating to the petroleum operations, and object in writing to any
expense (operating and capital expenses)30within 60 days from completion of the
audit, and if there is no amicable settlement, the dispute goes to arbitration;31
d. The operating expenses in any year cannot exceed 70% of the gross proceeds from
the sale of petroleum in the same year, and any excess may be carried over in
succeeding years;32
e. The Bureau of Internal Revenue ("BIR") can inspect and examine all the accounts,
books and records of the foreign contractor relating to the petroleum operations upon 24
hours written notice;33
f. The petroleum output is sold at posted or market prices;34

The fourth paragraph of Section 2, Article XII of the 1987 Constitution requires that FTAAs with
foreign contractors must make "real contributions to the economic growth and general
welfare of the country."Under Section 81 of RA 7942, all the net proceeds arising from the
exploitation of mineral resources accrue to the foreign contractor even if the State owns the
mineral resources. The foreign contractor will naturally repatriate the entire after-tax net proceeds
to its home country. Sections 94(a) and 94(b) of RA 7942 guarantee the foreign contractor the right
to repatriate its after-tax net proceeds, as well as its entire capital investment, after the termination
of its mining operations in the country.24
Clearly, no FTAA under Section 81 will ever make any real contribution to the growth of the
economy or to the general welfare of the country. The foreign contractor, after it ceases to operate
in the country, can even remit to its home country the scrap value of its capital equipment. Thus,
the second paragraph of Section 81 of RA 7942 is unconstitutional for failure to meet the
constitutional requirement that the FTAA with a foreign contractor should make a real contribution
to the national economy and general welfare.
F. Example of FTAA that Complies with Section 2, Article XII of the 1987 Constitution
The Solicitor General warns that declaring unconstitutional RA 7942 or its provisions will endanger
the Philippine Government's contract with the foreign contractor extracting petroleum in
Malampaya, Palawan.25 On the contrary, the FTAA with the foreign petroleum contractor meets the
essential constitutional requirements since the State receives a fair share of the income from the
petroleum operations. The State also exercises control and supervision over the exploitation of the
petroleum. The petroleum FTAA provides enough safeguards to insure that the petroleum
operations will make a real contribution to the national economy and general welfare.
The Service Contract dated 11 December 1990 between the Philippine Government as the first
party, and Occidental Philippines, Inc. and Shell Exploration B.V. as the second
party26 ("Occidental-Shell FTAA"), covering offshore exploitation of petroleum in Northwest
Palawan, contains the following provisions:
a. There is express recognition that the "conduct of Petroleum Operations shall be
under the full control and supervision of the Office of Energy Affairs,"27 now
Department of Energy ("DOE"), and that the "CONTRACTOR shall undertake and
execute the Petroleum Operations contemplated hereunder under the full control
and supervision of the OFFICE OF ENERGY AFFAIRS;"28

g. The foreign contractor pays the 32% Philippine corporate income tax on its 40%
share of the net proceeds, including withholding tax on dividends or remittances of
profits.35 (Emphasis supplied)
The Occidental-Shell FTAA gives the State its fair share of the income from the petroleum
operations of the foreign contractor. There is no question that the State receives its rightful
share, amounting to 60% of the net proceeds, in recognition of its ownership of the petroleum
resources. In addition, Occidental-Shell's 40% share in the net proceeds is subject to the 32%
Philippine income tax. The Occidental-Shell FTAA also gives the State, through the DOE and BIR,
full control and supervision over the petroleum operations of the foreign contractor.The foreign
contractor can recover only the capital and operating expenses approved by the DOE or by
the arbitral panel.36 The Occidental-Shell FTAA also contains other safeguards to protect the
interest of the State as owner of the petroleum resources. While the foreign contractor manages
the contracted work or operations to the extent of its financial or technical contribution, there are
sufficient safeguards in the FTAA to insure compliance with the constitutional requirements. The
terms of the Occidental-Shell FTAA are fair to the State and to Occidental-Shell.
In FTAAs with a foreign contractor, the State must receive at least 60% percent of the net
proceeds from the exploitation of its mineral resources. This share is the equivalent of the
constitutional requirement that at least 60% of the capital, and hence 60% of the income, of mining
companies should remain in Filipino hands.Intervenor CMP and even respondent WMCP agree
that the State has a 60% interest in the mining operations under an FTAA with a foreign
contractor. Intervenor CMP asserts that the Philippine Government"stands in the place of the
60% Filipino-owned company."37 Intervenor CMP also states that "the contractor will get 40%
of the financial benefits,"38 admitting that the State, which is the owner of the mineral resources,
will retain the remaining 60% of the net proceeds.
Respondent WMCP likewise admits that the 60%-40% "sharing ratio between the Philippine
Government and the Contractor is also in accordance with the 60%-40% equity requirement
for Filipino-owned corporations."39 Respondent WMCP even adds that the 60%-40% sharing
ratio is "in line with the intent behind Section 2 of Article XII that the Filipino people, as
represented by the State, benefit primarily from the exploration, development, and
utilization of the Philippines' natural resources."40 If the State has a 60% interest in the mining
operations under an FTAA, then it must retain at least 60% of the net proceeds.
Otherwise, there is no sense exploiting the State's natural resources if all or a major part of the
profits are remitted abroad, precluding any real contribution to the national economy or the general

welfare. The constitutional requirement of full control and supervision necessarily means that the
State must receive the income that corresponds to the party exercising full control, and this
logically means a majority of the income.
The Occidental-Shell FTAA satisfies these constitutional requirements because the State receives
60% of the net proceeds and exercises full control and supervision of the petroleum operations.
The State's right to receive 60% of the net proceeds and its exercise of full control and supervision
are the essential constitutional requirements for the validity of any FTAA. The name given to the
contract is immaterial whether a "Service Contract" or any other name - provided these two
essential constitutional requirements are present. Thus, the designation of the Occidental-Shell
FTAA as a "Service Contract" is inconsequential since the two essential constitutional
requirements for the validity of the contract as an FTAA are present.
With the State's right to receive 60% of the net proceeds, coupled with its control and supervision,
the petroleum operations in the Occidental-Shell FTAA are legally and in fact 60% owned and
controlled by Filipinos. Indeed, the State is directly undertaking the petroleum exploitation with
Occidental-Shell as the foreign contractor. The Occidental-Shell FTAA does not provide for the
issuance of exploration permits to Occidental-Shell precisely because the State itself is directly
undertaking the petroleum exploitation.
Section 3(aq) of RA 7942 allows the foreign contractor to hold the exploration permit under the
FTAA. However, Section 2, Article XII of the 1987 Constitution does not allow foreign owned
corporations to undertake directly mining operations. Foreign owned corporations can only act as
contractors of the State under the FTAA, which is one method for the State to undertake directly
the exploitation of its natural resources. The State, as the party directly undertaking the
exploitation of its natural resources, must hold through the Government all exploration permits and
similar authorizations. Section 3(aq) of RA 7942, in allowing foreign owned corporations to hold
exploration permits, is unconstitutional.
The Occidental-Shell FTAA, involving a far riskier offshore venture than land-based mining
operations, is a modelfor emulation if foreign contractors want to comply with the constitutional
requirements. Section 112 of RA 7942, however, negates the benefits of the State from the
Occidental-Shell FTAA.
Occidental-Shell can invoke Section 112 of RA 7942 and deny the State its 60% share of the net
proceeds from the exploitation of petroleum. Section 112 allows the foreign contractor to pay only
the "government share in a mineral production-sharing agreement" under RA 7942. Section
80 of RA 7942 on MPSAs limits the "government share" solely to the excise tax 2% on metallic
and non-metallic mineral products and 3% on petroleum. Section 112 of RA 7942 is
unconstitutional since it is contrary to Section 2, Article XII of the 1987 Constitution.
G. The WMCP FTAA Violates Section 2, Article XII of the 1987 Constitution
The WMCP FTAA41 ostensibly gives the State 60% share of the net mining revenue. In reality, this
60% share isillusory. Section 7.7 of the WMCP FTAA provides that:
From the Commencement of Commercial Production, the Contractor shall pay a
government share of sixty per centum (60%) of Net Mining Revenues, calculated in
accordance with the following provisions (the Government Share). The Contractor shall
be entitled to retain the balance of all revenues from the Mining Operations. (Emphasis
supplied)
However, under Section 7.9 of the WMCP FTAA, if WMCP's foreign stockholders sell 60% of their
equity to a Philippine citizen or corporation, the State loses its right to receive its 60% share of the
net mining revenues under Section 7.7. Thus, Section 7.9 provides:

The percentage of Net Mining Revenues payable to the Government pursuant to

Clause 7.7 shall be reduced by 1% of Net Mining Revenues for every 1%
ownership interest in the Contractor held by a Qualified Entity. (Emphasis supplied)
What Section 7.7 gives to the State, Section 7.9 takes away without any offsetting compensation
to the State. In reality, the State has no vested right to receive any income from the exploitation of
its mineral resources. What the WMCP FTAA gives to the State in Section 7.7 is merely by
tolerance of WMCP's foreign stockholders, who can at anytime cut off the State's entire
60% share by selling 60% of WMCP's equity to a Philippine citizen or corporation.42 The
proceeds of such sale do not accrue to the State but belong entirely to the foreign stockholders of
WMCP.
Section 2.1 of the WMCP FTAA defines a "Qualified Entity" to include a corporation 60% Filipino
owned and 40% foreign owned.43 WMCP's foreign stockholders can sell 60% of WMCP's equity to
such corporation and the sale will still trigger the operation of Section 7.9 of the WMCP FTAA.
Thus, the State will receive ZERO percent of the income but the foreign stockholders will own
beneficially 64% of WMCP, consisting of their remaining 40% equity and 24% pro-rata share in the
buyer-corporation. WMCP will then invoke Section 39 of RA 7942 allowing it to convert the FTAA
into an MPSA, thus subjecting WMCP to pay only 2% excise tax on mineral products in lieu of
sharing its mining income with the State. This violates Section 2, Article XII of the 1987
Constitution requiring that only corporations "at least sixty per centum of whose capital is owned
by such citizens" can enter into co-production, joint venture or production-sharing agreements with
the State.
The State, as owner of the mineral resources, must receive a fair share of the income from any
commercial exploitation of its mineral resources. Mineral resources form part of the national
patrimony, and so are the net proceeds from such resources. The Legislature or Executive
Department cannot waive the State's right to receive a fair share of the income from such mineral
resources.
The intervenor Chamber of Mines of the Philippines ("CMP") admits that under an FTAA with a
foreign contractor, the Philippine Government "stands in the place of the 60% Filipino owned
company" and hence must retain 60% of the net proceeds. Thus, intervenor CMP concedes that:
x x x In other words, in the FTAA situation, the Government stands in the place of
the 60% Filipino-owned company, and the 100% foreign-owned contractor company
takes all the risks of failure to find a commercially viable large-scale ore body or oil
deposit, for which the contractor will get 40% of the financial benefits.44 (Emphasis
supplied)
For this reason, intervenor CMP asserts that the "contractor's stipulated share under the
WMCP FTAA is limited to a maximum of 40% of the net production."45 Intervenor CMP further
insists that "60% of its (contractor's) net returns from mining, if any, will go to the
Government under the WMCP FTAA."46Intervenor CMP, however, fails to consider that the
Government's 60% share is illusory because under Section 7.9 of the WMCP FTAA the foreign
stockholders of WMCP can reduce at any time to ZERO percent the Government's share.
If WMCP's foreign stockholders do not immediately sell 60% of WMCP's equity to a Philippine
citizen or corporation, the State in the meantime receives its 60% share. However, under Section
7.10 of the WMCP FTAA, the State shall receive its share "after the offsetting of the items
referred to in Clauses 7.8 and 7.9," namely:
7.8. The Government Share shall be deemed to include all of the following sums:

(a) all Government taxes, fees, levies, costs, imposts, duties and royalties
including excise tax, corporate income tax, customs duty, sales tax, value
added tax, occupation and regulatory fees, Government controlled price
stabilization schemes, any other form of Government backed schemes, any
tax on dividend payments by the Contractor or its Affiliates in respect of
revenues from the Mining Operations and any tax on interest on domestic and
foreign loans or other financial arrangements or accommodation, including
loans extended to the Contractor by its stockholders;
(b) any payments to local and regional government, including taxes, fees,
levies, costs, imposts, duties, royalties, occupation and regulatory fees and
infrastructure contributions;
(c) any payments to landowners, surface rights holders, occupiers, indigenous
people or Claim-owners;
(d) costs and expenses of fulfilling the Contractor's obligations to contribute to
national development in accordance with Clause 10.1(i)(1) and 10.1(i)(2);
(e) an amount equivalent to whatever benefits that may be extended in the
future by the Government to the Contractor or to financial or technical
assistance agreement contractors in general;
(f) all of the foregoing items which have not previously been offset against the
Government Share in an earlier Fiscal year, adjusted for inflation.
7.9. The percentage of Net Mining Revenues payable to the Government pursuant to
Clause 7.7 shall be reduced by 1% of Net Mining Revenues for every 1% ownership
interest in the Contractor held by a Qualified Entity.
It makes no sense why under Section 7.8(e) money spent by the Government for the benefit of the
contractor, like building roads leading to the mine site, is deductible from the State's 60% share of
the Net Mining Revenues. Unless of course the purpose is solely to reduce further the State's
share regardless of any reason. In any event, the numerous deductions from the State's 60%
share make one wonder if the State will ever receive anything for its ownership of the mineral
resources. Even assuming the State will receive something, the foreign stockholders of WMCP
can at anytime take it away by selling 60% of WMCP's equity to a Philippine citizen or corporation.
In short, the State does not have any right to any share in the net income from the mining
operations under the WMCP FTAA. The stipulated 60% share of the Government is illusory. The
State is left to collect only the 2% excise tax as its sole share from the mining operations.
Indeed, on 23 January 2001, WMCP's foreign stockholders sold 100% of WMCP's equity to
Sagittarius Mines, Inc., a domestic corporation 60% Filipino owned and 40% foreign owned.47 This
sale automatically triggered the operation of Section 7.9 of the WMCP FTAA reducing the
State's share in the Net Mining Revenues to ZERO percent without any offsetting
compensation to the State. Thus, as of now, the State has no right under the WMCP FTAA to
receive any share in the mining revenues of the contractor, even though the State owns the
mineral resources being exploited under the WMCP FTAA.
Intervenor CMP anchors its arguments on the erroneous interpretation that the WMCP FTAA gives
the State 60% of the net income of the foreign contractor. Thus, intervenor CMP states that "60%
of its (WMCP's) net returns from mining, if any, will go to the Government under the WMCP
FTAA."48 This basic error in interpretation leads intervenor CMP to erroneous conclusions of law
and fact.

Like intervenor CMP, respondent WMCP also maintains that under the WMCP FTAA, the State
is "guaranteed" a 60% share of the foreign contractor's Net Mining Revenues. Respondent
WMCP contends, after quoting Section 7.7 of the WMCP FTAA, that:
In other words, the State is guaranteed a sixty per centum (60%) share of the
Mining Revenues, or 60% of the actual fruits of the endeavor. This is in line with
the intent behind Section 2 of Article XII that the Filipino people, as represented
by the State, benefit primarily from the exploration, development, and utilization
of the Philippines' natural resources.
Incidentally, this sharing ratio between the Philippine Government and the
Contractor is also in accordance with the 60%-40% equity requirement for
Filipino-owned corporations in Paragraph 1 of Section 2 of Article XII. 49 (Italics and
underscoring in the original)
This so-called "guarantee" is a sham. Respondent WMCP gravely misleads this Court. Section 7.9
of the WMCP FTAA provides that the State's share "shall be reduced by 1% of Net Mining
Revenues for every 1% ownership interest in the Contractor held by a Qualified Entity." This
reduction is without any offsetting compensation to the State and constitutes a waiver of the
State's share to WMCP's foreign stockholders. The Executive Department cannot give away for
free, especially to foreigners, what forms part of the national patrimony. This negates the
constitutionally mandated State ownership of mineral resources for the benefit of the Filipino
people.
WMCP's stockholders may also invoke Section 112 of RA 7942 allowing a mining contractor to pay
the State's share in accordance with Section 80 of RA 7942. WMCP will end up paying only the
2% excise tax to the Philippine Government for the exploitation of the mineral resources the State
owns. In short, the old and discredited system of "license, concession or lease" will govern
the WMCP FTAA.
The WMCP FTAA is also emphatic in stating that WMCP shall have exclusive right to exploit,
utilize, process and dispose of all mineral products produced under the WMCP FTAA. Section
1.3 of the WMCP FTAA provides:
The Contractor shall have the exclusive right to explore, exploit, utilise, process and
dispose of all Mineral products and by-products thereof that may be derived or produced
from the Contract Area but shall not, by virtue only of this Agreement, acquire any title to
lands encompassed within the Contract Area.
Under the WMCP FTAA, the contractor has exclusive right to exploit, utilize and process the
mineral resources to the exclusion of third parties and even the Philippine Government. Since
WMCP's right is exclusive, the Government has no participation in approving the operating
expenses of the foreign contractor relating to the exploitation, utilization, and processing of mineral
resources. The Government will have to accept whatever operating expenses the contractor
decides to incur in exploiting, utilizing and processing mineral resources.
Under the WMCP FTAA, the contractor has exclusive right to dispose of the minerals recovered
in the mining operations. This means that the contractor can sell the minerals to any buyer, local or
foreign, at the price and terms the contractor chooses without any intervention from the State.
There is no requirement in the WMCP FTAA that the contractor must sell the minerals at posted or
market prices. The contractor has the sole right to "mortgage, charge or encumber" the "Minerals
produced from the Mining Operations."50
Section 8.3 of the WMCP FTAA also makes a sham of the DENR Secretary's authority to approve
the foreign contractor's Work Program. Section 8.3 provides:

If the Secretary gives a Rejection Notice the Parties shall promptly meet and endeavour
to agree on amendments to the Work Program or budget. If the Secretary and the
Contractor fail to agree on the proposed revision within 30 days from delivery of
the Rejection Notice then the Work Programme or Budget or variation thereof
proposed by the Contractor shall be deemed approved, so as not to unnecessarily
delay the performance of the Agreement. (Emphasis supplied)
The DENR Secretary is the representative of the State which owns the mineral resources. The
DENR Secretary implements the mining laws, including RA 7942. Section 8.3, however, treats the
DENR Secretary like a subservient non-entity whom the contractor can overrule at will. Under
Section 8.3 of the WMCP FTAA, the DENR Secretary has no authority whatsoever to disapprove
the Work Program. This is not what the Constitution means by full control and supervision by the
State of mining operations.
Section 10.4(i) of the WMCP FTAA compels the Philippine Government to agree to any
request by the foreign contractor to amend the WMCP FTAA to satisfy the conditions of
creditors of the contractor. Thus, Section 10.4(i) states:
(i) the Government shall favourably consider any request, from Contractor for
amendments of this Agreement which are necessary in order for the Contractor to
successfully obtain the financing;
x x x. (Emphasis supplied)
This provision requires the Government to favorably consider any request from the contractor which means that the Government must render a response favorable to the contractor. In
effect, the contractor has the right to amend the WMCP FTAA even against the will of the
Philippine Government just so the contractor can borrow money from banks.
True, the preceding Section 10.4(e) of the WMCP FTAA provides that "such financing
arrangements will in no event reduce the Contractor's obligations or the Government's rights."
However, Section 10.4(i) binds the Government to agree to any future amendment requested by
the foreign contractor even if the Government does not agree with the wisdom of the amendment.
This provision is contrary to the State's full control and supervision in the exploitation of mineral
resources.
Clearly, under the WMCP FTAA the State has no full control and supervision over the mining
operations of the contractor. Provisions in the WMCP FTAA that grant the State full control and
supervision are negated by other provisions that take away such control and supervision.
The WMCP FTAA also violates the constitutional limits on the term of an FTAA. Section 2, Article
XII of the 1987 Constitution limits the term of a mineral agreement to "a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law."The original term cannot exceed 25 years, and at the
end of such term, either the Government or the contracting party may decide not to renew the
mineral agreement. However, both the Government and the contracting party may also decide to
renew the agreement, in which case the renewal cannot exceed another 25 years. What is
essential is that either party has the option to renew or not to renew the mineral agreement at
the end of the original term.
However, Section 3.3 of the WMCP FTAA binds the Philippine Government to an ironclad 50-year
term. Section 3.3 compels the Government to renew the FTAA for another 25 years after the
original 25-year term expires. Thus, Section 3.3 states:

This Agreement shall be renewed by the Government for a further period of twentyfive (25) yearsunder the same terms and conditions provided that the Contractor
lodges a request for a renewal with the Government not less than sixty (60) days prior
to the expiry of the initial term of this Agreement and provided that the Contractor is not
in breach of any of the requirements of this Agreement. (Emphasis supplied)
Under Section 3.3, the contractor has the option to renew or not to renew the agreement. The
Government has no such option and must renew the agreement once the contractor makes a
request for renewal. Section 3.3 violates the constitutional limits because it binds the Government
to a 50-year FTAA at the sole option of the contractor.
H. Arguments of the Solicitor General and the NEDA Secretary
The Solicitor General states that the "basic share" of the State in FTAAs involving large-scale
exploitation of minerals, petroleum and other mineral oils
x x x consists of all direct taxes, fees and royalties, as well as other payments made by
the Contractor during the term of the FTAA. The amounts are paid to the (i) national
government, (ii) local governments, and (iii) persons directly affected by the mining
project. Some of the major taxes paid are as follows Section 3(g) of DAO-99-56:
A. Payments to National Government
Excise tax on minerals 2% of gross output of mining operations
Contractor's income tax 32% of taxable income for corporation
Customs duties and fees - rate is set by Tariff and Customs Code
VAT on imported equipment, goods and services - 10% of value
Royalty on minerals extracted from mineral reservations, if applicable 5%
of the actual market value of the minerals produced
Documentary stamp tax rate depends on the type of transaction
Capital gains tax on traded stocks 5 to 10% of the value
Tax on interest payments on foreign loans 15% of the interest
Tax on foreign stockholders dividends - 15% of the dividend
Wharfage and port fees
Licensing fees (e.g., radio permit, firearms permit, professional fees)
B. Payments to Local Governments
Local business tax - maximum of 2% of gross sale or receipt

 Real property tax - 2% of the fair market value of property based on an

assessment level set by the local government

Solicitor General's argument merely confirms that under Section 81 of RA 7942 the State only
receives taxes, duties and fees under the FTAA. The State does not receive, as owner of the
mineral resources, any income from the mining operations of the contractor.

Local business tax - maximum of 2% of gross sale or receipt

Special education levy - 1% of the basis used in real property tax
Occupation tax - 50 pesos per hectare per year; 100 pesos per hectare per
year if located in a mineral concession
Community tax - 10,500 pesos maximum per year

In short, the "basic share" of the State consists of direct taxes by the national and local
governments. The"additional share" of the State consists of indirect taxes including even
fringe benefits to employees and compensation to private surface right owners. Direct and
indirect taxes, however, are impositions by the taxing authority, a burden borne by all taxpayers
whether or not they exploit the State's mineral resources. Fringe benefits of employees are
compensation for services rendered under an employer-employee relationship. Compensation to
surface right owners is payment for the damage suffered by private landowners arising from the
mining operations. All these direct and indirect taxes, as well as other expenses of the
contractor, do not constitute payment for the share of the State as owner of the mineral
resources.

Other local taxes and fees - rate and type depends on the local government
C. Other Payments
Royalty to indigenous cultural communities, if any - not less than 1% of the
gross output from mining operations
Special allowance payment to claim owners or surface right owners
The Solicitor General argues that the phrase "among other things" in the second paragraph of
Section 81 of RA 7942 means that the State "is entitled to an additional government share to be
paid by the Contractor." The Solicitor General explains:
An additional government share is collected from an FTAA contractor to fulfill the intent
of Section 81 of RA No. 7942, to wit:
Sec. 81. The Government share in an FTAA shall consist of, among other
things, the Contractor's corporate income tax, excise tax, special allowance,
withholding tax due from the Contractor's foreign stockholders arising from
dividends or interest payments to the said foreign stockholders in case of a
foreign-owned corporation and all such other taxes, duties and fees as
provided for in existing laws. (Underscoring supplied)
The phrase "among other things" indicates that the Government is entitled to an
additional share to be paid by the Contractor, aside from the basic share in order to
achieve the fifty-fifty sharing of net benefits from mining.
By including indirect taxes and other financial contributions in the form of fuel
tax; employees' payroll and fringe benefits; various withholding taxes on royalties
to land owners and claim owners, and employees' income; value added tax on
local goods, equipment, supplies and services; and expenditures for social
infrastructures in the mine site (hospitals, schools, etc.) and development of host
and neighboring communities, geosciences and mining technology, the
government share will be in the range of 60% or more of the total financial
benefits. (Bold and underscoring in the original)
The Solicitor General enumerates this "additional government share" as "indirect taxes and
other financial contributions in the form of fuel tax; employees' payroll and fringe benefits;
various withholding taxes on royalties to land owners and claim owners, and employees'
income; value added tax on local goods, equipment, supplies and services; x x x." The

Clearly, the so-called "share" of the State consists only of direct and indirect taxes, as well as other
operating expenses not even payable to the State. The Solicitor General in effect concedes that
under the second paragraph of Section 81, the State does not receive any share of the net
proceeds from the mining operations of the FTAA contractor. Despite this, the Solicitor General
insists that the State remains the owner of the mineral resources and exercises full control over
the mining operations of the FTAA contractor. The Solicitor General has redefined the civil law
concept of ownership,51 by giving the owner full control in the exploitation of the property he owns
but denying him the fruits or income from such exploitation. The only satisfaction of the owner is
that the FTAA contractor pays taxes to the Government.
However, even this psychological satisfaction is dubious. Under the third paragraph of Section 81
of RA 7942, the "collection of Government share in financial and technical assistance
agreement shall commence after the financial and technical assistance agreement contractor
has fully recovered its pre-operating expenses, exploration, and development expenditures,
inclusive." This provision does not defer the collection of the State's "share," but prevents the
accrual of the State's "share" until the contractor has fully recovered all its pre-operating,
exploration and development expenditures. This provision exempts for an undefined period
the contractor from all existing taxes that are part of the Government's so-called "share"
under Section 81.52The Solicitor General has interpreted these taxes to include "other national
taxes and fees" as well as "other local taxes and fees."
Secretary Romulo L. Neri of the National Economic and Development Authority ("NEDA") has
warned this Court of the supposed dire repercussions to the nation's long-term economic growth if
this Court declares the assailed provisions of RA 7942 unconstitutional. 53 Under the Constitution,
the NEDA is the "independent (economic) planning agency of the government."54 However, in this
case the NEDA Secretary has joined the chorus of the foreign chambers of commerce to uphold
the validity of RA 7942 as essential to entice foreign investors to exploit the nation's mineral
resources.
We cannot fault the foreign chambers of commerce for driving a hard bargain to maximize the
profits of foreign investors. We are, however, saddened that the NEDA Secretary is willing to give
away for free to foreign investors the State's share of the income from its ownership of mineral
resources. If the NEDA Secretary owns the mineral resources instead of the State, will he allow
the foreign contractor to exploit his mineral resources for free, the only obligation of the foreign
contractor being to pay taxes to the Government?
Secretary Neri claims that the potential tax collection from the mining industry alone is P57 billion
as against the present collection of P2 billion. Secretary Neri adds that the potential tax collection
from incremental activities linked to mining is another P100 billion, thus putting the total potential
tax collection from mining and related industries at P157 billion.55 Secretary Neri also
estimates the "potential mining wealth in the Philippines" at P47 trillion or US$840 billion, 15
times our total foreign debt of US$56 billion.56

If all that the State will receive from its P47 trillion potential mineral wealth is the P157 billion in
direct and indirect taxes, then the State will truly receive only a pittance. The P157 billion in taxes
constitute a mere .33% or a third of 1% of the total mineral wealth of P47 trillion. Even if
the P157 billion is collected annually over 25 years, the original term of an FTAA, the total tax
collection will amount to only P3.92 trillion, or a mere 8.35% of the total mineral wealth. The rest of
the country's mineral wealth will flow out of the country if foreign contractors exploit our mineral
resources under FTAAs pursuant to RA 7942.
Secretary Neri also warns that foreign investors who have acquired local cement factories in the
last ten years will find their investments illegal if the Court declares unconstitutional the assailed
provisions of RA 7942.57 Such specious arguments deserve scant consideration. Cement
manufacturing is not a nationalized activity. Hence, foreigners can own 100% of cement
companies in this country. When the foreign investors acquired the local cement factories, they
spun off the quarry operations into separate companies 60% owned by Filipino citizens. The
foreign investors knew the constitutional requirements of holding quarry permits.
Besides, the quarrying requirement of cement companies is just a simple surface mining of
limestone. Such activity does not constitute large-scale exploitation of mineral resources. It
definitely cannot qualify for FTAAs with foreign contractors under the fourth paragraph of Section
2, Article XII of the Constitution. Obviously, only a company at least 60% Filipino owned can
engage in such mining activity.
The offshore Occidental-Shell FTAA shows that even in riskier ventures involving far more capital
investments, the State can negotiate and secure at least 60% of the net proceeds from the
exploitation of mineral resources. Foreign contractors like Occidental-Shell are willing to pay the
State 60% of the net proceeds from petroleum operations, in addition to paying the Government
the 32% corporate income tax on its 40% share of the net proceeds. Even intervenor CMP and
respondent WMCP agree that the State has a 60% interest in mining operations under an
FTAA. I simply cannot fathom why the NEDA Secretary is willing to accept a ZERO percent share
in the income from the exploitation of inland mineral resources.
FTAAs like the WMCP FTAA, which gives the State an illusory 60% share of the net proceeds
from mining revenues, will only impoverish further the Filipino people. The nation's potential
mineral wealth of P47 trillion will contribute to economic development only if the bulk of the wealth
remains in the country, not if remitted abroad by foreign contractors.
I. Refutation of Arguments of Majority Opinion
The majority opinion advances the following arguments:
1. DENR Department Administrative Order No. 56-99 ("DAO 56-99") is the basis for
determining the State's share in the mining income of the foreign FTAA contractor. The
DENR Secretary issued DAO 56-99 pursuant to the phrase "among other things" in
Section 81 of RA 7942. The majority opinion claims that the phrase "among other
things" "clearly and unmistakably reveals the legislative intent to have the State
collect more than just the usual taxes, duties and fees." The majority
opinion anchors on the phrase "among other things" its argument that RA 7942
allows the State to collect a share in the mining income of the foreign FTAA contractor,
in addition to taxes, duties and fees. Thus, on the phrase "among other things"
depends whether the State and the Filipino people are entitled under RA 7942 to
share in the vast mineral wealth of the nation, estimated by NEDA at P47 trillion or
US$840 billion.
2. FTAAs, like the WMCP FTAA, are not subject to the term limit in Section 2, Article
XII of the 1987 Constitution. In short, while co-production, joint venture and
production-sharing agreements cannot exceed 25 years, renewable for another 25

years, as provided in Section 2, Article XII of the 1987 Constitution, the WMCP FTAA is
not governed by the constitutional limitation. The majority opinion states that
the "constitutional term limitations do not apply to FTAAs." Thus, the majority
opinion upholds the validity of Section 3.3 of the WMCP FTAA providing for a 50-year
term at the sole option of WMCP.
3. Section 112 of RA 7942, placing "all valid and existing" mining agreements under
the fiscal regime prescribed in Section 80 of RA 7942, does not apply to FTAAs. Thus,
the majority opinion states, "[W]hether Section 112 may properly apply to coproduction or joint venture agreements, the fact of the matter is that it cannot be
made to apply to FTAAs."
4. Foreign FTAA contractors and even foreign corporations can hold exploration
permits, despite Section 2, Article XII of the 1987 Constitution reserving to Philippine
citizens and to corporations 60% Filipino owned the "exploration, development and
utilization of natural resources." Thus, the majority opinion states that"there is no
prohibition at all against foreign or local corporations or contractors holding
exploration permits."
5. The Constitution does not require that the State's share in FTAAs or other mineral
agreements should be at least 60% of the net mining revenues. Thus, the majority
opinion states that "the Charter did not intend to fix an iron-clad rule on the 60
percent share, applicable to all situations at all times and in all circumstances."
I respond to the arguments of the majority opinion.
1. DAO 99-56 as Basis for Government's Share in FTAAs
The main thrust of my separate opinion is that mineral agreements under RA 7942, whether
FTAAs under Section 81 or MPSAs under Section 80, do not allow the State to receive any share
from the income of mining companies. The State can collect only taxes, duties and fees from
mining companies.
The majority opinion, however, points to the phrase "among other things" in the second
paragraph of Section 81 as the authority of the State to collect in FTAAs a share in the mining
income separate from taxes, duties and fees. The majority opinion can point to no other provision
in RA 7942 allowing the State to collect any share. The majority opinion admits that limiting the
State's share in any mineral agreement to taxes, duties and fees is unconstitutional. Thus, the
majority opinion's case rises or falls on whether the phrase "among other things" allows
the State to collect from FTAA contractors any income in addition to taxes, duties and fees.
In the case of MPSAs, the majority opinion cannot point to any provision in RA 7942 allowing the
State to collect any share in MPSAs separate from taxes, duties and fees. The language of
Section 80 is so crystal clear "the total government share in a mineral production sharing
agreement shall be the excise tax on mineral products" - that there is no dispute whatsoever
about it. The majority opinion merely states that the constitutionality of Section 80 is not in issue in
the present case. Section 81, the constitutionality of which the majority opinion admits is in issue
here, is intertwined with Sections 39, 80, 84 and 112. Resolving the constitutionality of Section 81
necessarily involves a determination of the constitutionality of Sections 39, 80, 84 and 112.
The WMCP FTAA, the constitutionality of which is certainly in issue, is governed not only by
Section 81 but also by Sections 39, 80 and 112. The reason is that the WMCP FTAA is a reversible
contract that gives WMCP theabsolute option at anytime to convert the FTAA into an MPSA. In
short, the WMCP FTAA is like a single coin with two sides - one an FTAA and the other an MPSA.

a. The Integrated Intent, Plan and Structure of RA 7942

The clear intent of RA 7942 is to limit the State's share from mining operations to taxes, duties and
fees, unless the State contributes equity in addition to the mineral resources. RA 7942 does not
recognize the mere contribution of mineral resources as entitling the State to receive a share in the
net mining revenues separate from taxes, duties and fees. Thus, Section 80 expressly states that
the "total government share in a mineral production sharing agreement shall be the excise
tax on mineral products." Section 84 reiterates this by stating that "with respect to mineral
production sharing agreement, the excise tax on mineral products shall be the government
share under said agreement." The only share of the State in an MPSA is the excise tax.
Ironically, Sections 80 and 84 disallow the State from sharing in the production or income, even as
the contract itself is called a mineral production sharing agreement.
In co-production and joint venture agreements, where the State contributes equity in addition to
the mineral resources, the first paragraph of Section 81 expressly requires that "the share of the
government x x x shall be negotiated by the Government and the contractor." However, in
FTAAs where the State contributes only its mineral resources, the second paragraph of Section 81
states
The Government share in financial or technical assistance agreement shall consist of,
among other things, the contractor's corporate income tax, excise tax, special
allowance, withholding tax due from the contractor's foreign 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 fees as provided for under existing laws.
All the items enumerated in the second paragraph of Section 81 as comprising the "Government
share" refer totaxes, duties and fees. The phrase "all such other taxes, duties and fees as
provided for under existing laws" makes this clear.
Section 112 places "all valid and existing mining" agreements "at the date of effectivity" of
RA 7942 under the fiscal regime prescribed in Section 80. Section 112 expressly states that
the "government share in mineral production sharing agreement x x x shall immediately
govern and apply to a mining lessee or contractor." Section 112 provides:
Section 112. Non-impairment of Existing Mining/Quarrying Rights. All valid and
existing mining lease contracts, permits/licenses, leases pending renewal, mineral
production-sharing agreements grantedunder Executive Order No. 279, at the date of
effectivity of this Act, shall remain valid, shall not be impaired, and shall be recognized
by the Government: Provided, That the provisions of Chapter XIV ongovernment
share in mineral production-sharing agreement and of Chapter XVI on incentives
of this Act shall immediately govern and apply to a mining lessee or
contractor unless the mining lessee or contractor indicates his intention to the
secretary, in writing, not to avail of said provisions:Provided, further, That no renewal of
mining lease contracts shall be made after the expiration of its term:Provided, finally,
That such leases, production-sharing agreements, financial or technical assistance
agreements shall comply with the applicable provisions of this Act and its implementing
rules and regulations. (Emphasis supplied)
Thus, Section 112 requires "all" FTAAs and MPSAs, as of the date of effectivity of RA 7942, to
pay only the excise tax - 2% on metallic and non-metallic minerals and 3% on petroleum 58 instead of the stipulated mining income sharing, if any, in their respective FTAAs or MPSAs.
This means that Section 112 applies even to the Occidental-Shell FTAA, which was
executed before the enactment of RA 7942. This reduces the State's share in the
Malampaya gas extraction from 60% of net proceeds to 3% of the market price of the gas as
provided in Section 80 of RA 7942 in relation to Section 151 of the National Internal

Revenue Code. This is disastrous to the national economy because Malampaya under the
original Occidental-Shell FTAA generates annually some US$0.5 billion to the National
Treasury.
Section 112 applies to all agreements executed "under Executive Order No. 279." The WMCP
FTAA expressly states in its Section 1.1, "This Agreement is a Financial & Technical
Assistance Agreement entered into pursuant to Executive Order No. 279." Thus, Section 112
applies to the WMCP FTAA.
Section 39 of RA 7942 grants the FTAA contractor the "option to convert" the FTAA into an
MPSA "at any time during the term" of the FTAA if the contract areas are not economically
viable for large-scale mining. Once the contractor reduces its foreign equity to not more than 40%,
the Secretary "shall approve the conversion and execute the mineral production sharing
agreement. Thus, Section 39 provides:
Section 39. Option to Convert into a Mineral Agreement. The contractor has the
option to convert the financial or technical assistance agreement to a mineral
agreement at any time during the term of the agreement, if the economic viability of
the contract area is found to be inadequate to justify large-scale mining operations, after
proper notice to the Secretary as provided for under the implementing rules and
regulations: Provided, That the mineral agreement shall only be for the remaining period
of the original agreement.
In the case of a foreign contractor, it shall reduce its equity to forty percent (40%) in the
corporation, partnership, association, or cooperative. Upon compliance with this
requirement by the contractor, the Secretary shall approve the conversion and execute the
mineral production-sharing agreement. (Emphasis supplied)
The only requirement in the second paragraph of Section 39 is that the FTAA contractor shall
reduce its foreign equity to 40%. The second paragraph states, "Upon compliance with this
requirement, the Secretary shall approve the conversion and execute the mineral
production sharing agreement." The determination of the economic viability of the contract area
for large-scale mining, which is left to the foreign contractor with "proper notice" only to the DENR
Secretary, is not even made a condition for the conversion.
Under Section 3(aq) of RA 7942, the foreign contractor holds the exploration permit and conducts
the physical exploration. The foreign contractor controls the release of the technical data on the
mineral resources. The foreign contractor can easily justify the non-viability of the contract area for
large-scale mining. The Philippine Government will have to depend on the foreign contractor
for technical data on whether the contract area is viable for large-scale mining. Obviously,
such a situation gives the foreign contractor actual control in determining whether the contract
area is viable for large-scale mining.
The conversion from an FTAA into an MPSA is solely at the will of the foreign contractor because
the contractor can choose at any time to sell 60% of its equity to a Philippine citizen. The price or
consideration for the sale of the contractor's 60% equity does not go to the State but to the foreign
stockholders of the contractor. Under Section 80 of RA 7942, once the FTAA is converted into an
MPSA the only share of the State is the 2% excise tax on mineral products. Thus, under RA 7942
the FTAA contractor has the absolute option to pay the State only the 2% excise tax,
despite any other stipulated consideration in the FTAA.
Clearly, Sections 3(aq), 39, 80, 81, 84 and 112 are tightly integrated under a single intent, plan and
structure: unless the State contributes equity in addition to the mineral resources, the State shall
receive only taxes, duties and fees. The State's contribution of mineral resources is not sufficient
to entitle the State to receive any income from the mining operations separate from taxes, duties
and fees.

b. The Meaning of the Phrase "Among Other Things"

As far as the State and the Filipino people are concerned, the most important part of an FTAA is
the consideration: how much will the State receive from the exploitation of its non-renewable
and exhaustible mineral resources?
Section 81 of RA 7942 does not require the foreign FTAA contractor to pay the State any share
from the mining income apart from taxes, duties and fees. The second paragraph of Section 81,
just like Section 80, only allows the State to collect taxes, duties and fees as the State's share
from the mining operations. The intent of RA 7942 is that the State cannot share in the income
from mining operations, separate from taxes, duties and fees, based only on the mineral resources
that the State contributes to the mining operations.
This is also the position of the Solicitor General that the State's share under Section 81 refers
only to direct and indirect taxes. Thus, the Solicitor General agrees that Section 81 does not
allow the State to collect any share from the mining income separate from taxes, duties and
fees. The majority opinion agrees that Section 81 is unconstitutional if it does not require the
foreign FTAA contractor to pay the State any share of the net mining income apart from taxes,
duties and fees.
However, the majority opinion says that the phrase "among other things" in Section 81 is the
authority to require the FTAA contractor to pay a consideration separate from taxes, duties and
fees. The majority opinion cites the phrase "among other things" as the source of power of the
DENR Secretary to adopt DAO 56-9959 prescribing the formulae on the State's share from
mining operations separate from taxes, duties and fees.
In short, the majority opinion says that the phrase "among other things" is a delegation of
legislative power to the DENR Secretary to adopt the formulae on the share of the State from
mining operations. The issue now is whether the phrase "among other things" in the second
paragraph of Section 81 is intended as a delegation of legislative power to the DENR
Secretary. If so, the issue turns on whether it is a valid delegation of legislative power. I
reproduce again the second paragraph of Section 81 for easy reference:
The Government share in financial or technical assistance agreement shall consist
of, among other things, the contractor's corporate income tax, excise tax, special
allowance, withholding tax due from the contractor's foreign 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 fees as provided for under existing laws.
(Emphasis supplied)
Section 81 of RA 7942 does not delegate any legislative power to the DENR Secretary to adopt
the formulae in determining the share of the State. There is absolutely no language in the
second paragraph of Section 81 granting the DENR Secretary any delegated legislative
power. Thus, the DENR Secretary acted without authority or jurisdiction in issuing DAO 56-99
based on a supposed delegated power in the second paragraph of Section 81. This makes DAO
56-99 void.
Even assuming, for the sake of argument, that there is language in Section 81 delegating
legislative power to the DENR Secretary to adopt the formulae in DAO 56-99, such delegation is
void. Section 81 has no standards by which the delegated power shall be exercised. There is no
specification on the minimum or maximum share that the State must receive from mining
operations under FTAAs. No parameters on the extent of the delegated power to the DENR
Secretary are found in Section 81. Neither were such parameters ever discussed even remotely by
Congress when it enacted RA 7942.

In sharp contrast, the first paragraph of the same Section 81, in prescribing the State's share
in co-production and joint venture agreements, expressly specifies the standards in
determining the State's share as follows: "(a) capital investment of the project, (b) risks involved,
(c) contribution of the project to the economy, and (d) other factors that will provide for a fair and
equitable sharing between the Government and the contractor." The reason for the absence of
similar standards in the succeeding paragraph of Section 81 in determining the State's share in
FTAAs is obvious - the State's share in FTAAs is limited solely to taxes, duties and fees. Thus,
such standards are inapplicable and irrelevant.
The majority opinion now makes the formulae in DAO 56-99 the heart and soul of RA 7942
because the formulae supposedly determine the consideration of the FTAA. The consideration is
the most important part of the FTAA as far as the State and Filipino people are concerned. The
formulae in DAO 56-99 derive life solely from the phrase"among other things." DAO 56-99 itself
states that it is issued "[P]ursuant to Section 81 and other pertinent provisions of Republic Act No.
7942." Without the phrase "among other things," the majority opinion could not point to any other
provision in RA 7942 to support the existence of the formulae in DAO 56-99.
Thus, the phrase "among other things" determines whether the FTAA has the third element of a
valid contract the commercial value or consideration that the State will receive. The majority
opinion in effect says that Congress made the wealth and even the future prosperity of the nation
to depend on the phrase "among other things."
The DENR Secretary can change the formulae in DAO 56-99 any time even without the approval
of the President or Congress. The DENR Secretary is the sole authority to determine the amount
of consideration that the State shall receive in an FTAA. Section 5 of DAO 56-99 states:
x x x any amendment of an FTAA other than the provision on fiscal regime shall
require the negotiation with the Negotiation Panel and the recommendation of the
Secretary for approval of the President of the Republic of the Philippines. (Emphasis
supplied)
Under Section 5, if the amendment in the FTAA involves non-fiscal matters, the amendment
requires the approval of the President. However, if the amendment involves a change in the fiscal
regime referring to the consideration of the FTAA - the DENR Secretary has the final authority
and approval of the President is not required. This makes the DENR Secretary more powerful than
the President.
Section 5 of DAO 56-99 violates paragraphs 4 and 5 of Section 2, Article XII of the 1987
Constitution mandating that the President shall approve all FTAAs and send copies of all approved
FTAAs to Congress. The consideration of the FTAA is the most important part of the FTAA as far
as the State and the Filipino people are concerned. The DENR Secretary, in issuing DAO 56-99,
has arrogated to himself the power to approve FTAAs, a power vested by the Constitution
solely in the President. By not even informing the President of changes in the fiscal regime and
thus preventing such changes from reaching Congress, DAO 56-99 even seeks to hide changes in
the fiscal regime from Congress. By its provisions alone, DAO 56-99 is clearly unconstitutional and
void.
Section 5 of DAO 56-99 also states that "[A]ll FTAAs approved prior to the effectivity of this
Administrative Ordershall remain valid and be recognized by the Government." This means
that the fiscal regime of an FTAA executed prior to the effectivity of DAO 56-99 "shall remain valid
and be recognized." If the earlier FTAA provides for a fiscal regime different from DAO 56-99, then
the fiscal regime in the earlier FTAA shall prevail. In effect, DAO 56-99 exempts an FTAA approved
prior to its effectivity from paying the State the share prescribed in the formulae under DAO 56-99
if the earlier FTAA provides for a different fiscal regime. Such is the case of the WMCP FTAA.

Based on the majority opinion's position that the 1987 Constitution requires payment in addition to
taxes, duties and fees, this makes DAO 56-99 unconstitutional and void. DAO 56-99 does not
require prior FTAAs to pay the State the share prescribed in the formulae under DAO 56-99 even if
the consideration in the prior FTAAs is limited only to taxes, duties and fees. DAO 56-99
recognizes such payment of taxes, duties and fees as a "valid"consideration. Certainly, the DENR
Secretary has no authority to exempt foreign FTAA contractors from a constitutional requirement.
Not even Congress or the President can do so.
Ironically, DAO 56-99, the very authority the majority opinion cites to support its claim that the
WMCP FTAA has a consideration, does not apply to the WMCP FTAA. By its own express
terms, DAO 56-99 does not apply to FTAAs executed before the issuance of DAO 56-99, like
the WMCP FTAA. The majority opinion's position has no leg to stand on since even DAO 56-99,
assuming it is valid, cannot save the WMCP FTAA from want of consideration.
The formulae prescribed in DAO 56-99 are totally alien to the phrase "among other things." There
is no relationship whatsoever between the phrase "among other things" and the highly esoteric
formulae prescribed in DAO 56-99. No one in this Court can assure the Filipino people that the
formulae in DAO 56-99 will guarantee the State 60%, or 30% or even 10% of the net proceeds
from the mining operations. And yet the majority opinion trumpets DAO 56-99 as the savior of
Section 81 from certain constitutional infirmity.
The majority opinion gives the stamp of approval and legitimacy on DAO 56-99. This assumes that
the majority understand fully the formulae in DAO 56-99. Can the majority tell the Court and the
Filipino people the minimum share that the State will receive under the formulae in DAO 56-99?
The formulae in DAO 56-99 are fuzzy since they do not guarantee the minimum share of the
State, unlike the clear and specific income sharing provisions in the Occidental-Shell FTAA or in
the case of Consolidated Mines, Inc. v. Court of Tax Appeals.60
The Solicitor General asserts that the phrase "among other things" refers to indirect taxes, an
interpretation that contradicts the DENR Secretary's interpretation under DAO 56-99. The Solicitor
General is correct. Theejusdem generis rule of statutory interpretation applies squarely to the
phrase "among other things."

matters" appearing after an enumeration of specific cases decided by the Collector of

Internal Revenue and appealable to the Court of Tax Appeals found in section 7,
paragraph 1, of Republic Act No. 1125, and it held that in order that a matter may come
under said general clause, it is necessary that it belongs to the same kind or class of
cases therein specifically enumerated. (Emphasis supplied)
The four requisites of the ejusdem generis rule64 are present in the phrase "among other
things" as appearing in Section 81 of RA 7942. First, the general phrase "among other
things" is accompanied by an enumeration of specific items, namely, "the contractor's
corporate income tax, excise tax, special allowance, withholding tax due from the contractor's
foreign 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 fees as provided for under
existing laws." Second, all the items enumerated are of the same kind or class - they are all taxes,
duties and fees. Third, the enumeration of the specific items is not exhaustive because "all such
other taxes, duties and fees" are included. Thus, the enumeration of specific items is merely
illustrative. Fourth, there is no indication of legislative intent to give the general phrase "among
other things" a broader meaning. On the contrary, the legislative intent of RA 7942 is to limit the
State's share from mining operations to taxes, duties and fees.
In short, the phrase "among other things" refers to taxes, duties and fees. The phrase "among
other things"is even followed at the end of the sentence by the phrase "and all such other
taxes, duties, and fees," reinforcing even more the restriction of the phrase "among other
things" to taxes, duties and fees. The function of the phrase "and such other taxes, duties and
fees" is to clarify that the taxes enumerated are not exhaustive but merely illustrative.
c. Formulae in DAO 56-99 a Mere Creation of DENR
The majority opinion praises the DENR for "conceiving and developing" the formulae in DAO
56-99. Thus, the majority opinion states:
As can be seen from DAO 56-99, the agencies concerned did an admirable job
of conceiving and developing not just one formula, but three different formulas for
arriving at the additional government share. (Emphasis supplied)

In Philippine Bank of Communications v. Court of Appeals,61 the Court held:

Under the rule of ejusdem generis, where a description of things of a particular class or
kind is 'accompanied by words of a generic character, the generic words will usually be
limited to things of a kindred nature with those particularly enumerated x x x.'
In Grapilon v. Municipal Council of Cigara,62 the Court construed the general word "absence" in
the phrase "absence, suspension or other temporary disability of the mayor" in Section 2195 of the
Revised Administrative Code as "on the same level as 'suspension' and 'other forms of temporary
disability'." The Court quoted with approval the following Opinion of the Secretary of Interior:
The phrase 'other temporary disability' found in section 2195 of the Code, follows the
words 'absence' and 'suspension' and is used as a modifier of the two preceding words,
under the principle of statutory construction known as ejusdem generis.
In City of Manila v. Entote,63 the Court ruled that broad expressions such as "and all
others" or "any others"or "other matters," when accompanied by an enumeration of items of
the same kind or class, "are usually to be restricted to persons or things of the same kind or class
with those specifically named" in the enumeration. Thus, the Court held:
In our jurisdiction, this Court in Ollada vs. Court of Tax Appeals, et al. applied the rule of
"ejusdem generis" to construe the purview of a general phrase "other

Indeed, we credit the DENR for conceiving and developing on their own the formulae in DAO
56-99. The formulae are the creation of DENR, not of Congress.
The DENR conceived and developed the formulae to save Section 81 not only from constitutional
infirmity, but also from blatantly depriving the State and Filipino people from any share in the
income of mining companies. However, the DENR's admittedly "admirable job" cannot amend
Section 81 of RA 7942. The DENR has no legislative power to correct constitutional infirmities in
RA 7942. The DENR does not also possess the constitutional power to prescribe the sharing of
mining income between the State and mining companies, the act the DENR attempts to do in
adopting DAO 56-99.
d. DAO 56-99 is an Exercise in Futility
Even assuming arguendo the majority opinion is correct that the phrase "among other things"
constitutes sufficient legal basis to issue DAO 56-99, the FTAA contractor can still prevent the
State from collecting any share of the mining income. By invoking Section 39 of RA 7942 giving
the foreign FTAA contractor the option to convert the FTAA into an MPSA, the FTAA contractor
can easily place itself outside the scope of DAO 56-99 which expressly applies only to
FTAAs.

Also, by invoking Section 112, the foreign contractor need not even convert its FTAA into a mineral
production agreement to place its contract under Section 80 and outside of Section 81. Section
112 automatically and immediately places all FTAAs under the fiscal regime applicable to MPSAs,
forcing the State to collect only the 2% excise tax. Thus, DAO 56-99 is an exercise in futility. This
now compels the Court to resolve the constitutionality of Sections 39 and 112 of RA 7942 in the
present case.
e. Congress Prescribes the Terms and Conditions of FTAAs.
In a last-ditch attempt to justify the constitutionality of DAO 56-99, the majority opinion now claims
that the President has the prerogative to prescribe the terms and conditions of FTAAs,
including the fiscal regime of FTAAs. The majority opinion states:
x x x It is the President who is constitutionally mandated to enter into FTAAs with
foreign corporations, and in doing so, it is within the President's prerogative to specify
certain terms and conditions of the FTAAs, for example, the fiscal regime of FTAAs i.e., the sharing of the net revenues between the contractor and the State. (Emphasis in
the original; underscoring supplied)
The majority opinion is re-writing the 1987 Constitution and even RA 7942. Paragraph 4, Section
2, Article XII of the 1987 Constitution expressly provides:
The President may enter into agreements with foreign-owned corporations involving
either technical or financial assistance for large-scale exploration, development, and
utilization of minerals, petroleum, and other mineral oils according to the general
terms and conditions provided by law, x x x. (Emphasis supplied)

longer confident of its position that DAO 56-99 draws life from the phrase "among other
things." The majority opinion now invokes a non-existent Presidential power that directly collides
with the express constitutional power of Congress to prescribe the "general terms and
conditions" of FTAAs.
f. Sections 80 and 84 of RA 7942 are Void on their Face
Definitely, Section 80 of RA 7942 is constitutionally infirm even based on the reasoning of the
majority opinion. The majority opinion agrees that the 1987 Constitution requires the mining
contractor to pay the State "more than just the usual taxes, duties and fees." Under Section
80, the excise tax 2% for metallic and non-metallic minerals and 3% for petroleum - is the only
and total share of the State from mining operations. Section 80 provides:
Section 80. Government Share in Mineral Production Sharing Agreement. The total
government share in a mineral production sharing agreement shall be the excise
tax on mineral products as provided in Republic Act No. 7729, amending Section
151(a) of the National Internal Revenue Code, as amended. (Emphasis supplied)
Section 80 has no ifs or buts. Section 84 even reiterates Section 80 that "with respect to a
mineral production sharing agreement, the excise tax on mineral products shall be the
government share under said agreement." There is no ejusdem generis phrase like "among
other things" in Section 80 that the majority opinion can cling on to save it from constitutional
infirmity. DAO 56-99, the magic wand of the majority opinion, expressly applies only to FTAAs and
not to MPSAs. By any legal yardstick, even by the arguments of the majority opinion, Sections 80
and 84 are void and unconstitutional.
g. Necessity of Resolving Constitutionality of Sections 39, 80 and 84

Clearly, the 1987 Constitution mandates that the President may enter into FTAAs only "according
to the general terms and conditions provided by law." There is no doubt whatsoever that it is
Congress that prescribes the terms and conditions of FTAAs, not the President as the majority
opinion claims. The 1987 Constitution mandates the President to comply with the terms and
conditions prescribed by Congress for FTAAs.
Indeed, RA 7942 stipulates the terms and conditions for FTAAs. Section 35 of RA 7942 provides
that the"following terms, conditions, and warranties shall be incorporated in the financial or
technical assistance agreement to wit: x x x." Section 38 of RA 7942 expressly limits an FTAA
to a "term not exceeding twenty-five (25) years," which is one of the issues in the present case.
The majority opinion claims that the President has the power to prescribe "the fiscal regime of
FTAAs i.e., the sharing of the net mining revenues between the contractor and the
State." This claim of the majority opinion renders the entire Chapter XIV of RA 7942 an act of
usurpation by Congress of Presidential power.Chapter XIV entitled "Government Share" prescribes the fiscal regimes of MPSAs and FTAAs. The constitutionality of Sections 80 and 81
of Chapter XIV - whether the fiscal regimes prescribed in these sections of RA 7942 comply with
the 1987 Constitution - is the threshold issue in this case.
The majority opinion seeks to uphold the constitutionality of Section 81 of RA 7942, an act of
Congress prescribing the fiscal regime of FTAAs. If it is the President who has the constitutional
authority to prescribe the fiscal regime of FTAAs, then Section 81 is unconstitutional for being a
usurpation by Congress of a Presidential power. The majority opinion not only re-writes the 1987
Constitution, it also contradicts itself.
That is not all. By claiming that the President has the prerogative to prescribe the fiscal regime of
FTAAs, the majority opinion contradicts its basic theory that DAO 56-99 draws life from the
phrase "among other things" in Section 81 of RA 7942. Apparently, the majority opinion is no

The majority opinion states that the constitutionality of Sections 80 and 84 of RA 7942 is not in
issue in the present case. The majority opinion forgets that petitioners have assailed the
constitutionality of RA 7942 and the WMCP FTAA for violation of Section 2, Article XII of the 1987
Constitution. Petitioner specifically assails the "inequitable sharing of wealth" in the WMCP
FTAA, which petitioners assert is "contrary to Section 1, paragraph 1, and Section 2,
paragraph 4, Article XII of the Constitution."
Section 9.1 of the WMCP FTAA grants WMCP the absolute option, by mere notice to the DENR
Secretary, to convert the FTAA into an MPSA under Section 80. The "sharing of wealth" in Section
80 is "inequitable" and "contrary to x x x Section 2, paragraph 4, Article XII of the Constitution"
because the State will only collect the 2% excise tax in an MPSA. Such a pittance of a sharing will
not make any "real contributions to the economic growth and general welfare of the country" as
required in paragraph 4, Section 2, Article XII of the 1987 Constitution.
Section 39 of RA 7942 also grants foreign FTAA contractors the option, by mere notice to the
DENR Secretary, to convert their FTAAs into MPSAs under Section 80. Necessarily, the
constitutionality of the WMCP FTAA must be resolved in conjunction with Section 80 of RA 7942.
The WMCP FTAA is like a coin with two sides, one side is an FTAA, and the other an MPSA. By
mere notice to the DENR Secretary, WMCP can convert the contract from an FTAA to an MPSA, a
copy of which, complete with all terms and conditions, is annexed to the WMCP FTAA.65 The
DENR Secretary has no option but to sign the annexed MPSA. There are only two conditions to
WMCP's exercise of this option: the reduction of foreign equity in WMCP to 40%, and notice to the
DENR Secretary. The first condition is already fulfilled since all the equity of WMCP is now owned
by a corporation 60% Filipino owned. The notice to the DENR Secretary is solely at the will of
WMCP.

What this Court is staring at right now is a dual contract - an FTAA which, by mere notice to the
DENR Secretary, immediately becomes an MPSA. The majority opinion agrees that the provisions
of the WMCP FTAA, which grant a sham consideration to the State, are void. Since the majority
opinion agrees that the WMCP FTAA has a sham consideration, the WMCP FTAA thus lacks
the third element of a valid contract. The majority opinion should declare the WMCP FTAA
void for want of consideration unless the majority opinion treats the contract as an MPSA
under Section 80. Indeed, the only recourse of WMCP to save the validity of its contract is to
convert it into an MPSA.
Thus, with the absence of consideration in the WMCP FTAA, what is actually before this Court is
an MPSA. This squarely puts in issue whether an MPSA is constitutional if the only consideration
or payment to the State is the 2% excise tax as provided in Section 80 of RA 7942.
The basic constitutional infirmity of the WMCP FTAA is the absence of a fair consideration to the
State as owner of the mineral resources. Petitioners call this the "inequitable sharing of wealth."
The constitutionality of the consideration for the WMCP FTAA cannot be resolved without
determining the validity of both Sections 80 and 81 of RA 7942 because the consideration for the
WMCP FTAA is anchored on both Sections 80 and 81.
The majority opinion refuses to face the issue of whether the WMCP contract can validly rely on
Section 80 for its consideration. If this issue is not resolved now, then the WMCP FTAA has no
consideration. The majority opinion admits that the consideration in the WMCP FTAA granting the
State 60% share in the mining revenues is a sham and thus void ab initio.
Strangely, the majority opinion claims that the share of the State in the mining revenues is not the
principal consideration of the FTAA. The majority opinion claims that the principal consideration
of the FTAA is the"development" of the minerals by the foreign contractor. The foreign contractor
can bring equipment to the mine site, tunnel the mines, and construct underground rails to bring
the minerals to the surface - in short develop the mines. What will the State and the Filipino people
benefit from such activities unless they receive a share of the mining proceeds? After the minerals
are exhausted, those equipment, tunnels and rails would be dilapidated and even obsolete.
Besides, those equipment belong to the foreign contractor even after the expiration of the FTAA.
Plainly, even a businessman with limited experience will not agree that the principal consideration
in an FTAA, as far as the State and Filipino people are concerned, is the development of the
mines. It is obvious why the majority opinion will not accept that the principal consideration is the
share of the State in the mining proceeds. Otherwise, the majority opinion will have to admit that
the WMCP FTAA lacks the third element of a valid contract - the consideration. This will compel
the majority opinion to admit that the WMCP FTAA is void ab initio.
The only way for the majority opinion to save the WMCP FTAA from nullity is to treat it as an
MPSA and thus apply Section 80 of RA 7942. This puts in issue the constitutionality of Section 80.
The majority opinion, however, refuses to treat the WMCP FTAA as an MPSA. Thus, the WMCP
FTAA still lacks a valid consideration. However, the majority opinion insists that the WMCP FTAA is
valid.
If the majority opinion puts the constitutionality of Section 80 in issue, the majority opinion will have
to declare Section 80 unconstitutional. The majority opinion agrees that the 1987 Constitution
requires the State to collect "more than the usual taxes, duties and fees." Section 80 indisputably
limits the State to collect only the excise tax and nothing more.
The equivocal stance of the majority opinion will not put an end to this litigation. Once WMCP
converts its FTAA into an MPSA to avoid paying "more than the usual taxes, duties and fees,"
petitioners will immediately question the validity of WMCP's MPSA as well as the constitutionality
of Section 80. The case will end up again in this Court on the same issue of whether there is a
valid consideration for such MPSA, which necessarily involves a determination of the

constitutionality of Section 80. Clearly, this Court has no recourse but to decide now the
constitutionality of Section 80.
As the Solicitor General reported in his Compliance dated 20 October 2004, the DENR has signed
five MPSAs with different parties.66 These five MPSAs uniformly contain the following provision:
Share of the Government - The Government Share shall be the excise tax on
mineral products at the time of removal and at the rate provided for in Republic
Act No. 7729 amending Section 151(a) of the National Internal Revenue Code, as
amended, as well as other taxes, duties, and fees levied by existing
laws. (Emphasis supplied)
If the constitutionality of Section 80 is not resolved now, these five MPSAs, including the WMCP
FTAA once converted into an MPSA, will remain in limbo. There will be no implementation of these
MPSAs until the Court finally resolves this constitutional issue.
Even if evaded now, the constitutionality of Section 80 will certainly resurface, resulting in a repeat
of this litigation, most probably even between the same parties. To avoid unnecessary delay, this
Court must rule now on the constitutionality of Section 80 of RA 7942.
2. The Constitutional Term Limit Applies to FTAAs
Section 3.3 of the WMCP FTAA provides a fixed contract term of 50 years at the option of WMCP.
Thus, Section 3.3 provides:
This Agreement shall be renewed by the Government for a further period of twentyfive (25) yearsunder the same terms and conditions provided that the Contractor
lodges a request for a renewal with the Government not less than sixty (60) days prior
to the expiry of the initial term of this Agreement and provided that the Contractor is not
in breach of any of the requirements of this Agreement. (Emphasis supplied)
This provision grants WMCP the absolute right to extend the first 25-year term of the FTAA to
another 25-year term upon mere lodging of a request or notice to the Philippine
Government. WMCP has the absolute right to extend the term of the FTAA to 50 years and all
that the Government can do is to acquiesce to the wish of WMCP.
Section 3.3 of the WMCP FTAA is void because it violates Section 2, Article XII of the 1987
Constitution, the first paragraph of which provides:
All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
other natural resources are owned by the State. With the exception of agricultural lands,
all other natural resources shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control and supervision of the
State. The State may directly undertake such activities, or it may enter into coproduction, joint venture, or production-sharing agreements with Filipino 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 exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. In cases of water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of water power,
beneficial use may be the measure and limit of the grant. (Emphasis supplied)

The majority opinion, however, makes the startling assertion that FTAAs are not covered by the
term limit under Section 2, Article XII of the 1987 Constitution. The majority opinion states:
I believe that the constitutional term limits do not apply to FTAAs. The reason is
that the above provision is found within paragraph 1 of Section 2 of Article XII,
which refers to mineral agreements co-production agreements, joint venture
agreements and mineral production sharing agreements - which the government may
enter into with Filipino citizens and corporations, at least 60 percent owned by Filipino
citizens. (Emphasis supplied)
If the term limit does not apply to FTAAs because the term limit is found in the first paragraph of
Section 2, then the other limitations in the same first paragraph of Section 2 do not also apply to
FTAAs. These limitations are three: first, that the State owns the natural resources; second, except
for agricultural lands, natural resources shall not be alienated; third, the State shall exercise full
control and supervision in the exploitation of natural resources. Under the majority opinion's
interpretation, these three limitations will no longer apply to FTAAs, leading to patently
absurd results. The majority opinion will also contradict its own admission that even in FTAAs the
State must exercise full control and supervision in the exploitation of natural resources.
Section 2, Article XII of the 1987 Constitution is a consolidation of Sections 8 and 9, Article XIV of
the 1973 Constitution, which state:
Section 8. All lands of public domain, waters, minerals, coal, petroleum and other
mineral oils, all forces of potential energy, fisheries, wildlife, and other natural resources
of the Philippines belong to the State. With the exception of agricultural, industrial or
commercial, residential, or resettlement lands of the public domain, natural resources
shall not be alienated, and no license, concession, or lease for the exploration, or
utilization of any of the natural resources shall be granted for a period exceeding twentyfive years, except as to water rights for irrigation, water supply, fisheries, or industrial
uses other than development of water power, in which cases, beneficial use may be the
measure and the limit of the grant.
Section 9. The disposition, exploration, development, exploitation, or utilization of any of
the natural resources of the Philippines shall be limited to citizens of the Philippines, or
to corporations or associations at least sixty per centum of the capital which is owned by
such citizens. The Batasang Pambansa, in the national interest, may allow such
citizens, corporations or associations to enter into service contracts for financial,
technical, management, or other forms of assistance with any foreign person or entity for
the exploration, or utilization of any of the natural resources. Existing valid and binding
service contracts for financial, technical, management, or other forms of assistance are
hereby recognized as such.
Section 9, Article XIV of the 1973 Constitution, a one-paragraph section, contained the provision
reserving the exploration, development and utilization of natural resources to Philippine
citizens or corporations 60% Filipino owned as well as the provision on FTAAs. The
provision on the 25-year term limit was found in the preceding Section 8 of Article XIV. If the 25year term limit under the 1973 Constitution did not apply to FTAAs, then it should not also have
applied to non-FTAA mining contracts, an interpretation that is obviously wrong. Thus, the term
limit in Section 8, Article XIV of the 1973 Constitution necessarily applied to both non-FTAA mining
contracts and FTAAs in Section 9.

What the framers of the 1987 Constitution did was to consolidate Sections 8 and 9, Article XIV of
the 1973 Constitution into one section, the present Section 2, Article XII of the 1987 Constitution.
The consolidation necessitated re-arranging the sentences and paragraphs without any intention
of destroying their unity and coherence. Certainly, the consolidation did not mean that the FTAAs
are no longer subject to the 25-year term limit. If anything, the consolidation merely strengthened
the need, following the rules of statutory construction, to read and interpret together all the
paragraphs, and even the sentences, of Section 2, Article XII of the 1987 Constitution.
In his book The 1987 Constitution of the Republic of the Philippines: A Commentary, Father
Joaquin G. Bernas, S.J., who was a leading member of the 1986 Constitutional Commission,
discussed the limitations on the exploitation of natural resources. Father Bernas states:
4. Other limitations
Agreements for the exploitation of the natural resources can have a life of only
twenty-five years.This twenty-five year limit dates back to the 1935 Constitution and is
considered to be a "reasonable time to attract capital, local and foreign, and to enable
them to recover their investment and make a profit. The twenty-five year limit on the
exploitation of natural resources is not applicable to "water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of water power." In these
cases, "beneficial use may be the measure and the limit of the grant." But in the case of
water rights for water power, the twenty-five year limit is applicable."67 (Emphasis
supplied)
The 1935, 1973 and 1987 Constitutions all limit the exploitation of natural resources to 25-year
terms. They also limit franchises for public utilities, leases of alienable lands of public domain, and
water rights for power development to 25-year terms. If a different term is intended, the
Constitution expressly says so as in water rights for uses other than power development. Under
the 1973 and 1987 Constitutions, there is no separate term for FTAAs other than the 25-year term
for the exploitation of natural resources.
The WMCP FTAA draws life from Executive Order No. 279 issued on 25 July 1987 by then
President Corazon C. Aquino when she still exercised legislative powers. Section 1.1 of the
WMCP FTAA expressly states, "This Agreement is a Financial & Technical Assistance
Agreement entered into pursuant to Executive Order No. 279." Section 7 of Executive Order
No. 279 provides:
Section 7. All provisions of Presidential Decree No. 463, as amended, other existing
mining laws, and their implementing rules and regulations, or parts thereof, which are
not inconsistent with the provisions of this Executive Order, shall continue in force and
effect. (Emphasis supplied)
Section 40 of Presidential Decree No. 463 ("PD 463"), as amended by Presidential Decree No.
1385, provides:
Section 40. Issuance of Mining Lease Contracts - x x x After the mining claim has been
verified as to its mineral contents and its actual location on the ground as determined
through reports submitted to theDirector, the Secretary shall approve and issue the
corresponding mining lease contract, which shall be for a period not exceeding
twenty-five (25) years, renewable upon the expiration thereof for another period
not exceeding twenty-five (25) years under such terms and conditions as provided
by law. (Emphasis supplied)
Thus, at the time of execution of the WMCP FTAA, statutory law limited the term of all mining
contracts to 25-year terms. PD 463 merely implemented the mandate of the 1973 Constitution on

the 25-year term limit, which is the same 25-year term limit in the 1987 Constitution. Under
Section 7 of Executive Order No. 279, Section 40 of PD 463 limiting mining contracts to a
25-year term applies to the WMCP FTAA. Therefore, Section 3.3 of the WMCP FTAA
providing for a 50-year term is void.
Then President Aquino also issued Executive Order No. 211 on 10 July 1987, a bare 17 days
before issuing Executive Order No. 279. Section 3 of Executive Order No. 211 states:
Section 3. The processing, evaluation and approval of all mining applications,
declarations of locations, operating agreements and service contracts as provided for in
Section 2 above, shall be governed by Presidential Decree No. 463, as amended, other
existing mining laws, and their implementing rules and regulations: Provided, However,
that the privileges granted as well as the terms and conditions thereof shall be
subject to any and all modifications or alterations which Congress may adopt
pursuant to Section 2, Article XII of the 1987 Constitution. (Emphasis supplied)
Section 3 of Executive Order No. 211 applies to the WMCP FTAA which was executed on 22
March 1995, more than seven years after the issuance of Executive Order No. 211. Subsequently,
Congress enacted RA 7942 to prescribe new terms and conditions for all mineral agreements. RA
7942 took effect on 9 April 1995.
RA 7942 governs the WMCP FTAA because Executive Order No. 211 expressly makes mining
agreements like the WMCP FTAA subject to "any and all modifications or alterations which
Congress may adopt pursuant to Section 2, Article XII of the 1987 Constitution." Section 38
of RA 7942 provides for a 25-year term limit specifically for FTAAs, thus:
Section 38. Term of Financial or Technical Assistance Agreement. A financial or
technical assistance agreement shall have a term not exceeding twenty-five (25)
years to start from the execution thereof, renewable for not more than twenty-five
(25) years under such terms and conditions as may be provided by law. (Emphasis
supplied)
Thus, the 25-year term limit specifically for FTAAs in Section 38 of RA 7942 applies to the WMCP
FTAA. Again, Section 3.3 of the WMCP FTAA providing for a 50-year term is void.
What is clear from the foregoing is that the 25-year statutory term limit on mining contracts is
merely an implementation of the 25-year constitutional term limit, whether under the 1935, 1973 or
1987 Constitutions. The majority opinion's assertion that the 25-year term in the first paragraph of
Section 2, Article XII of the 1987 Constitutions does not apply to FTAAs is obviously wrong.
3. Section 112 of RA 7942 Applies to the WMCP FTAA
The majority opinion insists that Section 112 of RA 7942 does not apply to the WMCP FTAA.
Section 112 provides:
Section 112. Non-impairment of Existing Mining/Quarrying Rights. All valid and
existing mining lease contracts, permits/licenses, leases pending renewal, mineral
production-sharing agreements granted under Executive Order No. 279, at the date
of effectivity of this Act, shall remain valid, shall not be impaired, and shall be
recognized by the Government: Provided, That the provisions of Chapter XIV
ongovernment share in mineral production-sharing agreement and of Chapter XVI
on incentives of this Act shall immediately govern and apply to a mining lessee or
contractor unless the mining lessee or contractor indicates his intention to the
secretary, in writing, not to avail of said provisions: Provided, further, That no renewal of
mining lease contracts shall be made after the expiration of its term: Provided, finally,

That such leases, production-sharing agreements, financial or technical assistance

agreements shall comply with the applicable provisions of this Act and its implementing
rules and regulations. (Emphasis supplied)
Section 112 "immediately" applies the fiscal regime under Section 80 on "mineral production
sharing agreement" to "all valid and existing mining" contracts, including those "granted under
Executive Order No. 279." If Section 112 applies to the WMCP FTAA, then the WMCP FTAA is
subject only to the 2% excise tax under Section 80 as the "total share" of the Philippine
Government.
The majority opinion states, "Whether Section 112 may properly apply to co-production or
joint venture agreements, the fact of the matter is that it cannot be made to apply to
FTAAs." This position of the majority opinion is understandable. If Section 112 applies to FTAAs,
the majority opinion would have to rule on the constitutionality of Section 80 of RA 7942. The
majority opinion already agrees that the 1987 Constitution requires the FTAA contractor to pay the
State "more than the usual taxes, duties and fees." If Section 112 applies to FTAAs, the majority
opinion would have no choice but declare unconstitutional Section 80.
Thus, the majority opinion insists that Section 112 "cannot be made to apply to FTAAs." This
insistence of the majority opinion collides with the very clear and plain language of Section
112 of RA 7942 and Section 1.1 of the WMCP FTAA. This insistence of the majority opinion will
lead to absurd results.
First, Section 112 of RA 7942 speaks of "all valid and existing mining" contracts. The
phrase "all valid and existing mining" contracts means the entire or total mining contracts in
existence "at the date of effectivity" of RA 7942 without exception. The word "all" negates any
exception. This certainly includes the WMCP FTAA, unless the majority opinion concedes that the
WMCP FTAA is not a mining contract, or if it is, that it is not a valid contract.
Second, the last proviso of Section 112 itself expressly states that "financial or technical
assistance agreements shall comply with the applicable provisions of this Act and its
implementing rules and regulations." There is no shadow of doubt whatsoever that Section 112,
by its own plain, clear and indisputable language, commands that FTAAs shall comply with RA
7942. I truly cannot fathom how the majority opinion can assert that Section 112 cannot apply to
FTAAs.
Third, Section 112 expressly refers to Chapters XIV and XVI of RA 7942. Chapter XIV refers to the
"Government Share" and covers Sections 80, 81 and 82 of RA 7942. Section 81, as the majority
opinion concedes, applies to FTAAs. Chapter XVI refers to "Incentives" and covers Section 90
to 94 of RA 7942. Section 90 states that the "contractors in mineral agreements, and financial
technical and assistance agreements shall be entitled to the fiscal and non-fiscal incentives as
provided under Executive Order No. 226 x x x." Clearly, Section 112 applies to FTAAs.
Fourth, Section 1.1 of the WMCP FTAA expressly states, "This Agreement is a Financial &
Technical Assistance Agreement entered into pursuant to Executive Order No. 279." Section
112 states in unequivocal language that "all valid and existing" agreements "granted under
Executive Order No. 279" are immediately placed under the fiscal regime of MPSAs. In short,
mining agreements granted under Executive Order No. 279 are expressly among the
agreements included in Section 112 and placed under the fiscal regime prescribed in Section
80. There is no doubt whatsoever that Section 112 applies to the WMCP FTAA which was
"entered into pursuant to Executive Order No. 279."
Fifth, Section 3 of Executive Order No. 211 expressly subjects all mining contracts executed by the
Executive Department to the terms and conditions of new mining laws that Congress might enact
in the future. Thus, Section 3 of Executive Order No. 211 states:

Section 3. The processing, evaluation and approval of all mining applications,

declarations of locations, operating agreements and service contracts as provided for in
Section 2 above, shall be governed by Presidential Decree No. 463, as amended, other
existing mining laws, and their implementing rules and regulations: Provided, However,
that the privileges granted as well as the terms and conditions thereof shall be
subject to any and all modifications or alterations which Congress may adopt
pursuant to Section 2, Article XII of the 1987 Constitution. (Emphasis supplied)
There is no dispute that Executive Order No. 211, issued prior to the execution of the WMCP
FTAA, applies to the WMCP FTAA. There is also no dispute that RA 7942 took effect after the
issuance of Executive Order No. 211 and after the execution of the WMCP FTAA. Therefore,
Section 112 of RA 7942 applies specifically to the WMCP FTAA.
Indeed, it is plain to see why Section 112 of RA 7942 applies to FTAAs, like the WMCP FTAA, that
were executed prior to the enactment of RA 7942. Section 112 is found in Chapter XX of RA 7942
on "Transitory and Miscellaneous Provisions." The title of Section 112 refers to the "[N]onimpairment of Existing Mining Quarrying Rights." RA 7942 is the general law governing all kinds of
mineral agreements, including FTAAs. In fact, Chapter VI of RA 7942, covering nine sections,
deals exclusively on FTAAs. The fiscal regime in FTAAs executed prior to the enactment of RA
7942 may differ from the fiscal regime prescribed in RA 7942. Hence, Section 112 provides the
transitory provisions to resolve differences in the fiscal regimes, ostensibly to avoid impairment of
contract obligations. Clearly, Section 112 applies to FTAAs.
There are no ifs or buts in Section 112. The plain, simple and clear language of Section 112 makes
FTAAs, like the WMCP FTAA, subject to Section 112. We repeat the express words of Section 112
-

If Section 112 of RA 7942 does not apply to FTAAs as the majority opinion asserts, what will
govern FTAAs executed before the enactment of RA 7942, like the WMCP FTAA? Section 112
expressly addresses FTAAs executed before the enactment of RA 7942, requiring these earlier
FTAAs to comply with the provisions of RA 7942 and its implementing rules. Executive Order No.
211, issued seven years before the execution of the WMCP FTAA, requires all FTAAs
subsequently executed to comply with the terms and conditions of any future mining law that
Congress may enact. That law is RA 7942 which took effect after the execution of the WMCP
FTAA.
The majority opinion allows the WMCP FTAA to become sui generis, an FTAA outside the scope of
RA 7942 which expressly governs "all" mining agreements, whether MPSAs or FTAAs. This
means that the WMCP FTAA is not even governed by Section 81 of RA 7942 and its phrase
"among other things," which the majority opinion claims is the authority to subject the WMCP FTAA
to the payment of consideration that is "more than the usual taxes, duties and fees."
This makes the majority opinion's position self-contradictory and inutile. The majority opinion
claims that the WMCP FTAA is subject to the phrase "among other things" in Section 81. At the
same time, the majority opinion asserts that Section 112, which requires earlier FTAAs to comply
with Section 81 and other provisions of RA 7942, does not apply to the WMCP FTAA. The majority
opinion is caught in a web of self-contradictions.
This exemption by the majority opinion of the WMCP FTAA from Section 112 is judicial
class legislation.Why is the WMCP FTAA so special that the majority opinion wants it exempted
from Section 112 of RA 7942? Why are only "all" other FTAAs subject to the terms and conditions
of RA 7942 and not the WMCP FTAA?
4. Foreign Corporations and Contractors Cannot Hold Exploration Permits

(1) "All valid and existing mining lease contracts x x x mineral production-sharing
agreements granted under Executive Order No. 279, at the date of effectivity of
this Act x x x."
(2) the "x x x government share in mineral production- sharing agreement x x x
shall immediately govern and apply to a mining lessee or contractor x x x."
(3) "financial or technical assistance agreements shall comply with the applicable
provisions of this Act and its implementing rules and regulations."
With such clear and unequivocal language, how can the majority opinion blithely state that Section
112 "cannot be made to apply to FTAAs"? It defies common sense, simple logic and plain
English to assert that Section 112 does not apply to FTAAs. It defies the fundamental rule of
statutory construction as repeated again and again in jurisprudence:
Time and time again, it has been repeatedly declared by this Court that where the law
speaks in clear and categorical language, there is no room for interpretation. There is
only room for application.68
For nothing is better settled than that the first and fundamental duty of courts is to apply
the law as they find it, not as they like it to be. Fidelity to such a task precludes
construction or interpretation, unless application is impossible or inadequate without it.69
Where the law is clear and unambiguous, it must be taken to mean exactly what it says
and the court has no choice but to see to it that its mandate is obeyed.70

The majority opinion states that "there is no prohibition at all against foreign or local
corporations or contractors holding exploration permits." This is another assertion of the
majority opinion that directly collides with the plain language of the 1987 Constitution.
Section 2, Article XII of the 1987 Constitution expressly reserves to Philippine citizens and
corporations 60% Filipino owned the "exploration, development and utilization of natural
resources." The majority opinion rationalizes its assertion in this manner:
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a
qualified person the right to conduct exploration for minerals in specified
areas. Such a permit does not amount to an authorization to extract and carry off
the mineral resources that may be discovered. x x x. (Italics in original)
The issue is not whether an exploration permit allows a foreign contractor or corporation to extract
mineral resources, for apparently by its language alone a mere exploration permit does not. There
is no dispute that an exploration permit merely means authority to explore, not to extract. The
issue is whether the issuance of an exploration permit to a foreign contractor violates the
constitutional limitation that only Philippine citizens or corporations 60% Filipino owned can
engage in the "exploration x x x of natural resources."
The plain language of Section 2, Article XII of the 1987 Constitution clearly limits to Philippine
citizens or to corporations 60% Filipino owned the right to engage in the "exploration x x x of
natural resources." To engage in "exploration" is simply to explore, not to develop, utilize
or extract. To engage in exploration one must secure an exploration permit. The mere issuance
of the exploration permit is the authority to engage in the exploration of natural resources.

This activity of exploration, which requires an exploration permit, is a reserved activity not
allowed to foreign contractors or foreign corporations. Foreign contractors and foreign corporations
cannot secure exploration permits because they cannot engage in the exploration of natural
resources. If, as the majority opinion asserts, foreign contractors or foreign corporations can
secure and hold exploration permits, then they can engage in the "exploration x x x of natural
resources." This violates Section 2, Article XII of the 1987 Constitution.
Consequently, Section 3(aq) of RA 7942, which provides that "a legally organized foreign-owned
corporation shall be deemed a qualified person for purposes of granting an exploration permit," is
void and unconstitutional.
However, the State may directly undertake to explore, develop and utilize the natural resources.
To do this the State may contract a foreign corporation to conduct the physical act of
exploration in the State's behalf, as in an FTAA. In such a case, the foreign FTAA contractor is
merely an agent of the State which holds the right to explore. No exploration permit is given to the
foreign contractor because it is the State that is directly undertaking the exploration,
development and utilization of the natural resources.
The requirement reserving "exploration x x x of natural resources" to Philippine citizens or to
corporations 60% Filipino owned is not a matter of constitutional whim. The State cannot allow
foreign corporations, except as contractual agents under the full control and supervision of the
State, to explore our natural resources because information derived from such exploration may
have national security implications.
If a Chinese company from the People's Republic of China is allowed to explore for oil and gas in
the Spratlys, the technical information obtained by the Chinese company may only bolster the
resolve of the Chinese Government to hold on to their occupied reefs in the Spratlys despite these
reefs being within the Exclusive Economic Zone of the Philippines. Certainly, we cannot expect the
Chinese company to disclose to the Philippine Government the important technical data obtained
from such exploration.
In Africa, foreign mining companies who have explored the mineral resources of certain countries
shift their support back and forth between government and rebel forces depending on who can
give them better terms in exploiting the mineral resources. Technical data obtained from mineral
exploration have triggered or fueled wars and rebellions in many countries. The right to explore
mineral resources is not a trivial matter as the majority opinion would want us to believe.
Even if the foreign companies come from countries with no territorial dispute with the Philippines,
can we expect them to disclose fully to the Philippine Government all the technical data they
obtain on our mineral resources? These foreign companies know that the Philippine Government
will use the very same data in negotiating from them a higher share of the mining revenues. Why
will the foreign companies give to the Philippine Government technical data justifying a higher
share for the Philippine Government and a lower share for the foreign companies? The framers of
the 1935, 1973 and 1986 Constitutions were acutely aware of this problem. That is why the 1987
Constitution not only reserves the "exploration x x x of natural resources" to Philippine citizens
and to corporations 60% Filipino owned, it also now requires the State to exercise "full control
and supervision" over the "exploration x xx of natural resources."
5. The State is Entitled to 60% Share in the Net Mining Revenues
The majority opinion claims that the Constitution does not require that the State's share in FTAAs
or other mineral agreements should be at least 60% of the net mining revenues. Thus, the majority
opinion states that "the Charter did not intend to fix an iron-clad rule on the 60 percent share,
applicable to all situations at all times and in all circumstances."

The majority opinion makes this claim despite the express admission by intervenor CMP and
respondent WMCP that the State, as owner of the natural resources, is entitled to 60% of the net
mining revenues. The intervenor CMP admits that under an FTAA, the Philippine
Government "stands in the place of the 60% Filipino owned company" and hence must retain
60% of the net income. Thus, intervenor CMP concedes that:
x x x In other words, in the FTAA situation, the Government stands in the place of
the 60% Filipino-owned company, and the 100% foreign-owned contractor company
takes all the risks of failure to find a commercially viable large-scale ore body or oil
deposit, for which the contractor will get 40% of the financial benefits.71 (Emphasis
supplied)
As applied to the WMCP FTAA, intervenor CMP asserts that the "contractor's stipulated share
under the WMCP FTAA is limited to a maximum of 40% of the net production."72 Intervenor
CMP further insists that"60% of its (contractor's) net returns from mining, if any, will go to the
Government under the WMCP FTAA."73
Like intervenor CMP, respondent WMCP also maintains that under an FTAA, the State
is "guaranteed" a 60% share of the foreign contractor's Net Mining Revenues. Respondent
WMCP admits that:
In other words, the State is guaranteed a sixty per centum (60%) share of the
Mining Revenues, or 60% of the actual fruits of the endeavor. This is in line with
the intent behind Section 2 of Article XII that the Filipino people, as represented
by the State, benefit primarily from the exploration, development, and utilization
of the Philippines' natural resources.
Incidentally, this sharing ratio between the Philippine Government and the
Contractor is also in accordance with the 60%-40% equity requirement for
Filipino-owned corporations in Paragraph 1 of Section 2 of Article XII. 74 (Emphasis
supplied)
In short, the entire mining industry, as represented by intervenor CMP, is willing to pay the State
a share equivalent to 60% of the net mining revenues. Even the foreign contractor WMCP agrees
to pay the State 60% of its net mining revenues, albeit dishonestly.
However, the majority opinion refuses to accept that the State is entitled to what the entire mining
industry is willing to pay the State. Incredibly, the majority opinion claims that "there is no
independent showing that the taking of at least 60 percent share in the after-tax income of a
mining company operated by a foreign contractor is fair and reasonable under most if not
all circumstances." Despite the willingness of the entire mining industry to pay the State a 60%
share without exception, the majority opinion insists that such sharing is not fair and reasonable to
the mining industry "under most if not all circumstances." What is the basis of the majority
opinion in saying this when the entire mining industry already admits, concedes and accepts that
the State is entitled, without exception, to 60% of the net mining revenues?
Oddly, the majority opinion cites only the personal experience of the ponente, who had previously
"been engaged in private business for many years." The majority opinion even states, in insisting
that the State should receive less than 60% share, that "[F]airness is a credo not only in law,
but also in business." The majority opinion cannot be more popish than the Pope. The
majority opinion ponente's business judgment cannot supplant the unanimous business judgment
of the entire mining industry, as manifested by intervenor CMP before this Court. What is obvious
is that it is not fair to deprive the Filipino people, many of whom live in hand to mouth existence, of
what is legally their share of the national patrimony, in light of the willingness of the entire mining
industry to pay the Filipino people their rightful share.

The majority opinion gives a "simplified illustration" to show that the State does not deserve a 60%
share of the net proceeds from mining revenues. The majority opinion states:
x x x Let us base it on gross revenues of, say, P500. After deducting operating
expenses, but prior to income tax, suppose a mining makes a taxable income of P100. A
corporate income tax of 32 percent results in P32 of taxable income going to the
government, leaving the mining firm with P68. Government then takes 60 percent
thereof, equivalent to P40.80, leaving only P27.20 for the mining firm.
The majority opinion's "simplified illustration" is indeed too simplified because it does not even
consider the exploration, development and capital expenses. The majority opinion's "simplified
illustration" deducts from gross revenues only "operating expenses." This is an egregious error
that makes this "simplified illustration" misleading. Exploration, development and other capital
expenses constitute a huge part of the deductions from gross revenues. In the early years of
commercial production, the exploration, development and capital expenses, if not subject to a cap
or limitation, can wipe out the gross revenues.
The majority opinion's operating expenses are not even taken from mining industry rates. One can
even zero out the taxable income by simply jacking up the operating expenses. A "simplified
illustration" of an income statement of an operating mining company, omitting the deduction of
amortized capital expenses, serves no purpose whatsoever. What is important is the return on the
investment of the foreign contractor. The absolute amount that goes to the contractor may be
smaller than what goes to the State. However, the amount that goes to the contractor may be a
hundred times its investment. This can only be determined if the capital expenditures of the
contractor are taken into account.
Under an FTAA, the State is directly undertaking the exploitation of mineral resources. The net
proceeds are not subject to income tax since there is no separate taxable entity. The State is an
entity but not a taxable corporate entity. The State does not pay income tax to itself, and even if it
does, it is just a book entry since it is the payor and payee at the same time. Only the 40% share
of the FTAA contractor is subject to the 32% corporate income tax. On this score alone, the
majority opinion's "simplified illustration" is wrong.
Intervenor CMP and respondent WMCP are correct in anchoring on Section 2, Article XII of the
1987 Constitution their admission that the State is entitled to 60% of the net mining revenues.
Their common position is based on the Constitution, existing laws and industry practice.
First, the State owns the mineral resources. To the owner of the mineral resources belongs the
income from any exploitation of the mineral resources. The owner may share its income with the
contractor as compensation to the contractor, which is an agent of the owner. The industry practice
is the owner receives an equal or larger share of the income as against the share of the contractor
or agent.
In the Occidental-Shell FTAA covering Malampaya, where the contractor contributed all the
capital and technology, the State receives 60% of the net proceeds. In addition, Occidental-Shell's
40% share is subject to the 32% Philippine income tax. Occidental-Shell's US$2 billion
investment75 in Malampaya is by far the single biggest foreign investment in the Philippines. The
offshore Malampaya gas extraction is also by far more capital intensive and riskier than landbased mineral extraction. Over the 20-year life of the natural gas reserves, the State will receive
US$8-10 billion76 from its share in the Occidental-Shell FTAA.
In Consolidated Mines, Inc. v. Court of Tax Appeals,77 a case decided under the 1973
Constitution, Consolidated Mines, the concessionaire of the mines, shared equally the net mining
income with BenguetConsolidated Mines, the mining operator or contractor. Thus, as quoted
in Consolidated Mines, the agreement between the concessionaire and operator stated:

X. After Benguet has been fully reimbursed for its expenditures, advances and
disbursements as aforesaid the net profits from the operation shall be divided between
Benguet and Consolidated share and share alike, it being understood however, that
the net profits as the term is used in this agreement shall be computed by deducting
from gross income all operating expenses and all disbursements of any nature
whatsoever as may be made in order to carry out the terms of this agreement.
(Emphasis supplied)
Incidentally, in Consolidated Mines the State did not receive any share in the net mining income
because of the "license, concession or lease" system under the 1935 and 1973 Constitutions. The
State and the Filipino people received only taxes, duties and fees.
Second, the State exercises "full control and supervision" over the exploitation of mineral
resources. "Full control" as used in the Constitution means more than ordinary majority control. In
corporate practice, ordinary control of a corporation means a simple majority control, or at least
50% plus one of the total voting stock. In contrast, full or total control means two-thirds of the
voting stock, which enables the owner of the two-thirds equity to amend any provision in the
charter of the corporation. However, since foreigners can own up to 40% of the equity of mining
companies, "full control" cannot exceed the control corresponding to the State's 60% equity. Thus,
the State's share in the net proceeds of mining companies should correspond to its 60% interest
and control in mining companies.
Third, Section 2, Article XII of the 1987 Constitution requires that the FTAA must make "real
contributions to the economic growth and general welfare of the country." As respondent
WMCP aptly admits, "the intent behind Section 2 of Article XII (is) that the Filipino people, as
represented by the State, (shall) benefitprimarily from the exploration, development, and
utilization of the Philippines' natural resources." For the Filipino people to
benefit primarily from the exploitation of natural resources, and for FTAAs to make real
contributions to the national economy, the majority of the net proceeds from mining operations
must accrue to the State.
Fourth, the 1987 Constitution ordains the State to "conserve and develop our patrimony." The
nation's mineral resources are part of our national patrimony. The State can "conserve" our
mineral resources only if the majority of the net proceeds from the exploitation of mineral
resources accrue to the State.
In sum, only the majority opinion refuses to accept that the State has a right to receive at least
60% of the net proceeds from mining operations. The principal parties involved in this case do not
object that the State shall receive such share. The entire mining industry and respondent WMCP
admit that the State is entitled to a 60% share of the net proceeds. The State, represented by the
Government, will certainly not object to such share.
More than anything else, the intent and language of the 1987 Constitution require that the State
receive the bulk of the income from mining operations. Only Congress, through a law, may allow a
share lesser than 60% if certaincompelling conditions are present. Congress may authorize the
President to make such determination subject to standards and limitations that Congress shall
prescribe.
The majority opinion wants to give the President the absolute discretion to determine the State's
share from mining revenues. The President will be hard put accepting anything less than 60% of
the net proceeds. If the President accepts less than 60%, the President is open to a charge of
entering into a manifestly and grossly disadvantageous contract to the Government because the
entire mining industry, including WMCP, has already agreed to pay 60% of the net proceeds to the
State. The only way to avoid this is for Congress to enact a law providing for the conditions when
the State may receive less than 60% of the net proceeds.

Conclusion
Let us assume that one of the Justices of this Court is the owner of mineral resources say gold
reserves. A foreigner offers to extract the gold and pay for all development, capital and operating
expenses. How much will the good Justice demand as his or her share of the gold extracted by the
foreigner? If the Justice follows the Malampaya precedent, he or she will demand a 60% share of
the net proceeds. If the Justice follows the manifestation of intervenor CMP and respondent
WMCP before this Court, he or she will also demand a 60% share in the net proceeds. If the
Justice follows the Consolidated Mines precedent, he or she will demand no less than 50% of the
net proceeds. In either case, the 2% excise tax on the gold extracted is part of the operating
expenses to be paid by the foreigner but deducted from the gross proceeds.

I therefore vote to deny the motions for reconsideration. I vote to declare unconstitutional Section
3(aq), Section 39, Section 80, the second paragraph of Section 81, the proviso in Section 84, and
the first proviso in Section 112 of RA 7942 for violation of Section 2, Article XII of the 1987
Constitution. In issuing the rules to implement these void provisions of RA 7942, DENR Secretary
Victor O. Ramos gravely abused his discretion amounting to lack or excess of jurisdiction.
I also vote to declare unconstitutional the present WMCP FTAA for violation of the same Section 2,
Article XII of the 1987 Constitution. However, WMCP may negotiate with the Philippine
Government for a new mineral agreement covering the same area consistent with this Decision.

DISSENTING OPINION
Now, under the Regalian doctrine the State, not the Justice, owns the gold reserves. How much
should the State demand from the foreigner as the State's share of the gold that is extracted? If
we follow Sections 39, 80, 81, 84 and 112 of RA 7942, the State will receive only 2% excise
tax as its "total share" from the gold that is extracted.
Is this fair to the State and the Filipino people, many of whom live below the poverty line? Is this
what the 1987 Constitution mandates when it says that (a) the State must conserve and develop
the nation's patrimony, (b) the State owns all the natural resources, (c) the State must exercise full
control and supervision over the exploitation of its natural resources, and (d) FTAAs must make
real contributions to the national economy and the general welfare?
How this Court decides the present case will determine largely whether our country will remain
poor, or whether we can progress as a nation. Based on NEDA's estimates, the total mineral
wealth of the nation is P47 trillion, or US$840 billion. This is 15 times more than our US$56 billion
foreign debt. Can this Court in conscience agree that the State will receive only 2% of
the P47 trillion mineral wealth of the nation?
In Miners Association, this Court ruled that the 1987 Constitution has abandoned the old system
of "license, concession or lease" and instead installed full State control and supervision over the
exploitation of natural resources. No amount of dire warnings or media publicity should intimidate
this Court into resurrecting the old and discredited system that has caused the denudation of
almost all of the nation's virgin forests without any visible benefit to the Filipino people.
The framers of the 1987 Constitution have wisely instituted the new system to prevent a repeat of
the denudation of our forestlands that did not even make any real contribution to the economic
growth of the nation. This Court must do its solemn duty to uphold the intent and letter of the
Constitution and, in the words of the Preamble of the 1987 Constitution, "conserve and develop
our patrimony" for the benefit of the Filipino people.
This Court cannot trivialize the Filipino people's right to be the primary beneficiary of the nation's
mineral resources by ruling that the phrase "among other things" is sufficient to insure that
FTAAs will "make real contributions to the economic growth and general welfare of the
country." This Court cannot tell the Filipino people that the phrase "among other things" is
sufficient to "preserve and develop the national patrimony." This Court cannot tell the Filipino
people that the phrase "among other things" means that they will receive the bulk of mining
revenues.
This Court cannot tell the Filipino people that Congress deliberately used the phrase "among
other things" to guarantee that the Filipino people will receive their equitable share from mining
revenues of foreign contractors. This Court cannot tell the Filipino people that with the phrase
"among other things," this Court has protected the national interest as mandated by the 1987
Constitution.

CARPIO MORALES, J.:

Regrettably, a majority of the members of this Court has voted to reverse its January 27, 2004
Decision in La Bugal-B'Laan Tribal Association, Inc. v. Ramos1 by which it declared certain
provisions2 of the Mining Act of 19953 on Financial or Technical Assistance Agreements (FTAAs),
the related provisions of Department of Environment and Natural Resources Administrative Order
96-40 (DAO No. 96-40), and the March 22, 1995 Financial and Technical Assistance Agreement
(FTAA) executed between the Government of the Republic of the Philippines and WMC
Philippines, Inc. (WMCP) in violation of Section 2, Article XII of the Constitution.
Because I find that: (1) the "agreements involving either technical or financial assistance"
contemplated by the fourth paragraph of Section 2, Article XII of the 1987 Constitution are distinct
and dissimilar from the "service contracts" under the 1973 Constitution; and (2) these certain
provisions of the Mining Act, its implementing rules, and the WMCP FTAA unconstitutionally
convey beneficial ownership and control over Philippine mineral and petroleum resources to
foreign contractors, I most respectfully dissent.
Antecedents
By motion, private respondent WMCP seeks a reconsideration of this Court's Decision, it arguing
essentially that FTAAs are the same as service contracts which were sanctioned under the 1973
Constitution.
By Resolution of June 22, 2004, this Court, upon motion,4 impleaded Philippine Chamber of Mines
(PCM), as respondent-in-intervention. Intervenor PCM argues that the "agreements" referred to in
paragraph 4 of Section 2, Article XII of the Constitution were intended to involve or include the
"service contracts" provided for in the 1973 Constitution.
The parties were, on June 29, 2004, heard on oral arguments during which two major issues were
tackled: first, the proper interpretation of the phrase "agreements involving either technical or
financial assistance" in Section 2, Article XII of the Constitution, and second, mootness.
Thereafter, the parties submitted their respective memoranda, as required by Resolution of this
Court. However, despite the verbal request of Associate Justice Artemio V. Panganiban during the
oral arguments,5 intervenor PCM failed to submit along with its memorandum any documents to
establish international mining practices, particularly in developing countries.
Issues for Resolution
The majority opinion holds that the resolution of the Motions for Reconsideration in this case
should be confined to the issues taken up during the oral arguments on June 29, 2004. These

were: (1) the proper interpretation of the phrase "agreements involving either technical or
financial assistance" in Section 2, Article XII of the Constitution, and (2) mootness.

x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing

Republic Act No. 7942, the latter being unconstitutional in that it violates Sec. 1, Art. III of
the Constitution;

It further holds that the issue of whether the Mining Act and the WMCP FTAA are manifestly
disadvantageous to the government could not be passed upon because the same was supposedly
not raised in the original petition.
These rulings, while well intentioned, cannot be accepted.
First, there is no rule of procedure, whether in Rule 52 or elsewhere, which restricts the resolution
of a case to the issues taken up in the oral arguments. The reason is obvious. The issues for
resolution in any given case are determined by the conflicting arguments of the parties as set forth
in their pleadings. On the other hand, the matters to be taken up in an oral argument may be
limited, by order of the court, to only such points as the court may deem necessary. Thus, Section
1 of Rule 49 provides:
Section 1. When allowed. At its own instance or upon motion of a party, the court may
hear the parties in oral argument on the merits of a case, or on any material incident
in connection therewith.
The oral argument shall be limited to such matters as the court may specify in its
order or resolution (Emphasis supplied)
A narrow delimitation of matters to be taken up during oral argument is a matter of practical
necessity since often not all the relevant issues can be thoroughly discussed without unduly
imposing on the time of the Court. However, unlike a pre-trial order,6 the delimitation does not
control or limit the issues to be resolved. These issues may be subject matter of the parties'
memoranda, as in this case.
7

Second, as noted in the Decision, the issue of whether the Mining Act and the WMCP FTAA afford
the State a just share in the proceeds of its natural resources was in fact raised by the
petitioners, viz:
Petitioners claim that the DENR Secretary acted without or in excess of jurisdiction:
I
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing
Republic Act No. 7942, the latter being unconstitutional in that it allows fully foreign
owned corporations to explore, develop, utilize and exploit mineral resources in a
manner contrary to Section 2, paragraph 4, Article XII of the Constitution;
II
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing
Republic Act No. 7942, the latter being unconstitutional in that it allows the taking of
private property without the determination of public use and for just compensation;

IV
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing
Republic Act No. 7942, the latter being unconstitutional in that it allows enjoyment by
foreign citizens as well as fully foreign owned corporations of the nation's marine wealth
contrary to Section 2, paragraph 2 of Article XII of the Constitution;
V
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing
Republic Act No. 7942, the latter being unconstitutional in that it allows priority to foreign
and fully foreign owned corporations in the exploration, development and utilization of
mineral resources contrary to Article XII of the Constitution;
VI
x x x in signing and promulgating DENR Administrative Order No. 96-40
implementing Republic Act No. 7942, the latter being unconstitutional in that it
allows the inequitable sharing of wealthcontrary to Sections [sic] 1, paragraph 1,
and Section 2, paragraph 4[,] [Article XII] of the Constitution;
VII
x x x in recommending approval of and implementing the Financial and Technical
Assistance Agreement between the President of the Republic of the Philippines and
Western Mining Corporation Philippines Inc. because the same is illegal and
unconstitutional.8 (Emphasis and underscoring supplied)
Indeed, this Court expressly passed upon this issue in the Decision when it held that:
With the foregoing discussion in mind, this Court finds that R.A. No. 7942 is invalid
insofar as said Act authorizes service contracts. Although the statute employs the
phrase "financial and technical agreements" in accordance with the 1987 Constitution, it
actually treats these agreements as service contracts that grant beneficial
ownership to foreign contractors contrary to the fundamental law.9 (Emphasis and
underscoring supplied)
Moreover, the issue of whether the State is deprived of its just share in the proceeds from mining
was touched upon by the parties in their memoranda. Thus, respondent WMCP argues that:
Section 10.2 (a) of the COLUMBIO FTAA does not prohibit the State from partaking of the
fruits of the exploration. In fact, Section 7.7 of the COLUMBIO FTAA provides:
"7.7 Government Share

III
From the Commencement of Commercial Production, the Contractor shall pay
a government share of sixty per centum (60%) of Net Mining Revenues,
calculated in accordance with the following provisions (the "Government

Share"). The Contractor shall be entitled to retain the balance of all revenues
from the Mining Operations."
In other words, the State is guaranteed a sixty per centum (60%) share of the Net
Mining Revenues, or 60% of the actual fruits of the endeavor. This is in line with the
intent behind Section 2 of Article XII that the Filipino people, as represented by
the State, benefit primarily from the exploration, development, and utilization of
the Philippines' natural resources. 10 (Emphasis and underscoring supplied)
while the petitioners, for their part, claim:
For instance, government share is computed on the basis of net mining revenue. Net
mining revenue is gross mining revenue less, among others, deductible
expenses. Some of the allowable deductions from the base amount to be used to
compute government share are suspicious. The WMCP FTAA contract, for instance,
allows expenditures for development "outside the Contract Area," consulting fees for
work done "outside the Philippines," and the "establishment and administration of field
offices including administrative overheads incurred within and outside the Philippines."
xxx
One mischief inherent in past service contracts was the practice of transfer pricing.
UNCTAD defines this as the "pricing of transfers of goods, services and other assets
within a TNC network." If government does not control the exploration,
development and utilization of natural resources, then the intra-transnational
corporation pricing of expenditures may not become transparent. 11 (Emphasis
supplied; footnotes omitted)
In fine, the majority opinion skirts an issue raised in the original Petition for Prohibition and
Mandamus, passed upon in its Decision of January 27, 2004 and argued by the parties in the
present Motion for Reconsideration.
Instead, I find that the myriad arguments raised by the parties may be grouped according to two
broad categories: first, the arguments pertaining to the constitutionality of FTAA provisions of the
Mining Act; and second, those pertaining to the validity of the WMCP FTAA. Within these
categories, the following issues are submitted for resolution: (1) whether in invalidating certain
provisions of the Mining Act a non-justiciable political question is passed upon; (2) whether the
FTAAs contemplated in Section 2, Article XII of the 1987 Constitution are identical to, or inclusive
of, the "service contracts" provided for in the 1973 Constitution; (3) whether the declaration of the
unconstitutionality of certain provisions of the Mining Act should be reconsidered; (4) whether the
question of validity of the WMCP FTAA was rendered moot before the promulgation of the
Decision; and (5) whether the decision to declare the WMCP FTAA unconstitutional and void
should be reconsidered.
Following the foregoing framework of analysis, I now proceed to resolve the issues raised in the
motion for reconsideration.

Contrary to the posture of respondent WMCP, this Court did not tread on a political question in
rendering its Decision of January 27, 2004.
The Constitution delineates the parameters of the powers of the legislative, the executive and the
judiciary.12Whether the first and second great departments of government exceeded those
parameters is the function of the third.13 Thus, the Constitution defines judicial power to include
"the duty to determine whether or not there has been a grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of any branch or instrumentality of the Government." 14
Judicial power does not extend to political questions, which are concerned with issues dependent
upon the wisdom, not the legality, of a particular measure.15 The reason is that, under our system
of government, policy issues are within the domain of the political branches of government and of
the people themselves as the repository of all state power.16 In short, the judiciary does not settle
policy issues.17
The distinction between a truly political question and an ostensible one lies in the answer to the
question of whether there are constitutionally imposed limits on powers or functions conferred
upon political bodies.18 If there are constitutionally imposed limits, then the issue is justiciable, and
a court is duty-bound to examine whether the branch or instrumentality of the government properly
acted within those limits.19
Respondent WMCP argues that the "exploration, development, and utilization of natural resources
are matters of policy, in other words, political matters or questions," over which this Court has no
jurisdiction.
Respondent is mistaken. The questions involved in this case are not political. The provisions of
paragraph 4, Section 2 of Article XII of the Constitution, including the phrase "agreements
involving either technical or financial assistance," incorporate limitations 20 on the scope of such
agreements or FTAAs. Consequently, they constitute limitations on the powers of the legislative to
determine their terms, as well as the powers of the Executive to enter into them. In its Decision,
this Court found that, by enacting the objectionable portions of the Mining Act and in entering into
the subject FTAA, the Congress and the President went beyond the constitutionally delimited
scope of such agreements and thereby transgressed the boundaries of their constitutional powers.
The "agreements" contemplated in paragraph 4, Section 2,
Article XII of the Constitution are distinct and dissimilar from the old "service contracts."
The majority and respondents share a common thesis: that the fourth paragraph of Sec. 2, Article
XII contemplates not only financial or technical assistance but, just like the service contracts which
were allowed under the 1973 Constitution, management assistance as well.
The constitutional provision in dispute reads:
Art. XII
National Economy and Patrimony

I
xxx
Constitutionality of the Philippine Mining Act of 1995
The issues presented constitute
justiciable questions.

Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under

the full controland supervision of the State. The State may directly undertake such
activities or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino 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 exceeding twenty-five years, renewable for not more than twenty-five years,
and under such terms and conditions as may be provided by law. In cases of water
rights for irrigation, water supply, fisheries, or industrial uses other than the development
of water power, beneficial use may be the measure and limit of the grant.
The State shall protect the nation's marine wealth in its archipelagic waters, territorial
sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to
Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino
citizens, as well as cooperative fish farming, with priority to subsistence fishermen and
fish workers in rivers, lakes, bays, and lagoons.
The President may enter into agreements with foreign-owned
corporations involving either technical or financial assistance for large-scale
exploration, development, and utilization of minerals, petroleum, and other
mineral oils according to the general terms and conditions provided by 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.
The President shall notify the Congress of every contract entered into in
accordance with this provision, within thirty days from its execution. (Emphasis
and underscoring supplied)
Its counterpart provision in Article XIV of the 1973 Constitution authorized "service contracts" as
follows:
Sec. 9. The disposition, exploration, development, exploitation, or utilization of any of the
natural resources of the Philippines shall be limited to citizens, or to corporations or
associations at least sixty per centum of which is owned by such citizens. The
Batasang Pambansa, in the national interest, may allow such citizens,
corporations or associations to enter into service contracts for financial,
technical, management, or other forms of assistance with any person or entity for
the exploration, development, exploration, or utilization of any of the natural
resources. Existing valid and binding service contracts for financial, technical,
management, or other forms of assistance are hereby recognized as such. (Emphasis
and underscoring supplied)
Respondent WMCP contends that the fourth paragraph of Section 2 is an exception to the rule that
participation in the country's natural resources is reserved to Filipinos.21 It hastens to add,
however, that the word "may" therein is permissive not restrictive;22 and that consistent with the
provision's permissive nature, the word "involving" therein should be construed to mean "to
include," such that the assistance by foreign corporations should not be confined to technical or
financial, but also to management forms.23 And it notes that the Constitution used "involving"
instead of such restrictive terms as "solely," "only," or "limited to."24
To the Office of the Solicitor General (OSG), the intent behind the fourth paragraph is to prevent
the practice under the 1973 Constitution of allowing foreigners to circumvent the capitalization
requirement,25 as well as to address the absence of a governing law that led to the abuse of
service contracts.26 The phrase "technical or financial" is merely for emphasis, the OSG adds, that
it is descriptive, not definitive, of the forms of assistance that the State needs and which foreign

corporations may provide in the large-scale exploration, development and utilization of the
specified resources.27 Furthermore, the OSG contends that the denomination of the subject FTAA
as a "financial and technical assistance agreement" is a misnomer and should more properly be
called "agreements for large-scale exploration, development, and utilization of minerals,
petroleum, and other mineral oils."28 It argues that the President has broad discretion to enter
into any agreement, regardless of the scope of assistance, with foreign corporations.29 Driving its
point, the OSG poses: If the framers of the Constitution intended to limit the service of foreign
corporations to "passive assistance," such as simple loan agreements, why confine them to largescale ventures?30 Why does the Constitution require that such agreements be based on real
contributions to economic growth and general welfare of the country?31 Why the condition in the
last paragraph of Section 2 that the President report to Congress?32 Finally, the OSG asserts that
these requirements would be superfluous if the assistance to be rendered were merely technical or
financial.33 And that it would make more sense if the phrase "agreements involving technical or
financial assistance" were construed to mean the same concept as the service contracts under the
1973 Constitution.
The OSG's contentions are complemented by intervenor PCM which maintains that the FTAA "is
an agreement for [the] rendition of a whole range of services of an integrated and comprehensive
character, ranging from discovery through development and utilization and production of minerals
or petroleum by the foreign-owned corporation."34 In fine, intervenor posits that the change in
phraseology in the 1987 Constitution does not relate to the substance of the
agreement,35 otherwise, the State itself would be compelled to conduct the exploration,
development and utilization of natural resources, ventures that it is ill-equipped to undertake. 36
Primary Concepts in Article XII of the Constitution
Before passing upon the foregoing arguments and for better clarity, it may be helpful to first
examine the concepts of (a) "beneficial ownership," (b) "full control and supervision," and (c) "real
contributions to the economic growth and general welfare of the country" which are at the heart of
Section 2, Article XII of the Constitution.
Beneficial Ownership
Beneficial ownership, as the plain meaning of the words implies, refers to the right to the gains,
rewards and advantages generated by the property.37
The concept is not new, but in fact is well entrenched in the law of trusts.38 Thus, while the trustee
holds the legal title to or ownership of the property entrusted to him, he is nevertheless not the
beneficial owner. Rather, he holds and administers the property for the benefit of another, called
the beneficiary or the cestui que trust. Hence, the profits realized from the administration and
management of the property by the trustee, who is the "naked owner," less any lawful fees due to
the latter, accrue to the cestui que trust, who is the "beneficial" or "equitable" owner.39
The foregoing concepts are directly applicable to the statement in Section 2, Article XII of the
Constitution that "[a]ll lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
other natural resources are owned by the State."
The words "owned" and "State" should both be understood on two levels. "Owned" or "ownership"
refers to both the legal title to and the beneficial ownership of the natural resources. Similarly,
"State" should be understood as denoting both the body politic making up the Republic of the
Philippines, i.e., the Filipino people, as well as the Government which represents them and acts on
their behalf.

Thus, the phrase "natural resources are owned by the State" simultaneously vests the legal title to
the nation's natural resources in the Government, and the beneficial ownership of these resources
in the sovereign Filipino people, from whom all governmental authority emanates.40
On this point, petitioners and respondent WMCP appear to be in rare agreement. Thus,
petitioners, in their Memorandum state:
xxx With respect to exploration, development and utilization of mineral resources, the
State should not merely be concerned about passing laws. It is expected that it holds
these natural resources covered in Article XII, Section 2 in dominium and in trust
for [the] Filipino people.41 (Emphasis and underscoring supplied; italics in the original)
Respondent WMCP is even more emphatic:
The Regalian Doctrine, as embodied under the Constitution, is a recognition that
sovereignty resides in the Filipino people, and the prime duty of government or the State
is to serve and protect the people. Thus, the ownership of natural resources by the
State under Section 2, Article XII of the Constitution isactually a beneficial trust in
favor of the Filipino people.
Stated differently, it is the Filipino people who own the nation's natural resources,
and the State is merely the guardian-in-trust therof.42 (Emphasis and underscoring
supplied; italics in the original; citations omitted)
Clearly, in the exploration, development and utilization of the nation's natural resources, the
Government is in a position analogous to a trustee, holding title to and managing these resources
for the benefit of the Filipino people, including future generations.43 As the trustee of the sovereign,
the Government has a fiduciary duty to ensure that the gains, rewards and advantages generated
by the Philippines' natural resources accrue to the benefit of the Filipino people. Corollary to this,
the Government cannot, without violating its sacred trust, enter into any agreement or
arrangement which effectively deprives the Filipino people of their beneficial ownership of these
resources e.g., when it enters into an agreement whereby the vast majority of the resources, or
the profit generated from the resources, is bargained away in favor of a foreign entity.
Full Control and Supervision
In the context of its role as trustee, the Government's "full control and supervision" over the
exploration, development and utilization of the nation's natural resources, in its most basic and
fundamental sense, is accomplished by maintaining a position whereby it can carry out its fiduciary
duty to protect the beneficial interest of its cestui que trust in these resources.
Significantly, Section 2, Article XII of the Constitution provides that the Government may undertake
the exploration, development and utilization of these resources by itself or together with a third
party.44 In the first case, where no third party is involved, the Government's "full control and
supervision" over the resources is easily achieved. In the second case, where the third party may
naturally be expected to seek participation in the operation of the venture and ask for
compensation in proportion to its contribution(s), the Government must still maintain a position vis-vis its third party partner whereby it can adequately protect the interest of the Filipino people,
who are the beneficial owners of the resources.
By way of concrete example, the Government may enter into a joint venture agreement45 with a
third party to explore, develop or utilize certain natural resources through a jointly owned
corporation, wherein the government has the controlling interest. Under this arrangement, the
Government would clearly be in a position to protect the interest of the beneficial owners of the
natural resources.

In the alternative, as suggested by the OSG,46 the Government may be allowed one or more
directors (holding nominal shares) on the governing board and executive committee(s) of the
private corporation contracted to undertake mining activities in behalf of the government.
Depending on the by-laws of the private corporation, strategic representation of the Government in
its governing board and executive committee(s) may afford sufficient protection to the interest of
the people.
However, Section 2, Article XII of the Constitution does not limit the options available to the
Government, when dealing with prospective mining partners, to joint ventures or representation in
the contractor's board of directors. To be sure, the provision states that the Government may enter
into "co-production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations," or, for large scale exploration, development and utilization,
"agreements with foreign-owned corporations involving either technical or financial assistance."
But whatever form the agreement entered into by the Government and its third party partner(s)
may take, the same must contain, as an absolute minimum, provisions that ensure that the
Government caneffectively perform its fiduciary duty to safeguard the beneficial interest of the
Filipino people in their natural resources, as mandated by the Constitution.
Real Contributions to the Economy
and the General Welfare of the Country
Section 2, Article XII likewise requires that "agreements involving financial or technical
assistance" be "based on real contributions to the economic growth and general welfare of the
country." This provision articulates the value which the Constitution places on natural resources,
and recognizes their potential benefits. It likewise acknowledges the fact that the impact of mining
operations is not confined to the economy but, perhaps to a greater extent, affects Philippine
society as a whole as well.
"Minerals, petroleum and other mineral oils," are part of the non-renewable wealth of the Filipino
people. By pursuing large scale exploration, development and utilization of these resources, the
State would be allowing the consumption or exhaustion of these resources, and thus deprive
future Filipino generations the enjoyment thereof. Mining especially large-scale mining often
results in the displacement of local residents. Its negative effects on the environment are welldocumented.47
Thus, for benefits from the exploration, development and utilization of these resources to be real,
they must yield profits over and above 1) the capital and operating costs incurred, 2) the resulting
damage to the environment, and 3) the social costs to the people who are immediately and
adversely affected thereby.
Moreover, the State must ensure that the real benefits from the utilization of these resources
are sufficient to offset the corresponding loss of these resources to future generations. Real
benefits are intergenerational benefits because the motherland's natural resources are the
birthright not only of the present generation of Filipinos but of future generations as well. 48
The requirement of real benefit is applicable even when the exploration, development and
utilization are being undertaken directly by the Government or with the aid of Filipinos or Filipino
corporations. But it takes on greater significance when a foreign entity is involved. In the latter
instance, the foreign entity would naturally expect to be compensated for its assistance. In that
event, it is inescapable that a foreigner would be benefiting from an activity (i.e. mining) which also
results in numerous, serious and long term harmful consequences to the environment and to
Philippine society.
Moreover, as recognized by the 1935 Constitutional Convention, foreign involvement in the
exploitation of Philippine natural resources has serious implications on national security. As
recounted by delegate Jose Aruego:

The nationalization of the natural resources was also intended as an instrument of

national defense. The Convention felt that to permit foreigners to own or control
the natural resources would be to weaken the national defense. It would be
making possible the gradual extension of foreign influence into our politics,
thereby increasing the possibility of foreign control. xxx
Not only these. The nationalization of the natural resources, it was believed, would
prevent making the Philippines a source of international conflicts with the
consequent danger to its internal security and independence. For unless the
natural resources were nationalized, with the nationals of foreign countries having the
opportunity to own or control them, conflicts of interest among them might arise inviting
danger to the safety and independence of the nation.49 (Emphasis supplied)
Significantly, and contrary to the posture of the OSG, it is immaterial whether the foreign
involvement takes the form of "active" participation in the mining concern or "passive" assistance
such as a foreign mining loan or the licensing of mining technology. Whether the foreign
involvement is passive or active, the fact remains that the foreigner will expect to be compensated
and, as a necessary consequence, a fraction of the gains, rewards and advantages generated by
Philippine natural resources will be diverted to foreign hands even as the long term pernicious
"side effects" of the mining activity will be borne solely by the Filipino people.
Under such circumstances, the Executive, in determining whether or not to avail of the assistance
of a foreign corporation in the large scale exploration, development and utilization of Philippine
natural resources, must carefully weigh the costs and benefits if it is to faithfully discharge its
fiduciary duty to protect the beneficial interest of the Filipino people in these resources.
These same considerations likewise explain why the last paragraph of Section 2 mandates that
the President "notify the Congress of every contract entered into in accordance with this provision,
within thirty days from its execution." The Constitution requires that the Legislative branch, which is
perceived to be more broadly representative of the people and therefore more immediately
sensitive to their concerns, be given a timely opportunity to scrutinize and evaluate the Executive's
decision.
With these concepts in mind, I now turn to what I believe to be the proper interpretation of
"agreements involving either technical or financial assistance" in paragraph 4 of Section 2,
Article XII of the Constitution.
Construction of paragraph 4, Section 2,
Article XII of the Constitution
The suggestion that the avoidance of the term "service contracts" in the fourth paragraph is to
prevent the circumvention, prevalent under the 1973 Constitution, of the 60-40 capital requirement
does not persuade, it being too narrow an interpretation of that provision. If that were the only
purpose in the change of phraseology, this Court reiterates, there would have been no need to
replace the term "service contracts" with "agreements involving either technical or financial
assistance."
The loophole in the 1973 Constitution that sanctioned dummyism is easily plugged by the
provision in the present Constitution that the President, not Congress or the Batasan Pambansa
(under the 1973 Constitution), may enter into either technical or financial agreements with foreign
corporations. The framers then could have easily employed the more traditional term "service
contracts" in designating the agreements contemplated, and thus obviated confusion, especially
since the term was employed by the legal system then prevailing50 and had a settled acceptation.

The other proffered raison d'tre of the fourth paragraph, i.e. to address the absence of a
governing law that led to the abuse of service contracts, is equally unpersuasive. In truth, there
were a host of laws governing service contracts pertaining to various natural resources, as this
Court noted when it traced the history of Section 2, Article XII in its Decision.51
Respondent WMCP nevertheless correctly states that the fourth paragraph establishes an
exception to the rule limiting the exploration, development and utilization of the nation's natural
resources to Filipinos. As an exception, however, it is illogical to deduce that the provision
should be interpreted liberally, not restrictively. It bears repeating that the provision, being an
exception, should be strictly construed against foreign participation.
In any case, the constitutional provision allowing the President to enter into FTAAs with
foreign-owned corporations is an exception to the rule that participation in the nation's
natural resources is reserved exclusively to Filipinos. Accordingly, such provision must
be construed strictly against their enjoyment by non-Filipinos. As Commissioner
Villegas emphasized, the provision is "very restrictive." Commissioner Nolledo
also remarked that "entering into service contracts is an exception to the rule on
protection of natural resources for the interest of the nation and, therefore, being
an exception, it should be subject, whenever possible, to stringent rules." Indeed,
exceptions should be strictly but reasonably construed; they extend only so far as their
language fairly warrants and all doubts should be resolved in favor of the general
provision rather than the exception.52 (Emphasis and underscoring supplied; citations
omitted).
That the fourth paragraph employs the word "may" does not make it non-restrictive. Indeed, "may"
does make the provision permissive, but only as opposed to mandatory,53 and operates to confer
discretion upon a party.54Thus, as used in the fourth paragraph, "may" provides the President with
the option to enter into FTAAs. It is, however, not incumbent upon the President to do so for, as
owner of the natural resources, the "State [itself] may directly undertake such activities." 55 If the
President opts to exercise the prerogative to enter into FTAAs, the agreement must conform to the
restrictions laid down by Section 2, including the scope of the assistance, which must be limited to
financial or technical forms.
"May" in the fourth paragraph, therefore, should be understood in the same sense as it is used in
the first paragraph, that is, that the State "may enter into agreements with Filipino citizens, or
corporations or association at least sixty per centum of whose capital is owned by such citizens."
The majority, however, opines that the "agreements involving either technical or financial
assistance" referred to in paragraph 4 of Section 2 of Article XII of the 1987 Constitution are
indeed service contracts. In support of this conclusion, the majority maintains that the use of the
phrase "agreements involving either technical or financial assistance" does not indicate the
intent to exclude other modes of assistance because the use of the word "involving" signifies the
possibility of the inclusion of other forms of assistance or activities. And it proffers that the word
"involving" has three connotations that can be differentiated as follows: (1) the sense of
concerning, having to do with, or affecting; (2) entailing, requiring, implying or necessitating; (3)
including, containing or comprising. None of these three connotations, it is contended, convey a
sense of exclusivity. Thus, it concludes that had the framers intended to exclude other forms of
assistance, they would have simply said "agreements for technical or financial assistance" as
opposed to "agreements including technical or financial assistance."
To interpret the term "involving" in the fourth paragraph to mean "including," as the majority
contends, would run counter to the restrictive spirit of the provision. Notably, the 1987 Constitution
uses "involving" not "including." As admitted in the majority opinion, the word "involve" may also
mean concerning, having to do with or affecting. Following the majority opinion's own methodology
of substitution, "agreements involving either technical or financial assistance" means
"agreementsconcerning either technical or financial assistance." And the word "concerning"
according to Webster's Third New International Dictionary means "regarding", "respecting" or

"about." To reiterate, these terms indicate exclusivity. More tellingly, the 1987 Constitution not only
deleted the term "management" in the 1973 Constitution, but also the catch-all phrase "or other
forms of assistance,"56thus reinforcing the exclusivity of "either technical or financial assistance."
That the fourth paragraph does not employ the terms "solely," "only," or "limited to" to qualify
"either technical or financial assistance" does not detract from the provision's restrictive nature.
Moreover, the majority opinion's illustration conveniently omits "either or." As Senior Associate
Justice Reynato S. Puno pointed out during the oral arguments, the use of the disjunctive "either
or" denotes restriction.57
According to the Penguin Dictionary, the word "either" may be used as (1) an adjective or (2) a
pronoun or (3) a conjunction or (4) an adverb. As an adjective, the word "either" means (1) any
one of two; one or the other; or (2) one and the other; each. As a pronoun, the word "either" means
the one or the other. As a conjunction, the word "either" is used before two or more sentence
elements of the same class or function joined usually by "or" to indicate what immediately
follows is the first of two or more alternatives. Lastly, as an adverb, "either" is used for
emphasis after a negative or implied negation (i.e. for that matter or likewise). The traditional rule
holds that "either" should be used only to refer to one of two items and that "any" is required when
more than two items are involved.58 However, modern English usage has relaxed this rule when
"either" is used as a conjunction.59 Thus, the word "either" may indicate the choice between two or
more possibilities.
"Either" in paragraph 4, section 2, Article XII, is clearly used as a conjunction, joining two (and only
two) concepts financial and technical. The use of the word "either" clearly limits the President to
only two possibilities, financial and technical assistance. Other forms of assistance are plainly not
allowed, since only the words "financial and technical" follow the word "either."
In accordance with the intent of the provision, "agreements involving either technical or financial"
is deemed restrictive and not just descriptive. It is a condition, a limitation, not a mere description.
The OSG's suggestion that the President may enter into "any" agreement, the scope of which may
go beyond technical or financial assistance, with a foreign-owned corporation, does not impress.
The first paragraph of Section 2 limits contracts with Filipino citizens or corporations to coproduction, joint venture or production-sharing agreements. To subscribe to the OSG's theory
would allow foreign-owned corporations participation in the country's natural resources equal to,
perhaps even greater than, that of Filipino citizens or corporations.

"WHEREAS, the 1987 Constitution of the Republic of the Philippines provides

in Article XII, Section 2 that all lands of the public domain, waters, minerals,
coal, petroleum, and other natural resources are owned by the State, and that
the exploration, development and utilization of natural resources shall be
under the full control and supervision of the State; and
"WHEREAS, the Constitution further provides that the Government may enter
into agreements with foreign-owned corporations involving either technical or
financial assistance for large scale exploration, development and utilization of
minerals."
The assailed contract or its provisions must then be read in conformity with
abovementioned constitutional mandate. Hence, Section 10.2(a) of the FTAA, for
instance, which states that "the Contractor shall have the exclusive right to explore for,
exploit, utilize, process, market, export and dispose of all minerals and products and byproducts thereof that may be derived or produced from the Contract Area and to
otherwise conduct Mining Operations in the Contract Area in accordance with the terms
and conditions hereof," must be taken to mean that the foregoing rights are to be
exercised by WMCP for and in behalf of the State and that WMCP, as the Contractor,
would be bound to carry out the terms and conditions of the agreement acting for and in
behalf of the State. In exchange for the financial and technical assistance, inclusive of its
services, the Contractor enjoys an exclusivity of the contract and a corresponding
compensation therefor.60(Underscoring supplied).
This proposition must be rejected since it sanctions the circumvention, if not outright violation, of
the fourth paragraph by allowing foreign corporations to render more than technical or financial
assistance on the pretext that it is an agent of the State. Quando aliquid prohibitur ex directo,
prohibitur et per obliquum. What is prohibited directly is prohibited indirectly.61 Further, the
proposition lends itself to mischievous consequences. If followed to its logical conclusion, nothing
would stop the State from engaging the services of a foreign corporation to undertake in its behalf
the exploration, development and utilization of all other natural resources, not just "minerals,
petroleum and mineral oils," even on a small scale, not just "large-scale."
The present Constitution restricts foreign involvement to large-scale activities because the idea is
to limit the participation of foreign corporations only to areas where they are needed.
MS. QUESADA. Going back to Section 3, the section suggests that:

The OSG cites the Separate Opinion of Justice Jose C. Vitug, now retired, who proposed that, on
the premise that the State itself may undertake the exploration, development and utilization of
natural resources, a foreign-owned corporation may engage in such activities in behalf of the
State:
The Constitution has not prohibited the State from itself exploring, developing, or
utilizing the country's natural resources, and, for this purpose, it may, I submit, enter into
the necessary agreements with individuals or entities in the pursuit of a feasible
operation.
The fundamental law is deemed written in every contract. The FTAA entered into by the
government and WMCP recognizes this vital principle. Thus, two of the agreement's
clauses provide:

The exploration, development, and utilization of natural resources may be directly

undertaken by the State, or it may enter into co-production, joint venture or productionsharing agreement with corporations or associations at least sixty percent of whose
voting stock or controlling interest is owned by such citizens.
Lines 25 to 30 on the other hand, suggest that in the large-scale exploration,
development and utilization of natural resources, the President with the concurrence of
Congress may enter into agreements with foreign-owned corporations even for technical
or financial assistance.
I wonder if this first part of Section 3 contradicts the second part. I am raising this
point for fear that foreign investors will use their enormous capital resources to
facilitate the actual exploitation or exploration, development and effective
disposition of our natural resources to the detriment of Filipino investors. I am not
saying that we should not consider borrowing money from foreign sources. What
I refer to is that foreign interest should be allowed to participate only to the extent
that they lend us money and give us technical assistance with the appropriate

government permit.In this way, we can insure the enjoyment of our natural
resources by out people.
MR. VILLEGAS. Actually, the second provision about the President does not
permit foreign investors to participate. It is only technical or financial assistance
they do not own anything but on conditions that have to be determined by law with
the concurrence of Congress. So, it is very restrictive.
If the Commissioner will remember, this removes the possibility for service
contracts which we said yesterday were avenues used in the previous regime to
go around the 60-40 requirement.62(Emphasis and underscoring supplied)
The intent is to allow Filipinos to benefit from Filipino resources.
MR. DAVIDE. May I be allowed to explain the proposal?
MR. MAAMBONG. Subject to the three-minute rule, Madam President.
MR. DAVIDE. It will not take me three minutes.
The Commission had just approved the Preamble. In the Preamble we clearly sated
there that the Filipino people are sovereign and that one of the objectives for the
creation or establishment of a government is to conserve and develop the national
patrimony. The implication is that the national patrimony or our natural resources
are exclusively reserved for the Filipino people. No alien must be allowed to enjoy,
exploit and develop our natural resources. As a matter of fact, that principle
proceeds from the fact that our natural resources are gifts from God to the
Filipino people and it would be a breach of that special blessing from God if we
will allow aliens to exploit our natural resources.
I voted in favor of the Jamir proposal because it is not really exploitation that we g
ranted to thealien corporations but only for them to render financial or technical a
ssistance. It is not for them toenjoy our natural resources. Madam President, our
natural resources are depleting; our population is increasing by leaps and bounds. Fifty
years from now, if we will allow these aliens to exploit our natural resources, there will be
no more natural resources for the next generations of Filipinos. It may last long if we will
begin now. Since 1935 the aliens have been allowed to enjoy to a certain extent the
exploitation of our natural resources, and we became victims of foreign dominance and
control. The aliens are interested in coming to the Philippines because they would like to
enjoy the bounty of nature exclusively intended for the Filipinos by God.
And so I appeal to all, for the sake of the future generations, that if we have to pray in
the Preamble "to preserve and develop the national patrimony for the sovereign Filipino
people and for the generations to come," we must at this time decide once and for all
that our natural resources must be reserved only to Filipino citizens.
Thank you.63 (Emphasis and underscoring supplied)
The intent loses all significance if foreign-owned corporations are likewise allowed to participate
even in small or medium-scale ventures.

Thus, in keeping with the clear intent and rationale of the Constitution, financial or technical
assistance by foreign corporations are allowable only where there is no Filipino or Filipino-owned
corporation (including corporations at least 60% of the capital of which are owned by Filipinos)
which can provide the same or similar assistance.
To reiterate, the over-arching letter and intent of the Constitution is to reserve the exploration,
development and utilization of natural resources to Filipinos.
The justification for foreign involvement in the exploration, development and utilization of natural
resources was that Filipino nationals or corporations may not possess the necessary capital,
technical knowledge or technology to mount a large scale undertaking. In the words of the "Draft of
the 1986 U.P. Law Constitution Project" (U.P. Law Draft) which was taken into consideration during
the deliberation of the CONCOM:64
Under the proposed provision, 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 resources65 x x x (Emphasis and
underscoring supplied)
Thus, the contention that Section 2, Article XII allows for any agreement for assistance by a foreign
corporation "so long as such assistance requires specialized knowledge or skills, and are related
to the exploration, development and utilization of mineral resources" is erroneous. 66
Where a foreign corporation does not offer financial or technological assistance beyond the
capabilities of its Philippine counterparts, an FTAA with such a corporation would be highly
questionable. Similarly, where the scope of the undertaking does not qualify as "large scale," an
FTAA with a foreign corporation is equally suspect.
"Agreements" in Section 2, Article XII
do not include "service contracts."
This Court's ruling in the Decision under reconsideration that the agreements involving either
technical or financial assistance contemplated by the 1987 Constitution are different and dissimilar
from the service contracts under the 1973 Constitution must thus be affirmed. That there is this
difference, as noted in the Decision, is gathered from the change in phraseology.67 There was no
need to employ strongly prohibitory language, like that found in the Bill of Rights.68 For the framers
to expressly prohibit "management and other forms of assistance" would be redundant inasmuch
as the elimination of such phrase serves the same purpose. The deletion is simply too significant
to ignore and speaks just as profoundly it is an outright rejection.
It bears noting that the fourth paragraph does not employ the same language adopted in the first
paragraph, which specifically denominates the agreements that the State may enter into with
Filipinos or Filipino-owned corporations. The fourth paragraph does not state "The President may
also enter into co-production, joint venture, or production-sharing agreements with foreignowned corporations for large-scale exploration, development, and utilization of minerals,
petroleum, and other mineral oils." On the other hand, the fourth paragraph cannot be construed
as a grant of boundless discretion to the President to enter into any agreement regardless of the
scope of assistance because it would result in a bias against Filipino citizens and corporations.
On this point, the following observations from the U.P. Law Draft on the odious and objectionable
features of service contracts bear restating:

5. The last paragraph is a modification of the service contract provision found in Section
9, Article XIV of the 1973 Constitution as amended. This 1973 provision shattered the
framework of nationalism in our fundamental law (see Magallona, "Nationalism and its
Subversion in the Constitution"). Through the service contract, the 1973 Constitution
had legitimized that which was prohibited under the 1935 constitutionthe
exploitation of the country's natural resources by foreign nationals. Through the
service contract, acts prohibited by the Anti-Dummy Law were recognized as legitimate
arrangements.Service contracts lodge exclusive management and control of the
enterprise to the service contractor, not unlike the old concession regime where
the concessionaire had complete control over the country's natural resources,
having been given exclusive and plenary rights to exploit a particular resource
and, in effect, having been assured of ownership of that resource at the point of
extraction (see Agabin, "Service Contracts: Old Wine in New Bottles"). Service
contracts, hence, are antithetical to the principle of sovereignty over our natural
resources, as well as the constitutional provision on nationalization or Filipinization of
the exploitation of our natural resources.69 (Emphasis supplied)
Furthermore, Professor Pacifico A. Agabin, a member of the working group of the U.P. Law
Constitution Project and now counsel for intervenor PCM, stated in his position paper:
Recognizing the service contract for what it
is, we have to expunge it from the Constitution and reaffirm ownership over our natural
resources. That is the only way we can exercise effective control over ournatural resou
rces.
This should not mean complete isolation of the country's natural resources from foreign
investment. Other contract forms which
are less derogatory to our sovereignty and control over natural resources like
technical assistance agreements, financial assistance [agreements], co-production
agreements, joint ventures, production-sharing [agreements] could still be utilized and
adopted without violating constitutional provisions. In other words, we can adopt contract
forms which recognize and assert our sovereignty and ownership over natural
resources, and where the entity is just a pure contractor instead of the beneficial owner
of our economic resources.70 (Emphasis & underscoring supplied),
indicating that the proposed financial or technical assistance agreements are contract
forms different from the 1973 Constitution service contracts.
Thus the phrase "agreements with foreign-owned corporations involving either technical or
financial assistance" in Section 2, Article XII of the Constitution must be interpreted as restricting
foreign involvement in the exploration, development and utilization of natural resources to large
scale undertakings requiring foreign financial ortechnical assistance and not, as alleged by
respondents, inclusive of any possible agreement under the sun.
The majority however argues that the deletion or omission from the 1987 Constitution of the term
"service contracts" found in the 1973 Constitution does not sufficiently prove the drafters' intent to
exclude foreigners from management since such intent cannot be definitively and conclusively
established. This argument overlooks three basic principles of statutory construction.
First, casus omisus pro omisso habendus est.71 As recently as 2001 in Commission on Audit of the
Province of Cebu v. Province of Cebu,72 this Court held that a person, object or thing omitted from
an enumeration must be held to have been omitted intentionally.73 That there is a difference
between technical or financial assistance contemplated by the 1987 Constitution and the service
contracts under the 1973 Constitution is gathered from the omission of the phrase "management
or other forms of assistance."

As earlier noted, the phrase "service contracts" has been deleted in the 1987
Constitution's Article on National Economy and Patrimony. If the CONCOM intended to
retain the concept of service contracts under the 1973 Constitution, it would have simply
adopted the old terminology ("service contracts") instead of employing new and
unfamiliar terms ("agreementsinvolving either technical or financial assistance.")Such
a difference between the language of a provision in a revised constitution and that
of a similar provision in the preceding constitution is viewed as indicative of a
difference in purpose. If, as respondents suggest, the concept of "technical or financial
assistance" agreements is identical to that of "service contracts," the CONCOM would
not have bothered to fit the same dog with a new collar. To uphold respondents' theory
would reduce the first to a mere euphemism for the second render the change in
phraseology meaningless.74 (Emphasis and underscoring supplied; citation omitted)
Second, expressio unius est exclusion alterius.75 The express mention of one person, thing, act, or
consequence excludes all others.76
Third and lastly, expressium facit cessare tacitum.77 What is expressed puts an end to that which is
implied.78Since the constitutional provision, by its terms, is expressly limited to financial or
technical agreements, it may not, by interpretation or construction, be extended to other forms of
assistance.
These three principles of statutory construction, derived from the well-settled principle of verba
legis, proceed from the premise that the Constitutional Commission would not have made specific
enumerations in the provision if it had the intention not to restrict its meaning and confine its terms
to those expressly mentioned. And this Court may not, in the guise of interpretation, enlarge the
scope of a constitutional provision and include therein situations not provided nor intended by the
framers. To do so would be to do violence to the very language of the Constitution, the same
Constitution which this Court has sworn to uphold.
The majority counters, however, that service contracts were not de-constitutionalized since the
deliberations of the members of the Constitutional Commission conclusively show that they
discussed agreements involving either technical or financial assistance in the same breath as
service contracts and used the terms interchangeably. This argument merely echoes that of
private respondent WMCP which had already been addressed in this Court's Decision of January
27, 2004, (the Decision) viz:
While certain commissioners may have mentioned the term "service contracts" during
the CONCOM deliberations, they may not have been necessarily referring to the
concept of service contracts under the 1973 Constitution. As noted earlier "service
contracts" is a term that assumes different meanings to different people. The
commissioners may have been using the term loosely, and not in its technical and
legal sense, to refer, in general, to agreements concerning natural
resources entered into by the Government with foreign corporations. These loose
statements do not necessarily translate to the adoption of the 1973 Constitution
provision allowing service contracts.
It is true that, as shown in the earlier quoted portions of the proceedings in [the]
CONCOM, in response to Sr. Tan's question, Commissioner Villegas commented that,
other than congressional notification, the only difference between "future" and "past"
"service contracts" is the requirement of a general law as there were no laws previously
authorizing the same.79 However, such remark is far outweighed by his more
categorical statement in his exchange with Commissioner Quesada that the draft
article "does not permit foreign investors to participate" in the nation's natural
resources which was exactly what service contracts did except to provide
"technical or financial assistance."

In the case of the other commissioners, Commissioner Nolledo himself clarified in his
work that the present charter prohibits service contracts. Commissioner Gascon was not
totally averse to foreign participation, but favored stricter restrictions in the form of
majority congressional concurrence. On the other hand, Commissioners Garcia and
Tadeo may have veered to the extreme side of the spectrum and their objections may be
interpreted as votes against any foreign participation in our natural resources
whatsoever.80 (Emphasis and underscoring supplied; citations omitted)
In fact, the opinion of Commissioner Nolledo in his textbook which is cited in this Court's January
27, 2004 Decision should leave no doubt as to the intention of the framers to eliminate service
contracts altogether.
Are service contracts allowed under the new Constitution? No. Under the new
Constitution, foreign investors (fully alien-owned) can NOT participate in Filipino
enterprises except to provide: (1) Technical Assistance for highly technical enterprises;
and (2) Financial Assistance for large-scale enterprises.

MR. VILLEGAS. No.82 (Emphasis and underscoring supplied)

Besides, a service contract is only a license or privilege, not a contract or property right which
merits protection by the due process clause of the Constitution. Thus in the landmark case
of Oposa v. Factoran, Jr,83 this Court held:
xx
x Needless to say, all licenses may thus be revoked or rescinded by executive acti
on. It is not acontract, property or a property right protected by the due process cl
ause of the Constitution. InTan vs. Director of Forestry, this Court held:
"x x x A timber license is an instrument by which the State regulates the utilization and
disposition of forest resources to the end that public welfare is promoted. A timber
license is not a contract within the purview of the due process clause; it is only a
license or privilege, which can be validly withdrawn whenever dictated by public
interest or public welfare as in this case.

The intention of this provision, as well as other provisions on foreign investments, is to

prevent the practice (prevalent in the Marcos government) of skirting the 60/40 equation
using the cover of service contracts.81

'A license is merely a permit or privilege to do what otherwise would be

unlawful, and is not a contract between the authority, federal, state, or
municipal, granting it and the person to whom it is granted; neither is it
property or a property right, nor does it create a vested right; nor is it
taxation'Thus, this Court held that the granting of license does not
create irrevocable rights, neither is it property or property rights."

Next, the majority opinion asserts that if the framers had meant to ban service contracts altogether,
they would have provided for the termination or pre-termination of the existing service contracts.
There was no need for a constitutional provision to govern the termination or pre-termination of
existing service contracts since the intention of the framers was to apply the rule banning service
contracts prospectively.
MR. DAVIDE. Under the proposal, I notice that except for the lands of the public domain,
all other natural resources cannot be alienated and in respect to lands of the public
domain, private corporations with the required ownership by Filipino citizens can only
lease the same. Necessarily, insofar as other natural resources are concerned, it would
only be the State which can exploit, develop, explore and utilize the same. However, the
State may enter into a joint venture, coproduction (sic) or production-sharing. Is that not
correct?

We reiterated this pronouncement in Felipe Ysmael, Jr. & Co, Inc. vs. Deputy Executive Secretary:
"x x x Timber licenses, permits and license agreements are the principal instruments by
which the State regulates the utilization and disposition of forest resources to the end
that public welfare is promoted. And it can hardly be gainsaid that they merely evidence
a privilege granted by the State to qualified entities, and do not vest in the latter a
permanent or irrevocable right to the particular concession area and the forest products
therein. They may be validly amended, modified, replaced or rescinded by the
Chief Executive when national interests so require. Thus, they are not deemed
contracts within the purview of the due process clause."
Since timber licenses are not contracts, the non-impairment clause which reads:

MR. VILLEGAS. Yes.

"SEC 10. No law impairing, the obligation of contracts shall be passed."
MR. DAVIDE. Consequently, henceforth upon the approval of this Constitution, no
timber or forest concessions, permits or authorization can be exclusively granted to any
citizen of the Philippines nor to any corporation qualified to acquire lands of the public
domain?
MR. VILLEGAS. Would Commissioner Monsod like to comment on that? I think his
answer is "yes."
MR. DAVIDE. So, what will happen now to licenses or concessions earlier granted by
the Philippine government to private corporations or to Filipino citizens? Would they be
deemed repealed?

cannot be invoked.
In the second place, even if it is to be assumed that the same are contracts, the instant case does
not involve a law or even an executive issuance declaring the cancellation or modification of
existing timber licenses. Hence, the non-impairment clause cannot as yet be invoked.
Nevertheless, granting further that a law has actually been passed mandating cancellations or
modifications, the same cannot still be stigmatized as a violation of the non-impairment clause.
This is because by its very nature and purpose, such a law could have only been passed in the
exercise of the police power of the state for the purpose of advancing the right of the people to a
balanced and healthful ecology, promoting their health and enhancing the general welfare. In Abe
vs. Foster Wheeler Corp., this Court stated:

MR. VILLEGAS. This is not applied retroactively. They will be respected.

MR. DAVIDE. In effect, they will be deemed repealed?

"The freedom of contract, under our system of government, is not meant to be absolute.
The same is understood to be subject to reasonable legislative regulation aimed at the
promotion of public health, moral, safety and welfare. In other words, the

constitutional guaranty of non-impairment of obligations of contract is limited by

the exercise of the police power of the State, in the interest of public health,
safety, moral and general welfare."
The reason for this is emphatically set forth in Nebia vs. New York quoted in Philippine American
Life Insurance Co. vs. Auditor General, to wit:
"Under our form of government the use of property and the making of contracts are
normally matters of private and not of public concern. The general rule is that both shall
be free of governmental interference. But neither property rights nor contract rights are
absolute; for government cannot exist if the citizen may at will use his property to the
detriment of his fellows, or exercise his freedom of contract to work them harm. Equally
fundamental with the private right is that of the public to regulate it in the common
interest."
In short, the non-impairment clause must yield to the police power of the state.84 (
Emphasis and underscoring supplied; citations omitted)
The majority however argues that Oposa is not applicable since the investment in a logging
concession is not as substantial an investment as that of a large scale mining contractor. Such a
contention is patently absurd. Taken to its logical conclusion, the majority would have this Court
exempt firms in highly capital intensive industries from the exercise of police power simply to
protect their investment. That would mean that the legislature would, for example, be powerless to
revoke or amend legislative franchises of public utilities, such as power and telecommunications
firms, which no doubt require huge sums of capital.
The majority opinion then proffers that the framers of the Constitution were pragmatic enough to
know that foreign entities would not enter into such agreements without requiring arrangements for
the protection of their investments, gains, and benefits or other forms of conditionalities. It goes on
to argue that "by specifying such 'agreements involving assistance,' the framers of the Constitution
necessarily gave implied assent to everything that these agreements necessarily 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."
The deliberations of the Constitutional Commission, however, do not support the immediately
foregoing contentions.
MR. TINGSON. Within the purview of what the Gentleman is saying, would he welcome
friendly foreigners to lend us their technical expertise in helping develop our country?
MR. GARCIA. Part 2 of this proposal, Filipino control of the economy, in fact, says that
the entry of foreign capital, technology and business enterprises into the national
economy shall be effectively regulated to ensure the protection of the interest of our
people.
In other words, we welcome them but on our own terms. This is very similar to our
position on loans. We welcome loans as long as they are paid on our own terms,
on our ability to pay, not on their terms. For example, the case of Peru is instructive.
They decided first to develop and grow, and were willing to pay only 10 percent of their
foreign exchange earnings. That, I think, is a very commendable position given the
economic situation of a country such as Peru. The Philippines is a similar case,
especially when we realize that the foreign debt was made by a government that was
bankrupt in its desire to serve the people.

MR. MONSOD. Mr. Vice-President, I think we have to make a distinction that it is not
really realistic to say that we will borrow on our own terms. Maybe we can say that we
inherited unjust loans, and we would like to repay these on terms that are not prejudicial
to our own growth. But the general statement that we should only borrow on our own
terms is a bit unrealistic.
MR. GARCIA. Excuse me. The point I am trying to make is that we do not have to
borrow. If we have to borrow, it must be on our terms. In other words, banks do
not lend out of the goodness of their hearts. Banks lend to make a profit.
MR. TINGSON. Mr. Vice-President, I think the trouble in our country is that we have
forgotten the scriptural injunction that the borrower becomes a slave to the
lender. That is the trouble with our country; we have borrowed and borrowed but
we forget that we become slaves to those who lend us.85 (Emphasis and
underscoring supplied)
By public respondent's information, "[t]he potential mining wealth in the Philippines is estimated at
$840 billion or P47 trillion or 10 times our annual GDP, and 15 times our total foreign debt of $56
billion. Globally, the Philippines ranks third in gold, fourth in copper, fifth in nickel and sixth in
chromite."86 With such high concentration of valuable minerals coupled with the Filipino people's
willingness to protect and preserve ownership of their natural resources at the expense of
retarding or postponing the exploration, development, and utilization of these resources, the
Philippines clearly has the superior bargaining position and should be able to dictate its terms. No
foreign entity should be able to bully the Philippines and intimidate the Government into conceding
to certain conditions incompatible with the Constitution.
Extent of foreign corporation's
participation in the management of an FTAA
Foreign-owned corporations, however, are not precluded from a limited participation in the
management of the exploration, development and utilization of natural resources.
Some degree of participation by the contractor in management, to assure the proper application of
its investment and/or to facilitate the technical assistance and transfer of technology may be
unavoidable and not necessarily undesirable. Thus, there is merit in respondent WMCP's
contention, to which even petitioners conceded during the oral arguments, that a foreign-owned
corporation is not prevented from having limited participation in the management assistance or
participation so long as it is incidental to the financial or technical assistancebeing rendered:
JUSTICE PANGANIBAN:
Alright. Going back to verba legis, you say that the FTAA's are limited to
financial or technical assistance only.
ATTY. LEONEN:
Either financial or technical assistance, yes your Honor.
ATTY. LEONEN:
Full management, your Honor.
JUSTICE PANGANIBAN:

Full management is excluded.

Their investment, your Honor, which cannot be the entire mining

operation from my perspective, your Honor.

ATTY. LEONEN:
JUSTICE PANGANIBAN:
Yes your Honor.
JUSTICE PANGANIBAN:
But incidental management to protect the financial or technical
assistance should be allowed.

Yes I agree because there is the Constitutional provision of control and

supervision, full control and supervision to the State.
ATTY. LEONEN:
And Filipino corporations your Honor.

ATTY. LEONEN:
JUSTICE PANGANIBAN:
If a mining company would get the technical expertise to bring in drilling
rig your Honor, and that is the sole contract, then we cannot imagine a
situation were it is not the technicians that we will do the actual drilling
your Honor, but for the entire contract area your Honor as it is now in
the FTAA then I think that would be different.
JUSTICE PANGANIBAN:
Yes I agree. In other words, the words financial or technical may include
parts of management, isn't it? Its reasonable in other words if I may re state
it, it's reasonable to expect that entities, foreign entities who don't know
anything about this country, well that is an exaggeration, who know not too
much about this country, would not just extend money, period. They would
want to have a say a little bit of say management and sometimes even in
auditing of the company, isn't it reasonable to expect.
ATTY. LEONEN:
I would qualify my answer your Honor with management of what your Honor. It
means if it's for development and utilization of the minerals.
JUSTICE PANGANIBAN:
No.
ATTY. LEONEN:

Or even Filipino corporation, the full control and supervision is still with the
State.
ATTY. LEONEN:
Yes your Honor.
JUSTICE PANGANIBAN:
Even with Filipino citizens being the contractors, full control and supervision is
still with the State.
ATTY. LEONEN:
Yes, your Honor.
JUSTICE PANGANIBAN:
In all these contract full control and supervision is with the State.
ATTY. LEONEN:
Yes your Honor and we can only hope that the State is responsive to the
people we represent.

Yes your Honor, but if it's management of sub-contracted activity like a

symposium then that would be all right your Honor. Mining companies do
symposiums also.

xxx
JUSTICE PANGANIBAN:

JUSTICE PANGANIBAN:
Management to protect their own investments, whether it be technical or
financial.
ATTY. LEONEN:

Yes, yes. Can it also not be said reading that the Constitution that the
safeguards on contracts with foreigners was left by the Constitutional
Commission or by Constitution itself to Congress to craft out.
ATTY. LEONEN:

I can accept your Honor that there was a province of power that was given to
Congress, but it was delimited by the fact, that they removed the word
management and other arrangement and put the words either financial
and technical.

The majority of the Concom members, however, recognized the vital need of the
Philippine economy for foreign capital and technology in the exploitation of natural
resources to benefit Filipinos, especially the poor in the countryside where the mining
sites are located. For this reason, the majority voted for "agreements involving financial
or technical assistance" or FTAA.

JUSTICE PANGANIBAN:
Yes but you just admitted earlier that these two words would also
include some form of management or other things to protect the
investment or the technology being put by the foreign company.
ATTY. LEONEN:
Yes your Honor for so long as it's not the entire.
JUSTICE PANGANIBAN:
Yes, yes provided the State does not lose control and supervision, isn't
it?
ATTY. LEONEN:
Yes your Honor.87 (Emphasis and underscoring supplied)
Thus, the degree of the foreign corporation's participation in the management of the mining
concern is co-extensive with and strictly limited to the degree of financial or technical assistance
extended. The scope of the assistance defines the limits of the participation in management.
However, to whatever extent the foreign corporation's incidental participation in the management
of the mining concern may be, full control and supervision, sufficient to protect the interest of
the Filipino people, over all aspects of mining operations must be retained by the
Government. While this does not necessarily mean that the Government must assume the role of
a back seat driver, actively second guessing every decision made by the foreign corporation, it
does mean that sufficient safeguards must be incorporated into the FTAA to insure that the
people's beneficial interest in their natural resources are protected at all times.
Moreover, the foreign contractor's limited participation in management, as the Court held in its
Decision, should not effectively grant foreign-owned corporations beneficial ownership over
the natural resources.
The opinion, submitted by the OSG, of Bernardo M. Villegas, who was a Member of the
Constitutional Commission and Chair of its Committee on National Economy and Patrimony, is not
inconsistent with the foregoing conclusion. Commissioner Villegas opined:
The phrase "service contracts" contained in the 1973 Constitution was deleted in the
1987 Constitution because there was the general perception among the Concom
members that it was used during the Marcos regime as an instrument to circumvent the
60-40 limit in favor of Filipino ownership. There was also the impression that the
inclusion of the word "management" in the description of the service contract concept in
the 1973 Constitution was tantamount to ownership by the foreign partner.

I maintain that the majority who voted Yes to this FTAA provision realized that an FTAA
involved more than borrowing money and/or buying technology from foreigners. If an
FTAA involved only a loan and/or purchase of technology, there would not have been a
need for a constitutional provision because existing laws in the Philippines more than
adequately regulate these transactions.
It can be deducted from the various comments of both those who voted Yes and No to
the FTAA provision that an FTAA also involves the participation in management of the
foreign partner. What was then assumed in 1986 is now even clearer in the way
business organizations have evolved in the last decade or so under the modern concept
of good governance. There are numerous stakeholders in a business other than the
stockholders or equity owners who participate actively in the management of a business
enterprise. Not only do creditors and suppliers demand representation in boards of
directors. There are also other so-called independent directors who actively participate
in management.
In summary, the word "management" was deleted from the description of the FTAA
because some CONCOM delegates identified management with beneficial
ownership. In order not to prolong the debate, those in favor of the FTAA provision
agreed not to include the word management. But from what has been discussed above,
it was clear in the minds of those who voted YES that the FTAA included more than
just a loan and/or purchase of technology from foreigners but necessarily allowed
the active participation of the foreign partners in the management of the
enterprise engaged in the exploitation of natural resources.88 (Emphasis supplied).
Under no circumstances should the execution of an FTAA be tantamount to the grant of a roving
commission whereby a foreign contractor is given blanket and unfettered discretion to do whatever
it deems necessary denude watersheds, divert sources of water, drive communities from their
homes in pursuit of its pecuniary goals.
Nor should the scope of an FTAA be broadened to include "managerial assistance." As discussed
extensively in the Decision,89 "managerial assistance" a euphemism by which full control and
beneficial ownership of natural resources were vested in foreigners is part and parcel of the
martial law era "service contracts" and the old "concession regime" which the 1987 Constitution
has consigned to the dust bin of history.
The elimination of the phrase "service contracts" effectuates another purpose. Intervenor PCM
agrees that the Constitution tries to veer away from the old concession system, 90 which vested
foreign-owned corporations control and beneficial ownership over Philippine natural resources.
Hence, the 1987 Constitution also deleted the provision in the 1935 and 1973 Constitutions
authorizing the State to grant licenses, concessions, or leases for the exploration, exploitation,
development, or utilization of natural resources.91
Prof. Agabin had no flattering words for the concession system, which he described in his position
paper as follows:
Under the concession system, the concessionaire makes a direct equity investment for
the purpose of exploiting a particular natural resource within a given area. Thus, the
concession amounts to a complete control by the concessionaire over the
country's natural resource, for it is givenexclusive and plenary rights to exploit a

particular resource and is in effect assured ownership of that resource at the

point of extraction. In consideration for the right to exploit a natural resource, the
concessionaire either pays rent or royalty which is a fixed percentage of the gross
proceeds. But looking beyond the legal significance of the concession regime, we can
see that there are functional implications which give the concessionaire great
economic power arising from its exclusive equity holding. This includes, first,
appropriation of the returns of the undertaking, subject to a modest royalty;
second, exclusive management of the project; third, control of production of the
natural resource, such as volume of production, expansion, research and
development; and fourth, exclusive responsibility for downstream operations, like
processing, marketing, and distribution. In short, even ifnominally, the state is the
sovereign and owner of the natural resource being exploited, it has been shorn of
all elements of control over such natural resource because of the exclusive nature
of the contractual regime of the concession. The concession system, investing as it
does ownership of natural resources, constitutes a consistent inconsistency with the
principle embodied in our Constitution that natural resources belong to the State and
shall not be alienated, not to mention the fact that the concession was the bedrock of the
colonial system in the exploitation of natural resources.92 (Underscoring in the original)
Vestiges of the concession system endured in the service contract regime, including the vesting on
the contractor of the management of the enterprise, as well as the control of production and other
matters, such as expansion and development. 93 Also, while title to the resource discovered was
nominally in the name of the government, the contractor had almost unfettered control over its
disposition and sale.94
The salutary intent of the 1987 Constitution notwithstanding, these stubborn features of the
concession system persist in the Mining Act of 1995. The statute allows a foreign-owned
corporation to carry out mining operations,95which includes the conduct of
exploration,96 development97 and utilization98 of the resources.99 The same law grants foreign
contractors auxiliary mining rights, i.e., timber rights,100 water rights,101 the right to possess
explosives,102 easement rights,103 and entry into private lands and concession areas.104 These are
the very same rights granted under the old concession and service contract systems.
The majority opinion proposes two alternative standards of Government control over FTAA
operations. Thus, in the opening paragraphs it states:
Full control is not anathema 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 x x x
(Emphasis and underscoring supplied)
However, the majority opinion subsequently substantially reduces the scope of its definition of
"control" in this wise:
The concept of control adopted in Section 2 of Article XII must be taken to mean less
than dictatorial, all-encompassing control; but nevertheless sufficient to give the
State the power to direct, restrain, regulate and govern the affairs of the extractive
enterprises. Control by the State may be on a macro level, through the establishment
of policies, guidelines, regulations, industry standards and similar measures that
would enable the government to control the conduct of affairs in various
enterprises and restrain activities deemed not desirable or beneficial. (Emphasis
and underscoring supplied; citations omitted; italics in the original)
This second definition is apparently analogous to regulatory control which the Government is
automatically presumed to exercise over all business activities by virtue of the Police Power. This

definition of the "full control and supervision" mandated by Section 2, Article XII of the Constitution
strikes a discordant and unconvincing chord as it gives no effect to the mandated "full" character of
the State's control but merely places it at par with any other business activity or industry regulated
by the Government.
But even under this second and more limited concept of regulatory control, the provisions of the
Mining Act pertaining to FTAAs do not pass the test of constitutionality.
To be sure, the majority opinion cites a litany of documents, plans, reports and records which the
foreign FTAA contractor is obliged to submit or make available under the Mining Act and DAO 9640. However, the mere fact that the Act requires the submission of work programs and minimum
expenditure commitments105 does not provide adequate protection. These were also required
under the old concession106 and service contract107systems, but did not serve to place full control
and supervision of the country's natural resources in the hands of the Government.
Conspicuously absent from the Mining Act are effective means by which the Government can
protect the beneficial interest of the Filipino people in the exploration, development and utilization
of their resources. It appears from the provisions of the Mining Act that the Government, once it
has determined that a foreign corporation is eligible for an FTAA and enters into such an
agreement, has very little say in the corporation's actual operations.
Thus, when pressed to identify the mechanism by which the Government can administratively
compel compliance with the foregoing requirements as well as the other terms and conditions of
the Mining Act, DAO 96-40 and DAO 99-56, the majority can only point to the cancellation of the
agreement(s) and/or the incentives concerned under Section 95 to 99 of the Mining Act:108
CHAPTER XVII
Ground for Cancellation, Revocation, and Termination
SECTION 95. Late or Non-filing of Requirements. Failure of the permittee or
contractor to comply with any of the requirements provided in this Act or in its
implementing rules and regulations, without a valid reason, shall be sufficient ground for
the suspension of any permit or agreement provided under this Act.
SECTION 96. Violation of the Terms and Conditions of Permit or Agreements.
Violation of the terms and conditions of the permits or agreements shall be a sufficient
ground for cancellation of the same.
SECTION 97. Non-payment of Taxes and Fees. Failure to pay taxes and fees due the
Government for two (2) consecutive years shall cause the cancellation of the exploration
permit, mineral agreement, financial or technical assistance agreement and other
agreements and the re-opening of the area subject thereof to new applicants.
SECTION 98. Suspension or Cancellation of Tax Incentives and Credits. Failure to
abide by the terms and conditions of tax incentives and credits shall cause the
suspension or cancellation of said incentives and credits.
SECTION 99. Falsehood or Omission of Facts in the Statement All statements made
in the exploration permit, mining agreement and financial or technical assistance
agreement shall be considered as conditions and essential parts thereof and any
falsehood in said statements or omission of facts therein which may alter, change or
affect substantially the facts set forth in said statements may cause the revocation and

termination of the exploration permit, mining agreement and financial or technical

assistance agreement.
An examination of the foregoing fails to impress. For instance, how does cancellation of the FTAA
under Section 97 for nonpayment of taxes and fees (comprising the "basic share" of the
government) for two consecutive years facilitate the collection of the unpaid taxes and fees? How
does it preserve and protect the beneficial interest of the Filipino people? For that matter, how
does the DENR administratively compel compliance with the anti-pollution and other
requirements?109 If minerals are found to have been sold overseas at less than the most
advantageous market prices, how does the DENR obtain satisfaction from the offending foreign
FTAA contractor for the difference?
In sum, the enforcement provisions of the Mining Act and its Implementing Rules are scarcely
effective, and, worse, perceptibly less than the analogous provisions of other Government
Regulatory Agencies.
For instance, the Bangko Sentral Ng Pilipinas, the Central Monetary Authority mandated by the
Constitution to exercise supervision (but not full control and supervision) over banks,110 is
empowered to (1) appoint a conservator with such powers as shall be deemed necessary to take
charge of the assets, liabilities and management of a bank or quasi-bank;111 (2) under certain well
defined conditions, summarily and without need for prior hearing forbid a bank from doing
business in the Philippines and appoint the Philippine Deposit Insurance Corporation as
receiver;112 and (3) impose a number of administrative sanctions such as (a) fines not to exceed
P30,000 per day for each violation, (b) suspension of a bank's rediscounting privileges, (c)
suspension of lending or foreign exchange operations or authority to accept new deposits or make
new investments, (d) suspension of interbank clearing privileges, and (e) revocation of quasibanking license.113
Similarly, to give effect to the Constitutional mandate to afford full protection to labor,114 the Labor
Code115grants the Secretary of Labor the power to (1) issue compliance orders to give effect to the
labor standards provisions of the Code;116 and (2) enjoin an intended or impending strike or lockout
by assuming jurisdiction over a labor dispute in an industry determined to be indispensable to the
national interest.117
Under the Tax Code, the Commissioner of Internal Revenue has the power to (1) temporarily
suspend the business operations of a taxpayer found to have committed certain specified
violations;118 (2) order the constructive distraint of the property of a taxpayer;119 and (3) impose the
summary remedies of distraint of personal property and or levy on real property for nonpayment of
taxes.120
In comparison, the Mining Act and its Implementing Rules conspicuously fail to provide the DENR
with anything remotely analogous to the foregoing regulatory and enforcement powers of other
government agencies.
In fine, the provisions of the Mining Act and its Implementing Rules give scarcely more than
lip service to the constitutional mandate for the State to exercise full control and
supervision over the exploration, development and utilization of Philippine Natural
Resources. Evaluated as a whole and in comparison with other government agencies, the
provisions of the Mining Act and its Implementing Rules fail to meet even the reduced
standard of effective regulatory control over mining operations. In effect, they abdicate
control over mining operations in favor of the foreign FTAA contractor. For this reason, the
provisions of the Mining Act, insofar as they pertain to FTAA contracts, must be declared
unconstitutional and void.
The majority opinion vigorously asserts that it is the Chief Executive who exercises the power of
control on behalf of the State.

This only begs the question. How does President effectively enforce the terms and conditions of
an FTAA? What specific powers are subsumed within the constitutionally mandated "power of
control?" On these particular matters the majority opinion, like the Mining Act, is silent.
Provisions of the Mining Act pertaining to FTAAs
void for conveying beneficial ownership of
Philippine mineral resources to foreign contractors
An examination of the Mining Act reveals that the law grants the lion's share of the proceeds of the
mining operation to the foreign corporation. Thus the second and third paragraphs of Section 81 of
the law provide:
SECTION 81. Government Share in Other Mineral Agreements. x x x
The Government share in financial or technical assistance agreement shall consist
of, among other things, the contractor's corporate income tax, excise tax, special
allowance, withholding tax due from the contractor's foreign 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 fees as provided for under existing
laws.
The collection of Government share in financial or technical assistance
agreement shall commence after the financial or technical assistance agreement
contractor has fully recovered its pre-operating expenses, exploration, and
development expenditures, inclusive. (Emphasis supplied)
Under the foregoing provisions, the Government does not receive a share in the proceeds of
the mining operation. All it receives are taxes and fees from the foreign corporation, just as in the
old concession121 and service contract122 regimes. The collection of taxes and fees cannot be
considered a return on the resources mined corresponding to beneficial ownership of the Filipino
people. Taxes are collected under the State's power to generate funds to finance the needs of the
citizenry and to advance the common weal.123 They are not a return on investment or property.
Similarly, fees are imposed under the police power primarily for purposes of regulation.124 Again,
they do not correspond to a return on investment or property.
Even more galling is the stipulation in the above-quoted third paragraph that the Government's
share (composed only of taxes and fees) shall not be collected until after the foreign corporation
has "fully recovered its pre-operating expenses, exploration, and development expenditures,
inclusive." In one breath this provision virtually guarantees the foreigner a return on his investment
while simultaneously leaving the Government's (and People's) share to chance.
It is, therefore, clearly evident that the foregoing provisions of the Mining Act effectively transfer the
beneficial ownership over the resources covered by the agreement to a foreigner, in contravention
of the letter and spirit of the Constitution.
Consequently, the assailed Decision inescapably concluded that:
The underlying assumption in all these provisions is that the foreign contractor manages
the mineral resources, just like the foreign contractor in a service contract. 125
The Mining Act gives the foreign-owned corporation virtually complete control, not mere
"incidental" participation in management, over the entire operations.

The law is thus at its core a retention of the concession system. It still grants beneficial
ownership of the natural resources to the foreign contractor and does little to affirm the
State's ownership over them, and its supervision and control over their exploration,
development and utilization.
While agreeing that the Constitution vests the beneficial ownership of Philippine minerals with the
Filipino people, entitling them to gains, rewards and advantages generated by these minerals, the
majority opinion nevertheless maintains that the Mining Act, as implemented by DENR
Administrative Order 99-56126 (DAO 99-56), is constitutional as, so it claims, it does not "convey
beneficial ownership of any mineral resource or product to any foreign FTAA contractor." The
majority opinion adds that the State's share, as expounded by DAO 99-56, amounts to "real
contributions to the economic growth and general welfare of the country," at the same time
allowing the contractor to recover "a reasonable return on its investments in the project."
Under DAO 99-56, the "government's share" in an FTAA is divided into (1) a "basic government
share" composed of a number of taxes and fees127 and (2) an "additional government
share"128 computed according to one of three possible methods (a) a 50-50 sharing in the
cumulative present value of cash flows,129 (b) a profit related additional government share130 or (c)
an additional share based on the cumulative net mining revenue131 at the option of the
contractor.
Thus, the majority opinion claims that the total government share, equal to the sum of the "basic
government share" and the "additional government share," will achieve "a fifty-fifty sharing
between the government and the contractor of net benefits from mining."
This claim is misleading and meaningless for two reasons:
First, as priorly discussed, the taxes and fees which make up the government's "basic share"
cannot be considered a return on the resources mined corresponding to the beneficial
ownership of the Filipino people. Again, they do not correspond to a return on investment or
property.

And under Section 80 of the Mining Act, in connection with Section 151(a) of the National Internal
Revenue Code132 (Tax Code), the TOTAL GOVERNMENT SHARE in an MPSA is ONLY TWO
PERCENT (2%) of the value of the minerals. Section 80 of the Mining Act provides:
SECTION 80. Government Share in Mineral Production Sharing Agreement. The
total government share in a mineral production sharing agreement shall be the
excise tax on mineral products as provided in Republic Act No. 7729,
amending Section 151(a) of the National Internal Revenue Code, as amended.
(Emphasis supplied)
While Section 151(a) of the Tax Code reads:
Sec. 151. Mineral Products. (a) Rates of Tax. There shall be levied, assessed
and collected on mineral, mineral products and quarry resources, excise tax as
follows:
(1) On coal and coke, a tax of ten pesos (P10.00) per metric ton.
(2) On non-metallic minerals and quarry resources, a tax of two percent
(2%) based on the actual market value of the annual gross output thereof at the time of
removal, in the case of those locally extracted or produced; or the value used by the
Bureau of Customs in determining tariff and customs duties, net of excise tax and valueadded tax, in the case of importation.
(3) On all metallic minerals, a tax based on the actual market value of the gross output
thereof at the time of removal, in the case of those locally extracted or produced; or the
value used by the Bureau of Customs in determining tariff and customs duties, net of
excise tax and value-added tax, in the case of importation, in accordance with the
following schedule:
(a) Copper and other metallic minerals:

Second, and more importantly, the provisions of the Mining Act effectively allow the foreign
contractor to circumvent all the provisions of DAO 99-56, including its intended "50-50
sharing" of the net benefits from mining, and reduce government's total share to as low as
TWO percent (2%) of the value of the minerals mined.
The foreign contractor can do this because Section 39 of the Mining Act allows it to convert its
FTAA into a Mineral Production-Sharing Agreement (MPSA) by the simple expedient of reducing
its equity in the corporation undertaking the FTAA to 40%:
SECTION 39. Option to Convert into a Mineral Agreement. The contractor has the
option to convert the financial or technical assistance agreement to a mineral
agreement at any time during the term of the agreement, if the economic viability of
the contract area is found to be inadequate to justify large-scale mining operations, after
proper notice to the Secretary as provided for under the implementing rules and
regulations: Provided, That the mineral agreement shall only be for the remaining period
of the original agreement.
In the case of a foreign contractor, it shall reduce its equity to forty percent (40%)
in the corporation, partnership, association, or cooperative. Upon compliance with
this requirement by the contractor, the Secretary shall approve the conversion and
execute the mineral production-sharing agreement. (Emphasis and underscoring
supplied)

(i) On the first three (3) years upon the effectivity of this Act, one
percent (1%);
(ii) On the fourth and fifth year, one and a half percent (1 1/2%); and
(iii) On the sixth year and thereafter, two percent (2%)
(b) Gold and chromite, two percent (2%)
(4) On indigenous petroleum, a tax of fifteen percent (15%) of the fair international
market price thereof, on the first taxable sale, such tax to be paid by the buyer or
purchaser within 15 days from the date of actual or constructive delivery to the said
buyer or purchaser. The phrase 'first taxable sale, barter, exchange or similar
transaction' means the transfer of indigenous petroleum in its original state to a first
taxable transferee. The fair international market price shall be determined in consultation
with an appropriate government agency.
For the purpose of this subsection, 'indigenous petroleum' shall include locally extracted
mineral oil, hydrocarbon gas, bitumen, crude asphalt, mineral gas and all other similar or
naturally associated substances with the exception of coal, peat, bituminous shale
and/or stratified mineral deposits. (Emphasis supplied)

By taking advantage of the foregoing provisions and selling 60% of its equity to a Filipino
corporation (such as any of the members of respondent-in-intervention Philippine Chamber of
Mines) a foreign contractor can easily reduce the total government's share (held in trust for the
benefit of the Filipino People) in the minerals mined to a paltry 2% while maintaining a 40%
beneficial interest in the same.
What is more, if the Filipino corporation acquiring the foreign contractor's stake is itself 60%
Filipino-owned and 40% foreign-owned (a "60-40" Filipino corporation such as Sagittarius Mines,
the putative purchaser of WMC's 100% equity in WMCP), then the total beneficial interest of
foreigners in the mineral output of the mining concern would constitute a majority of 64%133 while
the beneficial ownership of Filipinos would, at most,134 amount to 36% 34% for the Filipino
stockholders of the 60-40 Filipino corporation and 2% for the Government (in trust for the Filipino
People).
The foregoing scheme, provided for in the Mining Act itself, is no different and indeed is virtually
identical to that embodied in Section 7.9 of the WMCP FTAA which the majority opinion
itself found to be "without a doubt grossly disadvantageous to the government, detrimental
to the interests of the Filipino people, and violative of public policy:"
x x x While Section 7.7 gives the government a 60 percent share in the net mining
revenues of WMCP from the commencement of commercial production; Section 7.9
deprives the government of part or all of the said 60 percent. Under the latter
provision, should WMCP's foreign shareholders who originally owned 100 percent of
the equity sell 60 percent or more of its outstanding capital stock to a Filipino citizen or
corporation, the State loses its right to receive its 60 percent share in net mining
revenues under Section 7.7.

the desire to provide some form of incentive for the principal foreign stockholder
in WMCP to eventually reduce its equity position and ultimately divest itself
thereof in favor of Filipino citizens and corporations. However, as finally
structured, Section 7.9 has the deleterious effect of depriving government of the
entire 60 percent share in WMCP's net mining revenues, without any form of
compensation whatsoever. Such an outcome is completely unacceptable.
The whole point of developing the nation's natural resources is to benefit the Filipino
people, future generations included. And the State as sovereign and custodian of the
nation's natural wealth is mandated to protect, conserve, preserve and develop that part
of the national patrimony for their benefit. Hence, the Charter lays great emphasis on
"real contributions to the economic growth and general welfare of the country" [Footnote
75 of the Dissent omitted] as essential guiding principles to be kept in mind when
negotiating the terms and conditions of FTAAs.
xxx
Section 7.9 of the WMCP FTAA effectively gives away the State's share of net
mining revenues (provided for in Section 7.7) without anything in exchange. Moreover,
this outcome constitutes unjust enrichment on the part of local and foreign
stockholders of WMCP. By their mere divestment of up to 60 percent equity in WMCP
in favor of Filipino citizens and/or corporations, the local and foreign stockholders get a
windfall. Their share in the net mining revenues of WMCP is automatically increased,
without their having to pay the government anything for it. In short, the provision in
question is without a doubt grossly disadvantageous to the government,
detrimental to the interests of the Filipino people, and violative of public
policy. (Emphasis supplied; italics and underscoring in the original; footnotes omitted)

Section 7.9 provides

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 1percent ownership
interest in the Contractor (i.e., WMCP) held by a Qualified Entity.
Evidently, what Section 7.7 grants to the State is taken away in the next breath by
Section 7.9 without any offsetting compensation to the State. Thus, in reality, the State
has no vested right to receive any income from the FTAA for the exploration of its
mineral resources. Worse, it would seem that what is given to the State in Section
7.7 is by mere tolerance of WMCP's foreign stockholders, who can at any time cut
off the government's entire 60 percent share. They can do so by simply selling 60
percent of WMCP's outstanding stock to a Philippine citizen or corporation.
Moreover, the proceeds of such sale will of course accrue to the foreign
stockholders of WMCP, not to the State.
The sale of 60 percent of WMCP's outstanding equity to a corporation that is 60 percent
Filipino-owned and 40 percent foreign-owned will still trigger the operation of Section
7.9. Effectively, the State will lose its right to receive all 60 percent of the net
mining revenues of WMCP; and foreign stockholders will own beneficially up to
64 percent of WMCP, consisting of the remaining 40percent foreign equity therein,
plus the 24 percent pro-rata share in the buyer-corporation.
xxx
At bottom, Section 7.9 has the effect of depriving the State of its 60 percent share in the
net mining revenues of WMCP without any offset or compensation whatsoever. It is
possible that the inclusion of the offending provision was initially prompted by

The foregoing disquisition is directly applicable to the provisions of the Mining Act. By selling 60%
of its outstanding equity to a 60% Filipino-owned and 40% foreign-owned corporation, the foreign
contractor can readily convert its FTAA into an MPSA. Effectively, the State's share in the net
benefits from mining will be automatically and drastically reduced from the theoretical 50%
anticipated under DAO 99-56 to merely 2%. What is given to the State by Section 81 and
DAO 99-56 is all but eliminated by Sections 39 and 80. At the same time, foreign
stockholders will beneficially own up to 64% of the mining concern, consisting of the
remaining 40% foreign equity therein plus the 24% pro-rata share in the buyer-corporation.
It is possible that, like Section 7.9 of the WMCP FTAA, Section 39 of the Mining Act was intended
to provide some form of incentive for the foreign FTAA contractor to eventually reduce its equity
position and ultimately divest itself thereof in favor of Filipino citizens and corporations. However,
the net effect is to allow the Filipino people to be robbed of their just share in Philippine
mineral resources. Such an outcome is completely unacceptable and cannot be sanctioned
by this Court.
By this simple conversion, which may be availed of at any time, the local and foreign stockholders
will obtain a windfall at the expense of the Government, which is the trustee of the Filipino people.
The share of these stockholders in the net mining revenues from Philippine resources will be
automatically increased without their having to pay the government anything in exchange.
On this basis alone, and despite whatever other differences of opinion might exist, the majority
must concede that the provisions of the Mining Act are grossly disadvantageous to the
government, detrimental to the interests of the Filipino people, and violative of Section 2,
Article XII of the Constitution.
En passant, it is significant to note that Section 39 of the Mining Act allows an FTAA holder to
covert its agreement to an MPSA "at any time during the term of the agreement."

As any reasonable person with a modicum of business experience can readily determine,
the optimal time for the foreign contractor to convert its FTAA into an MPSA is after the completion
of the exploration phase and just before undertaking the development, construction and utilization
phase. This is because under Section 56 (a) of DAO 40-96, the requirement for a minimum
investment of Fifty Million U.S. Dollars (US$ 50,000,000.00)135 is only applicable during the
development, construction and utilization phase and NOT during the exploration phase where the
foreign contractor need only comply with the stipulated minimum ground expenditures:

Grant of Exploration Permits to Foreign

Corporations is Unconstitutional
The majority is also convinced that Section 3(aq) of the Mining Act, defining foreign corporations
as a qualified entity for the purposes of granting exploration permits, is "not unconstitutional."
The questioned provision reads:

SECTION 56. Terms and Conditions of an FTAA. The following terms, conditions and
warranties shall be incorporated in the FTAA, namely:

SECTION 3. Definition of Terms. As used in and for purposes of this Act, the following
terms, whether in singular or plural, shall mean:

a. A firm commitment, in the form of a sworn statement during the existence of the
Agreement, that the Contractor shall comply with minimum ground expenditures
during the exploration and pre-feasibility periods as follows:
Year US $/Hectare
12
22
38
48
5 18
6 23
and a minimum investment of Fifty Million US Dollars ($50,000,000.00) or its
Philippine Peso equivalent in the case of Filipino Contractor for infrastructure and
development in the contract area. If a Temporary/Special Exploration Permit has been
issued prior to the approval of an FTAA, the exploration expenditures incurred shall form
part of the expenditures during the first year of the exploration period of the FTAA.
In the event that the Contractor exceeds the minimum expenditure requirement in any
one (1) year, the amount in excess may be carried forward and deducted from the
minimum expenditure required in the subsequent year. In case the minimum ground
expenditure commitment for a given year is not met for justifiable reasons as determined
by the Bureau/concerned Regional Office, the unexpended amount may be spent on the
subsequent year(s) of the exploration period. (Emphasis supplied)
By converting its FTAA to an MPSA just before undertaking development, construction and
utilization activities, a foreign contractor further maximizes its profits by avoiding its obligation to
make a minimum investment of US$ 50,000,000.00. Assuming an exploration term of 6 years, it
will have paid out only a little over US$ 2.4 million136in minimum ground expenditures.
Clearly, under the terms and provisions of the Mining Act, even the promised influx of tens
of millions of dollars in direct foreign investments is merely hypothetical and ultimately
illusory.

xxx
(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or
a corporation, partnership, association, or cooperative organized or authorized for the
purpose of engaging in mining, with technical and financial capability to undertake
mineral resources development and duly registered in accordance with law at least sixty
per centum (60%) of the capital of which is owned by citizens of the
Philippines: Provided, That a legally organized foreign-owned corporation shall be
deemed a qualified person for purposes of granting an exploration
permit, financial or technical assistance agreement or mineral processing permit.
(Emphasis supplied)
In support of its contention that the above-quoted provision does not offend against the
Constitution, the majority opinion states that: (1) "there is no prohibition at all against foreign or
local corporations or contractors holding exploration permits;" and (2) an "exploration permit
serves a practical and legitimate purpose in that it protects the interests and preserves the rights of
the exploration permit grantee x x x during the period of time that it is spending heavily on
exploration works, without yet being able to earn revenues x x x."
The majority opinion also characterizes an exploration permit as "an authorization for the grantee
to spend its funds on exploration programs that are pre-approved by the government." And it
comments that "[t]he State risks nothing and loses nothing by granting these permits" to foreign
firms.
These contentions fail for two obvious reasons.
First, setting aside for the moment all disagreements pertaining to the construction of Section 2,
Article XII of the Constitution, the following, at the very least, may be said to have been
conclusively determined by this Court: (1) the only constitutionally sanctioned method by which a
foreign entity may participate in the natural resources of the Philippines is by virtue of paragraph 4
of Section 2, Article XII of the Constitution; (2) said provision requires that an agreement be
entered into (3) between the President and the foreign corporation (4) for the largescaleexploration, development, and utilization of minerals, petroleum, and other mineral oils
(5) according to the general terms and conditions provided by law, (6) based on real contributions
to the economic growth and general welfare of the country; (7) such agreements will promote the
development and use of local scientific and technical resources; and (8) the President shall notify
the Congress of every contract entered into in accordance with this provision, within thirty days
from its execution.
However, by the majority opinion's express admission, the grant of an exploration permit does not
even contemplate the entry into an agreement between the State and the applicant foreign
corporation since "prior to the issuance of such FTAA or mineral agreement, the exploration permit
grantee (or prospective contractor) cannot yet be deemed to have entered into any contract or
agreement with the State."

Consequently, the grant of an exploration permit which is not an agreement cannot possibly be
construed as being favorably sanctioned by paragraph 4 of Section 2, Article XII of the
Constitution which refers to "agreements involving either financial or technical assistance." Not
falling within the exception embodied in paragraph 4 of Section 2, Article XII of the
Constitution, the grant of such a permit to a foreign corporation is prohibited and the proviso
providing for such grant in Section 3 (aq) of the Mining Act is void for being unconstitutional.
Second, given the foregoing discussion on the circumvention of the State's share in an FTAA, it is
clearly evident that to allow the grant of exploration permits to foreign corporations is to allow the
whole-sale circumvention of the entire system of FTAAs mandated by the Constitution.
For Chapter IV of the Mining Act on Exploration Permits grants to the permit holder, including
foreign corporations, the principal rights conferred on an FTAA contractor during the exploration
phase, including (1) theright to enter, occupy and explore the permit area under Section 23,137 and
(2) the exclusive right to an MPSA or other mineral agreements or FTAAs upon the filing of a
Declaration of Mining Project Feasibility under Sections 23 and 24;138 but requires none of the
obligations of an FTAA not even the obligation under Section 56 of DAO 40-96 to pay the
minimum ground expenditures during the exploration and feasibility period.139
Thus, all that a foreign mining company need do to further maximize its profits and further reduce
the Government's revenue from mining operations is to apply for an exploration permit and content
itself with the "smaller" permit area of 400 meridional blocks onshore (which itself is not small
considering that it is equivalent to 32,400 hectares or 324,000,000 square meters).140 It is not
obligated to pay any minimum ground expenditures during the exploration period.
Should it discover minerals in commercial quantities, it can circumvent the Fiscal Regime in DAO
99-56 by divesting 60% of its equity in favor of a Philippine corporation and opting to enter into an
MPSA. By doing so it automatically reduces the Government's TOTAL SHARE to merely 2% of
value of the minerals mined by operation of Section 81.
And if the Philippine corporation to which it divested its 60% foreign equity is itself a 60-40
Philippine Corporation, then the beneficial interest of foreigners in the minerals mined would be a
minimum of 64%.
In light of the foregoing, Section 3 (aq), in so far as it allows the granting of exploration permits to
foreign corporations, is patently unconstitutional, hence, null and void.
II
Invalidity of the WMCP FTAA Sale of foreign
interest in WMCP to a Filipino corporation
did not render the case moot and academic.
Respondent WMCP, now renamed Tampakan Mineral Resources Corporation, submits that the
case has been rendered moot since "[e]xcept for the nominal shares of directors, 100% of TMRC's
share are now owned by Sagittarius Mines, which is a Filipino-owned corporation. More than 60%
of the equity of Sagittarius is owned by Filipinos or Filipino-owned corporations." 141 This Court
initially reserved judgment on this issue.142
Petitioner invokes by analogy the rule that where land is invalidly transferred to an alien who
subsequently becomes a Filipino citizen or transfers it to one, the infirmity in the original
transaction is considered cured and the title of the transferee is rendered valid, citing Halili v. Court
of Appeals.143 The rationale for this rule is that if the ban on aliens from acquiring lands is to
preserve the nation's lands for future generations of Filipinos, that aim or purpose would not be
thwarted but achieved by making lawful the acquisition of real estate by Filipino citizens.144

Respondent WMCP's analogy is fallacious. Whether the legal title to the corporate vehicle holding
the FTAA has been transferred from a foreigner to a Filipino is irrelevant. What is relevant is
whether a foreigner has improperly and illegally obtained an FTAA and has therefore benefited
from the exploration, development or utilization of Philippine natural resources in a manner
contrary to the provisions of the Constitution.
As above-stated the doctrine enunciated in Halili is based on the premise that the purpose of the
Constitution in prohibiting alien ownership of agricultural land is to retain the ownership or legal
title of the land in the hands of Filipinos. This purpose is not identical or even analogous to that in
Section 2, Article XII of the Constitution. As priorly discussed, the primary purpose of the
provisions on National Patrimony is to preserve to the Filipino people the beneficial ownership of
their natural resources i.e. the right to the gains, rewards and advantages generated by their
natural resources. Except under the terms of Section 2, Article XII, foreigners are prohibited from
involving themselves in the exploration, development or utilization of these resources, much less
from profiting from them.
Divestment by a foreigner of an illegally acquired right to mine Philippine resources does not alter
the illegal character of the right being divested or sold. Indeed, such divestment or sale is
obviously a method by which the foreigner may derive pecuniary benefit from his unlawful act
since he receives payment for his illegally acquired interest in the country's natural resources.
To rule otherwise would be to condone, even to invite, foreign entities to obtain Philippine mining
interests in violation of the Constitution with the assurance that they can escape liability and at the
same time make a tidy sum by later selling these interests to Filipinos. This is nothing less than
allowing foreign speculation in Philippine natural resources. Worse, there is the very real possibility
that these foreign entities may intentionally inflate the value of their illegallyacquired mineral
rights to the detriment of their Filipino purchasers as the past Bre-X scandal145 and recent Shell oil
reserve controversy146 vividly illustrate.
To allow a foreigner to profit from illegally obtained mining rights or FTAAs subverts and
circumvents the letter and intent of Article XII of the Constitution. It facilitates rather than prevents
the rape and plunder of the nation's natural resources by unscrupulous neo-colonial entities. It
thwarts, rather than achieves, the purpose of the fundamental law.
As applied to the facts of this case, respondent WMCP, in essence, claims that now that the
operation and management of the WMCP FTAA is in the hands of a Filipino company, no serious
question as to the FTAA's validity need arise.
On the contrary, this very fact that WMC has sold its 100% interest in WMCP to a Filipino
company for US$10,000,000.00 directly leads to some very serious questions concerning the
WMCP FTAA and its validity. First, if a Filipino corporation is capable of undertaking the terms of
the FTAA, why was an agreement with a foreign owned corporation entered into in the first place?
Second, does not the fact that, as alleged by petitioners147 and admitted by respondent
WMCP,148 Sagittarius, WMCP's putative new owner, is capitalized at less than half the purchase
price149 of WMC's shares in WMCP, a strong indication that Sagittarius is merely acting as the
dummy of WMC? Third, if indeed WMCP has, to date, spent US$40,000,000.00 in the
implementation of the FTAA, as it claims,150 why did WMC sell 100% of its shares in WMCP for
only US$10,000,000.00? Finally, considering that, as emphasized by WMCP,151 "payment of the
purchase price by Sagittarius to WMC will come only after the commencement of commercial
production," hasn't WMC effectively acquired a beneficial interest in any minerals mined in the
FTAA area to the extent of US$10,000,000.00? If so, is the acquisition of such a beneficial interest
by a foreign corporation permitted under our Constitution?
Succinctly put, the question remains: What is the validity of the FTAA by which WMC, a fully
foreign owned corporation, has acquired a more than half billion peso152 interest in Philippine
mineral resources located in a contract area of 99,387 (alleged to have later been reduced to

30,000)153 hectares of land spread across thefour provinces of South Cotabato, Sultan Kudarat,
Davao del Sur and North Cotabato?
Clearly then, the issues of this case have not been rendered moot by the sale of WMC's 100%
interest in WMCP to a Filipino corporation, whether the latter be Sagittarius or Lepanto. If the
FTAA is held to be valid under the Constitution, then the sale is valid and, more importantly,
WMC's US$10,000,000.00 interest in Philippine mineral deposit, arising as it did from the sale and
its prior 100% ownership of WMCP, is likewise valid. However, if the FTAA is held to be invalid,
then neither WMC's interest nor the sale which gave rise to said interest is valid for no foreigner
may profit from the natural resources of the Republic of the Philippines in a manner
contrary to the terms of the Philippine Constitution. If held unconstitutional, the WMCP FTAA
is void ab initio for being contrary to the fundamental law and no rights may arise from it, either in
favor of WMC or its Filipino transferee.
Evidently, the transfer of the shares in WMCP from WMC Resources International Pty. Ltd. (WMC),
a foreign-owned corporation, to a Filipino-owned one, whether Sagittarius or Lepanto, now
presently engaged in a dispute over said shares,154 did not "cure" the FTAA nor moot the petition at
bar. On the contrary, it is the Decision in this case that rendered those pending cases moot for the
invalidation of the FTAA leaves Sagittarius and Lepanto with nothing to dispute.
Terms of the WMCP FTAA are
contrary to the Constitution and
render said FTAA null and void.
The WMCP FTAA is clearly contrary to the agreements provided for in Section 2, Article XII of the
Constitution. In the Decision under reconsideration, this Court observed:
Section 1.3 of the WMCP FTAA grants WMCP "the exclusive right to explore, exploit,
utilise[,] process and dispose of all Minerals products and by-products thereof that may
be produced from the Contract Area." The FTAA also imbues WMCP with the following
rights:
(b) to extract and carry away any Mineral samples from the Contract area for the
purpose of conducting tests and studies in respect thereof;
(c) to determine the mining and treatment processes to be utilized during the
Development/Operating Period and the project facilities to be constructed during the
Development and Construction Period;
(d) have the right of possession of the Contract Area, with full right of ingress and egress
and the right to occupy the same, subject to the provisions of Presidential Decree No.
512 (if applicable) and not be prevented from entry into private lands by surface owners
and/or occupants thereof when prospecting, exploring and exploiting for minerals
therein;

(h) enjoy, subject to pertinent laws, rules and regulations and the rights of third Parties,
easement rights and the use of timber, sand, clay, stone, water and other natural
resources in the Contract Area without cost for the purposes of the Mining Operations;
xxx
(l) have the right to mortgage, charge or encumber all or part of its interest and
obligations under this Agreement, the plant, equipment and infrastructure and the
Minerals produced from the Mining Operations;
x x x.
All materials, equipment, plant and other installations erected or placed on the Contract
Area remain the property of WMCP, which has the right to deal with and remove such
items within twelve months from the termination of the FTAA.
Pursuant to Section 1.2 of the FTAA, WMCP shall provide "[all] financing, technology,
management and personnel necessary for the Mining Operations." The mining company
binds itself to "perform all Mining Operations . . . providing all necessary services,
technology and financing in connection therewith," and to "furnish all materials, labour,
equipment and other installations that may be required for carrying on all Mining
Operations." WMCP may make expansions, improvements and replacements of the
mining facilities and may add such new facilities as it considers necessary for the mining
operations.
These contractual stipulations, taken together, grant WMCP beneficial ownership over
natural resources that properly belong to the State and are intended for the benefit of its
citizens. These stipulations are abhorrent to the 1987 Constitution. They are precisely
the vices that the fundamental law seeks to avoid, the evils that it aims to suppress.
Consequently, the contract from which they spring must be struck down.155 (Citations
omitted)
Indeed, save for the fact that the contract covers a larger area, the subject FTAA is actually a
mineral production sharing agreement. Respondent WMCP admitted as much in its
Memorandum.156 The first paragraph of Section 2, Article XII of the Constitution, however, allows
this type of agreement only with Filipino citizens or corporations.
That the subject FTAA is void for having an unlawful cause bears reaffirmation. In onerous
contracts the cause is understood to be, for each contracting party, the prestation or promise of a
thing or service by the other.157 On the part of WMCP, a foreign-owned corporation, the cause was
to extend not only technical or financial assistance but management assistance as well. The
management prerogatives contemplated by the FTAA are not merely incidental to the two other
forms of assistance, but virtually grant WMCP full control over its mining operations. Thus, in
Section 8.3158 of the FTAA, in case of a dispute between the DENR and WMCP, it is WMCP's
decision which will prevail.

xxx
(f) to construct roadways, mining, drainage, power generation and transmission facilities
and all other types of works on the Contract Area;
(g) to erect, install or place any type of improvements, supplies, machinery and other
equipment relating to the Mining Operations and to use, sell or otherwise dispose of,
modify, remove or diminish any and all parts thereof;

The questioned FTAA also grants beneficial ownership over Philippine natural resources to
WMCP, which is prohibited from entering into such contracts not only by the fourth paragraph of
Section 2, Article XII of the Constitution, but also by the first paragraph, the FTAA practically being
a production-sharing agreement reserved to Filipinos.
Contracts whose cause is contrary to law or public policy are inexistent and void from the
beginning.159 They produce no effect whatsoever.160 They cannot be ratified,161 and so cannot the
WMCP FTAA.

The terms of the WMCP FTAA effectively give away

the Beneficial Ownership of Philippine minerals
As previously observed, the majority opinion finds Section 7.9. of the WMCP FTAA to be "grossly
disadvantageous to the government, detrimental to the interests of the Filipino people, and
violative of public policy" since it "effectively gives away the State's share of net mining revenues
(provided for in Section 7.7) without anything in exchange."
It likewise finds Section 7.8(e) of the WMCP FTAA to be invalid. Said provision states:
7.8 The Government Share shall be deemed to include all of the following sums:
xxx
(e) an amount equivalent to whatever benefits that may be extended in
the future by the Government to the Contractor or to financial or
technical assistance agreement contractors in general. (Emphasis
supplied)

xxx
(l) have the right to mortgage, charge or encumber all or part of its interest and
obligations under this Agreement, the plant, equipment and infrastructure and the
Minerals produced from the Mining Operations; (Emphasis supplied)
Although respondents did not proffer their own explanation, the majority opinion theorizes that the
foregoing provision is necessitated by the conditions that may be imposed by creditor-banks on
the FTAA contractor:
xxx I believe that this provision may have to do with the conditions imposed by the
creditor-banks of the then foreign contractor WMCP to secure the lendings made to the
latter. Ordinarily, banks lend not only on the security of mortgages on fixed assets, but
also on encumbrances of goods produced that can easily be sold and converted into
cash that can be applied to the repayment of loans. Banks even lend on the security
of accounts receivable that are collectible within 90 days. (Citations omitted; underscore
in the original)
It, however, overlooks the provision of Art. 2085 of the Civil Code which enumerates the essential
requisites of a contract of mortgage:

And in its own estimation:

Section 7.8(e) is out of place in the FTAA. This provision does not make any sense why,
for instance, money spent by the government for the benefit of the contractor in building
roads leading to the mine site should still be deductible from the State's share in net
mining revenues. Allowing this deduction results in benefiting the contractor twice
over. To do so would constitute unjust enrichment on the part of the contractor at
the expense of the government, since the latter is effectively being made to pay
twice for the same item. For being grossly disadvantageous and prejudicial to the
government and contrary to public policy, Section 7.8(e) is undoubtedly invalid
and must be declared to be without effect. xxx (Emphasis supplied; citations omitted;
underscore in the original)
The foregoing estimation notwithstanding, the majority opinion declines to invalidate the WMCP
FTAA on the theory that Section 7.9 and 7.8 are separable from the rest of the agreement, which
may supposedly be given effect without the offending provisions.
As previously discussed, the same deleterious results are easily achieved by the foreign
contractor's conversion of its FTAA into an MPSA under the provisions of the Mining Act. Hence,
merely striking out Sections 7.9 and 7.8(e) of the WMCP FTAA will not suffice; the provisions
pertaining to FTAAs in the Mining Act must be stricken out for being unconstitutional as well.
Moreover, Section 7.8 (e) and 7.9 are not the only provisions of the WMCP FTAA which convey
beneficial ownership of mineral resources to a foreign corporation.
Under Section 10.2 (l) of the WMCP FTAA, the foreign FTAA contractor shall have the right to
mortgage and encumber, not only its rights and interests in the FTAA, but the very minerals
themselves:
10.2 Rights of Contractor
The Government agrees that the Contractor shall:-

Art. 2085. The following requisites are essential to the contracts of pledge
and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property. (Emphasis and underscoring supplied)
From the foregoing provision of law, it is abundantly clear
that only the absolute owner of the minerals hasthe right to mortgage the same, and under
Section 2, Article XII of the Constitution the absolute owner ofthe minerals is none other th
an the State. While the foreign FTAA contractor may have an interest in theproceeds of the
minerals, it does not acquire ownership over the minerals themselves.
Put differently, the act of mortgaging the minerals is an act of ownership, which, under the
Constitution, is reserved solely to the State. In purporting to grant such power to a foreign FTAA
contractor, Section 10.2 (l) of the WMCP FTAA clearly runs afoul of the Constitution.
Moreover, it bears noting that to encumber natural resources of the State to secure a foreign FTAA
contractor's obligations is anomalous since Section 1.2 of the WMCP FTAA provides that
"[a]ll financing, technology, management and personnel necessary for the Mining Operations shall
be provided by the Contractor."
Indeed, even the provisions of the Mining Act, irredeemably flawed though they may be, require
that the FTAA contractor have the financial capability to undertake the large-scale exploration,
development and utilization of mineral resources in the Philippines; 162 and, specifically, that the

contractor warrant that it has or has access to all the financing required to promptly and effectively
carry out the objectives of the FTAA.163

which can legally compel the landowner to involuntarily part with his property, to acquire the land
at a price dictated by the foreign FTAA contractor.

Under Section 10.2 (e) of the WMCP FTAA, the foreign FTAA Contractor has the power to require
the Government to acquire surface rights in its behalf at such price and terms acceptable to it:

Clearly, the State's power of eminent domain is very much related to the practical workings of
Section 10.2 (e) of the WMCP FTAA. It is the very instrument by which the contractor assures itself
that it can obtain the "surface right" to the property at a price of its own choosing. Moreover, under
Section 60 of DAO 40-96, the contractor may, after final relinquishment, hold up to 5,000 hectares
of land in this manner.

10.2 Rights of Contractor

The Government agrees that the Contractor shall:xxx
(e) have the right to require the Government at the Contractor's own cost, to
purchase or acquire surface areas for and on 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 tenderand the Contractor
shall be entitled to reimbursement of the costs of acquisition and maintenance,
adjusted for inflation, from the proceeds of sale; (Emphasis supplied)
Petitioners, in their Memorandum, point out that pursuant to the foregoing, the foreign FTAA
contractor may compel the Government to exercise its power of eminent domain to acquire the title
to the land under which the minerals are located for and in its behalf.
The majority opinion, however, readily accepts the explanation proffered by respondent WMCP,
thus:
Section 10.2 (e) sets forth the mechanism whereby the foreign-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 the surface land areas on behalf of the contractor, in order to
enable the latter to proceed to fully implement the FTAA.
The contractor, of course, shoulders the purchase price of the land. Hence, the provision
allows it, after the termination of the FTAA to be reimbursed from proceeds of the sale of
the surface areas, which the government will dispose of through public bidding.
And it concludes that "the provision does not call for the exercise of the power of eminent domain"
and the determination of just compensation.
The foregoing arguments are specious.
First, the provision in question clearly contemplates a situation where the surface area is not
already owned by the Government i.e. when the land over which the minerals are located is
owned by some private person.
Second, the logical solution in that situation is not, as asserted by respondent WMCP, to have the
Government purchase or acquire the land, but for the foreign FTAA contractor to negotiate a lease
over the property with the private owner.
Third, it is plain that the foreign FTAA contractor would only avail of Section 10.2 (e) if, for some
reason or another, it is unable to lease the land in question at the price it is willing to pay. In that
situation, it would have the power under Section 10.2 (e) to compel the State, as the only entity

More. While the foreign FTAA contractor advances the purchase price for the property, in reality it
acquires the "surface right" for free since under the same provision of the WMCP FTAA it is
entitled to reimbursement of the costs of acquisition and maintenance, adjusted for inflation. And
as if the foregoing were not enough, when read together with Section 3.3,164 the foreign FTAA
contractor would have the right to hold the "surface area" for a maximum of 50 years, at its option.
In sum, by virtue of Sections 10.2 (e) and 3.3. of the WMCP
FTAA, the foreign FTAA contractor is given thepower to hold inalienable mineral land of up t
o 5,000 hectares, with the assistance of the State's powerof eminent domain, free of charge
, for a period of up to 50 years in contravention of Section 3, Article XIIof the Constitution:
Section 3. Lands of the public domain are classified into agricultural, forest or timber,
mineral lands, and national parks. Agricultural lands of the public domain may be further
classified by law according to the uses which they may be devoted. Alienable lands of
the public domain shall be limited to agricultural lands. Private corporations or
associations may not hold such alienable lands of the public domain except by
lease, for a period not exceeding twenty-five years, renewable for not more than
twenty-five years, and not to exceed one thousand hectares in area. Citizens of the
Philippines may lease not more than five hundred hectares, or acquire not more than
twelve hectares thereof by purchase, homestead, or grant.
Taking into account the requirements of conservation, ecology, and development, and
subject to the requirements of agrarian reform, the Congress shall determine, by law, the
size of lands of the public domain which may be acquired, developed, held, or leased
and the conditions therefor. (Emphasis supplied)
Taken together, the foregoing provisions of the WMCP FTAA amount to a conveyance to a foreign
corporation of the beneficial ownership of both the minerals and the surface rights to the same in
contravention of the clear provisions of the Constitution.
The majority opinion posits that "[t]he acquisition by the State of land for the contractor is just to
enable the contractor to establish its mine site, build its facilities, establish a tailings pond, set up
its machinery and equipment, and dig mine shafts and tunnels, etc." It thus concludes that "5,000
hectares is way too much for the needs of a mining operator."
Evidently, the majority opinion does not take into account open pit mining. Open pit or opencut
mining, as differentiated from methods that require tunneling into the earth, is a method of
extracting minerals by their removal from an open pit or borrow;165 it is a mine working in
which excavation is performed from the surface.166It entails a surface mining operation in which
blocks of earth are dug from the surface to extract the ore contained in them. During the mining
process, the surface of the land is excavated forming a deeper and deeper pit until the end of
mining operations.167 It is used extensively in mining metal ores, copper, gold, iron, aluminum168
the very minerals which the Philippines is believed to possess in vast quantities; and is considered
the most cost-effective mining method.169

Furthermore, considering that FTAAs deal with large scale exploration, development and utilization
of mineral resources and that the original contract area of the WMCP FTAA was 99,387 hectares,
an open pit mining operation covering a total of 5,000 hectares is not outside the realm of
possibility.
In any event, regardless of what the majority opinion considers "way too much" (or too little), it is
undisputed thatunder Section 60 of DAO 40-96, which is among the enactments under review, the
contractor may, after final relinquishment, hold up to 5,000 hectares of land. And, under Section
3.3. of the WMCP FTAA, it may do so for a term of 25 years automatically renewable for another
25 years, at the option of the contractor.
The majority opinion also argues that, although entitled to reimbursement of its acquisition cost at
the end of the contract term, the FTAA contractor does not acquire its surface rights for free since
"the contractor will have been cash-out for the entire duration of the term of the contract 25 to 50
years, depending," thereby foregoing any interest income he might have earned. This is the
"opportunity cost" of the contractor's decision to use its money to acquire the surface rights instead
of leaving it in the bank.
The majority opinion does not consider the fact that "opportunity cost" is more theoretical rather
than actual and, for that reason, is not an allowable deduction from gross income in an income
statement. In layman's terms it is equivalent to "the value of the chickens that might have been
hatched if only the cook had not scrambled the eggs." Neither does it consider the fact that the
contractor's foregone interest income does not find its way to the pockets of either the previous
land owner (in this case, the Bugal B'Laans) or the State.
But even if the contractor does incur some opportunity cost in holding the surface rights for 35 to
50 years. The fact remains that, under the terms of the WMCP FTAA, the contractor is given the
power to hold inalienable mineral land of up to 5,000 hectares, with the assistance of the
State's power of eminent domain for a period of up to 50 years in contravention of Section
3, Article XII of the Constitution.
Clearly, Section 3 and 10.2 (e) of the WMCP FTAA in conjunction with Section 60 of DAO 40-96,
amount to a conveyance to a foreign corporation of the beneficial ownership of both the minerals
and the surface rights over the same, in contravention of the clear provisions of the Constitution.
The terms of the WMCP FTAA abdicate all control over the
mining operation in favor of the foreign FTAA contractor
The majority opinion's defense of the constitutionality of Section 8.1, 8.2, 8.3 of the WMCP FTAA is
similarly unpersuasive. These Sections provide:
8.1 The Secretary shall be deemed to have approved any Work Programme or
Budget or variation thereof submitted by the Contractor unless within sixty (60)
days after submission by the Contractor the Secretary gives notice declining such
approval or proposing a revision of certain features and specifying its reasons
therefore ("the Rejection Notice").
8.2 If the Secretary gives a Rejection Notice the Parties shall promptly meet and
endeavour to agree on amendments to the Work Programme or budget. If the
Secretary and the Contractor fail to agree on the proposed revision within 30 days
from delivery of the Rejection Notice then the Work Programme or Budget or
variation thereof proposed by the Contractor shall be deemed approvedso as not
to unnecessarily delay the performance of this Agreement.

Even measured against the majority opinion's standards of control i.e. either (1) the power to set
aside, reverse, or modify plans and actions of the contractor; or (2) regulatory control the
foregoing provisions cannot pass muster. This is because, by virtue of the foregoing provisions,
the foreign FTAA contractor has unfettered discretion to countermand the orders of its putative
regulator, the DENR.
Contrary to the majority's assertions, the foregoing provisions do not provide merely temporary or
stop-gap solutions. The determination of the FTAA contractor permanently reverses the "Rejection
Notice" of the DENRsince, by the majority opinion's own admission, there is no available remedy
for the DENR under the agreement except to seek the cancellation of the same.
Indeed, the justification for the foregoing provisions is revealing:
xxx First, avoidance of long delays in these situations will undoubtedly redound to the
benefit of the State as well as to the contractor. Second, who is to say that the work
program or budget proposed by the contractor and deemed approved under
Clause 8.3 would not be the better or more reasonable or more effective
alternative? The contractor, being the "insider," as it were, may be said to be in a
better position than the State an outsider looking in to determine what work
program or budget would be appropriate, more effective, or more suitable under
the circumstances. (Emphasis and underscoring supplied)
Both reasons tacitly rely on the unstated assumption that the interest of the foreign FTAA
contractor and that of the Government are identical. They are not.
Private businesses, including large foreign-owned corporations brimming with capital and technical
expertise, are primarily concerned with maximizing the pecuniary returns to their owners or
shareholders. To this extent, they can be relied upon to pursue the most efficient courses of action
which maximize their profits at the lowest possible cost.
The Government, on the other hand, is mandated to concern itself with more than just narrow selfinterest. With respect to the nation's natural wealth, as the majority opinion points out, the
Government is mandated to preserve, protect and even maximize the beneficial interest of the
Filipino people in their natural resources. Moreover, it is directed to ensure that the large-scale
exploration, development and utilization of these resources results in real contributions to the
economic growth and general welfare of the nation. To achieve these broader goals, the
Constitution mandates that the State exercise full control and supervision over the exploration,
development and utilization of the country's natural resources.
However, taking the majority opinion's reasoning to its logical conclusion, the business "insider's
opinion" would always be superior to the Government's administrative or regulatory determination
with respect to mining operations. Consequently, it is the foreign contractor's opinion that should
always prevail. Ultimately, this means that, at least for the majority, foreign private business
interests outweigh those of the State at least with respect to the conduct of mining operations.
Indeed, in what other industry can the person regulated permanently overrule the administrative
determinations of the regulatory agency?
To any reasonable mind, the absence of an effective means to enforce even administrative
determinations over an FTAA contractor, except to terminate the contract itself, falls far too short of
the concept of "full control and supervision" as to cause the offending FTAA to fall outside the
ambit of Section 2, Article XII of the Constitution.
Verily, viewed in its entirety, the WMCP FTAA cannot withstand a rigid constitutional
scrutiny since, by its provisions, it conveys both the beneficial ownership of Philippine

minerals and control over their exploration, development and utilization to a foreign
corporation. Being contrary to both the letter and intent of Section 2, Article XII of the
Constitution, the WMCP FTAA must be declared void and of no effect whatsoever.
A Final Note
For over 350 years, the natural resources of this nation have been under the control and
domination of foreign powers whether political or corporate. Philippine mineral wealth, viciously
wrenched from the bosom of the motherland, has enriched foreign shores while the Filipino
people, to whom such wealth justly belongs, have remained impoverished and unrecompensed.
Time and time again the Filipino people have sought an end to this intolerable situation. From
1935 they have struggled to assert their legal control and ownership over their patrimony only to
have their efforts repeatedly subverted first, by the parity amendment to the 1935 Constitution
and subsequently by the service contract provision in the 1973 Constitution.
It is not surprising that an industry, overly dependent on foreign support and now in decline, should
implore this Court to reverse itself if only to perpetuate its otherwise economically unsustainable
conduct. It is even understandable, however regrettable, that a government, strapped for cash and
in the midst of a self-proclaimed fiscal crisis, would be inclined to turn a blind eye to the
consequences of unconstitutional legislation in the hope, however false or empty, of obtaining
fabulous amounts of hard currency.
But these considerations should not outweigh the Constitution.
As always, the one overriding consideration of this Court should be the will of the sovereign
Filipino people as embodied in their Constitution. The Constitution which gives life to and
empowers this Court. The same Constitution to which the members of this Court have sworn their
unshakable loyalty and their unwavering fidelity.
Now, the unmistakable letter and intent of the 1987 Constitution notwithstanding, the majority of
this Court has chosen to reverse its earlier Decision which, to me, would once again open the
doors to foreign control and ownership of Philippine natural resources. The task of reclaiming
Filipino control over Philippine natural resources now belongs to another generation.
ACCORDINGLY, I vote to deny respondents' Motions for Reconsideration.

SEPARATE OPINION
TINGA, J.:
The Constitution was crafted by men and women of divergent backgrounds and varying
ideologies. Understandably, the resultant document is accommodative of these distinct, at times
competing philosophies. Untidy as any mlange would seem, our fundamental law nevertheless
hearkens to the core democratic ethos over and above the obvious inconveniences it spawns.
However, when the task of judicial construction of the Constitution comes to fore, clarity is
demanded from this Court. In turn, there is a need to balance and reconcile the diverse views that
animate the provisions of the Constitution, so as to effectuate its true worth as an instrument of
national unity and progress.

The variances and consequent challenges are vividly reflected in Article XII of the Constitution on
National Patrimony, in a manner akin to Article II on Declaration of Principles and State Policies.
Some of the provisions impress as protectionist, yet there is also an undisguised accommodation
of liberal economic policies. Section 2, Article XII,1 the provision key to this case, is one such
Janus-faced creature. It seems to close the door on foreign handling of our natural resources, but
at the same time it leaves open a window for alien participation in some aspects. The central
question before us is how wide is the entry of opportunity created by the provision.
My vote on the motions for reconsideration is hinged on a renewed exegesis of Section 2 2 of
Article XII in conjunction with the proper understanding of the nature of the power vested on the
President under Section 2. It has to be appreciated in relation to the inherent functions of the
executive branch of government.
The Contract-Making Power of the President
While all government authority emanates from the people, the breadth and depth of such authority
are not brought to bear by direct popular action, but through representative government in accord
with the principles of republicanism.3 By investiture of the Constitution, the function of executive
power is parceled solely to the duly elected President.4 The Constitution contains several express
manifestations of executive power, such as the provision on control over all executive
departments, bureaus and offices,5 as well as the so-called "Commander-in-Chief" clause. 6
Yet it has likewise been recognized in this jurisdiction that "executive power" is not limited to such
powers as are expressly granted by the Constitution. Marcos v. Manglapus7 concedes that the
President has powers other than those expressly stated under the Constitution,8 and thus implies
that these powers may be exercised without being derivative from constitutional authority.9 The
precedental value of Marcos v. Manglapus may be controvertible,10 but the cogency of its analysis
of the scope of executive power is indisputable. Neither is the concept of plenary executive power
novel, as discussed by Justice Irene Cortes in her ponencia:
It has been advanced that whatever power inherent in the government that is neither
legislative nor judicial has to be executive. Thus, in the landmark decision of Springer v.
Government of the Philippine Islands, 277 U.S. 189 (1928), on the issue of who between
the Governor-General of the Philippines and the Legislature may vote the shares of
stock held by the Government to elect directors in the National Coal Company and the
Philippine National Bank, the U.S. Supreme Court, in upholding the power of the
Governor-General to do so, said:
. . . Here the members of the legislature who constitute a majority of the
"board" and "committee" respectively, are not charged with the performance of
any legislative functions or with the doing of anything which is in aid of
performance of any such functions by the legislature. Putting aside for the
moment the question whether the duties devolved upon these members are
vested by the Organic Act in the Governor-General, it is clear that they are not
legislative in character, and still more clear that they are not judicial. The fact
that they do not fall within the authority of either of these two constitutes
logical ground for concluding that they do fall within that of the remaining one
among which the powers of government are divided . . . [At 202-203;
emphasis supplied.]
We are not unmindful of Justice Holmes' strong dissent. But in his enduring words of
dissent we find reinforcement for the view that it would indeed be a folly to construe the
powers of a branch of government to embrace only what are specifically mentioned in
the Constitution:

The great ordinances of the Constitution do not establish and divide fields of
black and white. Even the more specific of them are found to terminate in a
penumbra shading gradually from one extreme to the other. . . .
xxx xxx xxx
It does not seem to need argument to show that however we may disguise it
by veiling words we do not and cannot carry out the distinction between
legislative and executive action with mathematical precision and divide the
branches into watertight compartments, were it ever so desirable to do so,
which I am far from believing that it is, or that the Constitution requires.[At
210-211.]11
Such general power has not been diminished notwithstanding the avowed intent of some of the
framers of the 1987 Constitution to limit the powers of the President as a reaction to abuses under
President Marcos, for as the Court noted, "the result was a limitation of the specific powers of the
President, particularly those relating to the commander-in-chief clause, but not a diminution of the
general grant of executive power."12 The critical perspective of this case should spring from a
recognition of this elemental fact.
Undeniably, the particular power now in question is expressly provided for by Section 2, Article XII
of the Constitution. Still, it originates from the concept of executive power that is not explicitly
provided for by the Constitution. As a necessary incident of the functions of the executive office, it
can be concluded that the President has the authority to enter into contracts in behalf of the State
in matters which are not denied him or her or not otherwise assigned to the other great branches
of government, even if such general power is not categorically recognized in the Constitution.
Among these traditional functions of the executive branch is the power to determine economic
policy.
As once noted by Justice Feliciano, the Republic of the Philippines is itself a body corporate and
juridical person vested with the full panoply of powers and attributes which are compendiously
described as "legal personality."13As "Chief of State" the President is also regarded as the head of
this body corporate,14 and thus is capacitated to represent the State when engaging with other
entities. Such executive function, in theory, does not require a constitutional provision, or even a
Constitution, in order to be operative. It is a power possessed by every duly constituted presidency
starting with Aguinaldo's. This faculty is complementary to the traditional regard of a Head of State
as emblematic of the State he/she represents.
The power to contract in behalf of the State is clearly an executive function, as opposed to
legislative or judicial. This is easily discernible through the process of exclusion. The other
branches of government the legislative and the judiciary are not similarly capacitated since
their core functions pertain to legislating and adjudicating respectively.
However, I am not making any pretense that such executive power to contract is unimpeachable or
limitless. The Constitution frowns on unchecked executive power, mandating in broad strokes, the
power of judicial review15and legislative oversight.16 The Constitution itself may expressly restrict
the exercise of any sort of executive function. Section 2 undeniably constrains the exercise of the
executive power to contract in several regards.
Constitutional Limitations under Section 2, Article XII
What are the express limitations under Section 2 on the power of the executive to contract with
foreign corporations regarding the exploration, development and utilization of our natural
resources?

There are two fundamental restrictions, both of which are asserted in the second paragraph of
Section 2. These are that the State retains legal ownership of all natural resources,17 and that the
State shall have full control and supervision over the exploration, development and utilization of
natural resources.18 These key postulates are facially broad and warrant clarification. They also
predicate several specific restrictions laid down in the fourth paragraph of Section 2 on the power
of the President to enter into agreements with foreign corporations. These specific limitations are
as follows:
First, the natural resources that may be subject of the agreement are a limited class, particularly
minerals, petroleum, and other mineral oils. Among the natural resources which are excluded from
these agreements are lands of the public domain, waters, coal, fisheries, forests or timbers,
wildlife, flora and fauna. Most notable of the exclusions are forests and timbers which are in all
respects expressly limited to Filipinos.
It is noteworthy that a previous version of the fourth paragraph of Section 2 deliberated upon
during the 1987 Constitutional Commission allowed agreements with foreign-owned corporations
with respect to all classes of natural resources.19 However, on the initiative of Commissioner (now
Chief Justice) Davide, the provision was amended to limit the scope of such agreements to
minerals, petroleum and other mineral oils, which Commissioner Davide recognized as "those
particular areas where Filipino capital may not be sufficient."20
The exclusion of timber resources from the scope of financial/technical assistance
agreements marks a significant distinction from the service contracts of old. This does not
come as a surprise, considering well-reported abuses under the old regime of issuing
timber licensing agreements, which numbered in the thousands prior to the 1987
Constitution. On the other hand, no similar extensive collateral damage has been reported
for the petroleum and mining industry, capital-intensive industries whose potential for
government revenues in billions of pesos has long been sought after by the State.21 Hence,
the variance in treatment from the timber industry and the rest of the natural resources.
Second, these agreements with foreign-owned corporations can only be entered into for only
large-scale exploration, development and utilization of minerals, petroleum, and other mineral oils.
Third, it is only the President who may enter into these agreements. This is another pronounced
change from the 1973 Constitution, which allowed private persons to enter into service contracts
with foreign corporations.
Fourth, these agreements must be in accord with the general terms and conditions provided by
law. This proviso by itself, and more so when taken together, as it should, with another
provision,22 entails legislative intervention and affirmance in the exercise of this executive power.
While it is the President who enters into these contracts, he/she must act within such terms and
conditions as may be prescribed by Congress through legislation. The value of legislative input as
a means of influencing policy should not be discounted. Policy initiatives grounded on particular
economic ideologies may find enactment through legislation when approved by the necessary
majorities in Congress. Legislative work includes consultative processes with persons of diverse
interests, assuring that economic decisions need not be made solely from an ivory tower. There is
also the possible sanction of repudiation by the voters of legislators who prove insensate to the
economic concerns of their constituents.
Fifth, the President is mandated to base the decision of entering into these agreements on "real
contributions to the economic growth and general welfare of the country." In terms of real
limitations, this condition has admittedly little effect. The discretion as to whether or not to enter
into these agreements is vested solely by the Constitution in the President, and such exercise of
discretion, pertaining as it does to the political wisdom of a co-equal branch, generally deserves
respect from the courts.

The above conditionalities, particularly the first three, effect the desire of the framers of the 1987
Constitution to limit foreign participation in natural resource-oriented enterprises. They provide a
vivid contrast to the 1973 Constitution, which permitted private persons to enter into service
contracts for financial, technical, management, or other forms of assistance with any person or
entity, including foreigners, and for the exploration or utilization of any of the natural
resources.23 These requisites imposed by the 1987 Constitution, which are significantly more
onerous than those laid down in the 1973 Constitution, warrant obeisance by the executive branch
and recognition by this Court.

If indeed the foreign entity is limited only to technical or financial participation, the
implication is that it is up to the State to do all the rest. Considering the lack of know-how
and financial capital, matters which were appreciated by the framers of the Constitution,
this intended effect is preposterous. Even the State itself would hesitate to undertake such
extractive activities owing to the intensive capital and extensive training such enterprise
would entail. By allowing this expansive set-up under Section 2, the Constitution enables
the minimization of risk on the part of the State should it desire to undertake large-scale
mineral extractive activities. The pay-off though, understandably, is an atypical cession of
several State prerogatives in the development of its mineral and petroleum resources.

Not Strictly Technical or Financial Assistance

The Court's previous Decision, now for reconsideration, insisted on another restriction purportedly
imposed by the fourth paragraph of Section 2. It is argued that foreignowned corporations are
allowed to render only technical or financial assistance in the large-scale exploration, development
and utilization of minerals, petroleum and mineral oils. This conservative view is premised on the
sentiment that the Constitution limits foreign involvement only to areas where they are needed, the
overpowering intent being to allow Filipinos to benefit from Filipino resources.24 Towards that end,
the perception arises that the power of the executive to enter into agreements with foreign-owned
corporations is an executive privilege, hampered by the limitations that generally attach to the
grant of privileges.
On the fundamental nature of this power, I harbor an entirely different view. The actual art of
governing under our Constitution does not and cannot conform to judicial definitions of the power
of any of its branches based on isolated clauses or even single articles torn from context.25 The
previously adopted approach is rigidly formalist, and impervious to the traditional prerogatives of
executive power.
As I stated earlier, the executive authority to contract is a right emanating from traditional executive
functions, and is connected with the power of the executive branch to determine economic
policy. Hence, the proper approach in interpreting Section 2, Article XII is to tilt in favor of
asserting the right rather than view the provision as a limitation on a privilege. To subscribe
to the Court's previous view will necessitate adopting as a fundamental premise that absent
an express grant of power, the executive branch has no capacity to contract since such
capacity arises from a privilege.
Had the provision been worded to state that the President may enter into agreements for technical
or financial assistance only, then this unambiguous limitation should be affirmed. Yet the
Constitution does not express such an intent. The controversial provision is crafted in such a way
that allows any type of agreement, so long as they involve either technical or financial assistance.
In fact, the provision does not restrict the scope of the agreement so as to pertain exclusively
either to technical or financial assistance.
The Constitution, in allowing foreign participation specifically in the large scale exploration,
development and utilization of natural resources, is cognizant of the sad truth that such activities
entail significant outlay of capital and advanced technological know-how that domestic
corporations may not yet have.26 The provision expressly adverts to "technical" and
"financial" assistance in recognition of the reality that these two facets are the
indispensable requisites to qualify foreign participants in the exploration, development,
and utilization of mineral and petroleum resources.
Had the framers chosen to restrict all aspects of all mining activities to domestic persons, the real
fear would have materialized that our mineral reserves could remain untapped for a significant
period of time, owing to the paucity of venture capital. There was a real option to heed dogmatic
guns who insisted that the mineral resources remain unutilized until the day when the domestic
mining industry becomes capacitated to undertake the extraction without need of foreign aid.
Obviously, the more pragmatic view won the day.

Perhaps there is need to be explicit and incisive about the implications of Section 2. The word
"assistance," shorn of context, implies a charitable grant offered without any quid pro
quo attached. Unconditional foreign aid may be more prevalent this day and age with the
acceptance of the notion that there are base minimum standards of decent living which all persons
are entitled to. However, such concept is alien to the mining industry. There is no such entity as
an International Benevolent Association for Extraction of Minerals. If "assistance" is to be
restrictively interpreted according to ordinary parlance, no entity would be interested in undertaking
this regulated industry.
Any decision by any enterprise to assist in the exploration, development or utilization of mineral
resources does not arise from a philanthropic impulse. It is a pure and simple investment, and one
that is not engaged in unless there is the expectation or hope of a reasonable return. I hasten to
add that the deliberate incorporation of the fourth paragraph of Section 2 has created a window of
opportunity for foreign investments in the extractive enterprises involving petroleum and other
mineral oils, subject of course to limitations under the law. The term may prove discomfiting to the
ideologically committed, the sentimental nationalist or the visceral oppositionist. Still, the notion is
not inconsistent with the general power of the executive to enter into agreements for the purpose
of enticing foreign investments.
Why then the term "assistance?" Apart from its apparent political palatability in comparison with
"investment," as intimated before, the term is useful in underscoring the essential facets of
the foreign investment which is assistance in the financial or technical areas, as well as the
fundamental limitations and conditionalities of the investment. What is allowed is
participation, though limited, by foreign corporations which in turn are entitled to expect a return on
their investments.
The Court had earlier premised the invalidity of several provisions of the Mining Act on the
argument that those provisions authorized service contracts. But while the 1987 Constitution
does not utilize the term "service contracts," it actually contemplates a broader expanse of
agreements beyond mere contracts for services rendered. Still, although the provision
sanctions a more numerous class of agreements, these are subjected to more stringent
restrictions than what had been allowed under the 1973 Constitution. Thus, the test should be
whether the law and the contract take away the State's full control and supervision over the
exploration, development and utilization of the country's mineral resources and negate or
defeat the State's ownership thereof.
In line with the test, Section 2 should be accorded a liberal interpretation so as to recognize this
fundamental prerogative of the presidency. Such "liberal interpretation" does not equate to a
wholesale concession of mining resources to foreigners, much less to an atmosphere of
complaisance, whether from their perception or the Filipinos.' The fourth paragraph sets specific
limitations on the exercise by the President of this contract-making power. On the other hand, the
second paragraph of Section 2 lays down the fundamental limitations which likewise may not be
countermanded.
On the basis of the foregoing discussion, and as a necessary consequence of my view that the
agreements under Section 2 are not strictly limited to financial or technical assistance, I would
consider the following questioned provisions of Republic Act No. 7942 as valid Sections 3 (g), 34

to 38, 40 to 41, 56 and 90. These provisions were struck down on the premise that they allowed
the constitution of "service contracts," an agreement which to my mind is still within the
contemplation of Section 2, Article XII.
State Ownership over Mineral and Petroleum Resources
There is need to clarify the specific meaning of these general limitations arising from the State's
assertion of ownership, full control and supervision.
In respect to the petition, the question of ownership has become material to the proper share the
State should receive from the exploration, development and utilization of mineral resources. I
perceive that all the members of the Court agree that such profit may not be limited to only such
revenue derived from the taxation of the mining activities. Since the right of the State to obtain a
share in the net proceeds and not merely through taxes arises as an attribute of ownership
unequivocally reserved by the Constitution for the State, such right may not be proscribed either
by legislative provision or contractual stipulation.
Yet it should be conceded that the State has the right to enter into an agreement concerning such
profits. There are, as probably should be, political consequences if the President opts to surrender
all of the State's profits to a foreign corporation, yet in bare theory, the right to bargain profits
pertains to the wisdom of a political act not ordinarily justiciable before this Court. Still, the
overriding adherence of the Constitution to the regalian doctrine should be given due respect, and
an interpretation allowing "beneficial ownership" by the foreign corporation should not be favored.
For purposes of the present judicial review, I would consider it prudent to limit myself to conceding
that the Court had previously erred in invalidating certain provisions of Rep. Act No. 7942 and the
WMC FTAA on the mistaken notion that the law and the agreement cede beneficial ownership of
mineral resources to a foreign corporation.
Section 4 of Rep. Act No. 7942 expressly recognizes State ownership over mineral resources,
though it is silent on the operational terms of such ownership. Of course, such general submission
would not be in itself curative of whatever contraventions to State ownership are contained in the
same law; hence, the need for deeper inquiry.
The dissenters wish to strike down the second paragraph of Section 81 of Rep. Act No. 7942
because it purportedly precludes the Government from obtaining profits under the agreement from
sources other than its share in taxation. However, as the ponencia points out, the phrase "among
other things" sufficiently allows the government from demanding a share in the cash flow or
earnings of the mining enterprise. A contrary view is anchored on a rule of statutory construction
that concludes that "among other things" refers only to taxes. Yet, there is also a rule of
construction that laws should be interpreted with a view of upholding rather than destroying it.
Thus, the ponencia's formulation, which achieves the result of the minority without need of
statutory invalidation, is highly preferable.
The provisions of Rep. Act No. 7942 which authorize the conversion of a financial or technical
assistance into a mineral production sharing agreement (MPSA) turned out to be just as
controversial. In this regard, the minority wishes to strike down Section 39, which in conjunction
with Sections 80 and 84 of the law would purportedly allow such conversion, in that it would
effectively limit the government share in the profits to only the excise tax on mineral products
under internal revenue law.
These concerns are valid and raise troubling questions. Yet equally troubling is that the Court is
being called upon to rule on a premature question. There is no such creature yet as an FTAA
converted into an MPSA, and so there is no occasion that calls for the application of Sections 39,
80 and 84. I do not subscribe to judicial pre-emptive strikes, as they preclude the application of still

undisclosed considerations which may prove illuminating and even crucial to the proper disposition
of the case. By seeking invalidation of these "MPSA provisions," the Court is also asked to strike
down an enactment of a co-equal branch which has not given rise to an actual case or
controversy. After all, such enactment deserves due respect from this branch of government.
Assuming that the provisions are indeed invalid, the Court will not hesitate, at the proper time, to
strike them down or at least impose a proper interpretation that does not run afoul of the
Constitution.27 However, in the absence of any actual attempt to convert an FTAA to an MPSA, the
time is not now.
I likewise agree with the ponencia that Section 7.9 deprives the State of its rightful share as an
incident of ownership without offsetting compensation. The provisions of the FTAA are fair game
for judicial review considering their present applicability. In fact, the invalidation of Section 7.9
becomes even more proper now under the circumstances since the provision has become
effectual considering the sale of the foreign equity in WMCP to a domestic corporation. It is within
the competence of this Court to invalidate Section 7.9 here and now. For that matter, Section
7.8(e) of the FTAA may be similarly invalidated as it can already serve to unduly deprive the
Government of its proper share by allowing double recovery by WMC.
"Full Control and Supervision" of the State
The matter of "full control and supervision" emerges just as controversial. Does this grant of power
mandate that the State exercise management over the activity, or exclude the exercise of
managerial control by the foreign corporation?
I don't think it proper to construe the word "full" as implying that such control or supervision may
not be at all yielded or delegated, for reasons I shall elaborate upon. Instead, "full" should be read
as pertaining to the encompassing scope of the concerns of the State relating to the extractive
enterprises on which it may interfere or impose its will.
It must be conceded that whichever party obtains managerial control must be allowed
considerable elbow room in the exercise of management prerogatives. Management is in the most
informed position to make resources productive in the pursuit of the enterprise's objectives.28 In
this age of specialization, corporations have benefited with the devolution of operational control to
specialists, rather than generalists. The era of the buccaneer entrepreneur chartering his industry
solely on gut feel is over. The vagaries of international finance have dictated that prudent
capitalists cede to the opinion of their experts who are hired because they trained within their
particular fields to know better than the persons who employ them. The Constitution does not
prescribe a particular manner of management; thus, we can conclude that the State is not
compelled to adopt outmoded methods that could tend to minimize profits.
Still, the question as to who should exercise management is best left to the parties of the
agreement, namely the President and the foreign corporations. They would be in the best position
to determine who is best qualified to exert managerial control. This prerogative of management
can be exercised by the State if it so insists and the co-parties agree, and the wisdom of such
arrogation is ultimately a policy question this Court has little control over. And even if the State
cedes management to a different entity such as the foreign corporation, it has the duty to
safeguard that the actual exercise of managerial power does not contravene our laws and
public policy.
There is barely any support of the view that only the State may exert managerial control. Even the
minority concede that these foreign corporations are not precluded from participating in the
management of the project. I think it unwise to construe "full supervision and control" to the effect
that the State's assent or opinion is necessary before any day-to-day operational questions may
be resolved. There is neither an express rule to that effect, nor any law of construction that
necessitates such interpretation. Ideally of course, the most qualified party should be allowed to
manage the enterprise, and we should not allow an interpretation that compels a possibly unsuited

entity, such as the State, to operationalize the business.29 Such a limited construction would be
inconvenient and absurd,30 not to mention potentially wasteful.
The Constitution itself concedes that the State may not have the best sense as to how to
undertake large-scale exploration, development and utilization of mineral and petroleum
resources. This is evinced by the allowance of foreign technical assistance and foreign
participation in the extractive enterprise. Had the Constitution recognized that the State was
supremely qualified to undertake the operational aspects of the activity, then it could have phrased
the provision in such a way that would strictly limit the foreign participation to monetary investment
or a financial grant of assistance.
The absence of an express provision on management permits consideration of the following
sensible critique on yielding too many management prerogatives to a remote overseer such as the
State. An early United Nations report once noted that while it is theoretically possible to endow a
government department with a high degree of operating flexibility, it is in practice difficult to do
so.31 It has been proposed that the further away a decision-maker is to the market, the higher the
information cost, or the opportunity cost to the gaining of information. 32Remoteness can be
achieved through the layering of bureaucratic structure, and because of the information loss that
accompanies the transmission of information and judgments from lower levels of the hierarchy to
higher levels, the ultimate basis of a decision may be misleading at best and erroneous at worst.33
The same conclusion arises from the view that what the provision authorizes is foreign investment.
The foreign player necessarily at least has a reasonable say in how the mining venture is run. The
interest of the investor in seeing that the investment is not wasted should be recognized not only
as a right available to the investor, but from the broader view that such say would lead to a more
prudent management of the project. It must be noted that mineral and petroleum resources are
non-renewable, thus a paramount interest arises to ensure against wasteful exploitation.
Next for consideration is the situation, as in this case, if management is ceded to the foreign
corporation, or even to a private domestic corporation for that matter. What should be the proper
dichotomy, if any, between the private entity's exercise of managerial control, and the State's full
control and supervision?
The President may insist on conditions into the agreement pertaining to the State's degree of
control and supervision in the mining activity. This was certainly done with the WMC FTAA, which
is replete with stipulations delineating the State's control which are judicially enforceable, imposed
presumably at the President's call. But the FTAA itself is not the only vehicle by which State control
and supervision is exercised. These can similarly be enforced through statutes, as well as
executive or administrative issuances. The Mining Act itself is an expression of State control and
supervision, implemented in coordination with the executive and legislative branches.

disasters or nuisances to the affected communities. The power of the State to enforce its police
powers needs no statutory grant and are certainly not limited either by the Mining Act or the WMC
FTAA.
As to "business decisions," I think that the State may exercise control for the purpose of ensuring
profit of the enterprise as a whole. This may involve visitorial activity, the conduct of periodic
audits, and such powers normally attributed to an overseer of a business. Just as the foreign
corporation is expected to guard against waste of financial capital, the State is expected likewise
to guard against the waste of resource capital.
I might as well add that, in my view, the constitutional objective of maintaining full control and
supervision over the exploration, development and utilization of the country's mineral resources in
the State would be best served by the creation of a public corporation for the development and
utilization of these resources, accountable to the State for all actions in its behalf. The device of a
corporation properly utilized provides sufficient protection to the State's interests while affording
flexibility and efficiency in the conduct of mining operations.34
The creation of a public corporation could remedy a number of potential problems regarding full
State control and supervision of extractive activities concerning our mineral resources by entities
which have the funds and/or technical know-how but which cannot have a great degree of control
and supervision over such activities. Persons knowledgeable and competent in mining operations
may sit in the corporation's board of directors and craft policies which implement and further
concretize the broad aims of R.A. No. 7942, taking into consideration the nature of the mining
industry. The Board would also be in charge of studying existing contracts for mining activities, and
approving proposed contracts. The Board may also employ corporate officers and employees to
take charge of the day-to-day operations of the mining activities pursuant to the corporation's
contracts with other entities.
Under such a scheme, the perceived abdication by the State of control and supervision over
mining activities in favor of the foreign entities rendering financial and/or technical assistance
would be greatly diminished. It would be the public corporation which would principally undertake
mining activities and contract with foreign entities for financial and/or technical assistance if
necessary. The foreign contractor in such cases would not have the power to determine the course
of the project or the major policies involved therein because these functions would belong to the
public corporation as the agent of the State.
A public corporation would also have the additional benefit of compelling the input of not only the
executive branch, but also that of the legislative. Such executive-legislative coordination is
necessary since public corporations may only be created through statute.
Section 3.3 of WMC FTAA Constitutional

As a general point, I believe that State control and supervision is unconstitutionally yielded if either
of the Mining Act or the FTAA precludes the application of the laws and regulations of the
Philippines, enunciatory as they are of State policy. Neither the Mining Act nor the WMC FTAA are
flawed in that regard. The agreements under contemplation are not beyond the ambit of our
regular laws, or regulatory enactments pertaining to such areas as environmental concerns.
Violations of these laws uttered in the name of the FTAA are punishable in this jurisdiction.
Still, the fact that the Constitution requires "full control and supervision" indicates an expectation
of a more activist role on the part of the State in the operations of the mining enterprise, perhaps
to the prejudice of the laissez-fairecapitalist. Most importantly, the State cannot abdicate its
traditional functions by contractual limitations. It could compel the mining operations to comply with
existing environmental regulations, as well as with future issuances. It may compel the foreign
corporation payment of all assessable levies. It may evict officers of the foreign corporation for
violation of immigration laws. It may preclude mining operations that affect prerogatives granted by
law to indigenous peoples. It could restrict particular mining operations which are established to be

Finally, it is argued that Section 3.3 of the WMC FTAA violates paragraph 1, Section 2, Article XII
of the Constitution, which imposes a limitation on the term of mineral agreements. I agree with
the ponencia that the constitutional provision does not pertain to FTAAs. It is clear from reading
Section 1 that the agreements limited in term therein are co-production agreements, joint venture
agreements, and mineral production-sharing agreements, which are all referred to in Section 1,
and not the FTAAs mentioned only in Section 4. Accordingly, Section 3.3 of the WMC FTAA is not
infirm.
Epilogue
Behind the legal issues presented by the petition are fundamental policy questions from which
highly opinionated views can develop, even from the members of this Court. The promise brought
about by the large-scale exploitation of our mineral and petroleum resources may bring in much

needed revenue, but Filipinos should properly inquire at what cost. As a Filipino, I am distressed
whenever the government crosses the line from cooperation to subservience to foreign partners in
development. Popular Western wisdom aside, what is good for General Motors is not necessarily
good for the country. The propagation of a foreign-influenced mining industry may lead to a whole
slew of social problems35 which shall be exacerbated if the government is complicit, either through
active participation or benign neglect, to abuses committed by the mining industry against the
Filipino people. Unlike the foreign corporation, the bottom line which the State should consider is
not found below a ledger, but in the socio-economic dynamic that will confront the government as
a result of the large-scale mining venture. Political capital is more fickle than financial capital.
Still, the right to vote I exercise today is that as of a member of the Court, and not that of the
general electorate. The limits of judicial power would exasperate any well-meaning judge who
feels duty-bound to affirm a constitutionally valid law or principle he or she may otherwise disagree
with. My views on how the government should act are segregate from my view on whether the
government has the power to act at all.
My conclusions are borne out of a close textual analysis of Section 2 in light of my fundamental
understanding of the constitutional powers of the executive branch. This is in line with my
perception of the judicial duty as being limited to charting the scope and boundaries of the law.
The philosophy of inclusiveness that drives my interpretation of Section 2 is bolstered not because
it might lead to benefits to the economy, but because it gives due regard to the discretion of the
Executive to determine what is good for the economy. This judicial attitude may not always ensure
the economic good. But before we carve that judicial path out of what we believe are good
intentions, restraint is imperative out of due deference to our co-equal branches, since the duty of
formulating and implementing economic policies falls exclusively within their purview.
In view of the foregoing, I concur with the opinion of Justice Panganiban.

CASTRO, JOHANNA DESAMPARADO,

minor, represented by her parents JOSE and ANGELA DESAMPRADO, CARLO JOAQUIN T.
NARVASA, minor, represented by his parents GREGORIO II and CRISTINE CHARITY
NARVASA, MA. MARGARITA, JESUS IGNACIO, MA. ANGELA and MARIE GABRIELLE, all
surnamed SAENZ, minors, represented by their parents ROBERTO and AURORA SAENZ,
KRISTINE, MARY ELLEN, MAY, GOLDA MARTHE and DAVID IAN, all surnamed KING,
minors, represented by their parents MARIO and HAYDEE KING, DAVID, FRANCISCO and
THERESE VICTORIA, all surnamed ENDRIGA, minors, represented by their parents
BALTAZAR and TERESITA ENDRIGA, JOSE MA. and REGINA MA., all surnamed ABAYA,
minors, represented by their parents ANTONIO and MARICA ABAYA, MARILIN, MARIO, JR.
and MARIETTE, all surnamed CARDAMA, minors, represented by their parents MARIO and
LINA CARDAMA, CLARISSA, ANN MARIE, NAGEL, and IMEE LYN, all surnamed OPOSA,
minors and represented by their parents RICARDO and MARISSA OPOSA, PHILIP JOSEPH,
STEPHEN JOHN and ISAIAH JAMES, all surnamed QUIPIT, minors, represented by their
parents JOSE MAX and VILMI QUIPIT, BUGHAW CIELO, CRISANTO, ANNA, DANIEL and
FRANCISCO, all surnamed BIBAL, minors, represented by their parents FRANCISCO, JR.
and MILAGROS BIBAL, and THE PHILIPPINE ECOLOGICAL NETWORK, INC., petitioners,
vs.
THE HONORABLE FULGENCIO S. FACTORAN, JR., in his capacity as the Secretary of the
Department of Environment and Natural Resources, and THE HONORABLE ERIBERTO U.
ROSARIO, Presiding Judge of the RTC, Makati, Branch 66, respondents.
Oposa Law Office for petitioners.
The Solicitor General for respondents.
DAVIDE, JR., J.:
In a broader sense, this petition bears upon the right of Filipinos to a balanced and healthful
ecology which the petitioners dramatically associate with the twin concepts of "inter-generational
responsibility" and "inter-generational justice." Specifically, it touches on the issue of whether the
said petitioners have a cause of action to "prevent the misappropriation or impairment" of
Philippine rainforests and "arrest the unabated hemorrhage of the country's vital life support
systems and continued rape of Mother Earth."

G.R. No. 101083 July 30, 1993

JUAN ANTONIO, ANNA ROSARIO and JOSE ALFONSO, all surnamed OPOSA, minors, and
represented by their parents ANTONIO and RIZALINA OPOSA, ROBERTA NICOLE SADIUA,
minor, represented by her parents CALVIN and ROBERTA SADIUA, CARLO, AMANDA
SALUD and PATRISHA, all surnamed FLORES, minors and represented by their parents
ENRICO and NIDA FLORES, GIANINA DITA R. FORTUN, minor, represented by her parents
SIGRID and DOLORES FORTUN, GEORGE II and MA. CONCEPCION, all surnamed MISA,
minors and represented by their parents GEORGE and MYRA MISA, BENJAMIN ALAN V.
PESIGAN, minor, represented by his parents ANTONIO and ALICE PESIGAN, JOVIE MARIE
ALFARO, minor, represented by her parents JOSE and MARIA VIOLETA ALFARO, MARIA
CONCEPCION T. CASTRO, minor, represented by her parents FREDENIL and JANE

The controversy has its genesis in Civil Case No. 90-77 which was filed before Branch 66 (Makati,
Metro Manila) of the Regional Trial Court (RTC), National Capital Judicial Region. The principal
plaintiffs therein, now the principal petitioners, are all minors duly represented and joined by their
respective parents. Impleaded as an additional plaintiff is the Philippine Ecological Network, Inc.
(PENI), a domestic, non-stock and non-profit corporation organized for the purpose of, inter alia,
engaging in concerted action geared for the protection of our environment and natural resources.
The original defendant was the Honorable Fulgencio S. Factoran, Jr., then Secretary of the
Department of Environment and Natural Resources (DENR). His substitution in this petition by the
new Secretary, the Honorable Angel C. Alcala, was subsequently ordered upon proper motion by
the petitioners. 1 The complaint 2 was instituted as a taxpayers' class suit 3 and alleges that the
plaintiffs "are all citizens of the Republic of the Philippines, taxpayers, and entitled to the full
benefit, use and enjoyment of the natural resource treasure that is the country's virgin tropical
forests." The same was filed for themselves and others who are equally concerned about the
preservation of said resource but are "so numerous that it is impracticable to bring them all before
the Court." The minors further asseverate that they "represent their generation as well as
generations yet unborn." 4 Consequently, it is prayed for that judgment be rendered:

. . . ordering defendant, his agents, representatives and other persons acting

in his behalf to

8. Twenty-five (25) years ago, the Philippines had some sixteen (16) million
hectares of rainforests constituting roughly 53% of the country's land mass.

(1) Cancel all existing timber license agreements in the country;

9. Satellite images taken in 1987 reveal that there remained no more than 1.2
million hectares of said rainforests or four per cent (4.0%) of the country's land
area.

(2) Cease and desist from receiving, accepting, processing, renewing or

approving new timber license agreements.
and granting the plaintiffs ". . . such other reliefs just and equitable under the premises." 5
The complaint starts off with the general averments that the Philippine archipelago of 7,100 islands
has a land area of thirty million (30,000,000) hectares and is endowed with rich, lush and verdant
rainforests in which varied, rare and unique species of flora and fauna may be found; these
rainforests contain a genetic, biological and chemical pool which is irreplaceable; they are also the
habitat of indigenous Philippine cultures which have existed, endured and flourished since time
immemorial; scientific evidence reveals that in order to maintain a balanced and healthful ecology,
the country's land area should be utilized on the basis of a ratio of fifty-four per cent (54%) for
forest cover and forty-six per cent (46%) for agricultural, residential, industrial, commercial and
other uses; the distortion and disturbance of this balance as a consequence of deforestation have
resulted in a host of environmental tragedies, such as (a) water shortages resulting from drying up
of the water table, otherwise known as the "aquifer," as well as of rivers, brooks and streams, (b)
salinization of the water table as a result of the intrusion therein of salt water, incontrovertible
examples of which may be found in the island of Cebu and the Municipality of Bacoor, Cavite, (c)
massive erosion and the consequential loss of soil fertility and agricultural productivity, with the
volume of soil eroded estimated at one billion (1,000,000,000) cubic meters per annum
approximately the size of the entire island of Catanduanes, (d) the endangering and extinction of
the country's unique, rare and varied flora and fauna, (e) the disturbance and dislocation of cultural
communities, including the disappearance of the Filipino's indigenous cultures, (f) the siltation of
rivers and seabeds and consequential destruction of corals and other aquatic life leading to a
critical reduction in marine resource productivity, (g) recurrent spells of drought as is presently
experienced by the entire country, (h) increasing velocity of typhoon winds which result from the
absence of windbreakers, (i) the floodings of lowlands and agricultural plains arising from the
absence of the absorbent mechanism of forests, (j) the siltation and shortening of the lifespan of
multi-billion peso dams constructed and operated for the purpose of supplying water for domestic
uses, irrigation and the generation of electric power, and (k) the reduction of the earth's capacity to
process carbon dioxide gases which has led to perplexing and catastrophic climatic changes such
as the phenomenon of global warming, otherwise known as the "greenhouse effect."
Plaintiffs further assert that the adverse and detrimental consequences of continued and
deforestation are so capable of unquestionable demonstration that the same may be submitted as
a matter of judicial notice. This notwithstanding, they expressed their intention to present expert
witnesses as well as documentary, photographic and film evidence in the course of the trial.
As their cause of action, they specifically allege that:

10. More recent surveys reveal that a mere 850,000 hectares of virgin oldgrowth rainforests are left, barely 2.8% of the entire land mass of the
Philippine archipelago and about 3.0 million hectares of immature and
uneconomical secondary growth forests.
11. Public records reveal that the defendant's, predecessors have granted
timber license agreements ('TLA's') to various corporations to cut the
aggregate area of 3.89 million hectares for commercial logging purposes.
A copy of the TLA holders and the corresponding areas covered is hereto
attached as Annex "A".
12. At the present rate of deforestation, i.e. about 200,000 hectares per
annum or 25 hectares per hour nighttime, Saturdays, Sundays and
holidays included the Philippines will be bereft of forest resources after the
end of this ensuing decade, if not earlier.
13. The adverse effects, disastrous consequences, serious injury and
irreparable damage of this continued trend of deforestation to the plaintiff
minor's generation and to generations yet unborn are evident and
incontrovertible. As a matter of fact, the environmental damages enumerated
in paragraph 6 hereof are already being felt, experienced and suffered by the
generation of plaintiff adults.
14. The continued allowance by defendant of TLA holders to cut and deforest
the remaining forest stands will work great damage and irreparable injury to
plaintiffs especially plaintiff minors and their successors who may never
see, use, benefit from and enjoy this rare and unique natural resource
treasure.
This act of defendant constitutes a misappropriation and/or impairment of the
natural resource property he holds in trust for the benefit of plaintiff minors
and succeeding generations.
15. Plaintiffs have a clear and constitutional right to a balanced and healthful
ecology and are entitled to protection by the State in its capacity as
the parens patriae.

CAUSE OF ACTION
7. Plaintiffs replead by reference the foregoing allegations.

16. Plaintiff have exhausted all administrative remedies with the defendant's
office. On March 2, 1990, plaintiffs served upon defendant a final demand to
cancel all logging permits in the country.

A copy of the plaintiffs' letter dated March 1, 1990 is hereto attached as Annex
"B".
17. Defendant, however, fails and refuses to cancel the existing TLA's to the
continuing serious damage and extreme prejudice of plaintiffs.
18. The continued failure and refusal by defendant to cancel the TLA's is an
act violative of the rights of plaintiffs, especially plaintiff minors who may be
left with a country that is desertified (sic), bare, barren and devoid of the
wonderful flora, fauna and indigenous cultures which the Philippines had been
abundantly blessed with.
19. Defendant's refusal to cancel the aforementioned TLA's is manifestly
contrary to the public policy enunciated in the Philippine Environmental Policy
which, in pertinent part, states that it is the policy of the State
(a) to create, develop, maintain and improve conditions under which man and
nature can thrive in productive and enjoyable harmony with each other;
(b) to fulfill the social, economic and other requirements of present and future
generations of Filipinos and;
(c) to ensure the attainment of an environmental quality that is conductive to a
life of dignity and well-being. (P.D. 1151, 6 June 1977)
20. Furthermore, defendant's continued refusal to cancel the aforementioned
TLA's is contradictory to the Constitutional policy of the State to
a. effect "a more equitable distribution of opportunities, income and wealth"
and "make full and efficient use of natural resources (sic)." (Section 1, Article
XII of the Constitution);
b. "protect the nation's marine wealth." (Section 2, ibid);
c. "conserve and promote the nation's cultural heritage and resources (sic)"
(Section 14, Article XIV,id.);
d. "protect and advance the right of the people to a balanced and healthful
ecology in accord with the rhythm and harmony of nature." (Section 16, Article
II, id.)
21. Finally, defendant's act is contrary to the highest law of humankind the
natural law and violative of plaintiffs' right to self-preservation and
perpetuation.
22. There is no other plain, speedy and adequate remedy in law other than
the instant action to arrest the unabated hemorrhage of the country's vital life
support systems and continued rape of Mother Earth. 6

On 22 June 1990, the original defendant, Secretary Factoran, Jr., filed a Motion to Dismiss the
complaint based on two (2) grounds, namely: (1) the plaintiffs have no cause of action against him
and (2) the issue raised by the plaintiffs is a political question which properly pertains to the
legislative or executive branches of Government. In their 12 July 1990 Opposition to the Motion,
the petitioners maintain that (1) the complaint shows a clear and unmistakable cause of action, (2)
the motion is dilatory and (3) the action presents a justiciable question as it involves the
defendant's abuse of discretion.
On 18 July 1991, respondent Judge issued an order granting the aforementioned motion to
dismiss. 7 In the said order, not only was the defendant's claim that the complaint states no
cause of action against him and that it raises a political question sustained, the respondent
Judge further ruled that the granting of the relief prayed for would result in the impairment of
contracts which is prohibited by the fundamental law of the land.
Plaintiffs thus filed the instant special civil action for certiorari under Rule 65 of the Revised Rules
of Court and ask this Court to rescind and set aside the dismissal order on the ground that the
respondent Judge gravely abused his discretion in dismissing the action. Again, the parents of the
plaintiffs-minors not only represent their children, but have also joined the latter in this case. 8
On 14 May 1992, We resolved to give due course to the petition and required the parties to submit
their respective Memoranda after the Office of the Solicitor General (OSG) filed a Comment in
behalf of the respondents and the petitioners filed a reply thereto.
Petitioners contend that the complaint clearly and unmistakably states a cause of action as it
contains sufficient allegations concerning their right to a sound environment based on Articles 19,
20 and 21 of the Civil Code (Human Relations), Section 4 of Executive Order (E.O.) No. 192
creating the DENR, Section 3 of Presidential Decree (P.D.) No. 1151 (Philippine Environmental
Policy), Section 16, Article II of the 1987 Constitution recognizing the right of the people to a
balanced and healthful ecology, the concept of generational genocide in Criminal Law and the
concept of man's inalienable right to self-preservation and self-perpetuation embodied in natural
law. Petitioners likewise rely on the respondent's correlative obligation per Section 4 of E.O. No.
192, to safeguard the people's right to a healthful environment.
It is further claimed that the issue of the respondent Secretary's alleged grave abuse of discretion
in granting Timber License Agreements (TLAs) to cover more areas for logging than what is
available involves a judicial question.
Anent the invocation by the respondent Judge of the Constitution's non-impairment clause,
petitioners maintain that the same does not apply in this case because TLAs are not contracts.
They likewise submit that even if TLAs may be considered protected by the said clause, it is well
settled that they may still be revoked by the State when the public interest so requires.
On the other hand, the respondents aver that the petitioners failed to allege in their complaint a
specific legal right violated by the respondent Secretary for which any relief is provided by law.
They see nothing in the complaint but vague and nebulous allegations concerning an
"environmental right" which supposedly entitles the petitioners to the "protection by the state in its
capacity as parens patriae." Such allegations, according to them, do not reveal a valid cause of
action. They then reiterate the theory that the question of whether logging should be permitted in
the country is a political question which should be properly addressed to the executive or
legislative branches of Government. They therefore assert that the petitioners' resources is not to

file an action to court, but to lobby before Congress for the passage of a bill that would ban logging
totally.
As to the matter of the cancellation of the TLAs, respondents submit that the same cannot be done
by the State without due process of law. Once issued, a TLA remains effective for a certain period
of time usually for twenty-five (25) years. During its effectivity, the same can neither be revised
nor cancelled unless the holder has been found, after due notice and hearing, to have violated the
terms of the agreement or other forestry laws and regulations. Petitioners' proposition to have all
the TLAs indiscriminately cancelled without the requisite hearing would be violative of the
requirements of due process.
Before going any further, We must first focus on some procedural matters. Petitioners instituted
Civil Case No. 90-777 as a class suit. The original defendant and the present respondents did not
take issue with this matter. Nevertheless, We hereby rule that the said civil case is indeed a class
suit. The subject matter of the complaint is of common and general interest not just to several, but
to all citizens of the Philippines. Consequently, since the parties are so numerous, it, becomes
impracticable, if not totally impossible, to bring all of them before the court. We likewise declare
that the plaintiffs therein are numerous and representative enough to ensure the full protection of
all concerned interests. Hence, all the requisites for the filing of a valid class suit under Section 12,
Rule 3 of the Revised Rules of Court are present both in the said civil case and in the instant
petition, the latter being but an incident to the former.
This case, however, has a special and novel element. Petitioners minors assert that they represent
their generation as well as generations yet unborn. We find no difficulty in ruling that they can, for
themselves, for others of their generation and for the succeeding generations, file a class suit.
Their personality to sue in behalf of the succeeding generations can only be based on the concept
of intergenerational responsibility insofar as the right to a balanced and healthful ecology is
concerned. Such a right, as hereinafter expounded, considers
the "rhythm and harmony of nature." Nature means the created world in its entirety. 9 Such rhythm
and harmony indispensably include, inter alia, the judicious disposition, utilization, management,
renewal and conservation of the country's forest, mineral, land, waters, fisheries, wildlife, off-shore
areas and other natural resources to the end that their exploration, development and utilization be
equitably accessible to the present as well as future generations. 10 Needless to say, every
generation has a responsibility to the next to preserve that rhythm and harmony for the full
enjoyment of a balanced and healthful ecology. Put a little differently, the minors' assertion of their
right to a sound environment constitutes, at the same time, the performance of their obligation to
ensure the protection of that right for the generations to come.

After a careful and circumspect evaluation of the Complaint, the Court cannot
help but agree with the defendant. For although we believe that plaintiffs have
but the noblest of all intentions, it (sic) fell short of alleging, with sufficient
definiteness, a specific legal right they are seeking to enforce and protect, or a
specific legal wrong they are seeking to prevent and redress (Sec. 1, Rule 2,
RRC). Furthermore, the Court notes that the Complaint is replete with vague
assumptions and vague conclusions based on unverified data. In fine,
plaintiffs fail to state a cause of action in its Complaint against the herein
defendant.
Furthermore, the Court firmly believes that the matter before it, being
impressed with political color and involving a matter of public policy, may not
be taken cognizance of by this Court without doing violence to the sacred
principle of "Separation of Powers" of the three (3) co-equal branches of the
Government.
The Court is likewise of the impression that it cannot, no matter how we
stretch our jurisdiction, grant the reliefs prayed for by the plaintiffs, i.e., to
cancel all existing timber license agreements in the country and to cease and
desist from receiving, accepting, processing, renewing or approving new
timber license agreements. For to do otherwise would amount to "impairment
of contracts" abhored (sic) by the fundamental law. 11
We do not agree with the trial court's conclusions that the plaintiffs failed to allege with sufficient
definiteness a specific legal right involved or a specific legal wrong committed, and that the
complaint is replete with vague assumptions and conclusions based on unverified data. A reading
of the complaint itself belies these conclusions.
The complaint focuses on one specific fundamental legal right the right to a balanced and
healthful ecology which, for the first time in our nation's constitutional history, is solemnly
incorporated in the fundamental law. Section 16, Article II of the 1987 Constitution explicitly
provides:
Sec. 16. The State shall protect and advance the right of the people to a
balanced and healthful ecology in accord with the rhythm and harmony of
nature.

The locus standi of the petitioners having thus been addressed, We shall now proceed to the
merits of the petition.

This right unites with the right to health which is provided for in the preceding
section of the same article:

After a careful perusal of the complaint in question and a meticulous consideration and evaluation
of the issues raised and arguments adduced by the parties, We do not hesitate to find for the
petitioners and rule against the respondent Judge's challenged order for having been issued with
grave abuse of discretion amounting to lack of jurisdiction. The pertinent portions of the said order
reads as follows:

Sec. 15. The State shall protect and promote the right to health of the people
and instill health consciousness among them.

xxx xxx xxx

While the right to a balanced and healthful ecology is to be found under the Declaration of
Principles and State Policies and not under the Bill of Rights, it does not follow that it is less
important than any of the civil and political rights enumerated in the latter. Such a right belongs to
a different category of rights altogether for it concerns nothing less than self-preservation and selfperpetuation aptly and fittingly stressed by the petitioners the advancement of which may
even be said to predate all governments and constitutions. As a matter of fact, these basic rights
need not even be written in the Constitution for they are assumed to exist from the inception of

humankind. If they are now explicitly mentioned in the fundamental charter, it is because of the
well-founded fear of its framers that unless the rights to a balanced and healthful ecology and to
health are mandated as state policies by the Constitution itself, thereby highlighting their
continuing importance and imposing upon the state a solemn obligation to preserve the first and
protect and advance the second, the day would not be too far when all else would be lost not only
for the present generation, but also for those to come generations which stand to inherit nothing
but parched earth incapable of sustaining life.
The right to a balanced and healthful ecology carries with it the correlative duty to refrain from
impairing the environment. During the debates on this right in one of the plenary sessions of the
1986 Constitutional Commission, the following exchange transpired between Commissioner
Wilfrido Villacorta and Commissioner Adolfo Azcuna who sponsored the section in question:
MR. VILLACORTA:
Does this section mandate the State to provide sanctions
against all forms of pollution air, water and noise
pollution?
MR. AZCUNA:
Yes, Madam President. The right to healthful (sic)
environment necessarily carries with it the correlative duty
of not impairing the same and, therefore, sanctions may
be provided for impairment of environmental balance. 12
The said right implies, among many other things, the judicious management and conservation of
the country's forests.
Without such forests, the ecological or environmental balance would be irreversiby
disrupted.
Conformably with the enunciated right to a balanced and healthful ecology and the right to health,
as well as the other related provisions of the Constitution concerning the conservation,
development and utilization of the country's natural resources, 13 then President Corazon C.
Aquino promulgated on 10 June 1987 E.O. No. 192, 14 Section 4 of which expressly mandates that
the Department of Environment and Natural Resources "shall be the primary government agency
responsible for the conservation, management, development and proper use of the country's
environment and natural resources, specifically forest and grazing lands, mineral, resources,
including those in reservation and watershed areas, and lands of the public domain, as well as the
licensing and regulation of all natural resources as may be provided for by law in order to ensure
equitable sharing of the benefits derived therefrom for the welfare of the present and future
generations of Filipinos." Section 3 thereof makes the following statement of policy:
Sec. 3. Declaration of Policy. It is hereby declared the policy of the State to
ensure the sustainable use, development, management, renewal, and
conservation of the country's forest, mineral, land, off-shore areas and other
natural resources, including the protection and enhancement of the quality of
the environment, and equitable access of the different segments of the

population to the development and the use of the country's natural resources,
not only for the present generation but for future generations as well. It is also
the policy of the state to recognize and apply a true value system including
social and environmental cost implications relative to their utilization,
development and conservation of our natural resources.
This policy declaration is substantially re-stated it Title XIV, Book IV of the Administrative Code of
1987, 15specifically in Section 1 thereof which reads:
Sec. 1. Declaration of Policy. (1) The State shall ensure, for the benefit of
the Filipino people, the full exploration and development as well as the
judicious disposition, utilization, management, renewal and conservation of
the country's forest, mineral, land, waters, fisheries, wildlife, off-shore areas
and other natural resources, consistent with the necessity of maintaining a
sound ecological balance and protecting and enhancing the quality of the
environment and the objective of making the exploration, development and
utilization of such natural resources equitably accessible to the different
segments of the present as well as future generations.
(2) The State shall likewise recognize and apply a true value system that
takes into account social and environmental cost implications relative to the
utilization, development and conservation of our natural resources.
The above provision stresses "the necessity of maintaining a sound ecological balance and
protecting and enhancing the quality of the environment." Section 2 of the same Title, on the other
hand, specifically speaks of the mandate of the DENR; however, it makes particular reference to
the fact of the agency's being subject to law and higher authority. Said section provides:
Sec. 2. Mandate. (1) The Department of Environment and Natural
Resources shall be primarily responsible for the implementation of the
foregoing policy.
(2) It shall, subject to law and higher authority, be in charge of carrying out the
State's constitutional mandate to control and supervise the exploration,
development, utilization, and conservation of the country's natural resources.
Both E.O. NO. 192 and the Administrative Code of 1987 have set the objectives which will serve
as the bases for policy formulation, and have defined the powers and functions of the DENR.
It may, however, be recalled that even before the ratification of the 1987 Constitution, specific
statutes already paid special attention to the "environmental right" of the present and future
generations. On 6 June 1977, P.D. No. 1151 (Philippine Environmental Policy) and P.D. No. 1152
(Philippine Environment Code) were issued. The former "declared a continuing policy of the State
(a) to create, develop, maintain and improve conditions under which man and nature can thrive in
productive and enjoyable harmony with each other, (b) to fulfill the social, economic and other
requirements of present and future generations of Filipinos, and (c) to insure the attainment of an
environmental quality that is conducive to a life of dignity and well-being." 16 As its goal, it speaks
of the "responsibilities of each generation as trustee and guardian of the environment for
succeeding generations." 17 The latter statute, on the other hand, gave flesh to the said policy.

Thus, the right of the petitioners (and all those they represent) to a balanced and healthful ecology
is as clear as the DENR's duty under its mandate and by virtue of its powers and functions
under E.O. No. 192 and the Administrative Code of 1987 to protect and advance the said right.
A denial or violation of that right by the other who has the corelative duty or obligation to respect or
protect the same gives rise to a cause of action. Petitioners maintain that the granting of the TLAs,
which they claim was done with grave abuse of discretion, violated their right to a balanced and
healthful ecology; hence, the full protection thereof requires that no further TLAs should be
renewed or granted.
A cause of action is defined as:
. . . an act or omission of one party in violation of the legal right or rights of the
other; and its essential elements are legal right of the plaintiff, correlative
obligation of the defendant, and act or omission of the defendant in violation of
said legal right. 18
It is settled in this jurisdiction that in a motion to dismiss based on the ground that the complaint
fails to state a cause of action, 19 the question submitted to the court for resolution involves the
sufficiency of the facts alleged in the complaint itself. No other matter should be considered;
furthermore, the truth of falsity of the said allegations is beside the point for the truth thereof is
deemed hypothetically admitted. The only issue to be resolved in such a case is: admitting such
alleged facts to be true, may the court render a valid judgment in accordance with the prayer in the
complaint? 20 InMilitante vs. Edrosolano, 21 this Court laid down the rule that the judiciary should
"exercise the utmost care and circumspection in passing upon a motion to dismiss on the ground
of the absence thereof [cause of action] lest, by its failure to manifest a correct appreciation of the
facts alleged and deemed hypothetically admitted, what the law grants or recognizes is effectively
nullified. If that happens, there is a blot on the legal order. The law itself stands in disrepute."
After careful examination of the petitioners' complaint, We find the statements under the
introductory affirmative allegations, as well as the specific averments under the sub-heading
CAUSE OF ACTION, to be adequate enough to show, prima facie, the claimed violation of their
rights. On the basis thereof, they may thus be granted, wholly or partly, the reliefs prayed for. It
bears stressing, however, that insofar as the cancellation of the TLAs is concerned, there is the
need to implead, as party defendants, the grantees thereof for they are indispensable parties.
The foregoing considered, Civil Case No. 90-777 be said to raise a political question. Policy
formulation or determination by the executive or legislative branches of Government is not
squarely put in issue. What is principally involved is the enforcement of a right vis-a-vis policies
already formulated and expressed in legislation. It must, nonetheless, be emphasized that the
political question doctrine is no longer, the insurmountable obstacle to the exercise of judicial
power or the impenetrable shield that protects executive and legislative actions from judicial
inquiry or review. The second paragraph of section 1, Article VIII of the Constitution states that:
Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable,
and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.

Commenting on this provision in his book, Philippine Political Law, 22 Mr. Justice Isagani A. Cruz, a
distinguished member of this Court, says:
The first part of the authority represents the traditional concept of judicial
power, involving the settlement of conflicting rights as conferred as law. The
second part of the authority represents a broadening of judicial power to
enable the courts of justice to review what was before forbidden territory, to
wit, the discretion of the political departments of the government.
As worded, the new provision vests in the judiciary, and particularly the
Supreme Court, the power to rule upon even the wisdom of the decisions of
the executive and the legislature and to declare their acts invalid for lack or
excess of jurisdiction because tainted with grave abuse of discretion. The
catch, of course, is the meaning of "grave abuse of discretion," which is a very
elastic phrase that can expand or contract according to the disposition of the
judiciary.
In Daza vs. Singson, 23 Mr. Justice Cruz, now speaking for this Court, noted:
In the case now before us, the jurisdictional objection becomes even less
tenable and decisive. The reason is that, even if we were to assume that the
issue presented before us was political in nature, we would still not be
precluded from revolving it under the expanded jurisdiction conferred upon us
that now covers, in proper cases, even the political question. Article VII,
Section 1, of the Constitution clearly provides: . . .
The last ground invoked by the trial court in dismissing the complaint is the non-impairment of
contracts clause found in the Constitution. The court a quo declared that:
The Court is likewise of the impression that it cannot, no matter how we
stretch our jurisdiction, grant the reliefs prayed for by the plaintiffs, i.e., to
cancel all existing timber license agreements in the country and to cease and
desist from receiving, accepting, processing, renewing or approving new
timber license agreements. For to do otherwise would amount to "impairment
of contracts" abhored (sic) by the fundamental law. 24
We are not persuaded at all; on the contrary, We are amazed, if not shocked, by such a sweeping
pronouncement. In the first place, the respondent Secretary did not, for obvious reasons, even
invoke in his motion to dismiss the non-impairment clause. If he had done so, he would have acted
with utmost infidelity to the Government by providing undue and unwarranted benefits and
advantages to the timber license holders because he would have forever bound the Government
to strictly respect the said licenses according to their terms and conditions regardless of changes
in policy and the demands of public interest and welfare. He was aware that as correctly pointed
out by the petitioners, into every timber license must be read Section 20 of the Forestry Reform
Code (P.D. No. 705) which provides:
. . . Provided, That when the national interest so requires, the President may
amend, modify, replace or rescind any contract, concession, permit, licenses
or any other form of privilege granted herein . . .

Needless to say, all licenses may thus be revoked or rescinded by executive action. It is
not a contract, property or a property right protested by the due process clause of the
Constitution. In Tan vs. Director of Forestry, 25 this Court held:
. . . A timber license is an instrument by which the State regulates the
utilization and disposition of forest resources to the end that public welfare is
promoted. A timber license is not a contract within the purview of the due
process clause; it is only a license or privilege, which can be validly withdrawn
whenever dictated by public interest or public welfare as in this case.
A license is merely a permit or privilege to do what otherwise would be
unlawful, and is not a contract between the authority, federal, state, or
municipal, granting it and the person to whom it is granted; neither is it
property or a property right, nor does it create a vested right; nor is it taxation
(37 C.J. 168). Thus, this Court held that the granting of license does not
create irrevocable rights, neither is it property or property rights (People vs.
Ong Tin, 54 O.G. 7576).

Nevertheless, granting further that a law has actually been passed mandating cancellations or
modifications, the same cannot still be stigmatized as a violation of the non-impairment clause.
This is because by its very nature and purpose, such as law could have only been passed in the
exercise of the police power of the state for the purpose of advancing the right of the people to a
balanced and healthful ecology, promoting their health and enhancing the general welfare. In Abe
vs. Foster Wheeler
Corp. 28 this Court stated:
The freedom of contract, under our system of government, is not meant to be
absolute. The same is understood to be subject to reasonable legislative
regulation aimed at the promotion of public health, moral, safety and welfare.
In other words, the constitutional guaranty of non-impairment of obligations of
contract is limited by the exercise of the police power of the State, in the
interest of public health, safety, moral and general welfare.
The reason for this is emphatically set forth in Nebia vs. New York, 29 quoted in Philippine
American Life Insurance Co. vs. Auditor General, 30 to wit:

We reiterated this pronouncement in Felipe Ysmael, Jr. & Co., Inc. vs. Deputy Executive
Secretary: 26
. . . Timber licenses, permits and license agreements are the principal
instruments by which the State regulates the utilization and disposition of
forest resources to the end that public welfare is promoted. And it can hardly
be gainsaid that they merely evidence a privilege granted by the State to
qualified entities, and do not vest in the latter a permanent or irrevocable right
to the particular concession area and the forest products therein. They may be
validly amended, modified, replaced or rescinded by the Chief Executive when
national interests so require. Thus, they are not deemed contracts within the
purview of the due process of law clause [See Sections 3(ee) and 20 of Pres.
Decree No. 705, as amended. Also, Tan v. Director of Forestry, G.R. No. L24548, October 27, 1983, 125 SCRA 302].

Under our form of government the use of property and the making of contracts
are normally matters of private and not of public concern. The general rule is
that both shall be free of governmental interference. But neither property
rights nor contract rights are absolute; for government cannot exist if the
citizen may at will use his property to the detriment of his fellows, or exercise
his freedom of contract to work them harm. Equally fundamental with the
private right is that of the public to regulate it in the common interest.
In short, the non-impairment clause must yield to the police power of the state.

31

Finally, it is difficult to imagine, as the trial court did, how the non-impairment clause could apply
with respect to the prayer to enjoin the respondent Secretary from receiving, accepting,
processing, renewing or approving new timber licenses for, save in cases of renewal, no contract
would have as of yet existed in the other instances. Moreover, with respect to renewal, the holder
is not entitled to it as a matter of right.

Since timber licenses are not contracts, the non-impairment clause, which reads:
Sec. 10. No law impairing, the obligation of contracts shall be passed.

27

cannot be invoked.
In the second place, even if it is to be assumed that the same are contracts, the instant case does
not involve a law or even an executive issuance declaring the cancellation or modification of
existing timber licenses. Hence, the non-impairment clause cannot as yet be invoked.

WHEREFORE, being impressed with merit, the instant Petition is hereby GRANTED, and the
challenged Order of respondent Judge of 18 July 1991 dismissing Civil Case No. 90-777 is hereby
set aside. The petitioners may therefore amend their complaint to implead as defendants the
holders or grantees of the questioned timber license agreements.
No pronouncement as to costs.
SO ORDERED.